This case discusses the unique supply chain management practices of Spanish garments retailer Zara, which enabled it to gain competitive advantage over other fashion retailers in the world. Zara's vertically integrated supply chain system enabled the company to place the latest designs in any store across the world within a period of two to three weeks. The company produced garments as per the latest trends in a limited quantity. Zara introduced 12,000 designs every year, with new designs appearing in the stores globally, twice a week. The case explains in detail the design, production and distribution processes of Zara's supply chain.
Zara was founded by Amancio Ortega Gaona (Ortega), who was born in León, Spain, in 1936. Ortega worked as an assistant in an apparel shop and in 1963 he set up his own fashion retail business named Confecciones Goa, in Arteixo-La Coruña, to manufacture housecoats9. In 1975, when a German retailer cancelled a major order, Ortega started selling the clothes from a small outlet in his factory and called the outlet Zara.
Zara went on to become the flagship brand of the holding company, Industria de Diseño Textil, SA, popularly called Inditex, which was founded in 1979.
Ortega was credited with democratizing fashion in Spain; he was responsible for making designer clothing accessible to the masses. Between 1976 and 1984, Zara's presence was extended to major Spanish cities. The first store outside Spain was opened in 1988 in Portugal. The next international ventures were New York in 1989 and Paris in 1990. By the end of 1990, Zara had operations in 82 cities across Spain and three cities internationally.
Zara’s Factors of Profitability
1. Short lead time, keeping up with fashion:
By focusing on shorter response times, the company ensures that its stores are able to carry clothes that the consumers want at that time. Zara can move from identifying a trend to having clothes in its stores within 30 days.
2. Reducing risks:
By reducing the quantity manufactured in each style, Zara not only reduces its exposure to any single product but also creates an artificial scarcity. As with all things fashionable, the less its availability, the more desirable the object becomes.
3. Leadership in number:
Instead of more quantities per style, Zara produces more styles, roughly 12,000 a year. Thus, even a style sells out very quickly, there are new styles waiting to take up the space.
4. React rather than predict:
What sets Zara apart from many of its competitors is what it has done to its business information & business process. Rather than concentrating on forecasting accurately, it has developed its business around reacting swiftly.
Four critical information-related areas that give Zara its speed include:
One of the secrets behind Zara's success was its ability to spot emerging trends and react quickly. Zara had a dedicated design team in Arteixo, A Coruña, in northern Spain. Ideas for new designs or for modifications to be made in existing designs mainly came from Zara's stores.
The store managers and sales staff updated the head office every day about the moving stock and about customers' demands. Across all the stores, Zara's sales staff was equipped with wireless handsets, which provided data to the store manager about the pieces sold. The manager consolidated the data and sent it to the company headquarters through the Internet.
Instead of projecting sales for a certain color, fabric, or style and launching such products, Zara reacted swiftly to emerging trends in the fashion industry. The company ensured that its stores were stocked with the products that the customers wanted at that point of time. In contrast, other retailers took between 8 and 12 months to forecast and...