MGMT 102 STRATEGY

Case discussion notes

ZARA: Fast Fashion

Questions:

1) What is Zara’s strategy? Perform a value chain analysis of Zara

2) How sustainable are the competencies/capabilities underlying the performance

of Zara’s activities?

Zara: “Fast Fashion”

What is Zara’s strategy? Perform a value chain analysis of Zara:

Inbound logistics:
- Productions takes place in small regular batches, with vertical integration into the manufacture of the
most time-sensitive items.
- Deliveries take place precisely twice a week to all of their stores around the world.
- Just in time production: no excessive inventory or deadstock in the warehouse thanks to inventory
optimization models, stores receive only what they need.
- Short cycle-time, new items can be produced and delivered between four to five weeks, and
modifications in only two weeks.

Operations:
- Head quarter in Spain
- In-house manufacture and through suppliers located in Spain or in other low-cost manufacturing
countries.

Outbound logistics:
- Centralized distribution systems: a 400,000-square-meter facility in Arteixo, Spain, and smaller ones in
Argentina, Brazil and Mexico.
- Centralization of logistics so that the staff involves knows all the timelines and activities.

Marketing and sales:

- Investments in prime locations – highly visible locations for stores.
- Comfortable environment for customers to shop
- Unique window display and shop layout
- Variations in retailing operations at the local level
- Market-based pricing due to differences in positioning
- Environment of shortage and opportunity: with this strategy Zara sells more products at full prices,
customers believe they might not find the same item the following week, so they buy it on the spot

Services:
- Reliable and efficient customer service
- Connection between designers and customers through social media (nowadays).
- One month exchange and refund policy for customer loyalty purposes.

Firm Infrastructure:
- highly supported by the IT system
- Country management teams typically consisted of a country general manager, a real estate manager, a
human resource manager, a commercial manager, and an administrative and financial manager.

Human resources management:

- emphasis on training on employees, especially the stores managers so that they feel like “running their
own small business”. High connection between the stores and the headquarters.

Technology:
- Zara’s supply chain management is connected through a constant flow of information, thanks to an
innovative IT system.

Procurement:
- fabrics, finished products and other inputs are acquired from external suppliers with lower costs.
- Zara manufactures 60% of its products. In-house production allows flexibility in the amount, frequency,
and variety of new styled products.
- Vertical integration to reduce the bullwhip effect
How sustainable are the competencies/capabilities underlying the performance of Zara’s activities?

Zara’s main competences/capabilities are:

- quick inventory turnover and lead time
- flexible in-house production that reduces product life-cycles.
- Centralized distribution that increases precision and speed of delivery.
- High competence on the design
- Ability to design quickly
- Ability to obtain direct information on what customers like and want according to each country.
- High product variability

Zara’s abilities linked with its resources* represent one of the biggest player in the fast- fashion industry, not
easily imitable and beatable by its competitors and by the new entrants.

Zara’s resources*

Tangible: Intangible: human:

Stores around the world financial assets trained staff
Warehouses strong brand awareness know-how
Factories

Especially nowadays, competition in the clothing industry is high, trends move fast and people are looking more
and more for cheapest option.
Its main competitors are: H&M and Uniqlo, they all target similar market but employ different strategies, suhc as
differences in the ownership of the materials and sourcing of manufacturing.
Zara however, has been able to create great value for the customers, offering them “medium quality fashion
clothing at affordable prices” accessible almost in every country of the world.

Zara has definitely a great competitive advantage, which is its supply chain management, efficient and widely
develop. Therefore, I believe that, all its competences, capabilities and resources combined are definitely
sustainable for the foreseeable future.