ZARA | IIMC | MIS

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.
— José María Castellano Ríos, Inditex CEO

Zara – Technology to Dominate MIS: The Strategic Dimensions
P a g e | 1 Group 7 | Term IV | PGP 2016
Group Members
0070/51 Arijit Kumar Gorai
0100/51 Bhujan M
0154/51 Induchoodan R
0237/51 Nikhil Nagpal
0290/51 Ranjit Singh

Contents
The global textile and clothing industry............3
Zara..................................................................................4
Business Model ...........................................................4
Profitability in Fashion Products...........................5
The Fast Fashion model...........................................5
Linking Customers and Designers ..................5
Vertical Integration ...............................................6
Speed versus Low Labor Costs.........................7
Other Cost and Pricing Policies at Zara ........7
ZARA does not guess, it gathers data................8
Design........................................................................9
Manufacturing and Logistics.............................9
Stores .......................................................................11
Information Technology in ZARA.......................13
Collecting Information on Consumer’s Needs 13
Standardization of product information13
Product Information and Inventory Management 13
Distribution management ...........................13
Information Technology in Zara.........................14
Detailed Analysis.......................................................15
Firm-Based Value Chain....................................15
Model Application...............................................16
Implementation Opportunity Analysis........17
Implementation Effectiveness .............................18
Existing System Evaluation...............................18
Upgrading System Evaluation ........................19
How have other fashion giants leveraged Technology 19
Moving Forward........................................................20
Conclusion...................................................................22
References...................................................................23

The Global textile and clothing industry
The removal of all import quotas in the textile and clothing industry from January 2005,
involving the unrestricted access of all members of the World Trade Organization (WTO) to
the European, American and Canadian markets is considered a key driving force in the
development of the clothing sector (Keenan, et al., 2004). This new scenario has created op-
portunities for large exporters like China and India 2 that is considerably increasing their mar-
ket share while at the same time creating challenges for European Union member states to
remain competitive internationally.
The major trends that are restructuring and characterizing the textile and clothing sector are
as follows:
• The European textile and clothing industry is characterized by fragmented production with a
large number of small and medium-sized companies mainly located in Italy, Great Britain,
France, Germany and Spain (Nordas, 2004), whilst distribution channels are highly
concentrated (Stengg, 2001)
• Increasing internationalization in the textile and apparel sector and the emergence of
international competitors (Cerviño, 1998). Consolidation of the sector through mergers, acqui-
sitions (Dunford, 2004) and strategic alliances (Samiee, 1995)
• Sub-contracting or delocalization of textile and clothing production to countries with lower
labor and transportation costs and reduced lead-time (Berkeley and Steuer, 2000)
• Re-evaluation of the business models to adapt to the customers´ changing taste (KPMG,
2005). Fashion companies are becoming more flexible and vertically organized, limited vertical
integration being more frequent than complete integration (Samiee, 1995). Adoption of new
technology to expand productivity and increase competitiveness (Berkeley and Steuer, 2000)
• The democratization of the fashion sector over the last decades (Mazaira, et al., 2003). Zara
has contributed greatly to this shift by offering the latest design at attractive prices
Source: http://core.ac.uk/download/pdf/334655.pdf

Zara
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 th con-
sumer 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 in Spain and even cities around the world, (Inditex’s Web-
site).
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).
Source: http://www2.uhv.edu/luj/MGT6352/Samples/Student%20Sample%203.pdf
Business Model
Jose Maria Castellano Rios, Inditex CEO said: “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.”
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 self-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; in contrast their competitors that would take among 6 to 9 months. “Vertical inte-
gration 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’s strategy is very simple but has worked well in the past and still have maintained with
plenty of businesses despite past economic downturns. Amancio Ortega is extremely clear
about Zara’s main goal, and he tries to follow it to the best way possible.
Profitability in Fashion Products
Buy low, sell high. Buy on credit, sell on cash. The conventional retail profitability is a no brainer.
However, it does not work out for fashion products.
In highly perishable goods such as fashion products that are susceptible to seasons, gross
margin is meaningless if the product does not sell as planned. Given the unpredictability in
fashion, it is quite likely that one will end up selling a large proportion of products at a dis-
count.
Antonio Ortega Gaona, the founder of Inditex, thought that consumers would regard clothes
as perishable commodity just like yogurt, bread or fish to be consumed quickly, rather than
stored in cupboards, and he has gone about creating a retail business that provides “freshly
baked clothes”.
Working with him in the last few years, Inditex Chief Executive Jose Maria Castellano was
quoted as saying, “The business is all about reducing response time. In fashion, the stock is
like food. It goes bad quick.”
The Fast Fashion model
Zara describes its business model as “creativity and quality design together with a rapid re-
sponse to market demands” and the “democratization of fashion.” To deliver rapid responses
to customer demands and reasonable prices, Zara abandoned the fashion industry’s traditional
model of seasonal lines of clothing designed by star designers, manufactured by sub-
contractors months earlier, and marketed with heavy advertising. In contrast, the Zara holding
company operates over one hundred subsidiaries, including Zara, vertically integrating design,
just-in-time production, distribution, and retail sales to speed communication from customers
to designers.
Linking Customers and Designers
Over three hundred Zara designers continuously seek information about what customers may
like from a variety of sources. Designers attend fashion shows in Paris, New York, London, and
Milan; snap digital photos as models come down runways, and send them to headquarters.
Designers peruse magazines, observe styles worn by opinion leaders, and visit clubs, cafés,
and colleges to anticipate what innovations from other designers their customers may desire.

