Operational Value of Organization Zara

Zara

Zara is a Spanish brand, which was found in 1975. It was founded by Amancio Ortega and Rosalia Mera. Zara belongs to the Inditex group, which is the world’s largest retail apparel company. It has almost 2266 stores around the world, and has almost 20 different clothing collections. Zara belongs to the family of Massimo Dutti, Pull&Bear, Zara Home, Bershka, Stardivarius, Oysha.

In this study, it will include the operational processes with managerial and service context of Zara. It will demonstrate the organizational capabilities, and determine the features that are included in the designing, implementing, controlling, and monitoring of the processes. Further, it will discuss the features that are involved in the operational decision making and helping in the decision making criteria.

Founded in 1975, as a producer of lingerie products in La Coruna, today Zara is considered the flagship brand of Inditex group. The retail sales of Zara is expected to generate $8.2B (almost €9.3B), which will make Ortega (Inditex Chairman) the richest man in spain. Zara success factors in the operational processes include vertical integration approach, just-in-time production, sales, and marketing of the company. Vertical integration is where a company breakdowns it production patterns, into different parts or departments, to increase their quality of production. Zara also makes such approaches viable, which increases their flexibility to respond to new fashion trends then its competitors. Unlike their competitors (H&M and Gap), Zara produces almost half of their clothings in-house, rather than depending upon third party suppliers and slow moving outsourced networks. Richard Hyman of Verdict tells that, vertical integration is now out of fashion in the consumer industry, but Zara is a tremendous exception in this context.

Starting first from intial staining, almost all of Zara’s products take form in manufacturing and design plant in La Coruna (Spain), where the stitching is done by local women around hundreds of different local communities. Clothing designers communicate with the store managers daily, to determine the new items in request (Slack, 2015). Zara feed fresh designs and repeat orders into their production plant which is supported by real-time sales record. After this process, the desired items are shipped twice a week directly to the stores, instead of keeping inventories and warehousing the products.

This results in fast process of manufacturing, where Zara can introduce a new range from start to end in just three weeks time, in an average time of nine months. According to records, every year Zara produces 10,000 new designs, and none of them remain in the stores for more than a month. Zara’s business model makes it price competitive, allowing the company to increase their market growth with downward pricing. It also helps them in less dumping of their designs. According to the research, most clothing brands allocate 60% of their production budget at the start of the year, while Zara allocated only 15%, which makes it easier for them to dump any unpopular designs (Slack, 2015).

In the production and operations, speed is one of the critical factors which needs to be cater accordingly. It tells about the response time and production procedure of a company (Power, Sharda & Burstein, 2015). Zara is very fast in responding to demand, which is often from a direct customer or the store itself. Zara maintains a pull model in their supply chain and inventory management. They produce almost 1000 different designs each month, based on the present currents and revenue of stores. Zara monitors their customers spendings, and evaluate what type of product designs are consumed by the customers. According to the information on hand, they remake the designs as the customer wants. Zara operates almost four and a half days per week on leaving some relaxation for extra shifts, full capability and temporary labour to get help when they need.

Zara focuses on small set of productions, which is a key factor in their design efficiency. They have a fast turnover, where they produce small number of items for every product. It helps them understanding, what designs are successful in the market and what additions can be done to their product line. Zara aquire this strategy, to better analyze what desgins to be placed in the market and what the customer demands. It also decreases the risk of producing such items which the customer does not want.

Zara is considered to be the leaders of supply chain process, which is also considered as their competitive advantage. They have made sure that the supply chain tasks are performed with equal standards in terms of quality, cost, speed, flexibility, and dependability of their design and operation process. Provided the knowledge about supply chain and design processes, Zara have a unique approach as compared to their competitors. They work out efficient ways to provide the best outcome for the customers.

One of the key elements in the operation department, is the 4Vs which contribute to the design and strategy of a company’s performance. These 4Vs consist of volume, variety, variation, and visibility (Power, Sharda & Burstein, 2015). Volume is the number of product and services produced by an organization. It can be calculated on daily or monthly basis. Volume is effected by the quality, standard, and pattern of a product and its design (Shaik & Abdul-Kader, 2014). Companies manage their volume standards, by making less quantity and quality products. Its their core importance to make appropriate volume allocations and meet this aspect of design criteria. In terms of Zara, the company makes quality products as the customer wants, and in less quantities. This helps them in making appropriate decisions to produce the required items, instead of producing a product line which is not required by the customer. Variety, is the number of different product and designs a company offers to the customer (Shaik & Abdul-Kader, 2014). Using this approach, companies need to have multi skilled staff which can help in the operation process flow, and the required resources like supplies and inventories. A low cost management policy is difficult to achive if the company has no variety to give to their customers. Zara, has a wide range of clothing line which are finished from the stores every month. It means that Zara has the flexibility and the skills needed to produce a range of creative product line to be displayed to the customers.

