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7th International Conference on Intelligent Textiles & Mass Customisation (ITMC 2019) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 827 (2020) 012058 doi:10.1088/1757-899X/827/1/012058

Exponential success through integrated supply chain

optimization, ecomotional intelligence and reputation-based
leadership: Zara model
N Berbiche1,2,4 , M Hlyal1,2 and J El Alami1,3
1
Laboratory LASTIMI, Higher School of Technology, Salé/Mohammed V University
in Rabat, Rabat, 10080, Morocco
2
Center of Logistics Excellence CELOG, ESITH, Casablanca, 20190, Morocco
3
National Center for Science and Technology Research, Rabat, 10102, Morocco
4
Author to whom any correspondence should be addressed

nawfalber@gmail.com

‘You need to have five fingers touching the factory and five
touching the customer.’ Amancio ORTEGA, Inditex Chairman

Abstract. Fast fashion figures among the most lucrative using industries of the modern
economies. With $25 billion annual sales in 2018, Zara that pioneered fast-fashion art has
achieved an outstanding rapid surge, conquering 96 markets worldwide. The proposed paper
presents the results of a critical thinking on how Zara applied innovation and continuous
improvement in its operations and strong business model to maintain its unique competitive
advantage over time. Our study shows that the secrets behind its exponential success are mainly
a sophisticated sustainable supply chain, integrating efficiently the layers of design, sourcing,
manufacturing, and distribution to stores for customers. It has to do with the best trade-off
between low storage and shorter time response to customers in a contracted volatile market.
Concisely, this research on specialized studies done over recent years seeks to help professional
leaders grasp the best managerial and relational practices, along with developed operations’
research tools based on demand forecasting, inventory-distribution and clearance pricing
optimization models. It aims also at enriching their knowledge with some non-quantitative
methods related to clients’ preferences, ‘glocal strategy’ for adaptation, and social responsibility.
As such, in view of the frequent conjunctional use of economic intelligence and emotional
intelligence by Zara, we coined the neologism ‘ecomotional intelligence’, as a guide to belief
and action.

1. Introduction
Fast fashion figures among the most lucrative industries of the modern economies. However, textile
companies confronted with new constraints of rapid customer satisfaction, challenging environment and
complexity of sustainment systems are bearing fierce competitiveness to preserve their benefits and
respective market shares, if not to survive. In this context, Zara has achieved outstanding rapid surge,
conquering 96 markets [1]. Inditex group where Zara is its largest subsidiary by more than 60%,
propelled Ignacio to the 2nd fortune in Europe and 6th in the world [2], contributing by more than 2%
of total social taxes to Spain economy [1]. By the eve of the 21st century, Zara’s average annual growth
has extraordinarily accelerated to 34.8 %, leading since then fast-fashion killers, as illustrated in the
figure 1[3]. So, what are the secrets behind Zara’s exponential success, in such a very short period?

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7th International Conference on Intelligent Textiles & Mass Customisation (ITMC 2019) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 827 (2020) 012058 doi:10.1088/1757-899X/827/1/012058

In fact, the keys to Zara’s huge success are mainly a sophisticated sustainable supply chain,
integrating efficiently the layers of design, sourcing, manufacturing, distribution to stores for customers
[4], within the strong business model on figure 2. It has to do with the best trade-off between low storage
and shorter time response to customers in a contracted volatile market [5]. To learn from the prosper
Zara’s experience, the proposed paper presents the results of a critical thinking on the factors to its
exponential success through analyzing and synthetizing a large number of related scientific and
specialized studies done over recent years. It seeks to help professional leaders and decision-makers
grasp the best managerial and relational practices, along with operations’ research analytical tools
applied for the continuous improvement of its efficient resilient supply chain. It aims also at enriching
their knowledge with some implemented non-quantitative methods related to clients’ preferences and
social responsibility. As such, due to the frequent conjunctional use of various forms of economic and
emotional intelligence by Zara and other killers in low manner, we come up with a new paradigm, for
which the neologism of ‘ecomotional intelligence’ has been coined. In short, a guide to belief and action
for a lasting competitive advantage [6].

Trend Spotters Sales Personnel

Headquarters
Designers, Sourcing and Production Managers
Facilities for Cutting Fabrics
Workshops in Spain and Portugal
Distribution Centers
Delivery to Stores and Customers

Figure 1. Annual Growth 1994-2000 [3]. Figure 2. SCM Organization of Zara [4].

After presenting the best practices of Zara’s integrated supply chain, this research paper will examine
the climax role of applied demand forecasting and optimization models as a catalyst to durable
competitiveness, to follow on with ecomotional intelligence and reputation-based leadership, expressive
of corporate marketing and social responsibility.

2. Best practices of integrated supply chain management

For its continuous improvement, Zara focused on developing smart efficient supply chain management
through the vertical integration of layers and key functions, just-in-time strategy, diversification and
externalization.

