Zara's Success: Analyzing Supply Chain and Logistics Management

This report provides an in-depth analysis of Zara's supply chain management, focusing on the logistics strategies that have propelled the company to the forefront of the fashion industry. It examines Zara's business model, highlighting the significance of instant fashion and a responsive, buyer-driven supply chain. The report discusses the importance of a tight communication loop, IT infrastructure, and unique sourcing and distribution methods. It contrasts Zara's success with companies like Unilever, which benefited from supply chain improvements, and Hershey's, which experienced a supply chain failure. Furthermore, the report explores Zara's competitive advantages, including its rapid-fire fast fashion strategy and sustainability efforts, and considers the suitability of Zara's strategies for other companies, while also addressing future challenges and providing recommendations for further analysis. This document is available on Desklib, where students can find more solved assignments and resources.

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Executive summary
This report has analyzed the supply chain management of one of the top fashion brands, Zara. It
has focused on the issues and the logistics strategies applied by the company to be the leader in
the fashion industry. The business models and techniques were discussed to find out the basic
reason for their success in contrast to the rival companies. This report has also highlighted the
competitive advantage of Zara with instances of two companies that succeeded and failed in
effective supply chain management. A summary and recommendation is provided at the end of
the report for better analysis of the content.

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Table of Contents
Introduction......................................................................................................................................3
Company overview..........................................................................................................................3
Business model and strategy............................................................................................................4
Issue with the company...................................................................................................................5
Tight communication loop and IT infrastructure.........................................................................5
Sourcing and distribution.............................................................................................................5
Fundamental reasons for success.....................................................................................................6
Comparison to a successful and unsuccessful company..............................................................6
Competitive advantage....................................................................................................................7
Rapid- fire fast fashion strategy...................................................................................................7
Suitability for other companies........................................................................................................8
Future Challenges..........................................................................................................................10
Conclusion.....................................................................................................................................11
Recommendation...........................................................................................................................11
Bibliography..................................................................................................................................12
References......................................................................................................................................14

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Introduction
Zara is a Spanish fashion retailing company founded in 1975. The company was initially
involved in manufacturing similar clothing as the high- end fashion garments but later on, they
made improvements in the processes of their designing, manufacturing and distributing apparels.
It helped them in reacting towards the contemporary trend in the market to adapt to the new and
modern style. They termed this new trend as instant fashions, which used information
technologies and groups of designers rather than individual designers (Dutta 2002, pp. 35-38).
This report will focus on the case study of Zara to find out about the issue and the logistics
management strategies implemented by them for achieving success. The reasons for success will
be found out in comparison to another successful and unsuccessful company. The case study is
based on the ways in which Zara has achieved the top position in the fashion retail industry in
terms of pace and flexibility by effectively supervising every detailing of their business.
Company overview
It has 2200 outlets, which are located all over the world. Its headquartered are situated in
Galicia in Spain and earns annual revenue of US$9 billion. Inditex is the parent group of Zara
and the founders are Amancio Ortega and Rosalia Mera. According to the report of 2017, Zara
has managed up to 20 clothing collections per year. At present, Zara is one of the most
innovative as well as devastating retailer in the world. It was responsible for earning a total sale
of 64.8% in the year 2011. At the end of the financial year, this company was successful in
reaching 82 countries all over the world by reaching out to 1830 stores. The company is
consistently expanding each year and it is directly affecting revenue by increasing from 2477
million Euros in 2001 to 8938 million Euros in 2011 (edition.cnn.com). The company has able to

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attain success due to the implementation of suitable strategies and models on their business
process. Following section will highlight the secret strategies behind Zara’s success.
Business model and strategy
Zara has termed their success as instant fashion or fast fashion. This particular business
model of the company is placed within the highly responsive buyer- driven supply chain. In this
specific business model, the customers play a significant role. This is because the process of
manufacturing and designing the products of Zara are dependent on the demand of customers in
the market. This company uses the strategic technique of collecting feedback from the customers
and sending those to the headquarters. It has enabled the company to work on the design of the
apparels as per the needs and desires of the customers. They can make any kind of changes or
amendments in the designing as per the feedback received from the customers instantly.
They have made use of real- time business by controlling the location of their production
instead of utilizing the benefits of scale economies and outsourcing the works to other
developing countries. The management of the company believed in time over the cost of
production, which was effective in mitigating risks as well as wastage of time. It helped in direct
distribution of the products to the stores by keeping the inventories low and the stores free and
fresh. Ferdows, Lewis and Machuca (2004, pp. 104- 117) found out that the business system of
Zara was capable of turning around within two weeks.

