Research about :

ZARA
Amancio Ortega

Supervised by :
AbdelAzeez Safi
Done by :
Mais AL NAji
20142791
A rags-to-riches story
Many of Europe's richest individuals gain their wealth through their family history. In the European
Union's three largest countries, the richest people are Germany's George Schaeffler, France's Liliane
Bettencourt, and the UK's Gerald Grosvenor (better known as the Duke of Westminster), all of whom
had inherited their wealth.

That's not true at all of Ortega, who started his life in relative poverty. According to Covadonga
O'Shea, Ortega's biographer, his early life was very humble. His father earned 300 pesetas per
month a meagre salary even for post-war Spain, where the economy took a long time to recover
from the 1930s civil war.

In a video, O'Shea tells an illuminating anecdote from Ortega's childhood: "They went to buy some
goods at the grocery, he heard someone that told his mother... they couldn't keep giving her credit to
buy the food that she needed for the family dinner that evening." Ortega left school shortly after, at the
age of 13 or 14 and went to work as a messenger boy in a shop.

O'Shea says that experience was formative for Ortega: "This horrible moment in which he realised the
dramatic situation of poverty would never happen again to his family." She adds: The consequence of
that slap on the face he suffered when still he was a very young boy has been the creation of one of the
most important Spanish enterprises... with a global presence in most of the world.

Founding Zara
Zara was founded in 1975, when Ortega was nearly 40 years old, in La Coruna.

According to fashion author Mark Tungate, Zara wasn't the first choice for a name for the company:

Originally the store was to be called Zorba, after the character played by Ortega's favourite actor,
Anthony Quinn, in the film Zorba the Greek. He couldn't obtain permission to use the name, so he
played with the letters until he arrived at Zara, which sounded feminine and exotic (the name should be
pronounced the Spanish way: 'Thara'.)

Inditex was set up as a parent company to cope with rapid expansion 10 years later, and by 1989 the
company had launched in Portugal. It hit Paris and London in the decade after that.

Tungate goes on to explain the appeal Zara, which sells high-street styles at more affordable prices.

The secret to Zara's appeal is that, although shopping there is cheap, it doesn't feel cheap. The stores
are large, swish and centrally located. The clothes are given room to breathe and usually unless it's
a Saturday afternoon during the sales so are the customers. And then there are the clothes
themselves. Zara is renowned for whisking budget interpretations of catwalk styles into its stores with
break-taking speed. A designer dress photographed on a model during fashion week won't arrive in a
department store for months but something like it can be spotted hanging in Zara in a couple of
weeks. This infuriates the designers, but delights customers who can't stretch to the originals or no
longer see the point of trying.
Zara has been repeatedly praised for its inter-connected supply chains. The Economist called Zara
"perhaps the most famous example of supply chain agility." Designers, store managers, and Inditex
factories (which do most of their work in Spain) operate like a well-oiled mechanism.

The company spends little to nothing on advertising. According to High Point University economics
professor Stephanie Crofton, Inditex spends just 0.3% of revenues on advertising, against 3.5% to 5%
for other major retailers, allowing the clothes to simply speak to themselves.

The boom years

Zara has now been around for four decades, but the majority of Ortega's wealth has been built up over
the last 10 years, during which time the share price of Inditex exploded. Zara and its parent company
have outperformed through even the financial crisis and during a period in which the Spanish economy
was plunged into a very deep recession.

The company's share price has risen by 570% in the last 10 years, and since Ortega owns 59% of the
shares, his net worth has surged upwards too. Despite his success, Oretga has deliberately kept a low
profile. Until recently there were extremely few pictures of him, and he has turned down media
interviews for decades.

O'Shea believes one reason Ortega shuns the media spotlight is because he is modest he doesn't
want to take the sole credit for Zara and Inditex, which he thinks are a joint effort of the company as a
whole. He stood down as Zara's chairman in June 2011, at the age of 75. His daughter, Sandra Ortega
Mera, is Spain's richest woman, inheriting a 7% share in the company her father founded when her
mother died. He has two other children, Marcos Ortega Mera and Marta Ortega Perez.

