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ZARA: Fast FashionStrategic Positioning
Case Analysis by
Betty HalegouaTamara Levi
Lora SanturdzhiyanLena Stangl
ZARA
500 Stores in 30 countries Created in 1975 Continuous innovation based on
customer desires Clothes and accessories for women,
men and youth from infants to age 45
1. Identify the resources and competences and analyze them through a strategic capability analysis.
Strategic capability analysis is the resources and the competences of an organization needed for it to survive and prosper.
Resources
Threshold resources
1. Tangible
2. Intangible
Unique resources
1. Tangible
2. Intangible
Competences
Threshold capabilities
Core capabilities
Strategic Capability Analysis
Threshold capabilities
Capabilities for competitive advantage
Strategic Capability Analysis
Threshold resources : resources needed to meet customer’s minimum requirements
Threshold competences : Activities and processes needed to meet customers’ minimum requirements
Unique resources : resources that create the competitive advantage and are difficult for competitors to imitate or obtain
Core competences : Activities that create competitive advantage and are difficult for competitors to imitate or obtain
Strategic Capability Analysis
• Tangible resources are the physical assets of an organization such as:
1. Physical resources (Machines, buildings)
2. Financial resources (capital, cash, debtors creditors etc. )
3. Human resources (skills and knowledge of employees)
• Intangible resources are non-physical assets such as information, reputation and knowledge.
Strategic Capability Analysis- Zara
Threshold resources
Human Resources Creative team of designers Product development personnel specialists
Strategic Capability Analysis- Zara
Machines and Buildings Totally automated factories 130,000 square meters warehouse telecommunication system to connect
headquarters with supply, production and sales departments
507 stores (488,400 square meters of selling area) (Today approx. 2,000 stores)
20 fully owned factories Distribution channels (400,000 square
meters faculty)
Strategic Capability Analysis- Zara
Unique resources Highly visible location of the stores
(central) Attractive storefronts (great care in the
presentation)-customer comes 17 times/year Vs 3-4 years for competitors
Mainly working with grey fabric (flexibility) 11,000 distinct items/year while just
2,000-4,000 for competitors Shipments by time zone (24-36 hours
inside Europe, 24-48 hours outside Europe)
Strategic Capability Analysis- Zara
Threshold competences• Manufacturing the most sensitive
products internally- fast fashion- production in house
• Designers track customers preferences – Locally targeted brand
• Vertical integration reduces the “Bullwhip effect”
• Limited outsourcing• Producing only 20% in advance and 55%
in the middle
Strategic Capability Analysis- Zara
Core competences Short cycle time : Entire new design
within 4-5 weeks (6 months for competitors), modification and restocking of existing goods within 2 weeks (3 months for competitors)
Low administrative expenses (20% of it’s revenues while40% for competitors)
“Learning by doing” failure rates 1% while 10% for the sector
No advertisements (pointless distraction)0,3% Vs 3,5%
Strategic Capability Analysis- Zara
Other competences Clients have the opportunity to create
their own clothes makes them feel special
They select their own preferences then they receive a mail with the new arrivals matching their selection
Large variety, small quantity
2. Provide a value chain and conclude where the value is
created
2. Provide a value chain and conclude where the value is created
● Inbound logistics ● Operations ● Outbound logistics ● Marketing and sales● Service includes
● Procurement ● Technology development● Human resource management● Infrastructure
Primary activities are directly concerned with the creation or delivery of a product or service.
e.g.:
Support activities help to improve the effectiveness or efficiency of primary activities.
