Zara sources fabric, other inputs, and finished products from external suppliers. It has purchasing offices in Barcelona and Hong Kong. This gives Zara a competitive advantage towards the costs of goods sold, as it can purchase from both Europe and Asia according to prices. Buying more from China in the future might reduce even more the costs of goods sold.
Inditex fully owns Comditel that managed dyeing, patterning and finishing of grey fabric of Inditex’s chains, and supplied finished fabric to external as well as in-house manufacturers. This gave Zara further competitive advantage, in terms of both cost and control. Inditex also fully owned 20 factories for internal manufacture. These factories apply just-in-time production (JIT). Again, this gave Zara further competitive advantage, in terms of both cost and control.
Zara’s business model makes it more profitable then any other retailer. We already know from marketing that the retailer gets almost half the price of the commodity sold. So by playing both the role of the manufacturer and the role of the retailer, Zara is definitely much more profitable than the average retailer with similar posted prices.
Zara does not compete on price. The usual Zara customer is not very price sensitive. Zara rather competes on fashion they can only do that by having that quick response capability.
Comditel, Inditex’s subsidiary, took only one week to finish grey fabric. The 20 fully owned factories responsible for internal manufacture applied the JIT production system. All the production was fully under control of Inditex. Vertical integration helped reduce the bull whip effect: the tendency for fluctuations in final demand to get amplified as they were transmitted back up the supply chain. Zara could originate design and have finished goods within four to five weeks for entirely new designs and two weeks for restocking or modifying existing products vs. six months for other competitors.
Due to this impressive...
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