What are the key issues deciding to purchase for zara internally and externally

8 August 2016

Speed and responsiveness to Market, Zara has changed the way clothing industry works where deigning, production and delivery to the retailers requires period of six months. The design and distribution cycle of the company takes just 10-15days in the whole process. Zara’s speed to market in product development exceeds the capabilities of its competitors. This in itself provides additional value to stakeholders, customers, and stores in producing quality clothing at affordable prices.

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The proximity of their manufacturing and operational processes allows Zara to maintain the flexibility necessary to design and produce over 12000 new items annually. This capability allows Zara to achieve their strategy of expedited response to consumer demand. The process of obtaining market information and relaying it to design and production teams expedites product development by shortening the throughput time of their products from design to store. Dependability Due to Zara’s ownership and control of production, they ensure timely delivery and service.

Although most of their stores run out of stock, signifying that they have low dependability in terms of product availability, another perspective of dependability in terms of keeping to date with fashion is achieved. Quality Zara brand has been said to be ‘synonymous with the cutting edge of fashion at affordable prices. ’ (123helpme. com, 2008) Another Quality advantage is the added sense of quality to the product as the tags would be labelled with “made in Europe” rather than “made in China” due to Zara’s trade-off between Low labour costs in Asia and operational efficiency.

Flexibility: Designers (of average age 26) draw the design sketches then discuss it with market specials and planning & procurement staff illustrating a flexibility of ideas generation and on the other hand the huge number of designs reflects the ability to meet almost all the fashion requirements by customers of all ages (up to 55). This adaptive model rather than traditional merchandising is very different from its competitors. Many competitors rely on a small elite design team that plans both design and production needs well in advance.

Stores have little autonomy in deciding which products to display or put on sale because Headquarters plans accordingly and ships quantities as forecasted. Zara owned many of the fabric dying, processing and cutting equipment that provided Zara added control and flexibility to adopt new trends on demand. The added flexibility helped Zara on two fronts: shorter lead times and fewer inventories. (OPPapers. com, 2009) Cost: Zara produces most of its products in Europe. Compared to their competitors, they outsource very little to Asia [6] .

Though the cost of production in Spain is 17-20% more expensive than Asia, Zara does have a competitive advantage over its competitors in regards to operations. Though there is a cost advantage in their approach in regards to labour, the lack of flexibility in changing orders based on current trends hinders their operational efficiencies. Inventory costs are higher for competitors because orders are placed for a whole season well in advance and then held in distribution facilities until periodic shipment to stores.

Lower inventory cost is a key sustainable advantage as it enables Zara to manufacture and sell its products at cheaper prices. A case study analysis of Zaras Operations Strategy Zara is the largest division and flagship brand of the Spanish retail group Inditex [1] . It sells up-to-the-minute ‘fashionability’ at low prices, in stores that are clearly focused on one particular market. (Slack, Chambers, Betts, & Johnson, 2006) The first store opened by accident in 1975 due to a large pyjamas order cancellation.

This typically can be said to be an emergent strategy as the Zara store today was not an intended strategy. [2] As described in a case study of Zara’s supply chain, the company is vertically integrated, controlling most of the processes in its supply chain. On the average, 50% of its products are manufactured in Spain, 26% in the rest of Europe and 24% in Asian countries. Zara outsources products of high labour intensive processes but maintains in-house capital intensive processes, protecting knowledge and know-how.

It takes less than two weeks for a skirt to get from Zara’s design team in Spain to a Zara stores in any part of the globe, as much as 12 times faster than the competition. And with shorter lead times, Zara can ship fewer pieces, in a greater variety of styles, more often and they can more easily cancel lines that don’t sell as well, avoiding inventory backlogs. (Upadhyay, 2009) Zara’s quick response capacity is made possible by the fact that it controls the 3 main stages of its operations that define the competitive edge of the company: design, manufacturing and distribution.

This strategy is embraced to focus on the operations which can enhance cost efficiency while boosting service delivery and value proposition. As a fashion imitator, Zara ‘s priority was to focus its attention on understanding the dynamic fashion trends, aligning these changes to meet its customers’ wants rather than on promoting predicted season’s trends via fashion shows and similar channels of influence, which the fashion industry traditionally used. Other production activities are completed via a network of about 500 subcontractors in close proximity to Zara’s operations at La Coruna.

Mr. Ortega the CEO of the Inditex, the parent company of Zara, once said that the secret to retail success is to ‘have five fingers touching the factory and five touching the customer’. (Slack & Lewis, Operations Strategy, 2008) This paper uses the models and frameworks of the Operations Strategy module to describe & analyze how Zara’s operations strategy led to a sustainable competitive advantage in the global apparel industry. 2 – Introduction Zara is the flagship brand of the Spanish retail group, Inditex SA, one of the super-heated performers in a soft retail market in recent years.

The first Zara shop opened its doors in 1975 in La Coruna, GaliciaSpain, the city that saw the Group’s early beginnings and which is now home of its central offices. Its stores can now be found in the most important shopping districts of more than 400 cities in Europe, the Americas, Asia and Africa. With year-on-year sales increasing at around 25% over the last 5 years, it has become one of the world’s fastest growing retailers. As of late last year, Zara had 350 shops in Europe, 18 in the Middle East, 52 in the Americas and five in Asia. With roughly 40% of Inditex shops, Zara brings in about 80% of the group’s revenue.(Zara founder makes a mint, 2001) As retailers like Marks & Spencer and Gap join retailers in reporting falling profits, what makes a Spanish retailer to announce profit and Growth and assume this post as forthcoming leader in the fashion retail industry? What Ortega, the founder of Inditex, saw that others didn’t see? What is Zara Business Model? What is Zara strategy? What are the factors behind the success of Zara? How scalable its model is? What are the challenges? How Zara would cope with the challenging environment of fashion retail business faced nowadays by the leaders in this industry?

Amancio Oretga thought that customer would regard clothes as perishable commodity – no different from yogurt or bread- to be consumed rather than stored in closets, and has gone about building a retail business that provides “freshly baked clothes “. By Focusing on apparel as product for consumption Zara compete on speed. This business is all about reducing response time. In fashion stock is like food it goes bad quickly. So, Zara concentrates on three winning formulas: Offering fashionable variety with limited supply at affordable price (cost) with a quick response to market.(Devangshu Dutta 2002) 3- Zara Vertical integrated Supply Chain An efficient supply chain is becoming more and more key success factor for companies. Henry Ford assembly line was the event of mass industrial production. Is supply chain management the new differentiation for companies? According to McMillan and Mullen (Operations Management Vol-2, 2002), “the purpose of SCM is to integrate all tasks associated with the bi-directional flow of materials, information and finance into organized, coherent, managed processes in order to provide end-to-end management and control. ”

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