Zara It For Fast Fashion


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Zara It For Fast Fashion

  1. 1. ZARA: IT for Fast Fashion Önder BARLAS Executive MBA Student Boğaziçi University, IstanbulAbstract:In 2003 Zara faced a problem whether to upgrade the operating system they used for their point-of-sale(POS) to a new Windows based one, or to continue using the stable and old one. This report aims to analyzethe problem by conducting a SWOT analysis and offering a solution path best suited on Zara’s strategicposition in the clothing industry. that likes and is sensitive to fashion. As it has1. Brief Information about Inditex and Zara become globally standardized due to advances in communication, Zara uses this to theirInditex is a global specialty retailer that designs, advantage by offering the latest in apparel onmanufactures, and sells apparel, footwear, and time. For that reason, 80- 85% of the garmentsaccessories for women, men and children that Zara offers globally are relativethrough its chains around the world. Inditex standardized fashionables. This is due to the factowns Zara, Massimo Dutti, Pull & Bear, that Zara’s marketing teams believe that aBershka, Stradivarius, and Oysho. Over 80% of product that sells well in a fashion capital suchInditex’s total employees are part of the retail as New York will most likely sell well insales force and 8.5% are in manufacturing, another such as Milan, Sao Paulo or Madriddesign, logistics, and distribution. The since fashion has become more globallyremaining 11.5% are part of the corporate accessible.headquarters. Zara’s main competitors are multinationalZara is the most profitable brand of Inditex. It clothing retailers such as H&M, Gap, andhas opened his first store in 1975 in La Coruna Benetton. Zara is different from its competitorsin Spain. Today, La Coruna has become the in three ways:central headquarters for Zara. The group ispresent in all continents: Europe, America, Asia  Zara does virtually no advertising (twice-and Africa. At the beginning of 2003, Zara yearly ad promotion on sales and openingoperated 531 stores around the world. new store announcement). Thus, Zara’s marketing expenditures averaged 0.3% of2. Description of Zara’s Business Model revenue, instead of the 3% to 4% forZara sells clothing for men, women and competitors.children. Zara’s target market is very broad  Zara only sells trendy clothes and not try tobecause they do not define their target by produce “classic” clothes which wouldsegmenting ages and lifestyles as traditional always be in style. Zara’s clothes have fairlyretailers do. Zara targets young, educated people short life spans. About 75% of theManagement Information Systems Page 1 of 4 ZARA: IT for Fast Fashion
  2. 2. merchandise changes over every three to All finished garments are sent to Zara facility four weeks. The shoppers do not expect where they are ironed, inspected, given a Zara garments to be highly durable. machine readable tag, and sent to a distribution Zara introduces substantially new design center. collections throughout the year. Other competitors introduce new design Ordering: collections at the start of the fall/winter and Every major section of a Zara store (man, spring/summer. women, children) has to place order quantities Zara has empowered its employees: They to headquarter twice a week with strict decide what clothes should be in stores, the deadlines. As there is no inventory in store designed the garments by pairs for a specific computers managers need to conduct a walk- collection. Their role is to create clothes not around to check the stock for each section. to be sold for a long time but only for a short Managers can see the newly available garments period in appropriateness with the current by using a PDA that is linked each night via dial trend. up modem to main IS in La Coruna.3. Zara’s Value Chain Fulfillment: Fulfillment or shipping clothes to stores involveDesign: other commercials. They determine which store has to be supplied depending on the stock level.Commercials decide which clothes will be They work with product manager to determinedesigned and produced. The team usually future production for each SKU. Items thatconsists of two designers and two managers, stores didn’t order can also be sent.who purchase material, place production orderswith factories, and set prices. Another group of 4. SWOT Analyses of current IT Processescommercials called store product managers sitin close proximity to the product teams and Strengths:serve as Zara main interface with Zara stores  DOS, which runs on mainframe, is aaround the world. They can initiate store to store very stable operating systemtransfers if some products are not popular in  Data transfer periods are shortsome areas.  No license costs exist  DOS application is a in-house developedManufacturing one, it is a tailored fit development, soZara introduces approximately 11 000 new IT people have extensive experienceitems each year much more than its competitors. how to quickly solve problems withoutZara manufacturing is vertically integrated. the need of a supplier.There is a network with specialized facilities  Due to the quick and convenientthat quickly produces and delivers the required installation process of POS software, nogoods. Zara owns a group of factories in and external IT effort was needed, whenaround La Coruna to do the capital intensive opening a new store.initial production steps dyeing and cutting cloth.Management Information Systems Page 2 of 4 ZARA: IT for Fast Fashion
