Zara is one the famous fashion brand in the world, the flagship of textile industry in Europe and the pride of Spain. Founded in 1975 by Amancio Ortega and Rosalia Mera in Spain, the company rapidly took off and expanse to Europe. The group is now a leader in the industry due to a successful strategy of just in time and fast fashion. Contrary to other group, Zara is a full stack company from the design, to the production to the store. Nowadays, Zara detain more than 1500 store around Europe, and start to implement new store in Asia and America.
Executive summary
Zara global strategy is the fast fashion strategy. It means that Zara have to produce quick quality clothes to answer to the fast moving trend in the world. This strategy deeply influence the way they built their supply chain and organize it. Zara employ the just in time strategy pull triggered, a methodology from the toyotism. To quickly answer to the demand, Zara is a full stack company. It means that Zara is not only a retailer, due to its association with Inditex (The owner of the brand Zara, a big tissue corporation), Zara possess factories and also some suppliers of raw material like tissue producer. Inditex and Zara own 22 factories in Europe (18 in Spain), and contrary to competitor did not outsources the core business (Clothe production). Zara a strategy of just in time, and consequently have zero stock. This notion is very important in the Zara strategies, the company only produce very small batch of collection. This effect reduce stock, create rarity in the store, and limits the damage of an error from designer team or marketing team and allow Zara to constantly adapt the collection to the fast fashion market. To produce small batch of trendy clothe, Zara is highly dependent to its information system and data collection. Zara is in permanent watch of the market in the goal to catch market signals about new trend. The supply chain management in Zara is improve every day, Zara is able to deliver good in store in less than 24h in Europe and between 40 to 70h in American and China. To accomplish those achievement, Zara own a huge central distribution center in Spain called The Cube. The cube is directly link by train to the several factories in Europe. Zara firstly send 50 to 60% of clothes to stores at the beginning of a season mostly by train, trucks and planes (Most of the time fret are not full). Then end the other part of the batch are send few days after. In average, a store received supply twice a week. When a truck delivers good, it also take back the unsold goods. Those unsold will be send in other region where seasonality better fit to the clothe. Like I said, Zara is close to is suppliers due to inditex, Zara have in average 400 suppliers. Most of them are in Europe (70%) and the other are in Asia (30%). Zara choose to work with European supplier to reduce the risk of quality and improve the rapidity of the supply chain. European supplier are mostly in charge of the tissue and Asian supplier are in charge of basic supply as button and zipper. To select is supplier use a three dimensional evaluation, the 3T, time, trust and transparency. Those suppliers transform the cotton in exploitable tissue then send it to the cube that will sent it to factories. Supplier never tint the tissue, the goal is to apply the color in the last link of the supply chain to be sure to fit to the last trend color of the market. Zara can intervene in an upstream purchasing strategy and so saving money. Inditex and Zara try use as much as they can material from sustainable sources in the goal to limit the impact on earth. Zara organize formation to sensibilize buyers about sustainable development, but also try to give access to those formation for current suppliers. They learn about raw material that Zara use, the impact on earth and the biodiversity, on the society and the economy. The goal is to give the possibility to Zara to have a global long term vision and an upstream influences with a high downstream actions on the customers.
Company global strategy
Vision
To give the customer an exclusive choice of fashion by providing a quicker turnover of the stock than other fashion retailers.
Mission
Zara walks at the pace of society dressing, ideas, trends and tastes that society itself has matured.
Zara’s purchase department and strategy
Design and production – Just in time strategy
Zara adjust constantly is collection regarding the trend, and is most of the time a leader and an influencers on the fashion market. It deliver fashionable and trendy closes to teenagers and adult though a very controlled design and integrated process. Comparing to other retailer, Zara own the whole process – full stack company- from the design, the production to the retail store. The just in time production is a methodology due to Toyota production system ( TPS) aimed at reducing flow times within production system as well as a response times from suppliers and to customers. Zara have a strong marketing and designer team that constantly source the market to fit the need of customers. The team draw all the sketches, then discuss it, confront sketches to market specialist, discuss it with the procurement staff. On 40.000 sketches only 10.000 are approved and produced. The marketing, designer and purchasing team synergize and work all together in a very flexible way, led by a strong idea generation. To increase the reactivity face to the demand of customers, only 50 to 60% of season sketch are deliver in the beginning of the season or trend. When competitors produce and deliver 80% of the collection for the beginning of the season. Then Zara deliver 40 to 50% of the collection in the next weeks.
