{"id":3076,"date":"2015-12-08T15:36:47","date_gmt":"2015-12-08T20:36:47","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/how-zara-uses-supply-chain-to-execute-business-model\/"},"modified":"2015-12-08T15:36:47","modified_gmt":"2015-12-08T20:36:47","slug":"how-zara-uses-supply-chain-to-execute-business-model","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/how-zara-uses-supply-chain-to-execute-business-model\/","title":{"rendered":"How Zara uses supply chain to execute business model"},"content":{"rendered":"

\"615<\/p>\n

The retailer provides wide range of fashionable, well-made, and relatively cheap pieces of clothing in fast fashion market across 88 countries. Zara focuses on 18-40 year old women with middle range income who are following fashion trends and update their wardrobe each season.<\/p>\n

Since the margins in such business are low (6-10% gross margin in recent 4 years [1]) Zara puts efforts to cover the maximum number of potential consumers through vast chain of own stores in prime locations, web shops, social media (23,5 million followers in Facebook). For the last decade, the retailer has opened at least one new store every day [2].<\/p>\n

Company\u2019s value proposition lies in both design and speed \u2013 industry analysts argue that no other company reacts to fashion trends and turns trends into actual shipments to stores as quickly as Zara. The whole production cycle \u2013 from initial design to point of sale \u2013 takes Zara around two weeks while competitors spend six months in average to introduce new product to the market [3].<\/p>\n

Why Zara is so fast? The company created innovative manufacturing process allowing quickly responding and selling clothes to its stores. Zara controls key components of its supply chain: designing, manufacturing, distribution, and retailing.<\/p>\n

Designing<\/i><\/u><\/em><\/p>\n

Zara employs army of designers who work in teams on tasks assigned by computer systems that determine potential trends in consumers demand [4]. \u00a0Computers give preliminary information on what and how to design. Designers also got daily sales data and customers\u2019 feedback on current production line items to incorporate improvements in new collections. Teams compete with each other \u2013 design supervisors identify the winners. Zara reshuffles teams every few months and assures that in two years most of the designers are different: employees with lower scores get fired after several team rotations, employees with higher scores get promoted to supervisor stages.<\/p>\n

\"main-qimg-63a32d05f4ecf6664c471a5dcb93d778\"<\/p>\n

Manufacturing<\/i><\/u><\/em><\/p>\n

Zara uses just in time production process with focus on in-house manufacturing [5] which enables company to be more responsive to demand changes. Zara uses frequent in-season assortment changes \u2013 company produces 50-60% of clothes in the start of the season. Retailer leaves some capacity for extra shifts in times of rapid demand changes and typically operates 4.5 days per week on full capacity.<\/p>\n

\"mag-11zara-t_ca1-popup-416x300\"<\/p>\n

Distribution<\/i><\/u><\/em><\/p>\n

Back in 2005, Zara\u2019s warehouse employees examined shipment requests sent by every store to determine needed shipments [6]. As operations increased, company started to develop new decision process based on a large-scale Operations Research model that determined every single shipment to stores based on stock levels and demand [7]. \u00a0Before full-scale implementation of new model, Zara conducted a pilot experiment to test it. The results of the experiment showed that the Operations Research model increased in-season sales by at least 3-4% and reduced transshipments between stores. Since forecasting process was automated, Zara was able to optimize size of warehouse inventory allocation team to 60 employees worldwide.<\/p>\n

Distribution is highly centralized with all items going through Spain. Shipments to retail stores go out twice a week \u2013 insane frequency for fashion retailer [8].<\/p>\n

Retailing<\/i><\/u><\/em><\/p>\n

Zara\u2019s network is vast \u2013 over 2000 stores worldwide. Zara does not prioritize customer service \u2013 management knows that consumers will come anyway because they cannot find the same trend, price and range of products anywhere else. There is no advertising as well \u2013 Zara relies on word-of-mouth promotion strategy. The only promotion tool it uses is prime store locations close to luxury brands. Every store is equipped with Point-of-sale system analyzing what is selling and what is not. Every hour store generates reports on sales in order to replenish the stock [9].<\/p>\n

To support its business model of leading fast-fashion retailer Zara has built vertically integrated supply chain focused on quick and flexible designing and manufacturing, frequent distribution and vast retailing. This operating model enables to change collections frequently and adapt to rapid demand changes while covering vast customer base. Business and operating models are closely matched. Does it work for Zara? To my opinion, the financial results speak for themselves [1]!<\/p>\n

[1] http:\/\/www.marketwatch.com\/investing\/stock\/zara\/financials<\/a><\/p>\n

[2] http:\/\/www.ft.com\/cms\/s\/2\/a7008958-f2f3-11e3-a3f8-00144feabdc0.html#slide0<\/a><\/p>\n

[3] http:\/\/www.thescrippsvoice.com\/archives\/2013\/11\/08\/why-fashion-is-getting-faster-zaras-two-week-fashion-cycle<\/a><\/p>\n

[4] https:\/\/www.quora.com\/What-is-it-like-to-be-a-designer-with-Zara<\/a><\/p>\n

[5] https:\/\/www.tradegecko.com\/blog\/zara-supply-chain-its-secret-to-retail-success<\/a><\/p>\n

[6] https:\/\/www.informs.org\/Sites\/Getting-Started-With-Analytics\/Analytics-Success-Stories\/Case-Studies\/Zara<\/a><\/p>\n

[7] \u201cZara Uses Operations Research to Reengineer its Global Distribution Process\u201d, 2009<\/p>\n

[8] http:\/\/www.telegraph.co.uk\/finance\/newsbysector\/retailandconsumer\/11172562\/How-Inditex-became-the-worlds-biggest-fashion-retailer.html<\/a><\/p>\n

[9] http:\/\/www.slideshare.net\/navinshan\/retailing-report-on-zara-clothing-store<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Does HBS have case about Zara? If yes, I can bet it is about supply chain that in alignment with business model makes Zara the undisputed leader in fashion retail industry with over $14.8 billion in annual sales and over $9.4 billion in brand value.<\/p>\n","protected":false},"author":740,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","categories":[336],"class_list":["post-3076","hck-submission","type-hck-submission","status-publish","hentry","category-tom-winners"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nHow Zara uses supply chain to execute business model - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/how-zara-uses-supply-chain-to-execute-business-model\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How Zara uses supply chain to execute business model - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Does HBS have case about Zara? 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