VERTICAL
INTEGRATION &
ZARA RETAILING
PRESENTED BYAMKOA, SALLY
LIN, XINQI
SENECHA, NIHARIKA
TOWERS, KATHLEEN
WHAT IS VERTICAL INTEGRATION?
The process in which several steps in
the production and/or distribution of
a product or service are controlled by
a single company, in order to
increase that companys power in
the market place
TYPES OF VERTICAL INTEGRATION
Forward- expansion of activities downstream i.e.
company acquires its input supplier
Backward- expansion of activities upstream i.e.
company acquires companies in its distribution chain
Example:
A firm that manufactures a product through an assembly process
EXAMPLE OF VERTICAL INTEGRATION
APPAREL PRODUCTION INDUSTRY
Three general market segments:
High quality products for mass market
High-end market
Compete on pricehold largest market share
Compete on brand equityhave biggest profit margin
Affordable fashion clothesZARAs market segment
Compete on speedcustomers constantly purchase new clothes to follow trends
8 seasons to a fashion year
To compete in this market, apparel producers must seamlessly
follow new fashion trends of every new season.
ABOUT ZARA
Spanish Clothing and Accessories retailer
Based in Arteixo, Galicia, and founded in 1975
by Amancio Ortega and Rasalia Mera
One brand of the Inditex group, Zaras profit
makes up of 75% of the Inditex
Over 2000 Zara stores located across 88
countries
Practices of fast fashion trends move from
runway to stores quickly
ZARAS BUSINESS MODEL &
STRATEGY
Super-responsive
buyer driven supply chain
Customer is the main driving force behind the Zara brand.
Quick
design to distribution process
The original business
idea was very simple.
Link customer demand
to manufacturing, and
link manufacturing to
distribution. That is the
idea we still live by.
Maximum time from conception to distribution center in 3
weeks
Zero
Advertising
Very low spending on marketing while high spending on stores
Vertically
Integrated
Jose Maria
Castellano
Rios,
Inditex CEO
ZARAS COMPETITORS
Gap
Founded
US (1969)
Product
Price
level
Countrie
s
Smart casual
High
H&M
Zara
Spain
Sweden (1947) Japan (1984)
(1975)
Fashionable
Casual wear Fashionable
apparel
and essentials apparel
Lower than
Lower than
Inditex
Zara
-
41
44
Internalized
production, 90%
Producti from outside of Outsourced all
on
US
production
Strategi
Uniqlo
12
88
Outsourced
most of the
In-house
production
production
Focus on
Engaged in
developing
extensive
long lasting
advertising
and highand employed
quality
fewer
clothing, high
Vertical
ZARAS SUPPLY CHAIN
Design
& Manufacture
Immediate
reaction to trends
Just-in-time production
Significant amount of in-house production = rapid product turnover, low
lead time
Production
Ordering
to proximity= Scarce supply
& Inventory
Manual
inventory management based upon direct observation & store
manager judgement
Factories reserve 85 percent of their capacity for in-season adjustments
Retail
Top
store location, Meticulous store design
Unique experience at every store
Different apparel for sale every time a customer visits.
APPAREL INDUSTRY STANDARD VS ZARA
Industry
Standard
ZARA
Design
6 months
Quick popular and novel designs; more concerned
w/ quick production of saleable items than
originality
Manufacture
3 months,
usually
outsourced to
other countries
Fashionable (i.e. time-sensitive) items produced
locally: 12 to 15 days
Basics outsourced to cheaper producers
Distribution
2-3 weeks by
sea to regional
centers and on
to franchisees
Delivered by truck and air
Europe in 24-hours
to Company-owned stores
USA in 24-48 hours
tagged w/ in-country pricing: Asia in 48-72 hours
SWOT ANALYSIS
Strength
Fully vertically integrated (Full control)
Tight communication loop( operates to
meet demand)
Fast delivery
Global outreach
Weakness
Threat
Fierce competition
Possible imitation of goods
Economic downturn
Brand image closely tagged to competitors
Target segments is not extremely
consumer-loyal
No advertising
Low quality & Limitation on Services
Opportunity
Online market and E-retail
International expansion especially in
emerging market
COMPETITIVE ADVANTAGES OF VI FOR ZARA
1. Owning shops
gives it insights
into what its
customers really
want
2. Flexible in the
variety, amount, and
frequency of the new
styles they produce
3. Helps make
its
manufacturing
operations
more nimble
COMPETITIVE ADVANTAGES OF VI FOR ZARA
4. Create fast
fashion
system
5. Centralized
control, avoid
misunderstandin
g or conflicts
6. Manageable time
scheduling, focused
on one time
schedule
CHALLENGES IN ZARAS VI SYSTEM
1. Design
How to coordinate the local customers
preferences
2. Manufacturer
Quality and perception issues
3. Logistics
Local transportation costs
4. Retail
Customer retention
KEY TAKEAWAYS FROM ZARA RETAILING
Supply chain risk:
Staying with the speed
Too Speedy?
Cross-market
boundaries
Implications:
Innovation comes from
dialogue between new
technology and
strategy
Position of store
THANK YOU!
REFERENCES
(2004) Andrew Mcafee, Vincent Dessain, Anders Sjoman Zara: IT for fast fashion Harvard Business
School
(2005) "How Zara fashions its supply chain: Home is where the heart is",Strategic Direction, Vol. 21 Iss:
10, pp.28 3 http://www.emeraldinsight.com/doi/abs/10.1108/02580540510626709
Scozzese, G., PhD. (2013). From the supply chain management to the demand chain management in
fast fashion: Zara's winning model.International Journal of Management Sciences and Business
Research,2(5), 43-48. http://search.proquest.com/docview/1459583852?accountid=2909
Carugati, A.; Liao, R.; Smith, P., "Speed-to-fashion: Managing global supply chain in Zara,"Management
of Innovation and Technology, 2008. ICMIT 2008. 4th IEEE International Conference on, vol., no.,
pp.1494,1499, 21-24 Sept. 2008http://ieeexplore.ieee.org.proxy.libraries.uc.edu/stamp/stamp.jsp?tp=&
arnumber=4654593&isnumber=4654323
Qinghua Zhang, "Analysis on the Successful Case of Efficient Supply Chain in ZARA,"Wireless
Communications, Networking and Mobile Computing, 2008. WiCOM '08. 4th International Conference
on, vol., no., pp.1,4, 12-14 Oct. 2008 http
://ieeexplore.ieee.org.proxy.libraries.uc.edu/stamp/stamp.jsp?tp=&arnumber=4679487&isnumber=467
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