Various business agents in any economy engage in scores of activities that result in creation of commodities for the satisfaction of human wants. These set of activities are a component of Operations Management (OM) which can be defined as; a well coordinated set of activities that crate value by transforming inputs to outputs.
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Operations management as a discipline is vital as it has the improvement of operations as its major focus. Operations improvement has the pro of synchronizing the aspect of commodity cost lowering and the maximization of customer satisfaction.
Often, operations improvement is the function of technology advancement and firms should therefore be ready to remain abreast with these changes in order to avoid being rendered obsolete in the market. In addition, firms can also take the advantage of operations improvement in their diverse operations to obtain a competitive advantage in the market. For instance, a firm could capitalize on faster and reliable response to customer needs, new markets as a competitive advantage.
It has been noted in the business media that Americans spend more money and time on marketing while the Japanese spend five times as Americans in developing more efficient processing methods. This paper will employ the use of the SWOT analysis tool in evaluating the various ways that Zara apparel fashion store has been utilizing the concepts of operation management in attaining its current competitive advantage in the textile industry.
This study will take an assumption that Zara apparel fashion chain has the opportunity to appropriate the tools of operations management today. Hence, the suggestions of this analysis will be viewed as applicable today even though Zara set out to double its capacity in the year 2009. Secondly, the analysis will consider only a few other major players in the market namely H&M and the Gap as the major competitors to Zara.
Background of the study
Zara chain of stores was started in the year 1975 in La Coruna in North West Spain with the intention of reaching the young city dwellers that are fashion conscious through the low cost and latest fashion strategy. Zara started with one store, but grew to 723 stores in 2003 spreading to 56 countries occupying a total space of over 811100m2.
The sales income for Zara stores for the year 2004 was estimated to be in tunes of € 3.8 billion. The high cash flows of the company afforded Zara an opportunity to become the holding company Inditex group listed in the stock market and boasting of € 5.7 billion market capitalization. Approximately 91% of Zara is company owned with the remaining proportion being shared by franchises and joint ventures.
At inception, Zara‘s strategy was to focus on the target market, build a strong brand known for fashion and low costs. Zara used in-house designers to supply new products to the market twice a week to customers in response to the sales and fashion trends. As such, the merchandise of each store was fresh, unique and limited.
This necessitated for a vertically integrated supply chain and distribution through a single state-of-the-art center in order to meet the short notices. Compared to its competitors in the fashion industry, Zara does 70-80% of its production was done in Europe. The remaining proportion is mainly outsourced from Asia but entails basic fashion commodities that are not complex in design.
Zara operates in a dynamic environment with other players in the economy such as H&M and the Gap. H&M is a Swedish giant that was started in1947 and boasting of a contingent of over 32000 employees by the year 2005 and high sales turnover of € 6 billion and a profit margin of € 1.26 billon. The Gap was started in 1969 in San Francisco and specializes in private labels such as Levis jeans, Khakis and T-shirts. In the year 2004, Gap made a sales turnover of € 12.6 billion and profit margins in the tunes of € 1.4 billion. From the ensuing, Zara’s environment could be rightfully described as being very competitive.
The need for expansion acted as an impetus for Zara to change its strategy so as to cope up with the new challenges. A new Chief executive of Inditex group, Pablo Isla, was appointed in 2005. The new executive was expected to spur growth intended to double the level of activity of the Zara by the year 2009.
First, Zara opened a second state-of-the-art distribution center. It was also apparent that they enlarged their focus and target long distance market that ultimately would increase the quantity of products transported to 12000 units.
The issues that Zara need to consider were whether: 1). whether Zara’s business model would adapt to the new expansion demands, 2). whether Zara would lose their speed advantage to the any emerging complexity, and 3). whether the new executive officer would be able to maintain the focus Zara had built in its target market and the single distribution center.
A SWOT analysis of Zara apparel fashion store
SWOT analysis is a management model which organizations use in ensuring that their strategic decisions are effective. The model analyses the entities’ internal strengths and weaknesses and the external opportunities and threats in their diverse environments.
