Manufacturers and retailers looking to model "just-in-time" manufacturing and logistics could do much worse than look at Zara.
Most people outside of Spain knew little or nothing about Zara, the now hugely successful fashion retailer, until about a decade ago. Owned by Spanish company Inditex, 37-year-old Zara overtook Gap as the biggest apparel retailer in the world in 2008. Now it has 5,887 retail stores -- 360 opened just last year -- and 116,110 employees in 86 countries.
There are several factors behind Inditex's success in the highly competitive fashion market:
Vertical integration: Inditex wants to keep store inventory to a minimum, and keep a fast turnaround of new products. This encourages customers to buy the product as soon as they see it in a store because the same product might not be there the next time, and Inditex does not always send stores the same product twice.
Customer feedback and fast response: The IT infrastructure of the company and fast logistics allows the company to deliver a sold-out product to a store in India in less than 48 hours.
Customers are encouraged by the sales staff to comment on products and give opinions about why they like or dislike any particular garment. Store managers collect this information daily and send it to headquarters, where it is evaluated by marketers and designers. Keeping the manufacturing of designs close to home enables a quick turnaround, from design to store in about three weeks.
Proximity to factories: Inditex does manufacture some clothing in Asia, but not to save cost. It is to save time in supplying the Asian market and to keep its own factories in Europe and North Africa free to respond quickly to customer demands.
Location: Inditex's investment in real estate is legendary; they own premium commercial space in many cities. Recently, the group purchased the building housing the newly-opened Apple store in Barcelona, considered to be the most expensive real estate in the city. They have opened Zara, Massimo Dutti, and other store brands in the vicinity of luxury neighbors, such as Gucci, Prada, and Cartier. According to The New York Times last November, Inditex paid $324 million last year to buy space at 666 Fifth Avenue, the most expensive retail space ever sold in Manhattan.
Interestingly, Zara retains part of its flexibility by choosing its markets carefully. The "just-in-time" approach leads them to largely ignore the lucrative American market. You can find Zara stores in cities such as Boston, New York, Los Angeles. and Chicago, but you can't find them in most malls. One reason is the larger clothing sizes necessary for the American market. "Zara to me is a European store for European style; it's very fashion forward. And what is the problem in America? They don't fit in the clothes. So why do it? Having to make larger sizes makes production so much more complex,” said Jesus Echevarria, in the New York Times story.
Zara's strategy in America may seem limiting in one aspect, but it is actually indicative of consistent decisions to align manufacturing and retail decisions to keep supply chains short, communication intimate, and provide fast response to the customer and to retail outlets.
CIOs looking to achieve similar results need to work with the CMO to align customer communications and marketing while working with the CFO, COO, and CEO to align the manufacturing strategy with the strategy as a whole. It is Zara's close alignment and focus on short lines of supply and communication that make it so quick and flexible. Every CIO can make changes like these "just in time" to save their company.