Zara and Primark Strategic Operation Management - Case Study Example

Operations management and strategy can be defined as logical approaches implemented in an organization through a transformational procedure to change inputs into final products that can be utilised in the organisation and can generate income for the organisation (Brown, Bessant, & Lamming, 2013). The management aspect involves planning, organizing, directing, controlling the strategies to achieve the desired outcome. The aim of this study is to provide a comparative analysis of two fashion retailers Primark and Zara, regarding their operations and process management. It further examines how the two companies compete and survive in the fashion industry while focusing on how their operations influence planning, control, designing and improvement perspectives with their operations performance as well as how their operations reflects their operations (Swinney & Cachon, 2011). Although operating in the same industry organisational performance is influenced by the operational management and process of the organisations which influences its efficiency thus determining the ability of the organisation to thrive in a specific industry.

Fashion is used to describe the recent trends in clothes, footwear, and other assortments. Companies manufacture and market their stylish products fast enough to match the consumer expectations and become competitive in the market while ensuring the price is as fair as possible (Grose, Hawken, & Fletcher, 2012). The current fashion apparel is extremely volatile to the extent that the manufacturers should have the capability to identify and produce the fashionable apparel almost simultaneously to match the consumer preferences (Ahallak, 2015: 10). This is to mean designers should know what consumers expect today in order to design, manufacture and deliver the customer requirements today instead of producing in advance to swait for demand. Furthermore, manufacturers should produce enough for today to minimize the inventory cost and risk of obsolescence. The operations management and process suggest the establishment of the proactive workforce to deliver fashionable products to the consumers at a fair price and in the right quantity (DaSilva & Trkman, 2013). This study will examine how Zara and Primark fashion retailers implement these strategies or how they differ from each for them to occupy their current market position.

The strategic operations management functions in fashion industry involve designing, sourcing, manufacturing, distribution and marketing of high-quality apparels to the consumers both locally and internationally at a competitive price (Grose, Hawken, & Fletcher, 2012). Zara and Primark are both retailers in the same industry. Therefore, they have some common characteristics in the way they implement their operational strategies.

Zara is a fast fashion company dealing in clothing and accessories. It started in 1975 and is based in North West of Spain. A decade after its establishment, Zara started focusing on improving supply chain for the fashion by reducing lead time to ensure quick delivery of fashions. The target was to use multiple designers as opposed to the traditional approach of one designer and combine it with information technology to enhance efficiency (DaSilva & Trkman, 2013). Since then the company has expanded its operations by opening new stores outside Spain. Zara went public on 23 may 2001. Currently, Zara operates more than 1671 stores in about 85 countries worldwide. The company has over 109,512 employees. Its lean operations strategies have enabled Zara to achieve a tremendous growth in sales of about 10% annually to total revenue of over $19.7 billion (Ahallak, 2015). Zara is the leading fast fashion retailer ahead of its competitors such as Gap, Uniqlo, and Primark. It is expanding to emerging markets especially in China, Poland, Russia and Mexico which have contributed immensely to its exemplary performance.

On the other hand, Primark is a clothing retailer that started its operations in 1969 in Dublin, Ireland within a subsidiary within Associated British Foods. Primark has acquired several stores since 1992 including Littlewoods, Co-op, BHS, and C&A. Apart from men, women and kids clothing lines Primark has also diversified into other products including nightwear, lingerie and homeware for all ages and genders. The company operates about 250 stores in Europe although in future it may decide to satisfy international customers (Primark Stores Limited, 2016). Also, they sell small cheap Christmas gadgets and gifts. Just like Zara, Primark has great presence in Europe where it operates over 253 stores. They mainly target the fashion-conscious consumers below the age of 35 years with quality fashionable apparels and offers low prices than most of their competitors like TKmaxx, H&M, and BHS.

The traditional fashion industry operates in anticipation of seasons whereby a single or a few designers creates new designs for the upcoming seasons which the company vigorously market and distribute to the consumers when season peaks (Hacklin & Wallnöfer, 2012). There are two categories of fashion designs; one for the winter and the other for the summer seasons. During the off-seasons, the company concentrates on production and stocking as they wait to sell when the demand peaks (Swinney & Cachon, 2011). Primark operates in the same model where they prepare apparels in advance and distribute to their various stores when the demand is an increase.

However, Zara differs from the traditional business strategies because of its large number of innovative designers who produce new designs for the current season and ensuring availability of a variety of products and developed on a continuous basis all the year round (Ahallak, 2015). They have a flat organizational structure to speed-up decision making through enabling the team of designers to react to the observed catwalk trend appropriate for the growing market. The strategy is to maintain low inventory and replenishing collections to offer the latest fashion to the consumers (Hacklin & Wallnöfer, 2012). Therefore, to achieve this objective, the company focuses on quick designing, manufacturing, distribution, and purchase. Through quick sales of its fashionable assortments produced on the short duration the company creates a perception in consumers’ mind that the products are running out of stock thus creating urgent demand for the product (Zara, 2016). Zara has enhanced the movement of consumers to their stores by creating a perception that the company will change the products within a short time, or they will come up with fresh products hence they rush to acquire the existing products before they run out of stock or to check for the new arrivals.

