zara value chain analysis

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Aalborg University

BSc Economics and Business Administration


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2012 October 24BSc Economics and Business Administration

Mini Project

!e "A#A $ase Study in

Economics and !e Organisation o% Economic Activity

!e re&ort !as been &re&ared by'

Inga Dragunaite ___________________________________

Justina Vaidziulyte ___________________________________

Kristina Kirilova ___________________________________

Aleksandar Varbanov ___________________________________

Nebojsa Abadzic ____________________________________

Delivery date !"#$%#!%$!

Number o& 'ords o& t(e re)ort *+!*

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$ontentsIntroduction,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,+

Describe t(e Value -(ain o& Indite.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,*

/rom Agency 0(eory vie'1 describe t(e incentives structure &or t(e store managers,,,,,,,,,,,,,,,,,,$%

/rom 0ransaction -osts Economics vie'1 discuss i& it ma2es sense to outsource 'or2 to

3ca)tive4 su))liers, 5(at 'ould be t(e alternatives1 and (o' do you evaluate t(em6,,,,,,,,,,,,,,,,$!

In relation to t(e &as(ion sector in Euro)e1 does Indite. )osses a com)etitive advantage6 7se t(e

V8I9 &rame'or2 as t(e basis o& your discussion,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,$"

:ist o& sources,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,$;

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(ntroduction

Indite. is an eig(t#brand grou) o& t(e 'orldablo Isla Alvarez de

0ejera, Indite.


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)escribe t!e *alue $!ain o% (ndite+

*alue $!ain (ndite+

>rimary Value -(ain Activities

• Inbound Logistics

Indite. Crou) is a vertically integrated grou)1 '(ic( controls most o& its su))ly c(ain,

About *% o& its )roducts are manu&actured in S)ain1 !* comes &rom Euro)e1 and t(e

remaining &raction is )roduced in locations in Asia and A&rica$, A&ter t(at1 t(e '(ole

)roduction is received and 'are(oused in t(e logistics centers in S)ain be&ore being sent

to t(e stores, It does not matter '(ere t(ey (ave been )roduced1 t(e main categorization

is (a))ening in S)ain, aterials and &abrics are 2e)t in 'are(ouses 'it(out e.act colors

or )rints1 due to be able to react =uic2ly to mar2et c(anges, I& it turns out t(at t(e

demand is (ig(er &or t(e )articular )roduct1 t(e com)any is able to react =uic2ly and

)roduce additional items 'it( a )articular design or color !, Sometimes1 trans)ortation o&

merc(andise is by )laneF &or e.am)le clot(es1 '(ic( are )roduced in Asia1 (ave to be

trans)orted in logistics centres in S)ain1 t(ere categorized and again trans)orted to t(e

Asia, /urt(ermore1 many countries (ave small 'are(ouses '(ere t(ey 2ee) e.tra or

returned goodsG,

• Operations

Indite. country o&&ices re)resent (ead=uarters at t(e country level1 su)ervising and

coordinating t(e o)erations o& t(e various Indite. brands+, ?araHs (ead=uarter in S)ain

1 Notes on ?ara case


3 ?ara managing stores &or &ast &as(ion


5


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consists o& t(ree s)acious (alls &or eac( o& t(ese centers, 0(ere designers 'or2 toget(er

'it( mar2et s)ecialists and )lanners &or )rocurement and )roduction, Also1 (ere

designers can =uic2ly c(ec2 initial dra&ts 'it( t(eir colleagues and discuss about ne'

styles, 0(ere&ore1 )rototy)es can be e.amined on site, 0(at 2ind o& teams can 'or2 very

e&&icientlyF discuss about ne' &as(ion trends and ta2e decisions 'it(in a &e' (ours,

ar2et s)ecialists are intermediaries bet'een designers and store managers1 '(o can

=uic2ly )rovide &eedbac2 to t(eir colleagues in design and )rocurement,* 5(at di&&ers

?ara &rom com)etitors is more ca)ital intensive industry,

Eac( brand &rom Indite. Crou) (as (is o'n autonomy, 0(ey can =uic2ly react to mar2et

re=uirements1 act in a &le.ible 'ay by ma2ing c(anges 'it(out as2ing )ermission o& t(ird

