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Zara: IT/IS for Fast Fashion

STUDENT NAME: ANIL NEMBANG

SUBJECT: MANAGEMENT INFORMATION SYSTEM

LECTURER: DR. UMA MOHAN

CARDIFF METROPOLITAN UNIVERSITY

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Executive Summary: This paper presents the analysis of Zara, a Pilot retailer of Spanish retail giant Inditex which has

become successful through its simple Business model of speed, flexibility and high fashion. The main

issue in this case is to decide by the company whether to upgrade current system risking reliability

with the current system or continue using DOS based operating system which is not compatible for

future changes or improvements. The current system followed by Zara is effective and easy to

maintain which persuaded the company to continue without any changes in the system. Although the

sense of urgency for new system is not high, MS DOS is obsolete technology. So, it has been

recommended that Zara should upgrade IT infrastructures and introduce modern information systems

in modular basis to capitalize strength, shore up weakness, invest in opportunities and identify threats

in Asian apparel Industry to capture the market shares. Introducing new POS networking system is

beneficial to Zara because 1) It creates more robust and scalable system that is more responsive to

Inditex’s Supply Chain Network, 2) helps to maintain and improve efficiency of decentralization

because of effective flow of information between stores, Distribution Centres and Plant and 3)

removes the risks of the system becoming obsolete.

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Table of Contents Executive Summary: ............................................................................................................................... 2

Introduction to the study: ........................................................................................................................ 4

Background of Zara ................................................................................................................................ 4

Strategic Planning: .................................................................................................................................. 4

Mission Statement: .............................................................................................................................. 4

Zara Business Model: ......................................................................................................................... 6

Comparing Business Model with H&M: ............................................................................................ 6

PEST analysis: .................................................................................................................................... 6

Political Environment: .................................................................................................................... 6

Economic Environment: ................................................................................................................. 7

Socio-cultural Environment ............................................................................................................ 7

Technological Environment: ........................................................................................................... 7

SWOT Analysis .................................................................................................................................. 7

Strength: .......................................................................................................................................... 7

Weakness: ....................................................................................................................................... 8

Opportunities: ................................................................................................................................. 8

Threats: ........................................................................................................................................... 9

Decision making and information requirements: .................................................................................... 9

IS Recommendation: ............................................................................................................................. 11

Sales and Marketing Information system: ........................................................................................ 12

Manufacturing Information System: ................................................................................................. 13

Logistic Information System: ........................................................................................................... 14

IS Recommendation for Resource Planning Department ................................................................. 15

IS Recommendation for Department of Supply Chain Management ............................................... 15

Is Recommendation for Customer Relations Department ................................................................ 15

Conclusion: ........................................................................................................................................... 15

Other Recommendations: ...................................................................................................................... 15

Reference: ............................................................................................................................................. 17

Appendix ............................................................................................................................................... 19

Pictorial representation of Zara business model ............................................................................... 19

Comparing Zara’s business model with conventional business model: ............................................ 20

Comparing Zara’s Price Markdown Strategy with regular retail: ..................................................... 20

Zara’s success factors: ...................................................................................................................... 21

Value chain of Zara ........................................................................................................................... 22

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Introduction to the study: The main strategy of Zara is the ability to respond very quickly to the demands of target customers.

The company has been able to identify the trends and meet the demand with the help of autonomously

organized structure and effective value chain system. The present system followed by Zara has been

very effective and easy to maintain. The problem with Zara is that the current system that they use, P-

O-S (Pont of sales terminals), runs on DOS which Microsoft doesn’t support anymore and any

hardware change in the POS terminal will not be compatible with the current POS software. The other

main issues the Zara facing is that the stores don’t share inventory information electronically and

hence inventory management becomes highly difficult and manual.

The decision making process is based on judgement of employee instead of relying on small set of

decision makers; the majority of decisions are made by store managers. The basic ordering activity in

store happens with the help of PDA devices which do not share the information with POS terminals

because of which the access to information in not very effective. However, despite of these limitations

Inditex, the parent company of Zara has made extraordinarily well performing value chain that is by

far the most responsive in the industry.

