Too often we talk about
the automotive industry (especially Toyota) when discussing lean, and Motorola in regards to six
sigma. But what lean really comes down
to is good old fashioned common sense.
In the early days people had to be smart about the way they did
business, and owners/managers were as much directly involved as their front
line in reducing wastes and creating savings.
Business networks were smaller, but often more efficient. Something happened as we modernised and
globalised. I came across the story
below, which in many ways highlights lean principles and good leadership. I pulled out a few statements, but would
encourage you to have a read of the full article.
As always, I ask you to look at our web site: www.chaseperformance.com and drop me a line, if you would like to share the issues in your business that are making you lose sleep, in full commercial confidence off course. I would love to establish, how we can assist with a tailored program to address these.
“Ortega built his empire
on two basic rules: Give customers what they want, and get it to them faster
than anyone else”
“He would need to control
the supply chain”
“Ortega's insistence on staying close to home and his ability to connect with even low-level employees”
“What keeps this machine
ticking is the logistics department”
“There is a firm 24-hour
turnaround deadline for Europe, the Middle East, and much of the U.S., and 48
hours for Asia and Latin America.”
Meet Amancio Ortega: The third-richest man in the world
January 8, 2013: 5:00 AM ET
By Vivienne Walt, contributor
Zara founder Amancio Ortega
FORTUNE -- The motorbike roared up to the traffic light in La Coruña in northern Spain and stopped alongside a black Town Car. From inside, the passenger glanced out his window and saw the young biker leaning over the handlebars, jean jacket decorated with appliquéd patches, a throwback to the 1970s. The man in the car, decades older than the biker, zoomed in on the jacket. The old man grabbed his cellphone and, as the story goes, called an aide in his office. His eyes still fixed on the biker, the man described the jacket's stitching, its shape and color, and signed off with a single instruction: "¡Hácedla!" Make it.
The light turned green, the biker pulled away; unbeknown to him, he and his jacket had just played a walk-on role in one of the greatest retail stories of our time.
Amancio Ortega Gaona -- the man inside the car -- is the third-richest man on earth. In this provincial corner of Galicia, on Spain's windswept northwestern coastline, the 76-year-old founder of the Inditex Group has spent years secluded from public view, all while living in the middle of La Coruña, a city of 246,000 people. Among the millions of shoppers who patronize Inditex's flagship brand, Zara, and have made Ortega unfathomably rich, few have even heard his name. Ortega has made sure of that, shunning social appearances and refusing all interview requests (including for this article). Until 1999 no photograph of Ortega had ever been published.
And yet, a world away from the glitz of Paris, Milan, and New York, Ortega has built a fashion empire that reaches into more than 80 countries. Beginning 40 years ago, Ortega ripped up the business model that had been refined over decades by Europe's fashion houses and replaced it with one of the most brutally fast turnaround schedules the industry had ever attempted. Decades later Zara is the world's biggest fashion retailer.
Ortega built his empire on two basic rules: Give customers what they want, and get it to them faster than anyone else. The twin organizing principles have made the company (and Ortega) into an unlikely iconoclast, more of an optimal supply chain than a traditional retailer. They are also the secret to Inditex's astonishing success. "Very few companies can challenge Inditex at this time. The company is in a race with themselves rather than anything else," says Christodoulos Chaviaras, a retail analyst at Barclays Capital in London. Tadashi Yanai, founder of clothing retailer Uniqlo, has made it his stated goal in life to beat Zara. And last August shares of the fashion company Esprit rose 28% on the day it announced its new CEO, Inditex's former distribution and operations manager.
Humble beginnings: Ortega grew up in a row house in La Coruña, in northern Spain (top);
his first job was in retail, at Gala (left), where current owner José Martínez (right) was his friend.
Spain might be suffering through its worst recession in generations, with 24% unemployment and crippling debt, but within Inditex, the crisis might as well be happening on Mars. "They live in a different world," says Modesto Lomba, president of the Spanish Association of Fashion Designers. In December, CEO Pablo Isla announced that revenue was up 17% year on year for the first three quarters of 2012 -- that nine-month sales revenue amounts to $14.6 billion -- and net profits matched 2010's, at $2.71 billion. So far, the growth shows no signs of slowing.
Inditex produced 835,000 garments in 2011. A new Zara store opens every day, on average; Inditex's 6,000th store just launched on London's Oxford Street. There are 46 Zara stores in the U.S., 347 in China, and 1,938 in Spain. Ortega controls more than 59% of the company's shares, and last July he overtook Warren Buffett to become the world's third-richest man, behind Carlos Slim Helú and Bill Gates. The reclusive, enigmatic Spaniard, hunting for ideas from his car window on the streets of his hometown, is now worth about $56 billion.
