Corporate Strategies of Zara - Essay Example

Management Table of Contents Zara 3 Corporate strategies of Zara 3 Five operations performance objectives to support the corporate strategies 7 Conclusion 11 Reference List 12 Zara Zara has been the most popular Spanish fashion brand, which belongs to the Inditex group. The company was established in 1963 by Amanico Gaona and by the end of 2005, the holding company had become the largest manufacturer of fashion clothing, which was both trendy and affordable. Zara operates in 45 countries and owns about 2000 stores worldwide and also, aims at further expanding their stores. Throughout its expansion in different countries, the company has concentrated on the core fashion philosophy. The philosophy that they have followed is to respond to demand of the market with creative and quality designed clothing. The chief success story of Zara lies in strategies undertaken by the company. The corporate strategies had helped the company to grow faster with creative, flexible and innovative business model. The business model has differentiated the company from rest of the companies in the same industry. It has provided Zara with the best competitive advantage, both at international and local level (Berfield and Baigorri, 2013). Zara had regarded its target market as a “young educated one that likes fashion and is sensitive of fashion” (Wiggin, 2013). The company emphasizes on achieving competitive advantage over their rivals by integrating the manufacturing, production, logistics and customer handling staffs. The main activities, that escalate the speed of manufacturing and the supply chain, is the time taken to deliver Zara’s clothing from the manufacturing site (Hansen, 2012) Corporate strategies of Zara The three main corporate strategies that are followed by the retailer are the following: 1) They regard customers as the centre of every clothing design strategy. Customers are questioned about their preferred clothing designs. The sales team of Zara makes use of the hand-held PDA devices for capturing the daily and even hourly feedback from customers, which enables them to ideate new clothing designs. The device daily transfers design to the Research and Development section, which is known as Cube (Valerio, 2013). The Cube team makes new clothing pieces in just two weeks and those match the exact needs of customers. The business strategy of Zara is clear; if a company has to succeed in the long run in a competitive market, then it has to be customer-centric. The needs and desires of customers are taken into account, so that the company can cater to their needs in the exact manner that they look for (Ferdows, Lewis and Machuca, 2003). 2) The company concentrates on technology for managing and tracking inventory and also, controlling cost. The sales associates send daily reports to the management, regarding total sales of the day. The PDAs are also used for capturing items, which are sold out during the day and also, those that do not sell. It also helps the management to locate fashion trends or colours, which are popular or otherwise. The point of sales, which has sold the highest apparels, is also indicated in the PDA (Ferdows, Lewis and Jose, 2005). 3) The company controls and balances just-in-time production as centre for the location facilities. The issue of distance manufacturing kills responsiveness of products because late delivery affects sales of the business. So, Zara has undertaken fabric production facilities in Spain, which happens to be the central position for manufacturing purposes. The production system enables the company to save time and money for making its own fabrics. The company can, thus, closely monitor the demand of customers and fulfil their needs to an extent, which will allow them to draw more customers, making them brand loyal. Schedules for the daily production are tracked regularly, in an efficient way (Capell, 2008) Zara aims at producing the fabric used in their products by themselves. They produce 40% of the fabric that is utilised by them for manufacturing of clothes. The fabrics that are outsourced are not dyed and are coloured by using subsidiary dye products of the company. These fabrics are later dyed by the company in order to make them appropriate for manufacturing of the clothes. The staple products, like, jeans and t-shirts, are outsourced for manufacturing. The shipment of fabrics takes months for its arrival to the company’s manufacturing units. The company intends to produce top products for their customers and schedules for the shipment are allotted twice per week (Slack, Chambers and Johnston, 2013). Thus, the company provides its customers with the latest stocks, which are piled up in their stores. Zara does not desire to keep their customers waiting for clothes that they want. So, they direct their efforts at improving the inventory and ensure that the same contains all products, which are most preferred by their customers (Lutz, 2013). The company has always