Zara's Agile Supply Chain Is The Source Of Its Competitive Advantage

Kris Gorrepati

Inditex, the parent company of Zara, at one point in 2015 was worth over $100 billion in market capital. Only
Nike comes close. It is the brightest star in the fast-fashion industry.

Obviously, such an impressive financial performance attracts all kinds of interest. Businesses are both
interested in understanding the secret to the company’s success as well as emulating it.

Zara’s strategy involves adapting couture designs, manufacturing items, and distributing products to stores
a mere two to three weeks after they first appear on catwalks. In addition, store managers and sales
teams continuously monitor trends and customer preferences and report them back to designers at
headquarters.

Zara’s key operational theme is one of agility. Its product development, manufacturing, and supply chain
processes – some of which are a radical departure from the normal practices in fast fashion – are expressly
designed and implemented for agility.

Vertical integration
Zara designs as well as manufactures a majority of the apparel that customers buy in its stores. This is very
much in contrast to the traditional high-volume fast-fashion companies, which outsource most of their
manufacturing to contract manufacturers. This type of vertical integration is key to quick new product
introduction cycles.

In addition, most of the manufacturing operations seem to be centered around primary manufacturing
facilities in Spain, with suppliers also setting up their operations close to Zara’s manufacturing operations.

Quick new product introduction capability

Zara can get a new product from a mere sketch to a store in four to six weeks. That is extraordinarily fast, and
it requires a whole level of agility to respond that quickly to new fashion trends. The agility of the entire
design and supply chain process is central to supporting Zara’s core strategy.

High product variability

Zara carries upwards of 11,000 distinct items per year compared to competitors that carry 2,000 to 4,000 in
stores. Zara’s fashion-season-oriented products only make up a small part of its business. Only 15% to 25% of
a season’s line is designed ahead of the season. Up to 50% of its items are designed and manufactured in the
middle of the season based on certain styles and designs that become popular. Because of its quick new
product introduction cycles, Zara can take advantage of customers’ fleeting interest in new designs and
styles.
Small lot manufacturing
Zara’s design, manufacturing, and supply chain capabilities allow it to produce in small lots. The supply chain
is designed to support just-in-time capabilities with small production lots and frequent shipments to stores.
This reduces instances of waste created by large lots of designs that do not catch on and have to be sold for
large discounts.

Low inventory
Zara seems to be extremely cognizant of the perils of inventory. It is one of the main “wastes” in the Toyota
Production System. Holding inventory is hazardous for fast fashion because products that are in demand one
day can be out of favor the next day. So holding large amounts of inventory can lead to heavy discounting or
outright waste. Zara’s agile manufacturing and supply chain capabilities allow it to maintain low levels of
inventory across the supply chain and replenish as often as two times a week.

Excess capacity for agility

Zara also seems to keep excess capacity in its manufacturing operations to be able to respond quickly to
unexpected demand. This is in line with Toyota’s strategy for retaining some excess capacity by running only
two shifts in some manufacturing plants.

Zara also has extra capacity on hand to respond to demand as it develops and changes. For example, it
operates typically 4.5 days per week around the clock on full capacity, leaving some flexibility for extra shifts
and temporary labor to be added when needed.

Agility provides an edge

Zara’s new product development, manufacturing, and supply chain operations are a significant departure
from the dominant fast-fashion business models. The agile supply chain strategy and the unique
implementation, which has some similarity to the Toyota Production System, is very likely the source of its
industry-dominating competitive advantage.