In a foreword to Enrique Badia's book on Zara, economic historian Carlos Rodriguez Braun sums up
Amancio Ortega's achievements pretty succinctly:

Without any favourable conditions, in a sector that relies on invention yet restricts creativity, he
decided to fight to the top relying on pure innovation. he found a great balance between quality and
price, shortened the shelf life of his product by speeding up the design process, selected prime
locations for his stores and extended their operating hours, and all of this was done with the goal of
attracting the casual shopper. He made it all happen. .1

Whats the secret to Zaras competitive advantage? Its supply chain.

Zara produces around 450 million items a year. How can it stay so efficient with the sheer volume that
passes through its supply chain? Regular, small batch deliveries happen with clock-work precision
twice a week to all of their stores around the world.

Ensuring all this runs smoothly is what Zara does best - controlling more of its manufacturing and
supply chain than most of its competitive counterparts.

http://uk.businessinsider.com/the-rags-to-riches-story-of-europes-richest-man-zara-founder-amancio-ortega-2015-5 1
 Synergy between business and operations strategy

Zaras overarching strategy is achieving growth through diversification with vertical integrations. It
adapts couture designs, manufactures, distributes, and retails clothes within 2 weeks of the original
design first appearing on catwalks.

The company owns its supply chain and competes on its speed to market, literally embodying the idea
of fast fashion.

Just in time production

The retail giant delivers fashionable and trendy numbers catered for different tastes through a
controlled and integrated process just in time.

Zara keeps a significant amount of its production in-house and makes sure that its own factories
reserve 85 percent of their capacity for in-season adjustments. In-house production allows the
organization to be flexible in the amount, frequency, and variety of new products to be launched.

Zara also commits six months in advance to only 15 to 25 percent of a seasons line. And it only locks
in 50 to 60 percent of its line by the start of the season, meaning that up to 50 percent of its clothes are
designed and manufactured smack in the middle of the season. If a certain style or design becomes the
new must-have on the street, Zara gets to work. Designers churn out the new styles and they're fast-
tracked to stores while the trend is still going strong.

Store managers communicate customer feedback on what shoppers like, what they dislike, and what
theyre looking for. That data is instantly funneled back to Zaras designers who begin sketching on
the spot. 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.

Inventory management

You'll be hard pressed to find any excess inventory or deadstock in a Zara warehouse. Throughout the
supply chain, lean is word, all the way from raw materials to the finished garments on the
shelves. Inventory optimization models are put in place to help the company to determine the quantity
that should be delivered to every single one of its retail stores via shipments that go out twice every
week. The stock delivered is strictly limited, ensuring that each store only receives just want they need.
This goes towards the brand image of being exclusive while avoiding the build up of unpopular stock.

This quick in-season turnaround, from production facilities located close to Zaras distribution
headquarters in Spain, allows Zara to ship more often and in smaller batches. If the design Zara hastily
creates in an attempt to chase the latest trend does not in fact sell well, little harm is done.

The batch is small, so theres not a ton of unsold inventory to get rid of. And because the failed
experiment is over in a jiffy, theres still time to try a different style, and then a different one after that.
 Centralized logistics

The secret to their success has been centralization, says Felipe Caro, an associate professor at the
University of California at Los Angeless Anderson School of Management and a business adviser to
the company. They can make decisions in a very coordinated manner.

Zara sticks to a deep, predictable and fast rhythm, based around order fulfillment to stores.

Each Zara outlet sends in two orders per week on specific days and timing. Trucks leave at
specific times and shipments arrive in stores at specific times. Garments are already labeled
and priced upon destination. As a result of this clearly defined rhythm, every staff involved
(from design to procurement, production, distribution, and retail) knows the timeline and how
their activities pan out with respect to other functions. That certainly also extends to Zara
customers, who know when to visit stores for fresh new garments.
Solid distribution network

Zaras strong distribution network enables the company to deliver goods to its European stores within
24 hours, and to its American and Asian outlets in less than 40 hours. According to Nelson Fraiman, a
Columbia Business School professor who wrote a 2010 case study about Zara, the retail giant can get a
product out from concept to store in just 15 days, while the industry standard is 6 months .