remained customer focused by applying the sophisticated methods of tracking the products and controls the inventory efficiently. The company is known to produce trendy clothes than its competitors in just two weeks. It is observed that other companies in the industry cannot respond so fast and it takes approximately 3-5 months (McAfee, Dessain and Sjoman, 2007) The company believes that their brand needs to respond promptly to the changing tastes and preferences of the fashion world. The fashion world is very hard to predict and quite impossible to influence. The company targets the new young group of customers, who are very fashion conscious and also, influence their family, relatives and friends to create a style statement for even themselves (Kroenke, 2012). Zara believes in delivering styles to their customers, rather than persuading them to buy their clothes through heavy marketing channels. Zara’s hallmark is the pull process that they apply. They employ disintegrated decision making and thus, has been the greatest advantage for the company (Writer, 2013). Example: The store manager in every Zara store has the right to decide on the clothes to be put on display and those to be kept on sale. This particular order does not come from the higher authorities. The store mangers decide themselves, after consulting with the staffs of the stores. A small group, known as the commercials, takes decision regarding the exact designs, that are preferred by customers and thus, controls the production too. The commercials scan the demand of the market, concentrate on the needs and then, ideate the launch of designs (Stevenson, 2012). Unlike other companies, the design team decides designs, which are to be introduced in the market for sale. However, in Zara, managers do not challenge decisions that are taken by the commercials (Dutta, 2002). Problems encountered by Zara (along with strategies to overcome it) Zara’s business model is elaborated through Michael Porter’s value chain model. The model actually involves a number of activities, which are undertaken by the company. The following figure elaborates the activities: Figure 1: Value chain of Zara (Source: Writer, 2013) The above figure elaborates the performance of Zara with a number of activities. The primary activities indicated above are standardized by the company itself, which have added value to every step of manufacturing and distribution of sales. The company has decentralized and flat decision making. The main purpose of this model is to create value that exceeds the cost of providing products to customers and thus, focuses on generating more profit margins (Chadha, 2013). Five operations performance objectives to support the corporate strategies The five operational performance objectives, that are required for fulfilment of the corporate strategies, are the following: Quality Quality is the most important part of any product. The quality of a product easily judges the operation of an organisation. If a customer is satisfied with the products it is likely that the customer will repurchase the products in future. Good quality products reduce the manufacturing cost of the product. Lesser number of mistakes absorbs less time for its correction and thus there is less irritation and confusion and also lesser utilisation of resources (Slack, Chambers and Johnston, 2013). Zara produces high quality products which have lead to the success of the retailer worldwide. It concentrates on reducing the cost of manufacturing by employing unique product development approach. The approach saves time as well as cost of the company which helps in producing high quality products. Thus, the customers of Zara seek for new range of clothes which have become the fashion statement for most of them. Zara in order to cope up with the expectations of their customers maintains a team of 200 people who are responsible for styling of 12,000 new designs. The quality of the clothes is competitive since no one in the industry can provide such design with the same quality at a reasonable price. Speed Speed is referred to the time elapsed between the customers demanding for the products or services and actually receiving it. The speed of delivery of the products to the customers reduces the inventory of the company and thus motivates them to produce more since the demand is high (Slack, Chambers and Johnston, 2013). Zara has its production unit in close proximity with the stores from where the clothes are distributed to the customers. The close proximity of the stores to the production unit helps the company to provide the customers with their favourite product whenever they want. The instant delivery o the products by Zara to its customers reduce the risk of losing the potential customers. Thus sped of delivery of products is very important for an organisation for its success. Dependability The operations where the level of internal dependability is high, the success of the company is high. Here, dependability means the