1. Compare Inditex's financial results with its international competitors.

What does that reveal

about Inditex's relative operating economics?

2. How do the distinctive features of Zara's business model affect its operating economics?

3. Explain the linkages among Zara's choices about how to compete, particularly ones
connected to quick-response capability.

Zara’s competency lied in having shorter cycle time than their competitors. Zara was able
originate a design and have finished goods in stores within 4 to 5 weeks whereas the
competitors took 6 months for the same. Thus Zara used this competency to create a its
Quick response capability and thus have a rapid turnover of inventory leading to sense of
‘buy now because you won’t see this item later’. This sense of scarcity Zara shopper visit
the 17 times a year as compared to 3 to 4 times a year for its competitors.

The various choices made to achieve these competencies are:

 Zara manufactures most of its fashion sensitive products internally in its own fully
automated production facility in Spain whereas the production of other price
sensitive products were outsourced. This allowed Zara to quickly respond to
fashion changes and be the first mover in the market by having short cycle times.
 Zara’s designer continuously tracked customer preferences by attending trade
fairs, fashion shows, referred to catalogues of luxury brand collections and used
TV, internet, film content and inputs of store managers to create initial sketches
almost 9 months before the start of the season and also to analyse customer
demands. It allowed Zara to produce 11,000 distinct items with multiple variations
as compared to competitors 2,000 to 4,000 key items.
 Production took place in small batch sizes with vertical integration into the
manufacture of the most time sensitive items. The small batch size allowed Zara to
gain more agility and also allowed it to create artificial scarcity to drive the demand.
 The items produced internally and externally were transferred to the distribution
centres. The items were then directly shipped from the Distribution centres to the
retail stores twice a week thus eliminating the need of warehouses and thus
keeping the inventories low to reduce the Bullwhip and achieve Just in Time(JIT)
 Half of the fabric purchased by Zara was gray allowing Zara to bring in variation at
a much later time and thus having maximum flexibility.

4. What other strategic recommendations would you make to Castellano?

 Highly centralized supply chain would become a hindrance for Zara in their quest
of International expansion as the operations and distribution are becoming more
and more complex which could lead to diseconomies of scale. Thus a more
decentralized production and distribution facilities especially in the new markets
would allow Zara to reduce complexity and improve flexibility.
 Franchise and Joint venture models in international expansion reduces the control
of Zara over its stores and places the impetus on the store owners. Thus, Zara
needs to be more cautious about the store operations so as to ensure same quality
of stores throughout the world by proper selection, audit and training process.
 Japan co. followed the similar model of supply chain as Zara but due to some
strategic decisions like less emphasis on design, multiple brand identities and
small store size, etc. led to its margin being stuck at 2% as compared to Zara’s
10%. Thus, Zara should ensure that it continuously updates its strategy based on
market research and trends so as to not make the same mistakes as Japan co.