MAYUR S. JAGTAPBVIMSR, MMS 2ND Yr. (OPERATIONS)

GROUP IIDATE: 6/10/10

ZARA: RETAIL @ THE SPEED OF FASHION

CASE STUDY

Q.1.How does ZARA manages more styles?

Ans: - Zara's success from the perspective of time-based competition. While most of people attribute Zara's time-based success to its extremely short lead time and regard Zara as a benchmark for speed

Managing more styles is possible for Zara mainly because of the shorter lead time (2-4 weeks) compared to industry average lead time of 4-12 months.

The reduction in lead time is associated with all activities involved in total process of getting final product from the state of initial idea generation.

We can distribute the Zara operations in following categories:

1. Idea Generation 2. Product design & approval3. Sample or prototype Production4. Approval of Sample 5. Manufacturing

a. Cutting b. Stitching

6. Distribution

Now we will see how Zara managed to achieve the shorter lead time. On the basis of above areas 1. Idea generation : For Zara the strategy was not to create the fresh design it is all about following the trend in fashion faster i.e. Follow early. This it self reduce the time required for idea generation. Collecting the information on consumer needs, trends information flows daily and it is fed into database at head office designers check the database for these dispatches and sales number to get idea about the trends. Information technology helps this phase so that all data available at single source.

2. Product design

After the idea generation the product design is created in coherence with commercial manager and designer. The finalization of design is done by considering both functional department that is commercial dept and designer.

As most of the managers are located at Spain it is for them to come together for meeting and work in team. This not only helps to better product design and reduction in lead time that may cause during the approvals from different departments for finalizing product design.

Concurrent engineering is the key.

3. Sample and Prototype production :

Zara believes in keeping raw material inventory instead finished good inventory as it is more dangerous.

Zara keeps the raw material of fabrics and trims preparation of Sample model can be done very rapidly. Ready availability of Raw material reduces sample production time.

4. Approvals Approvals are quick as entire team is located at same place. Proximity of different department reduces time required for approvals

5. Manufacturing

In this the Zara achieves the shorter lead time in manufacturing by ownership and control of products.. Manufacturing can divided in two sub part

a. Cutting: - it is an capital intensive area and to control this Zara vertically integrated with cutting company.

b. Stitching: - the stitching is labor intensive actually it is outsourced to no. of local venders. as well as the operating procedures are provided to manufacturing are starts .

7. Distribution System :

Distribution system high tech with minimum human intervention.having aprox 200 km underground tracks move merchandise to 400 + chutes. It is having optical reading devices to sort out and distribute more than 60000 item in hr and eliminate human sorting so that reduce error.

Q2. How does Zara makes profit inspite of all above ?

Ans:- Zara is having its key features as Shorter lead times Lower Quantities More styles

For Achieving all above things cost is considered to be high but inspite having all above things Zara makes Profit because of following

1. Shorter lead time: For achieving this zara placed its all facilities in Europe about 80% of zara facilities are located in Europe. And which is costlier than any Asian Country in terms of cost of production. Zara reduces the cost by employing grand mother, mother and teenage girls which can work at relatively low salary than male workers .This reduces cost to Half compared to other competitor in Europe.

2. Lower Quantities :

This adds to multiple set up so that high change over cost. But at zara this lower quantities for each style is produced by capital intensive factory which does the basic Dyeing and Processing.

In this area zara reduces cost by keeping inventory of fabric raw material which can be colored to and required clothes can be obtained. This reduces inventory cost.

As lower quantities per styles are produced it reduces the risk of items becoming non moving as only small quantities are produced. This non moving stock required to be sold at discounts. In fashion industry it’s about 30-40 % where as in zara it is only 18 % half the industry average.

3. More styles :

More style mean high product design and development cost.

The zara in creating the more style but it not trend setter it in business of early follower of trend and with high distribution. As it is early follower of trend by interpreting trend so that less cost of designing and development.

4. Marketing :In terms of marketing the zara depends upon the simple philosophy of putting store in Prime location which is highly visible which renders the cost of advertising which is more common in fashion industry.Zara spends on 0.3 % sales on advertising where the industry average is about 3.5 %

Above this parameters reduces the cost of zara product to an extent, rest of high cost is covered by zara through premium pricing of product as it is early follower.