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why is zara vertically integrated

by Mrs. Gwendolyn Mayer I Published 2 years ago Updated 1 year ago
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Zara has also tapped into vertical integration to keep its supply chain running smoothly. By acquiring businesses at different stages of the chain, Zara is able to maintain better control of the value chain, which means it can react quickly to shifting consumer demands.Aug 10, 2020

Full Answer

What is Zara's vertical integration strategy?

Vertical integration gives Zara a competitive advantage over other fast fashion retailers. It is worth stressing the fact that this strategy often leads to an inability to acquire economies of scale needed to lower manufacture cost while maintaining mass production.

What is Zara's production strategy?

Vertical integration is also a notable strategy of Zara. Its in-house production is a prime example. Aside from this, however, the company also has extensive control over raw material sourcing, design or product development, marketing and sales, and shipment or distribution.

What is the structure of the Zara company?

Zara’s structure vertically integrates the design process, just-in-time production, sourcing, delivery and sales which provides a very close and informal information network and efficient coordination across all of the production and sales units.

What makes Zara different from other brands?

The firm shuns advertising and rarely runs sales. Also, in an industry where nearly every major player outsources manufacturing to low-cost countries, Zara is highly vertically integrated, keeping huge swaths of its production process in-house.

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Is Zara a vertical or horizontal integration?

Zara. The largest company in the Inditex group, Zara operates a vertically integrated business that controls all design, production, warehousing, logistics, and distribution processes for the 450 million items sold annually in their stores.

What is vertical integration in fashion?

Vertical integration occurs through the merger or acquisition of companies at different stages of production or distribution within the same industry. To accommodate and support the demands of fast fashion, this integration model helps to strengthen the supply chain.

What strategies does Zara use?

Zara's strategy is to offer a higher number of available products than its competitors. While most clothing retailers manufacture and offer to the public for sale 2,000 to 4,000 different articles of clothing, Zara's production has been markedly higher, at over 10,000 pieces produced per year.

Which functions are integrated in Zara's supply chain?

Zara controls key components of its supply chain: designing, manufacturing, distribution, and retailing.

Which is an example of vertical integration?

Understanding Vertical Integration. Netflix, Inc. is a prime example of vertical integration. The company started as a DVD rental business before moving into online streaming of films and movies licensed from major studios.

Is H&M vertically integrated?

H&M is the second largest apparel retailer in the world, just behind Inditex SA. With 2,600 stores in 43 countries, H&M was a pioneer in pursuing vertical integration with its own distribution network. The company's clothing collections are created in Sweden by approximately 150 designers and 100 buyers.

What makes Zara so successful?

The Zara brand strategy Its core values are found in four simple terms: beauty, clarity, functionality and sustainability. The secret to Zara's success has largely being driven by its ability to keep up with rapidly changing fashion trends and showcase it in its collections with very little delay.

How is Zara different from its competitors?

Zara discounts only about 18% of its making, approximately half the levels of competitors. Instead of additional quantities per style, Zara produces extra styles, roughly 12,000 a year. So, that style sells out more fast and there are more new styles which are already waiting to come out.

What makes Zara so market oriented?

Zara relies on local manufacturers with which it has longstanding relations, and this allows it to place short-term quick orders, to be cancelled or expanded at short notice depending upon fashion trends and customer demands.

What is unique about Zara supply chain?

Typically, Zara pre-commits to 50%- 60% of its production in advance of the season, whereas other clothing retailers commit to 80%- 90%. Thus Zara reserves mill capacities to ensure production facilities are available when needed. Zara hires young designers and trains them to make quick decisions.

What makes the supply chain management at Zara unique?

CASE STUDY CONCEPT: Zara's Unique Business Model is Driven by Its Supply Chain Capabilities. Zara changes its clothing designs every two weeks on average, while competitors change their designs every two or three months.

How does Zara use its supply chain capabilities to generate competitive advantage?

How does Zara use its supply chain capabilities to generate competitive advantage? Stocking clothing far in advance of sales to ensure in-stock availability. Buying new seasonal clothing lines in bulk to take advantage of volume discounts from suppliers.

How is Zara an example of vertical integration?

Vertical Integration Firstly, Zara is vertically integrated. It manages design, production, shipment, display, promotion, sales, and feedback itself, relying only diminutively on outsourcing. This vertical integration approach gives Zara a lot of control over how it operates.

Is Uniqlo vertically integrated?

