Zara – IT for Fast Fashion Management Information Systems EXECUTIVE SUMMARY The objective of this document is to discuss the issue of Inditex’s DOS-base IT infrastructure and how it affects Zara’s performance. Inditex is concerned about its IT infrastructure being antiquated and the possibility that hardware vendors will upgrade their machines leaving them incompatible with DOS. Because Zara’s core business model is vertically integrated, it could specialize in speed and efficiency and the fast fashion trend.
By assessing the pros and cons of the new IT infrastructure with Zara’s brand image, they determined that implementing the new POS networking system is beneficial for Zara because 1) it creates a more robust and scalable system that is more responsive to Inditex’s supply chain network, 2) it removes the risk of the system becoming obsolete and no longer compatible with vendor’s machine upgrade, and 3) it helps to maintain and improve efficiency of decentralization because information flow can be improved between stores, DC, and plant. CASE DESCRIPTION Zara is the most profitable brand of Inditex.
It has opened his first store in 1975 in La Coruna in Spain. Today, it has become the central headquarters for Zara. This brand is present in all continents: Europe, America, Asia and Africa. Zara has developed a business model based on short deadlines, decrease quantities and a great choice of style and clothes. The company succeeds to make moderate prices with a large choice of new clothes every time. The success of ZARA is based on two principals: follow the trend to be able to sell garments at a moment where people want this kind of style, without using any advertisements as the concurrence does.
They don’t want to convince people to buy their clothes but give the public what they desire at the moment. Secondly, the trust that had been given to employees allowed the company to delegate. They decide what clothes should be in stores and design the garments by pairs for a specific collection. Their role is to create clothes not to be sold for a long time but only for a short period in appropriateness with the current trend. The goal of the firm is to convince the consumer to buy their clothes.
Their bid is that they propose and deliver all fashion style at the moment and they don’t want to make marketing for old or past fashion collections. To quickly meet consumer demand Zara established three cyclical processes i. e. ordering, fulfillment, and design and manufacturing. Zara and its competitors sell clothing for men, women and children, and women section is the major section of these clothing retailers. However, Zara is different from its competitors in few ways: 1) Zara does virtually no advertising (twice-yearly ad promotion on sales and opening new store announcement).
Thus, Zara’s marketing expenditures averaged 0. 3% of revenue, instead of the 3% to 4% for competitors. 2) Zara only sells trendy clothes and not tries to produce “classic” clothes which would always be in style. Zara’s clothes have fairly short life spans. About 75% of the merchandise changes over every three to four weeks. The shoppers do not expect Zara garments to be highly durable. 3) Zara introduces substantially new design collections throughout the year. Other competitors introduce new design collections at the start of the fall/winter and spring/summer seasons.
Zara only works with stores. They don’t make merchandising on the internet simply because the DCs are not configured for picking small orders and shipping them to consumers. The stores are based in the strategic place of towns. The design and the organization of the stores are changed every four years behind the indications and orders of La Coruna in order to be creative and innovative all the time. Zara introduces approximately 11,000 new items each year much more than its competitors.
In the beginning of 2003, they had 1158 stores in 45 countries of which 550 were part of the Zara Chain. To precise, their principal market is principally in France and in Spain. Zara’s main strategy is the ability to respond very quickly to the demands of target customers which called for identifying trends of the customer in advance. The problem Zara faces currently is that the system that they use, P-O-S (Point of Sale terminals), runs on DOS which Microsoft does not support anymore and any hardware change in the POS terminal will not be compatible with the current POS software.
Hence the key problem Zara is facing is to decide whether to upgrade Zara POS system, which will be a big risky task for Zara as they may lose the reliability offered by the current system, or to continue with the current system, despite the fact that the current POS system, even though it satisfies the needs of the company, but it is a DOS-based system and no more supported by Microsoft and may not be compatible with technology changes and improvements in the future. Goals and Strategy Analysis What qualify the best of Zara is ‘reactive’ and ‘creative’.
They adapt to their environment. Their commercials don’t reveal what clothes will be produced. It’s not an elite team who draws and makes the design of clothes. The collections are modified all the time, divided into 3 sections “men”, “women”, and “children” and into different groups (“sports”). There are 2 designers and 2 commercials and managers who imagine and realize the clothes. It is adapted to the client desire. The clothes have to be worn about 10 times. For that, Zara does receive a lot of return of clothes from the clients. Zara firms use a system of decentralization. Every unit or groups of work have his autonomy – Furthermore, employees have much more responsibilities than those in other clothing chains. They trust in the judgment of their employees and they take care of it. – Commercials and products are much closed, very linked into the chain. In fact, commercials travel all around the world to pick up new desires of people for example, they look for what clothes Zara would sell if Zara made it. Managers decide as to where to set the clothes in the store. They set its in order they want the clothes to be bought. At the difference with other firms, it’s not the headquarter that decides.