Purchase
As I said before, Zara manufacture almost the whole collection on its own (60%). Zara possess its own production factory (22 in total, 18 are in Spain), it allow Zara to be flexible and to produce when the company need to, consequently to answers to the very specifics need that have been highlight by the huge amount of feedbacks from store manager, marketing and designer team. Zara have integrated the whole core business in order to master and control it at the perfection. Contrary to the peers that outsources almost the whole production chain, Zara own 22 factories in Europe. It allow them to quickly respond to seasonality and unforeseen demand (Due to its strong information system and data collection, Zara is now able to predict the demand). I think that the verticalization of Zara is a key factor of the company success. When other pure-player are working with manufacturing company most of the time in China, Zara work with its own company in Europe. I think that competitors can’t be as most flexible as Zara due to this factors. The suppliers of competitors request order month before the production when Zara is working in tight stream. It also provide a strong competitive logistic and quality advantage to the proximity of the factory. Zara is able to control, check quality and to iterate until the engine and workers get the perfect patent quickly than competitor
Zara suppliers
As I said Zara produce 60% of the items, so 40% of the production is being produce by 400 suppliers. The majority are present in Europe, close to 70% and in Asia, 30%. I think Zara choose to work with European supplier mainly due to a question of quality but also of proximity. Supplier are a very important link of the supply chain, and to have supplier that are far away may cause some issue in term of logistic like I said. When Zara work with Europe suppliers for important raw material as tissue, it work with Chinese supplier’s basics product such as button and zipper. With millions of product sold each years Zara is a huge and stable customers for those suppliers that provide a great amount of command during the years. Working as a pure player in the fashion retail like Zara provide some power among suppliers, like price leverage, frequent quality audit ( to avoid issue such as children worker, refugee worker or other ethic issue). In 2011, Zara and more precisely Inditex (The Company that owned to brand Zara) was involve in an enquiry link to worker condition of a supplier in Brazil. The supplier was accuse of modern slavery on Bolivian refugees. Since this story, Zara have implement some rules for suppliers like minimum wage according the country average and maximum work hours. Zara is also deeply involve against children worker and like I said, Zara take the right to frequently audit suppliers.
Suppliers selection Zara select is suppliers with a tree dimensional evaluation to decrease the risk (3T): Time, Trust, transparency
But also with those characteristics:
Level of rapidity
Expertise in the sector.
Execution
Flexibility
Quality of supply
Capacity to coordinate information’s
Minimal worker wage
Zara is highly selective on its suppliers mainly due a constant pressure of the market to have fresh new items frequently at a low price, with a decent quality.
Purchasing and procurement department in the fast fashion is being a very important role, especially for a brand like Zara, where costs deeply influence customers choice (Middle cost, with decent quality and fashionable clothe).
Procurement operation
Zara and inditex procurement - verticalisation
Zara and inditex have a complete control over its own factory and procurement. The group is constantly supply in tissue by company that are from the group of are very link with it. This tissue company have a supply priority for Zara and the member of the inditex group. In this way, Zara is sure to always have the raw material needed to produce. I think this is important for Zara to have verticalization integration of its suppliers mainly due to it’s just in time strategy with very short cycle. The Zara suppliers buy the tissue in the very primary form, They have to transform it in an exploitable form, but Zara require the supplier to do not tint the tissue. Mainly because the company want to be able to change the color to fit to the last trend and need of the customers.
Supply chain operations
The company purchase the raw material to suppliers from Greece, Spain, Italy and Portugal. Those suppliers have to deliver the goods to “the cube “within 5 days mostly by truck, planes and train. The cube is a big structure, with high technological robot to automatize the task. The cube is also granted of monorail that links the factories in the area of the cube. The cube is a “hub”, the distribution platform where raw material and final good transit, but never stocked.
