zara technology case study

IE Corporate Relations
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Zara: Technology and User Experience as Drivers of Business

The Spanish clothing retailer Zara became a market leader thanks to a business model that leans heavily on technological innovation and user experience. One of the keys to Zara’s success is big data. For example, the company uses neighborhood-level average weight statistics to determine which garment sizes to ship to each store. Each location carries a different selection: stores in business districts are stocked with officewear, while stores in popular leisure areas tend to focus on clothes for younger women. Data analysis allows Zara to personalize the customer experience and minimize its inventory. The company has also developed an unparalleled e-commerce model. The next challenge in Zara’s sights is energy sustainability.

Zara is the leader in its market, thanks to a pioneering technological strategy. By adapting to new tools—including big data—the Spanish clothing retailer has managed to outpace its direct competitors. Despite being one of the last fashion companies to take up e-commerce, Zara has achieved a universal shopping experience that encompasses both its brick-and-mortar locations and its online stores. Other companies have tried to emulate this experience, but never with the same results.

Zara tecnologia y experiencia de usuario como motores del negocio

Zara’s success is based on a rather unusual premise: its founder, Amancio Ortega, has managed to become one of the world’s richest people without monopolizing a sector. The clothing retailer’s business model leans heavily on technological innovation and user experience. The firm has doubled in size in just ten years, shattering the forecasts of analysts who thought the firm could never achieve such a feat without overhauling its business plan to centralize its processes.

As the flagship brand of the Inditex group, Zara is synonymous with clothing and fashion. The aim of Ortega’s company is to give society what it wants as quickly as possible. Zara therefore changes its collections every two weeks. To put this strategy into perspective, look no further than Mango or Gap: these competitors renew their collections about six times a year. Although most fashion experts consider Zara’s model to be unsustainable—due to its supposed high cost—the company has managed to grow steadily year after year, leaving its competitors in the dust.

Another key element of Zara’s business model is how it manages its stores and manufactures its garments. The same strategy is applied for all locations across the globe, from Argentina to Australia. Zara produces its clothing in limited runs—no more than 8,000 pieces for any particular design. This system allows the company to change its collections quickly. If a particular design sells well, the company manufactures more garments in similar styles, but never exactly the same as the one that originally flew off the shelves. Moreover, thanks to Zara’s sister brands—Bershka, Pull&Bear, etc.—the Inditex group is able to cover all age ranges and styles and maintain an even bigger presence in the textile industry.

Zara’s business model leans heavily on technological innovation and user experience, allowing the firm to double in size in just ten years.

Just like a tech firm

If Zara’s approach is all about manufacturing clothes, how did it become such a clear market leader? And why are its competitors unable to catch up? These questions must be answered from multiple angles. There is no single explanation, just an answer that, a priori, is difficult to imagine. We must come to realize that Inditex is actually a large tech firm. For more than 30 years, Amancio Ortega has been making investments on a scale not seen anywhere else in the fashion industry. In this sense, the company has a five-year lead over all of its competitors. Among other advantages, it has logistical mechanisms that would be nearly impossible for any other firm to copy.

Arteixo, in the Spanish region of Galicia, is the company’s operations hub. This small town is the nerve center for the vast majority of Inditex’s decisions and processes—including tech-related matters, for which the company has built a specific facility. From this headquarters, technology allows Zara’s executives to monitor each store’s ambient temperature, energy consumption, and much more. Indeed, this is one of the keys to Zara’s success: big data. Thanks to data analysis, the company even knows the average weight of residents in each store’s neighborhood. The company uses these figures to determine what sizes of each garment to ship to each establishment. In short, Zara has the predictive capacity to determine what sorts of products will be easiest to sell.

The immediate result of this good technology use is savings in inventory—a major expense for many fashion companies. The company’s investment in big data also allows it to personalize the customer experience. In Madrid, for example, Zara has two stores with barely any overlap in terms of the clothes they sell. The business-oriented location on Paseo de la Castellana is amply stocked with suits and shirts, while the Gran Via store focuses on knitwear for women between the ages of 20 and 40. Data analysis provides the rationale for these strategies . Zara understands the peculiar demand of each neighborhood and knows how to satisfy it. The company is in close contact with the customer’s needs and offers a practically personalized user experience.

The immediate result of this good technology use is savings in inventory—a major expense for many fashion companies.

A nearly physical online experience

It took Zara longer than most other fashion retailers to enter the online channel. Once it overcame this barrier, however, it designed an unparalleled model. Inditex does not view the Internet as a separate channel from its physical stores; it is equally important. Inditex offers its customers the same services through both e-commerce and its traditional establishments. For example, even if a garment is out of stock, the customer can still purchase it and either have it delivered or pick it up at the store. Other firms have tried—without the same success—to copy this omnichannel model.

One of the major challenges that Zara will have to face in the future—besides competing with more e-commerce vendors—is energy sustainability. Statistics clearly show that the textile industry is the second biggest source of pollution worldwide. Technology and big data are now allies: they can find key areas for energy savings and identify recycled materials that offer the same characteristics as new ones. Zara is investing considerable resources in this endeavor. The company is working with universities in Galicia and companies in Switzerland to become more environmental friendly, as this factor will only become more crucial over the coming years.

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Case Study of Zara: Use of Technology to Improve Operational Responsiveness

Fashion giant, Zara, forms part of the retail group ‘Grupo Inditex’ which is one of the “largest, fastest growing and successful” clothing retailers across Europe. Grupo Inditex is formulated by an amalgamation of major high street names from across Europe, including Zara, Pull and Bear and Bershka, in total boasting 3825 stores across 68 countries. Zara’s success story begins by offering a product range capable of catering for men, women and children, providing affordable and stylish clothes whatever the season. Coupled with this, is their keen eye for discovering new fashion trends and translating these trends from the catwalk to the high street, both quickly and affordably. Zara boasts a marketing strategy of firstly product variety with a focal point of ensuring speed to market. At present, Zara launch 10,000 new articles per year across their portfolio of stores. Finally, store location, as any marketing is left to store location rather than advertising. Opting for a strategy of minimal advertising provokes the consumer into having to visit their stores. Securing a foothold in as many markets as possible with the intended outcome of building brand awareness and an increased market share has resulted in Zara developing their brand, launching Zara Home. Zara opened their first store in Spain in 1975 and have since expanded internationally, opening their first international store in Portugal in 1988, and later opening a further store in New York, US, in 1989. Today the Zara name is recognized throughout the entire world.

Use of Technology to Improve Operational Responsiveness

Identification of fashion trend at Zara is part of the culture. A point-of sale (POS) system is used in the stores and the information gathered is sent to Inditex. Also, the POS technology has allowed to tight up the links between vendors and led to improvements in the ordering process, in deliveries and in the distribution system as a whole, thus contributing to increase the level of responsiveness of ZARA. Moreover, managers consult personal digital assistant on daily basis to check the availability of new designs and to place their orders to what they think will be much appreciated by their customers. By so doing, the store managers assist shape designs.

Information and communication protocols at Zara are radically different from its competitors. The company spends less than 0.5 percent of total revenue on information technology and employees in the IT department account for only 0.5 percent of the company’s total workforce. This differs from their competitors who spend about 2 percent of their total revenue on information technology and have 2.5 percent of their total workforce dedicated to IT.

Zara makes use of human intelligence and information technology such as their PDA devices to come up with a hybrid model for flow of information from stores to the headquarters. For instance, the company’s managers utilizes handheld devices to send formalized information concerning feedback from customers and ordering needs straight to in-house designers. Apart from keeping Zara’s designers informed on fast-changing demand and trends, this technique also provides the company with imminent on less-desirable products. Unlike Zara’s hybrid model (which combines IT application and human intelligence), competitors rely mostly on information technology.

The hybrid model results into well managed inventories , reduced costs from obsolete products, linkages between supply and demand, nevertheless, there is still room for upgrading in their IT processes to realize more reliable management of inventory levels. Therefore, this unique approach of human astuteness assisted IT solution provides cost advantages to the company’s operations and assists Zara to abide by her primary principle to be in a position to quickly respond to changes in consumer demand.

The SKU system allows the gathering of data to help identifying and producing garments sought by customers, and in the right quantities, thus improving the ordering system at the distribution center. ZARA, then, successfully maintain control of its inventory while keeping inventory costs at a lower level.

Zara also made considerable investments to improve its logistics system and to develop its IT infrastructures. ZARA chose to implement a Just-In-Time (JIT) manufacturing system as well as to invest in a sophisticated telecommunication system, thus improving the information flow between headquarters and supply, production and sales sites and thus avoiding any type of bureaucratic structure. Furthermore, this system allows ZARA to take appropriate and quicker decisions due thanks to the information flow being very fluent. The JIT system allows ZARA to improve quality , to diminish manufacturing time, to eliminate waste , to increase productivity and to have better relationships between suppliers, thus improving its overall responsiveness.

