1/12/2020 A case study analysis of Zaras Operations Strategy

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Zara is the largest division and flagship brand of the Spanish retail group Inditex [1] . It sells up-to-the-minute ‘fashionability’ at low prices, in st
& Johnson, 2006)

The first store opened by accident in 1975 due to a large pyjamas order cancellation. This typically can be said to be an emergent strategy as th

As described in a case study of Zara’s supply chain, the company is vertically integrated, controlling most of the processes in its supply chain. O
Europe and 24% in Asian countries. Zara outsources products of high labour intensive processes but maintains in-house capital intensive proce
skirt to get from Zara’s design team in Spain to a Zara stores in any part of the globe, as much as 12 times faster than the competition. And wit
more often and they can more easily cancel lines that don’t sell as well, avoiding inventory backlogs. (Upadhyay, 2009)

Zara’s quick response capacity is made possible by the fact that it controls the 3 main stages of its operations that define the competitive edge
embraced to focus on the operations which can enhance cost efficiency while boosting service delivery and value proposition. As a fashion imit
 fashion trends, aligning these changes to meet its customers’ wants rather than on promoting predicted season’s trends via fashion shows and
Other production activities are completed via a network of about 500 subcontractors in close proximity to Zara’s operations at La Coruna. [3] 

Mr. Ortega the CEO of the Inditex, the parent company of Zara, once said that the secret to retail success is to ‘have five fingers touching the fa

2008)

This paper uses the models and frameworks of the Operations Strategy module to describe & analyze how Zara’s operations strategy led to a s

What is Operation’s Strategy?

Just as there is no consensus on the definition of ‘strategy’ means, ‘operations strategy’ cannot be explicitly defined. In their book, Operations S
 operations strategy, that have emerged, as illustrated in Fig. 1 (Slack & Lewis, Operations Strategy, 2008, p. 2):

Operations Strategy Perspectives:

Figure 1 showing the four perspectives on operations strategy (Nigel S
Top down vs. Bottom up:
Zara boosted its innovation in a fast changing market by adapting the bottom up perspective of strategy in its operations. This is a key driver o
that provide customers with new perceived benefits.

Zara did not only depend on the fashion trends in the industry but leveraged word-of-mouth information to create clothing that will appeal to
report directly to the Zara headquarters, the feedback on preferences from their customers. Through these means, sales forecasts were pragma
needed to be competitively agile in copying and launching products to align with emerging trends in the fashion industry. This agility is defined

‘a business-wide capability that embraces organizational structures, information systems, logistics processes, and, in particular, mindsets.’ (The A

Zara has demonstrated this characteristic of by its flexibility.

Market Requirements vs. Operations Resource:

Whatever the operations strategy of an organization, it must in some way reflect the requirements of the organization’s market. The fashion ma
As described by Inditex CEO, Jose Maria Castellano, “the fashion world is in constant flux and is driven not by supply but by customer demand.
Asia to make clothes, I simply can’t move fast enough.” [4] (123helpme.com, 2008)

Zara’s Resource Utilization and Competitive Advantage

In an article written by John Fernie and Leigh Sparks, (Zara: Time-Based Competition in a Fashion Market, 2004) they described Zara as:

‘A company with rapid growth and ongoing success in a fiercely competitive environment. These are based on the dual objectives of working w
even more effectively than, it’s internationally acclaimed rivals such as Benetton or Gap, with one of the most effective quick-response systems

Zara’s operational goals to achieve short lead times, lower inventory and increase variety of styles/choice, together with its focus on creativity a
in the industry today.

