Zara Operations Management Report

Cite this

Introduction

The fashion industry is dynamic and changes with time to meet the consumers’ needs. With advanced technological developments, many apparel companies have revolutionized their designing, marketing, and manufacturing departments. Artificial Intelligence (AI) integration helps companies ease their operations management. Operations management includes all the activities such as inventory and quality controls, logistics, purchase management, and storage within a company (Anantadjaya et al., 2021). Successful operations management involves the efficiency of activities revolving around a business operation. Zara is an example of an apparel industry with successful operations management. This report evaluates Zara’s operations management, challenges, and recommendations on improving its operations management.

Zara’s Background Information

Zara started as one shop in La Coruña and has expanded its business to more than fifty countries globally. Zara’s history began in 1963 when Amancio Ortega established a dress-making factory, Inditex. Inditex’s establishment led to the encroachment of retail marketing and a small store called Zorba. In 1975, Amancio Ortega and Rosalía Mera founded Zara as a family business in Spain. The founders adopted the name Zara since their preferred company name, Zorba, was already taken. Within the first eight years, the company had opened outlets in nine of Spanish biggest cities owing to the company’s expansion strategy and business model. Decades later, the company expanded to the rest of the world, operating in about eighty-eight countries.

The company expanded to Portugal in 1988 and later to the United States in 1989. Zara has maintained exponential growth and expanded to France, Mexico, Greece, Belgium, and Sweden in the 1990s. In the early 2000s, the company launce its operations in Japan, Singapore, Malaysia, Russia, Morocco, Estonia, China, Hungary, and Romania. In the late 2000s, the company expanded to the Philippines, Indonesia, Costa Rica, South Africa, India, South Korea, and Australia. The influential business model has enabled the company to be established in other countries, and now in more than eighty countries with about six thousand five hundred stores (Zara, 2019). Furthermore, the company has advanced its technology to reach many clients in different countries.

Operations Management at Zara

Procurement

The company has adopted a procurement strategy that saves the operations and supplies’ costs. Procurement involves the activities such as raw materials sourcing, purchasing, and acquiring various equipment and supplies by identifying potential suppliers (Kohli, p.64, 2021). The company has reduced its outsourcing activities to reduce costs and increase its profits. Consequently, about 63% of its products are self-manufactured, presenting a competitive advantage over its competitors (Mo, 2020). Since the company owns dying equipment, about a third of its fabrics are obtained undyed and purchased before design finalization (Roll, 2021). The company acquires quality raw materials from local suppliers at affordable costs. The self-manufacturing processes allow the company to vary the new products. Furthermore, the procurement strategy enables the company to manufacture unique and challenging to imitate effects. Therefore, Zara has adopted a procurement strategy that allows saving on costs and increases the company’s profitability.

Product Design and Quality

The fashion industry involves unique products that stand out among the competitors. Zara products are of varying clothing lines and meet the various consumer segments. The main clothing features that attract consumers are the design, color, and clothing fabric. The company has hired competitive designers who introduce over 10,000 designs each year (Zara, 2019). The comprehensive design range allows the company to keep its consumers refreshed and supplied with new products. The company acquires its fabrics from local suppliers whose high-quality and durable materials. Zara’s products are more durable than its competitors, who rely on synthetic materials for clothing production. The company has also segmented its consumers between small-sized customers and sized garments to meet their various design needs. The experienced designers, quality fabrics sourcing, and market segmentation allow Zara to remain afloat in the apparel industry by producing quality and unique products designs.

Business Environment

Zara is a multinational company with more than six thousand stores distributed globally. The complex business environment requires a centralized distribution system and advanced information technology. The company has acquired an experienced human resource team that helps the company meet ample product supply. For instance, professional designers help the company meet the consumers’ product needs. Furthermore, Zara has a reputable legal department assisting the company in meeting local and global legal regulations (Zara, 2019). Since the company operates in various countries with different laws, Zara’s legal department has outsourced experienced lawyers in various legal fields and jurisdictions. The company has an advanced communications system allowing store managers and workers to communicate effectively. Effective communication allows the company to operate smoothly and meet the consumer needs as expressed by the store managers. Effective communication systems and dependable human resources, including the legal department, have created a survival environment for the company.

Price Control

The company has adopted a competitive pricing strategy to meet the marketing level prices. Over time, Zara has maintained competitive prices and high-quality products, attracting more consumers. Since the company is expanding its business activities to other countries, it adopts a penetrative-pricing strategy to attract new customers in the new market. The company adopted the approach when establishing new stores in South Africa and various Asian countries (Serbin, 2021). Furthermore, the company has adopted prices that are standard with the competitors’ prices. Consequently, many consumers are attracted to Zara products due to their quality and not necessarily the price. The competitive pricing strategy has enabled Zara to improve its sales and maintain a broader consumer base than its competitors, including Uniqlo, Fast Retailing, and H&M.

