Obviously, such an impressive financial performance attracts all kinds of interest. Businesses are both interested in understanding the secret to the company’s success as well as emulating it.
Zara’s strategy involves adapting couture designs, manufacturing items, and distributing products to stores a mere two to three weeks after they first appear on catwalks. In addition, store managers and sales teams continuously monitor trends and customer preferences and report them back to designers at headquarters.
Zara’s key operational theme is one of agility. Its product development, manufacturing, and supply chain processes – some of which are a radical departure from the normal practices in fast fashion – are expressly designed and implemented for agility.
Zara designs as well as manufactures a majority of the apparel that customers buy in its stores. This is very much in contrast to the traditional high-volume fast-fashion companies, which outsource most of their manufacturing to contract manufacturers. This type of vertical integration is key to quick new product introduction cycles.
In addition, most of the manufacturing operations seem to be centered around primary manufacturing facilities in Spain, with suppliers also setting up their operations close to Zara’s manufacturing operations.
Quick new product introduction capability
Zara can get a new product from a mere sketch to a store in four to six weeks. That is extraordinarily fast, and it requires a whole level of agility to respond that quickly to new fashion trends. The agility of the entire design and supply chain process is central to supporting Zara’s core strategy.
High product variability
Zara carries upwards of 11,000 distinct items per year compared to competitors that carry 2,000 to 4,000 in stores. Zara’s fashion-season-oriented products only make up a small part of its business. Only 15% to 25% of a season’s line is designed ahead of the season. Up to 50% of its items are designed and manufactured in the middle of the season based on certain styles and designs that become popular. Because of its quick new product introduction cycles, Zara can take advantage of customers’ fleeting interest in new designs and styles.
Small lot manufacturing
Zara’s design, manufacturing, and supply chain capabilities allow it to produce in small lots. The supply chain is designed to support just-in-time capabilities with small production lots and frequent shipments to stores. This reduces instances of waste created by large lots of designs that do not catch on and have to be sold for large discounts.
Zara seems to be extremely cognizant of the perils of inventory. It is one of the main “wastes” in the Toyota Production System. Holding inventory is hazardous for fast fashion because products that are in demand one day can be out of favor the next day. So holding large amounts of inventory can lead to heavy discounting or outright waste. Zara’s agile manufacturing and supply chain capabilities allow it to maintain low levels of inventory across the supply chain and replenish as often as two times a week.
Excess capacity for agility
Zara also seems to keep excess capacity in its manufacturing operations to be able to respond quickly to unexpected demand. This is in line with Toyota’s strategy for retaining some excess capacity by running only two shifts in some manufacturing plants.
Zara also has extra capacity on hand to respond to demand as it develops and changes. For example, it operates typically 4.5 days per week around the clock on full capacity, leaving some flexibility for extra shifts and temporary labor to be added when needed.
Agility provides an edge
Zara’s new product development, manufacturing, and supply chain operations are a significant departure from the dominant fast-fashion business models. The agile supply chain strategy and the unique implementation, which has some similarity to the Toyota Production System, is very likely the source of its industry-dominating competitive advantage.
For more on reducing the risk in your supply chain, see our executive research report on 3 Ways to Fight Fraud, Waste, and Abuse in the Supply Chain.