Business Management Essay | Managing Operational Improvement

Managing Operational Improvement: A Case study of Zara Brand~

Business and Management

Introduction

Zara is the oldest and biggest brand of the Inditex Company.  According to Slack and Lewis (2015, 402) the brand was first sold in retail in 1975 when a client canceled a huge order. The store's popularity led to the rise of several Zara stores years later. Zara’s success as a brand is the result of well-coordinated operational improvement.

Retailing

Zara’s retail function has various commendable attributes. Its main success lies in the provision of high-quality goods and services. This has been facilitated by the involvement of various external and internal shareholders in the production process. Their suppliers, for instance, are required to provide inputs which meet certain standards.  Despite that fact, Zara does not fully rely on external suppliers for its inputs (Slack &Lewis, 2015, 404). Goods which remain unsold three weeks after delivery are also not displayed within the stores. Such products are transferred to other outlets where they are fast moving. This ensures that the stores only display the most desirable products within a particular locality. The brand has also ascertained the standardization processes in its stores. This is evident in such processes as delivery, where stores receive ordered supplies twice every week. The time involved in the product manufacturing and product delivery is important for any business (Evan &Lindsay, 2013, 10). It determines the availability of desired items in the stores. In the brand’s outlets distance is calculated in terms of time. The management ensures a short period between production and retail, hence the outlets only display fashionable goods. The numerous brand outlets are also placed at convenient locations, saving on the client’s time (Slack& Lewis, 2015, 403). Consistency within a brand is essential to realize consumer trust and loyalty (Evan &Lindsay, 2013, 8). Zara outlets have managed to offer the desired security to their clients. To maintain this attribute, the brand rarely outsources its outlets’ products from external producers. The management has taken to the production of its brand within its factories, allowing it to control their quality. In addition, Zara’s management recognizes the probability of human errors in delicate designs and appreciates technology’s ability to ameliorate this chance. The products at the outlet stores are therefore produced using the most modern technology. For instance, Zara uses computer aided design to control the piece cutting in their garments. The hand-drawn designs are also redrawn using CAD, making relevant adjustments (Slack et al., 2013, 140). The outlets have also embraced technology in their daily operations, enabling them to make informed decisions. In-store technology within Zara outlets involves the use of handheld tablets devices by the respective store managers. Through these devices, managers are able to exchange vital information with their market specialists. The vital information entails information on sales, new lines, and orders. The technology provided also led to the establishment of personal relationships between the market specialists and store managers (Slack and Lewis, 2015, 403). Additionally, the stores offer training to their staff, which improves their interaction with the customers. Standardization is also evident within the layouts of their stores. The distinct uncluttered, spacious and pleasant shopping space ensures that every client gets a great shopping experience irrespective of the store they are in. The ability to adjust to the current trends is vital for the survival of any business. Zara retail outlets maintain a high level of flexibility. They not only provide a wide range of products but also ensure a consistent supply of new products. This is achievement is credited to the brands’ production style. Primarily, the brand conducts a simultaneous development of garments pertinent to two consecutive seasons (Slack & Lewis, 2015, 404). For instance, when working on the designs of the current season, the brand will also begin working on the design of the next season. This ensures that the stores have instant access to the relevant products at the beginning of any particular. It also ensures that the designs available in the stores are manufactured without the boundaries of time constraints. As such, the outlet's house well deliberated and evaluated designs. For a retail store to thrive, they have to learn the art of optimizing costs. Zara outlets have achieved high profits while selling goods at affordable prices. This has been accomplished through several ways. First, the outlets have purchased some of the buildings housing it reducing the overall rent expenditure.  The outlets have also been strategically situated in high-end areas with large traffic ensuring a high turn up of people (Slack and Lewis, 2015, 403). This large constant supply of customers ensures that they are able to break even, despite their reduced prices and high rent rates.

Despite its superior strategy, Zara experiences several operational management issues in its retail process. However, it is important to note that most of these issues are common to all the players in the fashion industry. Zara’s major operational issue lays in the evolving market (Slack &Lewis, 2013, 404). The fashion industry is highly volatile. The management, therefore, has to ensure that its processes are flexible enough to integrate the unforeseen changes. Zara also experiences competition from several other companies. This has forced it to change its way of operation. For instance, the Zara retail joined the online trading platform due to the action of its competitors. This was despite its initial hesitation. The outlet also faces challenges in establishing an effective marketing mix. Product features are not definite as clients interacting with the business have evolving tastes and preferences. The prices of any particular products are also based on its cost of production. Achieving the most affordable prices while keeping up with consumer preferences is a hard task for this brand. The operational management might also be uncertain about the reaction of consumers to the new products. This often limits their capacity planning process.

