Rapidfire Fulfillment- Zara

A Case Study

Group -2

Bodhisattwa Dasgupta
Mohit Sethi
Samarth Kapoor
Ekta Agarwal
What is the Competitive Strategy of Zara ? How is it positioned in the market ?

The ZARA competitive strategy is driven by the “Super Responsive Supply Chain” for the company. Additionally we can
categories the same as below -
 Product Design: new Frequently bringing new designs as against competition.(~10,000 designs annually) ; more than
300,000 SKU’s every year.
 Sales and Marketing : Limited merchandize , short window opportunity is a motivating factor; e.g. - Increased foot
fall in London stores.
 Operations : Spending Money to improve the responsiveness of supply chain.
: Having total visibility and control on the entire supply chain till the time of final delivery to customer.
 Robust supply chain of 15 days from designing of Garment to final sale which is Zara the primary reason for ZARA to
collect 85% of inventory at full ticket price as against 60-70% industry average.
 Inhouse Production v/s Outsourcing – generally producing the main complex designed articles in-house and
producing efficiently with automated techniques to cater the full demand.
 Producing in small batches and keeping buffer capacity to have quick response time for fulfilling customer orders
 Information System : Rapid Exchange of Information from customers to designers and from retail store to
manufacturing site.

Market Positioning :
Zara is known for its Luxury clothing brand and has more than 650 stores across 50 countries. It is known for its fashion
trends that are updated quickly.
Continuously innovate to improve customer experience
2. As per the supply chain uncertainty framework,
o The company has developed responsive supply chain category having the below traits
 Flexible manufacturing system
 Maintaining Capacity buffer
 Manufacturing critical and innovative product in-house and only simple items were outsourced
 The response time was very quick (delivery twice a week and get delivery within 2 days of placing the order)
 Achieved almost 70-80% of full rate sale thus maintained higher margin
 Planning system was very quick and flexible by quick inputs and output response, extensive market research
 Highly automated factories
o ZARA nature of offerings falls under the category of innovative products because
 Caters to niche segment thus has high margin,
 highly fashionable product range and thus changing frequently
 the apparels were high in terms of variety,
 manufactured in smaller lots etc.
 Demand is highly uncertain while the supply is certain
• ZARA has developed extraordinary supply chain which is different from any other apparel industry in the world, giving high
competitive edge by integrating the customer needs with its business strategies.
• Eventually, we can say ZARA reacted must faster then their competitors to meet the unwanted demand and even every
time giving some new taste of fashionable and trendy products.
How do the following supply chain elements support Zara’s competitive strategy ?
Product Development
• Design to display in 15 days
• Fast transfer of data from shoppers to designers
• Designers and manufacturing team working together in the same vicinity
Manufacturing
• Major capital investments
• Manufactures complicated products in-house
• Manufactures in small batches
• Specs directly transmitted from production design thus saving time
Distribution
• Constant flow of data negates any scope of bullwhip effect
• Central warehouse prepare shipments for every store
• All trucks run on established schedules to airports or stores
• Adherence of designated timelines for stores
• Eventually customers visit to stores at pre-designated times
Supply processes (design-sourcing-manufacturing-delivery)
• Specific time ordering ensures no juxtaposing
• Design happens in La Coruna offices
• All manufacturing is taken care of by Zara only
Vertical Integration
• Zara manages design, production, distribution, marketing, sales all by itself
• Hence seamless forecasting and demand fulfilment happens
• Easy communication between various stages of the product
• Ortega says- five fingers on factory and five fingers on customers
Organization Structure, office setting and culture
• Lean Organizational structure based on high performance
• Single, centralized design and production center
• Floor to ceiling windows to bring in positive vibes
• Impromptu meetings are held
• Talent is in abundance
How does the strategy enable Zara to deliver superior Financial Performance ?

Below are the various reasons which enable Zara to deliver superior Financial Performance based on its strategy:
1. Zara collects 85% of the full ticket price against the industry average of 60% to 70%.
2. Less inventory cost, Zara inventory stock is not more then 10% of the sales , compared to its competitors which is 14
to 15%
3. Higher net margin, almost 10.5 % against the competition of 7%-9% for its competitors while gap has 0% margin
4. Zara produces half of its products in its own factories thus making maximum utilisation of its fixed cost
5. Zara keeps extra capacity on hand so that it can respond fast and react to peak or unexpected demand which
increases the market share and the same is directly proportional to higher revenue and margin
6. Low working capital requirement – because of faster movement of goods
7. Zara allows the retailers to change their orders once the season started to about 40% to 50% as compared to others
which allows only 20% . Due to which costly overproduction has been avoided by Zara.
8. ZARA don’t have need for advertising and thus Zara only spends 0.3% of sales on ads as compared to its rivals where
they spend 3% to 4%
9. Receiving of the small shipments and carrying less inventory, reduces the risk involved. Therefore, in Zara unsold
items account for less than 10% of stock which is less as compared to the industry average of 17% to 20%.
Can this strategy be used by all apparel companies ? Why ?:

- Zara’s strategy is focused upon a super responsive supply chain.

- It is difficult to replicate by the other brands because of the following reasons :
- Capacity Utilization : Most of the Merchandize companies strive to achieve economies of scale
by achieving maximum capacity from the capital assets , while Zara keeps a buffer capacity to
cater the increased demand during the peak periods.
- Design Flexibility : Zara is able to have quicker response to change in fashion even in middle of
the season because of its quicker response time and customer visibility , the other companies
may not have that much privilege as they start and finalize their designs many months in
advance and stock up the retail stores.
- Investment : It is a hard decision to “Send half empty trucks” and do air shipment which is very
costly.
- Information System : Zara is keeping a full track of the movement of goods and fashion trends
by having a robust information system.

Conclusion : Though it is difficult yet achievable by the competitors of Zara to implement the
similar system , it need the management commitment , risk taking capability and agility to make a
shift towards Zara Model of supply chain. Zara has already gained the first mover advantage in this
area.