The use of a consumption information system linking together the merchandising and the back-end processes is an original technique used by ZARA that permits designing teams to possess relevant information about customers’ preferences. This technology contributes without doubt to ameliorate the responsiveness of ZARA: indeed, the data gathered by this system allow teams to propose new designs that match consumers’ expectations, and in a timely manner.

A high-tech mobile tracking system speeds up the distribution system by proceeding high numbers of garments in a short period of time, thus minimizing intervention of labor force while increasing productivity. As garments did not stay for a long time in the warehouse, the company is able to cut down storage costs.

Zara’s capabilities, concepts and strategic planning as demonstrated through their business model , tend to be heading in the right direction. Their concentration on core operation as well as production capabilities, resistance to outsourcing, and focus on the fashion pulse have made this company one of the most victorious clothing retails.

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How can Zara maintain its leadership in fast fashion thanks to Artificial Intelligence?

Key takeaways.

Fast fashion brand Zara achieved a $254 million second-quarter profit in 2020, but there remain three main challenges for the. brand: e-commerce, competition, and sustainability.
Trend forecasting powered by artificial intelligence would give an edge to Zara who is lagging behind with only 14% of net sales from e-commerce, paling in comparison to its online native competitors like Boohoo and Fashion Nova.
85% of Zara’s production is done during the current season, and with demand forecasting Zara can avoid overproduction and misidentification of trends to be more sustainable.

Created in 1975, the famous fast-fashion company has proven the reliability of its widely acclaimed business model, built on technology innovation and customer experience. Using little to no advertising , Zara acheived a $254 million second-quarter profit in 2020.

However, the brand has recently faced three main challenges: e-commerce, competition and sustainability.

To sustain its global expansion, the brand made a step toward digital expansion even before the pandemic hit, and it paid off. So far in 2020, Zara reports a 74% jump in online sales alone. Executive chairman of the brand Pablo Isla said the growth in online sales demonstrated the importance of the company’s “integrated store and online” strategy, which was the “cornerstone” of the business. Despite this, sustainability concerns are rising among consumers as the eco-movement gains momentum, and Zara is known for its fast-fashion approach.

Thankfully, Zara can count on artificial intelligence to make a difference by better forecasting trends of best-selling products to boost its e-commerce sales .

A digital transition: Sign of the times

The Zara business model is a good example of the high stakes of a digital transformation for a brick-and mortar retailer. Pablo Isla has said that by 2020 all the Inditex brands will be online , and while physical stores still drew in profits this year, the pandemic made it apparent how vital online stores have become.

During the height of the pandemic this year, Zara was forced to close 1200 stores globally. But upon reopening, from May to July, the brand succeeded in reopening 98% of its stores. Amancio Ortega considers 2020’s third quarter to be a “a progressive return to normality.”

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As for e-commerce, Zara saw a 74% jump in online sales this year, as they upped their digital communications and retrofitted their supply chains to accomodate shipments over in-store inventory. They even adapted their collections to fit “quarantine trends,” including styles such as wide trousers, jumpers, and house slippers.

If not for Zara’s digital reactivity, the brand would not have such a success online this year. This proves how vital digitalization and awareness of the times became throughout 2020.

Predicting the threat of the rise of ultra-fast fashion

Accounting for 14% of net sales, e-commerce remains a small portion of Zara’s business. It pales in comparison to its online native competitors like Boohoo and Fashion Nova. These digital pureplay retailers deliver designs faster than Zara thanks to marketing tools. Moreover, because they exclusively launch celebrity-led collections, they master influence marketing better. Fashion Nova, for instance, has mastered influencer collaborations, with their May 2019 collection with Cardi B reportedly bringing in a whopping $1million just after launch. With these new entrants, time-to-market has shrunk while variety has ballooned.

Freed from physical store loans and benefiting from more efficient supply chains, new fast fashion competitors have large stock inventories and more agile capabilities.

With this in mind, Zara aims to get over a quarter of its sales through online channels by 2022. This follows the results of the 44% drop in their first-quarter sales, which were mitigated by online growth. .

The necessity to transform into a sustainable model fuelled by trend forecasting

Due to a disruptive time-to-market, quick response policy and just-in-time manufacturing, Zara applies a lot of pressure on its end-to-end supply chain. There is growing evidence that clients, concerned with sustainability issues, are beginning to wonder whether they should make fast-fashion purchases . To answer these concerns, Zara has developed its own sustainable line under the #joinlife label. Contrary to H&M’s conscious collection, the initiative was discreetly implemented.

AI can improve customer-centric strategies to help boost e-commerce and be more sustainable

If Zara has succeeded in mastering its physical fast-fashion production chain, it is running late on digital. AI-powered trend forecasting is the way forward.

Zara has already multiplied technology-powered initiatives . In 2018, the fast fashion powerhouse teamed up with Jetlore, an AI-powered consumer behavior prediction platform, and Spanish big data company, El Arte de Medirn. Furthermore, it partnered with Intel and Fetch Robotics to measure clothing volume in boxes and improve stock inventory. Finally, to secure its product inventory and improve its traceability all along the supply chain, Zara implemented micro-chips from Tyco.

Since then, the brand continues to use these features in 2020. Earlier this year, they even added AI-powered robotics to automate order pick-up and reduce customer wait times.

Developing e-commerce to fight competition

In launching e-commerce platforms to boost its online sales it will take time for its visual merchandising teams to manage product features. Finding relevant mix and match styles to build silhouettes in line with real consumers habits can be really time-consuming.

Artificial intelligence can enable Zara to improve its trend radar to maintain a distance from its competitors and ultra-fast fashion’s new entrants.

The cutting-edge technology can spot and predict the most popular product and brand associations, most attractive styles, colors and textures to provide guidance for online merchandising photoshoots and other lookbooks.

Most of all, through its analysis of 3 million images each day on social media, Heuritech offers a powerful market intelligence tool capable of identifying the best influencer styles and forecasting the latest upcoming trends.

From just-in-time production to forecasting demand and trends: how Zara can become more sustainable

The Zara case study shows the difficulty for a fashion retail leader in changing its image when faced with a rampant consumerism shift towards more sustainable brands.

The speedy logistics champion now wants to be seen as a “responsible fashion” player.

Artificial intelligence can help solve the “just-in-time” manufacturing loophole, by improving demand forecasting . The company focuses on responding to current fashion needs rather than forecasting fashion trends for a distant future: 85% of its production is done during the current season. By doing so, Zara can avoid overproduction, an issue its rival H&M also faces, and become more sustainable. Identifying client needs months in advance and suggesting specific product designs will enable the retailer to launch products that customers really want.

About the writer: Victor Gosselin, Content writer

Victor writes about fashion and sportswear brands as well as products under the scope of sociology and pop culture to analyze new consumer behaviors.

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The restoration in Zara retailer gross sales and the robust momentum in on-line gross sales are the outcomes of the Group’s strategic dedication to high quality throughout all phases: design, product, retailer house and repair requirements.

What Is Zara Doing To Adopt Digital Transformation

The collections created by the design workforce have been met with an enthusiastic response from prospects within the third quarter, which marks the beginning of the autumn-winter season. This engagement with prospects was bolstered by the new expertise instruments being enabled by Inditex’s distinctive built-in store-online platform displaying how involved Zara shops are in adopting digital transformation.

Inditex Open Platform

The Group continued to make progress on this technique all through the nine-month reporting interval, growing its proprietary software program, the Inditex Open Platform , increasing its built-in inventory administration system, which is now operational in 6,000 shops, and providing the ‘ Retailer Mode ’, a digital characteristic at present provided to prospects by Zara and Massimo Dutti which reinforces the power to interact with trend in shops.

As a part of this transformation, the Group’s manufacturers proceed to open bigger shops outfitted with next-generation expertise , absorbing smaller items within the course of. As of the October shut, the Group had 7,197 shops positioned in prime procuring areas everywhere in the world.

Zara retailer on Wangfujing

Throughout the nine-month reporting interval, the Group opened shops in 25 markets, of notice was the launch in October of the enduring Zara retailer on Wangfujing (Beijing) , one of many Chinese language capital’s most important shopping streets. With over 3,500 sq. metres unfold over 4 storeys, this new flagship retailer is now our largest in Asia.

The shop, which meets all the Group’s newest eco-efficiency requirements , showcases the strategic integration of retailer and on-line gross sales with a devoted space for the fulfilment of on-line orders.

Retailer opening within the Kingdom Heart in Riyadh

Different highlights for Zara included retailer opening within the Kingdom Heart in Riyadh (Saudi Arabia) and the reopening within the Bahía Sur procuring centre in Cadiz (Spain). Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Dwelling and Uterqüe in the meantime launched new shops in China, Russia, Romania, Colombia, Mexico, the Philippines, Indonesia and Kazakhstan , amongst different locations, and reopened current shops in nations corresponding to The Netherlands, Germany and France throughout the reporting interval.