Background of Zara Zara is flagship chain store of Spanish retail giant Inditex Corporation owned by Spanish tycoon

Amancio Ortega. Headquarter of the group is in Coruña , Spain where the first store of Zara, most

renowned and fashion icon is founded in 1975. Zara, well known fashion designing and

manufacturing company is declared most effective and market responding enterprise in Fashion

Industry (Murphy, 2008).

Strategic Planning:

Mission Statement:

Zara’s Vision:

Leading apparel industry driven by customer demand and fast fashion.

Zara’s Mission:

To hold big market share among young and fashion conscious city-dwellers in all continents by

quickly responding their demand

Zara’s Goal:

Long term goal: Open 120 new stores in prime location of Asia, America, Europe and Africa by 2021

with all business functions of the company interlinked via computer network.

Short term goal

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Increase market share and sales in Asia

Upgrade Information Technology infrastructure

Zara’s Objective:

Marketing objective: To increase market share of Zara in Asia by 5% and sales by 10% by 2016.

Marketing Strategy:

Increase purchase frequency among current customers by 15% by 2016.

Increase the number of new customers by 10% by 2016.

Open 30 stores (10 stores per year) by 2016 in prime location of Asian cities.

Communication objective:

To increase brand awareness.

Communication Strategy:

Build strong relationship among existing and potential customers through CRM.

Customer satisfaction objective: To create convenient shopping environment and instant

acknowledgement of customer feedback by February 2014.

Customer satisfaction Strategy:

Make business online by end of January 2014.

Introduce Brick and click e-commerce business model

Integrate customer forum page in website.

Technological Objective: To collect and analyse information to achieve effective and efficient uses

of company assets/resources by 2015.

Technological Strategy: Set up integrated ERP, CRM and SCM by 2015.

Generic Marketing Strategy of Zara:

Zara mainly adopts Differentiation Strategy to meet its mission statement. Zara produces and markets

unique clothes base on sense of style and fashion. However, it also blends Cost Leadership Strategy

and Market Segmentation Strategy to some extent to its main strategy. Zara produces in small

quantity to lower the inventory cost. It employs a group of commercials dedicated to a section of store

namely Men, Women, or Children.

Core Strategy of Zara:

Decentralize the decision making process

Integrated supply chain

Stores in prime places

Short lead time

Small quantity production principle to lower the inventory risk and cost

Key Success Factors of Zara:

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Vertical systematization of production

Recreation of fashion

Utilizing store

IT system

Small quantity production principle

Utilizing geographical conditions

Collecting customers data and feedback

Zara Business Model:

Fashion retailer Zara has achieved spectacular growth via a distinctive design-on-demand

operating model.

Zara Business Model is mainly based on its business concept. The fundamental concept of Zara is to

rapidly respond to customer trend in fashion. Zara sells medium quality but fashionable apparel in

affordable price. Zara believes that constant flow of fashion world is driven by customer demand not

the supply. So, Zara maintains tight control over business functions by keeping design, production,

distribution and retail stores in close proximity to each other. In Zara, design is linked to

production, production is linked to distribution, and distribution is linked to retail store.

Zara has short lead time because of its effective in-house production mechanism. Zara maintains 80%

of its production in Europe of which 50% in Spain close to headquarter. Zara has business model of

forward integration where company takes direct control of its production and distribution. Moreover,

Inditex Corporation is holding company atop Zara.

Comparing Business Model with H&M:

The Swedish clothing firm, H&M outsources no-care operations. H&M doesn’t own any factories;

instead H&M buys clothes and other items through an abundance of detached suppliers. On the other

hand the business model of Zara is vertically integrated. Zara controls every step of the value chain;

only clothes with a longer shelf/fashion life time are outsourced.

PEST analysis:

Political Environment: East Asian countries have liberal trade policies and are well integrated to

global economy. Hong Kong and Singapore are free ports. South Korea and Taiwan are liberalized

substantially in recent years. Malaysia is fairly open but with significant protection. China has open

trade policy with European Countries while Japan has defensive (Sally, 2012).

There are around 52 countries in Asia. Asia currently has mixed political situation. West Asia and

South Asia has fragile political situation. Countries like Afghanistan, India, Pakistan, Iraq, Israel, and

Syria lie in West Asia and South Asia where the political situation is delicate because of domestic

conflict and war. However, Arabic countries like United Arab Emirates, Saudi Arabia, Oman, Qatar

and Bahrain have stable political situation. On the other hand, most of the countries in Southeast Asia

and East Asia have sound political situation. Countries like Singapore, Brunei and Malaysia in

Southeast Asia and China, Hong Kong, Japan, South Korea, and Taiwan (Republic of China) are best

potential countries for the company to expand.

