ZARA

14.03.11 / Reading / Author: sierrapan
Tags: ZARA

When a German wholesaler suddenly canceled a big order in 1975, Amancio Ortega thought his clothing company might go bankrupt. All his capital was tied up in the order. There were no other buyers. In desperation, he opened a shop near his factory in the far northwest corner of Spain, and sold the goods himself. He called the shop Zara.

The company now can design, produce, and deliver a new garment and put it on display in its stores worldwide in a mere 15 days. Such a pace is unheard-of in the fashion business, where designers typically spend months planning for the next season.

Zara defies most of the current conventional wisdom about how supply chains should be run. In fact, some of Zara’s practices may seem questionable, if not downright crazy, when taken individually. Unlike so many of its peers in retail clothing that rush to outsource, Zara keeps almost half of its production inhouse. Far from pushing its factories to maximize their output, the company intentionally leaves extra capacity. Rather than chase economies of scale, Zara manufactures and distributes products in small batches. Instead of relying on outside partners, the company manages all design, warehousing, distribution, and logistics functions itself. Even many of its day-today operational procedures differ from the norm. It holds its retail stores to a rigid timetable for placing orders and receiving stock. It puts price tags on items before they’re shipped, rather than at each store. It leaves large areas empty in its expensive retail shops. And it tolerates, even encourages, occasional stock-outs.

In Zara stores, customers can always find new products—but they’re in limited supply. There
is a sense of tantalizing exclusivity, since only a few items are on display even though stores
are spacious.

Zara has an informal policy of moving unsold items after two or three weeks. This can be an
expensive practice for a typical store, but since Zara stores receive small shipments and carry
little inventory, the risks are small. Furthermore, new merchandise displayed in limited quantities and the short window of opportunity for purchasing items motivate people to visit Zara’s shops more frequently than they might other stores.

Perhaps the deepest secret of Zara’s success is its ability to sustain an environment that optimizes the entire supply chain rather than each step. Grasping the full implication of this approach is a big challenge. Few managers can imagine sending a half-empty truck across Europe, paying for airfreight twice a week to ship coats on hangers to Japan, or running factories for only one shift. But this is exactly why Zara’s senior managers deserve credit. They have hardwired into the organization the lesson Ortega learned almost 30 years ago: Touch the factories and customers with two hands. Do everything possible to let one hand help the other. And whatever you do, don’t take your eyes off the product until it’s sold.

Soure:HBR