Zara Case Study

1 January 2017

This can give competitive advantage for operations effectiveness of the company. There can be failure in the company’s productivity due to lack in the operations management which could be negative part of the company’s part in this competitive world. Defining Fashion: Fashion can be defined differently due to difference in the point of views. So in general, Fashion can be looked as showing the way of acting differently than the society around us. If society appreciates it then they accept the same and it results in the development of the fashion trend.

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It can also be observed in the meanwhile that if society comes across the new trend then they accepts it and follows the same as looking different from the group is the priority of everyone in the society. “Fashion expires, much the same way yogurt does”, The Inditex Chief executive Jose Maria Catellano comments. (Wall street Journal, 2001). Zara has smartly understood the fashion trends and picked it up way smarter than others by creation of such a supply chain which reacts to the faster changing and developing fashion in the society.

This reasoned for the popularity of the brand Zara across different continents like Europe, Asia and Africa etc. Zara has achieved they competitive advantage by developing distinctiveness in their supply chain management which inspired me to present the case study of Zara in operations management point of view. This case study of Zara will navigate through different aspect of operations management. It will cover topics like total quality management though company’s structure, inventory management techniques like JIT, Kanban, Push-Pull System etc.

Zara as Company: The relatively biggest and famous fashion distributor Inditex is parent company of Zara. In august 2008, Inditex acquired another famous brand GAP. This resulted in making Inditex as world’s biggest retailer (The Guardian, 2008). Zara has a contribution of 2/3 of the sales in the parent company which makes them the important brand of the company. According to the data acquired by the company’s website, evolution and origin of Zara can be seen as follows, In 1963, textile manufacturer Inditex is formed by Amancio Ortega Gaona.

In the next decade of 1963 – 1974, it distributed many products to the different countries in Europe by setting up number of manufacturing units. In 1975, A Coruna witnessed First store of Zara on Central Street. Over the period of 8 years starting from 1976, business of Zara has grown tremendously and by the end of 8 years in 1984, it has almost acquired Spanish market by attracting majority of the society. Around December 1988, Zara crossed the borders of Spain and started their international store in Portugal (Oporto).

Zara opened their international store in USA on the streets of New York in 1989 which was considered to be the next step of Zara of going international and considered to be the second international opening. In 1990, they opened their third store in France (Paris). Inditex planned their growth by opening Pull and Bear Chain as a sister company of Zara which almost acquired 65% of the capital from Massimo Dutti. In the further years, Inditex kept it pace of growth constant and capturing majority of the international Market.

It opened most of the stores almost every year e. . 1992 (Mexico), 1993 (Greece) and 1994 (Sweden & Belgium). By opening their stores in Malta in 1995 and in Cyprus in 1996 which helped them to acquire almost entire shares of Massimo Dutti. In the period of 1996 – 2008, Zara has grown tremendously by acquiring markets of almost 73 countries by giving their major locations and prime cities opening to 1292 stores which helped them to prove countries border cannot limit single fashion trends. But it was important to the Inditex and their subsidiary Zara to consider some important dates.

The most important date of all these dates is 23rd May 2001 as it gave opening to Inditex to Spanish share market by registering their listing. In 2002, new Zara’s logistics Centre has undergone its construction in Zaragoza (Spain). In 2003, Zara got their home stores in Slovenia, Malaysia, Slovakia and Russia by Inditex. In the same year, 2nd distribution centre of Zara got opened in Zaragoza in Spain which helped its first distribution centre situated at A Coruna, Spain (Arteixo). In 2007, 1000th store of Zara got opened in Italy (Florence).

Inditex opened around 4000 stores in 73 countries for Zara and its sister concerns. Zara’s Model of Operation: It is most attractive to study Zara’s Operational Model due to its shift from “mass standardization” to “customization” on global scale. Zara has developed very unique approach towards fashion which was highlighted by its founder. Its approach compares fashion with food and gives a view that fashion should also be consumed immediately like food rather than deteriorate in cupboard. Thus consumer’s preference is considered to be the important factor in the production of new clothes (Dutta, 2002).

Zara’s operations became very successful due to its business model (See Appendix 3) and it also helps them in achieving the aim customers’ satisfaction. Zara’s operational model comprises of many elements like Just in Time, Company Structure, and Vertical Integration etc. All these elements help to achieve Total Quality Management (TQM) for the company. Company’s Structure: Flat Structure in the organization represents Chairman as its head and other directors to follow below him. The managers or directors will the Cell head of the cell below.

