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The operations management at Zara, excelling at rapid customization and yet at an affordable price.
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Aparna SurendranHarini SHari TejiMuthuraman PArkadip Gupta
THE WONDERS OF SUPPLY CHAIN MANAGEMENT
PRODUCT CATALOGUEZara stores have men's clothing and women's clothing, each of these subdivided in Lower Garment, Upper Garment, Shoes, Cosmetics and Complements, as well as children's clothing (Zara Kids).
50% of the products Zara sells are manufactured in Spain, 26% in the rest of Europe, and 24% in Asian and African countries and the rest of the world.
Zara can offer considerably more products than similar companies. It produces about 11,000 distinct items annually compared with 2,000 to 4,000 items for its key competitors.
WHAT MAKES ZARA STAND OUT
The worlds largest apparel retailer based out of Spain
It is the flagship chainstore of the Inditex group
There are a total of 1770 Zara stores in 41 countries and 166 Kiddy's Class stores
The producer of most variety of clothing range and even in the shortest production cycle
ACHIEVABLE SUPPLY CHAIN FEATS OF ZARA
Shortening the product life cycle to four to five weeks.
Zara also promised to make information about its suppliers discharging of toxins publicly available.
Zara relies on sophisticated information technology to monitor customers' fickle fashion changes.
Zara’s most unusual strategy is its policy of zero advertising.
Zara is a vertically integrated retailer.
ZARA BUSINESS MODEL
DESGIN AND PLANNING
Design starts one year in advance of the season In-house design team of 200 designers at Zara HQ Experimenting new designs with a commercial
orientation Hand sketches -> CAD drawings + Feedback from
store managers To successfully react to consumer demands,
design decisions are delayed as long as possible Approximately 40,000 new designs annually, from
which 10,000 are selected for production
PRODUCTION SOURCING
In-house
22 factories in Spain
Mid season, stylish apparels
Flexible production
Quick response to changing demands
External Sourcing
Europe and Asia
Beginning of season, basic apparel
Cost or quality advantage
Strong relationship with contractors and suppliers
PRODUCTION PROCESS
Fabric
• Raw, uncoloured fabric • External and Internal (Comditel at Barcelona)
Cutting
• Layout prepared by skilled workers• Using the layout, automated machines cut the fabric• Cut fabrics are marked and bundled
Sewing
• Sub-contracted to 400 smaller firms in close proximity
• Cheap labour advantage • Twice a week delivery
DISTRIBUTION
Centralized Distribution Center at Arteixo – 500000 square meter
211 km of tracks from factories to the distribution center
Shipments made twice a week No inventory held
RETAILING
Final Allocations made centrally also considering Store Managers’ request
Fresh assortments – Fashion Forward Merchandise
Average Customer shopped 17 times a year as compared to the industry standard of 3-4
15-20% End of Season Clearance Sale 0.3 % of Sales spent on Advertising
THE STORES
1) Zara stores were uniform including as to lighting fixtures and window display, as well as the arrangements of targeted floor space of 1200 square meters.
2) The model store located at Zara head quarters (Arteixo, Spain) was kept up-to-date in terms of current product selection.
3) Store locations were upscale in prime high street areas.4) The uncluttered arrangement of goods in uncrowded
spaces coordinated by color made the experience of shopping more like that in high end luxury stores and quite different from that offered by “value” marketers.
PRICING STRATEGY Zara contrasted its pricing strategy to many others in
its business which set price equal to cost plus a target margin.
During its long expansion through 2001 zara printed price tags for multiple jurisdictions showing on the single tag all of its different prices by country. This simplified the tagging procedure and also permitted goods to be moved from store to store with out retagging. And also permitted goods to be transhipped between one country to another with out retagging.
However at the beginning of 2002, zara switched to a system of local price marketing in the stores using a device that read the bar code and printed the appropriate local price.
GROWTH STRATEGY Zara's growth had been outward from its base in
Spain, with the locations for new stores chosen selectively to stake out sequentially new territories that could be supported within the Zara model.
Most of the stores were company owned although in some markets Zara had opened a small number of stores through franchises and in some markets Zara had opened stores through alliances.
Zara did not establish local distribution centers and warehouses when it entered a market or engaged in store opening promotions.
VIDEO
CURRENT ISSUES FACED BY ZARA
Alleged slave like condition of its workers in Aug,2011
Shop staff abuse in March,2012
Toxicity issues as highlighted by Greenpeace in Nov,2012