In an effort to achieve success in their retail process, the outlet has adopted several strategies. Unsold garments in the fashion industry lose value at the end of the season. Zara’s profit optimization strategy, therefore, calls for the limited supply of any particular products to its stores. This is meant to avoid cases of unsold goods, which would cause the outlet to sell the products at a discounted price when the season ends. Many of the retail clients have resulted to impulsive buying within the outlets due to the uncertainty involved on the subsequent availability of an identical product (Slack &Lewis, 2015,403). However, this strategy forces the store to rely fully on constant replenishment. The brand has therefore instituted the use of trucks which operate on fixed schedules, making it convenient to predetermine shipments. Ordering times for the stores are also stipulated, reducing the need to organize for special shipments which would be costly in terms of time and finances. The brand also boasts of increased flexibility, efficiency and improved lead times.  This is due to the actualization of an operational strategy which response fast to customer needs. The use of updated technology in their production process has also enabled Zara to achieve customer loyalty among its satisfied clientele. This has been a result of the high-quality designs resulting from automation process (Slack et al., 2013, 403). CAD, used by Zara, not only hastens the development of new designs but also calculates the stress and strain of new materials used to support these designs. As a result, Zara is able to plan effectively and attain its goals. Zara has also resulted in the purchase of undyed material to cater for changes in seasonal colors. This action also enables it to purchase materials in large quantities. As such, the company enjoys the economies of scale involved enabling the stores to retail at reduced prices.

Design

According to Slack et al, (2013, 96) the lead time of a product is consequential in a volatile market.Zara has been able to outsmart most of its competitors with regards to the design function. This is a result of many factors. Stock-outs can be a common issue among the competitors (Slack & Lewis, 2015, 404). This is not solely their fault as most of them rely fully on external suppliers who can easily fail them. Their operations are also not well planned out which leads to a large number of overall inventory at the end of the season. These unsold items take up much of their finances denying them the desired financial flexibility. The unsold items are then sold at a discount, which leads to huge losses for the companies. The competitors could ameliorate this situation by purchasing large quantities of uncoloured material which would allow them more flexibility. They could also conduct a market research, which would enable them to plan more efficiently before commencing on the production process (Slack et al., 2013, 77). There is need to organize their inventory as well. Zara, for instance, has little inventory which is well displayed in its outlets. The organization allows the store manager to tell the rate with which the goods are moving. Slow moving goods can, therefore, be transferred to other locations where they are fast moving. Disorganization in inventory would make this less achievable. It would be harder to keep track of goods movement and make pertinent decisions. The other companies should effectuate a similar process, which would enable them to react to market patterns. The use of complicated processes within the competitors’ organizations is prevalent. These complications lengthen the time a product takes from the design stage to the distribution stage (Wang et al., 2015). A friendly and personal interaction could not only yield better results but also shorten this period. Suggestions would be shared and judgment effected faster. Zara’s competitors also lack the necessary flexibility due to their operational processes. At the beginning of any particular season, Zara has already produced the garments for the season. This enables them to alter the garments where necessary and deliver them to the market within the shortest time possible. However, some of the other firms only make the clothes which are in season. They, therefore, have to undertake the whole production process during the season. This makes them slow to respond to the various seasonal preferences. In addition, these competitors order a huge quantity of dyed materials to save on time. Seasonal colors can, however, change in the middle of the season. Any unforeseen occurrence during the season leads to a major disruption for these firms. Every firm needs to be prepared for unforeseen occurrences in the market (Slack et al., 2013, 183). This requires careful planning. The firms should use the knowledge at their disposal to decide on better methods of operation, which would give them enough resources to use for such changes. Zara, for instance, would use its reserve for uncolored material to cater for such changes.

