Introduction

Zara was launched in 1975 as a local store, "Zara" is now

the world's third largest clothing retailer.
The company, Inditex, has two dozen manufacturing plants
in Spain and more than 1,160 stores in 34 countries from
the United States to Japan.

Zara developed a business model that incorporated the
following three goals for operations:
1. Develop a system the requires short lead times,
2. Decrease quantities produced to decrease inventory risk
3. Increase the number of available styles and/or choice.
Thus, combining moderate prices with the ability to offer
new clothing styles faster than its competitors.


ZARAS BUSINESS MODEL

Zaras business model can be broken down into three basic
components:

1. Concept: To maintain design, production, and distribution
processes that will enable Zara to respond quickly to shifts in
consumer demands.

2. Capabilities: It maintains tight control over their production
processes keeping design and manufacturing in-house or with
some strategic partnerships located nearby . They have strategic
agreements with local manufacturers that ensure timely delivery
and service. Thus, maintaining the flexibility necessary to design
and produce over 12000 new items annually.
3. Value drivers : for Zara are both tangible and intangible in the
benefits that are returned to all stakeholders.

Tangibly Inditex, the parent company of Zara, has 11.02% net
margin on operations.
Intangibly, customer loyalty and brand recognition have
provided significant value to Zara.

INVENTORY MANAGEMENT

50% of the products Zara sells
are manufactured in Spain, 26%
in the rest of Europe, and 24% in
Asian and African countries and
the rest of the world.

The company can design a new
product and have finished goods
in its stores in four to five weeks

It can modify existing items in as
little as two weeks. Shortening
the product life cycle means
greater success in meeting
consumer preferences.

Zara maintains a design team of
200 people, all of which produce
approximately 12,000 new styles
per year for Zara.

Zaras inventory model



THE COMPETITVE EDGE

Key features in the inventory management practises

Zara, unlike its competitors such as Gap, Benetton, and H&M,
does not use Asian outsourcing.
Eighty percent of Zaras materials are manufactured in
Europe, with 50% made in Zara controlled facilities in the
Galicia region of Spain near headquarters.
The local strategic partnerships that Zara maintains with
manufacturers in Europe allow for a product throughput time
of 3-4 weeks from conception to distribution.
To make this happen, the company designs and cuts its fabric
in-house and it acquires fabrics in only four colors to keep
costs low. Zara postpones dyeing and printing designs until
close to manufacture, thereby reducing waste and minimizing
the need to clear unsold inventories.

Key features in the inventory & competitive advantages:
The proximity of these
suppliers gives Zara great
flexibility in adapting their
product lines based on up to
date market trends and
consumer behaviour. It also
decreases costs of holding
inventory.
Zaras competitors, through
outsourcing to Asian
countries such as China,
sacrifice the benefits of
proximity for low labour and
production costs.


Though there is a cost advantage in their approach in
regards to labor, the lack of flexibility in changing orders
based on current trends hinders their operational
efficiencies.

Inventory costs are higher for competitors because orders
are placed for a whole season well in advance and then
held in distribution facilities until periodic shipment to
stores.

This proximity effect and the flexibility that it gives Zara is
fundamental to their basic concept to respond quickly to
shifts in consumer demand and has provided them with a
competitive edge in comparison to their peers.

Competitive edge
Zara has competitive advantage especially in the areas of product
development, strategic partnerships and cost of production, advertising and
marketing, and information technology infrastructure.
References
http://www.zara.com/
www.3isite.com/articles/ImagesFashion_Zara_Part_I.pdf
http://hbswk.hbs.edu/archive/4652.html
Harvard Business Review, Vol. 82, No.11, November 2004
http://en.wikipedia.org/wiki/Fast_fashion
http://www.torex.com/english/news/whitepapers/pdf/Fa
stFashion-en-WP.pdf