Tuesday, February 18, 2014

Zara: IT for Fashion

Zara is now the number one clothing retail brand in the world with more than $10 billion in sales, thanks to its unique supply chain model that is often studied by others yet seldom implemented. Unlike most other top clothing brands that order for stocks 6 months in advance, Zara delivers new products twice each week to its 1,670 stores around the world. This adds up to more than 10,000 new designs each year! It takes the company only 10 to 15 days to go from the design stage to the sales floor.

Smaller batches, lightening fast production and distribution are the key attributes to Zara’s success.  Zara’s supply chain model is not only interesting, but is a total contrast to the practices in clothing industry. Because of this streamlined model, Zara is not forced to be ahead of the curve. Rather, they exist on the curve, evaluating trends first, then following.

Zara was designed to be responsive from its inception. Rather than subcontracting manufacturing to Asia, Zara chose to invest on technology and built 14 highly automated Spanish factories, where robots work around the clock cutting and dyeing fabrics and creating unfinished “gray goods,” the foundations of their final products. Zara executives have invested in high-tech equipment and extra capacity that allows their factories to accommodate sudden production increases or changes—something few Asian manufacturers would be able to do. At the beginning of a season, a typical retailer would have placed orders for at least 80 percent of the garments it will offer, according to a Harvard Business School case study on Zara. The chain selects only about 50 percent of its designs that far in advance. Change doesn’t disrupt the system; it’s part of the system.

 Every shirt, sweater, and dress made in them is sent directly to the distribution center via an automated underground monorail. There are 124 miles of track. Across the surrounding Galicia region and Portugal are more than 300 subcontractors, some of which have worked for the company since Amancio Ortega founded it in 1975. Here, the gray goods are transformed into dresses and suits. By following this approach, if an item looks like a winner, Zara can quickly ramp up manufacturing and get items to their stores in a matter of days.

I find Zara to be a complete shopping experience. Of late, I have observed Zara to stock lesser volumes of clothes on the shelves, thereby creating a more premium experience and pushing the customers to buy the clothes immediately. Zara also has an excellent mobile application and web site for online shopping. Their new mobile application for iPhone even has bar code scanning. Consumers enjoy shopping on the Zara website businesses because they can see immediately that their orders have been received, they are notified when orders are shipped, and they can track their purchase every step of the way. Before they order, consumers can see numerous photographs of the products they are about to purchase. This has set a new standard for online customer service; companies that can meet or exceed that standard have a distinct competitive advantage.
That same kind of tracking and accountability can be applied to virtually every link in the supply chain to provide a moment-by-moment snapshot of how goods are moving around the planet.

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