The key source of information for Zara designers comes from its chains of dedicated stores;
Zara sells its products only through its stores and these stores sell only Zara products. Twice
weekly, stores send to headquarters daily sales totals and detailed information on items sold,
broken down by color and size. Store managers also place orders twice a week and have great
autonomy to select what they believe will sell in their store from wide and continuously up-
dated offerings. Designers review the success of products daily and respond to formal and
informal input from store managers. In Zara’s effort to make the creation of fashion an inter-
active process, José Toledo, a Zara executive, argues that customers be “our accomplices.”
Vertical Integration
Seeking to synchronize supply with ongoing changes in customer demands, Zara deviates
from industry norms by vertically integrating stages of production within the company. Zara
policy states that “production shall be adapted to customer demand production will be able
to focus on trend changes happening inside each season.' Thus, the company bases produc-
tion largely on customer demand as gleaned from continuously updated orders from store
managers. Most leading fashion firms combine design and sales but outsource manufacturing,
often to low-wage subcontractors in East Asia and elsewhere. While searching for cheap labor,
companies use networks of subcontractors that may buy, dye, embroider, and sew fabric each
in a different country. However, this process can stretch the design-to-retail cycle to as long
as eight months. Examples of this approach include companies like Gap, Abercrombie & Fitch,
Ann Taylor, and The Limited. John Thorbeck from supply chain 42 consulting firm Supply
Chainge sums up the industry as follows: “Everybody is gotten out Essays in Economic & Busi-
ness History — Vol XXV, 2007 of manufacturing’. In contrast, Zara produces a large proportion
of its products in its factories. Typically, Zara performs internally the more capital-intensive
and value-added intensive stages of production, such as purchasing raw materials, designing,
cutting, dyeing, quality control, ironing, packaging, labeling, distribution, and logistics and
outsources more labor-intensive and less value-added-intensive stages of production, such as
sewing. Company executives state that “the decision whether to externalize or to produce in
the group depends on costs, delivery date, and returns”. Zara maintains a diversified network
of suppliers of raw materials and fabrics in China, India, Morocco, Turkey, Germany, Italy, and
elsewhere. The company’s manufacturing subsidiaries dye, print, mark, and cut fabrics follow-
ing patterns set by designers. Once cut and processed, fabric is contracted out, mostly to a
network of over four hundred sewing cooperatives and independent workshops, especially in
rural areas around La Coruna, the commercial capital of Galicia, and Northern Portugal. After
sewing, products are sent back to Zara subsidiaries for quality control, finishing, and packag-
ing.” Zara subsidiaries also perform distribution and retail sales. All Zara products are shipped
from multi-million square foot logistics centers in Spain. At these facilities, products are
tagged, boxed, moved through miles of conveyor belts, and shipped to fulfill the orders of
individual stores. For European stores, products travel by truck in under twenty-four hours. For
other stores, products travel by plane and arrive within forty-eight hours. In 2005, 89 percent
of stores were company-managed. For markets with large cultural or legal business differ-
ences, Zara uses franchises with local partners, accounting for 11 percent of stores in 2005.
However, Zara franchises are tightly integrated within the company and use the same ordering
mechanisms.’

