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A case study on Zara’s Operation Management

Strategy

Mohammed Mansur RashidMBA Term –V (weekend batch)

ZERO TO ZARA

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A general modle of operations management & operation strategy

INPUT

1- FACILITIES 2- STAFF

INPUT TRASNFORMING

RESOURCES

INPUT TRANSFORMED

RESOURCES1- MATERIALS 2- INFROMATION 3- CUSTOMERS

DESIGN

PLANNING AND CONTROL

IMPROVEMENT

OPERATIONS STRATEGY

OUTPUT-

Product & services

CUSTO

ME

R

• Process design• Product & service design• Supply network design• Layout & flow• Process technology• Job design & work

organization

• Operations improvement• Failure prevention &

recovery• TQM approach• The operation challenge

• Capacity planning & control

• Inventory planning & control

• Supply chain planning & control

• Enterprise resource planning

• Lean operation & JIT• Project planning &

control• Quality planning &

control

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ZARAZara is the flagship brand of the Spanish fashion retail giant, Inditex, (Industrias de Deseno Texti S. A.)

Founded in 1975, today Zara is one of the world’s successful fashion retailers operating in 59 countries

Engaged in textile design, manufacturing and distribution .

Operates approximately 1500 stores .

Zara contributes about 2/3 of the company’s sales making it undoubtedly the firm’s growth engine

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Vision Statement

“ZARA is committed to satisfying the desires of our customers. As a result we pledge to continuously innovate our business to improve your experience. We promise to provide new designs made from quality materials that are affordable

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Mission Statement

Through Zara’s business model, we aim to contribute to the sustainable development of society and that of the environment with which we interacts.”

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Business StrategyThe success story of Zara is based upon its business strategy that fostered-- creativity, -- innovation -- Flexibility ,

This business model is what differentiate Zara from it competitors and provided them with an edge and competitive advantage both at a local as well as at an international level.

Zara defines its target market as “Young, educated one that likes fashion and is sensitive to fashion

The business strategy of Zara focuses on gaining competitive advantage over its rivals through integration of is production, manufacturing, logistics and customer handling staff.

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Competitive Strategy

Low Price Concept –Zara’s prices are affordable for people of different income class

Target customers of all ages ( upto 55 )

Fast Fashion – Trends moves from the runway to stores within weeks, as opposed to monthsCapabilities – Zara takes two weeks to design a new product & get it to stores, where as the industry standard is six monthsZara doesn’t need to forecast demand. It can respond to demand as it develops and changes . Their basic concept is to keep design, Production and process integrated to react promptly to shifts in demand of consumers

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Competitive Strategy

Information systemC

reat

ion:

Des

igne

rs &

com

mer

cial

tea

ms

Production:Purchase materials, production order, set

prices

suppliers

Fulfillment

store storestore

customers

11,000 items a

year

Twice a week

unsold

Value Chain of ZARA

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Operation Strategy

Supply Chain Management• Zara as part of the Inditex group has a very strong

distribution network. It’s product design, inventory management, evaluation of suppliers and vendors, logistics management, material management, time scheduling, information systems are the main contributors in allowing Zara to offer cutting edge fashion at affordable prices.

• Their superior supply chain management enables the retailer to deliver goods within 24 hours of the receipt of order at its European stores and 40 hours at its American and Asian outlets.Inditex’s logistics is carried out from distribution centers located in Spain.

• This competitive distribution network enables Zara to enhance its operational efficiencies and thus increase its customer satisfaction

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Operation Strategy

Design and Production-

• Zara delivers fashionable and trendy cloth addressing all tastes through a controlled design and integrated process . Designs inspiration is copied from different sources (trade fairs, catwalks, magazines)

• Zara manufactures 60% of its products. By owning its in-house production Zara is able to be flexible in the amount, frequency, and variety of new styled products.

• Zara has outsourced less manufacturing than its peers. It has 22 factories and runs many of them often only in one shift leaving extra capacity to respond quickly to seasonality and unforeseen demand.