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The carefully applying the concepts of this tool, an organization can ramify their strengths while making use of the opportunities on one hand and work to mitigate weaknesses and threats. The following part of this document will analyze the components of SWOT vis-à-vis Zara fashion store.
An analysis of Zara’s strengths and weaknesses
One of the comparative advantages that were enjoyed by Zara was a strong and established brand. The strong brand helped the firm reduce the cost of advertisement to 0.3% of their sales incomes. These savings on the sales income due to low-cost advertising was rechanneled to reinforce Zara’s identity as a low-cost and high fashion chain.
Zara stores had the ability to utilize the concepts of mass customization to adapt to the expansion of its activities as strength. In mass customization organizations seek to produce low-cost, high-quality commodities in high variety to enhance customer satisfaction.
Secondly, the uniformity of Zara’s stores in various parts with specific brand visible features such as; modern spacious stores, well lit and mirror walled were major strengths. Zara also stocked the latest fashions well displayed, a strength that enabled them to create brand loyalty. The firm concentrated on creating compelling windows and shop designs that even won awards.
Also, Zara’s well lit windows with neutral background for brand communication is a strength that gave them an identity in the eyes of customers. In summary, Zara was able to differentiate itself in the marked be maintaining customer visibility as a strength. This was made possible through conducting market research that resulted in Zara stores being located in the busy streets of prime locations in major cities.
Proper management of the store from where commodities are disbursed is very vital for the supply chain. In the Lean supply chain model, elimination of wastes is crucial to the improvement of the chains efficiency. Zara stores understood this concept and responded by raising competent store managers and hence building strength.
This was achieved through the practise of promoting the managers internally. By so doing, Zara was able to raise competent stores managers who understood their job description and environment. Additionally, Zara pegged remuneration of store managers on the performance in regard to the accuracy of their sale forecasts and growth projections.
The store managers also gave regular feedback to the experts on customer demands and the sales patterns. The feedback included the customer requests that were later forwarded to the designers at the headquarters for improvement. Another strength Zara developed was quick response to the customers need.
This was also enhanced by the short lead time for goods to be supplied to the stores at different locations. The headquarters also sent unsolicited test products in the test markets before doing mass production and distribution. In some instances, the headquarters defied the stores orders made by some stores to address areas where demand was very high.
An analysis of Zara’s opportunities and threats
The globalized nature of the labour market posed a threat to Zara in that the market is opened up for labour outsourcing. Different countries and regions of the globe offer different labour rates. As such, the labour intensive nature of the sewing functions of Zara production was exposed to the effect of labourers requesting for higher wages. On the other hand, the globalized labour market could also present an advantage to Zara in that it can open production plants in areas where labour is cheap.
The expiring of the Multi-fiber-Agreement of 1974 imposing trade quotas expired in 2005 opening the textile industry for global competition. Zara would not be an exception in regard to the effects of open global market. This meant that nations that were able to produce at lower costs due to availability of labour and raw materials availability benefited more.
Zara was also exposed to the threat of losing market due to the consolidation of apparel distribution channels by mass merchandisers and departmental stores in 1990s locked out small merchants. Zara uses low cost IT only for communication between store managers and designers at the headquarters. This offers an opportunity for Zara to utilize IT more in inter-store communication and the rest of the world.
An analysis of Zara’s Supply chain
A supply chain is the series of value adding processes in the manufacturing of a good or the rendering of a service that is intended to satisfy the customer needs. For the case of Zara, the supply chain begins with the sourcing of raw materials for the manufacture of garments from Comditel, a subsidiary of Inditex group. The raw are then supplied to 20 various destinations in Europe where production takes place.
Zara outsources 50% of its production while it does the rest in-house. Of the 50% of production outsourced, 27% is sourced from Asia where raw materials and labour are available at a lower cost. As such, the store chain has been utilized globalization to create strength in terms maintaining cost leadership as a strategy.