reliance of the internal members on each other and also on the resources. Dependability saves the time of the manufacturing since the whole system is coordinated properly. It also saves money as effective use of time will lead to increase in cost. The system is stable enough to face the disruption that is caused due to the external factors (Slack, Chambers and Johnston, 2013). Zara’s manufacturing system employs unique development techniques which help in the success of the business. Zara uses unique information and communication protocols which help them to operate successfully worldwide. Zara is observed to spend less than 0.5% of its total revenue on Information technology and the employees responsible for IT department are 0.5% of the total workforce. These are quite different from its competitors which concentrate on investing 2% of the total revenue on the above mentioned department. Zara concentrates in utilising the human intelligence for ensuring flow of information from the stores to the headquarters (Thomas, 2006). Flexibility Flexibility is very important for any operating system in an organisation. The system should be flexible enough to cope up with the changes that are taking place in the external world which have the power to affect the operation of the company (Slack, Chambers and Johnston, 2013). Zara employs flexible manufacturing system which has the strength to bear any changes that are made in the manufacturing process. The system has the potential to develop new clothes in the same operating system which helps them to reduce the cost of employing a separate manufacturing system. Cost The cost of production is always maintained so as to balance profit of an organisation. The cost is balanced through the utilisation of new techniques of manufacturing that will be helpful for the right production (Slack, Chambers and Johnston, 2013). Zara reduces cost by outsourcing 80% of the materials from Europe and not manufacturing themselves. The proximity of the production unit from the stores helps in saving the transportation cost. The company also concentrates on flexible placement of orders to its suppliers whenever it is needed. External affects of the objectives The performance objectives are affected by both internal and external influences. The external influences are the low price or high margin, short delivery of the lead time, on specification products, invention of frequent new products and dependable delivery of the products. The figure below elaborates the external affects of the five objectives: Figure 2: External effects of five performance objectives (Source: Slack, Chambers and Johnston, 2013) Zara has also encountered the external influences during its production process. However, the company has coped up with the situation since it has employed flexible manufacturing system. Conclusion Zara through its unique manufacturing system has enhanced its performance capability over the years. The operational performances have helped the company to create a unique place in the retail industry by supplying customized as well as readymade clothes. Zara has provided its customers with unlimited style and uncommon fashion which have become the fashion statement for the world. Reference List Berfield, S. and Baigorri, M., 2013. Zaras Fast-Fashion Edge. [online] Available at: [Accessed 3 February 2014]. Capell, K., 2008. Zara thrives by breaking all rules. BusinessWeek, 4104, p. 66. Chadha, S., 2013. How Zara nailed fashion retail in India. [online] Available at: [Accessed 3 February 2014]. Dutta, D., 2002. Zara: Case Study. [online] Available at: [Accessed 3 February 2014]. Ferdows, K., Lewis, M. and Jose, A.D., 2005. MachucaZaras Secret for Fast Fashion. [online] Available at: [Accessed 3 February 2014]. Ferdows, K., Lewis, M. and Machuca, J., 2003. Zara. Supply Chain Forum: International Journal, 4(2), pp. 62-66, Hansen, S., 2012. How Zara Grew Into the World’s Largest Fashion Retailer. [online] Available at: [Accessed 3 February 2014]. Kroenke, D. M., 2012. In organizational strategy, information systems, and competitive advantage. New Jersey: Pearson Education Inc. Lutz, A., 2013. Why The Retail Industry Cant Keep Up With Zara. [online] Available at: [Accessed 3 February 2014]. McAfee, A., Dessain, V. and Sjoman, A., 2007. Zara: IT for Fast Fashion. Harvard Business School, 1-23 Slack, N., Chambers, S. and Johnston, R., 2013. Operation Management. London: FT Prentice Hall. Stevenson, S., 2012. Polka Dots Are In? Polka Dots It Is!. [online] Available at: [Accessed 3 February 2014]. Thomas, R.J., 2006. Uncovering Zara. Apparel Magazine, 47(5). Valerio, P., 2013. Flexible Manufacturing & IT Makes Zara the World’s Largest Fashion Retailer. [online] Available at: [Accessed 3 February 2014]. Wiggin, P., 2013. Three Business Strategies Make Zara a Story of Success. [online] Available at: [Accessed 3 February 2014]. Writer, G., 2013. 3 Business Strategies Make Zara A Success. [online] Available at: [Accessed 3 February 2014]. Read More