Title: Zara – Master of “Fast Fashion”
Industry: Fashion Retailer
Resources: Wikipedia-Zara, Bloomberg, Forbes, Supply Chain Forum
In 1963, Amancio Ortega Gaona, the son of a railroad worker and housemaid, started to manufacture women’s pajamas and lingerie products for garment wholesalers. However, in 1975 after a German customer cancelled a sizable order, the firm opened its first Zara retail shop in La Coruña located in north-western Spain.
The original intent was simply to have an outlet for cancelled orders but the experience taught him the importance of a ‘marriage’ between manufacturing, retailing and tight control of the supply chain.
Today, Zara has over 2,000 stores in 88 countries and has made Amancio Orgega Gaona Spain’s wealthiest man and is listed at # 4 of Forbes richest list with an estimated wealth of $65B.
SPEED TO MARKET
Speed to Market is critical in the Fashion Industry and Zara has mastered “Fast Fashion”.
Fast fashion is defined as the quick movement of fashion designs from the catwalk to the store shelves.
On average it takes most fashion retailers six months to produce garments but Zara manages to do it in 3 weeks. How can they do this?
Zara maintains a strict control on their supply chain. Over 72% of their clothing is designed and manufactured in Europe. Even if an item is outsourced such as plain white t-shirts made in Asia, the garment still needs to be sent to their distribution centre for quality control, ironing and prices tagged prior to shipping. Zara puts price tags on all of their clothes prior to shipping so sales staff can focus on selling.
Every garment is sent to the distribution centre via an automated underground monorail consisting of 124 miles of tracks.
This “fast fashion” system depends on a constant exchange of information throughout every part of Zara’s supply chain—from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy that can bog down communication between departments. But Zara’s organization, operational procedures, performance measures, and even its office layouts are all designed to make information transfer easy.
SOCIAL MEDIA AND SUPPLY CHAIN
It doesn’t hurt that one of Zara’s biggest customers is the Duchess of Cambridge, Kate Middleton.
The day after her wedding she appeared in this Zara blue dress as part of her going away outfit. Once it was posted on social media the Kate Effect took over.
The Kate Effect is the trend the Duchess of Cambridge has on the fashion industry and most recently baby attire. When she or her children are photographed in something new, the product has a tendency to fly off the shelf.
Although Zara wasn’t advised the Duchess had chosen one of their outfits on her first day as part of the British Royal Family, they had the control in their supply chain to meet the new demands of their customers within a week.
Unfortunately, other designers who do not have the flexibility in their supply chain, need to promote items on their website sometimes weeks later.
Since fashion is such a fickle business and trends come and go, it’s imperative that retailers have systems in place to meet the demands of the market.
Zara is careful about the way it deploys the latest information technology tools to facilitate these informal exchanges.
Customized handheld computers support the connection between the retail stores around the globe head office in La Coruña.
These handheld personal digital assistants (PDAs) augment regular (often weekly) phone conversations between the store managers and the market specialists assigned to them. Through the PDAs and telephone conversations, stores transmit all kinds of information to La Coruña—such hard data as orders and sales trends and such soft data as customer reactions and the “buzz” around a new style. While any company can use PDAs to communicate, Zara’s flat organization ensures that important conversations don’t fall through the bureaucratic cracks.
Since Zara doesn’t spend any money on advertising it is critical they stay in touch in key areas:
Close the communication loop.
Zara’s supply chain is organized to transfer both hard data and anecdotal information quickly and easily from shoppers to designers and production staff. It’s also set up to track materials and products in real time every step of the way, including inventory on display in the stores.
The goal is to close the information loop between the end users and the upstream operations of design, procurement, production, and distribution as quickly and directly as possible.
Stick to a rhythm across the entire chain.
At Zara, rapid timing and synchronicity are paramount. To this end, the company indulges in an approach that can best be characterized as “penny foolish, pound wise.” It spends money on anything that helps to increase and enforce the speed and responsiveness of the chain as a whole.
Leverage your capital assets to increase supply chain flexibility.
Zara has made major capital investments in production and distribution facilities and uses them to increase the supply chain’s responsiveness to new and fluctuating demands. It produces complicated products in-house and outsources the simple ones.
Zara also has a strict supply chain model consisting of 7 rules.
1) Produce in small lot: small lot is the unique characteristics of lean manufacturing which is not the case here. The logic behind this is that small lot creates the sense of exclusivity. Customer need to make a quick decision otherwise the next day the products they want will be gone. So customer visits Zara’s stores to see new products more often and this creates the huge amount of traffic and revenue.
2) Centralize design and product development: the norm in the apparel (and some other) industries is to develop new products by both in-house staffs and through merchandisers. In the latter case, suppliers need to send samples (through merchandisers) to buyers many, many times. Elimination of this back-and-forth communication reduces the time to market drastically.
3) Utilize work cell organization: each new product development team has its own designers, sales, procurement, and production planners the same way as in a cellular manufacturing. This helps Zara to streamline the internal communication a lot.
4) Control scheduling strictly: at Zara, store managers can place orders 2 times a week, shipments are prepared and delivered within 24 hours (in Europe) and products will be on displayed at stores the same day they arrived. Since everything runs in a steady pace, they can reduce the waiting time at every step of the way.
5) Keep production in-house: Zara tries to stay away from low-cost country sourcing and make an investment in the in-house manufacturing as much as possible. The reason is that they believe the in-house production helps them to increase the overall flexibility.
6) Automate production and warehouse facilities: since Zara believes in time based competition, automation is the key to help them to increase the speed and the accuracy of the operations.
7) Adhere to all rules: implementing any one of these rules alone is not quite effective. Then, they have to stick to all rules so the whole supply chain is running like the well-oiled machine.
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