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Issue with the company
Tight communication loop and IT infrastructure
According to Ferdows, Lewis and Machuca (2005, pp. 98- 111), instant fashion a.k.a
rapid- fire fast fashion strategy of Zara required an efficient communication plan. Therefore, they
have started focusing on strong communication channels to meet business demands instead of
the recent market trends and the estimated sales. They have started using different forms of
media such as TV, internet, industry publications and others to collect information about the sale
of products. By implementing the latest IT tools, they have managed to maintain a constant
communication between the designers and customers to help in creating products as per the
customers’ demands. While focusing on a rigid communication, their focus shifted from
organizational structure, which fell flat. Approximately 300 designers of the company were ever
ready to create new designs and work on the old ones as per the desire of the customers. It helped
them in avoiding minor disturbance in retail orders, which could lead to a disrupted supply chain.
Sourcing and distribution
Again, the company follows the strategy of counter- intuitive sourcing and distribution
without the support of third- party partners. Their processes of designing, warehousing,
distributing and logistics functions are conducted internally. In this way, they could gain total
control over its value chain and takes much less time in the completing the total procedure before
putting the products on display. In comparison to months invested in conducting the whole
process, Zara does it exceptionally well within a fortnight. According to one of the founders, this
flawless pace has become possible, as they have kept five fingers of their hands touching the
factory and the other five in the customers (Ghemawat, Nueno and Dailey 2003).

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Fundamental reasons for success
Zara has played a major role in achieving success by keeping the production stores
nearby and introducing an extremely fast supply chain. As most of the designing and production
process of Zara is conducted internally, therefore the retailers do not get the scope to be involved
with a wide range of suppliers. The production process of Europe is conducted in Spain and
Portugal due to cheaper labor force. This goes in contrary with the higher labor costs of the rival
companies where the cost is reduced in advertising and inventory with smaller lead-time.
Zara has constantly maintained a rigid time schedule in terms of placing orders and
getting back the stock products. The headquarters place orders in the right time by aligning with
the timing of the other offices spread throughout the world. This is the strategy behind
incorporating their instant fashion to gain competitive advantage against the rival companies.
The logistics used by the company was also designed in- house. Creating small batches of
products is the key to combine business model of basic design and quick delivery for Zara. In
comparison to average industry standards, Zara has less than 10% stock of the unsold products.
As per the research carried out by Rohwedder and Johnson (2008), it was found out that
inventory- to- sales ratio for Zara was 7 in contrast 12 for H&M and 14 for GAP. It has led to
their increase in profit margin by marking down the sale.
Comparison to a successful and unsuccessful company
While discussing about the success of Zara it is worth comparing its success with another
company, which has made effective use of its supply chain and logistics. Unilever is one such
British- Dutch consumer goods company and it is the third largest in the industry. It excels in
offering food, beverages and personal care products to the customers. The company had started a
five- year growth strategy with the intention of modifying their supply chain management. While

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improving their supply chain management they focused on their organizational structure,
international purchasing process, supplier involvement, supply chain executives and technology.
This amendment process has helped them in making $14.24 billion savings in the year 2003
(www.inditex.com). In this way, they became established as a leader in the in the consumer
packaged sector by adopting technological initiatives.
On the other hand, mismanagement of logistics and supply chain was also responsible for
the failure of some companies. For instance, The Great Hershey’s Chocolate Meltdown of ’99 is
a remarkable example of disruptive supply chain. As the company was unable to provide $100
million of Hershey’s Kisses and Jolly Ranchers to the specific stores during Halloween, they
have lost 8% stock in a single day. Further research found out that the reason behind this failure
was their timing and distribution of their new order. It was the right decision to launch the
products during Halloween but they could not keep up to their promise.
Competitive advantage
Rapid- fire fast fashion strategy
The innovative technique of in- house processing of the apparels and frequent delivery
has been effective attracting the customers all over the world. As per Tokatli (2008), the
customers in central London pay visit to the general stores four times a year on an average in
contrast to the 17 times average visit to the Zara stores. Therefore, the company has been able to
gain competitive advantage with constant modification in their designing to offer something new
to the customers every time. They have adopted the strategy of tantalizing exclusivity by
designing 40,000 new products every year and selecting only 10,000 for production. In this
respect, they have planned to maintain sustainability for the long- term future. The brand has

