Inditex, the parent company of Zara, at one point in 2015 was worth over $100 Billion in market cap. It is unusual for a company in Fast Fashion to be so valuable. Only Nike comes close. Obviously, such performance attracts all kinds of interest to understand the secret to its success. I read a number of research papers and case studies, which are listed below, to understand the secret sauce. After reading the papers and case studies, it became apparent to me that Zara practices a version of Toyota Production System suited for Fast Fashion industry.
- Zara’s Supply Chain – Its Secret to Retail Success
- Retail @ Speed of Fashion
- Internationalization of the Spanish Fashion brand Zara
- Zara Supply Chain Simulation Blog Post on SCM Globe
Here are some of the Toyota Production System principles and strategies that Zara uses
Zara designs as well as manufactures majority of the apparel that customers buy in its stores. This is very much in contrast to the traditional high volume fast fashion practiced by the likes of Gap and H&M, which outsource most of the 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 the Zara’s manufacturing operations. Sounds a lot like how Toyota and its supply chain are organized around Toyota’s primary manufacturing sites.
Quick New Product Introduction Capability
Zara can get a new product from a mere sketch to store in 4 to 6 weeks. That is extraordinarily quick and provides a whole level of agility to respond quickly to new fashion trends. One of the key strategies that Zara adopted is to follow and adapt couture designs, manufacture and distribute to stores a mere 2-3 weeks after they first appear on catwalks. The agility of the entire design and supply chain process is central to supporting the core strategy of Zara.
High Product Variability
Zara carries about 11,000 distinct items per year compared to competitors that carry 2000 to 4000 in stores. Zara’s fashion season oriented products only make up a small part of its business. Only 15 to 25 percent 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 design 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 like 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 Toyota Production System. Holding inventory is very hazardous for fast fashion because products that are 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 many as 2 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 2 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.
Zara’s new product development, manufacturing and supply chain operations provide a contrast as well as a significant departure from the dominant fast fashion business model. The strategy and implementation has significant similarity to the Toyota Production System and is very likely the source of its industry dominating competitive advantage.
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