Speed versus Low Labor Costs
Whereas most producers view fashion products as consumer durables, Zara - considers them
non-durables with sell-by periods of four weeks. Zara emphasizes the speed of its response to
customer demands more than finding low-cost employees. Some celebrate this approach as
slowing the decline of manufacturing employment in developed countries. For instance, Sup-
ply Chainge’s John Thorbeck argues that “Zara has proven that speed and flexibility matter
more than pure price.” Perhaps more cynically, John Quelch, professor of marketing at Harvard
Business School, says, “Nike, Levi’s and others face recriminations for exploiting low-cost labor
in emerging economies. Zara is less subject to criticism” Zara simply argues that its approach
be purely a business decision, stating “this is not a moral stance. To reduce lead time, we need
to produce closer, not cheaper.” Zara makes every effort to reduce its design-to-retail cycle.
These efforts include vertically integrating design and manufacturing far more than its com-
petitors, using mostly local subcontractors, and developing with Toyota “just in time” produc-
tion lines that can be modified based on demand. While the standard design-to-retail cycle in
the industry is five to six months, Zara’s cycle is only five weeks. Zara also needs only two weeks
to service repeat orders from stores or for orders involving only slight changes. According to
Ken Watson of the London-based Industry Forum for the UK fashion supply chain, “Zara spots
a trend, and thirty days later it is in their stores.” While Zara offers new collections each season,
these collections account for only 39 percent of sales. The other 61 percent is produced in
season, changing the colors, cuts, and fabrics of existing designs as well as adding completely
new ones.’ The shorter design-to-retail cycle allows Zara to bring more styles to its stores and
to update them constantly. While many competitors ship products to stores every twelve
weeks, Zara does so twice a week. The innovative Spanish producer believes that quickly
changing its offerings gives them scarcity value, leading customers to visit their stores more
often. As Carlos Herreros de las Cuevas describes it, “customers who enter a Zara store and
see something they like, know they have to buy it straight away, because it probably won’t be
there next To service customers who say “they always have something new:” Zara has increased
its number of new products per year from under ten thousand in the 1990s to over twenty
thousand in 2005.20 Rapid reaction to customer demands also cuts some costs. Small deliver-
ies twice a week prevent large stocks at stores and eliminate the need for large stockrooms.
Thus, inventories are 7 percent of Zara revenues compared with 13 percent at competitors.
The short design-to-retail cycle also increases Zara’s ability to adjust to fashion trends. If a
product is unsuccessful, Zara quickly cancels the further production, thus avoiding further ac-
cumulations that prompt the profit-draining clearance sales that plague rivals. Richard Hyman
of Verdict Research argues that “having up-to-the-minute sales data is not unusual these days.
What makes Zara different is that they can do something about it.” Thus, gross profit margins
of 56.2 percent at Zara in 2005 compare favorably with 50 percent at other specialty retailers
in the US.
Other Cost and Pricing Policies at Zara
Zara implements other distinctive policies such as avoiding cost-plus pricing, using little ad-
vertising, hiring unknown designers, and avoiding complex technologies. Avoiding the cost-
plus methods standard in the industry, Zara first identifies the prices customers are willing to

pay for their competitors’ products. Then, the company establishes target prices for its prod-
ucts, often 15 percent below those of competitors, and searches for suppliers through which
adequate margins can be maintained. Unconvinced of its effectiveness, Zara spends little on
advertising. Whereas Gap, H&M, and the industry spend 5.4 and 3.5 percent of revenues on
advertising respectively, Zara spends only 0.3 percent. To attract customers, Zara relies instead
on low prices, prime locations in fashionable districts, and centrally-designed award-winning
store displays. Zara also benefits from customers’ word of mouth and free coverage in a press
enthralled with Ortega’s reclusiveness and business model. Despite its communication-inten-
sive model, Zara avoids complex technology and spends little on information technology (IT).
For instance, stores send data to headquarters, using basic design personal digital assistants.
No permanent electronic networks link stores, headquarters, factories, and distribution cen-
ters. Also, managers Essays in Economic & Business History — Vol XXV, 2007 make decisions
about what subsidiaries or external providers to use informally, avoiding supply chain software.
Thus, whereas the US retail industry spends 2 percent of revenues on IT, Zara spends only 0.5
percent.
ZARA does not guess; it gathers data
How to ensure that stores carry the kind of things customers want to buy? Try asking them!
While having wrong items in its stores led to the downfall of GAP for nearly a decade, Zara’s
sophisticated process ensured that it did not have to predict or forecast, and hence avoided
errors that plagued other fashion giants.
Zara’s store managers lead the intelligence-gathering effort that ultimately determines what
ends up on each store’s racks. Armed with personal digital assistants (PDAs)—handheld
computing devices meant largely for mobile use outside an office setting—to gather customer
input, staff regularly chat up customers to gain feedback on what they’d like to see more of. A
Zara manager might casually ask, “What if this skirt were in a longer length?” “Would you like
it in a different color?” “What if this V-neck blouse were available in a round neck?” Managers
are motivated because they have skin in the game. The firm is keen to reward success—as
much as 70 percent of salaries can come from commissions. (K. Capell, “Zara Thrives by Break-
ing All the Rules,” BusinessWeek, October 9, 2008).
Another level of data gathering starts as soon as the doors close. Then the staff turns into a
sort of investigation unit in the forensics of trendspotting, looking for evidence in the piles of
unsold items that customers tried on but didn’t buy. Are there any preferences in cloth, color,
or styles offered among the products in stock? (D. Sull and S. Turconi, “Fast Fashion Lessons,”
Business Strategy Review, Summer 2008).
PDAs are also linked to the store’s point-of-sale (POS) system—a transaction processing sys-
tem that captures customer purchase information—showing how garments rank by sales. Us-
ing these two systems, managers can quickly and regularly send updates that combine the
hard data captured at the cash register with insights on what customers would like to see. (C.