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Economic Environment: The economy of East Asia is one of the most successful regional

economies of the world. It has some of the world’s largest economies: China, Japan, Hong Kong,

Taiwan and South Korea. Functional Differentiation, autonomy of economic system and abundant

natural resources are the main economic success factors of East Asia.

The economy of West Asia is diverse. Some of the countries has high economic growth rate. Turkey

has the highest economic growth rate followed by Saudi Arabia. Petroleum Industry is the major in

the regional economy.

South Asia has relatively poor economy in compare to other regions. Many countries are

underdeveloped and people are living under poverty. Sri Lanka has the highest economic growth rate

while Afghanistan has the lowest. India has the largest economy in South Asia and achieved 9% GDP

growth in recent year.

Socio-cultural Environment: Asian countries have mixed religions. East Asia has majority of

Buddhism and Taoism while West Asia has Muslim and South Asia has Hinduism, Muslim,

Christianity and Buddhism.

Asia has mixed lifestyle trends. Due to technological advancement, lifestyle of Asian countries is

highly influenced by European/western cultures. There is cultural exchange among the countries

over the world. Asian countries like China, India, and South Korea are coming to be regarded as

cultural hotspot and influencers of the futures.

There is fashion consciousness and brand awareness in Asian consumers. The trend of consumer

spending in lifestyle and fashion is increasing day by day.

Technological Environment: East Asia is highly advance in term of technology. East Asian

countries like Japan, China, Malaysia, South Korea, Taiwan, and Hong Kong are some of the leading

countries in technology in the world. They have highly advance and sophisticated IT infrastructure.

Technology is one of the key factors for vibrant economy in East Asia. East Asian countries are using

Technology for efficient and effective mobilization of resources in industry.

South Asia and Central Asia have developing countries. So, technology is still primitive in these

regions. However, India, the South Asian country has already moved forward in technological

advancement.

Arabic countries in West Asia are highly advance in terms of technology. Technology is playing key

role in the robustness of their economy.

SWOT Analysis

Strength:

High Brand Value: Zara is also known as popular clothing brand.

Vertical integration: Zara apparel chain works differently than the traditional retailer. Traditional

apparel retailers generally outsource all of their productions while Zara manages all design,

warehousing, distribution and logistics functions itself.

Advantage of vertical integration:

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Zara’s business model is vertically integrated and highly capital intensive because of which the

company has following advantages:

Cost is reduced because no channel is outsourced.

Avoid conflicts emerging form different channels.

Swift, efficient, and effective designation, production and distribution.

Strong distribution channel: Zara’s distribution channel is expensive but is very strong. Its

distribution network mainly works by plane and trucks rather than trains and ship to deliver twice a

week. By this system Zara has achieved 98.9% accuracy in distribution process (Dishti, 2010).

Spot emerging trend and react quickly: Zara has pull strategy rather than forecasting. Designers of

Zara walk around the world to pick the latest trend. Store managers frequently report the central office

about the inventory and sales which helps to identify the tendency of customers. Another strong

aspect of Zara is that the items are produced in the decision of manager and as per the customers’

choice rather than mere designers’ creativity.

Stores around the world: Zara has 1,721 stores over 70 countries to capture the apparel market.

Inexpensive but fashionable: The apparel in Zara is fashionable and affordable which is helping

Zara to undercut its rivals.

Customers ‘comments and feedbacks: Zara remains very close to customers. Each Zara store wants

and welcomes customer comments and feedbacks which help stakeholders to make future

merchandising policy and strategy. One of the managers of Tesco says ‘Our customer is based on

listening to customers.’

Weakness:

Advertising: Advertising is the persuasive communication device through which customers become

aware of the product and services of a company. Through awareness and knowledge thus acquired by

the buyers, they show their likings and interest towards products and finally purchases. But, Zara has

zero advertising policy.

Online presence at Zara is weak: Online is becoming very essential tool to display and sell the

products. The rival companies like H&M and Gap are much more benefited by their online business

activities.