Zara business model involves designing, distribution and manufacturing activities. Just like Primark Zara has three product lines comprising of men, women and children assortments although Primark has an additional line dealing with the home product (Primark Stores Limited, 2016). The main difference between Zara and Primark is that Primark does not manufacture their products. Instead, they outsource all their products from various manufacturers outside Europe where the cost of production is lower especially in Asia (Snowdon, 2015: 17). They observe the trend in the market and also respond to customer requests to determine the demand for a particular product. The store managers gather detailed information about what clients want and share that information with their senior managers in the central location in Europe from where the outsourcing process begins.

Zara handles everything including designing, manufacturing, distribution and marketing. Each of its product lines is assigned an innovative team that deals with designing, sourcing, and production. The designers and managers keep track of the fashion trend and instead of producing assortments in advance to wait for the consumers they produce to satisfy an immediate demand (IEDP Ideas for Leaders, 2016). To ensure they capture the latest trend in the fashion industry Zara has invested heavily in information technology to enable them share vital information within the company and receive feedback from the consumers (Ahallak, 2015). The store managers share the customer feedback with the designers and immediately the fashion trend is analyzed, and designers come up with innovative designs to meet the market demands. Once the designs are ready, they queued for production in a cycle. Afterwards, the fashions are released to the market in small quantities to enable the organization assesses the demand by identifying the shortages and releasing more to satisfy that demand (Gambardella & McGahan, 2010). Therefore, clear and timely information about the consumer trend is of great significance for successful operations.

The fashion manufacturers appreciate the diversity of market for fashionable apparels hence they produce a different product for various markets (Gambardella & McGahan, 2010, Therefore, clear and high-frequency information is a must for the respective organisations. For instance, Zara and Primark designers rely on data obtained by the store managers through the company’s IT system to achieve its goals. Additionally, they gather more information from the mass media, publications, trade journals, film contents and fashion spotters who make their observations on young persons, institutions of higher learning, events and other fashion-conscious groups (Primark Stores Limited, 2016; Zara, 2016). Consequently, Zara designs and produces dozens of new products each day and those with high market potential are produced massively to satisfy the existing demand. This efficient operations and strategies reduce the risk of product failure by over 90% compared to the industry average failure. Also, depending on information obtained Primark contacts their suppliers to outsource the products required by the clients.

Both Zara and Primark operations include outsourcing components. Most of the Zara fashions are produced in Iberian Peninsula. The company uses agile manufacturing techniques to enable them to respond quickly to the market demands (Zara, 2016). Their purchasing specialists help Zara to outsource fabric, other inputs, and finished products from various external suppliers mainly in China. Some of their services such as garment making to automated manufacturers although Zara’s designers are responsible for developing designs which are the sent to the outsourced firms. The Zara factories are highly automated to meet the quality and speed requirements. However, all labour intensive work of sewing is subcontracted to over 450 workshops located mainly in the northern Portugal where the cost of labour in lower. These firms’ delivers ‘gray’ products to Zara shops for finishing where they are converted into final products ready for marketing. The outsourcing of these gray materials enables the company to vary the designs through dying, patterning and finishing to meet the current fashion demand. On the other hand, Primark designs are manufactured by outsourced companies and their work mainly involves store operations which entail controlling inventory, displaying the merchandise, handling customers and delivering of orders.

However, Zara is responsible for managing their vendors thus they provide them with relevant technology, financial assistance, logistics and other relevant support to ensure the subcontractors meet the client’s requirements (IEDP Ideas for Leaders, 2016). The automation of Zara factories and subcontracting of labour intensive/scale sensitive work has enabled them to implement the ‘just-in-time’ model initially used by Toyota Company. This model ensures the company does not overstock their products to avoid the issues of obsolescence hence they save on inventory cost and discounts of price reductions that would otherwise be applied to clear the unmoving stock.

Providing customers with fresh stylish products is one of Zara’s goals. To achieve this goal the company ensures the products are distributed to their retail outlets twice every week. The company is vertically integrated whereby about 40% of their production is from its own fabrics. Also, all the dyes used to in their fabrics are acquired from their subsidiary stores.