In parallel, all of the Inditex manufacturers continued to increase the attain of their on-line sales platforms , to the extent that their numerous collections at the moment are accessible on-line in additional than 200 markets .

Zara’s on-line gross sales

Zara’s on-line gross sales are already built-in into its native retailer networks in some 85 markets , complemented by on-line gross sales in 106 extra markets by way of Zara.com/ww. Zara.com launched in 12 new markets, together with Chile, Georgia, Kazakhstan, Montenegro, Costa Rica, Honduras, Guatemala, Nicaragua, El Salvador and Tunisia throughout the quarter. Subsequently, throughout the fourth quarter, the built-in platform has been launched in Iceland, Puerto Rico, Panama and Cyprus, having been rolled out in Argentina, Peru, Uruguay, Paraguay, Bosnia-Herzegovina, Albania or Algeria throughout the first two quarters of the yr.

The remainder of the manufacturers having been following go well with, deploying their built-in on-line choices in a bunch of markets, together with Serbia, Ukraine, Israel, Colombia, Saudi Arabia, Kuwait, Qatar, United Arab Emirates, Egypt, South Africa and Morocco , whereas Lefties launched its on-line platform in Spain and Portugal.

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Case Study: Information Systems and Information Technology at Zara

Post published: May 6, 2017
Post category: Information Systems Management
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A case study for Information Systems at Zara. Zara is by far the largest, most profitable and most internationalized fashion retail chain. Zara’s success is based on a business system that depends on vertical integration, in-house production, quick response, one centralized distribution centre and low advertising cost. It can be summarized as follows:

Design : The goal of the information system at Zara is to discover the best design trends. Designers estimate what sells well by collecting vital information such as daily sales numbers. The real-time information helps designers to decide about fabric, cut and colors when modifying existing clothes or designing new ones. IT has shortened the time from design conception to the arrival of clothes at the distribution centers and finally to the stores to be placed on racks.

Zara use IS to track customer preferences and sales. Store managers lead the intelligence gathering effort. This helps to determine what ends up on each store’s racks. Personal Digital assistants (PDAs) or handheld PCs are used to gather customer input. Staffs talk to customers to gain feedback on their preferences and issues. The valuable data gathered helps the firm to plan styles and issue re-buy orders based on feedback. Zara uses software like C-Design and Corel Draw. C-Design and Corel Draw Graphics Suite allows Zara to create and market its collections quickly and efficiently.

Distribution: Zara has its own centralized distribution system. It keeps almost half of its production in-house and uses smart technologies to have a competitive advantage. Instead of relying on outsourcing, the company manages all design, logistics , warehousing and distribution functions itself. It uses latest technologies to keep up with latest trends. The company manufactures and distributes products in small batches. Using the computerized system, the company has reduced its design to distribution process to just 10 to 15 days.

The IT implementation of the operation research requires establishing dynamic access to compute several large live databases (store inventory, sales, and warehouse inventory) under very strict time constraints. This helps Zara to change about three-quarters of the merchandise on display every three to four weeks and customer’s average time between visits to its stores is more than its competitors at 17 times a year.

Pricing is market-based. Zara uses information systems for customer profiling, to analyze the purchase patterns and direct targeting. The company quickly respond to fluctuating customer demands in fashion trends.

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Zara's Secret for Fast Fashion

by Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca

Editor's note: With some 650 stores in 50 countries, Spanish clothing retailer Zara has hit on a formula for supply chain success that works by defying conventional wisdom. This excerpt from a recent Harvard Business Review profile zeros in on how Zara's supply chain communicates, allowing it to design, produce, and deliver a garment in fifteen days.

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 (the average size is around 1,000 square meters). A customer thinks, "This green shirt fits me, and there is one on the rack. If I don't buy it now, I'll lose my chance."

Such a retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Zara's designers create approximately 40,000 new designs annually, from which 10,000 are selected for production. Some of them resemble the latest couture creations. But Zara often beats the high-fashion houses to the market and offers almost the same products, made with less expensive fabric, at much lower prices. Since most garments come in five to six colors and five to seven sizes, Zara's system has to deal with something in the realm of 300,000 new stock-keeping units (SKUs), on average, every year.

This "fast fashion" system depends on a constant exchange of information throughout every part of Zara's supply chain—from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on. Most companies insert layers of bureaucracy that can bog down communication between departments. But Zara's organization, operational procedures, performance measures, and even its office layouts are all designed to make information transfer easy.

Zara's single, centralized design and production center is attached to Inditex (Zara's parent company) headquarters in La CoruÃ±a. It consists of three spacious halls—one for women's clothing lines, one for men's, and one for children's. Unlike most companies, which try to excise redundant labor to cut costs, Zara makes a point of running three parallel, but operationally distinct, product families. Accordingly, separate design, sales, and procurement and production-planning staffs are dedicated to each clothing line. A store may receive three different calls from La CoruÃ±a in one week from a market specialist in each channel; a factory making shirts may deal simultaneously with two Zara managers, one for men's shirts and another for children's shirts. Though it's more expensive to operate three channels, the information flow for each channel is fast, direct, and unencumbered by problems in other channels—making the overall supply chain more responsive.

In each hall, floor to ceiling windows overlooking the Spanish countryside reinforce a sense of cheery informality and openness. Unlike companies that sequester their design staffs, Zara's cadre of 200 designers sits right in the midst of the production process. Split among the three lines, these mostly twentysomething designers—hired because of their enthusiasm and talent, no prima donnas allowed—work next to the market specialists and procurement and production planners. Large circular tables play host to impromptu meetings. Racks of the latest fashion magazines and catalogs fill the walls. A small prototype shop has been set up in the corner of each hall, which encourages everyone to comment on new garments as they evolve.

The physical and organizational proximity of the three groups increases both the speed and the quality of the design process. Designers can quickly and informally check initial sketches with colleagues. Market specialists, who are in constant touch with store managers (and many of whom have been store managers themselves), provide quick feedback about the look of the new designs (style, color, fabric, and so on) and suggest possible market price points. Procurement and production planners make preliminary, but crucial, estimates of manufacturing costs and available capacity. The cross-functional teams can examine prototypes in the hall, choose a design, and commit resources for its production and introduction in a few hours, if necessary.

Zara is careful about the way it deploys the latest information technology tools to facilitate these informal exchanges. Customized handheld computers support the connection between the retail stores and La CoruÃ±a. These PDAs augment regular (often weekly) phone conversations between the store managers and the market specialists assigned to them. Through the PDAs and telephone conversations, stores transmit all kinds of information to La CoruÃ±a—such hard data as orders and sales trends and such soft data as customer reactions and the "buzz" around a new style. While any company can use PDAs to communicate, Zara's flat organization ensures that important conversations don't fall through the bureaucratic cracks.

Once the team selects a prototype for production, the designers refine colors and textures on a computer-aided design system. If the item is to be made in one of Zara's factories, they transmit the specs directly to the relevant cutting machines and other systems in that factory. Bar codes track the cut pieces as they are converted into garments through the various steps involved in production (including sewing operations usually done by subcontractors), distribution, and delivery to the stores, where the communication cycle began.

The constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supply chains (and all open-loop information systems) to amplify small disturbances. A small change in retail orders, for example, can result in wide fluctuations in factory orders after it's transmitted through wholesalers and distributors. In an industry that traditionally allows retailers to change a maximum of 20 percent of their orders once the season has started, Zara lets them adjust 40 percent to 50 percent. In this way, Zara avoids costly overproduction and the subsequent sales and discounting prevalent in the industry.

Excerpted with permission from "Rapid-Fire Fulfillment," Harvard Business Review , Vol. 82, No.11, November 2004.

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Kasra Ferdows is the Heisley Family Professor of Global Manufacturing at Georgetown University's McDonough School of Business in Washington DC.

Michael A. Lewis is a professor of operations and supply management at the University of Bath School of Management in the UK.

Jose A.D. Machuca is a professor of operations management at the University of Seville in Spain.

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ZARA: Achieving the “Fast” in Fast Fashion through Analytics

How does fast fashion make any business sense? Zara uses intensive data and analytics to manage a tight supply chain and give customers exactly what they want.

Introduction

Zara’s parent company Inditex has managed to thrive in the last decade while several other fashion retailers have faced declining sales or stagnant growth. Inditex has grown over 220% in annual revenue since 2004, more than its key competitors like H&M, Gap, or Banana Republic (1).

The value of a fast fashion brand is to bring the latest designs and “trendiest trends” into the market as quickly as possible, preferably as soon as they became hot on the catwalk, and to provide these at a reasonable price. The traditional fashion industry is not well equipped to provide such value as it operates on a bi-annual or seasonal basis, with long production lead times due to outsourced manufacturing to low cost-centers. Zara has turned the industry on its head by using data and analytics to track demand on a real-time, localized basis and push new inventory in response to customer pull. This enables them to manage one of the most efficient supply chains in the fashion industry, and to create the fast fashion category as a market leader.

