VERTICAL INTEGRATION & ZARA RETAILING

VERTICAL INTEGRATION & ZARA RETAILINGPresented by-Amkoa, SallyLin, XinqiSenecha, 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 INTEGRATIONExample: A firm that manufactures a product through an assembly process

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 OF VERTICAL INTEGRATION

APPAREL PRODUCTION INDUSTRYThree general market segments:High quality products for mass market Compete on pricehold largest market shareHigh-end market Compete on brand equityhave biggest profit margin Affordable fashion clothesZARAs market segmentCompete on speedcustomers constantly purchase new clothes to follow trends8 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 retailerBased in Arteixo, Galicia, and founded in 1975 by Amancio Ortega and Rasalia MeraOne brand of the Inditex group, Zaras profit makes up of 75% of the InditexOver 2000 Zara stores located across 88 countriesPractices of fast fashion trends move from runway to stores quickly ZARAS BUSINESS MODEL & STRATEGYSuper-responsive buyer driven supply chainCustomer is the main driving force behind the Zara brand.Quick design to distribution processMaximum time from conception to distribution center in 3 weeksZero AdvertisingVery low spending on marketing while high spending on storesVertically Integrated

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. Jose Maria Castellano Rios, Inditex CEOZARAS COMPETITORSGapH&MUniqloZaraFoundedUS (1969)Sweden (1947)Japan (1984)Spain (1975)ProductSmart casualFashionable apparelCasual wear and essentialsFashionable apparelPrice levelHighLower than InditexLower than Zara-Countries41441288ProductionInternalized production, 90% from outside of USOutsourced all productionOutsourced most of the productionIn-house productionStrategies3 store chainsEngaged in extensive advertising and employed fewer designersFocus on developing long lasting and high-quality clothing, high productionVertical IntegrationSales 2014 (Billions US Dollars)16.1418.4513.3322.04

ZARAS SUPPLY CHAINDesign & ManufactureImmediate reaction to trendsJust-in-time productionSignificant amount of in-house production = rapid product turnover, low lead timeProduction to proximity= Scarce supplyOrdering & InventoryManual inventory management based upon direct observation & store manager judgementFactories reserve 85 percent of their capacity for in-season adjustments RetailTop store location, Meticulous store designUnique experience at every storeDifferent apparel for sale every time a customer visits.

APPAREL INDUSTRY STANDARD VS ZARAIndustry StandardZARASWOT ANALYSISStrength

Fully vertically integrated (Full control)Tight communication loop( operates to meet demand)Fast deliveryGlobal outreach

Weakness

Brand image closely tagged to competitorsTarget segments is not extremely consumer-loyalNo advertisingLow quality & Limitation on ServicesThreat

Fierce competitionPossible imitation of goodsEconomic downturnOpportunity

Online market and E-retailInternational expansion especially in emerging marketCOMPETITIVE ADVANTAGES OF VI FOR ZARA1. Owning shops gives it insights into what its customers really want2. Flexible in the variety, amount, and frequency of the new styles they produce3. Helps make its manufacturing operations more nimble

COMPETITIVE ADVANTAGES OF VI FOR ZARA5. Centralized control, avoid misunderstanding or conflicts4. Create fast fashion system6. Manageable time scheduling, focused on one time schedule

CHALLENGES IN ZARAS VI SYSTEM

DesignHow to coordinate the local customers preferences2. ManufacturerQuality and perception issues3. LogisticsLocal transportation costs4. RetailCustomer retentionKEY TAKEAWAYS FROM ZARA RETAILING

Implications:Innovation comes from dialogue between new technology and strategyPosition of storeSupply chain risk:Staying with the speedToo Speedy?Cross-market boundariesTHANK 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/10.1108/02580540510626709Scozzese, 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=2909Carugati, 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=4654323Qinghua 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=4677909