Rohwedder and K. Johnson, “Pace-Setting Zara Seeks More Speed to Fight Its Rising Cheap-Chic
Rivals,” Wall Street Journal, February 20, 2008). All this valuable data allows the firm to plan
styles and issue rebuy orders based on feedback rather than hunches and guesswork. The goal
is to improve the frequency and quality of decisions made by the design and planning teams.
Design
Rather than create trends by pushing new lines via catwalk fashion shows, Zara designs follow
evidence of customer demand. Data on what sells and what customers want to see goes
directly to “The Cube” outside La Coruña, where teams of some three hundred designers crank
out an astonishing thirty thousand items a year versus two to four thousand items offered up
at big chains like H&M (the world’s third largest fashion retailer) and Gap. (M. Pfeifer, “Fast and
Furious,” Latin Trade, September 2007; and “The Future of Fast Fashion,” Economist, June 18,
2005). While H&M has offered lines by star designers like Stella McCartney and Karl Lagerfeld,
as well as celebrity collaborations with Madonna and Kylie Minogue, the Zara design staff
consists mostly of young, hungry Project Runway types fresh from design school. There are no
prima donnas in “The Cube.” Team members must be humble enough to accept feedback from
colleagues and share credit for winning ideas. Individual bonuses are tied to the success of the
team, and teams are regularly rotated to cross-pollinate experience and encourage innovation.
Manufacturing and Logistics
In the fickle world of fashion, even seemingly well-targeted designs could go out of favor in
the months it takes to get plans to contract manufacturers, tool up production, then ship items
to warehouses and eventually to retail locations. However, getting locally targeted designs
quickly onto store shelves is where Zara excels. In one telling example, when Madonna played
a set of concerts in Spain, teenage girls arrived at the final show sporting a Zara knockoff of
the outfit she wore during her first performance. (“The Future of Fast Fashion,” Economist, June
18, 2005). The average time for a Zara concept to go from idea to an appearance in store is
fifteen days versus their rivals who receive new styles once or twice a season. Smaller tweaks
arrive even faster. If enough customers come in and ask for a round neck instead of a V-neck,
a new version can be in stores within just ten days. (J. Tagliabue, “A Rival to Gap That Operates
Like Dell,” New York Times, May 30, 2003). To put that in perspective, Zara is twelve times faster
than Gap despite offering roughly ten times more unique products! (M. Helft, “Fashion Fast
Forward,” Business 2.0, May 2002). At H&M, it takes three to five months to go from creation
to delivery—and they are considered one of the best. Other retailers need an average of six
months to design a new collection and then another three months to manufacture it. VF Corp
(Lee, Wrangler) can take nine months just to design a pair of jeans while J. Jill needs a year to
go from concept to store shelves. (L. Sullivan, “Designed to Cut Time,” InformationWeek, Feb-
ruary 28, 2005). At Zara, most of the products one sees in stores did not exist three weeks
before, not even as sketches. (J. Surowiecki, “The Most Devastating Retailer in the World,” New
Yorker, September 18, 2000).
The firm has become so much responsive. Through a competitor-crushing combination of
vertical integration and technology-orchestrated coordination of suppliers, just-in-time
manufacturing scheme, and a finely tuned logistic system. Vertical integration is when a single
firm owns several layers in its value chain. (Definition adopted from the “father” of the value