All the member of cell report to leader of the cell and then eventually leader of the cell reports to the head i. e Chairman of the company. The same organization structure is adopted by Inditex group (See Appendix 1). This organizational structure has been led by Amancio Ortega as a Chairman in the group. He acts as Head of all the cells below him and other directors will be the leader of cells below them like CEO and deputy Chairman will be the leader for management control, finance and tax advisory etc. This process helps the company to follow its processes easily.

The same organizational structure helps Inditex to track its processes and quality by keeping close watch on it. Vertical Integration: When two businesses which are at the different level of the production get merged then it is called as Vertical Integration (Hindle, T. , 2009. economist. com). This brings customer closer to the business. It gives controlled access to the costs and input, its delivery time and quality. Vertical integration is hard to reverse and expensive makes it very hard for the organization.

Specially designed fabric will then manufacture by Zara and sent out for sewing to the external suppliers; it will then come back to Zara for labeling and quality will be checked will be done in the Zara’s Unit. After all the manufacturing process is done, all the clothes will be sent to the central warehouse and which then distributed to the store. Vertically integrated system has its disadvantage for Zara is increased cost for lack in moving plant of manufacturing unit in Europe to different location.

Push and Pull System: “When a new designs being pushed in the market based on fashion market trend is referred as PUSH system and when design changes has been done on the customers feedback, but at a lightning fast speed, which emphasizes on customer satisfaction then its referred as PULL system” (Urugray, M. , 2005). When manufacturer’s designer team creates new design and then manufactured in bulk which will then sent out in the market and store, is generally part of the push system.

This raises the demand from the market and attracts more consumers to the store to buy the product. The season collection of Zara is generally launched late in the market by the designer team (Appendix 4) which helps them to understand more about the designs which will be going to launch in the market by the manufacturers and accordingly the demand as well as the designers attain the fashion shows cloths available in the market which gives them an idea of the product coming in the market and helps them to decide their designs for the market (Ghemawat, 2001).

Sometimes the designer team forecasts the new collection’s demand and then they launch it in the market e. g. “when Madonna visited Spain for the stage show, Zara launched the new collection of design which was replicating the design used by Madonna in the past which distinctively increased the demand of the product”. When Consumers demand drives the market and transmits its requirement to the designer team of the company which demands for the design to be created and sent back in the marketplace to satisfy the need of the market, is generally part of Pull system.

There is another method under pull system adopted by the manufacturer and that is advertising the design on major level which results in increase in demand for the product and then it can increase the sales of the product (Anon, 2007). Just in Time (JIT): Japan is the land of Just in Time’s invention. This concept has been introduced by the Japanese ship builders which actually implemented by them by reducing the volume of inventory for steel to three days stock from months stock. This concept is further conceptualized and developed by ‘Toyota’s Vice President Taiichi Ohno’. All this work was presented in the

Japanese language making it difficult to understand by the most of the countries. This is reasoned for the conversion of it in English. “Excessive inventory storage is wasteful in the current manufacturing scenario causes JIT philosophy” (Mejabi, O. et al, 2001). In addition to that JIT inspires the acceptance of methodologies to create the demand of intermediate products and materials only when required. “The transformation to JIT is not instantaneous, but rather it occurs in steps over the time” (Schroer et al, 1985). Waste removal is the important factor in current manufacturing industries.

Keeping obligation towards product improvement and continual process and making production in small batches can be achieved with the help of JIT. “In the current market scenario, deliver the high quality and low cost product to capture most of the market share is main concern for many organization. JIT helps to solve this concern for most of the companies. JIT helps to reduce the cost for the companies because it saves the cost of storing the inventory and maintenance of the inventory. Generally in ‘Pull’ management JIT is used which helps to keep supply in time when there is high demand.

Product of Zara used by consumers is more or less drives Zara’s design process. Store staff or the manager generally collects this data from the consumers and stored at the collection counter in every store which then sent to the distribution centre with full information and details every evening (Gallaugher, J. , 2008). Designing professional of Zara gets all this information on day to day basis. It helps then to figure out what consumers really need and main concerns of the consumers which help in creating designs for them carefully with reduction in consumers concern.