The value chain describes the categories of activities within and around an organization, which together create a product or service. by Michael Proter
PROTER’S MODEL FOR VALUE CHAIN ANALYSIS
2.1 Inbound Logistics
Inbound Logistics – the receiving and warehousing of raw materials, and their distribution to manufacturing as they are required
Raw material: Italy, Spain, and Greece 5 days to facility in Spain - road haulage does not stock inventory reduced inventory
risk Comditel (a 100%-owned subsidiary)
› more than 200 external suppliers of fabric and other raw materials
› dyeing, patterning, and finishing of gray fabric
› supplying finished fabric to external and in-house manufacturers
2.2 Design Store managers - info directly from the points of
sale continuously tracked customer preferences
IT system product life cycles
catwalk trends - for the mass market No maestros - very flat design structure Designers work with store managers trend spotters on university campuses and
discotheques young, fashion-conscious staff several dozen items designed each day Learning by doing
2.3 Operations Operations – the processes of transforming inputs into
finished products and services. 11,000 distinct items produced during the year
(2,000–4,000 competitors) Vertical integration into manufacturing & a just-in-time
system The most fashionable and riskiest items - produced in
small batches internally or under contract by suppliers located close by better control!
Vs. basic items - outsourced to Asia (1/3 of items) 20 owned factories highly automated to control costs
and speed up production Factory in Spain: flexible manufacturing systems (FMS)
fast turnaround in designs and productions
2.4 Outbound Logistics Outbound Logistics – the warehousing and distribution
of finished goods
Zara’s own centralized distribution system - Arteixo DC early morning - the DC packed and shipped to the Americas,
the Middle East, and Asia afternoon - European stores Shipments from the warehouse:
› twice a week to each store› shipments two days a week to one part of the store network,
two days a week to the other
Proximity reduces shipping costs 24–36 hours in Europe 24–48 hours – outside of Europe only a few hours in warehouses
2.5 Marketing & Sales Marketing & Sales – the identification of customer
needs and the generation of sales.
only 0.3% of revenue for marketing (3%-4% used by competitors)
stores and word-of-mouth - more influential than advertising
› a cost advantage over its competitors invests in store locations and store layouts
broad, rapidly changing product lines using the stores to promote market image
power coming from:› freshness of the offerings › an attractive ambience in stores
› “buy now because you won’t see this item later” a climate of scarcity and opportunity
2.6 (support) Organizational infrastructure
Organizational infrastructure – support systems and functions, such as finance, planning, quality control, and general senior management
Flat and decentralized decision-making prices are fixed centrally,
the store managers’ focus on volume and mix The store managers
› deal with the customers, property owners, and contractors
2.7 (support) HRM
HRM- activities concerned with recruiting, developing, motivating, and rewarding the workforce of the organization.
Promotions - approximately 90% of store managers from within
Training - responsibility of the section manager & on-the-job › comprehensive training program including training at other
stores and a two-week training program at Zara’s headquarters
Personnel assessment - job of the store manager
Store managers › receive a fixed salary plus variable compensation › compensation very incentive-intensive
2.8 (support) Technology development
Technology development – managing information processing and the development and protection of “knowledge” in the organization
computer-assisted ordering (CAO) from hand-held computers in the stores
invested heavily on IT platform agents are sent to pick up latest designs
within 6 hours using technology they send the sketches to the factory with slight differences in the design
Madonna’s dress
2.9 (support) Procurement
Procurement – how resources are acquired for the organization (e.g., sourcing and negotiating with suppliers)
Europe had historically dominated Zara’s sourcing patterns
sourcing from the Far East (China) will expand substantially
Most significant advantages:
Reduced cycle time due to the quick response system
ECR (Efficient Consumer Response):› Integration of the roles of manufacturer,
designer and retailer› Synergies due to IT tools› Demand- and consumer-driven
Vertical integration Lower quantities and more styles Broad target market
ZARA was described by Louis Vuitton Fashion Director Daniel Piette as "possibly the most innovative and devastating retailer in the world.“
3. Provide a value network and conclude
where the value is created
A Value Network...
... is the set of interorganisational links and relationships that are necessary to create a product or service.
... is based on collaboration between the network participants who focus on value-creating activities and aim at creating value through collaboration.