Fast fashion success

This brands success story shows the strength of its operations. Its cross-functional operations strategy,
coupled with its vertically integrated supply chain, enables mass production under push control,
leading to well-managed inventories, lower markdowns, higher profitability, and value creation for
shareholders in the short and long term. 2

Here are seven things to know about the elusive billionaire:

1. The 81-year old is publicity shy and eschews interviews

Earlier on, so few photos existed of him, that even his investors "awkwardly confused him with other
staff," according to The Economist.

2. He's frugal

Ortega reportedly frequents the same coffee shop every day and eats lunch in his company's cafeteria.

https://www.tradegecko.com/blog/zara-supply-chain-its-secret-to-retail-success 2
3. He started from nothing

Ortega, who was born in Len, Spain, never graduated from high school. He worked for a tailor as a
boy and set out on his own in his 20s, selling bathrobes and lingerie with his late first wife Rosalia ,
Mera, according to CNBC.

4. He was always innovative

Ortega and Mera opened the first Zara in 1975. By 1976, they had their first computer to track sales.
That was an integral part of Zara's quick turnaround business model, which Ortega instituted from the
beginning. Early on he insisted the system be nimble enough to be able to restock any store within 48
hours and turn designs into clothing within 10 days.

5. He has a personal management style

Even as Zara grew into Inditex, which was created to house other lines as well as textile design,
production and distribution companies, Ortega "never had his own office, desk or desktop computer,
preferring to direct his firm while standing with colleagues in a design room of Zara Woman, the
flagship line," according to The Economist.

6. He's a titan

Inditex went public in 2001. Ortega owns about 59 percent of the company, which has a $103
billion market cap. Today, the company includes brands like Bershka, Massimo Dutti, Pull&Bear and
Stradivarius.

7. He's tireless

Ortega reportedly went 25 years without taking a vacation. And, despite stepping down as chairman of
Inditex in 2011, Ortega continued to go to the office every day to sit with his young designers and
buyers.3

Aspiring entrepreneurs can try to divine some of Ortega's operating principles and the secrets to
his success from past profiles, an authorized biography written by a friend and the occasional
interview he has given.

Here are five lessons from the press-shy man to get you started :

Lesson 1: Speed is everything.

When Ortega founded Zara in 1975, he upended the retail world with an aggressive schedule meant to
get new clothes on the rack faster than anyone else in the market. Dubbed "fast fashion," Ortega's
strategy was to refresh the stock in Zara stores twice a week and receive orders within 48 hours,
according to a CNBC report.

https://www.cnbc.com/2017/08/30/zara-founder-amancio-ortega-is-now-the-richest-person-in-the-world.html 3
This speed has become a hallmark of Ortega's business and a sore point for his competitors. While a
dress modeled during Fashion Week can take months to arrive in a department store, a similar design
can be found in Zara just a few weeks later, Business Insider noted.

Lesson 2: Obsess over what your customers want.

"The customer has always driven the business model," Ortega wrote in Inditex's 2009 annual report.
He has consistently stuck by that motto. In the 2010 annual report, the last before Ortega stepped down
from his position as chairman, he wrote, "The customer must continue to be our main centre of
attention, both in the creation of our fashion collections and in the design of our shops, of our logistical
system and of any other activity."

Ortega's fashion acumen comes from observing what people are wearing and listening to what they
want. He doesn't base his inventory on fashion shows, Fortune reported in 2013. The company tracks
bloggers and listens to customers instead. This allows it to be malleable, always adjusting to the
current season's trends.

