How Zara uses supply chain to execute business model - Technology and Operations Management (2024)

FAQs

How Zara uses supply chain to execute business model? ›

Zara uses just in time production process with focus on in-house manufacturing [5] which enables company to be more responsive to demand changes. Zara uses frequent in-season assortment changes – company produces 50-60% of clothes in the start of the season.

RFID Technology. One of the results of Inditex's commitment to innovation, which has seen more than 1,000 million euros invested in technology over the last four years, is Radio Frequency Identification technology (RFID), which Zara has developed in recent years with the aim of responding to customer needs in store.

Zara's strategy disregards most of the components for a successful supply chain. Unlike many clothing suppliers that actively use outsourcing, Zara manufactures a significant number of its products using its own resources. The brand itself is engaged in the processes of design, storage, distribution, and logistics.

In short, Zara has the predictive capacity to determine what sorts of products will be easiest to sell. The immediate result of this good technology use is savings in inventory—a major expense for many fashion companies. The company's investment in big data also allows it to personalize the customer experience.

Because Zara manufactures only a limited supply of items, it doesn't have to deal with excess inventory or constant markdowns. + Pricing Power. Each store has a limited inventory of items in each style that are replenished based on demand. New styles based on latest trends arrive constantly.

Zara's use of technology across the value chain allows the firm to manufacture more unique items than rivals H&M and Gap. At Zara, clothes are ironed in advance and packed on hangers, with security and price tags affixed.

Zara − The Spanish fashion retailer was one of the first companies in the industry to adopt RFID technology. They use RFID tags to track inventory levels in real-time, reducing out-of-stocks and increasing efficiency.

Zara's Key Resources

Revolutionary fast fashion business model. Extremely short lead time and ability to quickly copy the latest trend. Cheaply off-shored labor costs and cost-friendly clothing material.

How is Zara's supply chain different from most other supply chains in their industry? they are carried out. Stick to a rhythm across the entire chain- It spends money on anything that helps to increase and enforce the speed and responsiveness of the chain as a whole.

Zara is the biggest Spanish clothing retailer in the world based on sales value. Its success is due to its fast fashion strategy that is based on a strong supply chain and quick market feedback loops.

What are supply chain strategies in operations management? ›

A supply chain strategy is the overarching plan that an organization uses to manage the flow of goods and services, from sourcing raw materials to delivering products to customers.

Vertical integration makes the Business model of Zara stand out. Via this, Zara manages the design, production, distribution, management, shipment, promotion, and sales all on its own. After being vertically integrated the brand can hold a lot of control over every aspect of it.

Artificial Intelligence Robots will fetch the products from the back of the automated retail stores and fasten the in-store collecting process. Purchasers who have placed the products orders through online can enter or scan code the collection point in store retail.

The most important aspects of Zara's approach to information technology are its ability to quickly design, produce, and deliver new styles of clothing to its customers. No, these approaches are not applicable and appropriate everywhere.

However, the brand has recently faced three main challenges: e-commerce, competition and sustainability.

Through differentiation and cost leadership, Zara attempts to increase market demand by offering new items weekly while keeping a low inventory, thus making its products unique and attractive to consumers.

In 2022, Zara promised to use 100% renewable energy in their own operations. In 2023 they promise to eliminate single-use plastics for customers. By 2025 they plan to introduce more sustainable 100% linen and sustainable or recycled polyester. By 2040 they promise to have zero net emissions.

Thus Inditex-Zara is able to successfully counter the negative effects of short product life cycles, high product variety, demand uncertainty and thus able to closely match product supply to the stores with market demand. This contributes to lower inventory backlogs; avoid mark-down losses and/or inventory stock out.

Retailers that adopt a vertical integration supply chain strategy are met with: better control of their value chain. reduced distribution costs. better alignment of pace to ever-changing fashion trends.

As a brand, their speed and responsiveness to the latest fashion trends are key to Zara's competitive advantage.

How does Zara's business model set it apart from other retail competitors? ›

Zara's business model combines cost-cutting and sustainable practices. Unlike other fast-fashion brands, Zara produces durable and affordable replicas of high-end clothing. It manufactures its apparel and accessories in bulk to provide them at competitive prices.

Zara's eCommerce strategy uses an automated marketing platform for sending relevant and timely emails notification to shoppers regarding everything from order status updates to back in stock notifications, and so on.

