Script for MBA 633 A 3

How Big Data can create competitive advantage for Zara

In this slide I will explain how Zara apply Big data to enhance supply chain management and
how Zara use Big data application to make better decision.
Zara apply Big data application to increase supply chain to shorten production lead time and
understand customer taste and then make decision. By using analytics to guide design and
manufacturing process.
1. RFID-Radio Frequency Identification
RFID – radio frequency identification. This application make New York Times called it "mind-
spinningly supersonic". And it’s the game changing for Zara to become on the top of Fast
fashion Industry.
The project of RFID started in 2005 and had been trialed for many years until It’s started fully
revolution in 2015 (in 2014 it sold merchandise at 19.7 b behind H&M at 20.2 b). In the first half
of 2015 Zara revenues were up 17% compared to H12014.
Zara is well known for its Fast fashion as it has sped up all process cycle from designing and
distributing clothes throughout the world within 2-3 weeks. While other competitors will take
around 6 months.
Traditionally most clothing brand would design outfit twice a year. Autumn – Winter and Spring
summer. And will design, choose fabric then manufactured in developing countries that low
cost operation such as China, Bangladesh and etc. then stock and logistic to the shops all over
the world. This cycle will take around 6 months.
In this process the it makes customer wait long time, some famous designs will quickly out of
stock, the designs that didn’t get much attention and have large inventories will later sold as
discounted products with smaller margins.
How Zara does this?
Zara integrate data analytics to change the approach towards supply chain management and
inventory. It starts the process similar to other clothing companies.
Firstly instead of designing 6 months in advance. It only designs 50% of the whole line and the
rest will design and manufacture in the middle of the season.
Secondly, it orders small amount of each SKU. And once the design sell in the stores. It collects
sales data and analyze. From feedback, questionnaire or personal assistant and most
importantly from RFID tag. It gather all data and analyze performance of features of different
SKUs. Zara then uses these insights data to guide its design and manufacture models that have
the most popular features to satisfy demand.
Thirdly, Zara isn’t like other brands that will have bulk order and manufacture in low cost
countries such as China, Bangladesh etc. This will elongates lead time from shipment. Zara will
use in-house manufacture in Spain and Portugal. This will make shorten production cycle from 6
months to be 2-3 weeks. Even though it might be more expensive but Zara still succeeds in
making profit. Inditex’s (Zara’s parent company) gross margin was 56.9% in Q22015.

design design

choose
shop display
material

manufacture
deliver to
in low cost in house
shops
countries shop display
manufacture

Zara apply Big Data’ to Create Business Value

Zara capture the use of big data and transform it to be business insight and core
element for business strategy. It uses to improve productivity, increase competitive
advantage and enhance decision making.

Collect data

Design,
Sell and
adjust, adapt Implement Display
clothing line

Manufacture

Zara’s key differentiating uses of analytics are to:-

Zara built a culture of data usage within its organization. Created the culture of learning new
things and find the right answers. It encouraged this culture even bad decisions are not
severely punished. Failure rates for Zara’s new products are reported to be just 1% versus an
industry average of 10%.

Zara can maintain its high profitability margins and increase its value by
1. Reducing the cost of shipment and cost of inventory and also excess inventory in stock.
2. Selling less discounted items because of this flexible production process.

How can Zara collect data and apply ????

1. Both structured and unstructured data such as customer’s feedback, questionnaire. Staffs
and store managers will communicate with customers and collect the feedback about what
they like, dislike, or what they are looking for? This data will be back to the company’s
designers to sketch, adjust or adapt their designs.

2. Using RFID chip. The data will be collected from RFID tag, how often it moves in-out of
dressing room, purchase and etc. Each product has a unique RFID tag which it is possible to
track the product from warehouse to stores. Inditex has a central data processing unit which is
open 24 hours a day which monitors all the movement of merchandises. Various teams of
Inditex will monitor over 6,000 outlets. And apply big data analytics to make all this possible.
When a product arrives at a store the RFID chip will determine which items is the bestselling
and need to restocking, the clothing’s location in the store which then determine to increase its
visibility. RFID will help to reflect on the customer needs. This RFID tag as sales tracking data is
key to Zara’s success which increases the products which are most liked by the customers and
stops manufacturing those products which don’t attract customer attention.

Designers will design the merchandise based on this feedback provided by the sales
professionals who use the analytics on likes and dislikes. Majority of factories of Zara are
located in Europe and North Africa close to their business help to shorten shipment time to
stores within 2-3 weeks. This significantly lowers the cost of holding excess inventory. Also Zara
doesn’t sell items at discounts as it doesn’t overdo the manufacturing process.

