FEUP | MIEGI, MIEEC & MIEM | Academic Year 2018/19
Course: Quality Management
ZARA Case Study: Customer Focus “taken to the limit”
José A. Faria, [email protected]
University of Porto | Faculty of Engineering | Department of Industrial Engineering and Management trendy products at affordable price The Inditex group The Inditex group
In addition to Zara, the Group holds various other brands, some of them being well known for us. The Inditex group
Zara is the main company of the Spanish group,
headquartered in Arteixo, near Corunha . The Inditex group
La Coruna province is in Galiza, in the western end of Europe
Porto
The Inditex group
Although on one side Inditex’s headquarters are in the far end of
Europe, from another perspective they are in the very
center of the world ...
Zara Clothing
… what might partially explain its “explosive” growth as we are going to see. The Inditex group in 1993
Zara opened its first store in the center of Coruna, in 1975.
In the following years, Zara expanded its stores to all the big cities in Spain.
In December 1988 it opened its first store outside of Spain
do you know where?
The Inditex group in 1993
Zara opened its first store in the center of Coruna, in 1975.
In the following years, Zara expanded its stores to all the big cities in Spain.
In December 1988 it opened its first store outside of Spain in Porto (Santa Catarina street).
Currently (1993), Zara has a network of 350 stores across the world and has a revenue of around 1.5 billion euros.
Público newspaper, 1993 The Inditex group in 2000
The Inditex group is, probably, the apparel retailer experiencing the fastest growth in the world, having 1600 stores in 45 countries.
In 2000, the group opened a new shop every
3 days .
Wikipedia, 2000 The Inditex group in 2007
The Inditex group, to whom Zara belongs, is present in 64 markets in Europe, America, Middle East, Asia and Africa.
Nowadays, the group holds around 3,100 stores , 990 of them being Zara stores.
Inditex group’s website, 2007 The Inditex group in 2007
Thanks to the uniqueness of its management model based on innovation and flexibility, Inditex is one of the largest fashion groups.
Web page Inditex Group, 2007 The Inditex group in 2007
Zara gets a record on profits and prepares the opening of 500 new stores
The Inditex group is chaired by
Amancio Ortega, the 8th richest man of the world.
Zara owns 3153 stores worldwide and Portugal, with 260, is the foreign country with the largest number of stores. …
Público newspaper, March 2007 Inditex group in 2014
Amancio Ortega Gaona (born 28 March 1936) is a Spanish fashion executive and founding chairman of the Inditex fashion group, best known for its chain of Zara clothing and accessories retail shops.
In March 2014, he was ranked as the 3rd richest person in the world by Forbes with a net worth of USD $64 billion.
He resides in an apartment building in Galicia, Spain.
Wikipedia, August 2014 Bill Gates briefly relinquished his title as the world’s richest man to Spanish retail giant Amancio Ortega Friday morning.
Ortega’s gains are even more impressive since Forbes measures fortunes in dollars, and the value of the Euro has fallen from $1.27 a year ago to $1.10 today.
The $20 billion (sales) enterprise is the envy of the retail world, with its fast-fashion model that can design, make, ship and sell a piece of clothing in days.
That allows Inditex to react quickly to changing customer demands and keep its stores stocked with the latest trends. Forbes, October 23 th 2015 Bill Gates briefly relinquished his title as the world’s richest man to Spanish retail giant Amancio Ortega Friday morning.
Ortega’s gains are even more impressive since Forbes measures fortunes in dollars, and the value of the Euro has fallen from $1.27 a year ago to $1.10 today.
The $20 billion (sales) enterprise is the envy of the retail world, with its fast -fashion model that can design, make, ship and sell a piece of clothing in da ys .
That allows Inditex to react quickly to changing customer demands and keep its stores stocked with the latest trends . Forbes, October 23th 2015 Much more important than Amancio Ortega became one of the richest men in the world is the fact that … Every year, Portugal produces tens of million garments for Inditex.
The group intends to maintain the volume of the orders to Portugal in the forthcoming years due to:
the high quality and flexibility and
the geographical proximity which allows it to respond faster
to the market . Zara’s business model Zara’s business model
Zara is in step with society , dressing the ideas, trends and tastes that society itself has developed.
That is the key to its success among people, cultures and generations that, despite their differences, all share a special feeling for fashion. … Zara’s business model
Zara is in step with society dressing the ideas, trends and tastes that society itself has developed.
That is the key to its success among people, cultures and generationsjust another that, way of saying: despite their differences,customers all focus share a special feeling for fashion. … Zara needs just two weeks to develop a new product and get
it to stores, compared to the 6 month industry average .
