Case Study: Zara’s Operational Model

Founded in 1975, ZARA, a Spanish clothing and accessories retailer was originally the brainchild of the Inditex Group owned by Amancio Ortega. Headquartered in A Coruña, Galicia, Spain, Inditex is the world’s largest fashion retailer with ZARA as its international flagship chain store. Beginning with the single store in Spain to the recent launch into Australia, ZARA currently has over 1,700 stores in 78 countries providing exclusive fashion worldwide. ZARA, alone accounted for 64.6% of the Inditex group turnover in 2010. Over time, it has become one of the notable leaders amongst the fashion brands. ZARA was described by Louis Vuitton fashion director, Daniel Piette as “possibly the most innovative and devastating retailer in the world” and CNN described the brand as a “Spanish’s success story”

Case Study: Zara's Operational Model

Zara’s Operational Model

Shifting from “mass standardization” to “customization” on a global scale is the most interesting aspect of the Zara’s business model. The founder highlighted Zara’s approach to fashion which is unique, like food, must be consumed immediately rather than rot in a cupboard. Thus the production of fresh new clothes is in response to the consumer’s preference. Zara’s business model enables their operations to be more successful and achieving the goal of customers’ satisfaction. Zara’s operational model generally encompasses many elements like Company structure, Vertical Integration, Just in Time, etc. which finally contributes to Total Quality Management (TQM) of the Company.

Company Structure

In which there is Chairman and followed by the other directors below him. The directors or managers will act as Cell leader for the cells below them. Each cell be reporting to its cell leader and finally cell leader will report to the head.

Inditex has Flat organization structure in which Amancio Ortega as a Chairman is a head of all cell leaders and there are different directors who acts as a cell leaders e.g. Deputy Chairman and CEO will be the cell leader for tax advisory, finance and management control etc. This helps to keep track of the processes going in the company easily. With this structure Inditex can actually keep a close watch on the processes and quality in the company.

Vertical Integration

Vertical integration means merging of two businesses that are on different stages of production. This leads the business closer to the customers. It controls access to input and to control the costs, quality and delivery times of inputs. It is usually very hard to vertically integrate the organization because this process being expensive and hard to reverse. It is generally found that many companies integrate with distributors to secure market of their output.

Lack of existing channels to Spanish consumer in 1980s caused Zara being forced into control of production, distribution and sales. Zara’s success lies in its vertically integrated system. This highly synchronized system gives extraordinary speed and design litheness. This is the reason behind success of Zara’s strategy. Zara’s Strategy is to give mid-market pricing, niche fashion and rapidly changing product range to the customers. This has also helped Zara to reduce ‘Bullwhip effect’. The bullwhip effect as the tendency to fluctuation in final demand to get amplified as they were transmitted back up the supply chain. As a vertically integrated company, Zara always able to keep close look on the quality and delivery of the product to its retail store. Zara has developed such a strategy that they will manufacture 40% of the fabric in house and 60% they will get it from external supplier. Zara will then manufacture the designed the fabric in the house and send out to the external supplier for sewing and then again it comes to Zara where it is checked for its quality and then labeling will be done. Then the product goes to the central warehouse of Zara from where it is distributed to the stores.

Push and Pull System

When a new designs being pushed in the market based on fashion market trend is referred as PUSH system and when design changes has been done on the customers feedback, but at a lightning fast speed, which emphasizes on customer satisfaction then its referred as PULL system. In the push system generally the new design is created by the designer team of the manufacturer and then it will be produced in mass which will be promoted in the stores and market. This increases the demand in the market and customers will be attracted to the store to get the stuff. Zara’s designer team generally launches there seasonal collection late in the market which enables them to get know about the designs being launched by manufacturers and their demand accordingly as well as they attend fashion shows for ready-made clothing where they get the idea of the designs being launched in the market and accordingly they launch their design in the market. Sometimes Zara also launches the new collection forecasting the demand of the product e.g. when Madonna visited Spain for the stage show, Zara launched the new collection of design which was replicating the design used by Madonna in the past which distinctively increased the demand of the product.

Pull system generally works on customers demand, this demand is generally transmitted to the design team which will then create the design and send back to the market to satisfy their demand. There is another approach manufacturers can take in which they advertise the product on mass level which will increase the demand for the product resulting in the increase of the sales.

Just in Time

Just in time is invented in Japan. Japanese ship builder introduced this concept by lowering their steel inventory from one month stock to three days stock. The first writing on JIT is done by Toyota’s Vice president Taiichi Ohno. But this writing was in Japanese so it was difficult to understand so it has been converted in English. Excessive inventory storage is wasteful in the current manufacturing scenario causes JIT philosophy. Further it says JIT encourages the adaption of methodologies to generate the order of material and intermediate products only when required. The transformation to JIT is not instantaneous, but rather it occurs in steps over the time. In the current manufacturing scenario removing of waste is important. JIT helps to make small batch production and is also helps to keep commitment towards continual process & product improvement. In the current market scenario, deliver the high quality and low cost product to capture most of the market share is main concern for many organization. JIT helps to solve this concern for most of the companies. JIT helps to reduce the cost for the companies because it saves the cost of storing the inventory and maintenance of the inventory. Generally in ‘Pull’ management JIT is used which helps to keep supply in time when there is high demand.

Zara’s Design process is more focused on the public who uses Zara’s product. This information is generally collected by store manager or the store staff which is stored at the collection counter of each store and in the evening the collection details & the information stored is transmitted to the distribution center . This information transmitted to the Zara’s designing professional daily. Using this information the designer figures out what are customers needs and what are their main concerns which helps them to design the product carefully and reduce the customers concern. From design to the shelves it takes 6 weeks for Zara to introduce new design in market it is more effective than the normal 6 months cycle for any other organization. The short time cycle reduces working capital intensity and facilitates continuous manufacturing of new merchandise. In 2008, it was observed that “From design to the shelves it takes 15 days to Zara to bring the product in the market”. Also Zara purchase about one-half fabric in ‘Grey’ color which gives them the maximum flexibility. The internal manufacturing plants of Zara are located in or around Zara’s headquarters. This makes designing and approval of the product very fast ultimately resulting in the faster production. These products then goes to the central distribution center of Zara which further distributes the product to the stores twice in a week. This helps Zara to inventory and concentrate on customers’ requirement.

Kaizen

It means continuous improvement. Kaizen is Japanese concept and it’s a whole business philosophy. Kaizen is important for everyone in the organization and requires the same kind of participation from each employee. Customer always has some requirement, needs & expectation from the supplier and the output from the supplier has some characteristics relevant to the customer expectation, these characteristics are called as Quality characteristics. There is always a gap between customers’ need and quality characteristics. Implementation of Kaizen helps to reduce that gap and meeting customers’ expectation to the closest. Key elements of Kaizen are Customer focus, Just in time, Kanban, Flexible workplace practices, Empowerment, Quality assurance, Leadership, Future thinking, High quality, Low cost, Reduction in wastage, Punctuality.

Zara as organization has almost all the elements of Kaizen. As we have seen, Zara has efficient Just in time running also they are more customer focused as there most of the designs are made according to the customers demand. With the efficient JIT system Zara has reduced the wastage in the company. Most of the Zara’s products are lower in cost with good quality. Zara always follows flexible workplace practices.

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