zara case study: customer focus “taken to the limit”

FEUP | MIEGI, MIEEC & MIEM | Academic Year 2018/19

José A. Faria, [email protected]

University of Porto | Faculty of Engineering | Department of Industrial Engineering and Management

Course: Quality Management

ZARA Case Study:

Customer Focus

“taken to the limit”

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?


� 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 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, 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


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 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.…

Zara gets a record on profitsand prepares the opening of 500 new 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 23th 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 days.

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 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 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.

…

just another way of saying:

customers focus

� 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.

Wikipedia 2012

and does it and cheaper !

� Data coming from the stores is constantly

transmitted to the design team made up of over

200 professionals,

informing them of

our customers' needs

and concerns.

information systems for operations

information systems for business intelligence

� 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.

� Let’s take a look on it.

Wikipedia 2012

� 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

Trendy products: local suppliers | Standard products: Asia suppliers

Now

� 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.

store 1 store 2

store 3 store 4

Zara’s main warehouse

straight to Porto ☺ !

• Norte Shopping

• Parque Nascente

• Bom Sucesso

• Gaia Shopping

• …

Suppliers

� In fact Zara, implemented the reverse milk type distribution

systems invented by Toyota.

Inditex’s central store

� It was said by Toyota but it could also be said by Zara:

� May be that people working for Zara are just normal people

but the industrial engineers and managers were brilliant!

we got brilliant results with normal people

because we have brilliant processes.

� 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 …

Zara’s business model is “built” on top of this ability

For an industrial engineer, means:

short lead time

Business model rationale

trendy and

affordablefashion

low production costs

short delays in design, production and delivery

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 Lean & TQM

� What about the future

� Zara certainly excels in industrial engineering

and management

� but now look at this …

see YouTube video(min 5,3 onwards)https://www.youtube.com/watch?v=VPnq4TKNFS8

Zara vs Farfetch

Zara

Farfetch

� fast, very, very, fast

� 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

Farfetch headquarters

Maia, Porto

� 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.


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.


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 multiply

their offer creating

programs for each

career stage


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, the 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 “21st 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

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

Remember:

* 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 2012http://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.

…


� 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.

…


� 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.

…


� 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.

…


� 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.

…


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


� 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’

feedback to 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.

…

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

� 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".

Thank you!

zara case study: customer focus “taken to the limit”

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