There is no doubt that Zara has disrupted both the brick-and-mortar and online fashion industries with its lightning-fast production times, constantly changing and evolving styles, and on-trend products. Zara has set an industry-wide standard for using their supply chain as a competitive advantage in competing in fast fashion. Zara has succeeded by minimizing their operational inventories, inventories that are classified by how they are created. Operational inventory takes four forms: cycle inventory, safety stock inventory, anticipation inventory, and pipeline inventory. Due to their effective inventory management, Zara has among the lowest safety stock of fashion retailers as well as very low levels of anticipation inventory.
Zara’s Safety Stock Inventory Management
Safety stock inventory is surplus inventory that a company holds to protect against uncertainties in demand, lead time, and supply changes. In order to reduce safety stock inventory, Zara implements two strategies. First, Zara improves demand forecasts so that fewer surprises come from customers and they design mechanisms to increase collaboration with customers to get advanced warnings for changes in demand levels. According to Business of Fashion’s article “Fast Fashion Slow to E-Commerce,” the store has always been integral to Zara’s pull-model, “where feedback from on-the-floor staff is used to drive the fashion decisions it makes. Daily feedback from store managers is fed to the 700-strong design team” in turn increasing collaboration with customers and cutting down safety stock.
Second, Zara cuts the lead time of purchased or produced items to reduce demand uncertainty. According to “Zara Uses Supply Chain to Win Again,” “Zara’s fast fashion operation obliges its in-house design and production teams to work with a limited set of pre-selected fabrics and materials. This may limit creative freedom, but it also eliminates months of lead time and tiers of supplier hand-offs from the network.” In addition, Zara introduced the use of radio-frequency identification (RFID) technology in its stores in 2014. This technology allows Zara to quickly take inventory by detecting radio signals from the RFID tags and when an item is sold, the stockroom is immediately notified so that the item can be replaced.
Zara’s Anticipation Inventory Management
In addition to minimizing safety stock inventory, Zara also has very little anticipation inventory. Anticipation inventory is inventory used to absorb uneven rates of demand or supply, typically around seasonal demand. In order to reduce anticipation inventory, Zara adds new products with different demand cycles so that a peak in the demand for one product compensates for the seasonal low of another.
Zara’s “centralized inventory, developed to make store delivery faster, also works to make it easier to fulfill online orders. The majority of its products are sourced close to its headquarters in Spain, Portugal, Turkey, and Morocco, and its ten logistic centers (all based in Spain) can deliver anywhere in the world within 48 hours; new styles land in store twice a week, with new products typically taking just three weeks from drawing board to store.” The products that are released on Tuesdays and Thursdays all have different demand cycles in order to manage and minimize anticipation inventory.