In this regard, Ortega is in good billionaire company, sharing an obsession with Amazon founder and
CEO Jeff Bezos, who has said tech companies obsess over competitors when they should be focusing
on customers. In the 2015 Amazon letter to shareholders, Bezos wrote : "Many companies describe
themselves as customer-focused, but few walk the walk. Most big technology companies are
competitor-focused. They see what others are doing, and then work to follow fast."

Lesson 3: Control the supply chain.

While other fashion firms have their clothes made in China due to the cheap labor costs, Inditex
sources most of its products from Spain, Portugal and Morocco, The Economistreported in 2012.
Ortega's designs are cut from materials finished and treated in his mills and then sewn by a network of
local shops. This shortened supply chain allows the company to react quickly to new trends. That way,
stores stock what customers are actually buying and are not left with unwanted inventory.

Lesson 4: Stay true to your roots.

Ortega's life is a true rags-to-riches tale. Born to a father who worked on a railway and a mother who
was a housemaid, Ortega left school at the age of 14 to start making money. He was shamed by a
shopkeeper who refused his mother credit to buy groceries for the family, his friend and
biographer Covadonga O'Shea told an audience in 2012, when the English version of her book, "The
Man From Zara," was released.

Ortega has stayed true to his humble beginnings. He has never had an office, according to The
Telegraph. He sits at a desk at Inditex's headquarters in his hometown of La Corua, talking to the
factory's designers, fabric experts and buyers.

"He loves working around all his employees," O'Shea said.

Lesson 5: Never stop innovating.

The worst thing one can do is become self-satisfied, Ortega told a group of business professors in
2007. "Success is never guaranteed," he said to Cinco Dias, a Spanish business and finance newspaper
that reported on the event.

"Complacency is the worst," he told the professors. "I never allow myself to be content with what I
have done, and I have always tried to instill this in everyone around me."

When he does speak, Ortega can at times match the blunt management-speak that fits the billionaire
mold more broadly.

"Grow or die," he said in Spanish. "If you want to innovate, don't focus on the results."4

ZARA is perhaps the most outstanding example of a well-executed and sustained Lean business
model outside of the automotive industry.

Here are five ways ZARA has used proven Lean techniques to stay ahead of its rivals and
achieve its global success.

Just in Time Production

Lean production or simply Lean is common language in many industries, however the principles
behind it may be known by other names.

It is widely recognised that ZARA deliver fast fashion through an integrated design and production
process, which is often referred to as Just in Time production.

Just in time was pioneered by the Toyota Motor Company in 1948. In the words of Toyota, it means
making only what is needed, when it is needed, and in the amount needed. The objective being the
elimination of waste, inconsistencies, and unreasonable requirements from the production process,
resulting in improved productivity.

Just in time was widely used as a business term in the 1980s but from 1990 onwards the term Lean
has been used across most industries to describe this methodology.

Through its Just in time or Lean business model, ZARA breaks the fashion supply chain rules by
holding low stock and updating its collections continuously. Twice a week, at precise times, store
managers order clothes, and twice a week, on schedule, new garments arrive. To ensure this happens,
ZARA controls more of its manufacturing than most retailers.

New designs are can arrive in store within fifteen days, which means that ZARA can respond to its
customer demand by producing more of its popular products and disregarding less popular items.

https://uk.finance.yahoo.com/news/5-success-secrets-one-worlds-132000530.html 4
 Agility
ZARA was designed from day-one to be responsive and agile. Rather than outsourcing to Asia, ZARA
uses a network of automated factories in Spain and over 300 small finishing factories in North Africa
and Turkey to constantly create unfinished products.

When a new design has been approved, the unfinished products are pulled, sent to the finishing shops
and turned into products that are ready to shipped in as little as 24 hours to Europe, and in 40 hours to
the Asian and North American markets.

Dr. Warren Hausman of Stanford University says that this innovative way of working allows retailers
like Zara to reduce unwanted markdowns and lost sales enabling firms to increase profits by as much
as 28 per cent.

