The objective of this paper is to analyze and evaluate the operations strategy of Zara. To do this, it will be used the operation strategy matrix, that defines on the vertical side the performance objectives of the company and on the horizontal side the different areas in which decisions can be made. The intersection of both will show which the critical areas of Zara’s operations are. In order to reach a deep level of analysis, it is very important the task of defining both the performance objectives and the decision areas. These will be the first part of this paper.
PERFORMANCE OBJECTIVES
1.QUALITY:
The quality of its products is one of the reasons for Zara’s success. These are the main characteristics when talking about the specifications of Zara’s offer: a.Offering fashionable clothes: products are thought to be modern and according to the more recent market trends. On this sense, it is an important added value the fact that product models are changed almost every two weeks. b.High standard materials quality: Zara selects good materials when producing the clothes and has developed some expertise in areas such as colouring fibres. c.Consistent and measured quality of products: many controls are made during the production chain to assure that products have a homogeneous quality. Also the stores are designed and managed in a very similar way all around the world. d.Good buyer experience: the company pays special attention in create a good atmosphere in its stores, propitious for attract customers inside them. e.Good location of stores: another advantage for customers is that they will find Zara’s stores in the most famous streets and commercial areas.
2.SPEED:
The short time that passes between when the design process start and when the product is available to the public is one important point of Zara’s model. Two features should be emphasized: a.Fast process between idea creation (designing) and production: all the different steps between design and commercialization are so well engaged that it is possible to put in the market clothes with the latest style trend. b.Quick order-to-delivery: the company has established schedule to deliver all of their stores twice a week in a really short time since the order is made by the store managers (2 or 3 days depending on geographical areas)
3.DEPENDABILITY:
Zara has been able to set a regular schedule of deliveries to their shops in order to make it easy to commercialize the most recent models as soon as possible. This objective can be explained in two ways: a.Be on time to meet the fashion trends: the times are very measured to synchronise the different phases since the designing of new models. b.Delivering products in accordance to the stores timing demands: the store managers know perfectly the moment at which they have to do an order if they want to receive it on a specific day.
4.FLEXIBILITY:
This is probably the strongest point of Zara’s business model, as they have been able to introduce a high degree of adapting capacity to their offer and processes, in an industry that was traditionally considered to have just two different designing periods on the year. The main points of their flexible operations are: a.Product range changes: the clothes are not different just between summer and winter collections, but inside these collections the models are adapted to the trends observed from the market, providing a higher adaptation to the customers tastes. b.High autonomy of stores managers to adapt to their customers: every store manager has a high level of freedom to decide which clothes of the entire collection he or she wants to sell on its store, again with the view of adapting to the customers preferences (of the area where the store is), c.Local adaptation: even if there are stores in the five continents, the company is able to adapt its offer to the different countries climate and cultural traditions. d.Flexible on production and distribution: both factories and warehouses are always prepared to undertake additional orders from the stores. e.Design flexibility: new designs are made every week in accordance to the information received from the customer preferences and from the products performance in the stores.
5.COST:
Another key part of Zara’s business model is to maintain lower costs in order to offer affordable prices to their clients. This is achieved through different ways: a.Low inventory cost: stores have a reduced product stock, so they can maximise their selling area and spend less money in managing their inventory. It permits also to reduce the number of unsold items. b.Low production cost: they optimise the production process to reach economies of scale and maintain costs enough low to reach a profitable return with the standard of quality. c.Optimised distributions costs: d.Low promotional costs: Zara’s promotion and advertising budget is almost
nonexistent, especially if we compare it compare it to their competitors’.
DECISION AREAS
1.CAPACITY:
the operational capacity of Zara can be measured according to these factors: a.22 production factories b.Large designers staff: the around 100 designers makes it possible to introduce new models every week to respond to the market preferences. c.Location and size of the distribution centres: the main one in La Coruña has enough capacity for current demand and they have plans of expand it. They also have other warehouses around the world to support the deliveries to this areas. d.Centralized distribution system: all the deliveries leave from La Coruña headquarters, which increase the control they have over them and their efficiency. e.Size of the stores and location: stores are usually located in hot commercial areas (attractive points from the customers point of view) and their size is usually big (in comparison with other clothing retailers) f.Number of stores: 507 stores in 33 countries, which makes it an important commercial network. g.Franchising and joint ventures structure: this partnership strategy helps Zara to increase its sale capacity reducing risks and financial investments.
2.SUPPLY NETWORK:
even if Zara makes directly the majority of the operations, they have also some of them externalised. These are the key factors: a.The majority of materials are manufactured and supplied internally: this fact reduces the dependence on external suppliers and some possible delays. b.Exclusiveness of suppliers: many of the suppliers have Zara as their only or major client, so they are totally dedicated to it and so, they will follow the instructions given form it. c.Outsourcing of sewing process: this task of the production is externalised but assuring the synchronisation with the general planning. This is possible because the outsourcing is diversified and the suppliers are physically near from Zara headquarters and they are totally dedicated to this task.
