Zara is a world famous Retail Chain based in Spain and is extremely successful in their supply chain.
1. What is Zara’s Business Model and its unique Supply Chain strategy?
Zara’s business model can be broken down into three basic components: concept, capabilities, and value drivers.
Concept is to maintain design, production, and distribution processes that will enable Zara to respond quickly to shifts in consumer demands.
Capabilities: Zara maintains tight control over their production processes keeping design and manufacturing in-house. Zara maintains the flexibility necessary to design and produce over 12000 new items annually.
Value drivers for Zara are both tangible and intangible in the benefits that are returned to all stakeholders.
The successful implementation of Zara’s business model provides great value to stakeholders and differentiates their business from their peers.
Three goals for operations: develop a system that requires short lead times, decrease quantities produced to decrease inventory risk, and increase the number of available styles and/or choice.
Zara has developed a business model based on short deadlines, decrease quantities and a great choice of style and clothes. The infrastructure: Zara only works with stores. They don’t make merchandising in internet. The company succeeds to make moderate prices with a large choice of new clothes every time. The success of ZARA is based on two principals: follow the trend to be able to sell garments at a moment where people want this kind of style, without using any advertisements as the concurrence does. They don’t want to convince people to buy their clothes but give the public what they desire at the moment. Secondly, the trust that had been given to employees allowed the company to delegate. They decide what clothes should be in stores, the designed the garments by pairs for a specific collection. Their role is to create clothes not to be sold for a long time but only for a short period in appropriateness with the current trend. The goal: of the firm is to convince the consumer to buy their clothes. Their bid: they propose and deliver all fashion style at the moment and they don’t want to make marketing for old or past fashion collections. The design and the organization of the stores are changed every four years behind the indications and orders of La Coruna in order to be creative and innovative all the time.
Unique Supply Chain strategy:
They have strategic agreements with local manufacturers that ensure timely delivery and service.
Zara is a vertically integrated company that owns different levels of the supply chain.
From manufacturing to warehouse to retail outlets, Zara owns all of these different entities. This allows Zara to globally optimize instead of locally.
This type of centralized decision making reduces the bullwhip effect on the overall supply chain.
Production costs (machinery and labor) are relatively high for Zara’s supply chain compared to their competitors.
Another interesting aspect about Zara’s supply chain is Zara does not forecast the upcoming season’s products before production. Instead , their design team observes the fashion trends at that second and reacts to consumer’s taste.
Information is also centralized allowing permeability amongst the different layers in the supply chain.
In order for this model to work, the supply chain has very short lead times and Zara states that it is able to go from design to final product delivery in 14 days.
2. What kind of IT System they are using and what are the major Benefits?
Zara’s information and communication protocols are significantly different from its competitors.
Zara spends less than 0.5% of total revenue on IT and IT employees account for only 0.5% of Zara’s total workforce.
This differs from their competitors who spend on average 2% of total revenue on IT...