This robust vertical integration strategy enables Uniqlo to replenish the stock in a matter of days and improve products within weeks. Purchasing fabric in bulk helps the company negotiate the price with suppliers and provide affordable clothing options to customers.

What is a vertically integrated company?

Vertical integration refers to an expansion strategy where one company takes control over one or more stages in the production or distribution of a product. Both of these strategies are undertaken by a company in order to consolidate its position among competitors.

Is Ikea vertically integrated?

Through a massive vertical integration strategy, IKEA became one the largest consumers of wood in the world, and built a plants capable of pulverizing wood into dust and manufacturing many multipurpose boards at one time.

Why is Zara so responsive?

It understands that in the apparel industry you need to be as proactive as possible and very responsive to consumer demand because people’s tastes are constantly changing and it is difficult to predict what will sell. Zara’s retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Through its responsive supply chain and quick communication, it is able to constantly offer new and changing assortments to customers and thus customize their assortments to capitalize on the current fashion trends.

Why does Zara have a supply chain?

Zara’s situation supports its supply chain strategy due to the nature of the apparel industry. Products in this industry tend to have very short life cycles and fashion trends are constantly changing. The nature of the industry demands a very responsive supply chain. To prove this point, we can see that in general, after a product is pushed by most retailers during a season, they need to hold clearance sales at the end of the season to sell through any remaining inventory that wasn’t purchased in order to make room for new products for the next season.

What would an intranet site do for Zara?

An internal intranet site would offer real time communication and feedback from its store managers to La Coruna and throughout the whole supply chain. An option for Zara could be to outsource their IT as Zara’s core competencies are not in IT. However, long term strategic agreements would have to be put in place between the parties. An updated IT infrastructure would add functionality and and would make Zara even more efficient and responsive. As a company that is growing and expanding its presence all over the world, Zara needs to ensure that its IT infrastructure is able to grow with it.

What is the governance structure of Ortega and Castellano?

Governance Structure: Ortega and Castellano both wanted to take advantage of the intelligence and trust the judgment of employees throughout the company rather than relying on a small set of decision makers. The company thus has a decentralized structure. Store managers are able to pick and choose what products will be sold at their stores. Products are designed and created by a team of “commercials” rather than a small elite team as many competitors have. These in turn are influenced by store product managers, who are the main interface between stores and the head office in La Coruna.

How many times can you wear Zara?

Zara is chic fashion meant to be worn ten times. Zara’s target customers are young, fashion conscious city dwellers, and their tastes in clothing change rapidly and are difficult to predict and extremely hard to influence. Other companies have tried pushing their products and setting trends through advertising, but this often resulted in “fashion misses”, while Zara, through its responsive supply chain strategy, is able to produce and deliver styles that capitalize on what the customers are looking for. Thus, Zara is able to accurately match supply to demand.

How does upgrading Zara's supply chain help?

Upgrading IT could facilitate returns, eliminated the need to carry floppy disks around to tally up sales from individual POS terminals, make it easier to do store transfers and submit inventory replenishment orders. Real time information would be available and inventory checks could be done through the system as apposed to having a store clerk do an inventory check by calling the other store.

Who is the founder of Zara?

Amancio Ortega, Zara’s founder is a strong believer that in order to be successful in the apparel industry retailing and manufacturing must be closely linked as consumer demand is difficult to forecast. Both Ortega and Castellano (Intidex CEO) both believe that Zara needs to be able to respond very quickly to the demands of target customers as their taste in clothes is hard to predict, difficult to influence and changes very rapidly. Zara’s vertical integration allows the company to constantly introduce new items into the marketplace with very short lead times.

How does Zara work?

Firstly, Zara is vertically integrated. It manages design, production, shipment, display, promotion, sales, and feedback itself, relying only diminutively on outsourcing. This vertical integration approach gives Zara a lot of control over how it operates. In turn, Zara leverages this control into precise data acquisition and forecasting, seamless modifications, and reliable quality in its products. Being vertically integrated also enables more fluid communications between stages of the Zara product cycle: design, manufacturing, transportation, etc. This being a sort of subset of the control advantage, Zara has a distinct advantage in its ability to create efficient supply chains.

What is Zara's strategy?

Zara’s strategy is to project high-class fashion from all of its retail locations and to do so right next door to its luxury brand competitors. For example, in Istanbul Zara “can be found one street away from Cartier, Hermes, and Chanel”, three very expensive brands (Suzy Hansen 2012).

Why is Zara so fast?

