Zara: IT for Fast Fashion - By: Brenda Sandoval MGT 6352
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Running Head: ZARA: IT FAST FASHION 1
Zara: IT for Fast Fashion
By: Brenda Sandoval
MGT 6352ZARA: IT FOR FAST FASHION 2
TABLE OF CONTENTS
Executive Summary-------------------------------------------------------------------------------------------3
Introduction----------------------------------------------------------------------------------------------------4
Goals and Strategy--------------------------------------------------------------------------------------------4
Problem Analysis----------------------------------------------------------------------------------------------6
Firm based Value Chain-----------------------------------------------------------------------------7
Model Application-----------------------------------------------------------------------------------8
Implementation Opportunity Analysis---------------------------------------------------------------------9
Implementation Effectiveness------------------------------------------------------------------------------10
Conclusion----------------------------------------------------------------------------------------------------12
References----------------------------------------------------------------------------------------------------13
Appendix------------------------------------------------------------------------------------------------------14ZARA: IT FOR FAST FASHION 3
EXECUTIVE SUMMARY
Zara is the largest retail company owned and run by Inditex, largest Spanish corporation
and the world’s largest fashion group. The way Zara has runs its company is by following a
vertical integrated operation that has the advantage to shorten the time in making decisions.
Inventories in the stores depend on the geographic area in which the store is located; and the way
Zara does their marketing is by just displaying posters at stores and by their windows display.
This approach to make business has work very well for Zara; they show an economic growth
despite the strong crisis suffer in the United States.
The problem that Zara faces is whether to update their existing software or to keep the
current software but running in the misfortune that the only DOS supplier will cease to maintain
the software. Several benefits and economical costs are described to observe either it would be a
wise move or not.ZARA: IT FOR FAST FASHION 4
INTROUCTION
Zara is a Spanish clothing and accessories retailer based in Galicia, Spain; founded by
Amancio Ortega and Rosalia Mera, owned by Inditex. Zara’s success is attributed to their low-
priced look-a-like products of popular higher-end clothing retailers and for their fast production
of new garments. In just three weeks Zara can have a new product on shelves ready for the
consumer to purchase compared to their competitors that required from three to, even, six
months. The first store opened in La Corun~a proved to be a success, and Ortega saw the
opportunity to expand to other cities around Spain and even cities around the world, (Inditex’s
Website).
In a way Zara’s success could be also attributed to their information technology tools
employed at their production level; from a designer checking for sketches with colleagues to
market specialists, all the way to cross-functional teams examining clothing prototypes in the
hallways of Inditex building. All of this is possible thanks to the careful ways Zara deploys the
latest information technology tools to facilitate these informal exchanges (Ferdows et al. 2004).
GOALS AND STATEGY
“The original business idea was very simple. Link customer demand to manufacturing,
and link manufacturing to distribution. That is the idea we still live by. (Jose Maria Castellano
Rios, Inditex CEO)”.
Zara’s CEO and founder, Amancio Ortega, saw the great importance of having retailing
and manufacturing closely together in the apparel industry and from his view; Zara was able to
position itself as a company with vertical integration control system. It covers all phases of the
fashion process: design, manufacture, logistics and distribution to its own managed stores. It is
also characterized by their strong focus on their customers.
Such business model helps reduce the “bullwhip effect”, that according to Ghemawat et
al. (2006),it is the tendency for fluctuations in final demand to get amplified as the orders are
transmitted back up the supply chain; because the fashion Market is not stable and it changes
extremely rapid Zara was among the first companies that could bring a new concept into the
Market in just three weeks from design to hanging from a store, ready for customers to purchase;ZARA: IT FOR FAST FASHION 5
in contrast their competitors that would take among 6 to 9 months. “Vertical integration enables
them to shorten turnaround times and achieve greater flexibility, reducing stock to a minimum
and diminishing fashion risk to the greatest possible extent (“Zara”, n.d).
Zara’s strategy is very simple but has worked well in the past and still have maintained
with plenty of business in spite of past economic downturns. Amancio Ortega has very clear in
his mind Zara’s main goal and he really tries to follow it to the best way possible. Business
strategies used by Zara are very clear in the case, but this report will discuss mainly three: Speed
and Decision Making, Marketing, Merchandising and Advertising and last but not least,
Information Technology.
Speed and Decision Making
Zara sees the need to respond quickly to the demands of their consumers, as the fashion
industry changes from night to morning, that is why Zara has placed their trust in its employees.
