ATENEO DE DAVAO UNIVERSITY

Zara
CASE STUDY

Submitted to:
Timajo, Renante

Submitted by:
Rodriguez, Suzaine Joyce
Jimenez, Real Joy
Ongbay, Maxenne Abigail
Catbagan, Jethro

A. Point Of View
We assume the point of view of Pablo Isla Alvarez Tejera, who is the First Deputy Chairman and CEO of the Fashion retailer group, Inditex, in where Zara fashion stores is their most popular brand.

B. Identify The Mission And The Vision
Vision

The vision of the company according to their website: “Zara is committed to satisfying the desires of our customers. As a result we pledge to continuously innovate our business to improve your experience. We promise to provide new designs made from quality materials that are affordable”.

Mission

The mission as stated in the website: “Through Zara’s business model, we aim to contribute to the sustainable development of society and that of the environment with which we interacts”

C. The Business Model Of The Company

Zara is a Cost leader in the fashion business. They practice cost efficient techniques like “fast-fashion” where trendy catwalk-inspired items manufactured quickly and sold at affordable prices and deliver new products in less than three weeks rather than the biannual style of the luxury brands which leads to faster reaction to customer demand within season. Outsourcing is also one of the reasons of the Cost leadership of the company, in where the unloading of new merchandise from the trucks into the stores are made by the third-party logistics companies because they could do this work more quickly and with cheaper labor.

D. Competitive Advantage

Cost Efficiency: this refers to achieving a high level of output from minimal input. An efficient business will save on resources such as materials, labour, time and so forth, while producing a high level of outputs such as products or services. This enables the business to reduce costs, and ultimately, gain a competitive advantage over competitors.
The company’s competitive advantage lies in their success on being a cost leader and a “fast- fashion” company E. Problem Statement

How can Zara improve its efficiency without hurting other aspects of store operations?

F. Company Goals And Objectives
Goals
* To be the best fashion retailer in the industry * To be more cost efficient Objectives * Improve labor productivity to be more efficient * Expand and open more stores within the year G. Areas To Consider / Key Results Areas
Threat of new entrants: Low * The fashion industry’s customers stress the importance of brand identity. Customer loyalty is a big factor in why the threat is branded low. Also, economies of scale is needed and high fixed costs can make entry in the industry much more difficult.
Bargaining Power of Buyer: Moderate * There are many companies to choose from the industry but price is a factor. Depending on the country, Zara can be a company with low-end products like countries in Europe, while it is high-end in countries in Asia like Indonesia.
Bargaining Power of Suppliers: low * Power of suppliers are low because fabrics are cheap and there is a low concentration of suppliers and their lack of differentiation.
Threat of substitutes: Moderate * There is a very low concentration of substitutes, in turn giving the customers with a lot to choose from but in the industry there are companies with low cost but with low quality, like in China. Zara offers mid quality with low cost, so customers tend to choose them over the other substitutes
Industry Rivalry: Moderate * Rivalry is moderate, because there are not many cost efficient and fast fashion companies like Zara. This competitive advantage gives Zara more profit and it shows because they never went close to bankruptcy. * QSPM Standardization Outsourcing Key Factors | Weight | AS | TAS | AS | TAS | Opportunities | | | | | | 1. New Designers 2. Globalization 3. Industry growth 4. Innovations in Technology | .22.25.12.09 | 3342 | .66.75.48.16 | 1243 | .22.50.48.27 | Threats | .12.10.10 | | | | | 1. Intense rivalry 2. Imitation of products 3. Low switching costs | | 4-- | .48 | 3-- | .36 | Total | 1.00 | | | | |

Strengths | .15.18.13.10.16 | | | | | 1. Cost Leader 2. Fast changing fashion company 3. Pays consideration to customer response 4. Strong brand identity 5. Employee Autonomy | | 44341 | .60.72 | 44444 | .60.72.52.40.64 | Weaknesses | .08.10.10 | | | | | 6. Weak advertising/ Lack of marketing 7. Limited stocks 8. 60% of employees are part time | | 1-- | .08 | 1-- | .08 | Total | 1.00 | | 3.93 | | 4.79 | | | | | | |

*

H. Alternative Courses of Action

1st Alternative
Standardizing store processes, especially for in-store logistics processes. 2nd Alternative
Outsourcing processing of deliveries, which took approximately 5% of all the time employees spent at the stores. I. Evaluation of Alternatives

