Summary
Zara has created a huge impact in the fashion industry. Its vertically integrated structure, its fast turnaround time (JIT) and the usage of the store as a source of information are what make Zara’s business model different from competitors. Stores are located in the golden miles of the most important cities in the world and the windows and garments displayed are almost homogenous, containing just slight modifications reflecting the tastes of the customers in each shop. Employees are motivated though several mechanisms including fringe benefits, an internal labour market, part of the wage depending on performance or the horizontal communication strategy. Thus, customer service is satisfactory since employees are motivated and efficiently monitored (mystery shoppers, daily feedback of the store’s performance, and inspections) and follow the guidelines carefully elaborated by teams of experts in the headquarters. In addition, quality, health and safety standards created by the firm are meticulously considered in every stage of the supply chain.
From that business model, it follows that Zara is a highly proceduralised firm focused on meeting customer needs as quickly as possible, by using a committed workforce and the information it gathers. This has allowed the Spanish brand to pioneer “fast fashion”, which has been key for its success. In fact, it has managed to democratise fashion by offering trendy garments at affordable prices in medium and consistent durability. Therefore, if we define quality as “conformance to specification”, Zara is definitely a high quality firm.
Introduction
Founded in 1975 by Amancio Ortega, Zara is the flagship of Inditex, a holding company with headquarters in A Coruña (Galicia, Northwest Spain). Inditex is one of the world\’s largest fashion retailers with eight brands that share a sales and management approach focused on customer service. Nowadays, Zara is one of the most successful fashion brands in the world, operating in 88 markets and with a network of more than 2,100 stores strategically placed in the main cities.
This report will first present information on Zara’s production model and employee motivation mechanisms. The crucial importance of the store in Zara’s business strategy will be then illustrated and the process of ensuring compliance with the standards will be explained. Finally, some conclusions regarding meeting customer expectations will be extracted from the business model formerly described. The information has been mainly collected from Inditex’s webpage and complemented with some academic papers and case studies (both in Spanish and in English).
The Production Model
Since the fashion market is time sensitive, the vertically integrated structure of Inditex and, thus, of Zara ensures a quick response to the very changeable market demand. Unlike most of its competitors, Inditex has a perfect synchronization between production and distribution processes. Integration is very high in the most capital-intensive production phases and the more labour-intensive ones are outsourced to production structures specialised in one product that they exclusively sell to Inditex at a fixed price – so that the Group can capitalise the added value. All in all, Inditex is the sector leader relying less on outsourcing, ensuring complete focus on the organization’s objectives and allowing Zara control better all the stages in the supply chain.
Moreover, Zara has adopted the Just-in-Time (JIT) inventory strategy, based on small independent chains that allow the firm easily modify the production and adapt it to changes in demand. In fact, Zara can design a product in 3-4 weeks and manufacture and place it in the stores in 7 days’ time. The implementation of the JIT has been eased by the proximity of all the suppliers to the production facilities, which makes Zara such a flexible firm. This flexibility is enhanced by a logistics centre which is permanently in contact with all the selling points of the Inditex Group: everyday each store manager reports the total take, qualitative relevant information and the products, colours and sizes that have been sold. Zara receives small batches of products twice a week reflecting that information and is able to meet better customer needs while reducing storage and maintenance costs – key in a sector in which goods have a high obsolescence cost. Since Zara produces mostly by demanded product, just the 15% of the production is finalised in the beginning of each season. In other words, the firm uses a “Short-Circuit Distribution” strategy.
Employee Motivation
In order to retain the workforce in its headquarters Inditex has created an attractive working climate: a visually attractive complex surrounded by nature and a mild climate are added to an atmosphere of enormous creative vibrations. The environment symbolises a horizontally cut business structure. Indeed, Inditex incorporates a lateral communication model and, for instance, the founder (Amancio Ortega) does not have his own office and prefers to interact daily with employees. In fact, although there are hierarchies within the company, communication circuit is bi-directional and communication between departments is fluid because the director of the communication department is on the same level as the other area directors.
In order to ensure homogeneity and orientation against the client, formation of workers is carefully managed by the department of Human Resources: each position has its specific training plan. Moreover, Inditex has an internal labour market, where outside hiring is usually focused just on new employees and many promotions are filled up from within the firm. Besides, some salaries are determined by following the Tournament Theory.