The screenshot below is schema of the supply chain, we can see the manufacturing center in the northwest and the cube in the Est of Spain. But for their main distribution and logistics hub they chose a more centrally located facility. That facility is located in Zaragoza in a large logistics hub developed by the Spanish government. Raw material is sent by suppliers to Zara’s manufacturing center. Then finished garments leave the Cube and are transported to the Zara logistics hub in Zaragoza. And from there they are delivered to stores around the world by truck and by plane.
Raw material and sustainable strategy.
Inditex and Zara try use as much as they can material from sustainable sources in the goal to limit the impact on earth. Buyers from Zara and Inditex had for mission to select wisely raw material to preserve biodiversity, because Zara knows that purchasing is the key to start a sustainable supply chain. Zara try to developed as much as possible goods and collection made with biological cotton and recycled raw material by sensibilize de buyers team in order to adopt a complete sustainable supply chain. For the moment Zara try to improve efficiency.
Zara and Inditex are currently inveting money in several biological project to preserve the forest and to remplace the current system with a sustainable one. And Zara organize formation to sensibilize buyers about sustainable development, but also try to give access to those formation for current suppliers. They learn about raw material that Zara use, the impact on earth and the biodiversity, on the society and the economy. The goal is to give the possibility to Zara to have a global long term vision and an upstream influences with a high downstream actions on the customers.
Total cost ownership
Zara as items manufacturer and seller is a full stack company, that interact during the while supply chain. Due to the business mode, Zara can intervene in an upstream purchasing strategy and so saving money.
I think that Zara can saving money and still be competitive on price against competitor like Gap or H&M because, Zara own factories to produce but also factories that collect and produce raw material. So Zara can intervene at a very early stage of the value creation.
Information systems – Think need and not product
Zara due to is very short cycle and TPS strategy is highly dependent of information’s. Zara has always integrated new technology to improve the supply chain and I think this is one of its greatest immaterial value. Due to high technology of data collection and forecast A.I computing software Zara is able to lower the cycle time and reduce the error of production and stock and so to produce good to answer to the need of the market quicker than other competitors of the sector.
Artificial intelligence and data science
The marketing team received the data and with the help of A.I and data analysis software are able to highlight tangible and exploitable data. Those data are sent to the designer’s team that produce patent and design suggestion to the factory. When design is approved, the purchasing team due to a software purchase the raw materials always in the objective to minimize the waste and to have the minimum viable stock. To go further, I recommend that Zara use a deeper machine learning system to forecast the demand and the need. Zara could integrate machine learning system that can scan the whole internet and especially social network such as Instagram and influencers in order to detect and predict the trend. Some A.I software with soft machine learning (Opposite of strong and autonomous A.I) are able to analyses picture, video and texts of influencers (That influence 60% of the teenagers purchase) due to billions of operation seconds. This system could highlight faster than human the trend.
Internet of things
Due to internet of things and internet in general, Zara is able to collect lot of data to adapt stock and production. Without those tools Zara could not answer to the need and apply his strategy of “fast fashion”. Zara’s store are delivered twice a week, to avoid stock problem Zara use connected object to track the stock capacity. In the other hand if internet and technology has done a lot to increase retailers access to consumers and preferences. It’s still hard to have a complete picture of the market (Who want what and when). This is why Zara is operating a fast fashion strategy with a lot of choice if the store. Without a strong IOT and A.I technology, the strategy of fast fashion of Zara could cause some issues in a long term view. In fact, the challenge of such a strategy is that the expanding set of available options may result in a less satisfying customer’s experience due to a certain choice overload.