Centralized distribution system: Centralized distribution system involves suppliers delivering

products in a centralized warehouse rather than to retail store. Sometimes centralized distribution

system may cause delay in meeting the demands in the stores.

Opportunities:

Online Market: The internet marketing provides tremendous opportunities to a business to improve

marketing effort and achieve competitive advantage. Online marketing can benefit business mainly on

three ways:

Effective communications

Product development

Business efficiency

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Expansion plan: Zara has been investing billions of euros to open new stores around the world and it

could be the robust plan for revenue growth in the future. The rate of opening new store of Zara is

about 640 stores per annum.

Outsourcing: Zara need to think about the strategies to take benefits from other corner of world

where the currency is weak and labour cost is low. Many companies are benefited from outsourcing

strategy.

Growing apparel market in Asia: Growth rate of apparel market in Asia is being high. Growing

population in Asia, higher disposable income and consumer consciousness in international brands are

the major factors which motivates Zara to enter into Asian apparel market.

Brand Image: Zara is the popular brand name among the customers around the world. Zara is able to

win the heart of customers because of its customer-centric policy.

Threats:

Euro centric production: Inditex Corporation focuses of designing and manufacturing most of its

products in European land where labour cost is in increasing trend. Increase in operating cost cut

down the profit.

Threat of new entrants: Although the rate of new entrants in apparel industry is low as big players

are dominating the market, there are still the threats of few entrants. The new entrants increases

competition and in return the bargaining power of customer increases which also cuts down the profit

of the company.

Economic recession: Economic recession makes the pocket size of consumers small which decrease

the spending power of consumer.

Global and Local competitors: Many apparel industries are evolving around the world with

unbeatable strategies. Brand names like H&M, GAP are the major competitors of Zara.

No advertising campaign: Zara doesn’t undertake advertising campaign because of which there is

probability that the rival company can slash down the consumer number due to their strong

advertising strategy.

Fluctuation in exchange rate: Zara has opened its stores in all continents Europe, America, Asia,

and Africa. Because of its national and international network, fluctuation in exchange rate of currency

contributes huge in loss and gain of Company.

Market entry barriers: Zara has global market penetration strategy. Each country has own law of

land. In some country international investments are welcomed while in some countries it has been

Decision making and information requirements: Decision making is the process of recognizing opportunities and problems and finding the solution to

it. Decision making structure of Zara is flat. Decision making is decentralized which allow Zara to

respond quickly to the changing market change and meet the customers’ needs. Low level decisions

are also integrated to make higher level of decisions in Zara.

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Level of Decision Type of Decision Information Required

Strategic Level Prime Location Density of potential customers and socio-

cultural and economic details of the

location.

Investment on opening New

Stores

Political, Economic, Technological, Socio-

cultural, Environmental and Legal

background and status of location of

interest.

No advertising marketing

strategy

Analysis of advantages and disadvantages

in opening new store over advertising.

Franchises and alliances Quality and reliability issue as well as legal

system of country.

Design driven decisions Information gathered by team of 200

experts in design and development field.

Look and feel of stores Consumer behaviour and psychology

Life-span of product Research about consumer behaviour

In-house building of software. How unique the company operation is.

Tactical Level Online presence of the

company

Pros and cons of online shopping and

online shopping trend and behaviour. In

addition, competitive advantage achieved

by rival apparel industries like GAP and

H&M.

Creation of logistic network Geography and geographical distance

among manufacture, Distribution Centre,

and sales stores.

Requirement of IT Employee and customer feedback and

competitive advantage gained by

competitors like GAP and H&M.

Future production of each

Stock Level Unit (SKU)

Ratio between demand and supply of each

SKU.

Price determination Production cost, distribution cost and

market condition.

Outsourcing for synthetics and

fabrics

Cost, turnaround time and geographical

distance.

Inventory Planning and

optimizations

Statistics of desired service level, demand,

supply and supply lead time.

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Centrally located distribution

centres

Geographical location and distances among

design and manufacturing and retail stores.

Price markdown Inventory information, store sales, cost, and

target margin.

Effective Transportation

strategies to be adopted.

Pros and cons of all transportation means

like roadway, railway, airway, and

waterway. Moreover, geographical location

and distance between manufacture,

Distribution centres, and store.