Wikipedia 2012 Zara considers that the expiry date of certain products is as “volatile” as the expiry date of yogurts .
For example, a certain type of jacket may reach sales peaks in the first 3 weeks and afterwards stop selling abruptly. Zara launches around 10,000 new designs each year
compared with 2,000 to 4,000 items for its key competitors .
and does it and cheaper !
Wikipedia 2012 Data coming from the stores is constantly transmitted to the design team made up of over 200 professionals, information systems information systems informing them of for operations for business intelligence
our customers' needs
and concerns. In 1990, Zara set up in La Coruña a Zero Stock production and distribution facility directly inspired on Toyota’s just- in-time .
This system enables Zara going throughout the stages of manufacturing and distribution to stores worldwide
within just a few days .
Wikipedia 2012 Let’s take a look on it. The logistics system Zara has a business model based on “zero stock”
and very fast response to the market demand.
Wikipedia 2012 To implement its JIT logistics system, Zara that resisted the industry-wide trend towards transferring
production to low-cost countries ,
given that lead times of Asian suppliers are incompatible with the business model.
Wikipedia 2012 As a result, Zara uses thousands of small companies in facilities spread across the Iberian Peninsula, many of
them in Portugal .
This was true when Zara started in the eighties and keeps true nowadays , even after the globalization “wave”
engaged since the in the nineties … Source: http://www.inditex.com/sustainability/suppliers/suppliers_world
Now
Trendy products: local suppliers | Standard products: Asia suppliers Zero stock is achieved by a rigorous production
planning.
Factories send their garments to a central warehouse with over
100.000 m2 … see video ( youtube The warehouse has a place assigned to each store where the garments are stored for a few hours until the arrival of the trucks that carry them to the store.
Suppliers send their garments to the warehouse on Wednesdays and Sundays knowing that:
In the remaining days of the week the warehouses are almost
empty . Suppliers
Zara’s main warehouse
store 1 store 2
store 3 store 4
straight to Porto ☺ ! • Norte Shopping • Parque Nascente • Bom Sucesso • Gaia Shopping • … In fact Zara, implemented the reverse milk type distribution systems invented by Toyota. Inditex’s central store Inditex’s central store Inditex’s central store It was said by Toyota but it could also be said by Zara:
we got brilliant results with normal people because we have brilliant processes.
May be that people working for Zara are just normal people
but the industrial engineers and managers were brilliant! Discussion :: Key points 1. Zara doesn’t try to create new fashion trends, but to understand society and capture emergent trends and to answer (design, produce and deliver new products) very quickly.
Zara is in step with society dressing the ideas, trends and tastes that society itself has developed.
This is customer focus ! 2. Zara follows the activity in each store in real time and delivers to each store according to the ever changing customer behavior.
This is also customer focus ! Zara is possibly the most innovative and devastating retailer in the world
Daniel Piette, Louis Vuitton Fashion Director , CNN 2001 3. The most prominent characteristic of the Zara’s business model is … For an industrial engineer, means:
short lead time
Zara’s business model is “built” on top of this ability Business model rationale short delays trendy in design, and production affordable low and delivery fashion production costs
no inspection, no rework
= Total Quality 4. As so, the fundamentals behind Zara’s success are not so different than those we saw in the Peugeot case study, plant as they both rely on the combination of:
Lean & TQM What about the future Zara certainly excels in industrial engineering and management
but now look at this … see YouTube video https://www.youtube.com/watch?v=VPnq4TKNFS8 (min 5,3 onwards) Zara vs Farfetch
Zara fast, very, very, fast
Farfetch ultrafast ☺ ! There are key points common to these two highly successful companies.
One is: Total Customer Focus
as both companies excel at anticipating customers expectations and delivering quickly The other common point between Zara and Farfetch …
Zara headquarters
Arteixo , La Coruna
Maia, Porto
Farfetch headquarters Farfetch outsources deliveries to companies such as DHL and UPS,
By now, the last 500 meters are still quite expensive .
But may be it will not be so expensive in a near future as this vide suggests. see YouTube video
https://www.youtube.com/watch?v=Le46ERPMlWU Today, Zara is the biggest company in the world in its sector
But, in ten years, will they manage to keep this
position?
May be, but they will certainly have to work hard otherwise they will quickly be overcame by its competitors. Zara much like any other company should keep trying
everyday to improve its business processes.
This is the topic for the next class : continuous improvement A final note Much like Toyota, Zara and Farfetch, any successful business should constantly “fight” to anticipate market trends and be ready to act accordingly (do you remember Ohno?)
