Zara is a clothing and accessories retailer selling stylish apparel at affordable prices, and it is also the most profitable brand of the Spanish clothing retail group Inditex SA. Ortega planned for this new Zara outlet, located near his factory in La Coruna in northern Spain, to sell this overstock merchandise himself. Since then, Zara has expanded into 500 stores in 68 countries as of January 2007 and has become a leader in customized fashion retailing. This assignment presents core competencies to help Zara achieve competitive advantages in fashion industry.
Besides, we also offer five competitive objectives about quality, speed, flexibility, dependability and cost to evaluate efficiency in business operation of Zara. Then analyzing supply chain management to consider how Zara maintain, improve and develop its strategies and business. Finally, the assignment will discuss about Zara’s quality not only in operation system but also in human management. Firstly, the essays will discuss about Zara’s core competencies.
An important content in the internal environment analysis of business to strategy planning is to analyze the resources, capabilities and core competencies of the business, competitive advantage and competitiveness of enterprises. The purpose of internal analysis of the enterprise is to identify and evaluate potential resources as well as existing that create sustainable competitive advantage of enterprises; identify obstacles in maintaining the sustainable advantages competitive. This analysis is important basis in the selection of the business strategy.
Core competence is unique strength that permits the company to achieve the superiority comparing rivals in strategy, business operation, quality, innovation and customer responsiveness. Zara’s success derives from core competencies of the company in design, manufacturing, warehousing, distribution and retail. Its capabilities link functions including design, speed, production, responsiveness, technology and e-business to manufacture creating commitment of employees and supply fashionable products quickly to customer demands with affordable prices.
Zara’s capability is to utilize the advantage of geographical condition by hiring the Spanish and the Portuguese and building manufacture factories nearly headquarter in Arteixo. Unlike competitors, the majority of factories are located in foreign such countries in Asia or South America in order to reduce material and labor costs. By positioning the design and production facility closely, Zara makes the fast action to market situation possible. Besides, Zara has flexible production system and efficient distribution system.
In the 1970s, the production and the distribution of garment product from factory to consumer take about 6 months, but it now takes about 6 weeks. Spending short period of collection preparation, Zara takes about 15 days start from market research to sales. More than 300 designers constantly follow the market events, fashion trends and customer tastes in designing 12000 unique products in one year that compares to 2000 or 4000 products designed by rivals. Therefore the entire design, production, distribution and sales respond quickly to shifts in consumer tastes, each style is no longer than 4 weeks.
This leads Zara has low level of inventory due to fast supply chain. Because of the continuous production of new product, Zara produces small product quantities. Zara promotes the interest of customers with new products and increases the frequency of visiting the stores of customers. Besides, Zara also creates value from product differentiation. With fast turnover ratio, products are always changing to market satisfaction. It is hard for customers to find the same cloth in the street. These make customer enjoy the scarcity of high price product with economical price.
Its ability to bring changes quickly to fashion market leading customers visit other fashion stores just three times a year, but they visit Zara 17 times (Force, 2010). In other words, Zara’s wisdom is to use actively stores to advertise brand and stores are business images. Zara is ready to choose crowded streets or center position of the city to locate stores and always changes the store layout in every two weeks. Though above analysis, Zara’s core competencies ensure the four criteria of sustainable competitive advantages: valuable, rare, difficult to imitate and exploited by organization meaning cannot be replaced.
Zara’s products express a unique style that has created sustainable position in customer’s minds and make them feel in each of Zara’s product. The attraction of Zara is creative in each product, innovative and unique characteristics. So it is not easy for competitors to achieve the results. Next, the essay will concern about five performance objectives that help Zara achieve competitive advantage in business. About quality, beauty, affordable prices and fashion are factors leading to magic success of Zara as well as other brands of Inditex, but it is not easy to do that.
Amancio Ortega is president of the corporation with 32,000 employees, but he still has habit of operating as a family company with a clever and simple style. Zara operates with closed model from research, design, production, distribution and retail. Diversity, abundance and frequent changes of clothing design have become the biggest competitive advantage of Zara. The competitors expect to have the attraction like Zara. Most customers feel loss or lack something if they don’t visit the Zara’s stores once or twice. Zara brand has conquered the amount of customers, especially women.
