Zara It For Fast Fashion
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ZARA IT for Fast Fashion ( Case Analysis) 1) Please describe three most important competitive advantages of ZARA (Inditex) over its main competitor. How sustainable is this advantage? 2) Assume that ZARA is considering to enter the US market. Please recommend actions for ZARA. Please make clear assumptions when necessary.
After reading and analyzing the Zara case we came several conclusions when it comes to Zara’s competitive advantage over its competitors. We understood that Zara is using totally distinctive business model compared to other more traditional fashion etailers.
In our opinion there are three most important advantages that Zara has over its competitors. These are : IT Software/internal information flow, Factory locations/Geographic placement, Just in Time approach. We believe that these three factor are the main determinants when it comes to Zara’s strong current position on the market.
Below I will go more in detail and explain every single factor individually. Software/internal information flow First factor which gives Zara competitive advantage according to me is their software. The fact that all the software (PDA) used currently by Zara is developed by them gives them huge competitive advantage.
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Having the software developed internally makes it much more efficient and user friendly because it is compatible with the companies daily operations. Everything starting from the operational procedures, performance measures, and even office and store layouts are designed to make information flow simple.
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Making the internal information flow faster and more efficient is one of the key success factors for Inditex. The fact that all the stores are directly connected to the main system which in ollects all the data is a great way for analyzing things that are going on in different stores.
But all in all we would say that this factor is not a sustainable advantage. Everyone can copy the system or even create their own. The issue might be cost of R&D connected to development of such a system. But if we are talking about Zara’s main competitors it is fully possible. Manufacturing and Distribution (Factory locations/Geographic placement) The firm has built its highly developed strategy around consumer trends and embracing the fast-changing tastes of its customers. The fashion industry is a fast changing industry with new trends appearing on daily basis.
Zara produces their clothing to have a short wear span (10 wears) forcing consumers to need to purchase more designs sooner. This ensures a high competitive edge for Zara in product respond to this fast changing trends Zara has developed a highly responsive supply chain based mainly on internal communication. They have a fast production and distribution strategy that allows them to offer the latest fashions in less than two weeks. It is very important to mention that Zara manufactures its products on all the ontinents.
The manufacturing is divided between Spain where around 50% of Zara’s products are manufactured, rest of Europe where 26% are manufactured and the remaining 24% is outsourced to the Asian and African countries. So what is so special about this division of manufacturing ? Well firstly we have to look at the costs of production. The cost of production in Northwest Spain (wages are relatively low/ unemployment high 17%) or northern Portugal are significantly lower than in other countries around Europe.
The products which have longer shelf life like sweatpants, inglet’s or t-shirts are outsourced to Asia, while the fashionable product with constantly changing trends are produces in Portuguese and Spanish factories. Because of the strategic location of the factories in Europe Zara is able to produce and transport much bigger amounts of products to their stores in much shorter amount of time. Zara’s new designs can get into stores in as little as two weeks. Compared to Zara’s competitors who need to wait for their new inventory for around two months.
Also when it comes to designs Zara outclass its competitors by roducing up to 11,000 distinct items annually while key competitors produce between 2,000 and 4,000. We also have to keep in mind that Zara is Just a fashion imitator. This makes it less time consuming when it comes to creating new trends and designs. Zara Just copies whatever is out there on the market and sells it for much lower cost. We believe that Manufacturing and Distribution is Zaras main competitive advantage which can remain sustainable. Why ? I believe that because of the economics of scale and company’s’ current passion on the market.
Even if any of Inditex’s big competitors would try to copy this system, they would lose significant part of the market share because it would be very expensive and time consuming transitional process. On the other hand the barriers to entry for the newcomers are just way to high to even compete on any level with companies like Zara. Just in Time Approach There is little inventory anywhere in the Zara’s supply chain because Zara uses the JIT approach. Zara has pioneered its operations, which enables the constant introduction of new items in short lead times.
A little bit about Just in Time01T) roduction used by Zara. JIT is a production method that strives to increase return on investment, reducing inventory and associated carrying costs. The JIT process relies on signals, also called Kanban. It tells production when to make the next part for the production process. Usually Kanban is placed as tickets but it can also be a simple visual signals. E. g. presence or absence of a part on a shelf. Kanban is a system to control the logistical chain from a production point of view, and is not an inventory control system.
When JIT is Implemented correctly like in the case of Zara it focuses n continuous improvement and it can improve a businesses’ return on investment, quality, and eliminating non-value added activities. In order to achieve continuous and employee involvement. Inventory is seen as incurring costs, or waste, which do not create any value added. Just-in-time encourages businesses to eliminate non- value added activities that does not compensate for manufacturing process issues, and it helps to constantly work towards improving those processes to achieve less inventory.
In short, the Just-in-Time inventory system focus is having “the right aterial, at the right time, at the right place, and in the exact amount”, without the safety net of inventory. Strategic decisions for a company (Zara) that are supported based on JIT: – Increase profit margin by skipping retailers (online sales) – Create price premium product based on JIT – Eliminate non-value added activities (cut costs) Zara entering the US market If Zara was planning to enter the US Market they would have to do a lot of strategic preparation.
The system which they have In Europe would not work in US because of the geographic location of the United States. The supply system would not be efficient enough since the products would have to be shipped all the way from Europe or Asia. As the result of that Zara would not be able to switch their inventory each two weeks. The lead times would change. We believe that the best solution would be to copy the European business model. What do we mean by that? Part of Zara’s success is the geographic position of its factories.
The Spanish and Portuguese manufacturing plants are able to produce and ship an item in a very short time. The position of the factories is strategic, the fact that the factories are in Europe. Resolution for that could be establishment of the manufacturing plant in Mexico. The country is relatively cheaper than the US but it is Just by the border. By establishing production plants in Mexico Zara would have the opportunity to create similar situation as they have in Europe at the time.
One more thing which definitely should get more attention in the US is advertising. Zara spends only 0. 3% of its revenue on advertising while their competitors spend between 3% and 4%. We believe that this strategy may work on the European market but in the US the advertising budget hould be raised. In the US the advertising is much more aggressive so in order to become noticed Zara needs to leave their old ways behind and compete as equal with the big companies on the American market.
Zara should also somehow test the US market before entering. We believe that by offering the online store first they would get much greater understanding of the market as a whole. The company would be able to see the different trends within a market and how it is divided. All the information from the online sales could be then used as a part of the strategy hen it comes to placement of the retail stores and overall general info about customer needs in given parts of the country.
Benchmarking of their biggest competitors on the American market would be highly recommended. Before entering a new market you need to know what are the best practices of your competitors. Ohno, Taiichi Oune 1988). Toyota Production System – beyond large-scale production. Productivity Press http://en. wikipedia. org/wiki/Zara_(retailer)#cite_note-10 http://www. forbes. com/sites/gregpetro/2012/10/25/the-future-of-fashion-retailing- the-zara-approach-part-2-of-3/
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