3.PROCESS TECHNOLOGY:
the company uses technological tools to improve its operations. These influence can be observed on the following areas: a.CAD system in design and production phases: it indicates the profitability of new product designs and also permits to optimise the use of materials during production. b.Digital device to exchange market data: it is very useful for the company as it permits to quickly detect the market tendencies and anticipate to them. c.Distribution centre automated system: it is used to improve efficiency on this task, saving money and time
4.DEVELOPMENT AND ORGANIZATION:
Zara is every trying to identify the market needs and tastes through many ways. In addition, they also try to promote the customers satisfaction. Specific initiatives such as the followings are implemented: a.Use of “trend-hunters” and young designers to identify newest market trends b.Use of cross-functional teams during the designing phase: composed of market analysts, buyers and designers, to give a complete perspective of the appropriateness and viability of each model. c.Market analysts are responsible of regional stores: it makes possible to have a good and open communication between the headquarters and the stores. On the stores level they identify the trends of the market and from the headquarters they help the stores on the implementation of the company’s strategy. d.Centralized decision making about marketing and price: it assures a unified strategy on these areas. e.High decision power is given to store managers: they are thought to improve the store performance according to the objective public they serve. In this sense, they receive a lot of training. f.Rewarding system: based on the store performance.
The intersection areas with the highest relevance are marked with a star grading system. These are the reasons to say that they are important: 3-star intersections:
•Quality + Capacity: the high number of the designers is one of the keys of the cutting edge consideration of Zara’s products, adding the essential value for customers.
•Flexibility + Development and Organization: the internal structure of the company permits a high level of communication and information transfer between different levels and departments, and this is essential for checking the products performance and identify the customer needs.
•Cost + Process technology: the different technological tools used, especially in production and distribution phases, are very important on the company’s low costs strategy. 2-star intersections:
•Quality + Development and Organization: the customer experience is very important for the company, and its internal organization permits to focus on the achievement of this objective.
•Speed + Supply network: the high level of control over the suppliers and the low dependence from them make this intersection a competitive advantage for the company. •Flexibility + Supply network: the outsourcing of the sewing process helps considerably on giving extra flexibility to the company’s productive process.
1-star intersections:
•Dependability + Capacity: the fact that both the production and the distribution areas are very centralized considerably reduces the risk of delays on deliveries. •Dependability + Process Technology: the advanced technology used in the distribution tasks highly increases the regularity of the deliveries.
•Flexibility + Capacity: with the 21 factories the company has, it is easier to adapt the production to the changes that are all time being incorporated. The same happens with the quick distribution system.
Then, is the moment to do the 4C’s analysis of the matrix. First analysis is the one related with how comprehensive is the matrix in general. It tries to measure how equilibrate are the different elements in the matrix and if there is any special gap or weakness. In this case it is rapidly observable that there is a good balance between the importance of the decision areas and their effects on the performance objectives. The second concept to consider is about the coherence of the decisions taken on the different areas. In general terms it is possible to say that there is a quite high coherence along the decision areas. In fact, it is possible to observe that the process technology area is instrumentally used by the other three areas.
There is also good coherence between decisions made about capacity and supply network, as the high rate of internally developed tasks is being reflected on the numerous facilities that the company has. If one objection should be made, it would be in the relation between organization and development and capacity, because even if the company has stores in many different countries, the internal structure is very centralised in Spain, so the company risks to lose some market focus from other markets. Thirs analysis is about correspondence between performance objectives. Once again, the conclusion is positive, because even in the difficult relation between quality and costs the company is able to manage both aspects to optimise the final result. In fact, what consumers value from Zara is the possibility of buying fashionable clothes at an affordable price. There is also a high positive relation between speed, dependability and flexibility, as the speed production process and the high regular distribution system enables the company to be flexible in introducing new models and increase the stock of the successful products.
Finally, the fourth step is the analysis of the criticalities. The critical intersections were already analysed when the star grading system was used. It shows which the most important tasks are in the operational scale of the company, and as a consequence, the ones where most of the resources and efforts are put. In this case it is possible to say that the decisions are giving priority to three performance objectives: quality, flexibility and cost.
EVALUATION AND RECOMMENDATIONS
According to all the previous analysis, we can obtain the general conclusion that Zara has a good operations strategy. During its years of existence, it developed many useful initiatives to reach a high efficient productive and distribution system, developing at the same time an attractive product. Even the challenges that arose with the international expansion were unable to slow the growth and the good performance of the company. The strategy of brand diversification can be considered also successfully, as all the know-how that was been using in Zara was also applied to the new chains, permitting the company to cover new segments of the market. In the moment were the case was written the company was building a new distribution centre in Zaragoza. It can be considered as a very wise decision, firstly because of the location of Zaragoza, almost in the middle of the Iberian Peninsula, where the company a great part of its store, and nearer to the rest of Europe than La Coruña, and another important reason is that it has better infrastructures to connect with other parts of the world.
However, I would like to know how have they managed the fact of having two different distribution centres and if the new one involved to add one more phase to the distribution channel. Without any doubt, one of the biggest challenges that Zara will face in the future is if they will be able to continue managing effectively the regular and quick deliver at low cost to remote countries (I am thinking specially in Asia). When the number of stores in that continent will reach a considerable dimension, new facilities will be needed in that area and maybe also in other regions, and this will involve some decentralization of the current structure, with the respective risks of cost increasing and loosing of efficiency. Finally, the distribution through internet would be an option to consider, that should not probably involve a high complexity and may add some extra sales to their incomes account, while increasing the brand image and notoriety as a global high-quality and low-price fashion retailer.