Pathways to a Just Digital Future

How Zara Uses Data

Inditex is a mammoth retailer, producing over 840 million garments in a year, the majority of which are sold by Zara (2). Every item of clothing is tagged with an RFID microchip before it leaves a centralized warehouse, which enables them to track that piece of inventory until it is sold to a customer (3). The data about the sale of each SKU, inventory levels in each store, and the speed at which a particular SKU moves from the shelf to the POS is sent on a real time basis to Inditex’s central data processing center (see picture below). This center is open 24 hours a day and collects information from all 6000+ Inditex stores across 80+ countries and is used by teams for inventory management, distribution, design and customer service improvements (4).

Zara’s Data Processing Center receives real-time data from around the world (4).

When the apparel arrives in store, RFID enables the stockist to determine which items need replenishing and where they are located, which has made their inventory and stock takes 80% faster than before (3). If a customer needs a particular SKU, salespeople are able to serve them better by locating it immediately in store or at a nearby location. Moreover, every Zara location receives inventory replenishments twice a week, which is tailored to that stores real-time updates on SKU-level inventory data.

The sales tracking data is critical in enabling Zara to serve its customers with trends that they actually want, and eliminate designs that don’t have customer pull. Zara’s design team is an egalitarian team of over 350 designers that use inspiration from the catwalk to design apparel on daily basis. Every morning, they dive through the sales data from stores across the world to determine what items are selling and accordingly tailor their designs that day. They also receive qualitative feedback from empowered sales employees that send in feedback and customer sentiment on a daily basis to the central HQ e.g., “customers don’t like the zipper” or “she wishes it was longer” (1).

At the start of the planning process, Zara orders very small batches of any given design from their manufacturers (even just 4-6 of a shirt per store). The majority of Zara’s factories are located proximally in Europe and North Africa, enabling them to manufacture new designs close to home and ship them to their stores within 2-3 weeks. They then test these designs in store, and if the data suggests the designs take off, Zara can quickly order more inventory in the right sizes, in the locations that demanded it. Such store-level data allows Zara to be hyper-local in serving their customer’s needs – as tastes can vary on a neighborhood level. As Inditex’s communication director told the New York Times,

“ Neighborhoods share trends more than countries do. For example, the store on Fifth Avenue in Midtown New York is more similar to the store in Ginza, Tokyo, which is an elegant area that’s also touristic. And SoHo is closer to Shibuya, which is very trendy and young.” (5)

Unlike other retailers that may order inventory based on their hypotheses about tastes at a regional level, Zara is tailors its collections based on the exact zip code and demographic that a given location serves (5).

Zara’s Results vs. Competitors

Zara sells over 11,000 distinct items per year versus its competitors that carry 2,000 to 4,000. However Zara also boasts the lowest year-end inventory levels in the fashion industry. This lean working capital management offsets their higher production costs and enables them to boast rapid sales turnover rates.

At Zara, only 15% to 25% of a line is designed ahead of the season, and over 50% of items are designed and manufactured in the middle of a season based on what becomes popular (2). This is in direct contrast to a close competitor like H&M where 80% of designs are made ahead of the season, and 20% is done in real-time during the season (6). Most other retailers commit 100% of their designs ahead of a season, and are often left with excess inventory that they then have to discount heavily at season-end. Instead, Zara’s quick replenishment cycles create a sense of scarcity which might actually generate more demand:

“With Zara, you know that if you don’t buy it, right then and there, within 11 days the entire stock will change. You buy it now or never.” (5)

https://www.bloomberg.com/news/articles/2016-11-23/zara-s-recipe-for-success-more-data-fewer-bosses
http://www.digitalistmag.com/digital-supply-networks/2016/03/30/zaras-agile-supply-chain-is-source-of-competitive-advantage-04083335
http://static.inditex.com/annual_report_2015/en/our-priorities/innovation-in-customer-services.php
http://www.refinery29.com/2016/02/102423/zara-facts?utm_campaign=160322-zara-secrets&utm_content=everywhere&utm_medium=editorial&utm_source=email#slide-11
http://www.nytimes.com/2012/11/11/magazine/how-zara-grew-into-the-worlds-largest-fashion-retailer.html?pagewanted=all
https://erply.com/in-the-success-stories-of-hm-zara-ikea-and-walmart-luck-is-not-a-key-factor/

Student comments on ZARA: Achieving the “Fast” in Fast Fashion through Analytics

Great post Ravneet – I had never read about Zara’s extremely quick supply chain or hyper-local testing. I have a question for you about fast fashion in general, but especially for Zara since it produces and sells more distinct items than its competitors: it seems that many designers are not fond of the “runway-inspired” fashions sold at these stores and some have even sued stores for copying their designs. Do you think Zara and other brands like it are doing anything wrong, and if not, what recourse do designers have for “imitations” of their work?

Thanks for the post Ravneet. Zara and H&M are beacons of hope for a mostly distressed industry. Do you think Zara’s advantage could be sustained in the event of a full-on assault by the Amazons of the world?

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You are in: Home » Strategy and Innovation » CASE STUDY Zara: augmenting its retail reality

CASE STUDY Zara: augmenting its retail reality

By james pearson, this is an archived article - we have removed images and other assets but have left the text unchanged for your reference.

The Spanish fast fashion retailer Zara is at the forefront of innovation right now, using pop-ups and prototypes to test its plans. For example, it recently launched an augmented reality (AR) add-on to its app that allows shoppers to see the clothes they are perusing ‘come to life’.

The Zara AR app allows shoppers in store and online to hold the app over certain signs and see models wearing the clothes appear and move about on the screen in front of them. They can (and do) even talk about the clothes. Plus, naturally, all of the outfits can be purchased via a single tap of the app.

The app and the signage had a two-week initial run, and this all marks a big move in Zara’s attempts to take on fashion powerhouse Asos. It also marks out Zara as one of the first retailers actively to invest in AR and put it out there. It makes sense, the analysts insist. Augmented reality (AR) leads the way as the technology people most want to engage with, as half of UK consumers say they would be more likely to be loyal to a brand that offered them access to this type of visualisation experience.

Another move by Zara that’s noteworthy is its opening of a store at Westfield Stratford City in London that’s dedicated to click and collect orders. The 2,150sq ft store, which opened in January 2018 for a four-month run, has been acting as a pop-up unit during the refurbishment and extension of the company’s existing flagship store at the centre. Staff are equipped with mobile devices to assist customers who will receive orders on the same day if ordering before 2pm – or the next day if ordered later.

The store also includes technology to help recommend items to customers with information screens embedded into mirrors triggered by RFID. It can also deal with returns and exchanges.

The pop-up is open until May, from which point the newly extended flagship store will also include a dedicated click and collect section within the store and an automated online-order collection point serviced by two small warehouses. These will enable customers to collect online purchases when it suits them.

It’s a system designed around an optical barcode reader, which scans the QR code or accepts the PIN codes received by customers when they place orders online. In just a few seconds, it delivers the order to a mailbox from which the customer can collect it. Behind the scenes, a dynamic robot moves through a small warehouse with the capacity to handle 2,400 packages simultaneously.

These developments come at a price, naturally: in 2017 the group invested €1.8bn in capital expenditure, focused “on significantly boosting the development of its integrated and sustainable model of stores and online”.

This piece first appeared in the IREU Top500 Strategy & Innovation Dimension Performance Report . Click here to explore the IREU Top 500 and IRUK Top500 series further .

Image courtesy of Zara

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September 23, 2023
AI Case Studies

Case Study: Zara’s Comprehensive Approach to AI and Supply Chain Management

Zara, an international fashion retailer based in Spain, has integrated artificial intelligence (AI) into various aspects of its business operations to enhance efficiency, responsiveness, and customer engagement. Unlike many competitors, Zara’s use of AI is not limited to consumer behavior analytics but extends throughout its supply chain and inventory management systems. By embracing cutting-edge technologies like RFID tagging, real-time analytics, and machine learning, Zara aims to maintain its competitive edge in the fast-paced fashion industry.

Key Takeaways

Zara employs a comprehensive use of AI across multiple facets of its operations, ranging from supply chain management to customer engagement.
Unlike many competitors, Zara minimizes outsourcing, enabling them to exercise greater control and gather data at every stage of the business process.
The company utilizes an advanced Just-In-telligent supply chain system, allowing for real-time optimization of inventory levels and logistics.
Zara can rapidly respond to market trends and consumer demands, boasting a turnaround time for new designs that is as quick as one week.
Their strategic use of AI has led to improved customer satisfaction and loyalty, as well as high rankings in global online fashion sales.

Deep Dive: Zara’s Comprehensive Approach to AI and Supply Chain Management

Zara’s approach to AI is holistic, involving every segment of its business operations. The company combines the principles of just-in-time inventory management with AI and real-time data analytics, creating a Just-In-telligent supply chain system. By doing this, Zara can closely monitor inventory levels, supplier performance, and even consumer behavior.