In addition, 60% of Zara’s production takes place in Europe close to the headquarters. The materials sourced from Asia are basically Low cost basic commodities with a few fashion specifications and that are imported in large volumes. Being able to match the value placed on the type of Material vis-à-vis their source is a major strength as it enhances planning for making reorders.
Zara has maximized on the opportunity of the availability of the recent graduates from the best design colleges for their in-house production. Their operation model of producing at a central source enables them to reduce the production period from design to completion.
Their team of 200 in-house designers that little known but very competent is developed strength. Zara employees, unlike their competitors, work together with market specialists, production planners and designers to create over 40000 new designs annually, a quarter of which are actualized.
Additionally, Zara has computerized its production process enabling it to be more efficient in terms of Quality. Computerization is used to guide the cutting of materials for use and the making of pattern from the designs created. The computerization of processes has been extended to the use of optical reading devices for distribution of products.
Zara was a massive distributor supplying over 60000 items daily to various destinations in the world. Zara focused on their target market that is Europe where they supplied 75% of their output and the rest to the rest of the globe. Also, barcode readers were used to track the garments throughout the process hence helping to maintain quality.
The efficiency of any business concern could be viewed in terms of the ability of the business to generate maximum profits with less incremental costs. In comparison with other players in the market such as H &M and Gap, Zara’s profit margins as a percentage of sales were higher according to a study done in the year 2000. Zara’s profits were 14.7% of sales while Gap was at10.6% and 12.3% for H&M. In house design and production allowed little production time and response to demand.
Suggestions on how Zara could respond to the three issues at hand
It is the dream of every business to expand and operate at a higher capacity. There are many advantage of operating at a higher capacity in comparison with small scale operations. As such, Zara could appropriate various operational management tools in order to face the challenge of increased demands.
The three issues that faced the management of Zara were in relation to: their need for adaptability to expanded capacity; the desire to overcome the complexities of the expansion while retaining the core competence of fast response to customer need; and the challenge of the new executive to spur the firm to operate at a double its capacity. These issues could be addressed in the following ways among others.
In order to ensure that Zara is able to adopt the new expansion demands, they could channel their energies on ramifying the supply chain and manage it better to create a competitive edge. The function of supply chain management is to synchronize the activities and the processes of a supply chain into a seamless and coherent course.
Effective supply chain management ensures that organizations are able to plan and collaborate throughout the chain. A properly managed supply would help Zara strategize on delivering the right product at the right place and at the right time to optimize profit.
Zara should work more into good supply chain management due to manifold reasons that can. First, the increasing global competition due to globalization poses a threat to the firm. As a matter of fact, firms do not compete, supply chains do. They could also take advantage of outsourcing by making rational decisions of make or have made nature. Where outsourcing is cheap, especially from Asia, it would be a better option to pursue.
Good management of a supply chain would position Zara in a better position to utilize the efficiencies offered by ecommerce such as advertizing for their commodities globally using the internet. A good supply chain is necessary when the product lifecycle is short as it helps in reducing wastes and in reversing logistics.
Virtually all organizations need to embrace innovations through research and development of new products and services in order to benefit. Zara in general has been proactive leading to their current competitive edge. Also, the products produced by firms should be of use to the customers for any firms operations to be considered successful. Thus, the commodities should satisfy the customers by meeting the dimensions of quality such as cost and benefits, and allowing consumers to enjoy evolved quality.
Though Zara has attained a milestone in establishing itself as apparel fashion giant in the fashion industry, they cannot afford to relax and celebrate their myriad success. Great untapped opportunities are still available for Zara. Information technology could still be extended to be used not only for communication between store managers and the designers with the designers and the headquarters. Nevertheless, the great achievement of this fashions giant cannot be overemphasized and they remain a force to reckon with in the industry.
Crawford, L. (2005, February 1). “Inditex sizes up Europe in Expansion drive”. Financial Times , p 50.
Ghemawat, P., & Nueno, J. L. (2003). “Zara: Fast Fashions”. Harvard Business School , p 10.