chain, Michael Porter). While H&M has nine hundred suppliers and no factories, nearly 60
percent of Zara’s merchandise is produced in-house, with an eye on leveraging technology in
those areas that speed up complex tasks, lower cycle time, and reduce error. Profits from this
clothing retailer come from blending math with a data-driven fashion sense. Inventory
Optimization models help the firm determine how many of which items in which sizes should
be delivered to each specific store during twice-weekly shipments, ensuring that each store is
stocked with just what it needs. (C. Gentry, “European Fashion Stores Edge Past U.S. Counter-
parts,” Chain Store Age, December 2007). Outside the distribution center in La Coruña, fabric is
cut and dyed by robots in twenty-three highly automated factories. Zara is so much vertically
integrated that it produces 40% of its fabric consumption and purchases most of its dyes from
its subsidiary. Roughly half of the cloth arrives undyed, so the firm can respond to any midsea-
son fashion shifts occur. Moreover, in the face of record-high cotton prices in 2010, Zara was
able to retool offerings away from more costly fabrics, preserving margins. By contrast, rival
H&M saw profits drop 10 percent largely due to margin pressure. (M. Johnson, “Investors Re-
lieved as Inditex Profit Soars.” Financial Times. March 21, 2011). After cutting and dying, many
items are stitched together through a network of local cooperatives that have worked with
Inditex so long they do not even operate with written contracts. The firm does leverage con-
tract manufacturers (mostly in Turkey and Asia) to produce staple items with longer shelf lives,
such as t-shirts and jeans, but such goods account for only about one-eighth of dollar volume.
(N. Tokatli, “Global Sourcing: Insights from the Global Clothing Industry—The Case of Zara, a
Fast Fashion Retailer,” Journal of Economic Geography 8, no. 1 (2008): 21—38).
All of the items the firm sells end up in a five-million-square-foot distribution center in La
Coruña, or a similar facility in Zaragoza in the northeast of Spain. The La Coruña facility is some
nine times the size of Amazon’s warehouse in Fernley, Nevada, or about the size of ninety
football fields. (M. Helft, “Fashion Fast Forward,” Business 2.0, May 2002). The facilities move
about two and a half million items every week, with no item staying in-house for more than
seventy-two hours. Ceiling-mounted racks and customized sorting machines patterned on
equipment used by overnight parcel services and leveraging Toyota-designed logistics, whisk
items from factories to staging areas for each store. Clothes are ironed in advance and packed
on hangers, with security and price tags affixed. This system means that instead of wrestling
with inventory during busy periods, employees in Zara stores simply move items from shipping
box to store racks, spending most of their time on value-added functions like helping
customers find what they want. Efforts like this help store staff regain as much as three hours
in prime selling time. (C. Rohwedder and K. Johnson, “Pace-Setting Zara Seeks More Speed to
Fight Its Rising Cheap-Chic Rivals,” Wall Street Journal, February 20, 2008; and K. Capell, “Zara
Thrives by Breaking All the Rules,” BusinessWeek, October 9, 2008).
Trucks serve destinations that can be reached overnight while chartered cargo flights serve
farther destinations within forty-eight hours. (K. Capell, “Zara Thrives by Breaking All the Rules,”
BusinessWeek, October 9, 2008). The firm recently tweaked its shipping models through Air
France–KLM Cargo and Emirates Air so flights can coordinate outbound shipment of all Inditex
brands with return legs loaded with raw materials and half-finished clothes items from
locations outside of Spain. Zara is also a pioneer in going green. In fall 2007, the firm’s CEO

