Business Information Technology- Assignment
AJ-773
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Information Systems: A Manager’s Guide to Harnessing Technology V 3.0
By John Gallaugher
Chapter 3
Zara: Fast Fashion from Savvy Systems
Learning Objective
Understand how Zara’s parent company, Inditex, leveraged a technology-enabled strategy to become the world’s largest fashion retailer.
Contrast Zara’s approach with the conventional wisdom in fashion retail, examining how the firm’s strategic use of information technology influences design and product offerings, manufacturing, inventory, logistics, marketing, and ultimately profitability.
Introduction to Zara
Game-changing clothes giant with parent company, Inditex Corporation.
Uses a blend of technology-enabled strategy.
Firm does not use advertising and rarely runs sales.
Highly vertically integrated.
Most of its production process is in-house.
Gap versus Inditex at a Glance
| GAP | INDITEX | |
| Revenue | $16.2 billion | $22.7 billion |
| Net annual income | $1.28 billion | $3.23 billion |
| Number of stores | 3,179 | 6,393 |
| Number of countries | 31 | 88 |
| Biggest brand | Gap | Zara |
| Number of other brands | 4 | 8 |
| Based in | San Francisco, USA | Artexio, Spain (near La Coruña) |
| First store opened | 1969 | 1975 |
Sources: Year-end 2013 figures from http://www.gapinc.dom, http://www.inditex.com, and http://www.Bloomberg.com
Contract Manufacturing
Advantages - Lower costs and increased profits
Disadvantages - Sweatshop labor, poor working conditions, and environmental abuse
Firms face legal action, brand damage, reduced sales, and decreased appeal among prospective employees
Outsourcing production to third-party firms: Firms that use contract manufacturers do not own plants or directly employ the workers who produce the requested goods
Using Technology to Gather Data
Zara’s store managers are armed with personal digital assistants (PDAs): Handheld computing devices meant for mobile use outside an office setting.
Used to gather customer input and feedback.
Point-of-sale-system: Transaction processing system that captures customer purchase information.
Shows how garments rank by sales.
Managers use the information gathered from these systems to make decisions more quickly and more accurately.
9
Design
Customer demand and sales data dictate the designs that Zara develops.
Zara design staff consists of young and fresh designers from design school.
Teams are regularly rotated to:
Cross-pollinate experience.
Encourage innovation.
Individual bonuses are tied to the success of the team.
Manufacturing and Logistics
Logistics: Coordinating and enabling the flow of goods, people, information, and other resources among locations.
Zara concepts go from idea to stores in fifteen days on average.
To achieve this high level of responsiveness, Zara uses:
Combination of vertical integration and technology-orchestrated coordination of suppliers.
Vertical integration: When a single firm owns several layers in its value chain.
Just-in-time manufacturing.
The majority of Zara’s merchandise is produced in-house, with an eye on leveraging technology in areas that speed up complex tasks, lower cycle time, and reduce error.
Inventory optimization models determine how many of which items in which sizes should be delivered to each specific store.
Manufacturing and Logistics
Fabric is cut and dyed by robots in highly automated factories.
Half of the cloth arrives undyed so the firm can respond to midseason fashion shifts.
Zara leverages contract manufacturers.
To produce staple items with longer shelf lives.
Zara employees spend more time on value-added functions.
Due to efficient logistics and inventory management.
Zara is a pioneer in going green.
Use of renewable energy systems at logistics centers.
Logistics: Coordinating and enabling the flow of goods, people, information, and other resources among locations.
Use of biodiesel for the firm’s trucking fleet.
Stores
Bestsellers benefit from limited runs:
Allows the firm to cultivate the exclusivity of its offerings.
Encourages customers to buy right away and at full price.
Encourages customers to visit often.
Reduces the rate of failed product introductions.
Learning Objectives
Detail how Zara’s approach counteracts several profit-eroding challenges that many fashion retailers struggle with.
Identify the environmental threats that Zara is likely to face, and consider options available to the firm for addressing these threats.
Limitations of Zara
Operations vulnerabilities: By moving all deliveries through just two locations, the firm is vulnerable to disruptions in the region.
Operations: Organizational activities that are required to produce goods or services.
Financial vulnerabilities: susceptible to currency fluctuations since development and manufacturing occur in one country.
Rising transportation costs.
Moving Forward
Zara’s value chain is difficult to copy.
But it is not invulnerable, nor is future dominance guaranteed.
Zara’s management must:
Have an understanding of how information systems can enable winning strategies.
Scan the state of the market and the state of the art in technology.
Look for new opportunities and remain aware of impending threats.