  3. 3. Weaknesses:  Competitors, who use a modern  System runs DOS which Microsoft does technology, can gain a competitive not support anymore. advantage due to the information  Lack of shared information between exchange opportunities. systems creates an environment where  Employee turnover rate has an impact on the correctness of the data is dependent the system, as most of the decisions are on the personal feedback. Store based on personal experience - managers could not look up their decentralized decision-making. inventory balances on any in-store computer. They have to conduct 5. Recommendations for IT Transformation walkarounds, in which they ask salespeople and count garments to As already discussed Zara’s its main strategy is determine the stock level. the ability to give a quick answer to target  No online connection between the POS, customers’ demand and its capacity to anticipate PDAs and IS in La Coruna exists. the customers’ trends. Therefore “Business Upgrades are retrieved by a dial up Continuity” is more important than the overall modem each night. As there is one IT transformation costs. Therefore unless the terminal POS in a store, salespeople new system eliminates the weaknesses of the need to record the sales on floppy discs old one without compromising from the and insert it to the modem equipped strengths, an investment in IT will not be terminal POS for sending sales data. required. Therefore the new system should be as  No formal IT strategy and follows: documentation such as cost/benefit analyses exist to justify IT efforts.  Windows based POS terminals, with  No information exchange between PDA porting ability and online connection to devices within a store exists. IS which integrates manufacturing,  As stores cannot see each other’s stock distribution centers, and commercials at levels, store personnel need to call the HQ on a high-speed network and nearest stores one by another, if a decreases reaction time (upgrades to garment is needed. PDAs are delivered online, no floppy disc needed, demand is tracked in realOpportunities: time)Using the current system offers no opportunities  POS functionality that includes, accuratefor the future inventory balances in real time, instant linkage of customer demand withThreads: manufacturing which will reduce total  Any hardware change in the POS cycle time terminal will not be compatible with the  PDA’s will change information within current POS software. the stores and each store can look atManagement Information Systems Page 3 of 4 ZARA: IT for Fast Fashion
  4. 4. others stores inventory if a specific Programming costs: garment is needed 20000 hours of programming time (if work hour per day is 8) = 2,500 daysProjected cost of the new system is given 2500 days x €450 per day = €1.125.000below: Training/Installation Costs3:Hardware costs: Cost per day = €20001. €5,000 for 5 terminals per store x 531 stores Overall costs = €2000 x 531 stores = €1.062.000 = €2.655.0002. €180 for wireless router per store x 531 Total Implementation Costs = €5.649.120 stores = €95.580 Total Implementation Costs with %10 cost3. €250 for 5 Ethernet cards per store x 531 increase as buffer4 = €6.214.032 stores = €132.750Total Hardware Costs = €2.883.330 It is recommended that Zara upgrades its current systems. Although by upgrading, Zara putsConnection Costs: itself at a financial risk with potential loss of€240 for connection per store x 531 stores = sales due to installation delays, increase in€127.440 overhead (additional IT staff) and adding complexity to a relatively simple operation, theInitial Operating System Costs: benefits of the system will be “priceless” as1. Windows 1 Zara’s main core competence “the ability toOne time license cost per terminal = €140 give a quick answer to target customers’Annual maintenance fee per terminal = €30 demand and its capacity to anticipate theCost per store = 5 terminals x €170 = €850 customers’ trends” will be enhanced. Modern2. Unix operating systems and internet connections areOne time license cost per terminal = €160 no longer luxuries, but prerequisites for growth.Annual maintenance fee per terminal = €25Cost per store = 5 terminals x €185 = €9253. Linux2One time license cost per terminal = €0Annual maintenance fee per terminal = €150Cost per store = 5 terminals x €150 = €300Total operating system costs = €850 x 531 =€451.3501 3 Windows is selected as operating system as this removes It is assumed that there are two work shifts in place: 07-the risk of the system becoming obsolete and no longer 15 and 15-23. Stores will not be closed duringcompatible with vendor’s machine upgrade to windows. installation. Opportunity costs are neglected.2 4 Depends on the IT staffs experience with Linux. It is The risk in 10% increase in costs are taken in account asassumed that the IT staff is novice in Linux. safety bufferManagement Information Systems Page 4 of 4 ZARA: IT for Fast Fashion