According to them, Zara’s products are more super than rivals with reasonable quality and price. Amancio Ortega has created beautiful products, trendy with affordable prices. Zara offer clothing with quick speed because Zara decides design made at its headquarters in Galicien where Zara has a template design center with 250 designers. Hundreds of new models were designed every day. It spends about 11 days to design and finish a product. Stores are distributed new products twice a week, Amancio Ortega’s Inditex Group has released more than 20,000 clothing designs every year meaning 60 clothing designs are introduced and sold to customers.
Zara must frequently manage distribution system more closely, carefully and quickly to ensure its dependability. It takes about 24 hours to distribute around Europe, 48 hours to US and 48 to 72 hours for Japan. With locating distribution center nearly Spain, Zara face difficulties in distributing products overseas and it affects to dependability Zara obtain fabrics with the help of purchasing offices in Barcelona and Hong Kong with one-half of undyed fabric purchase to response seasonal updating with maximum flexibility.
Its main competitors like H&M and Gap often follow to traditional supply chains that outsource production and labor in Asian countries to reduce costs, long product cycles and a focus on a bottom line per-unit cost, rather than focusing on the value of the whole chain. In contrast, 80 percent of Zara’s production is made in Europe, most in Spain and locate department and facilities closely. This spends more cost but creating benefits for Zara’s supply chain. That means supply chain is short Zara can provide new trends more quickly meaning more flexibility.
Achieving this tremendous amount of flexibility and control, Zara must contend with higher labor costs, averaging 17-20 times comparing to the costs in Asia. Moreover, most of its production at factories in Spain or nearly there, over 50% of Inditex products are produced in Galicien regions of Spain and over 40% is produced in Portugal. Number of products is manufactured outside of Europe less than 10%, so the distribution will be quite costly. However, Zara only maintain manufacture factories in relatively less developed areas in Spain and Portugal to use less costs.
Instead of that, Zara adjusts prices for the international markets, so foreign customers accept to incur all transporting costs from Spain to foreign market. Zara uses very little marketing costs and promotion. Advertising costs spend about 0. 3% in total revenue comparing to 3 or 4% of other retailers (CNN, 2001). The essay evaluates five performance objectives of Zara to the following chart: Five performance objectives – Dang, T. 2012 Obtaining these factors, how Zara must manage supply chain.
After more than ten years of supply chain, Marshall Fisher Professor has found the answer about the problem in a famous article ‘What is the right supply chain for you? (Fisher, 2001) Building a concept around ‘fast fashion’, Zara planned supply chain strategy with quick response to make strategy effective and efficient. Supply chain includes all business involved directly or indirectly to response to customer demand and reflect the movement of materials throughout the process from initial suppliers to end customers.
Zara has achieved ‘fast fashion’ strategy because Zara’s success is largely due to the unique combination of operational elements of just-in-time-delivery, vertical integration, finely tuned logistics and cutting-edge design in its supply chain. Jose Maria Castellano, chief executive at Inditex, talked that: “Investment banks used to say that this model did not work, but we have shown that it gives us more flexibility in production, sales and stock management. (CNN, 2001) After expanding to overseas in 1990, Zara invested in manufacturing logistics and IT through franchising just-in-time manufacturing system from Toyota, to control and link departments efficiently. (Bloomberg, 2008) and (Mejabi, O. et al, 2001) Zara’s supply chain Zara also operates using a vertical supply chain, which is a unique strategy in the fashion industry. Due to this strategy, Zara control all activities such as designing, sourcing, manufacturing and distributing to retailing (Ghemawat, 2003). The first is design department.
Based on market research, Zara has information from many resources such as trade fairs, fashion shows, magazines and more importantly customer feedbacks, then designer outline patterns and discuss them with market specialists, planning and procurement people. Zara’s market specialist has responsible for contacting closely with store managers to deal with problems and store managers used PDAs to collect information stored such as sale volumes and design trends to the design team (Gallaugher, 2008) Designers, market specialists and buyers make order process together to offer final decisions.
Production of Zara took place in small batches, Zara manufactures for 50 percent of its products with 22 factories in Spanish but sewing process is done by subcontractors and 40 percent of its fabric is supplied from Zara’s other subsidiaries, or Comditel. Zara use a computer-aided design (CAD) system to refine colors and textures then transferring fabric to factories for cutting and sewing.