The value network (Bovet and Martha, 2000a)
Value Network - Main Characteristics
• collaborative
• flexible
• agile & dynamic
• focus on end-customers
• use of technology
• intangible assets
• ability to respond rapidly
• information sharing
• focus on value-creating activities
• future-oriented
• constant development
The Value Network – Key Questions
•Where are cost & value created?
• Which activities are centrally important to the organisation?
o Retain direct control of core capabilities
o Outsource less important activities
• Where are the profit pools?
o Potential profits at different parts of the value network
o Availability of competences to compete in these areas
• Make or buy?
o Outsourcing
o Develop competence in influencing performance of other
organisations
• Who are the best partners?
o What kind of relationships are required?
The value network - Zara
The value network - Zara
4. Undertake an analysis of the
strategic capability of the organisation using
the VRIN analysis
VRIN Analysis
VALUE
RARE
INIMITABLE
NON-SUBSTITUABLE
RESOURCES
sustainable competitive advantage
VRIN Analysis
VALUE
Company resources which:
• improve the effectiveness of the firm • outperform competitors • reduce weakness / eliminiate threats~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
ZARA a combination of resources• The Vertical Integration
• design, warehousing, distribution and logistics function done by Zara itself more flexible and faster than competitors (apparel industry!)
• Chief core competency: In-house production• flexible in the variety, amount, and frequency of the new styles which are produced• costumers constantly provided with updated products• rapid product turnover // scarcity • increases the frequency and rapidity of consumers visiting the stores/ buying the
products• company sells more items at full price
VRIN Analysis
Quick-response system (HR + IT )› Product development teams (high-fashion fairs)
translate the latest trends of the season into Zara’s designs
› Better response to the demand of consumers vs. the competition
VALUE
VRIN Analysis
RARE
• Unique resources or resource or used only by a small number of competitors• The extent to which rarity of competences might provide sustainable competitive
advantage:• Ease of transferability• Sustainability / Rarity could be temporary• Core rigidities
ZARA• emphasize on capital-intensive industry / labor-intensive• able to produce new items and deliver them to its stores in less than three weeks!
(average six months needed)• production / typical season ~ 11000 different items (competitors ~ 2000 /4000)
VRIN Analysis
INIMITABILITY
• Sustainability mainly relies on competences, rather than resources• The competences must lead to levels of performance that are significantly better than
competitors • The competences must be difficult for competitors to imitate – or inimitable
• Complexity• Internal linkages (ability to link activities and processes that together deliver
customer value)• External linkages (difficult for others to imitate / activities developed together
with the customer)• Culture and history
• „taken-for-granted” activities/ managers may not understand them explicitly• path dependant
• Change• Innovation• Competitive advantage
VRIN Analysis
INIMITABILITY
• Today: almost everything is imitable
The question: How long it takes to imitate?!
• If competitors were to copy Zara business model / only in a long run• few years to establish vertical integration model • specific supply chain • organizational structure (culture) unique for Zara• enormous costs which firms would face in order to copy the model (often impossible
)• Meanwhile : Zara = constant „small” changes • would probably progress more in other segments
“Once a month, come here thinking that we are near bankruptcy. You will find a lot of things to change.”
Inditex’s founder Amancio Ortega
VRIN Analysis
NON-SUBSTITUABILITY
• Resources that are like „bricks in the business-model”; hard for others to remove/ substite
• Competence substitution • Product or service substitution
ZARA
• Produces ~ 11 000 items much more than average wide item variety (small quantities, high flexibility)
• Highly developed internal communication systems and distribution model shorter lead-times/ consumer in a very center (industry innovation!)
• responds instantly to shifts in the new consumer trends
• Clothing industry basic technology changes rather slowly (high capital needed)STILL : firms which outsource today have almoust as short lead-times as in-house producers (transportation decreased remarkably) Zara’s advantage unstable in a long perspective
5. Provide a weighted strength assessment
based on the example below
THANK YOU FOR YOUR ATTENTION!