As a future successful industrial and management engineer, YOU should also be aware and anticipate emergent trends in industrial engineering and management ☺ ! YOU, as a future successful industrial engineer,
should always try to anticipate trends in industry
& management,
instead of just trying to follow what the Japanese
did 60 years ago,
and Americans said 30 years ago ☺ ! Note that the major trends addressed in the Zara’s case study are not specific to the car or the fashion
industries, but they are transversal to our society .
To reinforce this idea, look at following two articles recently published by the Público newspaper regarding the business models of the Business Schools ... Business Schools (1)
In the era of scarce time , companies are increasingly looking for fast and specific training programs .
Requests come both from large and small companies , mainly in the areas of digital business and for those having the internationalization challenge. Business Schools (1)
Quick answers, instant fit, updated knowledge, always on top of things. The corporate world spins faster and faster and the management schools try to accompanying it.
Customized training programs for executives is an important business area for educational institutions, highly valued by the international rankings. Business Schools (1)
The main schools do not want to talk about sales volumes. Just Porto Business School said that the training as worth 30% of turnover .
Recent years have changed the way programs are designed, all with a common point: time is scarce, companies want to be on top of the rapid changes and ask for short-term training and, above all, effective .
https://www.publico.pt/economia/noticia/na-era-do-tempo-escasso-empresas-procuram-formacoes-cada-vez-mais-rapidas- 1744655 Business Schools (2)
Business Schools multiply
their offer creating
programs for each
career stage Business Schools (2)
The needs and expectations of those who participate in
a business school a program vary by the career stage .
The portfolio of Business Schools are designed to
address each of those stages , from full time MBA to executive MBA through shorter training programs aimed at those already in a management position.
https://www.publico.pt/economia/noticia/um-curso-para-cada-passo-na-carreira-de-um-executivo-1744719 There many similar points between the new trends of the Business Schools and the business model adopted by Zara several years ago.
In fact, t he underlying ideas are always the same: do it faster , affordable and customized, that is to say … Do you imagine an engineering school that trains engineers according to market needs so that:
every company needing to hire would find the person it
needs when it needs and
every student would find a job suitable to his skills and preferences?
That would be a just-in-time University ! This goal may seem quite unrealistic.
However, it was a similar challenge that Toyota
and Zara addressed quite successfully some years ago !
So, as Euclídes Coimbra, CEO of Kaizen Institute Portugal asks … … why not make every national company a “21 st century Toyota”?
Euclídes Coimbra, CEO of Kaizen Institute Portugal published in Público newspaper on February 27th 2014
Full text (in Portuguese) available in: http://www.publico.pt/economia/noticia/e-por-que-nao- fazer-de-cada-empresa-nacional-uma-toyota-do-seculo-xxi-1626306 Remember:
The biggest of all mistakes is to do nothing just because we can do little.
Do what you can. *
Sydney Smith (1771-1845), English writer
* and there are always many things you can do to improve your personal performance and the performance of your team! Attachment: To know more about Zara Knowing more about Zara
If you are interested in knowing a little more about Zara you may look at this book
available at FEUP’s library:
De zero a Zara Xabier Blanco e Jesús Salgado Esfera dos Livros, 2006 Other published news about Zara and the Inditex group … Net profits of Inditex, worldwide leader in apparel retail, reached 944 million euros in the first semester. An increase of 32% in annual terms, which represents an increase of 32% compared to the same period in 2011.
The Spanish textile group, holder of eight brands with Zara among them, beat the analysts’ forecasts.
Sales increased 7% thanks to the emerging markets and increased online demand.
Euronews, September 19th 2012 http://pt.euronews.com/2012/09/19/lucros-da-inditex-batem-previses/ In the first six months of 2012 Inditex opened 166 stores in 39 countries, reaching a total of 5.693 stores in 85 markets.
Asia was the region with the greatest growth, representing already 20% of total sales (it represented 17% last year), with America representing 14% of sales (two additional percentage points).
SIC Notícias, September 19th 2012 How Zara gets fresh styles to stores insanely fast - within weeks
Most apparel retailers commit six months in advance to the designs for 40 to 60 percent of their seasonal lines.
By the start of each season, nearly 80 percent of that season’s inventory is committed—meaning a lot of it has already been manufactured.
Once you’ve made your bets, you need to sit back and hope you guessed right that fuchsia and burlap would be the hot trends of the season.
If they aren’t? You get stuck with oodles of unsold inventory. There’s not much you can do to move it out of your stores except cut prices. … How Zara gets fresh styles to stores insanely fast - within weeks
Zara, on the other hand, commits six months in advance to only 15 to 25 percent of a season’s line.
And it only locks in 50 to 60 percent of its line by the start of the season, meaning that up to 50 percent of its clothes are designed and manufactured smack in the middle of the season.