Through the study of Zara retail, we can deduce various planning and forecasting methods applicable to competitor firms to achieve the desired effect in their operational improvement. For example, the use of economic forecasts could enable the firms to plan more efficiently for the achievement of an optimal production. This would lower the losses incurred in instances where many unsold goods are present. The economic forecast also enables the firm to compare its performance target against its actual performance (Evans &Lindsay, 2013,108). Reasons for disparities can be researched and resolved to lead to a better performance. The disparities can also be used to show the presence of inefficiencies in any part of the operation process. The demand forecast is also necessary for these firms. The process of forecasting demand involves many procedures geared at acquiring a better understanding of the targeted niche. Demand forecasts would enable the firms to recognize periods requiring low production as well as those requiring an increase in the production volume. As a result, less capital would be lost in the production of unnecessarily large volumes of products. The excess resources could then be used to gain a better control of the other processes and thus shorten the delivery time. Technological forecasts should also be carried out. Technology increases the efficiency of the production process, saving time and costs (Evans & Lindsay, 2008, 111). A company should, therefore, ensure that it has the most current technology, which would enable it to operate more effectively. By creating a technological forecast, the firm is able to tell the limitations of its current technology. This can then be compared to the goals and intended procedures, enabling the management to make informed choices. However, for these forecasts to be effective proper evaluation and decision making are necessary. Qualitative methods can be used alongside the quantitative methods in place to facilitate decision making (Evans &Lindsay, 2013,108). Some of the qualitative methods available include the Delphi method. In this method, all relevant parties in matters pertaining the product give their input. These include the customers, experts, and management. This input is compiled and decisions are made based on the overall result. A company could also decide to solely rely on the opinions of the experts and management in the production of its goods. The third technique involves the synchronization of the sales force and the management. The Sales force gives their individual estimates pertaining the sales they intend to make. The management uses the information from the sales force to make the pertinent decision. Lastly, a consumer market survey can also be conducted by the firm. The consumer feedback would be used in decision making (Slack & Lewis, 2015, 404).  It is, however, important to note that none of the processes are fully efficient. A firm should, therefore, use as many techniques as possible during its planning and forecasting process.

Like any other retail, Zara’s success is the action of several resources, including the human capital, finances, and reputation. As such, it is necessary for the store to make decisions which aim at maintaining the available resources and improving the store's performance. For instance, Zara considers a motivated staff necessary for the success of its business. The retails store management are motivated based on their stores’ performance. This performance is measured by the number of sales made. The employees are then paid a bonus based on this performance (Slack & Lewis, 2015,404). As such, the manager works towards increasing the sales registered by his outlet. The managers are also responsible for the losses incurred within their stores. The company has also employed experienced marketing experts who help the store managers to operate more efficiently. Staff training is also carried out for the less experienced staff, enhancing their customers’ experience within their outlets. Zara’s staff enjoy the benefit of a conducive office environment which increases innovation and invention.  Zara’s other chief resource is its reputation. The outlet has established its place as a high-end store. This has brought about different responsibilities and expectations. Such expectations include exemplary customer care and high-quality products (Slack & Lewis, 2015, 404). Additionally, these products are expected to be economical. Its reputation as an outlet providing fashionable clothes also requires it to be highly flexible in its operations. Internal and external relations are significant resources for any business (Slack et al, 2013, 674). Zara has managed to become a favorite client among its suppliers, which enables it to access quality and reliable supplies. This has been achieved by offering fair purchase prices and buying in large bulks from the suppliers. Zara has also considered its customer's opinions in its production process, thus achieving customer satisfaction. In turn, they have benefitted from customer loyalty. The brand also operates independently from other brands within the company, which enables it to make more specific decisions. It has therefore managed to emerge as a leading unit.

Production /Sourcing

Production involves the acquisition of several inputs. As a consequence, a company has to make a decision on whether to produce or purchase the necessary materials or even completed products. This decision is influenced by several factors within the Zara retail. These include the quality of inputs required. Zara has a bias towards high-quality goods, which require high-quality supplies (Slack & Lewis, 2015,402). The suppliers may not always have the desirable quality of goods. Zara will, therefore, resort to making its own goods from the initial stage if it cannot find the quality desired. The brand also considers the speed with which a supplier is known to respond to orders, in its decisions. Some goods would take a company a shorter time to make compared to the time taken before delivery by suppliers is made. If the brand was in a hurry to attain such goods they would be inclined to make them irrespective of the other costs involved (Slack et al, 2013, 47). They would, however, order them if they could be delivered within the necessary period. Dependability is also a huge factor in making decisions pertaining to the buy or make decision. This factor is defined by various things. For instance, the suppliers’ word on the actual delivery date is one such aspect. Where the actual date remains unknown, the brand would opt to make its own products (Slack et al, 2013, 49). The history of the supplier in terms of dependability would also influence the decision-making process. If the only supplier available is not dependable, Zara might prefer to undertake the production. The outlets’ prosperity is highly dependent on flexibility. Production often calls for a specified set of technology, equipment, and manpower (Slack et al, 2013, 52). Maintaining these three could prove costly especially where the requirements necessary keep changing extensively. It is, however, easier to find suppliers involved with the different products and place orders. Therefore, where the product necessary is highly differentiated from the normal products manufactured by the brand it is cheaper to buy. Cost is also a major consideration while making such decisions. The purpose of any business is to increase its profits while reducing its costs (Slack & Lewis, 2015, 87). Where the cost of production is higher than the actual cost of purchasing the same material, a buying decision is prudent. However, Zara would have to consider the above factors in addition to the cost. An intention to reduce cost which is not well evaluated could lead to huger losses.

