Business Model Competition: M&S vs. ZARAProfessor Ludo Van Der Heyden March 2006 INSEAD University

: EMBA EMBA 1

Classic textile Business Process 12 month lead time

Design

Purchase Raw Mat

Mfg

Dist

Sell

Discount (On Sale)

2

Classic textile Business Process 12 month lead time51

16 31

46 56 51 91

5

3

Why is profitability in textile so low, when margins are so high?Perfect Forecast (D=S):Does not exist in real life!

Excess Stock: SDValue loss due to discount sales when actual demand is lower than expected

Excess Demand: DSValue loss due to unrealized sales when actual demand is higher than expected

Waste!

Expected Demand

Actual Demand 4

IntroductionZARAZARA1985Inditex 27 552,200 200762.642,727) 2008 ZARA ($5,955m) 62, Chanel (60 ), Hermes(76,$4,575m), Prada(91, $3,585m) (BW)

http://www.zara.com/ http://www.chanel.com/5

The ZARA wins in the speed to conductZARA (24)1 1 3 1 3 10 5 6

ZARA Business ConceptFashion at low cost!!!Low CostGet it approximately right Reduce creative design Define a fast-response process including design Finalize design knowing material supply constraint Optimize the process7

FashionStore experience Copy fashion Involve the customers and his group Create a brand

ZARA Customer Offer: Lean and FocusedFresh / FastFast copying of leading styles Fast delivery in own stores Limited editions

QualityRaw material: medium Knit: poor Look: grand! Customer satisfaction: fashion at low price!

Cost

Low monetary cost Low time cost: the Zara experience

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Lean ProductionTOYOTA 1920 (Mass production) 1. 2. 3. 4. 9

ZARA Customer Offer: Lean and FocusedFlexibility: - / +Limited customer variety: only what is on display and in limited choices But every customer is participating in the process: help determine the next batch10

Waste elimination at ZARAeliminated for not necessary in a pull model; too slow anyway and our offer is localized eliminated through quick response & the strategy that we are always below demand11

Advertising:

Discount Sales:

Push & Pull SCMPush

Pull 12

Waste elimination at ZARADesign:largely out-sourced to the market and replaced by active scanning greatly network a process-based organization

Product complexity:3 types, sizes, and colors greatly reduces the product complexity, allows us to operate with reduced inventories and working capital with little loss in customer value13

ZARA Business Process in full: One week lead time!!!Step 1: Scan

Step 2: produce library Purchase Material of designs

Step 3:

Final Design Of next batch

Mfg

Dist

Shopper, store mgers and Designers PULL next design

Shopping experience14

Why is profitability at ZARA so high, when margins are so low?Excess stock and unmet demand Zara as a Lean Enterprise

Small batches

Expected Demand

Actual 15 Demand

ZARA is the DELL of the dress industryIT

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All-powerful of DellTraditional SCM Supplier Manufacturer Agent Retailer Consumer Consumer17

Dell SCMSupplier

Dell

Comparing with Dell Supply Chain: 2 day lead timeStep 1: ScanComps Supply

Customers RM Re supply (Assembly)

Simplify & design new product offer

Sell

Pick Comps

Dist

Customers product & supply chain adapts

Customers Select18

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IntroductionM&SM&S (Marks & Spencer Group PLC)1894 20

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ZARA vs. M&S summarized: The EnterpriseZARA:THE LEAN ENTERPRISE clear focus on one customer type & one process unique & explicit (clear) value proposition (Proposal) predictable & clear process to be improves struggle for perfection (Efficiency) manages customer flows

M&S:THE SOLUTION SHOP multiple & simultaneous goals multiple & implicit unpredictable & fuzzy satisfied with reaching a threshold reacts to customers as a sequence of events/tasks

eliminate any form of waste tolerate a certain amount21

Industrialization: Strategic value gained from positioningProduct OfferHigh customization Low volume High unit margin High quality High standardization High volume Low unit margin Low quality

High Fashion : Out of Price!M&S: Out of Fashion!22

ZARAFashion and Low price

M&S vs. ZARA Setup & BreakdownM&S vs. ZARA

Performance:

ZARA

M&S

Time

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ConclusionAll types of innovation Technology innovators Business model innovators Process innovators

ZARA is a innovative company24

Thank you!!

Q & A

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