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planned to meet the needs of the customers without hampering the environmental cycle that
might lead to depletion of natural resources.
Zara has been successful in gaining competitive advantage by designing similar products
from the high- end fashion with cheaper fabric and sold them at much less prices than the rival
companies. This is an excellent cost- cutting strategy used by this brand along with fast- paced
supply to the customers to meet the demands of the competitive market. Their unique approach
was extended to the use of no advertising and marketing strategy. Zara has been very clever in
spending only 0.3% of their revenue in comparison to 3.5% investment by other retail companies
(www.wipo.int). The company spends their revenue in beautifying their stores and visual
merchandizing to give a cutting- edge technology to the brand. The reasonable pricing of Zara
has not compromised with the customer standards. They have maintained their upscale standard
by building up stores in posh locations and renovating their stores quite often as compared to the
rival companies. They keep on changing the products on display at weekly intervals to attract
customers with eye- catchy stores.
Suitability for other companies
This report has mentioned in detail the strategies and concepts used by Zara to be
successful and gain competitive advantage in their business. From the analysis of their business
process, it can be stated that if other rival companies such as H&M or GAP incorporate such
strategies then they will be benefitted. This is because the strategies taken by Zara have proved
to be successful and effective in leading them the top position in the fashion industry. However,
it might not be suitable for other companies if they are unable to understand their competitive

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advantages as did by Zara. They could do so by controlling the three intangibles- organizational
information system, process model and the brand identity.
Other companies can attain success by making effective IT infrastructure as Zara and
maintaining an efficient communication plan. It was considered as a key success factor of the
company. Other companies can make use of their process capital in the form of modifying their
programs, policies and techniques to boost up product and service delivery. Rapid- fire supply
chain of Zara was an outstanding example of investing on the internal and external value chain
network. Brand image or brand identity is another intangible, which can be considered in
distinguishing the products and services in a competitive market. Zara has created a strong brand
image among the customers by recognizing as a high- end affordable retail fashion. The two
diagrams given below are in support of the Zara’s analysis.
Fig: Value chain Zara and its rival company
Source: www.inditex.com

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Fig: Supply chain framework of Zara
Source: www.inditex.com
Future Challenges
The supply chain of Zara can pose challenges in terms addressing various trends and
customer preferences across the globe. The supply chain becomes more complex with the
increase in its global reach. They might face challenge from the rival companies in the form of
duplicity or imitation of their products. For instance, Benetton Group, Forever 21 and Fast
Retailing Co. are coming forward to imitate the strategies of Zara by refurbishing their stores
quite often and changing the products on display quite frequently. It is major challenge for Zara
and they need to come up with new innovative techniques for maintain their leading position in
the industry.

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Conclusion
It can be concluded from this report on the logistics and supply chain management of
Zara that an integrated supply chain has provided the company with system benefits, which
demands coordination among various business processes. This is because every part of business
is interrelated with another. Therefore, it is required to keep a strong bonding on each sector of
the business as a key to success. With the attainment of ultimate success in business, it is not
possible to be restricted by the rival companies. As Zara could identify its intangible assets,
therefore it became easy for them to react fast to the changing business environment.
Recommendation
It can be recommended for maintain effective supply chain management that there should
not be any hurry in implementing the process. As Zara is facing tough competition from the rival
companies, they should not take any wrong step in rush. It will be good for them to function with
a clear visibility in every step that they take. They will have to be at their toe in case of any
discrepancy in the supply chain. They have always conducted their process with in- house
system and should continue doing the same. They should avoid the support of several suppliers
while launching any new product. They can modify their supply chain by bridging the gap
between planning and delivering of the products and services. Moreover, they should always
begin with a fresh perspective in terms of new designing and distribution of the apparels.

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Bibliography
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References
Dutta, D., 2002. Learning from ZARA: Case study. Third eyesight.
Edition.cnn.com. (2018). CNN.com - Zara: A�model fashion retailer - Jul 19, 2004. [online]
Available at: http://edition.cnn.com/2004/TECH/07/19/spain.zara/index.html [Accessed 31 May
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Harvard Business School.
Inditex.com. (2018). Zara - inditex.com. [online] Available at: https://www.inditex.com/about-
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http://www.wipo.int/edocs/mdocs/sme/en/wipo_smes_rom_09/wipo_smes_rom_09_f_workshop
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