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I believe that you couldn‘t find a woman, who knows about fashion even just a little bit, that wouldn‘t know the name Zara. Most of the men have heard the name too. Founded in Spain, but has shops distributing clothing for most fashionistas all around the world. Of course, Zara is just a brand name, owned by the company named Inditex. However, this is not the point. The company is so successful, that by 2008 it became the world’s largest fashion retailer, having eight brands in total, but going ahead of the competition with Zara in front seat accounting for roughly two-thirds of sales.
Over 4300 stores in more than 70 countries, so imagine how many items they need to work with every day. In retail, especially in fashion sector there is a saying “inventory equals death.” Keeping too much inventory on hand leads to frozen capital and cuts you profits, while having not enough stops the sales. It is great if you have a manager or designer with a sense of what will be on top this season, and the stores sell everything they have there, but what if not. What if his or her intuition is wrong and everything stays on the shelves? Sales decline, you need do massive sale-offs, your capital is frozen and here you are with all those items on hand that nobody wants to buy.
As it was said, excess inventory in the retail apparel industry is the kiss of death. Wrong guesses and forecasting in such a competitive and changing industry can lead to huge losses for the company. So the question that probably every inventory manager ask himself is, how to make sure your stores have what your customers want to buy? Here is where Zara example jumps in. As I mentioned before, probably every woman knows Zara’s name. Also, probably every one of them knows how difficult is to get the most wanted item of a new collection if your size is the most common in your country, since they have only one or two items of the same size of the same item in the store. Why is it like that? The first idea that came to your mind, probably is that they are losing sales in this way? Then, think about how they became the largest fashion retailer in the world, with the highest sales?
The fashion director for luxury goods maker LVMH calls Zara “the most innovative and devastating retailer in the world.” When you have over 4300 stores in more than 73 countries, it is vital to find out how to work smarter not harder and increase your efficiency.
What’s their secret?
Data, data and one more time data. They know how to gather it and use it for their own good. The secret lies in attitude. People combined with technology. The right questions to customers and the right technology to deal with all the data in order to provide right insights on what sells in the stores. Seems too simple? Then why other retailers are not doing the same?
Zara employees are casually asking questions about what customer wants, sizes, colors, materials, styles. The average time for a Zara concept to go from idea to appearance in store is fifteen days, when their competitors’ time is one or two times a season. If enough demand of certain new or revised product is needed, new version can be in stores in ten days.
“The firm is able to be so responsive through a competitor-crushing combination of vertical integration and technology-orchestrated coordination of suppliers, just-in-time manufacturing, and finely tuned logistics.”
Technology here plays a big part, allowing Zara to order what has been sold or what they know will be sold, due to insights on demand. Zara knows that they need to use software that targets the points in its value chain where it will have the most significant impact. At this point fashionable does not mean good. Technology that is popular and on the top might not be able to solve any of your problems. Technology must be functional rather than fashionable. And it’s not only the technology, its systems combined from data, people and procedures. The software needs to understand all the parts of the system in order to provide accurate plans, based on real demand, rather than guessing and forecasting from misleading historical data.
“It is technology that helps Zara identify and manufacture the clothes customers want, get those products to market quickly, and eliminate costs related to advertising, inventory missteps, and markdowns.”
Why this caught my attention?
It’s not only Zara who uses just-in-time and TOC (Theory-of-constraints) fundamentals in their business. Usually it is said that fashion industry is not the best one reflecting TOC principles because the replenishment time for fashion goods is long and frequency is low – new collections are delivered twice or 4 times a year. But what fashion companies could do is to apply TOC principles to their central warehouses, so just-in-time could be applied for the retail stores. So that when one item is missing in one shop but is present in another or central warehouse – it could be fast delivered to the store in need. Of course, you will not be able to do this without the aid of technologies.
Audimas – Lithuanian active leisure and sports clothing manufacturer and distributor, is a good example of a repeated success similar to what Zara had. Read what results they have achieved, using modern technologies: https://soft4inventory.com/wp-content/uploads/2015/01/Audimas_EN.pdf
Here at SOFT4, we believe that IT means more than just a technology, it is the whole of data, people and processes. The difficult part here is to know how to use all of it for the company’s benefit. The perfect example is Soft4Inventory – software solution based on TOC methodology, that uses Pull rather than Push inventory management approach for distribution companies, similar to Zara, GAP, H&M in retail sector and many more in others. It is all-inone system, that uses your data, considers procedures and provides 360 degree insights for the peopleto do their job well..
Read more details about Zara and how to use technology for your competitive advantage in our partner’s Faect blog here: http://www.faect.nl/zara-fast-fashion/