Products are inspected during ironing before flowing into distribution center then placed in plastic bags with proper labels and appropriate barcodes. Finally, products are shipped directly to stores. (Ferdows, Lewis and Machuca, 2005) Based on fast supply chain and vertical integration, Zara can control logistics and inventory management well. Lorena Alba, Inditex’s director of logistic, said that “The vast majority of clothes are in here only a few hours and none ever stayed at the distribution center for more than three days”.
Moreover, this helps reduce “bullwhip effects” which describes how information on demand becomes overstated and deformed excessively as it is collected from customer to manufacturer to supplier, consuming costs and hurting efficiency (Hau Lee, 1997) and (Ghemawat, 2003) In contrast, it also creates disadvantages and deficiency in logistics if moving plant to different location. Zara produce low quantities leading to unsatisfied demand that can reduce an amount of revenue considerably. This can also diminish the prestige of the enterprise in the market.
In addition, trend and demand predictability increase the challenge for supply chain management in fashion industry, so Zara preferred to “react rather than predict”. We cannot predict demand accurately because we’re not sure what happen in the future. Zara often begins to observe and design after the competitors had begun the season. This helps Zara design popular trends suit customer satisfaction. From supply chain strategies and activities, Zara manages and controls business operation stable to satisfy customer demand in the process of making profits for corporation.
Through Zara have core competencies and manage supply chain system above, the essay will discuss how Zara ensure quality to satisfy customers in business operation. Quality is a complex category, depending on many factors. Quality includes not only the characteristics of the product but also the quality of design, manufacture, sale and use to achieve the highest satisfaction of our customers. Therefore, Zara want to achieve satisfaction of quality management activities not only focus on the purely technical aspect, but also concern, control factors relating during formation, use and disposal of products.
Application of TQM is derived from ideas and lectures of Dr. Deming not only improve product quality but also can improve the performance of the entire system (Deming, 1982-1986). Besides, TQM is a synchronic management system with maintaining quality and improving the quality of the different groups in an organization so that activities including designing, manufacturing, marketing and service can make the most economical way and allow completely customer satisfaction following the right things are done right first time.
Instead of checking the quality after production, Zara has moved to planning, programming, monitoring and preventing pre-production and in production. They use statistical tools to monitor and analyze quantitative the results as well as qualitative factors, then analyze the causes and appropriate precautions Zara has offered efficient strategies about process, technology, control and human management, etc to ensure quality in operations. Specially, Zara built supply chain strategies efficiently to create “quality” in business such as vertical integration strategy, just-in-time, and quick response.
Due to them, Zara manage effective inventory and cut down cost. In addition, information and communications technology is the importance of Zara’s business. So Zara has maintained and improved in information technology and communications infrastructure efficiently to manage system well and flexible preventing errors. The foundation of TQM activities in organization is human. Mentioning to quality, we usually think about product quality. But the “quality” of human resources is a top concern of TQM.
As mentioned above, because Zara’s business model is a closed model, Zara can manage and control all stages such as design, production and sales. So Zara can manage about human more easily. Employees of each department are not only responsible for their activities but also combine, co-ordinate and support with other departments to complete “quality” operational process. Zara always creates low process barriers and unhierarchic atmosphere and environments that young designers can work comfortably with marketing, procecument and production department for employees.
Zara also manage and train carefully staffs contacting to customers through merchandizing process or stores system because staffs display Zara’s image and style. This helps them achieve experiences in demand observation as well as services with customers. The essay offers the following example to consider how Zara is different from its competitor. H&M expanded to overseas quickly and located distribution center in these countries that helps H&M reduce production and logistics costs. Especially it can focus more to observe and choose demand and taste to suiting to culture and people of that country as well as carrying trendy clothing.
So the majority of H&M revenue is made outside Sweden. In contrast, Zara focus to control all operating process and locate distribution in Spain or in Europe to achieve quality assurance. About globalization, Zara hasn’t developed too much separateness in products with each country that it believes the convergence and tastes of fashion beyond national borders and allows to perform strategies due to standardization. Besides, Zara also uses franchising and joint ventures to implement and control business with countries having difficult economic policies
Building and developing good strategies as well as unique business model, Zara owns sustainable competitive advantages to face with difficulties and challenges in fashion industry where demand is always changing. Zara also has key elements in supply chain such as just-in-time, vertical intergration…that help ensure total quality management in operation. Today Zara continuously improve and develop business with methods to expand its market and become a big competitor in fashion retailer.
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