The prices are decided for all stores. So, Zara has demonstrated how its business model could be very successful. It’s capabilities to focus on one strategy wish is to change and be innovative all the time that has made this company one of the best profitable clothing firm. In the future, they will have to continue to adapt their marketing and strategic development using new information and communication technologies to make better and better exploitation operations. Sectorial constraints our study is about “the clothing industry sector”. We have to pick up the constraints of this sector.
First, we can notify that this sector is really influenced by the taste of customers. On top of that, their tastes change all the time and very quickly, so it is difficult to forecast the new clothing trends. Their feelings are very hard to predict and even more to influence. It is a superficial sector; a new fashion trend can appear suddenly because of a small event. A trend can be popular and just a moment later fade. It is difficult to be coherent with the taste of the customers. It is all the more difficult for manufacturers than they don’t be in touch with the client.
Therefore, we can also declare that there is a lack of link between manufacturing and retailing. Analysis of the problems in business processes and operations The key problem Zara is facing is to decide whether to upgrade Zara POS system, which will be a big risky task for the company as they may lose the reliability offered by the current system, or to continue with the current system, despite the fact that the current POS system, even though it satisfies the needs of the company, but it is a DOS-based system and no more supported by Microsoft and may not be compatible with technology changes and improvements in the future.
With over 550 stores, this would be a huge undertaking for Inditex, Zara’s parent company. While an upgraded system proposed by Salgado would provide more functionality and convenience, it is not essential to sustaining the core competencies that Zara currently excels at “fast fashion. ” Upgrading to a networked, Windows, or Unix-based operating system would be very costly and would require training as well as implementation support and continued systems maintenance.
The only obvious benefit of upgrading the system at this point in time would be to provide real-time inventory tracking and the ability to see other stores’ inventories. Even though this networking functionality would be of help to customers and store managers, it would deviate from the company’s extremely effective business model. The second main risk is that Zara has to keep up-to-date its information flow to foresee as much as possible the future trends. With an effective IS, they will be able to stay ahead of the curve and maintain their leadership.
Firm-based Value Chain Model Michael Porter published the Value Chain Analysis in 1985 that helped identify a firm’s core competencies and distinguish those activities that drive competitive advantage. The cost structure of an organization can be subdivided into separate processes or functions assuming that the cost drivers for each of these activities behave differently. Porter’s strength was to condense this activity based cost analysis into a generic template consisting of five primary activities and four support activities.
Primary activities are those that are related with production, while support activities are those that provide the background necessary for the effectiveness and efficiency of the firm. By subdividing an organization into its key processes or functions, Porter was able to link classical accounting to strategic capabilities by using value as a core concept, i. e. the ways a firm can best position itself against its competitors given its relative cost structure, how the composition of the value chain allows the firm to compete on price, or how this composition allows the firm to differentiate its products to specific customer segments.
It is essential for a firm to apply the concepts of this model as this model makes it clear that an organization is multifaceted and that its underlying activities need to be analyzed to understand its overall competitive position. An organization’s strengths and weaknesses can only be identified in relation to the profiles of its direct competitors. Competitive advantage is derived from an integrated set of decisions on these key activities thus improving company’s survivability and profitability. Model Application
Zara orchestrated the entire value chain process and added value at each stage of the process. As a crucial element at the start of entire value chain process, Zara allowed its employees to customize the clothes according to the tastes and preferences of the customers or buyers. The head office is the nervous center of the system. It is linked to the creation studio, suppliers, shipment centers, and stores. Zara’s manufacturing is vertically integrated. Unlike similar apparel retailers, Zara controls most of the steps on the supply-chain.
It designs, produces and distributes itself. The business system that had resulted was particularly distinctive in that Zara manufactured its most fashion sensitive products internally. There is a network with specialized facilities that quickly produces and delivers the required goods. Commercials decide which clothes will be designed and produced. The team usually consists of two designers and two managers, who purchase material, place production orders with factories, and set prices.
Another group of commercials who are the store product managers sit in close proximity to the product teams and serve as Zara’s main interface with the chain of stores globally. They can initiate store to store transfers if some products are not popular in some areas. Zara owns a group of factories in and around La Coruna to do the capital intensive initial production steps such as dyeing and cutting cloth. All finished garments are sent to Zara facility where they are ironed, inspected, given a machine readable tag and then sent to the stores.
