Strategy Zara (General)

Customer can always find new products but theyre in limited supply
Control what happens to your product until customer buys it.
Goal: creating the sense of exclusivity.
In customers mind: This shirt fits me, and theres only one on the rack. If I dont
buy it now, Ill lose my chance
This concept depends on the regular creation and rapid replacement of small
batches of new goods.
To support the strategy, Zara implement vertically integrated supply chain based on
3 reinforcement principle which defies most of the current conventional wisdom
about how supply chain should be run.
You need to have five fingers touching the factory and five touching the customer
- Senor Ortega
1. Close the loop
The fast fashion system depends on a constant exchange of information
throughout every part of Zara supply chain.
Consume
rs

Store

Distribut
ors

Store
manager

Market
specialist
&
Designer

Warehou
se
Productio
n staf

Cycle to create a product

Centralized design & production center running 3 parallel line of operation

men, women, and children. More expensive but more responsive.
200 designers works next to the market specialist, procurement, and
production planners.

2. Stick to rhythm
Specific time to order

Specific time to order

Spain Spain & Southern

Europe
3.00 P.M Wednesday
06.00 P.M. Saturday

Rest of the World

3.00 P.M Tuesday
06.00 P.M Friday

Order fulfillment through all kind of transportation: planes, ships, trains,

trucks
European Stores
US Stores
Order fulfillment
24 hours
48 hours
Regular customers know exactly when the new delivery come, as a result,
they visit the store more frequently.

All the items have already been prepared (ironed, etc.) and price tagged
Most of the items are shipped hung up on racks so they can be put on the
display the moment theyre delivered.
Moving unsold items after 2 or 3 weeks

3. Leverage your assets

Product of fashion industry short life cycle better owns few assets.
Zara case:
Buys fabric and dyestuf from another inditex firm
Produce half of its products in its own factories
Simpler products are outsourced to suppliers
Complicated products are produced in its own factories
Investment in capital assets can actually increase the organizations
overall flexibility (schedule & capacity). Result increase in maximum
production change, 40% to 50%.

Summary: Zara supply chain in practice:

Zara

Conventional Wisdoms

Overall

Production

Distribution

Retail shop

Manages all design,

production, warehousing,
distribution, and logistic
functions (vertically
integrated)
Penny foolish, Pound
wise: spends money on
anything that helps to
increase and enforce the
speed and
responsiveness of the
chain
Three design &
production line
in house
Fabrics & dyestuf from
affiliation
Leaves extra capacity
Small batches
Use any kind of
transportations to make
the deadline
Priced tagged, ironed
before shipment
Items are shipped hung
up on racks
Large areas (several are
empty) & encourage
occasional stockouts

Manages part of the

supply chain processes
(horizontally integrated)

Cost efective

One design & production

line
Outsource
Fabrics & dyestuf from
outside suppliers
Maximize outputs
Chasing economics of
scale
Chose transportations
with low cost
At each store
Items are folded, placed
inside the box.
Barely fit areas & do not
encourage occasional
stockouts

Zara Competitive Advantage as a result of the strategy

Zara
Design to display
15 Days
Visit from customers
More frequently,
Zara stores In London: 17
times annually
Revenue
85% of full ticket price
Net margin on 2001

10.5%

Advertisement cost/sales

0.3%

and priciples
Others
Months
Per seasons,
4 times anually
60% to 70% of full ticket
price
Benetton: 7%
H&M: 9.5%
3 to 4%