{"id":98,"date":"2015-11-27T12:45:10","date_gmt":"2015-11-27T17:45:10","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/zara-upscale-on-demand-fashion\/"},"modified":"2015-11-27T12:48:26","modified_gmt":"2015-11-27T17:48:26","slug":"zara-upscale-on-demand-fashion","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/zara-upscale-on-demand-fashion\/","title":{"rendered":"Zara: Upscale, on-demand fashion"},"content":{"rendered":"<p>Zara is a global fast fashion retailer for men, women, and children. Owned by Spain-based fashion group Inditex, Zara had 2,085 stores worldwide at the end of 2014, revenues of 12B Euros [1], and a robust EBIT margin of 18% [2].<\/p>\n<p><strong>Business model<\/strong><\/p>\n<p>Zara was a first mover in the \u201cfast fashion\u201d retail segment, which sells fashion items inspired by luxury designs to the mass market at more affordable prices. New designs are introduced frequently to reflect the latest trends; Zara stores order clothes and receive new deliveries from the Zara distribution center twice weekly. Other leading brands in this segment include Mango, H&amp;M, and Forever 21; in comparison, Zara brands itself as more upscale and high-quality and is correspondingly somewhat more expensive.<\/p>\n<p><strong>Operating model<\/strong><\/p>\n<p>Zara\u2019s operating model is highly aligned with its business model. The operating model is designed around just-in-time production for its trendiest items, which is critical for a company whose value proposition is selling the latest fashions. A few key operational decisions enable this flexibility:<\/p>\n<ul>\n<li><u>Centralized decision-making<\/u>: Zara\u2019s headquarters, \u201cThe Cube\u201d in Spain, co-locates business operations with centralized design, manufacturing, and distribution processes. At this single point, key supply chain decisions are made based on real-time information about global demand and Zara\u2019s inventory levels. Since it is co-located with many parts of the supply chain, decisions can flow through the chain quickly, allowing Zara to respond in a rapid and coordinated way to changing fashion trends.<\/li>\n<\/ul>\n<figure style=\"width: 539px\" class=\"wp-caption alignleft\"><a href=\"http:\/\/blog.scmglobe.com\/?page_id=1513\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/blog.scmglobe.com\/wp-content\/uploads\/sites\/4\/2015\/01\/Zara-SC-Diagram2.jpg\" alt=\"\" width=\"539\" height=\"258\" \/><\/a><figcaption class=\"wp-caption-text\">From SCM Globe blog<\/figcaption><\/figure>\n<ul>\n<li><u>Design timing<\/u>: Unlike most apparel retailers, Zara only selects about half of its designs by the beginning of a season. New designs are created throughout the season based on information about what is selling well or poorly, as well as what the latest trends are.<\/li>\n<li><u>Localized manufacturing:<\/u> Zara owns several of its factories and outsources its remaining production nearby, to Portugal, Morocco, and Turkey. This proximity facilitates the rapid flow of information and physical product through the supply chain. In addition, the company outfits these factories with high-tech equipment and additional capacity to allow rapid response to demand fluctuations.<\/li>\n<li><u>Frequent and rapid distribution<\/u>: Once clothes are quality-checked at The Cube, they are typically delivered to stores within 48 hours. This fast turnaround allows stores to consistently stock new and in-demand fashions.<\/li>\n<\/ul>\n<p>While these operating decisions support the business model, the business model also enables these operations. Zara\u2019s greater production flexibility is costlier than a traditional, less dynamic manufacturing process, since Zara must allocate more resources to real-time decision-making, excess production capacity, and frequent and small-batch distribution. Zara\u2019s business model of offering more upscale and expensive items, combined with less discounting and a policy of no advertising, provides funding for its unique operations.<\/p>\n<p>Finally, Zara uses its just-in-time supply chain wisely. Only about half of its inventory goes through its European production facilities; more basic items, such as t-shirts and sweaters, are produced through a separate and more traditional supply chain. These items are ordered about 6 months in advance, sourced in low-cost countries, and sent to Zara\u2019s distribution factory by ship. This approach minimizes costs for more traditional items whose demand is unlikely to vary with fashion trends [3].<\/p>\n<p>As a result of its innovative and nimble supply chain, Zara continues to be one of the top apparel companies in the world and, as of fall 2015, a key driver of Inditex\u2019s growth [4].<\/p>\n<p><strong>Sources<\/strong><\/p>\n<p>[1] Zara 2014 Annual Report. http:\/\/www.inditex.com\/documents\/10279\/18789\/Inditex_Annual_Report_2014_web.pdf\/a8323597-3932-4357-9f36-6458f55ac099<\/p>\n<p>[2] Forbes, 2015.\u00a0<a href=\"http:\/\/www.forbes.com\/sites\/walterloeb\/2015\/03\/30\/zara-leads-in-fast-fashion\/\">http:\/\/www.forbes.com\/sites\/walterloeb\/2015\/03\/30\/zara-leads-in-fast-fashion\/<\/a><\/p>\n<p>[3] Bloomberg, 2013. <a href=\"http:\/\/www.bloomberg.com\/bw\/articles\/2013-11-14\/2014-outlook-zaras-fashion-supply-chain-edge#p1\">http:\/\/www.bloomberg.com\/bw\/articles\/2013-11-14\/2014-outlook-zaras-fashion-supply-chain-edge#p1<\/a><\/p>\n<p>[4] Bloomberg, 2015. http:\/\/www.bloomberg.com\/news\/articles\/2015-09-16\/inditex-first-half-profit-rises-on-zara-owner-s-store-expansion<\/p>\n<p>[5] SCM Globe Blog.\u00a0http:\/\/blog.scmglobe.com\/?page_id=1513<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Zara is one of the world&#039;s most successful fast-fashion retailers. What sets it apart?<\/p>\n","protected":false},"author":526,"featured_media":99,"comment_status":"open","ping_status":"closed","template":"","categories":[15,7],"class_list":["post-98","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-fashion","category-winner"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Zara: Upscale, on-demand fashion - 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\/zara-upscale-on-demand-fashion\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Zara: Upscale, on-demand fashion - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Zara is one of the world&#039;s most successful fast-fashion retailers. 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