Once received at the store, managers decide the displaying of the clothes in the store. They set the clothes in the order they want them to be sold. Hence Zara has demonstrated how its value chain model could be very successful. Its capabilities to focus on one strategy wish is to change and be innovative all the time which make this brand one of the best profitable clothing firms in the world today. Implementation opportunity analysis First of all, the manufacturing department forecasts the demand to avoid risks in their inventory.
Often, manufacturing should have to reduce the production of a kind of clothing since it has a small demand but they can’t as they don’t know what the outcome would be. In fact, the production depends on the area where clothing will be sold and the taste of customers. It is a problem to understand the environment of this sector. Manufacturing have to understand to quickly meet the needs of the customers and they have to adapt their production to the new trend accurately.
Moreover, they handle a lot of stocks, so they carry a lot of inventory risks as well. As we read in the case, Zara’s every major section i. e. man, women & children places orders to headquarter twice a week with specific deadlines. But due to lack on inventory in store computers, managers have to perform this act manually. They see the newly available garments by consulting a handled computer that is linked each night via dial up modem to IS. This is a risk to the company as there is no back-up to check on the inventory in the event of network failure.
Hence it can be considered that Zara’s inventory control process is inefficient. Another problem Zara is facing is to decide whether to upgrade Zara POS system, which will be a big risky task for Zara as they may lose the reliability offered by the current system, or to continue with the current system, despite the fact that the current POS system, even though it satisfies the needs of the company, but it is a DOS-based system and no more supported by Microsoft and may not be compatible with technology changes and improvements in the future.
Some other areas for improvement that Zara needs to look into is get reliable fax machines, PDAs (Personal Digital Assistants) which are used in all Zara stores and POS terminals are not connected with Zara’s headquarters or with other stores, hence this can lead to communication gap. Moreover there is no in-store connection to link employee’s information like daily sales and the employees have to copy this information on a disk. Floppy disks should be replaced with faster and more reliable digital storage devices for storing data. Implementation effectiveness
The functionality of the IS/IT product(s) has been a good match to the Zara’s business needs. One of the best advantages of the software functionality is that since the IS implementation is completely based on DOS, the software functions are developed and maintained internally. Hence, Zara has always developed its own IT solutions and if it were to outsource the work through subcontractors, it would be hard to judge the quality of work that would match with Zara’s values. The Zara’s staff devoted to IT is 50 in number that are divided in several departments (store solutions, logistic support, and administrative system).
This staffing actually without the need of CIO, can handle all the IT operation needs of Zara stores worldwide which are very cost effective. The analysis of Zara’s activity reveals that its main strategy is the ability to give a quick answer to target customer’s demand and its capacity to anticipate the customer’s trends. Zara is able to identify new trends and to satisfy the demand of customers with its value chain system that is really effective and its structure very organized. The system that they have worked with i. e.
DOS operating system and the POS terminals has been easy to maintain and very effective especially with setting up in new stores. Another change that Zara has done that has increased the productivity is upgraded the ordering system by fax machines to PDA’s. By doing so information is quickly exchanged between the stores operating globally and the head office that is based in Spain. Hence from the above few points highlighted above, it can be said that Zara has definitely saved money in their IT department, increased efficiency and has thus achieved brand recognition worldwide.
Conclusions and recommendations Zara’s main strategy is the ability to respond very quickly to the demands of target customers which called for identifying trends of the customer in advance. The company has been able to identify the trends and meet the demand with the help of its autonomously organized structure and its effective value chain systems. The present system followed by Zara has been very effective and very easy to maintain, which as a result has persuaded the company to continue without any change in the present system so far. The problem that Zara faces right now is that the system that they se, P-O-S (Point of Sale terminals), runs on DOS which Microsoft does not support anymore and any hardware change in the POS terminal will not be compatible with the current POS software. Although the sense of urgency for the change may not be that high, investing in IT infrastructure is a must as MS Dos is an obsolete technology and there is no contract or guarantee from their POS terminal vendor that they will continue supplying the same terminal with out much changes in the hardware for any specific period of time, therefore change is unavoidable.
Another problems also faced are inefficient inventory process and disconnect between the stores worldwide and corporate office in Spain. Hence keeping all the above factors in mind, it is recommended the Zara should consider upgrading its system mainly because • It will create a more robust and scalable system that is more responsive to Inditex’s supply chain network. • It will remove the risk of the system becoming obsolete and no longer be compatible with vendor’s machine upgrade and • It will help to maintain and improve efficiency of decentralization because information flow can be improved between stores, DC, and plant.
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