• Comparing to peers which rely heavily on overseas suppliers/manufactures which don’t provide same flexibility as these suppliers could request orders to be placed few months in advance.

• Zara is outsourcing all the labour intensive tasks mainly the sewing, while the cutting is done in-house. This produces of saving labour cost, flexibility of meeting deadlines, keeping the designs/fashions strictly controlled

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Operation Strategy

Information System –• Zara applies technology in areas that speed up complex

tasks, lower cycle time and reduce error. • It is technology that helps Zara identify and manufacture

the clothes that customers want, get those products to the market quickly.

• Zara stores managers carry hand held Casio computers to send online information to headquarters like selling trends, customers comments, or placing orders.

• Designers send their design suggestions to factory and to distribution department by scanning a design into a computer and electronically transmit to factory computers including computers controlled cutting equipment.

• Designers input the designs patterns into CAD systems which automatically feed into the cutting machines in the factories ensuring the required quality of outputs and having a minimum fabrics waste.

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Operation Strategy

Inventory Strategy

• Zara seems fully aware of the adage: “  Inventory = Death”• The firm avoids building inventories in any part of its supply chain from raw

materials to end user. • Zara designs around 10,000 new models every year and replenishes ranges within

every one of its 650 retail stores twice per week, but in strictly limited quantities of stock. This ensures Zara’s brand promise to customers of exclusivity, and also of design freshness.

• But it also avoids build-up of large quantities of unpopular stock

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Low marketing / advertising cost

• Fashion retailers spend on average 3.5% of revenue on advertising their products, while Zara's parent company Inditex spends just 0-0.3%.

• Zara depends on word of mouth shuning advertisements. Zara relies on its stores to project its image.

• Zara has coordinators whose main task is to change the layout of the shop every week. An item that you see today at the right side of the shop next week (if not sold yet) will be displayed at some other side in some other way.

Operation Strategy

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Fashion and Variety

• Zara main competency is selling Fashion and Trendy cloth with high range of variety. Zara designers are on a constant lookout for new ideas to keep the product line fresh.

• Zara introduces 11000 new garments in a typical year. Many lines will only be available for a matter of weeks before being replaced. As per Adel Hassan (Store Manager at Zara- UAE, Burjuman center), “We do sell fashion. We ask our customers what they want, and then we give it to them.”

• Affordability “I can get a fashionable outfit at Zara at a price which is half the price of a similar design and fabrics at any branded shop in Dubai”, Daad Jumblat says..

Operation Strategy

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Speed and quick responsiveness to

Market•Zara is geared around speed and responsiveness providing fresh baked products. •Store managers communicate customer feedback on what shoppers like, what they don’t like and what they’re looking for. •That data is  instantly funneled back to Zara’s designers who begin sketching on the spot. •The responsiveness effects the customer behavior as it plays role in pushing the customer to buy quickly and have higher visits frequency as new models arrive very frequent.•This creates an environment of shortage and opportunity in Zara’s retail stores.•The environment also increases the regularity and quickness, in which consumers visit the stores and buy the products.•The usual customers know that new products are introduced every two weeks and most likely would not be available the next day. •Therefore, Zara’s scarcity background allows the company to sell more items at full price. •This strategy minimizes Zara’s total cost because it reduces the percentage of markdown merchandise compared to its competitor.

Operation Strategy

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Synergy between Business and operations strategy

• Zara’s strategy is growth through diversification with both horizontal and vertical integration. Zara copies fashion by adapting couture designs.

• It manufactures, distributes, and retails clothes within 2 weeks of the original design appearing on catwalks. It owns the entire value added chain and competes on the basis of speed to market, having invented the concept “fast fashion”.

• Finally it is important to highlight the smooth integration between Zara business strategy and it is operation strategy. Zara operations are in line with the business strategy. Zara manufacturing and distributions systems enable delivery from concept to store within 14 days. Ownership and control of manufacturing facilities in Spain allows for quick response. Ownership of high tech distribution systems that allow for very fast delivery from factory to stores all over Europe.

• Zara’s use of sales staff for market research purposes allows quick response to customer preferences and local differences.

Operation Strategy