2.1. Vertical integration and just in time strategies

Zara’s success highlights the decisive importance of high degree vertical integration and just-in-time
approach to maintain tight control over the different stages of its supply chain for low storage levels and
flexibility to speed response to customers and current fashion trends. We distinguish functional,
geographical and informational integrations [7], contributing to the synchronization of all the layers with
real-life visibility over on the shelf and online stores stocks [8], [9]. Zara's ownership of its supply-chain
steps displayed in figure 3, allows for more rapid product turnover and full capability to produce and
deliver in less than three weeks worldwide, empowered by eliminating limitations and not having risks.
Controlled by a centralized command server, Zara also counts on its well-elaborated ICT system using
essentially the RFID for identification and tracking, in addition to DBMS and ERP that enable both
inter-functional and organization’s control, and improve planning at different levels [1]. Thanks to just-
in-time strategy installed by Toyota along with the elaborated inventory model detailed in figure 4, the
company schedules materials, goods and labor to arrive, then replenishes them when needed, avoiding
idle-time loss and increasing benefits. In typical seasons, it produces 11,000 different items.

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7th International Conference on Intelligent Textiles & Mass Customisation (ITMC 2019) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 827 (2020) 012058 doi:10.1088/1757-899X/827/1/012058

2.2. Diversification, externalization and low price sourcing

Zara is a brand that sells myriad types of fashion: basic, fast and seasonal. Besides textile, it extends its
activities to housing equipment and other accessories. Concentrating on core functions, it externalizes
high cost and workers’ consuming activities like merchandises’ transport, loading from warehouses and
unloading to stores to less expensive specialized logistics providers. However, for basic, easy to forecast
products, Zara uses cheaper suppliers with longer lead times.

Design Inventory Demand Warehouse

in store forecasting inventory
Sourcing and
Retailing Manufacturing
Optimization model

Distribution
Shipment
Figure 3. Zara Business Model [5]. Figure 4. Zara’s Inventory Model.

As such, while backward integration reduces cost and improves quality, forward integration reduces
the bullwhip effect avoiding costly overproduction and asking scientists for uncertainty mitigation
methods where demand forecasting probes significant impact [5].

3. Supply chain optimization and uncertainty mitigation

The huge rise of Zara relies predominantly on the use of sophisticated operations research tools and
algorithms, in partnership with eminent scientists from cutting edge MIT’s operations research
department and London Business School a few years ago. Hence, the company developed many
optimization models alongside the global supply chain, but the most famous and impactful ones in terms
of competitive advantage extension, are those dedicated to optimize the allocation of inventory across
the two warehouses and the store network to increase sales, summed up hereafter in table 1.
It consists of inventory distribution and clearance pricing optimization on one hand, and uncertainty
mitigation through demand forecasting on the other. Developed models propose for leaders how to
determine key drivers and decision variables like shipment and storage quantities, markdown quantities,
retail size-assortment or pricing amount of garments, subject to the general prevailing constraint of
customers’ satisfaction. Pricing models help commercials find out if a manager is making mistakes [4].
Fast-paced clearance sales and pricing decisions apply to more than 11,000 different fashion designs
introduced each year by Zara, considering the 70 countries’ different market conditions.
The proposed project consists in the development of a pricing mathematical model based on sales
forecasting that estimates consumer’s reactions to price discounts and a linear optimization model that
paves the way for profit-maximizing optimal price assignments.

Table 1. Zara’s Optimization and Uncertainty Mitigation Models

Zara Goal / Developed Model Method Outcomes / Benefits
- Demand Forecasting and - Retail size-assortment view of a
Inventory Distribution Optimi- store's inventory, linking stock levels/
zation. Developed distribution demand to select store replenishment - Increased sales by
management algorithms to increase quantities [11]. 3–4% additional
sales. - Regression demand forecasting for revenues for 2007
- Determination of each inventory each product at every store location and 2008 [12].
shipment it sends from its two central and auto-correction of store manager
warehouses to its 1,500 stores predictions.
worldwide [10].
- Clearance Pricing Optimization - Pricing mathematical model based - Increase of 6% to

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7th International Conference on Intelligent Textiles & Mass Customisation (ITMC 2019) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 827 (2020) 012058 doi:10.1088/1757-899X/827/1/012058

Models and reduced markdowns on a sales forecasting that estimates Zara’s clearance
for 110000 garments churned out consumers’ reactions to price sales profits in 2009
annually in 96 countries, (less than discounts and a linear optimization [13].
15%). model leading to profit-maximizing
optimal price assignments.
- Initial Shipment Demand Fore- - Data-driven model of forecast - Increase in season
casting and Distribution Optimi- updating and a dynamic optimization sales by 2% and
zation. Best trade-off between large formulation for allocating limited reduction in unsold
initial shipments to stores/stock at stock by location over time, reducing units by 4% in 2012
warehouse [14]. lost sales once initial ones observed. [15].