1st Alternative Standardization is a framework of agreements to which all related parties in an organization must follow to ensure that all processes associated with the creation of a good or performance, in this case the clothes, accessories, and etc. and the performance of sales clerks of a service are performed within a specific set of guidelines. In this strategy, the company would move away from their strategy of Employee autonomy because all of the managers would now do the same thing from all over the world. Their current strategy of making the managers do their own thing in their store would be overruled for the sake of standardization. The benefits would be, they would have a lot more products, like clothes, shoes, underwear, etc. because if the company is standardized, the managers would do what every manager in the company would do based on the specific guidelines, and they would get better in time as they learn. This would lead to faster service, in not just the managers but also all of the employees would possibly work faster and in turn, the company would be more cost efficient. The downside in this strategy is, one the employee autonomy strategy that has benefitted the company for many years would be diminished. They are going to a whole new process, and it would take time for the managers to get used to the strict guidelines, rather than the freedom they had before standardization. Also, when the company expands, which is one of the objectives of the company, it would be rather difficult because responsiveness and the ability to adapt would not be existent because of standardization. Different people from different countries might have different styles and/ or fashion than another country.

2nd Alternative
Outsourcing to specialists which are adept at managing every step of the delivery process, from the point at which consumers arrive at the online Checkout with intended purchases through to their receipt of goods.
The unloading of new merchandise from the trucks into the stores was already implemented because third-party logistics companies could do this work more quickly and with cheaper labor. Outsourcing process delivery would have the same effect. The company would work with partners which can address any issues quickly in order to maintain a high quality customer experience. That means relying on professionals who have the right contacts and exceptional management systems. This would make the work quicker, and cheaper. Also, delivering items took approximately 5% of all the time employees spent at the stores. If the company would outsource, employees would have more time at the store to give high quality service and it would take advantage of the strength of the company which is employee autonomy. It would make the company much more efficient.

J. Recommendation
We recommend the outsourcing to specialists the processing of deliveries. Because unlike the first alternative, it would not take much effort to change the company’s whole strategy just to be cost efficient, and it would be a very risky one to do that. Instead, by doing this simple, yet impactful strategy, it would greatly affect the company because it takes advantage of its strengths, which is being a cost leader and also employee autonomy. Nothing would be changed except for the employees having more time dedicated to high quality service for the customers of Zara, and in turn being more efficient in their duties and this leads to increased customer satisfaction and less expense. K. Implementation / Action Plan

First, we need to find a good company to partner up to outsource the processing of deliveries. One of the big disadvantages of outsourcing is that your company cannot control what the other company is doing. We have to pick a good and reliable company at the least if not the best. We suggest that the company search for the best delivery company in the town or city where they are. The role of the section manager now is to look for delivery companies for their outsourcing strategy. Each section manager is free in who they want to hire in their section because in every region, or place, the delivery companies that are reliable are different.
Next, is to brief employees and managers of the change, and make them know that they do not have to worry about the deliveries. They only have to worry about customer responsiveness and being cost efficient. Again, we opt to use the employee autonomy strategy and make the manager and her or his employees do what they think can help with the store. We do not have or need a standardized set of guidelines so that the managers would feel free and be more innovative and efficient in their work. We would also implement a manager bonus if financial and analytical reports say that an individual store would improve its labor productivity. We would create a labor efficiency formula and with every five percent increase in efficiency, the manager would receive a two percent bonus on his paycheck, this would lead to more innovative techniques and better enthusiasm from the managers, resulting in better labor and cost efficiency.

External Factor Evaluation Matrix Key External Factors | Weight | Rating | Weighted Score | Opportunities | .22.25.12.09 | 4443 | .881.00.48.27 | 1. New Designers 2. Globalization 3. Industry growth 4. Innovations in Technology | | | | Threats | ..12.10.10 | 223 | .24.20.30 | 4. Intense rivalry 5. Imitation of products 6. Low switching costs | | | | Total | 1.00 | | 3.371 |

Internal Factor Evaluation Matrix

Key Internal Factors | Weight | Rating | Weighted Score | Strengths | .15.18.13.10.16 | 44334 | .60.72.39.30.64 | 1. Cost Leader 2. Fast changing fashion company 3. Pays consideration to customer response 4. Strong brand identity 5. Employee Autonomy | | | | Weaknesses | .08.10.10 | 122 | .08.20.20 | 6. Weak advertising/ Lack of marketing 7. Limited stocks 8. 60% of employees are part time | | | | Total | 1.00 | | 2.242 |