According to Hausman, Zara is approximately four-times more profitable than the average retailer due
to high-margins and reduced inventory risk.

Kanban
One of the most obvious Lean techniques used by ZARA is a pull-model, which is also known in the
Toyota Production System as a Kanban system.

A Kanban system uses a queue of resources that are ready to be pulled by the following process as
they are needed. When a resource is pulled, a signal is sent to the following process to replace what
was used or completed. To avoid over-producing and over-ordering, the Kanban system keeps small
quantities of resources that are needed and replaces what is used, only when it has been used.

ZARA creates up to 1,000 designs every month based on store sales and current trends. It monitors
how much money customers spend in store to evaluate and understand which designs are being
purchased and then it updates its next designs accordingly.

Customer Value

When Amancio Ortega opened his first store 40 years ago, the companys goal was to provide
customers with the latest fashion trends at a reasonable price.

The pull system relies on having a loyal customer base, as their feedback is communicated to the
design team, which then creates the design and sends back to the market to satisfy demand. ZARA
quickly realised that the demand for on trend products is highly uncertain. Therefore it buys capacity
from its fabric suppliers, but does not commit to a particular colour or print until it has a clear picture
of customer preferences. ZARA also continuously gathers customer feedback from retail stores
through leading edge IT infrastructure, which allows its designers to identify new trends that the
customer wants to buy.

ZARAs design process is much more focused on the customer than we might realise. It is also a very
good example of continuous improvement or kaizen at work.
Every evening, store managers from 2,000 stores in 88 different countries feed everything they have
learned about their customers buying habits into a computer at the collection counter. This information
is then sent to the distribution centre, where it is picked up by Zaras design team. Designers then
digest the information allowing them to make improvements, reduce customer friction and, most
importantly, make excellent fitting clothes.

The data aims to capture the most popular selling garments. The database also keeps a record of all the
items of clothing that are returned. This is very important, as designers can determine very quickly
whether an item needs to be discontinued or can be altered.

If the overwhelming customer feedback on a cardigan is that the sleeves fray very easily, then the
designer might be able make minor adjustments. However, if the general consensus is that a suit is
badly made, then the designers would elect to discontinue the product.

Using this strategy ZARA has cut the time it can deliver new styles to market from six months to just
three weeks.

One Piece Flow

Pioneered by Toyota executive Taiichi Ohno, One Piece Flow is a way of producing small quantities
of items to match the pace of customer demand. One-piece flow is the opposite of mass production.

Mass production is the production of large quantities of standardised products.

One Piece Flow is the movement of a product one piece at a time through the production process.

With mass production, the more items are produced the lower the production cost of an individual
item. Whereas One Piece Flow reduces all types of wasteful activities, it enables businesses like
ZARAs to be agile and respond to customer demand much more quickly and efficiently.

Approximately eight-hours after a store manager places an order based on customer demand, items are
then picked, packed and ready to leave its distribution centre in North-west Spain. Because ZARAs
logistics are centralised, it can send products anywhere in the world within 48 hours. Just over fifty per
cent of ZARAs clothing, usually the more trend-led items, are produced in Spain, Turkey and North
Africa instead of Asia, which means goods can move much more quickly through its central hub.

Professor Kasra Feardows of Georgetown University, writing in the Harvard Business Review says,

This level of control allows ZARA to set the pace at which products and information flow. It also
demonstrates just how effective Lean techniques can be.5

https://theleadershipnetwork.com/article/lean-manufacturing/zara-lean-fashion-retail 5
Recommendation

Design

Cooperate with vary range of designers so Zara can maintain its competitive advantage to be the
fast fashion but remain more and more creative.

Production

Cooperate with any channel of production all over the world so new improvements in operation
technology can be applied into Zara instead of keep using the old ones.

Distribution

Making more distribution centres so they will enable Zara to be more faster, effective, and efficient
in distributing their products to the retailers.

Advertising

Advertising might be important in the future when competitors are becoming more competitive and
demands are declining