If mauve and velour suddenly become the rage, Zara reacts quickly, designs new styles, and gets them into stores while the trend is still peaking. … How Zara gets fresh styles to stores insanely fast - within weeks
For its long-lead items, Zara uses the same foreign factories as everybody else because the costs are cheaper.
But for the fast-fashion items Zara produces in-house, it often relies heavily on sophisticated fabric-sourcing, cutting, and sewing facilities nearer to its design headquarters in Spain.
… How Zara gets fresh styles to stores insanely fast - within weeks
The wages of these European workers are higher than those of their developing-world counterparts (“Eight euros an hour instead of 50 cents an hour.”)
But the turnaround time is miraculous: as short as two weeks from an idea in a designer’s head to a garment on a Zara store’s shelf.
… How Zara gets fresh styles to stores insanely fast - within weeks
As Zara ships more often and in smaller batches, new styles can hit stores twice per week.
If the mauve velour leggings Zara hastily creates in an attempt to chase the latest trend do not in fact sell well, little harm is done.
The batch is small, so there’s not a ton of unsold inventory to get rid of.
And because the failed experiment is over in a jiffy, there’s still time to try a different style, and then a different one after that.
Seth Stevenson, junho de 2012. Artigo completo em: http://www.slate.com/articles/arts/operations/2012/06/zara_s_fast_fashion_how_the_company_gets_new_sty les_to_stores_so_quickly_.html Inditex: Clothes that chase us in Meco’s hangers
In 180 thousand square meters of warehouse area, more children’s clothes fit than we can imagine. There are thousands of garments. resses, blouses, shorts — everything in a small scale, hanging in hangers which travel on rails. On the ceiling.
We can be chased by them while we go across the platform of Meco, in the surroundings of Madrid, the largest distribution center of Inditex (over a kilometer in length).
The building, with over 240 thousand square meters of steppable surface, is made of three colors — blue, red and grey — and is as full of clothes as of emptiness.
… Inditex: Clothes that chase us in Meco’s hangers Inditex: Clothes that chase us in Meco’s hangers Inditex: Clothes that chase us in Meco’s hangers Inditex: Clothes that chase us in Meco’s hangers
Ana Maria Henriques, May 3rd 2013
Full article (in portuguese) in:
http://p3.publico.pt/actualidade/economia/7770/inditex-roupa-que-nos- persegue-nos-cabides-do-meco?page=5 Inditex: Clothes that chase us in Meco’s hangers
The floor is immaculate (it seems the 500 people who work here use socks while they do it) and long minutes may pass where the only sound you hear is the rails’, which are always working on top of our heads.
From here products of Zara Kids, Zara Home and a few of Pull&Bear are shipped to rest of the world, always twice a week, and the same happens with online sale products for Europe.
Garments that do not exit the warehouse are stored in two sillos which together hold almost half a million boxes. Everything is in large scale – except for the clothes. Zara’s empire in the time of succession
It was through ZARA that Ortega revolutionized the ready-to-wear industry, with a constant renewal of clothes in stores at affordable prices.
If a garment does not sell, a lesson is learned from the mistake, which could be the discomfort of use or having an unappealing color, and then the the company tries to avoid it. If it sells, the designer, who monitors the impact of his/her creations, uses information such as the pattern or type of fabric to create another model which will come as its replacement.
Alternatively, another source of ideas is used: what the customers seek but are yet to find, such as the same garment in another fabric or color. … In that case, data is more qualitive than quantitive. Imagine you enter a store and ask an employee if the a certain garment is available in another color, fabric or pattern.
In the Zara universe it is up to the employees to report clients’ feedbackto the shop director.
The shop director then depois sends information to the insignia director or directly to the distributor in Arteixo, responsible for Zara in the given country in this example, who shares and verifies the information with distributors of other countries. … Three weeks is the time a garment takes to reach the stores from the moment it receives green light for its production.
For that to happen with the quickness which characterizes Inditex, around 50% of products are manufactured in Spain, Portugal and Morroco, with emphasis on subcontracting.
In 2009 there were 217 sewing workshops and 184 factories in national territory which supplied the Galician group.
Purchases to Portugal should be around 270 million euros, according to unofficial data. … Jesús Echevarría, communication general director of the Inditex group, highlights that “proximity production, including the one being performed in Portugal, is absolutely essential for Inditex’s commercial strategy”.
Also, “production in Portugal grows every year as a result of the worldwide growth of the various group’s chains".
Luís Villalobos , July 17th 2011 Full article (in portuguese) in: http://lifestyle.publico.pt/reportagem/290204_o-imperio-da-zara-na-hora- da-sucessao/4 Thank you!