Variation, is the most important term in the operation process, which refers the degree of changing demands for the company in a given time (Shaik & Abdul-Kader, 2014). Consumers always tend to have a creative line of products, and so the demand is increased for the company to respond. It also includes the importance of product customization, done by a company to meet the customers needs. Zara, has always met their demand criteria in terms of designing and customer selling. As an operation approach, Zara analyzes their customer requirements and meet the demands with the course of time. Small batch productions make it easier for Zara to meet the demands of the consumers, because they produce less amount of products, which increases the demand for variation in products.

Visibility, means where the customer experience their services or orders and can make statements against it (Shaik & Abdul-Kader, 2014). Generally, it is the tracking done by the customer against the order they have placed. Visibility is increased when providing service, as customer is directly involved in it, but for a product, customer is not directly in process of a operation of product. Zara, has a less visibility factor in their production process, because customer will see their product only in stores not in the production area.

Organizational capabilities and decision making

Companies at certain point analyze what their operations should consider and decisions can be made according to it. Operational activities and decision making play a vital role in the formation of production processes, and how they are affected by the decisions a company has taken (Cohen-Hatton, Butler & Honey, 2015). These are influenced by certain factors.

Importance vs Performance Matrix:

This matrix shows where the importance and performance of an organization is high/low. Areas where the company performs high/low and the areas where their importance is high/low (Asahara et al., 2015). In quadrant A, there is high importance and low performance. It means that the need is more and the company is performing less over there, so they need improvements in this area. Considering Zara, they can analyze themselves that where the operations they are implementing is low. It can be any region of Asia, where the need might be more and Zara has no store there. In Quadrant B, importance and performance both are high. It means that the company is doing well overthere. For Zara, it could be the area of UK and USA where they performance and importance are clearly met by the company.

In Quadrant C, importance and performance both are low, it tells that the company has no reason to make efforts over there. It might be a department of a company, where they do not need any changes. Zara, being a clothing brand needs no changes in their direct selling section, as it is of no importance to them. In the quadrant D, there is low importance and high performance. It might produce vital results, as the company is exaggerating their performance there, where there is no need of it. Zara, might consider eliminating their extra workforce as there is no need to hire new people for the operation process, when the company is meeting the production of clothing items efficiently (Stevenson & Sum, 2015).

VRIO analysis:

VRIO analysis is done to determine the critical use of resources, implemented by a company (Knott, 2015). It is useful to evaluate a company regarding it resources to forecast, what efficient use can they cater from the resources. VRIO stands for value, rareness, imitability, and organization (Knott, 2015). Companies need to make these evaluations in their resource perspective, to better understand the companies future. It also helps in understanding strengths and weaknesses of a company (Knott, 2015). These analysis says, that if the resources are not valuable, then the company should outsource it, rather than keeping to themselves. For example, if Zara has no use of cotton fabric, they can give it to some external company to manufacter it, instead of their own costs on something that is not useful. If the resource is valuable, but not it has a rare quality, than the company is in stable condition and not worse than their competitors. It says that if Zara is producing products equal to their competitors, they are able to stay in the market.

If the resource is valuabe and rare, and its not costly to replicate it, the company will have a short term competitive advantage. Unless, the competitors also aquire this strategy, Zara will have a competitive advantage if they try to replicate a design and apply it. But, if the resource is expensive to replicate, rare, and valuable but the company is not able to organize the reserves, it will be at a loss of the company. Meaning, if Zara tries to make a new plant in Switzerland, and they know it s valuable to do so, with having rarity and replication measures, but they cannot hire professionals to run that plant, it will become an expense for Zara and will turn out bad for them. Considering the fact, all the factors are managed, it will become a competitive advantage for the company on a longer term (Knott, 2015).

Looking at current situation of Zara, they are enjoying competitive advantage phase where they have all the factors needed for the resource management. VRIO helps a company evaluate a large amount of planning and control for a company.

Once a company has evaluated its control over the operational processes, they can easily manage to act on the competitiveness of the firm. If the processes are equally distributed in the process design, its controlling, evaluation, and scheduling, it directly helps in the organizational unique position (Knotten et al., 2015). Zara, has the production and design process influenced by effective supply chain, and each of their step is clear to the organizational performance objectives.

Work process factors are also vital in an organizational flow, which helps in making quality checks (if possible), maintain the standard of the operation structure, and efficient workforce allocation to create better products for the customers. Volume and variety discussed before, in the organizational structure also influences the design process. Considering the volume of products developed, should meet the equal quality of variety as per customer demand (Bhattacharya, Dey & Ho, 2015). Otherwise, the process of designing the product will deviate from the instructions of variety, as given by the management. However, these evaluation procedures helps in the development of skilled and creative product design. Operational processes contribute to the overall companies performance, which should be considered with care.

References

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