)arties, /or e.am)le1 ?ara (as )o'er on o)erations1 suc( as dying1 labeling and

)ac2aging1 all ot(er manu&acturing )rocesses are made by Indite. em)loyees,

?ara (as t(ree )roduct lines one &or c(ildren1 'omen and men, All )roduct lines go

)arallel 'it( eac( ot(er1 but in an o)erational di&&erent 'ay, >rocurement1 sales1 design

and mar2eting o)erations e.ist &or eac( o& t(ese linesF just t(ey are di&&erent and

se)arated,

• Outbound Logistics

At t(e beginning o& eac( season1 t(e '(ole merc(andise is being distributed to t(e stores1

in t(e =uantities decided by t(e commercials, o'ever1 '(en t(e )roduction reac(es t(e

stores1 managers are res)onsible &or t(e order re)lenis(ments, It is t(eir res)onsibility to

decide (o' many units o& eac( item to order and to do t(at1 t(ey are ta2ing into

consideration various data @&orecasts o& customer demand1 (o' many o& t(at )roduct t(e

store (ad and already sold and etc,

Euro)ean stores are receiving t(eir deliveries 'it(in !+ (oursF in Asia and America

receiving deliveries ta2e +% (ours", 7sually deliveries are done by truc2s or )lanes, Eac(

'ee21 stores are receiving about $!1%%% units, o'ever1 sometimes it (a))ens t(at t(ey



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did not receive t(e '(ole order1 because inventory at t(e logistics centers are limited,

Also1 t(ere 'ere some im)rovements in time saving )rocess, In t(e beginning '(en t(e

ne' merc(andise 'as delivered1 em)loyees (ad to )ut tags on t(e )roducts be&ore t(ey

could reac( store s(elves1 no' tags are )ut by manu&actory 'or2ers, 0(is im)rovement

)uts some value on &aster delivery o& t(e )roduction to t(e customer,

• Marketing& Sales

?ara is using very uni=ue mar2eting strategy, Due to t(e &act1 t(at t(ey are not

outsourcing t(eir manu&acturing1 com)any can =uic2ly res)ond to t(e customers demand

in &as(ion trends, ?ara


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?araersonal Digital Assistance in stores1 '(ic( ensures a =uic2

8 (tt)''',slides(are,netbinotris(azara#)rocurement#strategy


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http://www.slideshare.net/binotrisha/zara-procurement-strategyhttp://www.slideshare.net/binotrisha/zara-procurement-strategy


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in&ormation &lo' 'it(in t(e com)any and creates value &or t(e customers,$% Also1 t(is

system (el)s &or t(e com)any to &ind out about ne' mar2et trends as &ast as )ossible and

)ossibility to react =uic2ly,

• Human esource Management

All brands o& Indite. Crou) (ave 8 directors1 '(o are su))orting t(e stores on all 8

issues1 '(ic( are not lin2ed to t(e o)erations and are organized by t(e geogra)(ical area,

8 de)artment is 'ell develo)ed in t(is com)any, -om)any )uts a lot o& em)(asize on

training o& t(eir em)loyees1 so usually sales associates be&ore starting to 'or2 (ave at

least one 'ee2 training, ?ara


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tec(nology (el)ed augment t(e business )rocesses at ?ara, At t(e (eart o& in&rastructure

is t(e I0 tec(nology, 0(e organizational structure su))orts I0 tec(nology, 0(e com)any


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o& your em)loyees all t(e time to insure yoursel& t(at t(e job is done6 any managers today

decide t(at besides t(e salary1 t(e 'or2ers s(ould receive also a )ercentage o& t(e sales or t(e

'(ole salary could be de)ending on t(eir contribution in t(e com)any, Eac( individual (as

di&&erent 'ay to measure (is o'n contribution and t(e contribution o& t(e )eo)le around (im, I&

'e loo2 at ?ara


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by overall sales1 so all o& t(em s(ould (ave an incentive to )ut more e&&ort, Anot(er interesting

&actor t(at 'e &ound is t(e ris2 t(at store managers &ace '(en t(ey are ordering re)lenis(ments,

0(ey need to use t(eir )revious e.)erience toget(er 'it( t(eir ability to &orecast ne' orders, 5e

see t(e ris2 due to t(e &act t(at store managers aren


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Secondly1 in our case t(e most im)ortant )art o& t(e transaction costs o& economics are t(e

bargaining costs, About *% o& t(e )roduction is manu&actured in S)ain @or in its )ro.imity,

Also countries in Asia1 Euro)e and even :atin America contribute to t(e su))ly c(ain o& t(is 'ell

2no'n brand, About G* o& t(e )roduction comes &rom Asia1 $+ &rom Euro)e and only !

