ZARA SPO Case Study - Betty, Tamara, Lena and Lora

ZARA: Fast FashionStrategic Positioning

Case Analysis by

Betty HalegouaTamara Levi

Lora SanturdzhiyanLena Stangl

ZARA

500 Stores in 30 countries Created in 1975 Continuous innovation based on

customer desires Clothes and accessories for women,

men and youth from infants to age 45

1. Identify the resources and competences and analyze them through a strategic capability analysis.

Strategic capability analysis is the resources and the competences of an organization needed for it to survive and prosper.

Resources

Threshold resources

1. Tangible

2. Intangible

Unique resources

1. Tangible

2. Intangible

Competences

Threshold capabilities

Core capabilities

Strategic Capability Analysis

Threshold capabilities

Capabilities for competitive advantage


Threshold resources : resources needed to meet customer’s minimum requirements

Threshold competences : Activities and processes needed to meet customers’ minimum requirements

Unique resources : resources that create the competitive advantage and are difficult for competitors to imitate or obtain

Core competences : Activities that create competitive advantage and are difficult for competitors to imitate or obtain


• Tangible resources are the physical assets of an organization such as:

1. Physical resources (Machines, buildings)

2. Financial resources (capital, cash, debtors creditors etc. )

3. Human resources (skills and knowledge of employees)

• Intangible resources are non-physical assets such as information, reputation and knowledge.

Strategic Capability Analysis- Zara

Threshold resources

Human Resources Creative team of designers Product development personnel specialists


Machines and Buildings Totally automated factories 130,000 square meters warehouse telecommunication system to connect

headquarters with supply, production and sales departments

507 stores (488,400 square meters of selling area) (Today approx. 2,000 stores)

20 fully owned factories Distribution channels (400,000 square

meters faculty)


Unique resources Highly visible location of the stores

(central) Attractive storefronts (great care in the

presentation)-customer comes 17 times/year Vs 3-4 years for competitors

Mainly working with grey fabric (flexibility) 11,000 distinct items/year while just

2,000-4,000 for competitors Shipments by time zone (24-36 hours

inside Europe, 24-48 hours outside Europe)


Threshold competences• Manufacturing the most sensitive

products internally- fast fashion- production in house

• Designers track customers preferences – Locally targeted brand

• Vertical integration reduces the “Bullwhip effect”

• Limited outsourcing• Producing only 20% in advance and 55%

in the middle


Core competences Short cycle time : Entire new design

within 4-5 weeks (6 months for competitors), modification and restocking of existing goods within 2 weeks (3 months for competitors)

Low administrative expenses (20% of it’s revenues while40% for competitors)

“Learning by doing” failure rates 1% while 10% for the sector

No advertisements (pointless distraction)0,3% Vs 3,5%


Other competences Clients have the opportunity to create

their own clothes makes them feel special

They select their own preferences then they receive a mail with the new arrivals matching their selection

Large variety, small quantity

2. Provide a value chain and conclude where the value is

created

2. Provide a value chain and conclude where the value is created

● Inbound logistics ● Operations ● Outbound logistics ● Marketing and sales● Service includes

● Procurement ● Technology development● Human resource management● Infrastructure

Primary activities are directly concerned with the creation or delivery of a product or service.

e.g.:

Support activities help to improve the effectiveness or efficiency of primary activities.

The value chain describes the categories of activities within and around an organization, which together create a product or service. by Michael Proter

PROTER’S MODEL FOR VALUE CHAIN ANALYSIS

2.1 Inbound Logistics

Inbound Logistics – the receiving and warehousing of raw materials, and their distribution to manufacturing as they are required

Raw material: Italy, Spain, and Greece 5 days to facility in Spain - road haulage does not stock inventory reduced inventory

risk Comditel (a 100%-owned subsidiary)

› more than 200 external suppliers of fabric and other raw materials

› dyeing, patterning, and finishing of gray fabric

› supplying finished fabric to external and in-house manufacturers

2.2 Design Store managers - info directly from the points of

sale continuously tracked customer preferences

IT system product life cycles

catwalk trends - for the mass market No maestros - very flat design structure Designers work with store managers trend spotters on university campuses and

discotheques young, fashion-conscious staff several dozen items designed each day Learning by doing

2.3 Operations Operations – the processes of transforming inputs into

finished products and services. 11,000 distinct items produced during the year

(2,000–4,000 competitors) Vertical integration into manufacturing & a just-in-time

system The most fashionable and riskiest items - produced in

small batches internally or under contract by suppliers located close by better control!

Vs. basic items - outsourced to Asia (1/3 of items) 20 owned factories highly automated to control costs

and speed up production Factory in Spain: flexible manufacturing systems (FMS)

fast turnaround in designs and productions

2.4 Outbound Logistics Outbound Logistics – the warehousing and distribution

of finished goods

Zara’s own centralized distribution system - Arteixo DC early morning - the DC packed and shipped to the Americas,

the Middle East, and Asia afternoon - European stores Shipments from the warehouse:

› twice a week to each store› shipments two days a week to one part of the store network,

two days a week to the other

Proximity reduces shipping costs 24–36 hours in Europe 24–48 hours – outside of Europe only a few hours in warehouses

2.5 Marketing & Sales Marketing & Sales – the identification of customer

needs and the generation of sales.

only 0.3% of revenue for marketing (3%-4% used by competitors)

stores and word-of-mouth - more influential than advertising

› a cost advantage over its competitors invests in store locations and store layouts

broad, rapidly changing product lines using the stores to promote market image

power coming from:› freshness of the offerings › an attractive ambience in stores

› “buy now because you won’t see this item later” a climate of scarcity and opportunity

2.6 (support) Organizational infrastructure

Organizational infrastructure – support systems and functions, such as finance, planning, quality control, and general senior management

Flat and decentralized decision-making prices are fixed centrally,

the store managers’ focus on volume and mix The store managers

› deal with the customers, property owners, and contractors

2.7 (support) HRM

HRM- activities concerned with recruiting, developing, motivating, and rewarding the workforce of the organization.

