I have been watching Inditex for a long time and after coming to Spain, I was wondering how the strategy of this company was arranged.
On the logistics side, I decided to look at one of the brands that I have been watching in Russia, Zara. It’s quite an interesting fact that in Spain this brand is considered a mass market, and in Russia it is often equated to middle class due to its retail prices and European origin.
The Spanish sewing empire Inditex has been improving its marketing strategy “Fast Fashion” for many years, often violating the generally accepted rules of retail.
The data I managed to find so far is that the company’s capitalization is huge and Inditex founder and owner Amancio Ortega, with his fortune of $62.7 billion, is the sixth richest man in the world after Bill Gates, Jeff Bezos and other celebrities.
By introducing elements of Lean Manufacturing and Theory of Constraints, Ortega with Inditex has incredibly accelerated the process of manufacturing, distributing and selling clothing for the mass market and made it more fashionable and affordable.
Let’s look at their approach to logistics.
In logistics, Zara uses Toyota’s “just-in-time” (JIT) principles. The products are also distributed centrally: stores around the world receive their products from central warehouses in Spain. But it is “his” models, sizes and colors that are sent to each store. They are ordered in advance by the sales managers. The delivery system is worked out so clearly that new products arrive at European stores within 24-48 hours, and in the U.S. and Asia – within 48 hours. This speed could not have been achieved without cargo aviation. It is expensive. However, small, fast-selling lots of goods give buyers a sense of exclusivity.
This is probably one of the reasons why in Russia, for example, Zara is considered a mid-sized segment.
That is why the company encourages quick purchases: do not put off for later, the next visit of a favorite thing in the store will not be anymore.
As a rule, Inditex competitors sew their products in China, using cheap labor. But about two-thirds of Inditex products are made in Spain, Portugal and Morocco, especially if they are expensive or complicated in style. Own factories in Europe allow you to win on time and not overpay for delivery of goods from Asia. Given the frequency of updating the range, the savings on transportation costs are huge.
Previously, Inditex was financed by commodity credits from its suppliers. The company bought raw materials with a delay of payment for 12-16 weeks, manufactured products in 1 week and sold them within 2-4 weeks. Thus, by the time of payment with suppliers the company had time to work out 3-4 full production cycles and earn not only on the raw materials, but also to postpone the development.
The principles of Lean Production and Theory of Constraints are also used in the organization of retail trade. Zara stores had no storage space and had to sell their entire collection in a month. And the company managed to reduce the production and distribution cycle of the new collection to 10-15 days.
Nowadays, the transportation and distribution of their products is undertaken entirely by external contractors – but they still play an active role in trying to reduce the greenhouse gas (GHG) emissions involved.
As written on the company’s web page, they have developed a tool to measure emissions based on different means of transportation in line with international standards laid down in the GHG Protocol, so that they can track progress, and offer improvement plans for their distributors to make reductions.