Both Zara and Primark use ICT to gather information about the market trend of apparels and use that information to make a decision about the products to produce or outsource. Also, they use ICT to share valuable information with their suppliers to enhance efficiency (Snowdon, 2015). Furthermore, the two companies have centralised stores that are used to replenish other stores with products whenever they need them. Therefore, having a centralised store is a common factor in the fashion industry and paramount in reducing cost and increasing the efficiency of operations.

Zara uses of proprietary software enhance the coordination between the distribution centres and global retail stores to reduce the time between ordering and delivery of orders to around 24 and 48 hours. All orders are coordinated using a centralised distribution system in Spain from where the rest of the stores around the globe receive their replenishment, and this strategy ensures efficiency. Both internal and external merchandise has to pass through Arteixo distribution centre which has an automated handling system capable of handling over 45,000 items per hour (Snowdon, 2015). From the distribution centres, the merchandise is shipped to the respective stores via a third-party delivery services twice a week. Most of the shipments are via trucks while about 25% is shipped by air (Zara, 2016). The delivery of shipments takes between 24 and 48 hours to all their stores within and outside Europe. However, the Primark staff makes a physical visit to their stores to examine the missing items that need replacement whereas in Zara the automated system helps in controlling the inventory. This could bring the difference between the two companies because Primark incurs more cost of visiting the stores than Zara, which uses the cost efficient automated system.

Zara as operations on five continents and operates online stores since 2011 as part of its international strategy. They do not have production facilities outside Europe, but instead they ship products from their centralised store in Spain to the rest of the stores globally (Zara, 2016). They establish joint ventures, franchises, and fully owned stores in the foreign countries as a strategy to gain more control of the market. The use of online stores and physical stores helps them to reduce the cost of establishing production facilities in foreign countries. Primark operates stores in Europe, Ireland, and the UK and does not offer online stores. Furthermore, Primark does not use mainstream media to market their products, but instead they use social media and their websites and well as attractive in-store display to attract customers (Snowdon, 2015: 36). Therefore, Zara could be saving more through online sales and economies of scale while Primark incurs more staff cost involved in handling products in the stores.

The main difference between Zara and Primark is the ability to control the quality and prices of their products. Zara has more control of quality and prices of the products because they outsourced component is minimal (Zara, 2016). However, the price could be lower if they outsource the production from suppliers in Asian countries because of the low cost of labour and materials. However, they also save some cost they would incur in distributing the outsourced products to their centralised stores (Guercini & Runfola, 2012). On the other hand, Primark could be enjoying lower prices due to reduced cost of production. However, they incur higher distribution cost and loss of control of quality.

Another difference between the two companies occurs in the way they respond to the demand. Zara responds faster (within 15 days) while Primark prepares products for seasonal sales. This means Primark could be incurring more storage cost, replacement cost, and discounts to clear the unmoving stock. It lacks flexibility and dependability because the outsourcing process is tedious and time-consuming hence consumers may not have what they want at the right time (Guercini & Runfola, 2012). This is unlike Zara, which response to market demand immediately and with limited quantity to avoid overstocking (Zara, 2016). Therefore, Zara operations management increases dependability, speed, and flexibility because customers can make a request and have their requests processed within two weeks.

The tables below provide the summary of the findings

Primark

Zara

Qualifiers

Winners

Qualifiers

Winners

Product quality

Durability

Brand image

Product quality

Price

In-store shopping experience

Durability

Trendiness

Flexibility

Style

Dependability

Price

Brand image

Style

Table1: Order qualifiers and order winners of Primark and Zara

Primark

Zara

Product Features

Product quality

Medium

High

Finishing quality

Medium

High

Product durability

High

High

Style/trend

Medium

Medium

Product cycles/selling seasons

Low

High

Price

Low

Low

Availability of products for each size

Medium

High

Demand volatility

High

Low

Product Features

Store Organisation/Cleanliness

Excellent

Very good

Customer service

Excellent

Excellent

Able to shop online?

No

Yes

Investment on design

Low

High

Do they own factories or they outsource

Outsource

Own factory

Location of suppliers

Outside Europe

Within Europe

Time to market (the speed of bringing a business opportunity to market.

Seasonal (twice a year)

Instantly (15) days

Table 2: Comparing product and operations features of Primark and Zara

In conclusion, the analysis of the two fashion retailers Zara and Primark has established the main similarities and differences between the two companies. The strategies utilized by each business have its advantages and disadvantages to the organization and influences their performance. The study has established that Zara, which designs, manufactures and distributes its products to the consumers has more control of quality, flexibility, the speed of delivering customer orders. However, it could save more cost by outsourcing the production functions from established suppliers in Asian states where the cost of labour is lower although the transport cost could also go higher. Companies like Primark that outsources their production functions could enjoy low production cost, but incurs more cost on distribution function, have low flexibility and low control of quality. However, centralised storage seems the best strategic approach in the fashion industry because it enhances the control inventory.