In an imperfect environment, a business has to forego several things to attain its objective (Slack et al., 2013, 60). Zara's process quality management involves several trade- offs. Evidently, Zara is willing to sacrifice on the volume it produces in order to avoid unsold goods. Zara’s clients are well aware of this fact, and they have taken to impulse buying in order to secure unique garments. While this strategy does not meet the demand in the market, it has helped Zara avoid selling its stock at a discount(Slack & Lewis, 2015,404). Unlike its creditors, therefore, Zara does not suffer any avoidable losses. It's brand also manages to avoid an exaggerated number of any particular garment in its market, retaining the uniqueness of its products. Another trade off was the empty space in its outlets. The store managers are required to keep their stores decongested. While space could be used to display more goods, the requirement is intended to provide a good experience for its clients (Slack & Lewis, 2015, 403). By trading off this space for the customer experience, the store has attained its goal. More customers buy from their stores and they have instances where their shelves have been emptied at the end of the day.

Distribution

The distribution of any good affects its availability in the relevant markets. Every business prioritizes particular factors over others in its distribution process.  Speed holds great significance for the Zara outlets. This is mainly because of the industry in which the firm operates. The firm operates in a fashion industry, which is highly volatile (Slack & Lewis, 2015, 403). A long distribution period could lead to the supply of outdated goods which would lead to the loss of clients. It could also lead to major losses relating to left over stock. To avoid such instances, the outlets put a high value on speed. Moreover, Zara stores deal with limited stock. Their stores, therefore, require quick replenishing every few days. A fast distribution process is necessary to avoid the instance of stock out (Wang et al., 2015).

The company uses updated automated systems within its distribution systems. These facilitate faster procedure processing and avoid confusion in the process. The automated systems are also used in the production process to enable the brand to produce standard goods. In addition, such machinery as trucks has been integrated into the system. The vehicles operate on a fixed schedule enabling them to deliver the orders placed to different outlets (Slack &Lewis, 2015, 403).Zara also uses its information resource to facilitate its distribution process. Information concerning the movement of particular garments in particular regions helps the company to determine the transfer process of various goods to various stores (Slack & Lewis, 2015,402). This information is important because Zara does not rely on advertising to market its goods. Rather, it relies on the word of mouth passed by its customers. As such, meeting their needs is essential. The brand also employs staff according to the season of operation. During the high seasons, more contractual workers are employed. During other seasons only a limited number of its overall workforce is retained (Slack &Lewis, 2015,403). This enables it to meet its supply target for the high season while reducing costs for the low season. Relationships are a huge part of Zara’s operation resource. Zara maintains good relations with its suppliers (Slack & Lewis, 2015, 404). This assures it of a fast response to any urgent order. 