Figure 2 Zara’s internal operations and resource utilization that help m

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1/12/2020 A case study analysis of Zaras Operations Strategy

Adapted from (Nigel Slack, 2008)

From the above illustration in Figure 2, we can deduce that operation’s strategy is concerned with the reconciliation of market requirements an

Key drivers of this reconciliation are the importance of setting appropriate performance objectives and understanding the decision areas that d

Reconciliation of Market Requirements with Operations Resources

Figure 3 Reconciliation of Market Requirements with Operations Reso
Using the framework in fig 3, Zara’s operations along its value chain is analysed as follows:

Factors affecting Zara’s Strategic Decisions

Capacity
Zara employs a chase demand capacity management [5] in its operations. Spare manufacturing capacity is mirrored in the company’s storage f
new stock delivery schedules are regimented, customers know when new stock is due and traffic in stores is heavier at such times. As a result, t
appropriate. Procurement and production planners make preliminary, but crucial, estimates of manufacturing costs and available capacity. The
commit resources for its production and introduction in a few hours, if necessary. (Ferdows Kasra, 2005)

 A small change in retail orders, for example, can result in wide fluctuations in factory orders after it’s transmitted through wholesalers and distri
20 percent of their orders once the season has started, Zara lets them adjust 40 percent to 50 percent. In this way, Zara avoids costly overprodu


 Supply Networks
The vertical Integration advantage can be seen in Zara’s centralized logistics and distribution.

According to Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca’s article in the Havard Business Review, (Ferdows, Lewis, & Machuca, 2005

which 10,000 are selected for production. With about 5 to 6 colours in most garments of five to seven sizes, Zara’s system has to deal with som
 every year. As part of its vertical integration, Zara maintains a very high control of its supply networks as a strategy in achieving fast response. It
in strictly limited quantities of stock. This ensures Zara’s brand promise to customers of exclusivity and design freshness, thereby minimising inv
 user.

In 2004, a University of Philadelphia article by Craig et al (Craig, Jones, & Nieto, 2004) identified Zara’s strategy as ‘internalization’ whereby maj
outsourcing only labour intensive tasks has set Zara milestones ahead of its competitors in the apparel chain. In contrast to Zara, Express, a US
while focusing on distributing and retailing those goods. This is due to the fact that the global apparel industry is highly labour-intensive” rathe
a profit boosting measure than explore other strategies as Zara has done. (Craig, Jones, & Nieto, 2004, p. 4)

Process Technology
Zara’s communication and coordination through high technology information systems is one of Zara’s success factors relative to its competitor
outsourcing company) published an article by Roger W. Dik and Hans Von Lewinski on its website on how Zara reconstructed its supply chain s
and its concentrated production network by providing the shops with the necessary technology such as customized handheld computers and lo
chain. These computers process data on orders, sales trends and consumer reactions to products in stores. (Dik & Lewinski, 2002), (Ferdows, Le

The updated real time data exchange between the stores and manufacturing units helps Zara mitigate the risk of the bullwhip effect. This effect
Bullwhip Effect, 2007) as

‘the phenomenon of increasing demand variability in the supply chain from downstream echelons (retail) to upstream echelons (manufacturing
that may arise from the bull-whip effect, hence bringing about a highly positive correlation in the demand and supply of products. Zara’s strate
flexibility, low inventory volumes and high variety as in Figure 4 below:

Figure 4 showing Zara as a type ‘A’ Product -Process Mix with high fle
high variety
Development and Organization
As further described by Ferdows et al in their article, Zara’s Secret for Fast Fashion, Zara’s development and organization facilitated an easy flow
market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors,
proximity to its headquarters allowed for better and faster communication between functional areas for faster decision making.

Key Success Objectives for Zara’s Performance

Speed
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1/12/2020 A case study analysis of Zaras Operations Strategy

Speed and responsiveness to Market, Zara has changed the way clothing industry works where deigning, production and delivery to the retaile
company takes just 10-15days in the whole process. Zara’s speed to market in product development exceeds the capabilities of its competitors
producing quality clothing at affordable prices. The proximity of their manufacturing and operational processes allows Zara to maintain the flex
capability allows Zara to achieve their strategy of expedited response to consumer demand. The process of obtaining market information and r
shortening the throughput time of their products from design to store.

Dependability
Due to Zara’s ownership and control of production, they ensure timely delivery and service. Although most of their stores run out of stock, sign
perspective of dependability in terms of keeping to date with fashion is achieved.

