Reference no: EM131804503

(Zara) Amancio Ortega Gaona, the founder of Inditex, thought that consumers would regard clothes as a perishable commodity just like yogurt, bread or fish to be consumed quickly, rather than stored in cupboards, and he has gone about building a retail business that provides "freshly baked clothes." Getting locally targeted designs quickly onto store shelves is where Zara excels. One telling example is: "When Madonna played a set of concerts in Spain, teenage girls arrived to the final show sporting a Zara knock-off of the outfit she wore during her first performance." (2005. Economist)

Zara is a chain of fashion stores owned by Inditex, Spain's largest apparel manufacturer and retailer. In 2007, Inditex reported sales of about 9.5 billion euros from more than 3,600 retail outlets in 68 countries. The company opened about two new stores for each day in 2007. In an industry in which customer demand is fickle, Zara has grown rapidly with a strategy to be highly responsive to changing trends with affordable prices. Whereas design-to-sales cycle times in the apparel industry have traditionally averaged more than six months, Zara has achieved cycle times of four to six weeks. This speed allows Zara to introduce new designs every week and to change 75 percent of its merchandise display every three to four weeks. Thus, Zara's products on display match customer preferences much more closely than the competition. The result is that Zara sells most of its products at full price and has about half the markdowns in its stores compared to the competition.

Zara manufactures its apparel using a combination of flexible and quick sources in Europe (mostly Portugal and Spain) and low-cost sources in Asia. This contrasts with most apparel manufacturers, who have moved most of their manufacturing to Asia. About 40 percent of the manufacturing capacity is owned by Inditex, with the rest outsourced. Products with highly uncertain demand are sourced from local manufacturers, whereas products that are more predictable are sourced from its Asian locations. More than 40 percent of its finished-goods purchases and most of its in-house production occur after the sales season starts. This compares with less than 20 percent production after the start of a sales season for a typical retailer. This responsiveness and the postponement of decisions until after trends are known allow Zara to reduce inventories and forecast error. Zara has also invested heavily in information technology to ensure that the latest sales data are available to drive replenishment and production decisions. In 2007, Inditex distributed to stores all over the world from eight distribution centers (DCs) located in Spain. The group claimed an average delivery time of 24 hours for European stores and up to a maximum of 40 hours for stores in America or Asia from the time an order was received in the DCs to the time it was delivered to the stores. Shipments from the DCs to the stores were made several times a week. This allowed store inventory to closely match customer demand. In 2007, Inditex distributed 627 million garments globally.

(Zara) Zara manufactures ___ designs with ___ demand in house.

1- Basic, predictable

2- Basic, uncertain

3- Fast-changing, predictable

4- Fast-changing, uncertain