Instead of hiring a group of “gurus” in fashion, Zara workers communicate directly with the
consumer, they analyze what the items that are selling like hot bread, and what items are the
consumers looking for. Based on the information gathered, a group of “commercials” decide
what clothes will be designed as well as the set-up of the final price. There are several groups of
“commercials” within the company, another group is dedicated to travel extensively to all the
retails shops around the world, this group in particular has considerable autonomy in deciding
which products to send to each stores, thus shortening the decision making process among top
and middle management.
Marketing, Merchandising, and Advertising
Reviewing commercial prints and TV commercials, it can be noticed that Zara is not
anywhere. That is because Zara spends only 0.3% of its total revenue on marketing, instead of
3%-4% typical for competitors, but spends heavily on their stores. Usually locations of the stores
are located at popular high-end spots within the city. Although managers have a lot of freedom in
making decisions regarding sales of garments, managers have to follow a strict profile on the
décor of the store, all stores have the same layout, design and decoration. The way management
works for each country depends heavily on the behavior of their flagship store. Flagship storesZARA: IT FOR FAST FASHION 6
open at a new country, and from analyzing it sales and revenues, all other stores in that country
will follow the management implemented at that flagship location.
The style of clothing sold at Zara is not meant to last a whole life nor is meant to be worn
year after year; instead Zara focuses on broad, rapidly changing product lines, with great
emphasis on fashion contest at relatively economic prices. As many critics will describe Zara’s
garments as “clothes to be worn 10 times”. Zara has an incredible power of sale on its
consumers; consumers are aware of the rapid inventory turnover on the products, thus creating a
sense of urgency to acquire the product at the time when visiting the store.
Information Technology
Zara stands apart from its competitors on that only 0.5% of its total revenues are used on
IT (Information Technology) and its IT compromises just 0.5% of Zara’s total workforce. But
how a successful company can run with only such a small IT force? Or better yet, how can Zara
run so smoothly in today’s advanced technology? The answer to that is Hybrid Model
Information. Information from stores to headquarters relies from combined human intelligence
input and from information technology, such as their PDA devices (“Zara’s business model”,
2011). Store managers input the requested order of what the store needs and in return another
group of “commercials” decide whether to allocate the inventory on that particular store or send
it to retails where there’s a greater movement of goods. Such decisions are based on calculations
from an application that tracks “theoretical inventory” of each SKU available. Inside the
factories, IT is used for the production of goods such as large computer-controlled cutting
equipment that cuts fabric in pattern using the most of all the fabric available. Distribution
centers (Exhibit 1), uses much of automation and computerization as well. Orders that come into
the DC are process by computers which locates the products in the warehouse and supplies such
orders. Applications used in the DC were created by the IT department exclusively for the use of
Zara.
PROBLEM ANALYSIS
“Zara’s business model is vertically integrated retailer in the apparel industry, linking
customer demand to manufacturing, and link manufacturing to distribution and to retailing
business (Anonymous, n.d)”.With the purpose for better understanding problems faced by Zara’sZARA: IT FOR FAST FASHION 7
business model operations; a review of the primary and secondary activities of the firm’s
business will be implemented using Michaels Porter’s value chain model.
Firm-Based Value Chain
According to Laudon (2010), “The value chain model is very helpful for identifying
competitive forces and suggesting generic strategies; it also highlights specific activities in the
business where competitive strategies can be best applied and where information systems are
more likely to have a strategic impact. This model identifies specific, critical leverage points
where a firm can use information technology most effectively to enhance its competitive
position.” The value chain views any business as a series of basic activities that add value to the
business’s products or services.
The model classifies such activities into two major parts: primary activities and support
activities. Primary activities are steps mostly related to the production and distribution of the
business’s products and services; which create value for the consumer (Laudon, 2010). They
include activities such as inbound logistics, operations, outbound logistics, sales and marketing,
and service (The Value Chain, 2010).
Activities described above need to be facilitated by the support activities and consist of
organization infrastructure (administration, finance, legal, quality management), human
resources management (recruiting, development, training and compensation of employees),
procurement (function of purchasing the raw materials and other inputs used in the value-
creating activities), and technology development (research and development, process automation,
and other technology development used to support the value-chain activities) (The Value Chain,
2010). The implementation of support activities depends heavily on the success of the firm in
developing an accurate competitive advantage, for example, to develop a cost advantage through
innovative management of information systems.
