quality management zara

Case Study :

An Introduction of Quality Management Studies // Lecture: Dr. Ir Hazmand Zusi MSc. // Trisakti Master Management 2010

Presented by:

Abraham ArdilesFirmans Nur Gafy

ZARA

ZARA is the flagship chain store of Inditex Group owned by Spanish tycoon Amancio Ortega , who also owns brands such as Massimo Dutti, Pull and Bear, Oysho, Uterqüe, Stradivarius and Bershka. The group is headquartered in A Coruña, Spain, where the first ZARA store opened in 1975.

It is claimed that ZARA needs just two weeks to develop a new product and get it to stores, compared with a six- month industry average, and launches around 10,000 new designs each year. ZARA has resisted the industry-wide trend towards transferring fast fashion production to low-cost countries. Perhaps its most unusual strategy was its policy of zero advertising; the company preferred to invest a percentage of revenues in opening new stores instead.

An Introduction of Quality Management Studies – Case Study : ZARA // Lecture : Dr. Ir. Hazmand Zusi MSc. // Abraham Ardiles, Firmans Nur Gafy // Trisakti Master Management, Jakarta 2010

About ZARA

This case focuses on the Spanish retail giant, Inditex and how its largest retail chain ZARA has been so successful through its simple business model of speed, flexibility, and high fashion. As of 2002, Inditex operated six separate chains: ZARA, Massimo Dutti, Pull & Bear, Bershka, Stradivarius, and Oysho.

ZARA developed a business model that incorporated the following three goals for Operations :1. Develop system the requires short lead

times2. Decrease quantities produced to

decrease inventory risk 3. Increase the number of available styles

and/or choice

About ZARA


Competitive Advantage, Strategies and Objectives

International Strategy :• Market Selection• Market Entry• Marketing approach

Financial Position Compare to Competitors

SWOT Analysis

Resolution to Grow the ZARA chain in best

AGENDA :


Competitive Advantage, Strategies & Objectives

ZARAAn Introduction of Quality Management Studies – Case Study : ZARA // Lecture : Dr. Ir. Hazmand Zusi MSc. // Abraham Ardiles, Firmans Nur Gafy // Trisakti Master Management, Jakarta 2010

Amancio Ortega Gaona, the founder of Inditex,thought that consumer would regard clothes as aperishable commodity just like yoghurt, bread or fishto be consume quickly, rather than stored in cupboards, and he has gone about building a retail business that provides “freshly baked clothes”

Competitive Advantage :• Cost Leadership• Fashionable (quality) at reasonable product• Based on Product Positioning :

“ZARA is cheaper price than Benetton and GAP, and still being fashionable”

• Fast Production• Ability to Design and finish goods in stores

within 4 to 5 weeks• Very quick to get designer-influenced

products into their stores• Product Variation • Ability of ZARA to launch new trends, design

and variation of product.

Competitive Advantage, Strategies and Objectives :


Competitive Advantage :• Low Level of Inventory• Efficient Distribution System• Turnover of Product is High

Competitive Advantage, Strategies and Objectives : (cont’d)


Objectives :• Maximize Profit• Maintain and ability to go further fashionable

(quality) at reasonable price ZARA positioning


BeforeTransform

Objective/Expectation+

+

Price

ZARA fashion

-

-

-

- Fashion

ZARA(New)

+

+

Price


Strategy :ZARA are placed on board market scope. ZARA provided cost leadership and differentiation strategy combined it to win the competition. ZARA compete at reasonable price by build cost leadership startegy, so even they set at reasonable price they still could gaining reasonable margin and develop differentiation strategy, in this case ability ZARA to design and finishes product within 4 to 5 weeks (unique competences).


Low CostCompetency

UniquenessCompetency

Segmentation Strategy

DifferentiationStrategy

CostLeadership

BroadMarketScope

NarrowMarketScope


Creative Departments;Three areas,200+ staff

Sewing; cut fabric isShipped to workshops to be stitched

Samples; prototypesMade in-house andBy suppliers

Mattress; material forGarments laid out in layers and marked

Cutting; a machineCuts the fabric accordingTo the patterns

Finishing; garments Are pressed, dressed and quality checked

Shipping; fromLogistics centres to stores, road & air

Delivery; garment sArrive in store within 48 hours of ordering

Design, ProductAnd market Cycle;

Final design : 1 dayManufacture : 3-8 daysTransport : 1 daySelling : 17-20 daysTotal : 22-30 days

Objective :Continues & posibly to go further with time cycle of generate design, finishes product & distribute it.



Strategy :


Value Chain Framework

MIS

Marketing

Design

Production Objectives


Strategies :• Production & distribution :• Maintain quality• Cost Leadership• High Bargaining Power to Supplier• Distribution System Fast Distribution

• Marketing :• Market Penetration• R & D• Market, Location of Stores, Consumers

Behavior Analysis• MIS (Management Information system) :• Order Information Flow Stores Ordering System• Improving Inventory System• Product Distribution System

• Design :• Coordinate with R & D and also with stores itself to get new

trends• Ability to Produce New Design & Trend



Value Chain :


Production :Factory & distributor

Store Store

Store Store

Store

Marketing :Market Research and Analysis

Commercial Team & designer

Design

Inventory

Check theMaterial availabilitythen decidingHow much thisproduct will be Produce

MIS

MIS

MIS

Close watchOn trend andBuying Behaviors

MIS


International Strategy


ZARA was described by Louis Vuitton fashion director Daniel Piette as "possibly the most innovative and devastating retailer in the world." ZARA has also been described as a "Spanish success story" by CNN

ZARA International Strategy :

• Good In International Strategy• Combined of Strategy :

• Cost Leadership is usualy capture in mass production (mass product, less differentiation) Standardization

• Differentiation Strategy is ussualy capture to produce goods that has more value added fashionable, fast delivery customization

• Good Consideration in market sellection , marketing, and market entry

International Strategy :


ZARA International Strategy :

International Strategy : (Cont’d)

Market Sellection

Marketing ApproachMarket Entry International

Strategy


Market Sellection:• Consideration• Labor cost and productivity, distribution cost

and shipment cost of raw materials (suppliers)


Labor Cost Value added

EU Countries

German 18 23

Spain 7 11

Italy 14 20

Portugal 4 6

UK 11 13

Major Suppliers

Turkey 2 12

China 0,4 na

India 0,4 2

Egypt 0,7 2

Others Major Market

US 10 20


Market Sellection:• Consideration• Characteristic or behavior of Consumers


Country Character of Consumers

French More Fashionable (Quality Oriented)

German Price Sensitive

Italian More Fashionable

USA Less Trend

Japan More Trendy

British Stores Based on Social Affinity


Market Entry:


Barriers Factors

Market EntryConsideration

Economics Factor

Market Entry Government


Market Entry:

• Consideration• Economics

• Macroeconomics Factor :• tax, political condition, export tariff

• Microeconomics Factor :• Local Competitors• Demand • Location of Store

• Government• Regulation from Government

• Barriers• Local producers protection issues




Marketing Approach:

• Consideration• 4 P consideration Product, Price, Promotion

and Placement. Each Country has different marketing approach.• Product local preferences, design, trends• Price different pricing strategy for each

country. For example: Italy and Paris has no problem for price but quality-oriented, but German has sensitive price.

• Promotion different promotion strategy for each country

• Placement efficient distribution, location of stores


Financial PositionCompare to Competitors


Financial PositionCompare to Competitors:

At the end of 2001, ZARA operated 507 stores around the world (40% of Inditex), posted EBIT of 441M Euros (85% of Inditex), and sales of 2,477M Euros (76% of Inditex). Currently, H&M is Inditex’s major competitor. The ratio analysis below shows H&M and Inditex’s competitive standing in the industry.

GAP H & M Benetton Inditex

Net Margin -0.06% 9.60% 7.05% 10.46%

Asset Turnover 1.82 1.96 0.74 1.25

ROA -0.11% 18.78% 5.25% 13.05%

ROE -0.27% 24.85% 11.93% 22.88%


SWOT Analysis


SWOT analysis:

Internal Factor Analysis :

Strength Weight Rating WeightScore

Cost Leadership (Standardization) 0,2 4 0,8

Different Strategy (Customization, unique competences) 0,2 4 0,8

Efficient Distribution 0,1 3 0,3

Information tech. 0,1 2 2

Fast Delivery of New Products, Design & Trends 0,3 4 1,2

Weaknesses

Centralized Distribution System 0,1 3 0,3

TOTAL 1 5,4


SWOT analysis:

External Factor Analysis :

Opportunities Weight Rating WeightScore

Global market penetration 0,2 4 0,8

Online market 0,1 2 0,2

Distribution center in the US 0,05 2 0,1

Threats

Local Competitors 0,1 3 0,3

Global Competitors 0,3 4 1,2

Product Cannibalism 0,05 1 0,05

Lack of Vertical Integration 0,1 3 0,3

TOTAL 1 3,35


Resolution to grow the ZARAchain in best


Resolution to grow the ZARAchain in best : • Change the system• Centralized Transform Decentralized• Build decentralized distribution & Production

in each region (Asia, Europe & America, more is better) to highly penetrate new market & trend to decrease the complexity of process • Moreover, would tend to fastest in producing

new product (design, production & distribute)• Keep maintain the value chain, nothing to

change but it should be expanded in each district/region


Resolution to grow the ZARAchain in best :

Production :Factory & distributor

Store Store

Store Store

Store

Marketing :Market Research and Analysis

Commercial Team & designer

Design

Inventory

Check theMaterial availabilitythen decidingHow much thisproduct will be Produce

MIS

MIS

MIS

Close watchOn trend andBuying Behaviors

MISValue Chain in each Region :



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quality management zara

Education

zara lecture

ir hazmand zusi msc

zarathis case

new stores

founder of inditex

reasonable product

product positioning

new trends