The Store: The Heart of Zara
Although Zara spends only a 0.3% of its revenues on conventional advertisement (Alonso, 2000), huge quantities of money are invested in marketing focused on one channel: the store. Before opening a Zara store, a complex analysis of several factors –location, image, window displays and interior design – by using past experience is performed.
a) Location
Emulating luxury companies, Zara’s management choses the most popular locations (golden miles) in the main cities and, when it comes to entering new countries, it prefers to rent commercial premises rather than buying them.
b) Visual Merchandising
The window displays and the arrangement of the product are responsibility of the Visual Merchandising Team. Their aim is to design an elegant shop where shopping is a pleasant experience. The team plans the interior and the windows in an experimental shop at the headquarters and then the guidelines with detailed pictures are sent to all the stores every season. These guidelines –furniture, decorations and mannequins- slightly vary considering the locality and customer profile and their implementation is supervised by the Visual Merchandiser Manager in each region. Moreover, window displays are weekly updated, maintaining the essence of the guidelines, with newly received garments.
c) Customer Service
Zara confronts business with humility, rectifying the situation if something that upsets the customer happens. There are professionals who attend complaints by phone, e-mail or webpage. However, these situations are usually avoided “listening to the client” not only with words but tracking its buying behaviour. In addition, the Group promotes loyalty among customers through the Affinity Card.
Product Testing: Standards
All clothing chains owned by Inditex, including Zara, meet “the most stringent health and safety standards” and stores are “designed, created and managed under the most stringent standards”. The health, safety and environmental sustainability teams are focused on the client. Indeed, Inditex has created its own health (Clear to Wear), safety (Safe to Wear) and sustainability (Green to Wear) standards. These standards are binding for all the suppliers, continually updated and cover every process. Moreover, Inditex audits the whole supply chain and trains all its team and suppliers. The Group has established a Code of Conduct and Best Practice specifying its fundamental concepts regarding aspects such as employee behaviour towards the client or supplier policy. Additionally, it uses third-party laboratories in order to monitor and analyse all the processes regularly and efficiently.
The product testing is crucial to ensure that the products meet the specifications and is developed as follows:
1) Design. Designers are aware of the standards and sketch products meeting them.
2) First Analysis. after making the first prototype but before starting the production, the product is subject to an initial quality check in order to detect potential breaches on the standards as soon as possible in the production cycle. Thus, the prototype is analysed in prestigious external laboratories looking for restricted chemicals.
3) Production. The chosen manufacturing centre is always audited to make sure that it employs the required production methods and has received specific technical training on the standards – Inditex provides its suppliers with Best Practice Manuals.
4) Second Control. During the final stage of the production, the product is analysed again to ensure continued compliance with standards.
5) Last Hurdle: The Picking Programme. The finished garments are transported to the Group’s logistics platforms. There, they are checked one last time by selecting a representative sample of each model which is sent to a certified laboratory and analysed using statistical tools. The resulting report indicates if the product meets all the quality standards and is suitable for sale. If it does not, the scope of correcting the parameters generating the error is analysed: if it can be corrected, the garment will undergo again this last check; if not, the product will be recycled.
Additionally, Inditex has developed statistical tools for Big Data analytics which allow:
• The detection of manufacturing technologies that may cause breach of health standards.
• The breakdown of the manufacturing risks depending on the garment components.
• The optimal use of resources for Picking Programme, focusing on items that represent a higher potential risk.
Findings
1) Highly Proceduralised Firm
Production and sale in Zara follow very demanding standards. Instead of sticking to the ISO 9001 standard in quality management, Inditex has decided to create its own quality standards, based on their information about past performance in collaboration with prestigious laboratories and experts. These standards are continuously evolving and cover the health, the safety and the sustainability of the products. This allows them to avoid some disadvantages on following ISO 9001 standard such as reduced flexibility, omission of critical areas or not focusing on the customer. The production process is highly proceduralised and frequently checked, as explained previously, to meet the standards created by the company. On the other hand, regarding the environmental management, all of Inditex\’s logistics centres have ISO 14001 certified environmental management systems and all of their employees have been specifically trained on these issues. Moreover, fundamental concepts followed by the firm and against which it self-assesses are quite similar to the EQMF criteria.
During the testing of their products, Zara uses statistical tools to control the manufacturing process. During the Picking Programme, a sample of the manufactured garments is selected and analysed, not the 100%, and the mean and standard deviation of the sample are considered. In fact, as previously explained, the firm has developed statistical tools to efficiently deal with Big Data.
Homogeneity in distribution and display is ensured following the guidelines established in the headquarters by teams of experts. However, monitored slight modifications are introduced in order to take advantage from the detailed knowledge of customer preferences (gathered principally by Store Managers) and offer a service that meets them better. The quality of customer service – standardised through specific training – and other variables such as the music, temperature and layout are evaluated by using a mystery shopper. Indeed, Inditex uses mystery shoppers to evaluate a sample of stores and then analyse the results employing statistical methods.
2) Focus on the Customer
The whole supply chain is oriented to efficiently meet customer preferences (Pull Production).
