When it comes to the most successful brands in the garment industry, Zara, a Spanish fast-fashion company, tops the list for most shoppers. People end up spending half their paychecks at the Zara sales. So, what is Zara’s secret recipe for this popularity? It turns out, it doesn’t stem from superior designers or unparalleled creative direction. It’s because the store is able to give customers what they want, and when they want it because of its supply chain.
The effectiveness of their supply chain is due to the fact that they don’t outsource their production whereas a traditional retailer tends to outsource all of its production in order to focus on distributing and selling those goods. The store’s success also comes from a substantial investment in artificial intelligence technology, said Nada Sanders, distinguished professor of Supply Chain Management at Northeastern University.
Zara’s early approach was to collect user product preference data from customers in real-time. The data is then processed by algorithms to make the store and their products more efficient and responsive. The strategy worked so well that the other companies began to adopt the same process.
“Seven-Eleven Japan has taken lessons from Zara, using technology to microsegment demand and to understand what customers want,” Sanders said. “They will literally reshuffle and change what the merchandising looks like in the course of one day, in one location, for different segments of customers. For example, the store will rearrange milk cartons one way at 7 a.m. For adults commuting to work, and another way in the afternoon for students coming home from school.” she explained.
And it’s not just Zara. Sanders cites Amazon, Uber, and FedEx as additional examples that implement Big Data and AI algorithms to improve their digital supply chain. But why aren’t more companies embracing these tools? It could be due to the lag in adoption and implementation. Although there is so much raw data available, it isn’t useful unless there is someone who can process it and make relevant decisions. There is also the inherent skepticism regarding artificial intelligence and automation. “People need to feel that their security, their jobs, and their success are not threatened, but that all these algorithms and technology will help them succeed.” Sanders said.