&rom America, 8a' materials come mainly &rom 7K1 olland1 -(ina and some ot(er

destinations, $G ere 'e s(ould underline t(at as &ar as t(e good comes &romF it is more (arder to

control t(e su))ly )rocess, 0(e small manu&acturers in S)ain )rovide t(e com)any 'it(

signi&icant number o& )roduction, Besides ?ara


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because o& t(e su))liers< ability to accom)lis( &ast c(anges, o'ever1 t(at re&lects on t(e

transaction costs because )roducing in Euro)e is ty)ically $*#!% more e.)ensive, $+

0(e relations(i) bet'een ?ara com)any and t(e 3ca)tive4 su))liers in S)ain can be also binded

to ot(er small su))liers else'(ere, Small su))liers in -(ina or India &or e.am)le may (ave t(e

same sensitiveness regarding )rice negotiation i& t(ey sell most o& its )roduction to ?ara, 5e can

easily see t(at !% su))liers accounted &or % o& all e.ternal )urc(ases, $* 0(e bigger su))liers

(ave long term relations(i)s 'it( Indite., 0(is allo's ?ara to minimize &ormal contractual

commitments 'it( t(em,

8egarding t(e o))ortunities &or outsourcing1 )er(a)s in t(e &uture in order to remain com)etitive

and control costs1 ?ara mig(t (ave to move manu&acturing mainly to -(ina and India, 0(is can

be a good advantage in vie' o& transaction costs economics because t(e air&reig(t cost is about

only $ o& t(e selling )rice, 0(e ot(er advantage is t(e s(ort time &or delivery, Euro)ean stores

received t(eir deliveries 'it(in !+ (ours and t(ose in Asia and America received deliveries

'it(in +% (ours, Also t(e average cost on a )roduced item is su))osed to be lo'er in com)arison

'it( t(e &actories in S)ain,$" 0(e c(ea)er labour cost 'ill contribute to t(at, 0(is idea s(ould be

good considered even earlier1 because t(e o))ortunity cost o& not (aving more )roduction in Asia

because o& &ast c(anging orders1 could be signi&icant,

9n t(e ot(er (and1 t(e com)any


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o& t(e &act t(at stores receive at least t'ice )er 'ee2 orders but t(ere is no guaranty &or t(at, ere

comes t(e ris2 &or ?ara i& t(ere 'ill be enoug( 'or2ers '(en t(e delivery ta2es )lace, 0o ensure

t(at1 t(e logistic com)any may increase t(eir demand and so t(e cost &or ?ara 'ill increase, 0(e

second &actor t(at 'e (ave to consider is t(e )ossibility t(at every time '(en a delivery ta2es

)lace t(ere 'ill be di&&erent team o& 'or2ers so t(ey 'on


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/as(ion industry is very com)etitive and subject to ra)idly evolving &as(ion trends, Based on t(e

V8I9 /rame'or2 and analysis o& com)etitive advantage1 'e &ound t(at Indite. @?ara (as

com)etitive advantage, Inside a business model 'e can see a strong vertical integration and 'ell

organized su))ly c(ain1 '(ic( combined 'it( organizational structure gives to ?ara &le.ibility to

res)ond1 ada)t and deliver merc(andise &aster t(an its com)etitors, 7nli2e t(eir com)etitors suc(

as 1 ango1 7nited -olors o& Benetton in Euro)e1 ?ara (as disintegrated decision#ma2ing

model, And above all1 t(e )rice o& merc(andise is a&&ordable,

No' 'e 'ill analyze eac( =uestion in detail regarding V8I9 /rame'or2,

$ Value L does a resource enable a &irm to e.)loit an environmental o))ortunity and or

neutralize an environmental treat6 5e see Indite. rat(er as a combination o& resources1 so t(e

most valuable resource 'e 'ould )ut is t(e vertical integration, Instead o& relying on t(ird