Compare with H&M

Zara H&M
Clothing line at the start of
season 40-50% 100%
Mid seson 50% 0%
Order Small Batch Bulk order
Production Lead Time 2-3 Week 6 months
Sell at full price 85% 60-70%
Unsold Items 10% 17-20%

H&M sell about 2,000 to 4,000 clothing items per year. Zara sell 11,000 clothing items a year.
Zara only manufactures 15 to 25% of the merchandise before the season begins. Over 50% of
the merchandise is designed and manufactured after the season starts based on what becomes
popular among the customers. This quick replenishment cycle model is what drives demand for
Zara’s products.

H&M Q1/2018 reported poor financial quarter.

Q1 in 2018. As top-line growth fell, inventories rose, bringing operating profits after
financial items down 61% for the quarter. H&M has been on a downward spiral as of late,
and its stock has fallen with it, dropping 43.6% since April 3, 2017.

H&M’s mission for 2018, is to adjust to the new market dynamics through targeted
investments.

H&M is investing in three key enablers:

 Supply chain: Building a faster, more flexible and efficient supply chain through
investments in proximity sourcing and automated warehouses
 Advanced analytics: Better data and artificial intelligence can help improve trend
detection, quantification and allocation, price management and personalization
 Technology foundation: The group plans to bring RFID to 1,800 stores in 2019, use
3-D technology, and experiment with omnichannel programs and new-format stores
to better reach customers

H&M aim to optimize the supply chain to become smart, faster, automated warehouses,
closer suppliers, SKU-level visibility through RFID can be used to work in tandem through
advanced technology platforms.

2. Google Analytics

Zara doesn’t invest much on advertising compare to H&M. Their products rarely go on sale, and
their typical customer visits 17 times a year.
Both Zara and H&M use Google Analytics to understand customer behavior by using Behavioral
Analytics platform.

• Both Zara and H&M use Google Analytics to understand customer behavior by
using Behavioral Analytics platform.
• Boost sales, conversion, engagement.
• Social media metric evaluation.
• Find new users.
• Study customer’s behaviors.
• Improve marketing campaigns.
• Understand customers from acquisition to purchase.
• Customize and manage data for company use.
• Make smarter business decision.

Although Zara doesn’t invest much in advertisement and online platforms. But Zara gathers
data from Instagram and online social media, creating a central nervous system of their
customers' fashion sensibility in each and every market. Then, all the data above is compiled in
the headquarter data center. 24 hours a day, analysts work, processing data to drive new
design releases.

3. Social Media

Social Media Zara H&M

Instragram Followers 16,000,000 22,900,000
Facebook Followers 25,146,328 32,000,000
Twitter Followers 1,229,686 8,600,000
Pinterest Followers 334,864 404,540

From the information above show that H&M use social media to increase its ability in all aspect.
Zara use social media mainly to inform about its product, sneak peek to the design. It’s fully
trust in it RFID strategy and doesn’t pay much interest in advertisement on both offline and
online.

Zara H&M
The information above shows that Zara use mainly Instragram it updates 7 times a day except
weekend. The main purpose as mentioned before. To show beautiful picture of its products.
Mainly to promote new style, new model or new design. But rarely do activity with customers.

While H&M use every channels to enhance it capability. It uses to promote the brand, its
products, design, its collaboration with other brands or celebrities for example Balmain with
H&M which was a huge success. it’s apply social media to increase sales and activities too. For
example a game for free Coachella tickets for anyone who post picture with H&M product with
the hashtag #H&MforCoachella

This make H&M lead Zara for social media platforms.

H&M has an active social media presence on all major networks including Facebook, Twitter,
LinkedIn and Instagram. They also have different profiles dedicated to the different
geographical locations they have outlets in. H&M's social media campaigns are highly engaging.
The 'Rewear It' campaign that they brought out in connection with World Recycle Week
featuring M.I.A encourages their followers to recycle. Take a closer look at their social media
performance to uncover strategies that drive up engagement:

Best practice
• Zara performed the best practice in applying Big Data such as RFID and other
applications to enhance supply chain management. It’s the first company in the Fast
Fashion business. This revolution contribute Zara to maintain its high profitability
margins and increase its value.
• Recommendation:
• Zara should engage more in social media platforms. As it fully trust on its fast supply
chain management. One lack vision can cause damage to the business.
• Zara needs to start investing in construction a solid brand positioning and actively
communicate it through social media platforms in its advertising and communication
strategies.