If such a fortune seems big, it is even more astonishing when you consider the man himself. The youngest of four children, Ortega was born in Busdongo de Arbas, a hamlet of 60 people in northern Spain, in 1936, just as the Spanish Civil War was erupting. The family scraped by on his father's railway job while his mother worked as a housemaid. When Amancio was a small boy, the family moved to La Coruña. There, home was a row house that abutted the train tracks and that served, as it still does today, as the railway workers' quarters. Amancio might have joined the rail service too, had it not been for one fateful evening when he was just 13. Walking home from his school, he and his mother stopped at a local store, where he stood by as his mother pleaded for credit. "He heard someone say, 'Señora, I cannot give this to you. You have to pay for it,'" says Covadonga O'Shea, a longtime friend of Ortega's who runs a fashion business school at the University of Navarra in Madrid and wrote the sole authorized biography of him, The Man From Zara. "He felt so humiliated, he decided he would never go back to school."
Barely in his teens, Ortega found a job as a shop hand for a local shirtmaker called Gala, which still sits on the same corner in downtown La Coruña. Today the store feels frozen in time: plaid shirts, fishermen's caps, and woolen cardigans. "Can you believe it?" says Xabier R. Blanco, a local journalist who tracks Ortega's career. "They still sell the same stuff, and Amancio is Mr. World." That painful irony is not lost on Gala's owner, José Martínez, 76, who inherited the store from his father. He befriended young Amancio when they were both 14. The boys spent their afternoons folding shirts at Gala and riding bikes around town. Martínez does not relish his current role as counterpoint to his childhood friend. "No one ever comes in here to buy anything," he says. "They just want to know about Amancio."
By 16, Ortega had concluded that the real money could be made giving customers exactly what they wanted, quickly, rather than buying up inventory in the hopes it would sell. To do that, he needed to figure out what people were looking for, then make it. He would need to control the supply chain. Ortega had the ideal environment: Galicia. With few job opportunities, thousands of men worked at sea, leaving their women to struggle alone back home. "The women would do anything for a little money, and they were really good at sewing," says Blanco, who co-wrote a book called Amancio Ortega: From Zero to Zara. Ortega began organizing thousands of women into sewing cooperatives. He oversaw a thriving production of quilted bathrobes for his first company, GOA. Mercedes López was 14 when she went to work for Ortega and says most women were thrilled to be hired. "The conditions were really pretty good," says López, now 52, who is the textile union representative at Inditex. "We knew Amancio well. He was very close to the workers." It was a family business: Ortega ran design, his brother Antonio headed the commercial side, and his sister Josefa was the bookkeeper. The company trucked in textiles from Barcelona, cutting out the middlemen.
With enough cash, Ortega opened his first storefront in 1975, two blocks from his teenage job at Gala. He named it Zara, because his preferred name, Zorba, was taken. From the outset, Ortega made speed the driving force. Decades later it still is. Zara stores refresh their stock twice a week and receive orders within 48 hours, tops. Ortega imposed the 48-hour rule in the 1970s, forcing him to open the first Zara stores near La Coruña. Many lined the well-traveled truck route to Barcelona's textile factories. Even as the company grew, Ortega stuck to his two rules.
It took Ortega 10 years to found the holding company, Inditex, and open his first international store in Portugal -- whose labor force, cheaper than Spain's, made it the next obvious place to produce; New York and Paris followed in the late 1980s. While Zara proliferated across Europe through the 1990s, much of the production was kept close to home. "Our roots have always been in manufacturing," says Jesús Echevarria Hernández, Inditex's spokesman, sitting in the company's sprawling headquarters in Arteixo, outside La Coruña, with floor-to-ceiling windows overlooking farmland. "When we come here, we always refer to it as 'going to the factory.'"
The factory is part sci-fi machine, part old-fashioned retail -- a well-oiled operation organized around Ortega's twin principles. It is restocking continually at top speed. Inside, its high-gloss, white, minimalist interiors resemble a humongous Zara store. Along two arteries down the main floor, hundreds of designers and sales analysts work at long white counters in a vast open space, grouped around regions of Zara's empire. The pace is frantic: Designers create about three items a day, and patternmakers cut one sample from each. Seated alongside them are commercial-sales specialists, each with regional expertise, who dissect tastes and customer habits using sales reports from Zara store managers to see what's selling and (more telling) what customers are looking for. Staffers say inspiration comes from the streets, clubs, bars, and restaurants. Each is trained to keep an eye on what people are wearing, just as Ortega has done for decades.