unveiled an environmental strategy that includes the use of renewable energy systems at lo-
gistics centers including the introduction of biodiesel for the firm’s trucking fleet.
Stores
Most products are manufactured for a limited production run. While running out of bestsellers
might be seen as a disaster at most retailers, at Zara the practice delivers several benefits.
First, limited runs allow the firm to cultivate the exclusivity of its offerings. While a Gap in Los
Angeles carries nearly the same product line as one in Milwaukee, each Zara store is stocked
with items tailored to the tastes of its local clientele. A Fifth Avenue shopper quips, “At Gap,
everything is the same,” while a Zara shopper in Madrid says, “You’ll never end up looking like
someone else.” (K. Capell, “Fashion Conquistador,” BusinessWeek, September 4, 2006). Upon
visiting a Zara, the CEO of the National Retail Federation marveled, “It’s like you walk into a
new store every two weeks.” (M. Helft, “Fashion Fast Forward,” Business 2.0, May 2002).
Second, limited runs encourage customers to buy right away and at full price. Savvy Zara shop-
pers know the newest items arrive on black plastic hangers, with store staff transferring items
to wooden ones later on. Don’t bother asking when something will go on sale; if one waits for
three weeks, the item he wanted has almost certainly been sold or moved out to make room
for something new. Says one twenty-three-year-old Barcelona shopper, “If you see something
and don’t buy it, you can forget about coming back for it because it will be gone.” (K. Capell,
“Fashion Conquistador,” BusinessWeek, September 4, 2006). A study by consulting firm Bain &
Company estimated that the industry average markdown ratio is approximately 50 percent,
while Zara books some 85 percent of its products at full price. (D. Sull and S. Turconi, “Fast
Fashion Lessons,” Business Strategy Review, Summer 2008; and K. Capell, “Fashion Conquista-
dor,” BusinessWeek, September 4, 2006).
The constant parade of new, limited-run items also encourages customers to visit often. The
average Zara customer visits the store seventeen times per year, compared with only three
annual visits made to competitors. (N. Kumar and S. Linguri, “Fashion Sense,” Business Strategy
Review, Summer 2006). Even more impressive—Zara puts up these numbers with almost no
advertising. The firm’s founder has referred to advertising as “pointless distraction.” The asser-
tion carries particular weight when one considers that during Gap’s collapse, the firm increased
advertising spending but sales dropped. (P. Bhatnagar, “How Do You Ad(dress) the Gap?” For-
tune, October 11, 2004). Fashion retailers spend an average of 3.5 percent of revenue promot-
ing their products while ad spending at Inditex is just 0.3 percent. (“Zara, A Spanish Success
Story,” CNN.com, June 15, 2001, http://edition.cnn.com/BUSINESS/programs/yourbusiness/sto-
ries2001/zara)
Finally, limited production runs allow the firm to, as Zara’s CEO once put it, “reduce to a mini-
mum the risk of making a mistake, and we do make mistakes with our collections.” (C.
Vitzthum, “Zara’s Success Lies in Low-Cost Lines and a Rapid Turnover of Collections,” Wall Street
Journal, May 18, 2001). Failed product introductions are reported to be just 1 percent, com-
pared with the industry average of 10 percent. (N. Kumar and S. Linguri, “Fashion Sense,” Busi-
ness Strategy Review, Summer 2006). So even though Zara has higher manufacturing costs than
rivals, Inditex gross margins are 56.8 percent compared to 37.5 percent at Gap. (C. Rohwedder,

“Zara Grows as Retail Rivals Struggle,” Wall Street Journal, March 26, 2009). For labor cost
comparison, K. Capell, “Zara Thrives by Breaking All the Rules,” BusinessWeek, October 9, 2008,
reports that workers in Spain earn an average of $1,650/month versus $206/month in China’s
Guangdong Province.
While stores provide valuable frontline data, headquarters play a major role in directing in-
store operations. The software is used to schedule staff based on each store’s forecasted sales
volume, with locations staffing up at peak times such as lunch or early evening. The firm claims
these more flexible schedules have shaved staff work hours by 2 percent. This constant refine-
ment of operations throughout the firm’s value chain has helped reverse a prior trend of costs
rising faster than sales. (C. Rohwedder and K. Johnson, “Pace-Setting Zara Seeks More Speed to
Fight Its Rising Cheap-Chic Rivals,” Wall Street Journal, February 20, 2008).
Even the store displays are directed from “The Cube,” where a basement staging area known
as “Fashion Street” houses a Potemkin village of bogus storefronts meant to mimic some of
the chain’s most exclusive locations throughout the world. It’s here that workers test and fine-
tune the chain’s award-winning window displays, merchandise layout, and even determine the
in-store soundtrack. Every two weeks, new store layout marching orders are forwarded to
managers at each location. (C. Rohwedder and K. Johnson, “Pace-Setting Zara Seeks More Speed
to Fight Its Rising Cheap-Chic Rivals,” Wall Street Journal, February 20, 2008).

Information Technology in ZARA
Information and communications technology are at the heart of Zara’s business.
Four critical information related areas that give Zara its speed include:
Collecting Information on Consumer’s Needs
Trend information flows daily and is fed into a database at head office. Designers check the
database for these dispatches as well as daily sales numbers, using the information to create
new lines and modify existing ones. Thus, designers have access to real-time information when
deciding with the commercial team about the fabric, cut, and price points of a new garment.
Standardization of product information
Different or incomplete specifications, and varying product information availability typically
adds several weeks to a typical retailer’s product design and approval process, but Zara
“warehouses” the product information with common definitions, allowing it to quickly and
accurately prepare designs, with clear cut manufacturing instructions.
Product Information and Inventory Management
Being able to manage thousands of fabric and trim specifications, design specifications as well
as their physical inventory, gives Zara’s team the capability to design a garment with available
stocks rather than having to wait for the material to come in.
Distribution management
Its State-of-the-art distribution facility functions with minimal human intervention. Approxi-
mately 200 kilometers of underground tracks move merchandise from Zara’s manufacturing
plants to the 400+ chutes that ensure each order reaches its right destination. Optical reading

