Zara Business ModelThe original business idea was very simple. Link customer demand to manufacturing, and link manufacturing to distribution. That is the idea we still live by.— José María Castellano Ríos, Inditex CEO • Founded by Amancio Ortega in 1975 • First store opened in La Coruna, Spain • 1985: • Inditex forms as holding company • worked as IT manager • multinational clothing retailer & manufacturer • Zara is Inditex’s largest chain of retail stores • Jose Maria Castellano Rios joins company • becomes CEO of Inditex in 1997 • shared Ortega’s belief in importance of technology
Core Competencies• Need to respond quickly to the demands of target customers• Emphasis on employee value and intelligence, decision making.• Afﬁnity for information technology• Speed and decentralized decision making
Design & Distribution• Collections were created, then extended and modiﬁed over time• In a typical year, Zara introduced approximately 11,000 new items; competitors averaged 2,000–4,000.• Short lead time & ﬂexibility was enabled by a vertically integrated supply chain• Using this network, Zara could consistently move a new design from conception through production and into the DC in as little as three weeks. Two days after that, the garment could be on sales racks in stores around the world.
Commercials :team members who act as liaisons among the chain’s 2,800 global store managers, designers, and production planners • Each department category has separate team • Teams usually consisted of two designers and two product managers, who purchased material, placed production orders with the factories, and set prices.
Commercial Roles• Store product managers work closely with product teams• Traveled extensively & observed target market fashion trends• Initiated store-to-store transfers• Made decisions about product selection and orders
Localized Processing • The design team electronically sends the patterns to Zara’s factory across the street, where a prototype is made. The patterns are optimized via computer so that no fabric is wasted.
Cutting• Massive rolls of fabric are moved in the factory by lifting equipment. The fabric is rolled out on a large table and covered tightly in plastic before a laser- guided machine cuts it according to the pattern. The fabric is then bagged and distributed to local sewing cooperatives, which return the ﬁnished garments to the factory within a week• Dyeing & Cutting Factories in La Coruna• Cut fabric was sewn into garments at a network of small local workshops in Galicia and northern Portugal that guaranteed quick turnaround times.
Facilities r• Factories yo • Simple applications of production planning • No mathematical strategy to generate s plan of action • op Fabric cutting machines were most sophisticated technologies• Distribution Centers • Relied on computerization and automation tC Source: Inditex. • Information systems tracked SKUs through channel Exhibit 12 No Inditex Distribution Center (interior) o
Quality Check• Once the ﬁnished clothing is back at the Arteixo factory, workers handle ﬁnishing touches, such as adding buttons and detailing. Each garment is checked for quality. Those that do not pass the test are cast aside. Once the checks are complete, the garments are individually pressed.
Time Management & Efﬁciency• Next, labels for each country are attached. Zara used to rely on store managers to do this once the product reached the store. But management realized labeling all garments and applying security alarms at the factory saved both time and money. The less time management spends on tasks such as tagging merchandise, the more time it can spend selling.
Distribution Center• Once tagged, the garments are sent to Zara’s nearby distribution center via tunnel. At the massive 500,000 sq.-ft. center, all merchandise is allocated ﬁrst by country, then by individual store using a moving carousel of hanging rails. Although more than 60,000 items move in and out of the center each hour, only a handful of workers are needed to monitor the process.
Turnaround• More than 2.6 million items move through the distribution center each week, and most spend little more than a few hours at the center. Using electronic bar codes, each shop’s orders are carefully placed onto the appropriate moving rail, ensuring each store gets exactly the right twice-weekly shipment.
End of the Chain• Just two days after leaving Zara’s distribution center in Spain, merchandise arrives in U.S. stores. Zara transports its merchandise to the U.S. and Asia by plane, enabling it to arrive in 48 hours. Delivery time in Europe is even faster. Garments are trucked from the distribution center to stores within a day. Instead of advertising, Zara lets its elegant, spacious stores in the world’s ritziest shopping locations do the talking.
Results of Manufacturing Approach• Company did not have to rely on accurate long-range sales forecasts• Flexible factories with short lead times could adjust to changes rapidly• No predictions were required regarding the market; Zara had the means to respond immediately
Information Technology• Zara has practiced many of the same strategies since they were developed • small IT department • using same computer application they used years ago • Decision: Upgrade IT systems or don’t change what is broken??• President and colleagues chose to write their own software systems for their speciﬁc needs• There was little or no formal justiﬁcation for IT efforts, nor were cost/ beneﬁt analyses typically conducted for a proposed effort• Accounting applications that supported ordering, fulﬁllment, and manufacturing were largely developed internally
IT and Inaccuracy• Various application systems used to support Zara operations 604-081 ZARA: IT for Fa • Exhibit 11 Zara Point of Sales Terminal orders • inventory rP• Shipments and sales were not recorded and reported perfectly , o inventory would be inaccurate; py theft, damage, and other losses were not realistic indications of Co reality Source: Inditex.• Accuracy was not an initial Exhibit 12 ot Inditex Distribution Center (interior) concern
IT ISSUES r yo op• Problem: Time consuming to fax order forms back and forth to all stores • tC Issues with unreliable fax machines, paper shortages etc.• Solution: Utilize IT with handheld computers that could communicate via modum No• All stores had handheld devices (PDA’s) and POS systems• PDAs were used for ordering and garment returns Do• Time consuming and small screens
Issues Continued• Still utilized DOS system which was no longer supported by Microsoft • Cons: • outdated and unsupported • POS and PDA’s were not connected to other stores or headquarters (used ﬂoppy disk system) • no internal sharing within store between POS and PDAs • disabled SKU inventory accuracy (used telephones) • Pro: • Stable and efﬁcient for opening new stores
STRENGTHS• Local Manufacturing• Fast Production• Distribution Centers• Basic IT
Weaknesses• No formal processes to allocate IT budget• Point-of-Sales units over 10 years old• DOS based system• Physical inventory count• No real time communication
Opportunities• Communication with potential buyers• Online Sales• Expansion
Threats• Only company using “ancient operating system”• Zara is not updating operating systems• DOS is incompatible with industry, unsupported, and outdated• Other retail chains have real-time communication• May lose market shore to competitors
Conclusion & Suggestions• By upgrading IT system, Zara will keep up with competitors• Share inventory information via network• Set IT budgets off of individual needs rather than industry standards• Appoint an Innovative CIO• Global markets are changing & upgrading quickly • Zara must keep up or will be left behind