Design is developed with the information gathered by a team of designers who travel to attend international catwalks and get information about the latest trends; a team of informers who cover the environments most frequented by potential customers and, most importantly, by the Store Managers (Martínez, 2008). The latter ones provide the headquarters with both quantitative and qualitative information about sales on a daily basis so that the creation of new products and the modification and replenishment of the existing garments is aligned with customer needs. Indeed, the budget for the cost of the material, production and suppliers is based on the target price – the price that the buyer is willing to pay – and the profit margin that the management department wants to achieve with the item (López, 2009).
Production is also customer oriented, since the firm the vertically integrated structure allows a better response to changes in demand and contributes to the consistency of the product eliminating agency problems that may arise from outsourcing. Moreover, the JIT also contributes to quality, as the firm is able to nimbly reflect changes in customer trends (it is able to design the product in 3-4 weeks and manufacture and place it in the stores in 7 days) and allows the quick replenishment of the sold out garments reducing storage costs. In fact, Zara has used a Lean Six Sigma methodology in order to eliminate the steps that do not add value to the supply chain. This is achieved through collaborative team effort and the use of the DMAIC phases.
Finally, stores are focused on the customer too. Zara operates in terms of “commercial space”, so each store is managed by making its own requests deriving from the adaptation to cultures, shopping habits and diverse features of their clients. This is why in places where Zara’s penetration level is high shops are very close together. Moreover, sold out garments are replenished twice a week, so that customers can access to them frequently, and may have modifications to reflect better their preferences. Zara’s commitment to its customers has increased recently due to the creation of the online shop, which has become so popular and has increased the interaction with the clients.
The customer service is based on “listening to the client”. “Since all the business is conducted through their own stores and not franchises, the entire company is in tune with the client” (Díaz and Monjo, 2010). Employees in the stores are always willing to help clients and do not discriminate them (established in the Code of Conduct of the company). Moreover, the after-sales service is not neglected: reimbursements are easily made and there are several ways to make complaints, which are not very usual.
3) Efficient and Motivated Workforce
Workers in Zara are given incentives to be productive in many ways such as fringe benefits or a nice working environment. In addition, employees in the stores can be easily monitored with the daily information about sales submitted by the Store Manager to the headquarters. In fact, wages of workers in the store have a fix part and a variable part which depends on the overall performance of the store, increasing their motivation and productivity – free-riders will be punished by the team.
Another powerful tool to ensure that employees act as the company establishes is the internal labour market of the firm. In this way, long-term relationships are established with employees, which motivate employees and provide stronger incentives for both parties to invest in specific human capital – since both will be able to capture its benefits. Indeed, since Coordinators of Store Managers need highly specific knowledge, most of them are promoted Store Managers. Workers have incentives to do their best in order to get promotion, preventing them from shirking and, thus, reducing the monitoring costs and improving the quality of the products and services offered by Zara. Intelligently, Zara moves experienced employees to newly opened shops rather than starting with new personnel and locates new workers in shops with other experienced workers. The horizontal communication structure of the company also increases job satisfaction and motivates employees to by creating more employee empowerment in communication.
Therefore, Zara counts with a loyal, well trained and motivated workforce thanks to its meticulously created employee motivation strategy.
Conclusion
Zara makes a great effort to meet demand and has based its whole business model on the customer. Its vertically integrated structure, combined with an outstanding use of the JIT inventory strategy, has allowed the Spanish firm to reflect the information it gathers, mainly at their stores, about customer preferences in their garments. Besides, it sets stringent quality controls during the manufacturing of the product and stores are standardised. This approach has allowed the firm to offer trendy garments at moderate prices, with a consistent durability and customer service. Thus, if we define quality as “conformance to specification”, Zara is definitely a high quality firm that has changed the fashion industry.
Bibliography
- ALONSO ÁLVAREZ, L. (2000), “Vistiendo a tres continentes: la ventaja competitiva del grupo Inditex-Zara 1963-1999”, Revista de Historia industrial, 18, pp. 157-179.
- DÍAZ SOLOAGA, P. and MONJO, M. (2010), “Case Study: The company where everything communicates”, Harvard Deusto Marketing y Ventas, 101, pp. 60-68
- INDITEX (n.d). Retrieved from http://Inditex.com
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- LEAN ENTERPRISE INSTITUTE, INC. (2008). “Pull Production”. Lean Lexicon, 5th ed. Retrieved from: http://www.lean.org/lexicon/pull-production
- LOPEZ YING FAN, C. (2009),\”Internationalisation of the Spanish fashion brand Zara\”, Journal of Fashion Marketing and Management: An International Journal, Vol. 13 Iss 2 pp. 279 – 296
- MARTÍNEZ BARREIRO, A. (2008). “Hacia un nuevo sistema de la moda. El modelo Zara”. Revista Internacional de Sociología, 66(51), pp. 105-122
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