Having a clear sense of the business value chain model, firms can ask themselves
questions along each stage of the value chain, for example “How can the firm use information
systems to improve operational efficiency, and improve customer and supplier intimacy?” Or
“how information systems can be used to improve the relationship with customers and withZARA: IT FOR FAST FASHION 8
suppliers who lie outside the firm’s value chain but belong to the firm’s extended value chain
where they are absolutely critical to your success? (Laudon, 2010)
Model Application
An application of Porter’s Model Value Chain is shown in Figure below:
Figure: The Value Chain Model
Technology Development
Support Activities
Infrastructure
(This
Sourcing figure
Firm
is not
Value
Chain
Primary Avtivities
Ordering Fulfillment Design Manufacturing
Zara’s way to conduct business can be described following the model chain model
portrayed above. Support activities consist of three main activities: Technology Development,
Zara is equipped with mobile tracking system and its sales personnel are equipped with hand
held organizers. Infrastructure, store managers have a great input in Zara’s fashion trend. They
are equipped with hand held organizers where fashion trends can be punch in, as well as
customers comments and orders; once this information is gathered the designers will combine it
with their market research for new emerging trends. Sourcing, “Zara sources from external
suppliers with the help of purchasing offices in Beijing, Barcelona and Hong Kong apart from
their head office. It also requires fabric, inputs and finished products from suppliers in Spain and
other Far East countries. One half of the fabric is purchased in gray color so designs can be
quickly updated in between seasons. This helps in overall cost reduction and delay the processes
to attain operational effectiveness (Garg n.d)”.ZARA: IT FOR FAST FASHION 9
Primary activities start with the replenishment of existing items and requests for newly
garments placed weekly by store managers. Fulfillment of orders depends highly on the
aggregated orders from all the stores and from the total supply of inventory in the DC. Design
and manufacturing comes hand in hand, thanks to Zara’s vertically integrated operations it is
possible to create a new garment and in a couple of weeks have it out in the public.
IMPLEMENTATION OPPORTUNITY ANALYSIS
Table (1) below portrays problem identification at functional areas along with
opportunity for information systems technology with the associated decision level.
Table 1: Problem Identification
Functional Area Type of Information Decision-Making Level
Systems-Example in how IS
facilitate supply chain management
Inbound Logistics MIS-maintain an optimal level of Structured at operational level
fabric available in case a change in
fashion trend.
Pr imary Activities
Operations MIS-decide when and what to Structured
produce, store and move
Sales/ Marketing MIS- create faster products to react Structured
the fast changing fashion demand
and plan production based on actual
customer demand.
Customer Service MIS-availability to communicate Structured
customer needs
Outbound Logistics DSS-fulfillment of retail orders. Semi-structured
Track the status of orders
Administration and Finance Accounting:
Support Activities
*account receivable *Middle Management
Management
*budgeting *Middle Management
*Profit Planning *Senior ManagementZARA: IT FOR FAST FASHION 10
Human Resources Workforce Planning Systems Middle Management
Technology Computer aided design systems Middle and Senior management
Procurement Computerized ordering systems All levels of management
*MIS- Management Information System
*DSS-Decision Support System
Up to this point it can be stated that Zara follows a cost leadership strategy; it is driven by
following the lowest cost operation in the apparel industry, it produces highly standardized
products using high technology. This holds true at their DC’s where a great amount of
automation is used because the rest of the business is falling short. Stores have to rely on fax
machines and phone calls to headquarters for orders, inventory is not up to date at store level,
even PDA’s used by managers are not connected to other stores to share information about
inventory. The lack of a chief information officer impoverishes Zara’s decision making in their
initiatives to upgrade their IT department.
IMPLEMENTATION EFFECTIVENESS
Zara choose to invest within its own software rather than buying new technology simply
because the company’s operations were unique and commercial packages would not fit; also the
fact that Zara is a global company, it deals with various currencies that standard accounting
packaged would have to be extensively customized and comprehensive. Zara’s operating system,
DOS, is obsolete from the market affecting the firm with no reliable system for future
forecasting; “not keeping up any historical date means being unable to predict sells, plan or
estimate loses/gains and margin on particular designs (Anonymous, n.d).
Unreliable fax machines that were taking too long and costing too much to fax order
forms back and forth to stores caused delays and frustration. The use of telephones is greatly
affected by miscommunication and mishearing. From the above it can be deducted that Zara’s
internally application is not a good match for the firm’s needs because: their internally developed
applications are not easy to upgrade and are not compatible with other applications, POS
terminals are outdated and stores need POS terminals that will insure no infrastructure problems
and its IT department is relatively small for the size of the firm.ZARA: IT FOR FAST FASHION 11
The needs of how well the implemented functions of the IS/IT product can be categorized as
follow:
Existing System Evaluation
Tangible costs of the existing system will be the firm saved over 15,000 development
hours that would be required to port the software to a new operating system and instead used
those hours to keep Zara’s expansion into other countries. A disadvantage is that the cost of
upgrading to a new system would be quickly offset by the benefits of getting work done more
accurately and conveniently at stores. Zara will benefit because current strategies and
technology favors low operational costs, low computer expenses, small IT workforce is
necessary and minimal increase in expense when opening new stores. By maintaining low
operational costs Zara’s performance can be demonstrated by its outstanding financial
performance.