Knowledge Level Which store would get the

available stock in case demand

exceeds supply?

Which store is more successful to sell the

particular garment?

What clothes would be

designed and produced

Inventory information, store sales records,

information regarding climatic factors.

Operational Level Where to send and assess the

demand of completely new

product.

Socio-cultural background, geography,

climate, and fashion trend of a place where

the store resides. Also the sales history of a

particular store is informative

Placer order of a particular

garment

Inventory details and sales trend of the

garment.

Order replenishment quantity Sales record, sales trend, stock in store of a

particular product.

What to stock? Store demand

Store to store transfer What residents are wearing and what

garments are selling?

What garments of sales Sales record

Change merchandise over four

week

Understanding about consumer psychology

and behaviour.

IS Recommendation: Zara has flaws in existing information systems in terms of its expensiveness, effectiveness and

efficiency. Thus, following information systems are recommended to Zara to further improve in its

performances.

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Sales and Marketing Information system:

Level System Type of

Decision

Type

of IS

Description of

IS

Competitive

Advantage

of IS

Relation to

Goals and

Objectives

Strategic

Level

Stakeholder

analysis

Stakeholder

management

ESS Identifies and

analyse

stakeholders

and prioritize

and engage

them

accordingly.

Stakeholder

satisfactions,

capacity

utilization.

Easier to

recognize

person and

organization

who can

impact new

stores in

Asia.

Situational

analysis

Choice of

strategies,

assessment of

organization’s

SWOT.

ESS Systematically

collects past

and present

economic,

political,

social and

technological

data.

Effective and

efficient

strategy.

Helps to

design

effective

strategy to

overcome

internal and

external

forces in

Asia.

Lead

management

Lead

planning,

qualification,

routing,

nurturing and

automation

ESS Tracking and

managing

prospective

customers,

their

conversions

into sales and

establish long

term

relationship.

Expands

market

share, better

growth in

business.

Generates

potential

clientele in

Asian

apparel

market.

Sales trend Prepare long

term forecasts

ESS Predicts future

sales based on

past

performance.

Business

expansion

Expands

business in

Asian

apparel

industry.

Tactical

level

Pricing

analysis

Determines

price

MIS Analyse

production and

determines

effective cost.

Helps in

scientific and

accurate

pricing.

Attracts

customer

because of

reasonable

price.

Knowledge

level

Market

analysis.

Customer

demand and

habits.

KWS

Analyse the

customer

shopping

behaviour and

habits.

Customer

satisfaction.

Helps to

increase

sales and

margin.

Operational

level

Order

processing

Daily sales TPS Enter process

and track

orders.

Effective and

efficient

monitoring

of sales.

Superior

control over

operations.

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Manufacturing Information System:

Level System Types of

Decision

Type of

IS

Description of

IS

Competitive

Advantage

Relations

to Goals

and

objectives

Strategic

Level

Manufacturing

and planning

control (MPC)

Human

resources

capabilities,

technology

and

geographical

location to

meet the

future needs.

ESS Helps to make

decisions on

appropriate

capacity to

meet the

market

demands of

the future.

Faster

decision

making.

Helps to

maintain

shorter lead

time.

Tactical

Level

Production

planning

Number and

schedule of

products

MIS Helps to

decide

number and

schedule of

products.

Cost

leadership,

less

throughput

time,

flexibility

and

reliability

Cheaper

price which

leads to

customer

satisfaction

and big

market

share.

Knowledge

Level

CAD

(Computer

Aided Design)

New designs KWS Assists

creation,

modification,

analysis, and

optimization

of design.

Accuracy,

flexibility

and

reliability

There is

highly

likelihood

of meeting

designs

needed to

customers.

Operation

Level

CAM

(Computer

Aided

Manufacturing)

Tools

procurement,

materials

ordering,

production

and quality

control,

packaging

and

shipping.

TPS Control

machine tools

and related

machinery in

the

manufacturing

of work

pieces.

Accurate

allocation

of

resources.

Effective

production

and better

cost control

Makes

production

effective

and

maintains

short lead

time.

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Logistic Information System:

Level System Type of

Decision

Type

of IS

Description of

IS

Competitive

Advantage

Relation to

Goals and

objectives

Strategic

Level

Inventory

management

and control

system.

