Zara Case Study
1. Discuss the nature of competition and demand in the apparel industry?
While most apparel manufacturers were migrating manufacturing to Asia to gain cost
efficiency,
Zara recognized that speed, flexibility and innovation were key to establishing a
stronghold of the market. Although manufacturing in Spain and Portugal has a cost
premium of 10 to 15 percent, the local production means the company can react to
market changes faster than the
competition, ensure tighter connectivity between design and manufacturing, and
produce greater flexibility in product distribution
2. What are Zara core competencies and competitive capabilities?
Zara has remained focused on its core fashion philosophy that creativity and quality
design together with a rapid response to market demands will yield profitable results.
In order to realized these results Zara developed a business model that incorporated
the following three goals for operations: develop a system the requires short lead
times, decrease quantities produced to decrease inventory risk, and increase the
number of available styles and/or choice. These goals helped to formulate a unique
value proposition, to combine moderate prices with the ability to offer new clothing
styles faster than its competitors. These goals helped to shape Zara’s current business
model.
a. The high turnover of its products.
b. Low level of inventory due to fast supply chain- 1 week final production cycle,
two day outbound logistics, fast adaption of leading trends.
c. Effective distribution system
d. Commitment of its employee’s
e. scanning the fashion trends, market trends and meeting the consumer demands
relating to fashionable clothes.
f. Flexible production system.
3. How does Zara model differ from its competitors? What are the pros and cons of
the current model?
Zara’s core business model is vertically integrated, it specializes in speed and efficiency
and the fast fashion trend. Zara’s approach to information technology is consistent
with its core business model Zara’s core business model is vertically integrated; it
specializes in speed and efficiency and the fast fashion trend. Zara does have a
competitive advantage over its competitors in regards to operations. The local strategic
partnerships that Zara maintains with manufacturers in Europe allow for a product
throughput time of 3-4 weeks from conception to distribution. To make this happen,
the company designs and cuts its fabric in-house and it acquires fabrics in only four
colors to keep costs low. The proximity of these suppliers gives Zara great flexibility in
adapting their product lines based on up to date market trends and consumer
behavior. It also decreases costs of holding inventory. Zara’s competitors, through
outsourcing to Asian countries such as China, sacrifice the benefits of proximity for low
labor and production costs. Though there is a cost advantage in their approach in
regards to labor, 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. This proximity effect
and the flexibility that it gives Zara is fundamental to their basic concept to respond
quickly to shifts in consumer demand and has provided them with a competitive edge in
comparison to their peers. Zara has differentiated itself from its competitors by adding
value in the every step right from manufacturing to distribution to sales.
4. How does Zara design its supply chain?
The main driver for Zara’s success is its dynamic supply chain with its intended outcome
of focusing on a shorter response time. Zara has used its supply chain management to
generate instant fashions: cheap, trendy clothing using a high wage paradigm.
Recognizing the consumers demand for fashion products at the right time, Zara has
developed a supply chain that is capable of getting a trend from the catwalk to their
stores in 30 days, in comparison to 4 – 12 months from its industry competitors. This is
beneficial to Zara in two instances; firstly, less availability leads to increased desirability
and secondly, with smaller amounts being produced at any one time means that there
is less to be added at the end of season sales. Zara only discounts 18% of its total
product range, half the level of its competitors. Time has already been noted as one of
the fundamental drivers to achieve a competitive advantage, in the case of Zara, an
agile supply chain has been developed. Here Zara focuses on flexibility and relies on
being market sensitive, as opposed to the traditional method of being forecast driven.
Zara recognizes the need for quick response; therefore just 40% of its total garments,
mainly the products with the least transient appeal are manufactured in the Far East
region, whilst the remainders are produced in Spain using Zara’s own highly automated
factories in pursuit of achieving a strategy capable of the most effective quick-response
system.
In conclusion, Zara has maintained an upper hand over its competitors by the
response to the changing market trends and fashion and by vertical integration.
Zara, with its present IT infrastructure has been effective and able to be consistent
with its core business. However,
depending on an unreliable change from the supplier side, obsolete OS will not be
compatible for future improvements or growth. Although, there no immediate need
to change the current system, Zara should not invest more in the current obsolete IT
infrastructure. It should adopt the change to the new OS eventually. Making a
gradual change to the new system will increase Zara’s efficiency, without facing the
sudden setback of implementing the change at once.