Intangible benefit of the existing system is that the system is easy to install at stores and
managers require little to no training on the system. Intangible costs are more problematic to the
firm because the current system is antiquated runs with the possibility to be discontinued. It also
hampers productivity gains due to slow labor intense data collection and transmission that
requires more labor hours to accomplish basic ordering and inventory functions. Zara’s corporate
image is affected as well by not keeping up to date technological advances in the firm’s
functionality.
Upgrading System Evaluation
Tangible costs for upgrading of the system would involve financial expenses. From all
three operational systems appraised by Zara, Linux is the best and cheaper option to adopt. Linux
service contract ranges from €10 to €150 and the expense depends on the IT staff knowledge on
the new system. To implement the upgrade Zara will also have to install new hardware, costing
an average of €5,000 per POS terminal, on top of that , costs of installation of new cables,
routers, training of staff will also add up to the total upgrade costs. Tangible benefits will be that
stores will increase their productivity levels, reports will be up-to-date, optimum level of
inventory will be kept at stores ,less workforce will be required per location andZARA: IT FOR FAST FASHION 12
feedback/comments from customers will reach designers ears at faster pace. All of these
examples will positively impact Zara’s total revenue.
Intangible costs for upgrading of the system would include staff flexibility in learning
new system. Zara’s staff is accustom to current system and implementing a new system will
require extensive training, frustration and patience that some of the employees would not be
willing to put up to, thus fostering an uneasy workplace environment for employees that are
reluctant to new changes. Intangible benefits of the new system are: improved asset utilization by
more efficiently transfer items between stores, improved resource control by tracking store
inventory, improved organizational planning by increasing orders’ size or frequency based on
real time inventory data, increased organization flexibility by incorporating communication
between designers, store managers and product managers with real time data on sales across the
world.
CONCLUSION
I believe that Zara should considering in upgrading its current POS to Intuit-HP Retail
solution for department stores. Along with the software, the hardware can be purchased in
bundles of equipment that will make every retail location complete. This software makes it
convenient for the client and for the store manager in the sense that is flexible, reliable, adaptive
and efficient. Zara can choose the system that is right for their business; the HP POS systems are
simple to set up and little maintenance is required; is adaptive and evolves to the ever changing
market; and more importantly; it can manage everything, from inventory to back office
operations. Also the great advantage of this new software is the “QuickBooks Hardware Rapid
Replacement Program” which ensures minimal Workstation downtimes by quickly and
conveniently replacing failed hardware peripherals; with the help of this program Zara can keep
their IT workforce in the small numbers. All these transitions into the new software should be
done smoothly and by regions at a time, provide training to employees and let the employees get
familiar with it. Upon the completion of the integration, Zara will alleviate dependence on
Sanchez and run with the misfortune to rely upon him or on his knowledge.ZARA: IT FOR FAST FASHION 13
REFERENCES
• Anonymous (n.d). Retrieved from http://www2.uhv.edu
• Brand Story- Zara (2011). Retrieved from http://fashiongear.fibre2fashion.com/brand-
story/Zara/philosophy.asp on November 20, 2011.
• Ferdows, K., Lewis, M., & Machuca, J., (2004). Zara’s Secret for Fast Fashioned.
Harvard Business Review, 82, No. 11. Retrieved from
http://hbswk.hbs.edu/archive/4652.html
• Ghemawat, P. & Nueno, J. L., (2006). Zara: Fast Fashion.
• Laudon, K., C., & Laudon J., P. (2010). Management Information Systems: Managing the
Digital Firm, 130-132.
• McAfee, A., Dessain, V. & Sjoman, A. (2007). Zara: IT for Fast Fashion. Retrieved
from http://hbsp.harvard.edu
• Garg, P. (n.d). ZARA-Value Creation in the Global Apparel Industry. Retrieved from
http://www.scribd.com/doc/60156159/ZARA-PRACHI on November 24,2011.
• Retrieved on October 31, 2011 from http://www.inditex.com/en/who_we_are/timeline
• The Value Chain (2010). Retrieved on November 5, 2011 from www.quickmba.com
• Zara (n.d). Retrieved from http://www.zara.com on November 1, 2011
• Zara’s Business Model, Information and Communication Technologies, and
Competitive Analysis. (2011). Retrieved on November 2, 2011 from
http://www.123helpme.com/view.asp?id=97642ZARA: IT FOR FAST FASHION 14
APPENDIX
Exhibit 1- Distribution CenterYou can also read
