Arguably the original “fast fashion” retailer, Zara has been lauded for its products’ speed-to-market and in many respects, is an exemplar of the digitalized, vertically-integrated supply chain. The control afforded by Zara’s in-house design, manufacturing, and distribution capabilities allows new collections to reach stores within 2 weeks of conception (compared to a six-month lead time for comparable retailers). Furthermore, Zara offers a large number of SKUs and in limited quantities based on current consumer trends. These capabilities enable optimal sales planning, just-in-time manufacturing, and inventory management, allowing Zara to approximate a mass customization model. While many fashion retailers have struggled to optimize their supply chains, and, in doing so, remain competitive, some new entrants are taking digitalization to the next frontier—using digital design and printing (e.g. 3D printing and scanning) to truly match supply with demand at an individual consumer level—true mass customization.
To retain its competitive advantage, Zara must begin taking stock of new digital technologies and viewing early-adopters as veritable threats. For example, Adidas has developed the SpeedFactory, an initiative to increase utilization of 3D knitting with the goal of manufacturing sneakers customized to an individuals’ foot shape, size, and performance needs. Ministry of Supply, predominantly an e-commerce retailer, has recently invested in one mass customization tool: a $190,000 3-D knitting machine which uses customers’ desired garment color, cuff, and button type to manufacture a custom real-time in 90 minutes. There are two major reasons why piloting such mass customization tools is a necessity for established retail giants such as Zara. First, customers are increasingly demanding one-of-a-kind, bespoke products, placing pressure on retailers to increase supply chain flexibility. In addition, mass customization tools offer the opportunity to reduce costs. Manufacturing goods on-demand offers production and overhead cost savings and means virtually no risk of unsold inventory. For instance, 3D knitting also results in minimal fabric waste relative to traditional manufacturing and is almost entirely automated, resulting in lower labor cost.
Zara’s agile, vertically-integrated supply chain is benefitting from ongoing investment in digital technology to improve speed-to-market and responsiveness to customer preferences. This has manifested as small batch sizes, a high number of SKUs, and limited shelf time in stores. For example, Zara now reserves 85% of its in-house production capacity for in-season design adjustments. Production capacity utilization is sacrificed to enable agility in responding to changes in demand, thus shortening turnaround times for products resulting from trends identified mid-season. The company is also investing in RFID technology to improve inventory management at both a store and warehouse level. Still, despite increasing supply chain efficiency, Zara has not moved to creating truly “made-to-order” products. As such, there still exists a classic “bullwhip effect” that results from the information lag between identification of customer needs and communication up the supply chain. While Inditex leadership (Zara’s parent company) does harp on the importance of continuous supply chain optimization in the long-term, there has been no mention of radical supply chain enhancements such as investment in 3D printing technology as one path towards full customization.
In the near-term, akin to companies such as Adidas, Nike, and Ministry of Supply, Zara must pilot 3D design and manufacturing technology. 3D technology offers an opportunity for Zara to further consolidate its supply chain, shrinking lead times and reducing direct material and labor costs, transportation costs, retail space needs, as well as inventory and obsolescence costs. The pilot should begin with a single market to first realize economies of learning and quantify impact to each step of the supply chain as well as overall profitability. The pilot would also enable Zara to assess customers’ reactions to the new technology, evaluating both the consumer experience and product enhancements such as seamless clothing. Over the next 3-5 years, Zara must determine the optimal mix of standardized versus customized products to offer, and thus determine the degree of technological shift required to meet this demand. Furthermore, Zara must determine how to allocate capital efficiently such that new manufacturing processes and technologies can be integrated into the supply chain without disrupting operations and impairing the ability to serve the existing customer base.
Despite the promise of 3D design and manufacturing technology, some are skeptical of its practicality in mass retail. Felipe Caro, a UCLA professor of technology and operations management and former Zara supply chain strategist, contends that the reduced labor and obsolescence costs may not be scalable since pure play mass customization is “always working in batch sizes of one.” Such criticism raises several questions for retailers such as Zara to consider. Will 3D printing technology be cost-effective enough to justify mass customization, and if so, on what time horizon? Considering the fast fashion industry as whole, will consumers continue to seek personalization, and if so, will they be willing to pay more?
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