Zara Company Overview, Environment, and Challenge

Company overview, environment, and challenge

Inditex is one of the largest and rapidly expanded global apparel chains from Spain, including Zara and five other apparel retailing chains, whose net operating revenues was tripled in five years, from 1996 to 2001.

This rapid grow was driven primarily by Zara which developed fast fashion providing 11,000 distinct attractive items a year, compared with 2,000-4,000 items for other key competitors such as the Gap, Hennes and Mauritz, and Benetton, at a relatively low price. It differentiated itself from the competitors as a “Fast Follower” and by significantly decreasing cycle time, centralizing distribution center, vertically integrating its value chain, and using a transparent real-time IT system.

Despite its success in the business and its rapid expansion, Zara faced critical issues that needed to be addressed concerning its future growth.

How specifically do the distinctive features of Zara’s business model affect its operation performance?

The major distinctive features of Zara’s business model are 1) Short Life Cycle Time due to the just-in-time system, the vertical integration of its manufacturing process and the centralized distribution system and 2) Advanced IT system helps to manage transparent inventory real time. Zara uses several IT systems to operate the prime activities efficiently and high quality, which are important factor of building blocks. Those IT systems such as mobile tracking system and automated sales-tracking system are utilized though the process of design, manufacturing, distribution and sales. These key features drive Zara’s competitive advantage in retail, along with the following operational strategies that drove its current success:

Fast Follower

Zara is a “fast follower” because it is not a major designer but rather it follows fashion trends closely. The short life cycle time and the advanced IT system allow Zara quickly to follow the current fashion trends. By following the customer’s fashion trends closely, Zara is able to extend its product lifecycle and drive demand.

Inventory Management

Zara always tracks the current sales and inventory and thus accurately estimate what and how much to order. Thus, Zara does not need to forecast the demand and manages small batch size and inventory level with very few leftovers. With customer demand information from the store manager, Zara also provides new product quickly based on the current demand, which allows Zara to keep low failure rate on the new product. The geographically centralized system helps Zara make decision quickly.

Efficient Distribution

The sophisticated distribution system also helps Zara to deliver its products timely and frequently to