The billionare now: As the semiretired founder of Zara, Ortega lives out of a seaside multibuilding residence;
he and his daughter enjoy horseracing; a Zara store in his hometown.
At one end of the Zara design floor is a small team that manages Zara.com. There, flat-screen monitors linked by webcam to offices in Shanghai, Tokyo, and New York act as trendspotters, since countries and cities are not monolithic: Tokyo's Ginza district, for example, resembles SoHo in Manhattan more than Tokyo's business district. The obsession for spotting new tastes is pure Ortega. "We never go to fashion shows," says Loreta García, who joined Inditex 23 years ago, straight out of design school, and now heads Zara Woman's trends department. "We track bloggers and listen to customers, but we change our opinions all the time," she says. "What seems great today, in two weeks is the worst idea ever."
What keeps this machine ticking is the logistics department -- "the essence of the company," says Echevarria, who credits the system for such turnaround speeds in places as far-flung as Baku and Melbourne. At 400,000 square feet, the logistics building is more than three times the size of headquarters across the street, and is organized around a Rube Goldberg-style labyrinth of conveyer belts extending five stories high. It delivers customized orders to every Zara store on the planet. There is a firm 24-hour turnaround deadline for Europe, the Middle East, and much of the U.S., and 48 hours for Asia and Latin America.
The unusual arrangement is pure Ortega. Though he officially handed the reins to Pablo Isla in July 2011, Ortega remains the company's muse, inspiration, and biggest shareholder. Astonishingly, Ortega has never had an office. Even now, the world's third-richest man sits at a desk at the end of Zara Woman's open workspace. Ortega prefers touching fabrics to reading memos. "It's as though there are no computers," García says. "The directors are like that too now," she says. "We all started here young and have grown up with Ortega." Newer staff members say they are astonished at how often Ortega discusses colors and trends with them. "You can ask Ortega, 'What do you think of this?' It's very flexible," says García. "You don't have to fix an appointment." Asked what Ortega's legacy will be at Inditex, Isla, the CEO, answered similarly: "The entrepreneurial spirit, the self-criticism, the culture: The company is completely flat."
Ortega's insistence on staying close to home and his ability to connect with even low-level employees raise an intriguing question: Would his executive style have been more hierarchical and conventional -- and perhaps less successful -- had he emerged from a privileged family and with an MBA, rather than from dire poverty with little education? "Poverty clearly made him who he is," says Blanco, who wrote his unauthorized biography. "There was a hunger. Show me any great boxer who didn't come from this kind of background."
The floor of Zara's logistics building, where clothing arrives from Brazil, China, and India, only to be shipped back out in under 24 hours
In semiretirement, Ortega now lives in a five-story sea-facing house in La Coruña, on a busy city street, with little evident security. He eats breakfast every morning (eggs and fries, say friends) with acquaintances at La Coruña's businessmen's club, and retreats on weekends to his country house, where he raises chickens and goats and gathers his grown children. A creature of habit, Ortega devotes weeks a year to hiking pilgrimage routes in Galicia, and his lifelong aversion to flying keeps him from traveling much. Antonio Grandío Dopico, economics professor at the University of La Coruña, who has known Ortega since Inditex began, says his old friend's life philosophy is "absolute normality."
Yet these are not normal times in Spain. Youths in their twenties -- Zara's key market -- suffer unemployment rates of about 50%, double the national average. The country's economic pain is clear walking through La Coruña. The commercial artery has dozens of boarded-up storefronts. The one bright spot is a renovated building on a prized corner near the port, lit up and humming with action: the city's premier Zara store.
How long can Zara maintain its relentless expansion? With Europe's slowdown, the company expanded in the U.S. and Asia, with a splashy opening on Fifth Avenue last year, and in September launched Zara.com in China. As Zara expands farther from La Coruña, Ortega's rules might collide with the reality of shipping hundreds of thousands of garments a year back to Galicia for distribution.
Zara may change, but the man who built this retail giant will always be, deep down, a small-town hero. Once, when traveling to a store opening in Manhattan, Ortega watched as shoppers poured through the doors. He was so overcome he shut himself in a bathroom and wept. "No one could see the tears streaming down my face," he told O'Shea. "Can you imagine how I thought of my parents then? How proud they would have been of their son who had, so to speak, discovered America, starting from a little town lost in the sticks of northern Spain!"
This story is from the January 14, 2013 issue of Fortune.