Promotions - approximately 90% of store managers from within

Training - responsibility of the section manager & on-the-job › comprehensive training program including training at other

stores and a two-week training program at Zara’s headquarters

Personnel assessment - job of the store manager

Store managers › receive a fixed salary plus variable compensation › compensation very incentive-intensive

2.8 (support) Technology development

Technology development – managing information processing and the development and protection of “knowledge” in the organization

computer-assisted ordering (CAO) from hand-held computers in the stores

invested heavily on IT platform agents are sent to pick up latest designs

within 6 hours using technology they send the sketches to the factory with slight differences in the design

Madonna’s dress

2.9 (support) Procurement

Procurement – how resources are acquired for the organization (e.g., sourcing and negotiating with suppliers)

Europe had historically dominated Zara’s sourcing patterns

sourcing from the Far East (China) will expand substantially

Most significant advantages:

Reduced cycle time due to the quick response system

ECR (Efficient Consumer Response):› Integration of the roles of manufacturer,

designer and retailer› Synergies due to IT tools› Demand- and consumer-driven

Vertical integration Lower quantities and more styles Broad target market

ZARA was described by Louis Vuitton Fashion Director Daniel Piette as "possibly the most innovative and devastating retailer in the world.“

3. Provide a value network and conclude

where the value is created

A Value Network...

... is the set of interorganisational links and relationships that are necessary to create a product or service.

... is based on collaboration between the network participants who focus on value-creating activities and aim at creating value through collaboration.

The value network (Bovet and Martha, 2000a)

Value Network - Main Characteristics

• collaborative

• flexible

• agile & dynamic

• focus on end-customers

• use of technology

• intangible assets

• ability to respond rapidly

• information sharing

• focus on value-creating activities

• future-oriented

• constant development

The Value Network – Key Questions

•Where are cost & value created?

• Which activities are centrally important to the organisation?

o Retain direct control of core capabilities

o Outsource less important activities

• Where are the profit pools?

o Potential profits at different parts of the value network

o Availability of competences to compete in these areas

• Make or buy?

o Outsourcing

o Develop competence in influencing performance of other

organisations

• Who are the best partners?

o What kind of relationships are required?

The value network - Zara

The value network - Zara

4. Undertake an analysis of the

strategic capability of the organisation using

the VRIN analysis

VRIN Analysis

VALUE

RARE

INIMITABLE

NON-SUBSTITUABLE

RESOURCES

sustainable competitive advantage

VRIN Analysis

VALUE

Company resources which:

• improve the effectiveness of the firm • outperform competitors • reduce weakness / eliminiate threats~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

ZARA a combination of resources• The Vertical Integration

• design, warehousing, distribution and logistics function done by Zara itself more flexible and faster than competitors (apparel industry!)

• Chief core competency: In-house production• flexible in the variety, amount, and frequency of the new styles which are produced• costumers constantly provided with updated products• rapid product turnover // scarcity • increases the frequency and rapidity of consumers visiting the stores/ buying the

products• company sells more items at full price

VRIN Analysis

Quick-response system (HR + IT )› Product development teams (high-fashion fairs)

translate the latest trends of the season into Zara’s designs

› Better response to the demand of consumers vs. the competition

VALUE

VRIN Analysis

RARE

• Unique resources or resource or used only by a small number of competitors• The extent to which rarity of competences might provide sustainable competitive

advantage:• Ease of transferability• Sustainability / Rarity could be temporary• Core rigidities

ZARA• emphasize on capital-intensive industry / labor-intensive• able to produce new items and deliver them to its stores in less than three weeks!

(average six months needed)• production / typical season ~ 11000 different items (competitors ~ 2000 /4000)

VRIN Analysis

INIMITABILITY

• Sustainability mainly relies on competences, rather than resources• The competences must lead to levels of performance that are significantly better than

competitors • The competences must be difficult for competitors to imitate – or inimitable

• Complexity• Internal linkages (ability to link activities and processes that together deliver

customer value)• External linkages (difficult for others to imitate / activities developed together

with the customer)• Culture and history

• „taken-for-granted” activities/ managers may not understand them explicitly• path dependant

• Change• Innovation• Competitive advantage

VRIN Analysis

INIMITABILITY

• Today: almost everything is imitable

The question: How long it takes to imitate?!

• If competitors were to copy Zara business model / only in a long run• few years to establish vertical integration model • specific supply chain • organizational structure (culture) unique for Zara• enormous costs which firms would face in order to copy the model (often impossible

)• Meanwhile : Zara = constant „small” changes • would probably progress more in other segments

“Once a month, come here thinking that we are near bankruptcy. You will find a lot of things to change.”

Inditex’s founder Amancio Ortega

VRIN Analysis

NON-SUBSTITUABILITY

• Resources that are like „bricks in the business-model”; hard for others to remove/ substite

• Competence substitution • Product or service substitution

ZARA

• Produces ~ 11 000 items much more than average wide item variety (small quantities, high flexibility)

• Highly developed internal communication systems and distribution model shorter lead-times/ consumer in a very center (industry innovation!)

• responds instantly to shifts in the new consumer trends

• Clothing industry basic technology changes rather slowly (high capital needed)STILL : firms which outsource today have almoust as short lead-times as in-house producers (transportation decreased remarkably) Zara’s advantage unstable in a long perspective

5. Provide a weighted strength assessment

based on the example below

THANK YOU FOR YOUR ATTENTION!

Documents

ZARA SPO Case Study - Betty, Tamara, Lena and Lora