4. Leading by Social Responsibility and Ecomotional Intelligence

4.1. Zara’s social responsibility
Inditex-owned Zara confirms its innovative green engagement. Just recently, it announced a courageous
transitional 2020-2025 plan regarding eco-friendly fabrics and recycling, that follows the Strategic Plan
for a Stable and Sustainable Supply Chain 2014-2018 [16]. Besides organic and recycled, when asked
what ''Sustainable'' means, a manager from Zara explained, ‘… prioritizing more energy- and water-
friendly processes in the growing and manufacturing of these textiles.’ [17]. This ambitious plan also
includes partnership with MIT scientists to research how to recover fibers from old garments using clean
energy. Eco-efficient lighting, internal transport using bikes and electric vehicles, recycled and
recovered materials and cardboards, besides eco-stores confirm the innovative green willingness and
engagement of Zara, constantly enforced through auditing the conformity to the Code of Conduct.
In 2014, Zara achieved 95% of its sustainability supply chain plan thanks to innovation coupled with
improvement, traceability and compliance for individual and common lasting wellbeing, product quality
and safety status. The company also promotes its reputation and image by highlighting its citizenship
through the application of good governance practices with an INDITEX investment of 48 million $ in
education, social well-being and humanitarian programs, along with good workers conditions. As such,
the 700 designers, alongside the 170,000-plus people working at the Company, produce quality fashion
using their creative passion and put it at customers' fingertips. It explains how Zara achieved the record
performance of 26.15 billion euros in net sales in 2018, and why it continues to share that growth with
its employees.

4.2. Ecomotional intelligence and ‘glocal strategy’

Zara’s correct prediction of buying behaviors and trends’ analysis helps in taking quick decisions and
inventory control. Instead of setting the trends, Zara follows them as it combines fashion reconnaissance,
spotting trends everywhere from the street to movies to couture fashion shows, and information from its
customers to keep its merchandise fresh. In addition, it follows ‘glocal strategy,’ to think globally but
act locally dealing with cultural awareness to adapt worldwide-distributed clothes to local customers’
traditions. It also influences clients through their open pleasant architecture.
Among Zara’s key success factors, our analysis of its marketing strategy shows that its professionals
apply both ‘economic intelligence’ and ‘emotional intelligence’ that we can merge in the neologism we
have just coined ‘ecomotional intelligence.’ It helps guess and communicate the right customer’s needs,
along with new fashion trends of competitors and attractiveness. The idea to propose this new concept
began to germinate when we have observed that many companies tend increasingly to combine almost
necessarily the two techniques in their marketing strategy and business models, to maximize customers’
satisfaction and minimize lost sales, seeking to last their competitive advantage. By the way, designers
pay close watch on trends and buying behaviors through:
 Markets research on competitors’ stores and fashion shows through economic
intelligence ;
 Investigations on places with customers’ presence as university campuses and discos ;

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7th International Conference on Intelligent Textiles & Mass Customisation (ITMC 2019) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 827 (2020) 012058 doi:10.1088/1757-899X/827/1/012058

 Other feedbacks coming from internal stores through sales report and qualitative
comments of customers immediately transmitted to designers.

4.3. Customer’s loyalty versus unconventional booming low-budget advertising

The Company publishes two catalogs twice a year, along with of course attractive and familiar online
stores. Zara managers reserve small budget for advertisement but it is effective through its aggressive
presence near competitors in big places and famous streets of grand cities. The short shelf life for trendy
clothes creates psychological attraction on customers [16]. They usually visit Zara stores more than 12
times a year fearing of they would not find them anymore on the shelves, compared with its competitors
by 5 to 7 times a year. Hence, the policy of customer loyalty of client portfolio is in full evolution as a
heavy and satisfied customer you keep is ten times less expensive than acquiring a new one.
Furthermore, collaborators in Zara stores show interest to customers’ wants and preferences, and
transmit them immediately to warehouses.

5. Conclusion and future research

Fast With its accelerated growth attaining more than $25 billion annual sales in 2018 [16], we have seen
through the critical analysis how Zara that pioneered and developed fast-fashion art, insisted to seek
innovation and continuous improvement in its operations and business model in order to maintain the
uniqueness of its huge competitive advantage over time. Most of analysts sum up the secrets behind its
success within the efforts and investments led in the human, structural and relational capitals, as
illustrated in table 2.

Table 2. Secrets behind Zara’s Huge Success.

Human Capital Structural Capital Relational Capital
Development of analytical tools in Vertical integration and just in Leading by ecomotional
partnership of cutting-edge universities time strategy throughout global intelligence, customer
scientists resulting in innovative demand supply chain, besides loyalty and corporate
forecasting and optimization models. externalization and diversification. social policy.
We find out that Zara’s production system follows a pull system to control alignment of demand to
customers’ expectations. Besides elaborated optimization models, vertically integrated supply chain is
the keystone of its success as it contributes to total control of the production process and needed
flexibility to be able to react quickly to the market trends, so that it is extremely difficult to benchmark
them by competitors, called fast-fashion killers.
Finally, many scientists and fashion decision-makers remain interested in how Zara will extend its
competitive advantage in a market increasingly immersed in digital revolution, and willingness for best
trade-off between sustainability and design.

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7th International Conference on Intelligent Textiles & Mass Customisation (ITMC 2019) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 827 (2020) 012058 doi:10.1088/1757-899X/827/1/012058

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