devices sort out and distribute more than 60,000 items of clothing an hour. Zara’s merchandise
does not waste time waiting for human sorting.
Image Sources:
Internet
Information Technology in Zara
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. However,
how a successful company can run with only such a small IT force? Alternatively, better yet,
how can Zara run so smoothly with today’s advanced technology? The answer to that is Hybrid
Model Information. Information from stores to headquarters relies on combined human intel-
ligence input and 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 use much of automation and computerization as well. Orders that come into the DC
are processed 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.
Detailed Analysis
“Zara’s business model is vertically integrated retailer in the apparel industry, linking customer
demand to manufacturing, and link manufacturing to distribution and retailing business.” With
the purpose for better understanding problems faced by 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 activi-
ties. Primary activities are steps mostly related to the production and distribution of the busi-
ness’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 suc-
cess 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 with
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:
Zara’s way to conduct business can be described following the model chain model por-
trayed above. Support activities consist of three main activities: Technology Development,
Zara is equipped with the mobile tracking system, and its sales personnel are equipped
with handheld organizers. Infrastructure store managers have a great input in Zara’s fash-
ion trend. They have handheld organizers to punch in fashion trends, comments and
orders from customers; 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
the designs can be updated quickly updated in between seasons. This practice reduces
overall cost and delays the processes to attain operational effectiveness”.
Primary activities start with the replenishment of existing items and requests for newly gar-
ments placed weekly by store managers. Fulfillment of orders depends highly on the aggre-

gated orders from all the stores and the total supply of inventory in the DC. Design and man-
ufacturing come 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 the
opportunity for information systems technology with the associated decision level.

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 standard-
ized products using high technology. This fact 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 losses/gains and margin on particular designs.
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 ensure no
infrastructure problems and its IT department is relatively small for the size of the firm.
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 up-
grading 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 tech-
nology favor low operational costs, low computer expenses, small IT workforce is a 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.
An 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 the 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 at every location and
feedback/comments from customers will reach designers ears at faster pace. All of these ex-
amples will positively impact Zara’s total revenue.
Intangible costs for the upgrading of the system would include staff flexibility in learning a
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.
How have other fashion giants leveraged Technology
Researchers Donald Sull and Stefano Turconi discovered, “Whether measured by IT workers as
a percentage of total employees or total spending as a percentage of sales, Zara’s IT
expenditure is less than one-fourth the fashion industry average.”D. Sull and S. Turconi, “Fast
Fashion Lessons,” Business Strategy Review, Summer 2008. Zara excels by targeting technol-
ogy investment at the points in its value chain where it will have the most significant impact,
making sure that every dollar spent on tech has a payoff.
Contrast this with high-end fashion house Prada’s efforts at its flagship Manhattan location.
The firm hired the Pritzker Prize—winning hipster architect Rem Koolhaas to design a location
Prada would fill with jaw-dropping technology. All items for sale in the store would sport radio
frequency identification (RFID) tags (small chip-based tags that wirelessly emit a unique iden-
tifying code for the item that they are attached to). Walk into a glass dressing room and cus-
tomers could turn the walls opaque, then into a kind of combination mirror and heads-up
display. By wirelessly reading the tags on each garment, dressing rooms would recognize what
was brought in and make recommendations of matching accessories as well as similar prod-
ucts that patrons might consider. Customers could check inventory, and staff wielding PDAs