Implementation

Zara has collaborated with several technology partners to implement AI in its operations. For instance, it partnered with Tyco to embed microchips into its clothing’s security tags, enhancing inventory visibility. The firm also collaborates with Jetlore to predict customer behavior based on structured predictive attributes like size, color, fit, and style. RFID tags and sophisticated logistics systems further allow Zara to optimize transportation and inventory, reducing waste and ensuring that popular items are always available.

The results have been substantial. Zara’s turnaround time for new designs is as little as one week, far below the industry average of three to six months. It enjoys a loyal customer base and ranks among the top in global online fashion sales. The company’s unique approach to using AI for real-time monitoring and forecasting has also led to reduced lead times, improved delivery accuracy, and minimized inventory carrying costs.

Challenges and Barriers

While Zara’s adoption of AI has been overwhelmingly positive, challenges remain. Managing the immense amount of data generated can be a monumental task. The integration of AI into existing systems and processes can also be complex and requires ongoing fine-tuning. Moreover, the reliance on sophisticated AI and machine learning models necessitates skilled human resources to maintain and optimize these systems.

Future Outlook

As AI and machine learning technologies continue to advance, Zara is well-positioned to further refine its algorithms for improved forecasting, supplier management, and customer engagement. Future plans may include even more robust machine learning algorithms for trend prediction and potential integration of blockchain for more transparent and efficient supply chain management.

Zara’s application of artificial intelligence in its operations serves as a benchmark for the retail industry. From supply chain optimization to personalizing customer experience, the company’s comprehensive AI strategy has yielded tangible benefits in efficiency, cost reduction, and customer satisfaction. As technology continues to evolve, Zara seems poised to remain a step ahead of its competitors, setting a precedent for what is achievable with the intelligent use of data and automation.

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Sources: H&M, Zara, Fast Fashion Turn to Artificial Intelligence to Transform the Supply Chain Zara’s Just-In-telligent Supply Chain Zara: Revolutionizing Fashion Retail with AI

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Inventory Visibility and Accuracy: A Case Study of How ZARA Using Technology and Speed to Become the

ZARA, a wholly owned subsidiary of Inditex group, was launched in 1975, in Galicia, Spain. ZARA is one of the largest international fashion stores with over 2000 physical stores in 96 countries.

ZARA specializes in fast fashion and launches over twenty new product lines per year, with brands covering clothing, accessories, shoes, perfumes, and beauty products. In 2010, ZARA launched its first online store in Jordan and expanded to other countries quickly.

On product strategy, ZARA adopted the principle of quick response, small quantity, and great variety of style. To cope with this strategy, ZARA has invested a lot on implementing just-in-time approach, RFID technology, and Cloud-based inventory management system, in order to manage the complex supply chain.

Just-In-Time (JIT)

Changes and updates offer more reasons for customers to visit the stores and keep their shopping experience fresh.

ZARA changes its apparel design every 2 weeks on average, while the competitors change theirs every 2 or 3 months. To be the lead of the market and compete on its speed to market, ZARA implemented just-in-time (JIT) and production in-house.

Just-in-time (JIT) is a strategy that encourage the company to generate the order of material and intermediate products only when required. This method helps the company to effectively reduce the production wastage, and the cost of storing and maintenance of inventory, which is especially suitable for ZARA – a fast changing fashion company.

ZARA started implementing RFID technology in its stores and warehouses in 2014. The RFID tag is buried inside the plastic security tag of each product, and this allows ZARA to track the item throughout the whole process from production until it's sold.

Before RFID system was implemented, ZARA’s staff had to scan one barcode at a time, so lots of staff and time have to be involved in each inventory-taking task, and hence, they would carry out the inventory count once every six months only.

The RFID system allows the warehouse to take inventory counting quickly, and now, they can carry out the inventory count every 6 weeks, and this helps ZARA to get a clearer picture on what products are popular and what are growing weak, and results in a better demand forecast.

Cloud-based Inventory Management

ZARA is now using a cloud-based inventory management system , and its integrated solutions allow ZARA to fulfill online orders from physical stores or warehouse, and this enables ZARA to allocate their stock more effectively and shorten the order waiting time.

Since ZARA will change their apparel design every 2 weeks, supply chain visibility and inventory accuracy become more important to them. The cloud-based platform allows everyone on ZARA’s team to check inventory levels, review orders and be productive from anywhere and anytime.

To execute the just-in-time approach, ZARA will need a high inventory visibility to monitor the demand, to allow them to plan their replenishment accurately to meet customer expectations, seasonal or even unexpected demand changes.

The Importance of Technology

To maintain the market leading position, ZARA keeps improving their business process to keep their service standard and set the bar even higher.

By developing and implementing cutting-edge technologies, such as RFID and cloud-based inventory management system, ZARA is able to make big savings in inventory, which is a major expense for many fashion companies, and hence, increase the profit.

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Zara Clothing Company Supply Chain

January 4, 2020 By mhugos

CASE STUDY CONCEPT: The Zara supply chain drives its successful business model. Run simulations of the Zara supply chain to see how it works, and how to improve it.

Zara changes its clothing designs every two weeks on average, while competitors change their designs every two or three months. It carries about 11,000 distinct items per year in thousands of stores worldwide compared to competitors that carry 2,000 to 4,000 items per year in their stores. Zara’s highly responsive supply chain is central to its business success. The heart of the Zara supply chain is a huge, highly automated distribution center (DC) called “The Cube”. The screenshot below shows a closeup satellite view of this facility.

A satellite image of the Zara cube and the surrounding buildings. There are roads, vehicles, and blue lines upon it.

The company was founded in Spain in 1974 by Amancio Ortega and his wife Rosalía Mera. It is the flagship business unit of a holding company called Inditex Corporation with headquarters in Arteixo, Galicia, a city in northwestern Spain near where Mr. Ortega was born. In 2020 Zara was ranked as the 41st most valuable brand in the world by Forbes (see bibliography below).

NOTE: This is an advanced case . Work through the three challenges of the beginning case, “ Cincinnati Seasonings ” before taking on the challenges in this case.

[ Instructors, students and professionals can request a free SCM Globe trial demo ]

Company Business Model

Agents for the company are always scouting out new fashion trends at clubs and social gatherings. When they see inspiring examples they quickly send design sketches to the garment designers at the Cube. New items can be designed and out to the stores in 4 – 6 weeks, and existing items can be modified in 2 weeks.

The company’s core market is women 24 – 35 years old. They reach this market by locating their stores in town centers and places with high concentrations of women in this age range. Short production runs create scarcity of given designs and that generates a sense of urgency and reason to buy while supplies last. As a consequence, Zara does not have lots of excess inventory, nor does it need to do big mark-downs on its clothing items.

Zara has 12 inventory turns per year compared to 3 – 4 per year for competitors. Stores place orders twice a week and this drives factory scheduling. Such short term focused order cycles make forecasts very accurate, much more accurate than competitors who may order every two weeks or every month.

Clothing items are priced based on market demand, not on cost of manufacture. The short lead times for delivery of unique fashion items combined with short production runs enable Zara to offer customers more styles and choices, and yet still create a sense of urgency to buy because items often sell out quickly. And that particular item or style may not be available again after it sells out. Zara sells 85 percent of its items at full price compared to the industry average of selling only 60 percent of items at full price. Annually there is 10 percent of inventory unsold compared to industry averages of 17 – 20 percent.

In Spain customers visit Zara stores 17 times per year on average compared to 3 times per year for competitors. Because their clothing designs change often, it is harder for people to see them clearly online. So they are encouraged to come into the stores instead and try on the unique fashions that Zara offers (screenshot below shows people at a Zara store in Madrid, Spain).

Zara spends its money on opening and growing its stores instead of spending a lot on ad campaigns. Estimates vary on the number of Zara stores worldwide. An article in the New York Times Magazine (November 2012, “ How Zara Grew into the World’s Largest Fashion Retailer “), placed the store count at around 5,900. An article in Forbes simply states there are “more nearly 3,000 stores” (2020, “ The World’s Most Valuable Brands – #41 Zara “). Annual sales for 2019 were estimated by Forbes to be $21.9 billion . The holding company, Inditex SA, is a public company and Inditex provides annual statements , but it does not break out Zara sales from sales of the other brands owned by Inditex (Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home, and Uterqüe). Zara uses a flexible business model where its stores can be owned, franchised, or co-owned with partners. So it is not always possible to find exact numbers for Zara’s business operations and finances.

Manufacturing and Supply Chain Operations Make Zara Unique

Zara buys large quantities of only a few types of fabric (just four or five types, but they can change from year to year), and does the garment design and related cutting and dyeing in-house. This way fabric manufacturers can make quick deliveries of bulk quantities of fabric directly to the Zara DC – the Cube. The company purchases raw fabric from suppliers in Italy, Spain, Portugal and Greece. And those suppliers deliver within 5 days of orders being placed. Inbound logistics from suppliers are mostly by truck.