Introduction of new design by Zara takes period of 6 weeks to get it from design to shelves and it also proves very efficient as well compared to the normal 6 months cycles for other companies (Appendix 2). Shortening the time cycle can effect in reduction in the intensity of working capital and helps in continuous production of new design products (Ghemawat, P. , 2001). In 2008, it has been seen that “From design to the shelves it takes 15 days to Zara to bring the product in the market” (Gattorna, J. , 2007).

Maximum flexibility in the production of clothes has been achieved by Zara through purchase of Grey coloured fabric in one half quantities. Location of Zara’s internal production plant has been planned in and around the Zara’s headquarters which results in faster manufacturing by achieving faster designing and approval of the product process. The newly designed product then sent to central distribution centre of Zara, and then it gets distributed across their store two times in a week. It benefits Zara to concentrate of consumers’ needs and reduction in inventory. Kaizen: Kaizen can be defined as ‘Continuous Improvement’.

This concept was introduced by Japanese and is considered as philosophy for whole business. “Kaizen is important for everyone in the organization and requires the same kind of participation from each employee” (Imai, M. , 1986). It has always seen that consumers always have some expectations, need and requirement from the supplier of the product and the suppliers output has some relevant characteristics matching to the consumer’s expectations, these can be defined as ‘Quality Characteristics’ (Rao et al, 1996). It has been found that there always remains some kind of gap between quality characteristics and consumer’s needs.

Implementation of Kaizen can reduce the gap and helps in meeting consumers’ expectation closely. Important factors of Kaizen are as follows: Punctuality, Leadership, Just in Time, High Quality, Customer focus, Future thinking, Kanban, Reduction in Wastage, Empowerment, Low Cost, Quality assurance, Flexible workplace practices. Almost all the elements of Kaizen have been adopted by Zara as organisation. It has also been observed that “Zara has efficient Just in time running also they are more customer focused as there most of the designs are made according to the customers demand”.

Zara has achieved reduction in the wastage of the company by implementing effective JIT system. Flexible workplace practices have also been absorbed by Zara. Problems faced by Zara’s Operational Model: Difference in the business model than other traditional retailers makes Zara as very successful organisation. It has also shown sustainable growth as well. Its weaknesses are also different than other retailers. “Zara holds around 86% of Inditex total International sales” (Craig et al, 2004). Difference in taste of Europeans and Americans, makes it difficult for Zara to enter in American market.

They are also lacking in the developed strategy to acquire US market. It has also been observed that lack of distribution system in America can also limit the scope of Zara. Their centralised distribution system may lack to satisfy the need of American market. “Vertical integration reduces the possibilities of producing large quantity of goods in economic rate (Craig et al, 2004). There is also increase in cost due to speedy & recurrent introduction of new products. Also they have higher research & development cost.

Creation of different apparel lines causes constant changeover of production techniques resulting in higher elevated cost and also increase in the employee training cost to enable them in order to use new manufacturing techniques”. Cannibalization is also one of the threats to Zara (Craig et al, 2004). As Zara is placing almost same products in their each and every store in one city results in selling same product to the variety of the people which may lead to loss in sales. It has also threat from the competitors like H&M, as they comparatively same range and their prices are also less than Zara.

This has been represented through Fish Bone diagram (Appendix). Conclusion: Zara has potential to face changing clothing standards as challenge and also has competitive advantage which helps them to grow. Zara also has the most of the processes like Kaizen, JIT and its structure effectively implemented in their company. It helps them in achieving the Total Quality Management (TQM) for their organization. Zara also has very unique and strong business model which drives their operating income to be much raised and provides growth opportunity as retail industry. They have been famous for their weekly changing well priced and trendy apparels.

They are the most rapidly growing organization in US. Expansion methods as well as keeping the organization fresh as per the industry required with improved quality has been achieved by Zara very effectively with the help of their research and development team. Zara’s business model has been copied and trying to copy by most of the retailers now a day. Some Recommendations: The company is actively seeking new growth opportunity across all worldwide market. With the constantly changing behavior of market as a result of globalization gives very good opportunity to grow in US and other countries.

It will be helpful for Zara to open separate distribution centre in US to acquire US market effectively. It also helps them to improve their image in the market as low priced and trendiest retailer in the market. Opening up distribution centre in US can be a part of expansion in their centralized distribution saving some money and helping to reduce the pressure on the current system. This will also save some money which can be used to effectively advertise their brand in different location which will drive more customers to the store.

Online sales can also be one of the steps which can improve their sales and helps them in acquiring more global market. Zara can make available different range of product across different store in the same city which can reduce the threat of cannibalization.

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