Inventory

planning and

management.

ESS Forecasting,

order quantity

engineering,

replenishment

planning, and

service level

optimization.

Maintains

the lowest

inventory

level

possible to

make

inventory

system cost

effective.

Helps in

cost

control,

makes

products

cheaper

and helps

to increase

sales.

Tactical

Level

Transportation

system

Shipment

management,

fleet and

container

management,

carrier and

freight

management.

MIS Links all pick-

up and

delivery to

points with

response to

time

requirements

and customer

service policy.

Cost

control,

customer

satisfaction.

Sales

increases

because of

cheaper

price led

by tight

freight

cost

control

Operational

Level

Warehousing

System

Receiving,

put away,

storage, order

picking,

shipping

TPS Minimize cost

and fulfilment

time.

Increase

efficiency

of entire

supply

chain.

Effective

and

efficient

delivery

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IS Recommendation for Resource Planning Department

System Type of

Decision

Description of

IS

Competitive Advantage Relation to Goals and

objectives

Enterprise

Resource

Planning

(ERP)

Human

resources,

Tangible

and

intangible

company

assets.

Collects and

analyses

information to

achieve effective

and efficient use

of company

resources and

assets.

Customer satisfaction,

maximization of profit, big

market share.

Helps to organize

resources either human or

other resources by

executives of the

company.

IS Recommendation for Department of Supply Chain Management

System Type of Decision Description of IS Competitive

Advantage

Relation to Goals

and objectives

Supply Chain

Management

Procurement,

inbound and

outbound

logistics.

Interconnects all

the nodes

involved in

supply chain

Make decision

based on unique

business

constraints.

Reduce cost,

increases margins.

There will be

strong bond

among various

nodes of supply

chains.

Is Recommendation for Customer Relations Department

System Type of Decision Description of IS Competitive

Advantage

Relation to Goals

and objectives

Customer

Relations

Management

Current and future

customers.

It organizes,

automates and

synchronizes

sales, marketing,

customer service

and technical

support.

Customer

satisfaction, brand

awareness.

Increase in sales,

higher market

shares.

Conclusion: Although the existing system is working fine, Zara has been recommended to upgrade its POS system

in order to cope with future changes. Zara has been recommended to introduce modern information

systems to maintain the flaws prevailing in current Supply Chain, Customer Relations and Resources

Planning. It has also been suggested to implement other Information Systems to make its

performance more effective and efficient.

Other Recommendations: In fashion, what industry requires is information or data about what’s going to happen, not what

already happened. So, Zara should allow fashion merchants and buyers to leverage crowdsourcing to

get forward-looking, fast-turnaround, predictive analytics that can improve the style picking

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capabilities. The pilot research conducted by one collective intelligence company has identified that

the crowdsourcing can improve product selection by more than seven times (Ziv, 2010).

Moreover, Zara can opt for cloud computing as a platform for its financial software to help business

rapidly expand to new markets in new countries. Zara has been recommended to go through Brick and

Click business model of e-commerce. So, the main challenges that Zara faces are high percentage of

returns. Therefore Zara is recommended to introduce Virtual Fitting Room where robotic mannequin

takes body measurements and mimics shape so that customers can see exactly how clothing would fit

(Ziv, 2010).

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apparel-industry-in-2012_id113371.aspx [Accessed: 31/01/2013]

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http://www.businessmodelalchemist.com/2005/06/zaras-business-model.html [Accessed 02/02/2013]

12. Evans B. (2010) Case Study of Zara [Online] Verified on:

http://newezinearticles.com/Art/119075/149/Case-study-of-ZARA.html [Accessed: 07/02/2013]

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14. The Guardian Will rising cost spark a new social trend in the fashion industry [Online] Verified

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http://www.uniquebusinessstrategies.co.uk/pdfs/case%20studies/zarathespeedingbullet.pdf [Accessed:

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16. Sehgal V. (16/05/2008) Replenishment Policies and Inventory Planning [Online] Verified on:

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17. Mathur R. (2009) Management Information System in Clothing Industry [Online] Verified on:

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Appendix

Pictorial representation of Zara business model

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Comparing Zara’s business model with conventional business model:

Comparing Zara’s Price Markdown Strategy with regular retail:

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Zara’s success factors:

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Value chain of Zara