Quality
Zara brand has been said to be ‘synonymous with the cutting edge of fashion at affordable prices.’ (123helpme.com, 2008)

Another Quality advantage is the added sense of quality to the product as the tags would be labelled with “made in Europe” rather than “made
operational efficiency.

Flexibility:
Designers (of average age 26) draw the design sketches then discuss it with market specials and planning & procurement staff illustrating a flex
 reflects the ability to meet almost all the fashion requirements by customers of all ages (up to 55). This adaptive model rather than traditional m
small elite design team that plans both design and production needs well in advance. Stores have little autonomy in deciding which products to

quantities as forecasted.

Zara owned many of the fabric dying, processing and cutting equipment that provided Zara added control and flexibility to adopt new trends o
 and fewer inventories. (OPPapers.com, 2009)


Cost:
 Zara produces most of its products in Europe. Compared to their competitors, they outsource very little to Asia [6] . Though the cost of product
advantage over its competitors in regards to operations. Though there is a cost advantage in their approach in regards to labour, the lack of fle

efficiencies. Inventory costs are higher for competitors because orders are placed for a whole season well in advance and then held in distributi
sustainable advantage as it enables Zara to manufacture and sell its products at cheaper prices.

 
Conclusion
Adapting the Slack & Lewis Strategy Matrix (Nigel Slack, 2008) for Zara, The supply networks, capacity and Process technology’s speed is critica

Figure 5
The smooth integration between Zara business strategy and it is operation strategy as illustrated in the strategic matrix above brought about a
and decision areas. (Grant, Lambert, Stock, & Ellram, 2006) This aligned Zara operations with its business strategy, ensuring comprehensiveness
a world leader today.

Appendices
Appendix 1: Mintzberg’s Concept of Emergent Strategy

Appendix 2: typical Zara ’empty’ stores

Appendix 3: Zara’s Capacity utilization (Ferdows, Lewis, & Machuca, 2005)

References
123helpme.com. (2008). 123HelpMe.com. Retrieved April 05, 2010, from Zara’s Business Model, Information and Communication Technologies,

Cachon, G. P., Randall, T., & Schmidt, G. M. (2007). In Search of the Bullwhip Effect. MANUFACTURING & SERVICE OPERATIONS MANAGEMENT

Christopher, M. (2000). The Agile Supply Chain: Competing in Volatile Markets. Industrial Marketing Management , 29 (1), 37-44.

Craig, A., Jones, C., & Nieto, M. (2004, April). ZARA: Fashion Follower, Industry Leader. Philadelphia, USA.

Dik, R. W., & Lewinski, H. V. (2002, July). Accenture. Retrieved August 15, 2010, from Global research and Insights: http://www.accenture.com/Gl

Ferdows, K., Lewis, M. A., & Machuca, J. A. (2005). Zara’s Secret for Fast Fashion. Havard Business School Working Knowledge .

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Grant, D. B., Lambert, D. M., Stock, J. R., & Ellram, L. M. (2006). Fundamentals of logistics management. UK: McGraw-Hill .

Institute of Logistics and Transport. (2004). Zara: Time-Based Competition in a Fashion Market. In J. Fernie, & L. Sparks, LOGISTICS & RETAIL MA
29-93). London & Sterling: Kogan Page.

OPPapers.com. (2009, June 04). Zara Case Analysis. Retrieved April 6, 2010, from OPPapers.com: http://www.oppapers.com/essays/Zara-Case-A

Rice, J. B., & Hoppe, R. M. (2001). Supply Chain Vs Supply Chain: The Hype and The Reality. Supply Chain Management Review .

Slack, N., & Lewis, M. (2008). Operations Strategy. FT/Prentice Hall.

Slack, N., Chambers, S., Betts, A., & Johnson, R. (2006). Case Study: Supplying Fast Fashion. In N. Slack, S. Chambers, & A. B. Johnson, Operations

Upadhyay, S. (2009, August 21). ZARA. Retrieved September 10, 2010, from Scribd: http://www.scribd.com/doc/37281774/Zara

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