[原创]Study Summaries of Zara's Success

Zara’s success is a miracle and numerous articles have been devoted to it in order to uncover its secrets of success. This article summarizes what I have gathered so far and records my own observations and thoughts on the matter.

It’s well known that Zara’s supply chain is characterized by its speediness and responsiveness. And many salient features of its supply chain have been depicted with great details. However, it seems that so far little is explored to probe

l         why Zara’s speedy and responsive supply chain is forged as such;

l         if there are any hiding links between its salient features in the domains of design, supply, production, logistics, sales and marketing.

As we know, Zara’s operations philosophy is to provide fashion at prices that are affordable. This also seems to be Zara’s positioning in the ever changing fashion industry. Fashion is different from garments, for fashion comes and goes, that’s why everything in the fashion industry is so fast; that’s why the traditional large scale of production (in pursuit of economy of scale) is no loner appropriate here, and the approach of small batches of numerous options of products might be the choice. But how fast should Zara be? What is the right quantity of the small batches? What should be produced at the right small batches? In other words, what Zara should do to distinguish itself from its competitors in the fast changing fashion industry?

Zara’s “affordable fashion” positioning clearly denotes that it’s not a luxury brand, its target customers are a great number of people that are eager to purchase fashion while quite sensitive to prices. They want to be different, unique. The relentless introduction of new products in small quantities at fast speed and at affordable prices seems to be the answer to the large scale customization requirements of the target customers. This helps explain why Zara’s super business team, which consists of passionate and able designers, experienced market specialists and procurement and production planners, is able to annually create approximately 40,000 new designs from which about 10, 000 are so quickly selected for and put into production, and delivered to markets that it takes only fifteen days in total for a new design. Zara’s cadre of 200 designers is frequenters of world class fashion fairs. This help them to quickly introduce countless new designs most of which resemble the latest couture creations but are made with less expensive fabric, thus often beating the high fashion houses to the market at lower prices. To further reduce costs, Zara has shortened its supply chain. For example, In Europe goods are often delivered direct from distribution centers to its stores that sell and deliver the goods to customers. Van drivers have their pre-defined milk rounds to ensure they are able to pick up outsourced goods from a port after they have unloaded goods to some stores. Besides, all goods can be directly put to shelves after unloading because they have been labeled with brand and price tags. To transfer more value to its customers, Zara just devotes 0.3 percent of its sales on ads, far less than the 3 percent to 4 percent its rivals spend. Incidentally, part of the money saved is used to ensure Zara’s stores are spacious, well lay outed, and located in top grade business districts where the transport is busy and convenient.

Responsiveness is another important factor to meet the large scale customization requirements of Zara’s target customers. That’s why Zara has designed its production system as such that it has 30 percent surplus capacity. The 30 percent surplus capacity combined with its superb design capability makes Zara capable of just producing in advance 10 percent to 15 percent of the demand before the high season comes. This means that Zara has terrible design and production capabilities even in the high reason and reduces Zara’s dependence upon forecast and lowers the risk of obsolescent and excessive inventories that will be sold at a discount or written off sooner or later. (We should never underestimate the negative impacts of such discounts over its fashion pursuing customers and over the brand of Zara as a whole, and the erosive impacts of such write offs over its profits)

However, powerful design and production capabilities don’t ensure that Zara is always able to beat its rivals. It must make sure that the speedy supply chain with Zara being the core is under its firm control and can’t be easily copied by its rivals. This helps explain why Zara has spent huge amount of money to build 20 highly automated dying, cutting centers in Spain, even though this makes its operations costs 15 percent to 20 percent higher than outsourcing, a common practice adopted by most its competitors. The sophisticated transportation system connecting those 20 production centers has further strengthened Zara’s role as the soul in its supply chain. In other words, all those expensive investments ensure that Zara has a dominating say in its supply chain. With this dominating role Zara is able to safely focus on its core competitiveness and outsource all sewing activities.

All of those mentioned above contribute to half of Zara’s success. Well, in a sense, half success is a failure. What is attributed to Zara’s another half of success, then? It’s Zara’s stock out strategy (a term I used to refer to limited supply in a given period time). “Nonsense!” most people may remark. This stock out strategy is actually a marketing strategy because Zara makes a virtue of stock-outs and being out of stock in one item helps sell another, which helps Zara’s customers to form habits of quickly snatching what is currently on the shelf. This is definitely right. But the stock out strategy is also a production strategy because it’s simply impossible for Zara to effectively handle as many as 50,000 stock-keeping units (SKUs) thanks to its relentless introduction of countless new designs each year. A glance of the table below may help you understand what I mean.

Note:

1.         40,000 is assumed to be the number of new designs Zara creates annually.

2.         10,000 is assumed to be the number of new designs selected for and put in production, and delivered to markets.

3.         Since most garments come in five to six colors and five to seven sizes, Zara's system has to deal with something in the realm of 300,000 new SKUs, on average, every year.

4.         12 months are considered in one year.

5.         The product life cycle is assumed to be just two months.

Consequently, Zara just has to greatly reduce the product life cycle of its garments in order to make its operations controllable. This means that even if some design is a great hit, Zara still supplies it in limited quantity in a given period of time. Of course I don’t exclude the possibility that Zara may quickly end the product life cycle of one design if it’s not favored by customers in order to prolong the product life cycle of another design, which is a hit. In short, Zara must do something to keep the number of its SKUs controllable.

To sum up, the secret of Zara’s success seems to be its excellent supply chain design, planning and executing capabilities that produce a speedy and lean supply chain based upon which the marriage of production (inclusive of design & supply) and sales (inclusive of marketing) highlights both the mutual dependence and deprivation of the privilege enjoyed by sales in most other companies. Zara’s logistics deployment is further integrated all production and market activities and makes them aligned with one another with one single role of satisfying customer demands and making profits.

In Zara, stock outs are not only allowed, they are but also consciously adopted as a significant element of their marketing and production strategy to guide both its sales and production activities. In other words, the stock out strategy is not a near-sighted functional objective (functional objectives in most companies are often conflicting with one another and thus near-sighted from the perspective from the whole supply chain performance) but a supply chain strategy that has greatly shaped the design of the whole supply chain infrastructure and all supply chain activities. Amazing, the stock out strategy seems to be the most important supply chain strategy adopted by Zara to provide fashions at prices that are affordable, the well known Zara’s operations philosophy, which is tangible and materialized by Zara’s well designed and executed supply chain that is characterized by its speediness and responsiveness, which is dictated by Zara’s operations philosophy.

P. S.

The importance of Zara’s information systems is not discussed here because nothing new can be added here except the sentence quoted here:

Manufacturing consists entirely of flows of information and flows of things. If you want to manufacture things better and more efficiently, you need to make information and things flow better and more smoothly.

                     - Toyota Virtual Factory Tour