Exponential success through integrated supply chain optimization, ecomotional intelligence and reputation-based leadership: Zara model

Abstract

‘You need to have five fingers touching the factory and five touching the customer.’ Amancio ORTEGA, Inditex Chairman Fast fashion figures among the most lucrative using industries of the modern economies. With $25 billion annual sales in 2018, Zara that pioneered fast-fashion art has achieved an outstanding rapid surge, conquering 96 markets worldwide. The proposed paper presents the results of a critical thinking on how Zara applied innovation and continuous improvement in its operations and strong business model to maintain its unique competitive advantage over time. Our study shows that the secrets behind its exponential success are mainly a sophisticated sustainable supply chain, integrating efficiently the layers of design, sourcing, manufacturing, and distribution to stores for customers. It has to do with the best trade-off between low storage and shorter time response to customers in a contracted volatile market. Concisely, this research on specialized studies done over recent years seeks to help professional leaders grasp the best managerial and relational practices, along with developed operations’ research tools based on demand forecasting, inventory-distribution and clearance pricing optimization models. It aims also at enriching their knowledge with some non-quantitative methods related to clients’ preferences, ‘glocal strategy’ for adaptation, and social responsibility. As such, in view of the frequent conjunctional use of economic intelligence and emotional intelligence by Zara, we coined the neologism ‘ecomotional intelligence’, as a guide to belief and action.

Analysis of the Textile and Clothing Industry Global Value Chains

“…Vertical integration: Zara's ownership of its supply-chain allows for more rapid product turnover and full capability to produce and deliver in less than three weeks worldwide (Berbiche et al, 2020). The vertical integration enables fast-transactional processes that set short lead-times in which non-bulky components that cause bottlenecks are always available.…”

“…The data about the sale of each stock keeping unit (SKU), inventory levels in each store, and the speed at which a particular SKU moves from the shelf to the POS is sent on a real time basis to Inditex's central data processing center (INDITEX, 2020;Uberoi, 2017). This way, the company schedules materials, goods and labor to arrive, then replenishes them when needed, avoiding idle-time loss and increasing benefits (Berbiche et al, 2020). Inditex has also invested heavily in setting up automated machinery for its manufacturing process; this automation, coupled with data processing, delivers flexibility and enables designers to modify an existing design or create new ones based on the daily transmission of information on the latest trend and sales (Güemes-Castorena & Ruiz-Monroy, 2020).…”

“…The rise of Zara also relies on the development of analytical tools (e.g. algorithms) in partnership with scientists from the MIT and London Business School resulting in innovative demand forecasting and optimization models which enable to determine key drivers and decision variables like shipment and storage quantities, markdown quantities, retail size-assortment or pricing amount of garments, subject to customers' satisfaction (Berbiche et al, 2020).…”

“…(Aftab et al, 2018;Berbiche, Hlyal, & Alami, 2020; O'Marah, 2016; QuickBooks Commerce, 2018;SCM Globe, 2020;Uberoi, 2017).…”

Enabling ZARAs Operational Innovation and Value Creation with Artificial Intelligence

“…This paper aims to explore the use of artificial intelligence in enabling operational innovation and value creation for ZARA. Specifically, it covers: (1) the application of artificial intelligence technology to enhance production efficiency and product quality at ZARA; (2) leveraging artificial intelligence to optimize supply chain management and minimize inventory risks for ZARA; (3) utilizing artificial intelligence to enhance customer shopping experience and increase user engagement. Through case studies, this paper analyzes the operational innovation within the fast fashion industry and examines ZARA's successful experiences, sheds light on the role of technology in driving operational innovation.…”