Because Zara manufactures its products in Europe, it can very rapidly change designs to accommodate dynamic demand for various styles. This relates closely to Zara’s lightning-fast product replacement, unparalleled in the industry. Fast product replacement does two things for Zara. First, it enables Zara to adapt to consumer demands quickly, aligning itself with demand in a meaningful way. And secondly, it encourages customers to buy in a timely manner because the particular product or design that strikes your fancy today may be replaced by something else tomorrow.

What is Zara's mission?

Zara’s mission includes little to give the reader a sense of what Zara is and what distinguishes Zara from the rest. These elements might be collectively known as Zara’s overall business strategy. Two key components make up Zara’s distinctive strategy.

Why is Zara not advertising?

Perhaps Zara’s lack of advertising reflects its desire to eschew thriftiness and establish an aura of quality, luxury, and class. More specifically, Zara could be counteracting natural human psychology that identifies more expense with greater quality and prestige. Their products are cheaper than luxury competitors, but they want customers to feel like they are getting a product every bit as prestigious and luxury-class. Lastly, as much as Zara is grandiose in its real-estate investments it is equally selective. Zara considers only markets that promise strong demand for its products. Considerations prior to market entry include local taxes, political condition, tariffs, local competitors, demand, location, regulation, and supply chain.

What is Zara's mission statement?

Mission. “Through its business model Zara aims to contribute to the sustainable development of society and that of the environment with which we interact”. Interestingly, Zara’s (Inditex's) mission statement here makes no mention of clothing – either directly or indirectly.

Which is better, Gap or Zara?

Gap continues to sell many more garments than Zara. But in comparing profitability, Zara appears to be the decisive winner.

Why is Zara making more distribution centres?

Making more distribution centres so they will enable Zara to be more faster, effective, and efficient in distributing their products to the retailers.

Why is Zara so successful?

Zara’s success is as much a result of its history and location, as of its counter-intuitive business strategies. While it may not be possible for another company to exactly duplicate the conditions under which Zara flourished, one can certainly learn from its experiences, and it’s business structures.

What is Zara manufacturing?

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-to-day operational procedures differ from the norm.

Why is Zara so broad?

Zara’s target market is very broad because they do not define their target by segmenting ages and lifestyles as traditional retailers do. Zara’s target market is a young, educated one that likes fashion and is sensitive to fashion.

How does Zara market?

Zara’s marketing strategy focuses on product variety, speed-to-market, and store location. It is also notable for what it excludes. If you want to find out what’s currently available at the Zara stores you have two options: go to the web site or go to the store. Zara puts 10,000 different items on the store shelves in a single year. It can take a new style from concept to store shelf in 10-14 days in an industry where nine months is the norm. In its primary European markets, Zara locates its stores close together.

What is Zara's management?

In the retail environment, Zara’s managers and sales associates are in charge of transmitting the sales analysis, the Product life cycles, and the store trends to the designers. This allows the designers in Spain to develop the right products within the season to meet consumer demand. The transfer of this communication is also accelerated by IT software that is specifically designed for Zara’s diverse business. Zara’s quick response communication strategy is effective due to its management and corporate culture. Amancio Ortega, the founder of Inditex, still owns 60% of Zara’s shares. Mr. Ortega has effectively transmitted the values of the company, which are: freedom, perfectionism, responsibility, rapidness, flexibility and respect to others, to his management team. This has created a very autonomous and flexible corporate culture for Zara. Also, this has allowed the company to work horizontally with an open communication environment rather than a hierarchal one. Due to this, Zara’s managers work in teams in the countries where the chain is located. These divisional headquarter teams are composed of a head country manager who is constantly communicating with local managers and reporting to top management. The constant flow of information between managers allows the company to keep its customers happy, which results in increased sales.

What are the values of Zara?

Ortega has effectively transmitted the values of the company, which are: freedom, perfectionism, responsibility, rapidness, flexibility and respect to others, to his management team. This has created a very autonomous and flexible corporate culture for Zara.

Why is Zara a global model?

Note that Zara has been a global model for how to decrease the time between design and production, as well as between production and consumption.

What are the advantages of Zara?

These include better quality control, reduced strain on its production capabilities, well-managed inventories with no excess, and closely controlled production cycle.

What is the business strategy of Zara?

Key Elements in the Business Strategy of Zara. 1. The Fast Fashion Concept. Fast fashion is a concept that describes the quick phase at which fashion retailers capture current fashion trends based on recent major fashion shows. In other words, the concept describes how trends move from the catwalk to major retail stores.

