Zara Case 1

Zara is a successful multinational firm that retails and manufactures apparel. The company is a success due to its linking of the retailing process to the manufacturing process so as to reduce the situation in the apparel industry whereby it is difficult to forecast customers demand. The firm responds quickly to the target customers’ demand, most of whom are young and fashion-conscious city dwellers. The firm responds quickly due to the fact that the customers’ tastes are hard to predict and change very fast. By so doing the company outsmarts its competitors in the industry such as Gap. Zara, through its innovation creates and captures a new market thereby displacing new technology.

Zara spends heavily on its stores rather than on advertising unlike its competitor Gap. The store layouts are usually changed every four to five years, altering the artworks, the windows displays and sales racks. In so doing the customers are attracted by the stores which are strategically placed, along busy streets. Gap on the other hand invests heavily in marketing, as it believes that marketing attracts and convinces the customer to buy its apparels. Zara has a 1,500 square-meter pilot store that is used to test store layouts before being rolled out to the world. The firm operates 1, 558 stores in 45 countries, 550 of which are part of Zara chain. In the fiscal year 2002, Inditex which is the companies head made a net income of $502 million U.S. dollars in revenues. It maintained its profitability in a continuous trend.

Operations

In its operations, Zara quickly and accurately responds to the ever shifting demands through its ordering, fulfillment and manufacturing cyclical processes. Every major section of the firm’s store place orders twice a week to for the group of “commercials” at La Coruna. Through talking to the salespeople the hand held computers, the managers learn about newly available garments. The clothes are then shipped to the stores so as to satisfy the orders. That thus matches up the supply of finished clothes from the factories with the demands from the stores. Deliveries show up at the stores after a period of one or two days after the order is placed. Zara has no storage room where excess inventory may be kept.

Zara introduces new design collections at the start of the fall and spring buying periods and besides that it introduces new items throughout the year. The constant introductions of new items throughout the year are enabled by the company’s vertically integrated manufacturing operation. The company has no chief information officer and no formal processes for setting the IT budget, which therefore makes the firm consistent with its preference for speed. The systems that supported ordering, fulfillment and manufacturing were largely developed internally.

The applications used in Zara to plan production are simple ones. The applications simply present the factory managers with quantities and due dates for all the production requests. The only complicated machines are the ones that are used to cut clothes into patterns. The company’s distribution centers rely on automated conveyor belts which facilitate the ongoing task of receiving bulk quantities of each garment from factories rather than recombining the garment into shipment for each store.

The stores of the firm uses technology such as the personal digital assistants to reduce the much time wasted to transfer order forms from store to store around the world. The technology is also used in tasks such s handling garment returns to distribution centers and transmitting the information from headquarters to all the firm’s stores. Zara constantly upgrades its technology so as to remain technologically valid in terms of efficiency and effectiveness.

The core competencies that Zara has built up to allow them to effectively execute the behavior drivers are:

· Forty-six percent of the groups sales were inside Spain in 2003

· 60% of the sales was to women

· 20% of the sales was to men

· 20% of the sales was to children

· In 2002, inditex posted a net income of $502 million on revenues of $4, 544.

In its operations, as the company’s goal is, it quickly and accurately responds to shifting consumer demands through its three cyclical process of order fulfillment, design and manufacturing. Ordering process is the most regular, precisely defined and standardized around the world.

A business model is the plan implemented by a company in order to make more profits than its competitors in a highly competitive industry. The model includes the company’s components and functions of the business, and the revenue it generates.

Distinctive competencies of disruptive companies.

· Ability to create a timely and accurate “one-number plan” that drives all the business functions and enables planning initial assortment at the store level.

· To develop a synchronized supply chain with the ability to, react to trends and real-time market opportunities.

· To identify the recent fashion trends at the store level in real-time to determine how best to maximize sell-through

The competitive advantage of the disruptive companies is that they are able to meet the clients’ needs when the time is right. They are flexible and can manipulate technology to suite the market trend.

Gap spends more on advertising since advertising is believed to convince the customer into buying a product. Gap believes that by advertising the sales will increase and so will the revenue and profits. The primary objective of the advertising is to convince its customers to buy more products which are lying in their “backrooms” and thereby increasing sales.

Gap introduces a new line of clothing twice in a fiscal year. That is done during the fall and spring buying periods. Gap manufactures at the preseason level, before the early season wets in.

The primary sources of risk for Gap with the approach to the apparel manufacturing and retailing business

Agile vertical retailers, mass merchants and retail private label brands are the primary source of risk that the apparel manufacturers face. This erodes the prices and profit margins and demands more flexibility.

Gap makes money by using the product life cycle. At first forecasting of the product demand is done, followed by identifying demand trend versus forecast. After that is done, the right price strategy to maximize revenue is identified. Additional shipments for the fast moving replenishes able items are done and then finally transfer the products not yet sold to another store.

Gaps core competencies are:

· To create a timely and accurate “one-number plan” that drives all the business functions and enables planning initial assortment at the store level.

· To develop a synchronized supply chain with the ability to, react to trends and real-time market opportunities.

· To identify the recent fashion trends at the store level in real-time to determine how best to maximize sell-through

The competitive advantages are:

· The company brand is known to many and enjoys a large market share

· It enjoys the economies of scale that are associated with being in the company for long.

· It has financial advantage as it has many financial partners.

Zara’s target customer group is the young, fashion-conscious urban dwellers. The customers are fashion conscious and their taste change quickly.

Zara in response to that the rapid change of taste, developed an operation system that ensures the products get to the market when the product is hot in demand. The firm links the manufacturing unit with the retail unit and the retail unit with the supply unit.

Zara ensures that the customers’ behaviors of going with fashion are fulfilled by producing the right apparel at the right time to the customers. The customers’ taste and preference changes very fast, since they follow the fashion trend. Zara ensures that happens by linking the manufacturing department with the retail and by linking the suppliers with the retail.

In highly competitive industries such as that of apparels, disruptive model gives the company a competitive edge over the rest of the companies. In disrupting the technology of the other companies, Zara increased its profit margins and increase sales. Zara is the best example of how such disruptions increase revenues of a firm as it is the world’s leader in terms of revenue and growth rate.

References

(2013, 13). Zara’s case Quest. Retrieved from http://www.casequest.net/Zara%20CaseQuest/process.html

(2013, 13). Responding to new challenges in the branded apparel industry. Retrieved from http://www.veritypartnersllc.com/files/phatfile/Verity%20Branded%20Apparel%20whitepaper%20final.pdf?&MMN_position=31:31