Q1. Analyze the strengths and weaknesses of Zara (Spanish Clothier Company)
by using value configurations model (value chains, shops or networks) and VRIO
framework (Value – Rareness – Imitation – Organized) and prepare an activity
map showing the alignment of Zara’s strengths and weaknesses with its
ZARA Value Chain
Inbound Logistics; Zara supplies %40 of its fabric from another Inditex-owned subsidiary
through vertical integration. Almost half of the fabrics are purchased undyed
to allow fast to mid-season color changes. Zara also work with Fibracolor, a
dyestuff producer owned by Inditex. The rest of the fabrics come from among 260
other suppliers. None account for more than %4 of Zara’s total production in
order to minimize dependency on single suppliers.
Operations; Zara produces %50 of its products in its own network of 22 Spanish
factories and 18 of them are located in around La Coruna the headquarter of
Zara. The other half is produced from 400 outside suppliers, %70 of which are
in Europe and most of the rest is in Asia. Fashion sensitive products are
produced in Europe and basic products which have cost or quality advantage are
produced in Asia.
Outbound Logistics; Zara’s distribution center is in La Coruna and satellite centers in
Brazil and Mexico which serve as hub of logical operations. Trucks has mobile
tracking system to ensure that inventory moves with minimum delay. Delivery is
done twice a week is possible to every Zara store. Fast handling of garments is
also possible. The outbound logistics is based on just-in-time.
Marketing and Sales; Company uses
little advertising or promotion. Marketing is done via word-of-mouth layout of
shops. Zara also tries to locate in the most-up market. Typical Zara store is
left empty in order create pleasant, spacious and uncluttered shopping
Services; Zara aims to
provide good quality clothing and accessories at affordable prices. Shops are located in premium places in major
cities. Stores are visually appealing, clean and spacious. Employee wear Zara
clothes as well.
Procurement; Zara usually sources fabrics and finished products from low-cost foreign
markets. Specific designs are selected for production, the material is cut from
the stock, produced and delivered to company stores throughout the world.
Technologic Development; Zara uses technology to make the flow of information faster. They make
the technology investment in this way. This system also helps keep track of new
Management; 60,000 people work in Zara, half of them in
Spain and rest is various countries. The average age of the workers is 26, women
hold more than half of the executive, technical and managerial positions.
Firm infrastructure; In order for customers to visit stores more often, the turnover of
products is done rapidly. Positive word-of-mouth, attractive in store ambience
are some the ideas of Zara.
VRIO Analysis of Zara:
Value; Zara is in the group of Inditex. For this reason, Inditex is a
combination of sources. Zara makes vertical integration by managing all design,
production, warehousing, distribution and logistics processes instead of
relying on third parties. By doing so, Zara can act more flexibly and quickly
in every process from all its competitors. Besides vertical integration which
reduces operating costs, they have an organization and values which all
employees respect. Zara can adapt the changes in consumer enjoyment most
flexibly and rapidly.
Rarity; By analyzing the other competitors, we will see most of them focus on
distribution and retailing while outsourcing production. The reason of
outsourcing is labor-intensive production. So, companies produce their goods in
lower labor countries. Inditex manages
the whole process in its own way and does exactly the opposite. Instead of an
average of six months for luxury brands, Zara typically produces new goods and
takes them to stores in less than three weeks, typically on a regular basis.
Imitability; Almost everything could be imitated. If the competitors copy the Zara
business model, but we assume that they can only do so in the long run. It will
take a few years to build a vertical integration model with such a supply chain
and to create the organizational structure Zara has. We also need to consider
the massive costs that these companies will face for copying the Zara model that
companies are exposed to. Even if they can apply this model, Zara is likely to
develop this model and go further.
Organized; All manager in Zara have autonomy. This brings an organization that
takes advantage of its resources and capabilities to the limits. If we look at
the annual reports, we can see that sales and earnings are steadily increasing.
VRIO Framework of Zara:
Temporary competitive advantage
Sustainable Competitive advantage
your firm’s strengths and weaknesses by using value configurations model (value
chains, shops or networks) and VRIO framework (Value – Rareness – Imitation –
Organized) and prepare an activity map showing the alignment of your firm’s
strengths and weaknesses with its competitive strategy.
Delphi Value Chain
Inbound Logistics; Delphi produces common rail which is a component of diesel engine. %80
of raw material is provided locally. That makes demand changes flexibly and
rapidly with the suppliers. Sensor and valve assembly is also done in the plant
also. These items are provided from abroad. Though they are mounted on more
than 30 references they are all same model in terms of fitting to all
references. These also makes flexibility and fast response for customer
Operations; %85 of the products are delivered to Europe. Production is done in
Turkey due to lower labor cost. There is also Chinese plant for the Chinese
market. Plants are located closer to the targeted markets with lower labor cost
countries. Sensor and valve assembly is also done in these plants to reduce
cost. So, nothing is outsourced. Also, all production lines and machines have
flexibility to produce all references.