ZARA captures data from e-commerce sales, PDA devices and RFID tags on the clothing, POS terminals, and customer surveys. Customer preferences are captured by store employees in their PDAs in details: cut, colour, buttons, zippers, and more. Zara has constructed its business on RFID tags as per the Wall Street Journal.

In the case of the online store, Zara's marketing strategy is hyper-focused on visuals. They carry the minimalist design from the online store and present the product in a high-end luxurious manner even in their offline store. The product page is highly driven by product photos and high-quality product photo editing.

How does Zara use vertical integration? As the largest company in the Inditex group, Zara operates a vertically integrated business that controls all design, production, warehousing, logistics, and distribution processes for the 450 million items sold annually in their stores.

Zara's strategy is to offer a higher number of available products than its competitors. While most clothing retailers manufacture and offer to the public for sale 2,000 to 4,000 different articles of clothing, Zara's production has been markedly higher, at over 10,000 pieces produced per year.

Inditex-Zara's super-responsive supply chain reduces 'bullwhip effect', order-to-delivery lead time to stores, ensures lean inventory and high level of responsiveness to adapt and deliver products to stores with latest fashion trends and customer feedbacks at a rapid speed.

Strategic fit is the alignment between a company's competitive strategy and its supply chain strategy. It is essential for achieving a competitive advantage in the market. Zara has successfully achieved strategic fit by aligning its supply chain with its business strategy.

In 2011 AHA, the contractor reportedly responsible for 90% of Zara's Brazilian production was found to have subcontracted work to a factory employing migrant workers from Bolivia and Peru in sweatshop conditions in Sao Paulo to make garments for the Spanish company.

What are the 3 main actions of supply chain & operations teams? ›

The 3 main aspects of operations and supply chain management are purchasing, planning, and logistics. Purchasing deals with obtaining raw materials for manufacturing goods. Planning involves the estimation of needed manufacturing quantities following demand forecasting.

Operations and Supply Chain Strategy is the setting of broad policies and plans for using the firm's resources optimally. This must be integrated with corporate strategy. Operations effectiveness is performing activities in a manner that best implements strategic priorities at minimum cost.

Integration, operations, purchasing and distribution are the four elements of the supply chain that work together to establish a path to competition that is both cost-effective and competitive.

In the case of Zara, a fashion retailer, the value chain activities would include design and concept development, raw material sourcing, manufacturing, distribution, marketing and sales, and customer service.

Zara's success is based on its ability to adapt quickly. Unlike many clothing brands, whose designs are stagnant for the season, Zara is constantly assessing and reacting to the environment in a matter of weeks.

Individual Identification of Garments

ZARA makes use of this RFID mechanism in; Efficient distribution of products. Accurate management of in-store products. Speedy stock replenishment.

The business strategy of Zara is based on focusing both cost leadership and differentiation and this strategy is called integrated cost leadership and differentiation. Most important point of this strategy is to maintain balance between low cost and differentiated products.

Zara disrupted the fashion industry by shortening the time to market to less than three weeks from inspiration to retail. Zara created a new category of affordable fast fashion.

The biggest threat Zara is facing is the intense number and level of competition in the industry. With the increase in entrants due to the help of the internet, Zara must go up against online brands that are offering similar products for a lower price.

What are the three most critical factors of Zara? ›

Zara's Three Success Factors: Speed, Speed, and Speed.

Supply chain management (SCM) refers to the series of processes that begin with product manufacturing with raw materials and end with delivering finished goods to the customer. In the business-to-business, or B2B, business model, customers are other businesses rather than individual consumers.

Zara's eCommerce strategy uses an automated marketing platform for sending relevant and timely emails notification to shoppers regarding everything from order status updates to back in stock notifications, and so on.

The term “Operations and Supply Chain Management” (OSCM) refers to the management of an organization's supply chain & operations. It involves various tasks including sourcing, materials management, operations planning, distribution, logistics, retail, demand forecasting, order fulfillment, and more.

In business, supply chain management allows manufacturers to make as many products as needed to meet market demand. It helps retailers reduce excess inventory and lower the cost of storing products.

A supply chain strategy explains how a company will bring goods into the business and get them out to customers as effectively as possible. Considering every phase in the supply chain, such as sourcing goods, logistics and delivery, the strategy optimizes operations to reduce costs and maximize profits.

However, the brand has recently faced three main challenges: e-commerce, competition and sustainability. To sustain its global expansion, the brand made a step toward digital expansion even before the pandemic hit, and it paid off. So far in 2020, Zara reports a 74% jump in online sales alone.