Operations management is the main central function of a company ,it refers to the administration of business practices to create the highest level of efficiency possible within an organization. It is connected with converting materials into goods and services, to maximize the profit of an organization . Operations manager provide, develop , deliver goods and services to clients based on their wants and the abilities of the company .
It include planning, organizing, coordinating, and controlling all the resources needed to produce goods and services of a company . it also includes equipment, managing people , technology , information, and all the other resources that is needed for the production of goods and services .
OM plays an important part in a company … One of the main examples of successful operations management in the retail sector is the operations management practices in ZARA .
Zara is the flagship brand of the Spanish fashion retail giant , who has had an phenomenal performance record in the recent years . The creator of ZARA is Amancio Ortega Gaona who built the foundations in Galicia , Spain and now it’s internationally known as the second largest clothing chain world-wide. Zara’s retail operation now extends to about 650 stores operating in 50 different countries . Zara contributes about 2/3 of the company’s sales making it without a doubt the firm’s growth engine .
Information Systems: Most of the designs are finished by using CAD. This is a main reason for making the manufacturing process fast . ZARA invests very much on technology in order to aid in the flow of information . Zara’s managers posses hand held PDA , and they use it to send information like sales figures , order placing and customer feedback to the head office in La Coruna . Based on this designing team confirms the design and sends them across to manufacturing units where in CAD is used to manufacture the products.
The designers send their design suggestions to distribution and to factory department , by scanning a design into a computer and electronically transmit to factory computers including computers controlled cutting equipment . Designers input the designs patterns into CAD systems which automatically feed into the cutting machines in the factories ensuring the required quality of outputs and having a minimum fabrics waste .
Fast speed of production: Zara has the skills to transform a fashion concept and place finish products in the stores within 2 weeks .
Centralized Logistics and Distribution : Zara controls and optimizes through different steps of the supply chain, not within them , even though it may increase costs at some steps , ” Zara sticks to a predictable , deep , and fast rhythm , based around order fulfillment to stores .” says Professor Ferdows .
There are two orders in a week from each store on particular days and hours, with shipments in La Coruna usually prepared overnight . Trucks leave at specific times and shipments arrive in stores at specific times . Garments , are pre-hung, already labeled and priced . It’s interesting to come to know that Zara can get the product from the idea to the store in 15 days time , where the standard in industry is 6 months , the design and production process is very effective and harmonized to the use of the different methods that suites their line of business and set new model to look for .
Employees at Zara : Employees at Zara is one of the major reasons for the effective response system of Zara . The HR policies turn around high level of employee motivation . Zara believes in hiring young people with creativity.
Human resource management : At ZARA ‘s the human resources are one of the components behind the unique effective and with a quick response system . People are very motivated which reflects Zara HR policy . Zara while hiring young people , also provides training and fair incentive schemes which result in high and effective communication . People at Zara also sell and market the name and represent the fashion. The store manager we met at Zara was dressed in a fashionable way. “We sell fashion”, he says. People plays a vital role in Zara business model whether designers, buyers, logistics and sales staff. For example the store manager is a key player of the decision to make a specific model .
Zara’s strong supply Chain Management : To have a successful operated chain of supply , now has become a critical element for companies to possess . Its becoming key success factor for companies . To analyze Zara’s supply chain , it’s interesting to look at the design of product , the inventory management , evaluation of suppliers, time scheduling, material management , information systems that are the key contributors in allowing Zara to offer cutting edge fashion at reasonable prices .This information will reveal how ZARA has the ability to produce high-quality products at competitive prices , in compare to it’s competitors . Their higher supply chain management enables the retailer to deliver goods within 24 h of the receip of order at its European stores and 40 hours at its American and Asian outlets .Nowdays the company’s logistic department employs more than 5000 people and distributed 697 million clothing , in the financial year of 2008 .
Design and Production : For creating its designs for fashion , Zara uses concurrent designing process which merge members from the entire organization structure . The company has the ability to hold and push the boundaries of fashion trends , and yet still support to all demands within an integrated system of a controlled design program . The company has the ability to hold and push the boundaries of fashion trends , and yet still support to all demands within an integrated system of a controlled design program . They delivers trendy and fashionable cloth addressing all tastes by a controlled design and integrated process . Young designers draw the design sketches then discuss it with market specials and planning & procurement staff . Designs inspiration is copied from different sources from all around the world .It is worth to note that out of 40,000 designs only 10,000 are approved. In a process all team is involved .
Procurement : Zara manufactures 60% of its products . They benefits from in-house productions simply because of the freedom to choose the frequency , overall amount, and the different varieties of styles that are selected for new products .
Inventory Management : From one of its 650 stores , Zara fulfill its inventory at least twice a week .
However the quantities of stock are limited so that they insure to not carry excess inventory . On record Inditex has the least inventory as a percentage of annual sales as compared to Gap (its closest competitor) . ZARA ‘s holding company , avoids stocking up of inventories , from raw materials to the final customer , as a means to reduce any unnecessary costs as a percentage of annual sales .
Low marketing : 3.5% of revenue on advertising their products are spent by Fashion retailers , while Zara’s parent company Inditex spends just 0-0.3% . Zara relies on its stores to project its image . Zara has some coordinators whose the key task is to change the layout of the shop every week . An item that you see today at the right side of the shop next week will be showed at some other side in some other way .
Variation of Production : Zara ‘s value chain include members who dedicate work closely with customers in dictation new trends of demand in fashion . They have the ability to launch new trends , variation and designs of products .
Customer survey : The Zara survey is an try to reflect the specific segment of Zara customers and their level of accessibility , satisfaction and usage as a comparative tool to what the company’s claim on the statements such as ” we are selling fashion and not clothes” . They did a questionnaire designed and tested on 20 subjects , where14 were female and 6 were male. The average age was 27. All the subject that were interviewed were selected between those who were familiar with the brand and purchased at least one or two item from Zara during the last month . The important reason to do was to get the brand feedback and reputation . Also there were allowed to select more than one box in the questionnaire. For example one of them might like to purchase all Shirts , T-Shirts and Trousers from Zara .
Increase in Euro Rate : If there is an increase in Euro rate than also will increase the consumer selling price in US dollar based economies , as a result of that Zara will loose price advantage against relative competitors outsourcing in US dollar based economies .
Plans for future expansions : There have been an investment of € 2,800 million for the opening of 573 new stores in 2008 . During 2009, it expects the opening of between 560 and 640 new stores (Datamonitor 2008) . As a result of that Zara could hope to sustain its stable revenue of previous years apart from the financial downturn (Journal of Fashion Management and Marketing 2009) . • The idea is to offer more specialized products for different geographic locations within the same city. In the US, the company is experiencing cannibalization because there are too many Zara stores that are carrying the same product in one city . Zara could differ its product from location to location to increase shopper traffic .
Financial performance Indicators : It is worth to mention and highlights the result of the effective operation strategy that has resulted in an excellent financial status . Inditex ,
ZARA parents’ company has had an excellent perform at most of its peers; this has given ZARA prospects for future sustainable growth . Turnover Growth – Average 25% for the last five years.
Operating Profit – Average 15% – higher then H;M, Benetton,
Working Capital – Is one of the lowest (20 m Euro compared to H;M 1035 m Euro– the net operating revenue are comparable) since Inditex is capable of turning capital quicker and have higher assets.
Cost – Inditex cost is low . Operating cost , cost of goods , inventory, marketing cost, employee/ store are examples of an effective and controlled cost management.