Outbound Logistics; Goods are generally delivered by trucks as long as there is no delay in
production. Due to truck delivery from
Turkey to Europe, there is no flexibility for the goods. For this reason, it is
necessary to keep inventory in order to provide flexibility in customer
demands. Airfreight is an option for flexibility as well but increases
Marketing and Sales; Delphi doesn’t produce end-user products so they don’t make any
marketing activities. Support activities
Services; In Delphi there is product and service solution department. It deals
with all kinds of after sales problems. There is customer support engineer in
terms of solving customer complaints.
Procurement; Delphi sources high-alloyed forge as raw material. Also, sensor and
valve is purchased. Raw material is purchased locally since there is no sensor
and valve supplier in Turkey, they are purchased from abroad.
Technology Development; Due to emission restrictions product needs to be improved continuously. R
department works on to make better products in terms of emission. For
challenging with the customers, operation costs need to be reduced as well. These
improvements are done by following up technology and implementing to the
Management; 1,200 people work in Delphi, almost 1,000 of
them are blue collar which means production is labor-intensive. All blue
collars are member of the same union so their rights defending by this union.
For the white collars, there is matrix organization. For the production people,
everyone connected to a unit manager and connected a functional manager with dash
Firm Infrastructure; Firm infrastructure based on customer oriented for solutions and
following up new technologies in order to improve process and customer.
VRIO Analysis of Delphi:
Value: Delphi creates its value by manufacturing quality high-end products with
reasonable prices. Both machining, coating and assembly is done in same plant. Since
all processes that affect each other are managed from the same place, the
solution is reached more quickly when any process is affected.
Rarity; Other companies which make the same job generally outsource their almost
all processes. Delphi manages its production processes, which are as much as
delivery, reducing its costs a little.
Imitability; The products or services are difficult to imitate due to high technology
needed to imitate. Besides high technology, there is great know how needed as
well. There is nothing special about the organization. Only thing could not be
imitated is managing whole processes in same place. It is needed investment
such as assembling and coating.
Organized; There are APUs
(Autonomous Production Unit) in the organization. Each unit contains functions
within itself such as production, quality, process and maintenance. That
provides quick responses for any problem which requires intervention. Each
function person is connected to functional manager as well for any kind of
Temporary competitive advantage
Sustainable Competitive advantage
compare Porter’s ideas on competition (i.e., five forces model and generic
strategies) with Kim and Mauborgne’s (2004) Blue Ocean strategy. Is Porter’s
five forces model still relevant in today’s business environment?
Porter’s Five Forces is a competitive marketing
strategy. It covers the newcomers’ main concerns in long-term. In this context,
even if companies develop innovative strategies that will provide better
performance, these innovations will be temporarily because successful
strategies will be imitated by other companies in long term. Then it creates
another competition. Due to electronic business is unlimited size, changes in
market opportunities are constantly evolving unless a firm has new unique
resources and new sustainable competitive advantages. the faster this imitation
process, the faster and more intensely the companies find themselves in a
situation where their profits are lowered because their market share falls. Indeed,
the main concern of strategic management is survival and competition between
companies is fast enough. innovation can offer a temporary solution, but
imitating in the long run, it forces firms to compete with competitors. In the
long run there is an inverse relationship between the number of firms in the
sector and profitability. Basically, this is a fundamental influence of the
Porter’s Five Forces.
Blue Ocean is a new market innovation strategy where competition is not
available. It is a great way to thinking on value creation. The Blue Ocean
Strategy defines the markets for products and results in less or zero
competition. Therefore, the company profitability is not inverse relationship
between the number of the firms in sector, because these firms can multiply
their profits through new markets without competition. Unlike the five forces,
the strategic concern of companies is not managing competition, but managing
In general, Porter focuses on the strategy of competing against the red
ocean. It is also concerned with the micro-environmental factors affecting
businesses within the same industry. The blue ocean is a strategy that has
created a new market that is not yet rivaled.
The ’70s and’ 80s global economy were based on growth and competition. For
this reason, competition and profitability were the preliminary objectives of the
companies. Compared to today’s dynamics, the development in the industry could
be determined and predicted.
Therefore, the porter five force model assumes static market conditions.
In today’s dynamic market conditions, it is not feasible to use.
In general, Porter’s Five Forces model has limitations in today’s
market. New business models and market dynamics are not considered. The value
of the Porters model is the ability of executives to think about the current
state of the industry as an initial point for more detailed analysis and to