Application of the Operations Strategy FrameworkZara

Sources: www.zara.com and www.inditex.com

ZaraThe Company

Zara is one of the largest international fashion companies. It belongs to Inditex, one of the
worlds largest distribution groups. The customer is at the heart of our unique business model,
which includes design, production, distribution and sales through our extensive retail network.

The Inditex Group

The Inditex Group is made up of more than 100 companies operating in textile design,
manufacturing and distribution. The group's success and its unique business model, based on
innovation and flexibility, have made Inditex one of the biggest fashion retailers in the world.

The groups approach to fashion creativity, quality design and rapid turnaround to adjust to
changing market demandshas allowed it to expand internationally at a fast pace and has
generated an excellent public response to retailers' collections.

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The Initial Phase

The first Zara shop opened in 1975 in Corua, Spain, a city in which the Group first began doing
business and which is still home to its headquarters. Its stores can now be found in prime
locations in more than 400 cities on five continents. Zara can design 11000 designs per year
and it takes 3 weeks from concept design to retail shelves.

So, what is the secret behind Zaras success?

OS Application

Heres a second look at the Miegham OS Framework (2008) that you explored a little earlier.

Net Present Value

Maximisation

Capabilities or
Competencies

Assets (Resources) Process Capacity

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Now, lets examine how Zara actually applied certain aspects of this model and became a
renowned company.

Value proposition and Competency:

Fast fashion: Their design to rack time is only 3 weeks as compared to the 5-6 months
taken by its competitors.
Speed and variety (order winners), cost and quality (order qualifiers): The first two
enable them to generate demand, the latter two enable them to sustain demand.

Resources: Tailored Operations strategy

High degree of vertical integration due to tight coordination requirements of value chain
(no outsourcing and taking risk on speed is Zaras value proposition)
Capacity includes a design centre, a manufacturing centre, distribution centres, two
central warehouses in Spain, 90 per cent retail network (large capacity and fully-owned)
Direct access to road and rail network, proximity to airport (helps to minimise the lead
time and maximise the speed)

Processes:

Supply
o More than 50 per cent suppliers in Spain alone (proximity reduces lead time and
increases speed)
o Volatile and time-sensitive products manufactured in-house, predictable-process
products outsourced
Technology
o Postponement of dyeing (allows to avoid commitment of product color early, this delay
helps in minimising the mismatch of inventory and shortages)
o Toyota engineers have designed the production systems (hence sophisticated and
industrial engineering techniques used)

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 o Small set-up times and small batches for time-sensitive products (this reduces inventory
risk as products are made in small batches only)
o Frequent deliveries with short lead times for re-ordering (this increases the speed they
send few items frequently)
o The supply chain is Information Technology enabled for better visibility of inventory
Demand
o Zara produces short campaigns or production runs which means lot sizes are smaller.
This reduces over production (or inventory risk). But this also creates a scarcity image
(which Zara actually wants to cultivate).
So, a Zara customer knows that due to smaller inventory, Zara products have a short
shelf-life and Zara would change the design and color of an item soonit helps the
brand image of fast fashion for the firm. As explained previously, this reduces Zaras
inventory risk and shortage risk.

Conditions for the Zara Model

Short life cycles with high demand uncertainty (this strategy is of no use in commodity
products with long life cycles and deterministic demand such as steel, oil etc.)

Low importance to Economies of Scale (because it is slightly costlier to produce in small

batch sizes as you do not get the cost advantage of producing in bulk)

Less cost of stockouts relative to inventory

Less cost of distribution (because there are frequent replenishments, the cost of
distribution has to be low else total cost would be very high)

Willingness to pay for speed (customers should be willing to pay little extra for the value
proposition of fast fashion)