How many stores does Zara have?

Zara also owns and operates more than 2000 retail stores in major cities across the world. Furthermore, it has a distribution capacity that allows it to deliver items within 24 hours in the European market or less than 48 hours in the American and Asian markets.

Why do fast fashion retailers take time to come up with products?

Unlike high-end fashion retailers that take time to come up with products due to time constraints in both design and production , fast fashion retailers generally copy designs from fashion shows and use their large-scale production and distribution capabilities to make the products available as quickly as possible.

Why is close coordination between design and production important?

Close coordination between design and production also promotes better quality control. A factor contributing to better production quality is labor. The factory workers of Zara have better wages than their counterparts in developing countries because the median salary and compensation package have been based on European standards.

How does a company maximize the feasibility and efficiency of production?

The company maximizes the feasibility and efficiency of production by maintaining a network of suppliers strategically chosen near its production facilities across Europe. It decides where to produce depending on the geographic availability of raw materials, thus shortening the lead time between sourcing and manufacturing.

How did Zara become successful?

The secret to Zara’s success has largely being driven by its ability to keep up with rapidly changing fashion trends and showcase it in its collections with very little delay. From the very beginning, Zara found a significant gap in the market that few clothing brands had effectively addressed. This was to keep pace with latest fashion trends, but offer clothing collections that are a combination of high quality and yet, are affordable. The brand keeps a close watch on how fashion is changing and evolving every day across the world. Based on latest styles and trends, it creates new designs and puts them into stores in a week or two. In stark comparison, most other fashion brands would take close to six months to get new designs and collections into the market.

What is the secret of Zara?

Another secret of Zara’s success is that the brand trains and empowers its store employees and managers to be particularly sensitive to customer needs and wants, and how customers enact them on the shop floors.

Why is Zara so popular?

It is through this strategic ability of introducing new collections based on latest trends in a rapid manner that enabled Zara to beat other competitors. It quickly became the people’s favourite brand, especially with those who want to keep up with fashion trends. Founder Amancio Ortega is famously known for his views on clothes as a perishable commodity. According to him, people should love to use and wear clothes for a short while and then they should throw them away, just like yogurt, bread or fish, rather than store them in cupboards.

Why is Zara named Zara?

Amancio Ortega named Zara as such because his preferred name Zorba was already taken. In the next 8 years, Zara’s approach towards fashion and its business model gradually generated traction with the Spanish consumer. This led to the opening of 9 new stores in the biggest cities of Spain.

What is Zara TRF?

Zara is obsessed with its customers, and they have defined the company and the brand’s culture right from the very beginning. The Zara brand offers men and women’s clothing, children’s clothing (Zara Kids), shoes and accessories. The sub-brand Zara TRF offers trendier and sometimes edgier items to younger women and teenagers.

What are the other brands in Inditex?

The other fashion brands in the Inditex portfolio are: Zara Home: Home goods and decoration objects founded in 2003. Operating in 183 markets, 70 of them with stores. Pull & Bear: Casual laid-back clothing and accessories for the young founded in 1991. Operates in 185 markets, 75 of them with stores.

What is Zara's brand?

The Zara brand was born with a keen eye on its customer – its ability to understand, predict and deliver on its customers’ preferences for trendy fashion at affordable prices. In addition to its effective supply chain, the brand’s ability to have its customers co-create designs is unique and provides it with a competitive advantage. Most fashion trends often start unexpectedly, originate from uncommon places and grow out of nowhere. With reference to the pink scarf trend mentioned above, it could have been that Hollywood actress Scarlett Johansson had worn a pink scarf to a charity gala the evening before in Los Angeles, or golf star Michelle Wie had showcased a pink scarf at a celebrity tournament in Asia. The fact that Zara was able to quickly jump on to this trend and provide hundreds of customers with the pink scarves they desperately wanted to buy.

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An Analysis of The Business Operations of Inditex Retailers

Mission

Sustainable Society

Enviornmentally Friendly

2 + 1 Strategic Approach to Operations

Vertical Integration

  • Firstly, Zara is vertically integrated. It manages design, production, shipment, display, promotion, sales, and feedback itself, relying only diminutively on outsourcing. This vertical integration approach gives Zara a lot of control over how it operates. In turn, Zara leverages this control into precise data acquisition and forecasting, seamless m...
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Logistical Trade-Offs

Product Replacement Cycle

Product Quality

Low Inventory Strategy

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