The Cube is 464,500 square meters (5 million square feet), and highly automated with underground monorail links to 11 Zara-owned clothing factories within a 16 km (10 mile ) radius of the Cube. All raw materials pass through the Cube on their way to the clothing factories, and all finished goods also pass through on their way out to the stores. The diagram below illustrates Zara’s supply chain model.

A Module showing the Zara cube and the distribution flow from it.

Zara’s factories can quickly increase and decrease production rates, so there is less inventory in the supply chain and less need to finance that inventory with working capital. They do only 50 – 60 percent of their manufacturing in advance versus the 80 – 90 percent done by competitors. Zara does not need to place big bets on yearly fashion trends. They can make many smaller bets on short term trends that are easier to call correctly.

The Zara factories are connected to the Cube by underground tunnels with high speed monorails (about 200 kilometers or 124 miles of rails) to move cut fabric to these factories for dyeing and assembly into clothing items. The monorail system then returns finished products to the Cube for shipment to stores. Here are some facts about the company’s manufacturing operations:

Zara competes on flexibility and agility instead of low cost and cheap labor. They employ about 3,000 workers in manufacturing operations in Spain at an average cost of 11.00 euros per hour compared to average labor cost in Asia of about 0.80 euros per hour.
Zara factories in Spain use flexible manufacturing systems for quick change over operations.
50% of all items are manufactured in Spain
26% in the rest of Europe
24% in Asia and Africa

The screenshot below illustrates how the Zara supply chain is organized. Manufacturing is centered in northwestern Spain where company headquarters and the Cube are located. But for their main distribution and logistics hub they chose a more centrally located facility. That facility is located in Zaragoza in a large logistics hub developed by the Spanish government. Raw material is sent by suppliers to Zara’s manufacturing center. Then finished garments leave the Cube and are transported to the Zara logistics hub in Zaragoza. And from there they are delivered to stores around the world by truck and by plane.

A screenshot of the Zara company in northwestern Spain with green arrows and a red arrow on it.

[ Instructors, students and professionals can request a free SCM Globe trial demo — NOTE: This is an advanced case . Work through the three online challenges of the beginning case, “ Cincinnati Seasonings ” before working with this case. ]

Zara can deliver garments to stores worldwide in just a few days: China – 48 hrs; Europe – 24 hrs; Japan – 72 hrs; United States – 48 hrs. It uses trucks to deliver to stores in Europe and uses air freight to ship clothes to other markets. Zara can afford this increased shipping cost because it does not need to do much discounting of clothes and it also does not spend much money on advertising.

Zara’s Supply Chain is Lean and Agile

Stores take deliveries twice per week, and they can get ordered inventory often within two days after placing their orders. Items are shipped and arrive at stores already on hangers and with tags and prices on them. So items come off delivery trucks and go directly onto the sales floor. This makes it possible for store managers to order and receive the products customers want when they want them, week by week.

Zara stores respond practically in real-time as styles and customer preferences evolve. It is a great business model for success in the high-change and hard to predict fashion industry. It means about half of the clothing the company sells, which includes most of its high margin and unique fashion items (but not its lower margin basic items), is manufactured based on highly accurate, short-term (2 – 6 week) demand forecasts. Because this business model tracks so closely to real customer demand from one month to the next, it frees the company to a large degree from getting caught in cyclical market ups and downs that ensnare its competitors (those cycles are driven by boom-to-bust gyrations generated by the bullwhip effect ). Turbulence in the global economy since 2008 has hurt sales at many competing fashion retailers, but Zara has seen steady, profitable growth during this time.

[ Editor’s Note: During 2020 Inditex, owner of Zara and other fashion brands closed more than 1,000 stores worldwide in response to the Covid pandemic and increased its focus on online sales. Then in 2021 store business rebounded and surpassed pre-pandemic levels . Can you think of some ways these changes in Zara’s business model affected Zara’s supply chain? ]

A fast-moving and finely tuned supply chain like Zara’s requires constant attention to keep it running smoothly. Supply chain planners and managers are always watching customer demand and making adjustments to manufacturing and supply chain operations. The screenshot below shows the result of one simulation using the supply chain model outlined above. Continuous adjustments need to be made to factory production rates, vehicles, delivery routes, and schedules to keep this supply chain working well.

A map of Europe with routes highlighted in green and computer generated images of semi-trucks.

Zara is a clothing and fashion retailer that uses its supply chain to significantly change the way it operates in a very traditional industry. No other competitor can copy its business model until it first copies its supply chain. And since supply chains are composed of people, process, and technology, even the latest and greatest technology is not a competitive advantage all by itself. People must be well trained, and processes must be put in place that enable people to apply their training and their technology to best effect.

Buying technology similar to that used by Zara is easy. But for the technology to be used effectively, competitors must learn about the mental models and the operating procedures used by Zara. Good mental models enable people to understand the potentials and see the opportunities that a real-time supply chain offers. Effective operating procedures enable people to act on what they see and capitalize on the competitive advantages their technology gives them.

Zara has spent more than 30 years building its unique real-time supply chain and training its people. So competitors have a lot of learning to do to create the mental models, and roll out the operating procedures needed to do what Zara does so well.

[ See our blog article “ Five New Supply Chain Technologies and How to Use Them ” for more about new technologies and how they can be used to improve supply chain operations and create competitive advantages for companies .]

YOUR FIRST SUPPLY CHAIN CHALLENGE

Get this supply chain to run for 15+ days and keep inventory and operating costs as low as you can.

Imagine you are in charge of Zara’s supply chain operations. This case study and supply chain simulation will give you an appreciation of what that job is like. In this exercise your mental model of Zara’s supply chain will expand and your understanding of how this supply chain works will deepen. You will see the continuous adjustments that need to be made to keep the supply chain working and to keep operating expenses and inventory levels under control.

Load a copy of the Zara supply chain model from the online library into your account. Then start running simulations to see how the supply chain works. Start by doing whatever seems necessary to keep the supply chain running without stock-outs or over-stocks for 15 days. When you run the first simulation you will see a problem occurs on day 5. As with all cases, there are many possible ways to respond to this problem. And depending on how you respond, other problems will appear as you work toward getting your supply chain to run for 15 days. Do whatever seems necessary to get the supply chain to run for 15 days. Then refine your solutions to get the supply chain to run at lower costs in transportation, facility operations and on-hand inventory across the supply chain.

Its agile and responsive supply chain enables Zara to work on a short sales and operations planning (S&OP) cycle. Let’s assume Zara works on a 15 day cycle where its competitors work on 30-day or even 60-day planning cycles. So you are creating a 15-day supply plan to meet the 15-day demand plan which is already entered into the model in the form of product demand at the different stores. To get this supply chain to meet demand and run for 15+ days you need to make adjustments to elements of your supply plan:

Store delivery amounts and frequencies
Delivery amounts and frequencies on air freight routes
Product manufacturing rates at Zara clothing factories
Movement of products between Zara Cube, Zara factories, and Logistics Hub in Zaragoza
Supplier delivery amounts and frequencies for delivering bulk fabric to the Cube

The screenshot below shows a closeup of the Zara Logistics Hub in Zaragoza, Spain. Product deliveries are made to stores by airplane and truck from this facility every day.

screenshot of Zara Logistics Center in Zaragossa, Spain

When you have questions about how to work with this case, the answer is always to ask yourself, “What would I do if this were the real world and I was the person in charge?” Model and simulate different ideas. Make reasonable assumptions and estimates. Then add/change/delete products, facilities, vehicles and routes as called for in your supply chain model to reflect your ideas. When you run simulations you will see how well different ideas work. Go with the ideas that work best to find the solutions you need.

Look in the online guide for useful tips and techniques that will help as you work with this case. Here are some places to look:

Analyzing Simulation Data
Tips for Building Supply Chain Models
Cutting Inventory and Operating Costs

ZARA SUPPLY CHAIN REPORTING TEMPLATE: Import your simulation data into this template to create 15-DAY P&L REPORTS and key performance indicators. Zara’s agile supply chain enables it to use shorter planning cycles (15-days instead of 30-days). The reporting template is designed for use with the supply chain model in the online library titled “Zara Clothing Company Ver4”. If you add more products, facilities, or vehicles to the model you will need to expand the spreadsheet to accommodate those additions. A sample P&L report created from simulation data is shown below: D ownload a copy of the Zara Clothing Company P&L Reporting Template here

[ If you are using SCM Globe Professional version, these reports can be generated automatically by clicking on the “ Generate P&L Report ” button on the Simulate Screen ]

Picture of Zara P&L Report for sample 15-day period

CREATE AN EXECUTIVE BRIEFING — a 3 to 5 page report or a short deck of presentation slides. Use screenshots and data produced by simulations to illustrate what you learned about how the Zara supply chain operates. Explain what were the main problems you encountered in getting your simulation to run for 15+ days. Show what you did to address those problems. Present the three or four main things you learned about this supply chain. Explain why these things make this supply chain such a competitive advantage for Zara.