)arties1 t(e com)any manages all design1 'are(ousing1 distribution and logistics &unction itsel&,

Doing t(at t(ey are more &le.ible and &aster t(an com)etitors and 'e 2no' '(at t(ese t'o 'ords

mean in a))arel industry, Along 'it( t(e vertical integration '(ic( also reduces o)erating costs

it (as e.cellent conceived organizational structure and values t(at all em)loyees must res)ect,

0(e re'ard is great autonomy t(at store managers (ave, Some s2e)tic )ersons could as2 '(et(er

t(is value could be used in &uture6 9ur ans'er is )robably yes1 as ?ara care&ully &ollo's c(anges

in consumer tastes and due to &le.ibility and s)eed it can ada)t, Second justi&ication could be t(at

it &ollo's 'orld trends and it mig(t outsource more &rom Asian mar2ets to reduce its costs,

! 8areness L (o' many com)eting &irms already )osses )articular valuable resources and

ca)abilities6 I& 'e analyze com)etitors 'e


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G Imitability L do &irms 'it(out a resource or ca)abilities &ace a costly disadvantage in obtaining

it com)ared to &irms t(at already )osses it6 No'adays almost everyt(ing is imitable, 0(e

=uestion is (o' long it ta2es to imitate, In t(e case o& Indite. 'e &reely assume t(at i&

com)etitors 'ere to co)y ?ara business model1 t(ey could1 but only in a long run, It 'ould ta2e a

&e' years to establis( vertical integration model 'it( t(at 2ind o& su))ly c(ain and even more to

create organizational structure @culture t(at ?ara (as, 5e s(ould also ta2e into consideration

enormous costs t(at t(ose &irms 'ould incur in order to co)y t(e model1 '(ic( are o&ten

im)ossible &or &irms to incur, Alt(oug( i& t(is is su))osed to (a))en1 'e t(in2 t(at in mean'(ile

?ara 'ould )robably )rogress more in ot(er segments1 because as 'e sa' t(ey ma2e small

c(anges very o&ten, 0o cite t(e Indite.


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5ist o% sources

?ara anaging Stores &or /ast /as(ion L arvard Business Sc(ool

Notes on ?ara case

19

Is a resource or ca)ability P

Valuable6 8are6 -ostly to

imitate6

E.)loited by

t(e

organization6

-om)etitive

im)lications

Economic

>er&ormance

No # # No -om)etitive

disadvantage

Belo'

Normal

Oes No #

Q

R

-om)etitive

)arity

Normal

Oes Oes No 0em)orary

com)etitive

advantage

Above

normal@at

least in t(e

s(ort run

6es 6es 6es 6es Sustained

com&etitive

advantage

Above

normal


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Indite. Crou) Annual re)ort !%$$

0(e EconomistIndite. # /as(ion /or'ard

0(e Economist Clobal Streac( # 5(en 'ill ?ara (it its limits6

0(e Economist Cood Darning Vietnam

0(e /orbes 0(e Strategic 8etail Cenius Be(ind ?ara

0(e /orbes 0(e /uture o& /as(ion 8etailing # 0(e ?ara A))roac(

(tt)''',gallaug(er,com?ara!%-ase,)d&

(tt)(bs'2,(bs,eduarc(ive+"*!,(tml

(tt)researc(ingsustainability,&iles,'ord)ress,com!%$!%$zara#(arvard#case,)d&

(tt)''',slides(are,netbinotris(azara#)rocurement#strategy

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http://www.gallaugher.com/Zara%20Case.pdfhttp://hbswk.hbs.edu/archive/4652.htmlhttp://researchingsustainability.files.wordpress.com/2012/01/zara-harvard-case.pdfhttp://www.slideshare.net/binotrisha/zara-procurement-strategyhttp://www.gallaugher.com/Zara%20Case.pdfhttp://hbswk.hbs.edu/archive/4652.htmlhttp://researchingsustainability.files.wordpress.com/2012/01/zara-harvard-case.pdfhttp://www.slideshare.net/binotrisha/zara-procurement-strategy

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