Supply Chain

Zara has adopted a supply chain strategy that enables it to stay efficient with the sheer volume passing through its supply chain. The company’s supply chain operations are designed to allow its stores to run smoothly with enough clothing supply. The company has adopted a ‘Just in Time Production’ strategy, allowing its factories to reserve about 85% of their capacity for in-season adjustments (Fashinza, 2021). Furthermore, its sewing facilities are near its design headquarters in Spain. The proximity between the sewing facilities and the design headquarters helps the company save the sophisticated fabrics sourcing costs. The company has also adopted a strategy to control the number of product supplies during the season. The company locks about 50 to 60 percent of a season’s line and commits to only 15 to 25 percent in six months advance (Fashinza, 2021). The just-in-time production and season line control ensure a smooth supply chain.

Business Technology

Recent technological advancements have allowed businesses to improve their e-commerce, digital marketing, human resource activities, and other business operations. Zara has adopted technology in advertising its products among the various consumers in different countries. Digital marketing allows the company to reach out to a broader consumer base and collect customer feedback on its products. The company’s social media presence has improved consumer brand equity, thus improving sales. Furthermore, the company has adopted an advanced communication system allowing communication among its stakeholders. The advanced information system has also enhanced the activities such as inventory management and product quality control. Therefore, business technology integration has allowed the company to improve its product quality, stakeholders’ communication, inventory management, and other business activities.

Production and Distribution System

Zara has an enhanced distribution system that ensures constant product supply among its sheer outlets in different countries. The company has established various departments dedicated to the product supply to other countries (Zara, 2019). Each country’s department allows communication between the different countries’ stores and the company’s headquarters. Furthermore, the company’s technology integration enables the tracking of most purchased products, enabling controlled production and distribution. The company’s structure and technological integrations allow an effective production and distribution system.

Struggling Areas of Operations

E-Commerce

E-commerce has enabled many companies to reach out to a vast potential consumer base. Through e-commerce activities, the companies have reached out to consumers in remote areas. Although Zara has utilized e-commerce for its marketing activities, it does not cover the global market compared to its competitors. The company’s physical and online stores total about 200, insufficient for global coverage (O’Shea, 2018). Furthermore, e-commerce presents price fluctuations occasioned by changes in currency exchange rates among the various countries. Therefore, products sold through e-commerce lacks standard prices scaring away many potential customers. Furthermore, integration of e-commerce activities presents high operational costs, including hiring experienced system engineers, shipping costs, and establishment of pick-up stations in various countries. Fluctuations in currency exchange rates and increased operating costs have encumbered the extension of e-commerce activities to multiple countries.

Marketing

Unlike its competitors, Zara has put less effort into marketing its products. The company has adopted an ineffective advertising strategy giving its competitors such as H&H a competitive edge. The company’s competitors, such as New Look and Asos, focus on online marketing, while Zara has adopted an advertising strategy not to advertise on traditional media. The marketing department faces difficulties in reaching out to potential clients in various countries who could help increase the company’s sales. Furthermore, the marketing operations face cost challenges with product promotion on the globally recognized media. Cultural differences among Asians and Europeans presents difficulties to the marketing operations. The company finds it hard to persuade Asians to buy its products due to the lack of the Northern American style among the Asia cultures. The lack of traditional advertising media, high advertising costs, and cultural differences between Asians and Europeans present Zara’s marketing operations.

SWOT Analysis

Strengths

Zara is a multinational company with a broad consumer base that is loyal to the company’s products. Furthermore, the high product quality has increased Zara’s consumer brand equity. With increased sales due to a broad consumer base, the company has sufficient funds for its operations. Furthermore, the company has the financial muscle to acquire expensive and complicated to imitate manufacturing equipment. The company’s experienced designers and well-trained employees help attract more clients in high-quality product production. Zara’s broad consumer base increased income, and excellent human resources significantly contributed to its effective marketing and e-commerce.

Weaknesses

The company has established a broad consumer base with cultural differences. The Asian community has a culture that is different from the Europeans. However, the company lacks an effective mechanism to meet cultural needs among the Asian communities. Consequently, the company struggles to convince the Asian community to purchase its products. Furthermore, the company has poorly designed marketing and e-commerce strategies, limiting the number of potential customers reached out. Cultural differences among its major consumers and poor marketing strategy reduce Zara’s brand recognition and potential profits.

Opportunities

The company has an already established Asian market that presents a wider marketing opportunity due to its large population. Unlike its competitors, the companies can utilize based marketing to identify new business ventures among the Asian community. Furthermore, the company’s parent company Inditex benefits from the social European Union business regulations. The company could take advantage of the extensive trade agreements and tax incentives within the European Union to expand its operations and form strategic alliances. Therefore, the vast Asian market and the social European Union regulations present opportunities.

Threats

With the increasing use of e-commerce and online marketing activities, the company is under a competitive threat since it lags behind its competitors in e-commerce and online marketing. Furthermore, companies such as H&H are encroaching the Asian market and quickly winning potential consumer trust. The changing laws and regulations among the Asian countries on foreign companies pose significant threats to the company. Increased e-commerce and online marketing usage among Zara’s competitors and the changing foreign companies’ regulations among the Asian countries threaten Zara.

4Vs Analysis

Volume

Zara has sufficient equipment to allow fine product production to meet its global consumer needs. The company’s just-in-time production enables timely products for its stores in various countries. The company has designed an effective supply chain strategy and inventory management to ensure its consumers’ high output of the most demanded garments. The company’s product strategy and technology integration allow sufficient volume to meet its consumer need.

Variety

Zara has different product categories to meet the various consumer segmentation needs. The company has diversified its product categories and designs, leading to unique products. The company’s experienced designers can produce over 1000 unique designs to meet different cultural needs. The diversification of its products allows flexibility among the Zara departments to deliver goods that match customer requirements. Consequently, the company has a competitive advantage over other companies in the fashion industry.

Variation

A variation involves the changes in demand levels over time due to external factors such as political and natural disasters. The increasing harsh regulations on foreign companies among Asian countries such as Japan and China will likely affect the company’s annual sales. Furthermore, the onset of the coronavirus greatly affected the company since it has not heavily invested in e-commerce. The company is adopting an online marketing and e-commerce establishment strategy to meet the increasing use of e-commerce for business activities.

Visibility

Visibility involves the company’s value chain of all its processes, including marketing and purchases. The company, through e-commerce, allows its potential consumers to identify the various products available and their prices. Furthermore, the company’s e-commerce website allows the clients to track the purchased products, including the packaging and arrival (Zara, 2019). Moreover, the customers can provide feedback on the service and product quality upon purchase completion (Zara, 2019). The company’s products’ visibility and value chain allow increased purchases and improved customer satisfaction.

Recommendations

While Zara is an established company with a broad consumer base, the company lacks an excellent brand image due to poor marketing. The company should develop a marketing strategy to reach its potential global consumer. The marketing activities might include using global television networks such as CNN, DSTV, and others. Furthermore, the company should effectively utilize social media networks like Twitter, Instagram, and Facebook. The company should also use e-commerce to meet consumers’ increasing use of the internet for its selling activities.

Since the European, Middle East, and Asian countries form the largest market for Zara products, the company should formulate strategies to harmonize the conflicting cultures. The company could develop products that suit the Asian community cultures and those that favor the Muslim community in the Middle East. Consequently, the company would easily convince its Asian and Middle East consumers to purchase its products.

Conclusion

Zara is one of the most competitive apparel industries with a broad consumer base and financial muscle. The company started as a single shop established in Spain and has burgeoned to more than eighty countries. With increased sales, the company has effectively developed beneficial operations management. Its high income allows it to meet the operational costs and acquire expensive production technology. However, the company has put less emphasis on e-commerce and online marketing. The competitors have encroached on its traditionally dominated markets such as Europe. The company could utilize global marketing platforms to enhance sit marketing activities. Furthermore, designing products that meet the Asian and Middle East cultural requirements would help improve sales.

Reference List

Anantadjaya, S.P., Nawangwulan, I.M., Irhamsyah, M. and Carmelita, P.W., 2021. Supply chain management, inventory management & financial performance: evidence from manufacturing firms. Linguistics and Culture Review, 5(S1), pp.781-794. Web.

Fashinza, 2021. The Secret Behind Zara’s Success. Web.

Kohli, R., 2021. Unit-5 Procurement of Material and Inventory Control. Indira Gandhi National Open University, New Delhi. Web.

O’Shea, D. (2018). Zara expands online sales to 106 more countries. Web.

Mo, Z., 2020. Fashion? Hackers! Web.

Roll, M. (2020). The Secret of Zara’s Success: A Culture of Customer Co-creation | Martin Roll. Web.

Serbin, K., 2021. Malty-national entry analysis of Uniqlo company. Web.

Zara (2019). ZARA Official Website. Web.

Cite this paper

Select style

Reference

BusinessEssay. (2023, January 11). Zara Operations Management Report. Retrieved from https://business-essay.com/zara-operations-management-report/

Reference

BusinessEssay. (2023, January 11). Zara Operations Management Report. https://business-essay.com/zara-operations-management-report/

Work Cited

"Zara Operations Management Report." BusinessEssay, 11 Jan. 2023, business-essay.com/zara-operations-management-report/.

References

BusinessEssay. (2023) 'Zara Operations Management Report'. 11 January.

References

BusinessEssay. 2023. "Zara Operations Management Report." January 11, 2023. https://business-essay.com/zara-operations-management-report/.

1. BusinessEssay. "Zara Operations Management Report." January 11, 2023. https://business-essay.com/zara-operations-management-report/.


Bibliography


BusinessEssay. "Zara Operations Management Report." January 11, 2023. https://business-essay.com/zara-operations-management-report/.