Zara’s Operations Strategy
Prepared by A. Asef-Vaziri Based on the Book: Operations Strategy; Principles and Practice
What is the Best Strategy?
Zara: timely yet limited variety at modest cost and quality.
Aravind and Shouldice Hospitals: low cost, high quality, minimal
variety, average to long response time.
Corolla: flow shop, decentralized assembly plants close to market,
short flow time, low cost.
Ferrari: job shop, only a single plant in Italy, longer flow time,
high cost.
McMaster-Carr: a materials, repair, and operations (MRO)
product distributor, a process with high flexibility, high
quality, short response time, but at a high price
Wal-Mart: Short flow times, low inventory, low cost, average
quality.
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
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Trade-Off
Different companies intentionally choose different processes to
accomplish the same goal. McDonald vs. In ‘N’ Out.
Different processes lead to different advantages and
disadvantages. We always face trade-offs.
It is not difficult to deliver books very fast. It is not difficult to
deliver books at a very low cost. But, it is difficult to deliver
books fast and at a low cost.
Trade-off: decreasing in one of the four dimensions of Cost,
Quality, Variety, and Time (CQVT) to increase on another
CQVT dimension. World class firms also try to push the
efficient frontier on these dimensions outward. As technology
and management practices advance, the efficient frontier moves
upward.
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
3
Zara: Resource View - Sizing, Timing, Type, and
Location
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High vertical integration. Ownership of the capital resources
allows tight coordination. A design center, some manufacturing
facilities (also outsources locally), two major DCs, and 90% of
724 retail stores.
Production Capacity. The design capacity of 11000 new
styles/yr by over 200 professionals is in line with the timely
fashion (design to rack of 3 weeks).
Distribution Capacity. Owns two central warehouses in Spain.
The recent over 10 million square feet DC has a throughput of
80 thousands garments/hr. Direct access to highway and Rail
Road and proximity to airport favors fast handling of
international cargo.
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
4
Zara: Resource View - Sizing, Timing, Type, and
Location
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Vertical integration. High ratio of tangible fixed assets to sales
of 34%. The average capacity utilization is 50%, many facilities
are single shift.
Supply Network. The supply network centered in Spain (25%
from the rest of Europe and 25% from the rest of the world).
The proximity of suppliers  inputs are received quickly 
fast speed-to-market. Local facilities are used to produce the
products with most demand uncertainty and time-sensitivity,
off-shoring for basic products with more predictable demands.
Utilization. Industries exercising (fast response times + high
demand volatility) experience low capacity utilization; high
safety capacity.
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
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Zara: Process View – Supply, Technology,
Demand, and Innovation
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Delayed Differentiation. Postpone the dyeing of fabric: almost
half the raw materials are purchased undyed.
Product-Process Matrix Match. Short lead time for products
with high variability in their demand. Local manufacturing
processes have short setup times and run in small batches,
while offshore manufacturing of more predictable demand can
have longer lead times and large production batches.
Centralization. Distribution is highly centralized to reduce the
number of stocking points and the associated handling time
and so that one store's upside demand fluctuations can offset
another's downside.
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
6
Zara: Process View – Supply, Technology,
Demand, and Innovation
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Transportation Network. The hub and spoke system uses the
appropriate transportation mode (truck, RR, or air) depending
on the store location and the time-sensitivity. Frequent
deliveries with short lead times. It maximizes the flexibility of
inputs and increases responsiveness, while controlling working
capital (inventory).
Information Technology. IT enables the daily information flow
between store managers (requesting products and providing
customer feedback) and design and production (sharing
information of upcoming products).
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
7
Zara: Process View – Supply, Technology,
Demand, and Innovation
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Demand Management. Intentionally short style campaigns that
are likely to run out of stock create a scarcity image. Customers
visit stores frequently and are likely to buy what is available at
that moment because that particular product may no longer be
available next time. The combination of short campaigns and
limited inventory reduces markdowns and leftovers.
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
8
Zara: Process View – Supply, Technology,
Demand, and Innovation
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Fast Product Design. Fast new product design is a key enabler
of Zara's strategy. Ideas inspired by urban hot spots, fashion
shows, and store customers are transmitted to the creative
teams. Design style platforms are created ahead of the season
and are modified just before production based on feedback
from retailers regarding the most recent fashion. This
postponement of design styling requires fast and efficient
information transfer.
Standardization and Customization. A firm believer that
people, cultures and generations share a special sensitivity for
fashion. Standardizes a majority of its designs but allows some
adjustments to local taste. Zara originally insisted on a
standard set of sizes for all countries but had to add smaller
sizes for Japan and larger ones for the U.K. and Germany
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
9
Strategic Fit
Zara Has tailored the four drivers of the Resource View (Sizing,
Timing, Type, Location) and the four drivers of the Process View
(Supply, Technology, Demand, and Innovation) and the four
drivers of the Competencies View (CQVT) of its operations
strategy to its fast-fashion, cheap-chic customer value proposition.
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
10
Should Every Retailer Adopt the Zara Model?
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Zara's operational system is not a panacea. Sweden's Hennes
& Mauritz AB (H&M) competes with Zara. It produces much
fewer new styles per year with a much slower design-to-rack
time of 16 weeks.
Without the stringent speed requirement, H&M has more
leeway in configuring its operations; more outsourcing and
higher capacity utilizations resulting in much lower fixed
capital. The lower safety capacity and responsiveness is
replaced by higher safety stock to buffer demand uncertainty.
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
11
Should every retailer adopt the Zara model?
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The Zara model is not used in other industries such as toys, cell
phones, or auto manufacturing. Zara’s model requires:
1. High customer willingness to pay for speed-to-market.
2. Short product life cycles with high demand uncertainty.
3. Low cost of excess capacity with low importance of scale
economies.
4. Low cost of stock-outs and distribution relative to inventory
holding.
Great operations strategies are tailored to each company's
competitive strategy. While companies may share some
elements, a complete tailored operations system is unique
Zara’s Operations Strategy
Ardavan Asef-Vaziri
Jan-1011
12