Speed to Market — Revisited

In a recent post I talked about Zara’s unique supply chain model and some potential implications for retail banks.

While Gap and other major apparel chains have seen declining sales and have been closing stores, Zara’s parent (Inditex, #2 in worldwide sales behind Gap) recently reported a 10% sales gain and improved gross margin – they already had one of the highest in the industry. As the Wall Street Journal reported, “A fast logistics system allows it to get clothes from drawing boards to stores in less than two weeks, compared with an industry average of nine months. Its lean inventory and fast shipments allow it to avoid profit-damaging markdowns.”

What can we learn from Zara?

The key to their success is a computerized logistics and distribution network developed by a veteran of the insurance industry. Here are some key take-aways:

• Quickly identify new ideas. All business is local – treating all markets the same may seem more efficient, but what works in one place is not the best solution for another market or even another branch. Encourage local staff to identify new competitive trends that can be quickly evaluated and implemented.
• Don’t skimp on Marketing and Product Management talent. Zara hired more designers while others were reducing staff and as a result they had the resources to assess and implement new ideas. During tight economic times, too many companies cut the support staff they need to take advantage of changed conditions.
• Manage production by using more flexible resources. Use a network of vendors – don’t try to build everything yourself. Gap focused on moving production to low cost producers in Vietnam and Bangladesh, but Zara concentrated on developing a network of local suppliers that could be more responsive and flexible. It might be more expensive at the margin, but speed and responsiveness more than makes up for the slight additional cost.
• Be ruthless about the numbers. In Zara’s case, if the product doesn’t meet sales expectations within a month, it is pulled from the shelves. One of the biggest mistakes businesses make is not culling programs early enough “It is taking a little longer to get up to speed – we just need to give it more time.” If the sales are not there, move resources to programs that are more effective.