Inventory management – Inventory = death
As I said the methodology of Toyota is in the core of Zara strategy that is: no stock. The retailer company build by Ortega never purchase too many raw material in the beginning of its supply chain like never produce too much clothes in the factory, and also never stock items in a store. Every collection is produce in a limited batch. 14 I think that seller and buyer team work together with the help of data collection software to determine which item need be produce, in which quantity for which store. In my opinion this strategy have several pros and cons. This technics to produce very little batch of items and to deliver store twice a week allow Zara to avoid stock and immobilize unsold items. But the risk is also that Zara could be, in case of unpredicted event or seasonality to run out of stock in several store. Between production and presence of the produce item in a store. Zara is faster than any other retailer competitor due to its SCM. In fact, for competitor, between production and store, it can takes more than 3 months. Like I said before, twice a week store are deliver by truck with new stock, new collection. The trucks take the unsold item and take them back to the cube or Zaragoza. Those items will be ship in other location all over the world where the design will be more adapted or the seasonality fit to the items.
Human resources – vital key success factor
As we notice during our training, human resources are vital and part of the purchase strategy. Human resources are an immaterial value, and Zara knows that. I think that it is impossible for a company like Zara in a very competitive sector such a clothes and fashion to underestimate the HR. The company have a very strong corporate culture, and its affect the amount and quality of work. Most of the workers in Zara factory and HQ are young, over motivated, and Zara grant them for that. Each link of the SC is important and play a vital role, from the buyer to seller in the store. I personally recommend Zara to improve the way they work with influencers. Nowadays, and especially the young generation are influence by famous person of social network. Zara should hire some of the best to win customer’s loyalty and upgrade their acquisition customer’s strategy.
Recommendation:
Zara is a big corporate, with an organization that is being concidere as one of the best in the world, a supply chain improvement that is fast and qualitative but, I think that’s Zara can improve some link in the corporate. Like I said, Zara could use more software of new generation, a new research show that they work with MIT to improve demand forecast. I deeply recommend Zara to go further in the deep learning machine and the I.A to collect data and exploit them in the better way. As we understand in the first part of this course work, data and information system is an important part of Zara strategy. It allow Zara to detect the current and close future trend. With an improvement of the software of demand forecast, Zara will be able to analyses at a long term the demand. Moreover, using IOT could improve also the data collection on the forecast but also on the store delivery twice a week. I think that Zara could implement connected cash register machine. Using this kind of IOT object could help Zara to collect data even faster than before and in real time. In data collection we have the 3V Rules: volume / velocity and variety. Collecting data is one thing, but it’s better to have it in real time. IOT link to I.A software could help Zara to move from big data to Smart data. 15 We see in the last part that Zara try to improve its strategy regarding environment. They are still in an improvement phasis, I think this is hard to readapt on complete organization on a new model, and formation of worker is a good system to start installing the good mindset and contratry to other brand this is not a green washing strategy (Zara doesn’t communicate on this field). But Zara mainly try to improve the supply chain on purchasing raw material, but still have a lot to do on the logistic field. In fact, the strategy on just in time is based on the rapidity to deliver good in store. But most of the time Zara use planes and trucks that not full (Mainly due to the strategy of 0 stock). We know that plane with kerosene and truck with gas impact the ecology. Zara could improve is strategy by using more and more train but also to implement a strategy of “the last kilometer” with new system of transportation (Electric trucks / bike). Zara have a strong dependence to European market, and clothes are not really difficult to produce, so the entry barrier is low. Zara could face a new entrant, with clothe more fashionable that can seduce the young generation (We know that the fashion market is now very fast). We know that Zara want to seduce new market such as Asia and America. But as the distribution center is located in Europe, most of the time goods need more than 72h to arrive in those new market. Zara should open a new distribution center in those market and also some factories to improve the delivery time.
Reference: Supply chain from (2015) Case study Zara [online] available from Lardbucket (2012) Zara fast fasion from savvy [online] available from Binotrisha (2010) Zara procurement strategy [online] available from New York Times (2012) How zara grew into the world’s largest fashion retailer[online] available from Inditex (2015) Raw materials [online] available from Academia (2016) Zara’s operations strategy [online] available from Cavqm (2013) Zara fast fashion optimization[online] available from 16 Business decision (2015) 3v opportunities big data[online] available from Alkmkcjow8da (2013) Vision mission of Zara [online] available from Economist (2016) The future of fast fashion[online] available from Forbes (2013) Zara’s retailing a must read[online] available from