SAVE BACKUP COPIES of your supply chain model from time to time as you make changes. Click “Save” button next to your model in Account Management screen. There is no “undo”, but if a change doesn’t work out, you can restore from a saved copy . And sometimes supply chain model files (json files) become damaged and they no longer work, so you want backup copies of your supply chain to restore from when that happens.

NOTE : An earlier bug that displayed some routes times and distances as ONE-WAY has been fixed. All routes now show ROUND-TRIP times and distances. Simulations use ROUND-TRIP times and distances.

YOUR SECOND CHALLENGE

Expand this supply chain to support more stores, and keep inventory and operating costs under control.

Do some research on store rental costs, labor rates, transportation costs and product demand in different markets, then use your research to update and expand your model of Zara’s supply chain:

Go to websites of commercial real estate brokers in cities of interest and see what you can find out about rents (for cities in North America start with www.cityfeet.com and for cities in other parts of the world start with www.knightfrank.com ).
Research salary levels and median incomes in different cities. New stores open in cities with median incomes high enough to be profitable markets for Zara. Store rent and operating costs will also be set by market rates in those cities.
Go to 3PL and logistics services company websites to find out about transportation costs. Assume air freight rates from Zaragoza remain the same to any city, but truck transportation costs will be different in different cities.
Consider subdividing the two high level product categories (Zara Basics Pack, Zara Fashion Pack) into lower level product categories to get more insight and into how this supply chain operates. What are some lower level product categories that make up the Fashion Pack, or the Basics Pack?
Do searches to find fashion industry demand forecasts for clothing in different cities around the world. Use that research to set the product demand levels in the new stores. You can also update product demand levels at existing stores based on this research.
You can measure the carbon footprint of different supply chain designs. There are default estimates of carbon generation already entered for facilities and vehicles, and the simulations use this to calculate the supply chain carbon footprint. You can enter your own estimates for carbon generation for the facilities and vehicles if you wish.

Do the best you can with the time available! — Do internet searches on relevant key words and phrases. See what comes up, and select sources that seem the most trustworthy and accurate (that’s what we did for this case study; our assumptions and sources are listed below). If you can’t find the exact numbers you are looking for, then estimate numbers you need based on other numbers you find in your research (please read “ All Supply Chain Models are Approximations “). Do not spend more than your allocated time doing research. As the saying goes, “Good is good enough.” Document your sources; make your best estimates; and move on.

Update and expand the Zara supply chain model using your research data. Update product prices and demand at the existing stores based on your research. Also experiment with adding new stores in other cities in Europe, Asia, North America, South America or Africa (represent all stores in a single city with just one or two stores and keep the total number of facilities in your model to between 15 – 20).

For added realism see how stores in New York and Shanghai are located in the existing supply chain model in the SCM Globe library. Stores can be on actual Zara store locations or can be placed in the middle of a cluster of actual Zara stores. Enter the collective demand, costs and on-hand inventory for all actual stores represented by a single store in your model.

Map of delivery route from airport to New York City stores

Note in the existing model how flights from the logistics hub in Spain land at nearby airports for stores in New York and Shanghai, then delivery trucks move garments from those airports to the stores as shown in the screenshot above. Use this same approach as you expand into other countries outside of Europe. Add new vehicles and create delivery routes for them to deliver products to the new stores. This adds an extra layer of realism and shows how dependent this supply chain is on tight scheduling and just-in-time (JIT) delivery of products.

Adjust your supply chain model to support these new stores and still run for 15+ days . Once you get it running for 15+ days, then make adjustments to your model to lower transportation and operating costs and on-hand inventory amounts.

CREATE A FINAL PRESENTATION showing your expanded supply chain model and describing the supply chain challenges you encountered. Explain why successful solutions to those challenges provides such a competitive advantage for Zara.

Explain the supply chain principles and best practices you used to solve the challenges you encountered. What were your biggest challenges and how did you solve them?
Identify places in your expanded supply chain model (facilities, vehicles and routes) where you used new technology such as that explained in the blog article “ Five New Supply Chain Technologies and How to Use Them “. How do these technologies produce the performance capabilities you show in your simulation results?
Show how a supply chain with these capabilities makes it possible for Zara to use its fast fashion business model. If Zara competitors were to emulate Zara’s business model, what supply chain capabilities would they need?
What can you do to lower the carbon footprint of your supply chain?
Use screenshots and data from your simulations to illustrate your report.

NOTE: This is an ADVANCED LEVEL case study – work through a beginning level case such as Cincinnati Seasonings before attempting to work with this case.

Working on this case will be challenging… but the skills and insights you develop here will be the same skills and insights you use to manage a real supply chain like Zara’s.

FIND USEFUL IDEAS in the Online Guide to help you expand and improve your Zara supply chain model. There is a lot going on in this case so check out these ideas:

See techniques for expanding this supply chain model in “ Tips for Building Supply Chain Models ”
Reduce on-hand inventory and calculate optimum delivery amounts and schedules in “ Cutting Inventory and Operating Costs “
Make sure you are familiar with the techniques presented in “ Analyzing Simulation Data “
Consider using the S&OP process as a framework to organize your work , S&OP is explained in a case called “ Java Furniture Company ” — scroll down to the heading “ Sales & Operations Planning (S&OP) is a Best Practice “
If you use same size shipping containers for all your products, the beta test reporting template can help identify opportunities to improve performance, see “ Supply Chain Optimizing & Reporting Template “
Look through the Table of Contents of the Online Guide to find other useful information

ZARA SUPPLY CHAIN REPORTING TEMPLATE: Import your simulation data into this template to create 15-DAY P&L REPORTS and key performance indicators. D ownload a copy of the Zara Clothing Company P&L Reporting Template here

To share your changes and improvements to this model (json file) with other SCM Globe users see “ Download and Share Supply Chain Models ”

Assumptions and Simplifications Used in this Model

Because Zara operations and financial reporting is combined with the other retail brands owned by Inditex, specific details of the Zara business model and supply chain can be difficult to verify. Yet the supply chain model presented here is still a useful picture of the Zara supply chain and illustrates its operations and its capabilities (see more about this in “ Supply Chain Modeling and Simulation Logic “). This case study and supply chain model is based on data from articles listed in the bibliography below. The assumptions and specifications listed here are built into the model, and you can easily change them as better data becomes available . New products, facilities, vehicles and routes can also be added to this model to further explore how Zara’s supply chain operates.

Zara finished goods garments are combined into two categories of products, Zara Fashion Pack represents in-house manufactured high fashion items, Zara Basics Pack represents basic items contract manufactured by others
Zara Fashion Pack = 100 garments; price of 5,000 euros; weight of 40 Kg; volume of 1 cubic meter;
Zara Basics Pack = 200 garments; price of 3,000 euros; weight of 60 Kg; volume of 0.5 cubic meters
The Cube employs 3,000 people at average rate of 8 euros per hour = 64 euros per day
Automated warehouse in Zaragoza employs 800 people at avg of 64 euros per day and other facility operating costs for utilities, insurance, etc. cost additional 15,000 euros daily
Raw fabric costs per case: Fabric 1 = 1 cubic meter; price of 1,000 euros; Fabric 2 = 0.5 cubic meter; price of 800 euros; Fabric 3 = 0.6 cubic meter, price of 1,200 euros
Zara factories need mix of raw fabrics to create their finished goods; see the definition of these facilities to see individual requirements and production
The Cube has 1.6 million cubic meters of product storage space
150 million items pass through Cube annually or 411,000 per day
11 actual Zara factories are represented by 5 factories in the model
Monorail shipping containers are 50 cubic meters in volume, can carry 10,000 kilograms of weight, and travel at average speed including loading and unloading of 60 kilometers per hour
Zara stores in a single city are represented by a single store that combines the demand of all stores in that city – not all cities are included and more cities can be added to this model
Vehicle operating costs per km are set to be just half the normal cost for trucks and airplanes. This more accurately models the process where Zara pays for one-way shipping containers to move products from one facility to another without paying the full round-trip cost (carbon per km was also adjusted to half of normal for the same reason). This compensates for the model logic which calculates vehicle costs based on the round trip distance instead of the one-way distance.
Full operating cost per km is used for the monorail vehicles that move products between the Cube DC and the Zara garment factories because Zara owns those vehicles and pays for full round-trip costs.
All specifications for Products, Facilities, Vehicles and Routes in this supply chain model can be edited and changed if you have better data
New products, facilities, vehicles and routes can be added to this model and you can simulate the results as you expand your model

Bibliography:

A web search on “Zara supply chain” will yield many results; this case study is based on information from some of those results listed below:

The World’s Most Valuable Brands – #41 Zara A ranking and brief profile of the 100 most valuable and recognized brand name companies – Forbes, 2020

We went inside one of the sprawling factories where Zara makes its clothes https://www.businessinsider.nl/how-zara-makes-its-clothes-2018-10?international=true&r=US – By Mary Hanbury, Business Insider, 2018

Zara Uses Supply Chain to Win Again In face of flat or declining retail industry sales, Zara stands out – By Kevin O’Marah – Forbes, 9 Mar 2016

Zara’s Fast Fashion Edge Speed and responsiveness to customer demand drives Zara’s business model – By Susan Berfield and Manuel Baigorri – Bloomberg Business, 14 Nov 2013

How Zara Grew Into the World’s Largest Fashion Retailer History and business model of Zara – By Suzy Hansen, The New York Times Magazine, 9 Nov 2012

Logistics Clustering for Competitive Advantage Zara’s global logistics hub outside Spanish city of Zaragoza – By Yossi Sheffi, Dir MIT Center for Transportation & Logistics, CSCMPs Supply Chain Quarterly, Quarter 3 2012

Polka Dots Are In? Polka Dots It Is! How Zara gets fresh styles to stores insanely fast—within weeks. – By Seth Stevenson – Slate.com, 21 Jun 2012

We found the following slide presentations were also informative:

Register on SCM Globe to gain access to this and other supply chain simulations . Click the blue “ Register ” button on the app login page , and buy an account with a credit card (unless you have an account already). Scan the “ Getting Started ” section, and you are ready to start. Go to the SCM Globe library and click the “Import” button next to this or any other supply chain model.

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COMMENTS

Zara: Technology and User Experience as Drivers of Business
Zara's success is based on a rather unusual premise: its founder, Amancio Ortega, has managed to become one of the world's richest people without monopolizing a sector. The clothing retailer's business model leans heavily on technological innovation and user experience. The firm has doubled in size in just ten years, shattering the ...
Case Study of Zara: Use of Technology to Improve Operational
Case Study of Zara: Use of Technology to Improve Operational Responsiveness. January 31, 2017 Abey Francis. Fashion giant, Zara, forms part of the retail group 'Grupo Inditex' which is one of the "largest, fastest growing and successful" clothing retailers across Europe. Grupo Inditex is formulated by an amalgamation of major high ...
How can Zara maintain its leadership thanks to AI?
Zara has already multiplied technology-powered initiatives. In 2018, the fast fashion powerhouse teamed up with Jetlore, an AI-powered consumer behavior prediction platform, and Spanish big data company, El Arte de Medirn. ... The Zara case study shows the difficulty for a fashion retail leader in changing its image when faced with a rampant ...
ZARA'S CASE STUDY -the Strategy of the Fast Fashion Pioneer The
Learn how Zara, the fast fashion pioneer, achieved success with its unique strategy and supply chain management. Read the case study on ResearchGate.
What Is Zara Doing To Adopt Digital Transformation?
TechnologyHQ. TechnologyHQ is a platform about business insights, tech, 4IR, digital transformation, AI, Blockchain, Cybersecurity, and social media for businesses. We manage social media groups with more than 200,000 members with almost 100% engagement. New technology tools being enabled by Inditex's unique integrated store-online platform ...
How Zara is using in-store tech to improve its ...
Thanks to its increased focus on technology, Zara has certainly made steps to improve and enhance the customer experience in stores, with initiatives helping to counteract some of its previous problems. Self-checkouts help to ease congestion and make buying items less frustrating, while fitting room technology makes the experience of trying on ...
INDITEX: Fashion Leader Case Study of ZARA in the ...
Decode ZARA step-by-step business transformation with 9 boxes of Digital Transformation Canvas Inditex's Digital Transformation Canvas (Source: Ethan Than, & Dr.Nattaporn Virunhagarun. (2022).
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In the longer term, Zara is becoming increasingly focused on digitalization every aspect of a consumer's shopping experience. This can be seen in its implementation of online "click and collect" in its key flagship locations, 6 which allows customers to order items online and pick them up in-store, providing a win-win for the customer and ...
Case Study: Information Systems and Information Technology at Zara
A case study for Information Systems at Zara. Zara is by far the largest, most profitable and most internationalized fashion retail chain. Zara's success is based on a business system that depends on vertical integration, in-house production, quick response, one centralized distribution centre and low advertising cost.
A Case Study on Zara's Digital Transformation
2018. This case study examines Zara's current retail strategy and digital transformation. It details Zara's current in-store and eCommerce retail strategy, the impact of digital on the retail environment and customer experience, and the growth opportunity provided by eCommerce. By providing a competitive analysis of the current market, this ...
Zara's Secret for Fast Fashion
2/21/2005 Spanish retailer Zara has hit on a formula for supply chain success that works. By defying conventional wisdom, Zara can design and distribute a garment to market in just fifteen days. From Harvard Business Review. by Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca Editor's note: With some 650 sto...
ZARA: Achieving the "Fast" in Fast Fashion through Analytics
Zara uses intensive data and analytics to manage a tight supply chain and give customers exactly what they want. Introduction. Zara's parent company Inditex has managed to thrive in the last decade while several other fashion retailers have faced declining sales or stagnant growth. Inditex has grown over 220% in annual revenue since 2004 ...
CASE STUDY Zara: augmenting its retail reality
The Spanish fast fashion retailer Zara is at the forefront of innovation right now, using pop-ups and prototypes to test its plans. For example, it recently launched an augmented reality (AR) add-on to its app that allows shoppers to see the clothes they are perusing 'come to life'. The Zara AR app allows shoppers in store and online to ...
Fashion and Big Data. Using Zara as a case study for the ...
I have added some links to great resources (courses, statistics, videos, and articles) on Zara, fashion analytics, data analytics, and a non-fashion related case study. Inditex 2021 Report Inditex ...
Case Study: Zara's Comprehensive Approach to AI and Supply Chain
As technology continues to evolve, Zara seems poised to remain a step ahead of its competitors, setting a precedent for what is achievable with the intelligent use of data and automation. To get the latest AI case studies straight to your inbox, subscribe to AI in Action by AIX — your weekly newsletter dedicated to the exploration of AI ...
PDF IS3223 Zara Case Study
1. Zara Case Summary 1.1. Company Background Zara was founded by Amancio Ortega, who saw the need for retailing and manufacturing to work closely in the clothing industry where consumer demands are hard to predict. The first Zara store was opened in La Coruna in 1975. In 1985, Inditex was formed as a holding company atop of Zara, other
(PDF) Digital Transformation of Supply Chain Management ...
Fashion Industry: A Case Study of Zara Ruojia Li 1,* , Wenxin L iu 2 , and Sunwen Zhou 3 1 Shijiazhuang Tiedao University , School of Management , Shijiazhuang , 050043 , China
Zara
Abstract. Fashion retailer ZARA has achieved spectacular growth via a distinctive design-on-demand operating model. This case describes this model and outlines a number of challenges facing the company, with a particular emphasis on its international expansion. Includes color exhibits.
H&M, Zara, Fast Fashion Turn to Artificial Intelligence to Transform
In 2021, global AI in the retail industry was valued at USD $2,938.20 million. It's expected to reach $17,086.54 million by 2028. This demand forecasting, or predictive analytics, is used throughout the fashion supply chain. In the past to predict demand, fast fashion had to gather insight from across the fashion world, taking into account ...
Inventory Visibility and Accuracy: A Case Study of How ZARA Using
ZARA is one of the largest international fashion stores with over 2000 physical stores in 96 countries.ZARA specializes in fast fashion and launches over twenty new product lines per year, with brands covering clothing, accessories, shoes, perfumes, and beauty products. ... A Case Study of How ZARA Using Technology and Speed to Become the. ZARA ...
PDF Zara'S Case Study
ZARA'S CASE STUDY | CATÓLICA-LISBON SCHOOL OF BUSINESS AND ECONOMICS iii Abstract Dissertation Title : Zara's Case Study - Be Big with small things. Author : Maria Joana Mascarenhas de Lemos The evolution of technology and the consequent dynamism in present markets led to changes in consumption patterns and habits of consumers.
Case Study on Zara: Revolutionizing Fast Fashion Retail.
3.The Rise of Online Retail: The growth of online retail has changed the fashion industry. Consumers now have access to many online shopping options, including fast food stores. Zara competes to ...
Zara Clothing Company Supply Chain
Buying technology similar to that used by Zara is easy. But for the technology to be used effectively, competitors must learn about the mental models and the operating procedures used by Zara. ... This case study and supply chain model is based on data from articles listed in the bibliography below. The assumptions and specifications listed ...

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Zara Clothing Company Supply Chain

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YOUR FIRST SUPPLY CHAIN CHALLENGE

YOUR SECOND CHALLENGE

Assumptions and Simplifications Used in this Model

Bibliography: