Zara: Lean Fashion

Zara: Lean Fashion
By Eric Holmes

Managers of any business are faced with a common challenge: “How can the business operate with the minimum waste to produce the maximum value for the customer?” The Toyota Production System was developed to address this issue in the automotive industry, and Toyota’s methods evolved into a series of practices known by the adjective: “lean” (Womack, 1990). Today, industries from health care to defence adopt lean strategies to streamline their operations. The core concepts underpinning lean strategy are summarized below:

1) Customer Focus

• Value defined by customer

2) Stable operations

• Cycle time reduction
• Clean, organize and standardize

3) Worker empowerment

• Workers continuously improve processes
• “The 5 why’s” (Root Cause Analysis)

4) Waste Reduction
5) Process Improvement

• Process charting and simplification

Figure 1. Lean Goals

Many examples of the lean concepts above can be found in the 2006 case study titled: “Zara: IT for Fast Fashion”. Case authors Andrew McAfee, Vincent Dessain and Anders Sjoman describe how Zara's parent company Inditex, developed operational capabilities which exceeded those of competing firms such as The Gap and H&M. The authors describe Zara’s ability to rapidly deliver a wide variety of clothing, while maintaining a relatively low price. Zara’s competitive advantage can be attributed to their successful implementation of lean techniques, beginning with a strong focus on creating value for their customers. Zara’s vision is described on the Inditex website: “Zara's approach to design is closely linked to our customers. A non-stop flow of information from stores conveys shoppers’ desires and demands...” (Inditex, 2011). By understanding its fashion conscious customers, Zara identified the operational capability necessary to put the right fashion into the right market at the right time. “Zara needed to be able to respond very quickly to the demands of target customers, who were young, fashion-conscious city dwellers” (McAfee, 2006). A number of lean techniques allowed Zara to achieve this objective.

Zara empowered its workers to influence sales decisions rather than dictating these from the top down. The case notes that: “senior managers wanted to take advantage of the intelligence and trust the judgement of employees throughout the company, instead of relying on a small set of decision makers.” Sales floor managers were valuable conduits of consumer knowledge which flowed back to headquarters in Spain where the fashion design department continually worked to create the next wave of products. One mechanism for this knowledge flow was the twice-weekly order, which required Zara sales managers to meet with their staff in order to determine which items were selling well, and which were not. When orders were placed, sales managers had considerable control over what their store would receive, and this allowed Zara to customize their offerings to a diversity of markets. By the end of 2010, Zara had opened over 5,000 stores worldwide including locales as different as Iceland and Saudi Arabia. (Inditex, 2011) By empowering its employees, Zara’s management allowed its organization to be sensitive to local trends. By processing all orders through Zara headquarters, upper management had the opportunity to see global trends and to plan their growth strategy accordingly.

At Zara, non-essential capital expenditure was trimmed for the sake of crucial operational functions such as maintaining rapid manufacturing and distribution. Zara’s point of sale infrastructure is a good example of a system which was deemed “good enough” and was left with a deliberately frugal budget to keep administrative overhead low. At the time of the case, Zara’s IT spending was considerably lower than competitors at 0.5% of sales, and IT staff represented less than 0.5% of Zara’s workforce (McAfee, 2006). The company’s focus remained on rapidly designing and delivering the latest trends in clothing to its customers. Zara focused its capital expenditure here, deploying a sophisticated logistic system capable of handling large through-put including a 45,000 garment per hour staging system (Ghemawat, 2006). Zara’s focus on streamlining its manufacturing and distribution led it to outsell its rival H&M in sales in 2005, and The Gap in 2008 leading to its current position as the world’s largest clothing retailer (BBC, 2011). A Japanese competitor named World Co. matched Zara’s rapid manufacturing cycle times, but was unable to match its profitability because of its large administrative costs amounting to 40% of sales compared to only 20% for Zara (Ghemawat, 2006). Zara’s ability to “trim fat” extended to its marketing, which made maximum use of an enticing storefront to create a singular experience for its customers. Preferring to spend on its stores rather than on large marketing campaigns, the Zara store design itself became the focus of considerable planning. In 2009, to manage store interior design data, Inditex turned to a software company named PTC. PTC described Zara’s situation as follows:

“Delivering the right information to the right person at the right time is important in any industry but it is vital in the fashion business because of the industry's short cycle times. Any delay in opening new stores due to incomplete or outdated information means a considerable monetary loss for the company.” (PTC, 2011).

Through continual refinement, and application of lean principles to its core business, Zara made strategic decisions regarding how to allocate its capital expenditure in a manner that maximized customer value. This allowed the business to flourish.

Zara’s implementation of the lean techniques enabled it to thrive in the competitive fashion clothing market. By allowing its focus to remain on fuelling customer’s desire for the latest styles in clothing, and by making careful choices about which projects to commit capital to, Zara has succeeded in maintaining its growth until the present day. Continued growth will require Zara’s effort in maintaining their operational advantage over ever-wiser competitors. Lean practices emphasize continual process improvement, and therefore Zara’s commitment to lean practices cannot coincide with complacency.




References:
1) Womack, J., Jones, D. and Roos, D., 1990. The machine that changed the world. New York: Rawson Associates.
2) Zara “Who we are” Page, 2011. Inditex Group - Zara -. [online] Available at:
[Accessed 23 October 2011].
3) McAfee, A., Dessain, V. and Sjoman, A., 2006. Zara: IT for Fast Fashion. Harvard Business School Case Number 9-604-081.
4) Ghemawat, P. and Luis Nueno, J., 2006. Zara: Fast Fashion. Harvard Business School Case Number 9-703-497.
5) BBC News, 2011. Zara-owner Inditex profits from global expansion. BBC News [online] Available at: [Accessed 23 October 2011].
6) PTC Press Release, 2009. Inditex Group Selects PTC Windchill To Accelerate Interior Design Of Its Retail Network . [online] Available at: < http://www.ptc.com/appserver/wcms/standards/textsub.jsp?&im_dbkey=90967&icg_dbkey=21> [Accessed 23 October 2011].