             The supply chain of Zara is faced with several risks. The major supply chain risk is the market dynamics risk. Zara produces the products for any particular season before the actual season. While this is time-saving, it could also lead to huge losses. Zara’s market constantly changing. As such, there is always a risk of producing clothes which do not fit into the market. The outlet would have already undergone huge costs in the production of such products. Also, a change in demand level could result in similar losses (Slack et al., 2013, 392). When the company expects the demand to rise, more products are produced. A change in demand level could be the result of several occurrences, such as inflation or an economic depression. It could also be caused by misunderstood customer demand. Such a turn would drag the company through huge financial constraints. Zara is keen on controlling its whole supply chain. This could cause the transfer of inherent issues like budget overruns from one part of the business to the other. It also reduces the amount of cash available for other projects due to the huge financial costs involved with such control. A financial constraint in Zara could, therefore, be felt in the whole supply chain. A wrong decision would also have a huge impact on the supply chain as a whole (Wang et al., 2015, 320). To reduce such risks, Zara could loosen some of its control over the supply chain. This might enable it to direct more focus on the actual production process. It would also lessen the need to produce a few goods in an effort to control any losses which might occur. The distribution strategy could also be incapacitated due to machinery breakdown risk. Zara relies on a continuous supply of new goods from the production unit. The goods are also supplied in small quantities. A machinery breakdown within the factory could, therefore, lead to a stock out in the stores. This would lead to huge losses for the company. The distribution system is also exposed to the risks posed by the social-cultural components of its market. Zara focuses its operations on a wide geographical area. The different locations are comprised of different people with different cultural components. For a design to sell in any area, it must be aligned to the relevant components. Zara is therefore at a risk of poor judgment of these components, leading to a lesser sale. It is also expensive to put every component into a design. While Zara could conduct a transfer to other markets, it would still incur an additional cost.

Zara online and the future

Compared to other firms, Zara is slow to react to the changes in the mode of business operation. For instance, the brand does not immediately embrace and integrate e-commerce into its business (Slack &Lewis, 2015, 405). This is unlike its competitors which are quick to embrace and integrate the new system of business. On the contrary, Zara studies the online market and understands it. It then gathers enough resources to enable its venture into the market. When it does, Zara builds up an online presence in 18 European markets at a fast rate. This implies that necessary research had been undertaken. It also reflects on the decision-making technique of the brand. The brand is more focused towards the long-term benefits of the decisions made as opposed to the short-term benefits(Slack &Lewis, 2015, 405). The business model of Zara is designed to allow room for further expansion in future. Its hesitance does not reflect its conservativeness. Zara propels its online presence into the areas where it has physical outlets, allowing it to take advantage of both models. The online stores follow similar procedures as the physical stores. Warehouses are also created in corresponding countries. The company manages to uphold its high-end image in the online market. This is achieved by exemplary customer service and attractive packaging of its products. Evidently, decision making within Zara is guided by the overall objective. While the company readily changes its policies to accommodate the changes in the contemporary fashion industry, there is a definite consistency in its strategy. This strategy identifies it and retains its reputation. Zara is not a market follower. This is clear where it opts to make a seasons design before the particular season, a strategy other firms have steered off. Zara’s future process technology strategy is likely to respond to the current developments in technology. For instance, artificial intelligence could be used in place of the seasonal contractual workers. As the market segment of Zara expands, employing more people might turn out to be expensive. The manual inspection of finished products may also be limited in its efficiency. This might lead to the embrace of AI in the production process (Slack &Lewis, 2015, 405). The company could also seize operating through the physical outlets and resort to the use of the online store only. This could cut down on the costs involved in renting their expensive outlets. In such a case, the process would be fully digitalised allowing faster response to customer demands (Slack et al., 419). Automation of the whole process would increase the extent to which it is error free. The process would also enable them to reach a larger clientele base. Digitalisation would also make it easier to analyze customer trends as the information and feedback can be collected and analyzed in real time using AI. This would enable the management to make real time decisions based on real time data as opposed to the current use of historical data.

Conclusion

Zara has efficient process operation strategies which could result in a long successful life of the brand. It has also managed to maintain the overall strategy while altering the relevant policies wherever necessary. The operation resources are well structured enabling it to meet its market requirements. Finally, it has gained control of its entire supply channel allowing it to respond to its customer's needs appropriately.

References

Evans, J. & Lindsay, W. (2013) Managing for Quality and Performance Excellence. USA,

Thomson-South-Western.

Slack, N. &Lewis, M.(2015) Operation Strategy. London, Pearson.

Slack, N., Brandon-Jones, A. &Johnston, R. ( 2015) Operation Management. London, Pearson.

Wang, M., Jie, F.& Abareshi, A. (2015) A conceptual Framework of Mitigating Supply Chain

Uncertainties & Risks in the Courier Industry. International Journal of Supply and

Operations Management. Vol 1(4), pages 319-338. Available from

http://www.inderscience.com/dev/search/index.php?mainAction=search&action=record&

rec_id=75083&prevQuery=&ps=10&m=or [Accessed 1st August 2017]