could do the same. A dressing room camera would allow clients to see their front and back
view side-by-side as they tried on clothes.
It all sounded slick, but the execution of the vision was disastrous. Customers did not under-
stand the foot pedals that controlled the dressing room doors and displays. Reports surfaced
of fashionistas disrobing in full view, thinking the walls went opaque when they didn’t. Others
got stuck in dressing rooms when pedals failed to work, or doors broke, unable to withstand
the demands of the high-traffic tourist location. The inventory database was often inaccurate,
regularly reporting items as out of stock even though they were not. As for the PDAs, staff
reported that they “don’t use them anymore” and that “we put them away, so tourists do not
play with them.” The investment in Prada’s in-store technology was also simply too high, with
estimates suggesting the location took in just one-third the sales needed to justify expenses.
(G. Lindsay, “Prada’s High-Tech Misstep,” Business 2.0, March 1, 2004).
The Prada example offers critical lessons for managers. While it’s easy to get seduced by tech-
nology, an information system (IS) is made up of more than hardware and software. An IS also
includes data used or created by the system, as well as the procedures and the people who
interact with the system. (A. Sanchenko, “Foundations of Information Systems in Business” (lec-
ture, October 13, 2007), www.scribd.com/doc/396076/Foundations-of-Information-Systems-in-
Business).
Getting the right mix of these five components is critical to executing a flawless information
system rollout. Financial considerations should forecast the return on investment (ROI)—the
amount earned from an expenditure—of any such effort (i.e., what will we get for our money
and how long will it take to receive payback?). Moreover, designers need to test thoroughly
the system before deployment. At Prada’s Manhattan flagship store, the effort looked like tech
chosen because it seemed fashionable rather than functional.
Moving Forward
The Holy Grail for the strategist is to craft a sustainable competitive advantage that is difficult
for competitors to replicate. Moreover, for nearly two decades Zara has delivered the goods.
However, that’s not to say the firm is done facing challenges.
Consider the limitations of Zara’s Spain-centric, just-in-time manufacturing model. By moving
all of the firm’s deliveries through just two locations, both in Spain, the firm remains hostage
to anything that could create a disruption in the region. Firms often hedge risks that could
shut down operations—think weather, natural disaster, terrorism, labor strife, or political un-
rest—by spreading facilities throughout the globe. If problems occur in northern Spain, Zara
has no such fallback.
In addition to the operations vulnerabilities above, the model also leaves the firm potentially
more susceptible to financial vulnerabilities during periods when the euro strengthens relative
to the dollar. Many low-cost manufacturing regions have currencies that are either pegged to
the dollar or have otherwise fallen against the euro. This situation means Zara’s Spain-centric
costs rise at higher rates compared to competitors, presenting a challenge in keeping profit
margins in check. Rising transportation costs are another concern. If fuel costs rise, the model

of twice-weekly deliveries that has been key to defining the Zara experience becomes more
expensive to maintain.
Still, Zara makes up for cost increases by raising prices overseas (in the United States, Zara
items can cost 40 percent or more than they do in Spain). Zara reports that all North American
stores are profitable and that it can continue to grow its presence, serving forty to fifty stores
with just two U.S. jet flights a week. (J. Tagliabue, “A Rival to Gap That Operates Like Dell,” New
York Times, May 30, 2003.) Management has considered a logistics center in Asia but expects
current capacity will suffice until 2013. (C. Rohwedder and K. Johnson, “Pace-Setting Zara Seeks
More Speed to Fight Its Rising Cheap-Chic Rivals,” Wall Street Journal, February 20, 2008.)
Another possibility might be a center in the Maquiladora region of northern Mexico, which
could serve the U.S. markets via trucking capacity similar to the firm’s Spain-based access to
Europe, while also providing a regional center to serve expansion throughout the Western
Hemisphere.
Rivals have studied the Zara recipe, and while none has attained the efficiency of Amancio
Ortega’s firm, many are trying to learn from the master. There is a precedent for contract firms
closing the cycle time gap with vertically integrated competitors that own their factories. Dell
(a firm that builds its own PCs while nearly all its competitors use contract labor) has seen its
manufacturing advantage from vertical integration fall as the partners that supply rivals have
mimicked its techniques and have become far more efficient. (T. Friscia, K. O’Marah, D. Hofman,
and J. Souza, “The AMR Research Supply Chain Top 25 for 2009,” AMR Research, May 28, 2009,
http://www.amrresearch.com/Content/View.aspx?compURI=tcm:7-43469).
In terms of the number of new models offered, clothing is more complex than computing,
suggesting that Zara’s value chain may be more difficult to copy. Still, H&M has increased the
frequency of new items in stores, Forever 21 and Uniqlo get new looks within six weeks, and
Renner, a Brazilian fast fashion rival, rolls out mini collections every two months. (M. Pfeifer,
“Fast and Furious,” Latin Trade, September 2007; and C. Rohwedder and K. Johnson, “Pace-
Setting Zara Seeks More Speed to Fight Its Rising Cheap-Chic Rivals,” Wall Street Journal,
February 20, 2008). Rivals have a keen eye on Inditex, with the CFO of luxury goods firm
Burberry claiming the firm is a “fantastic case study” and “we are mindful of their techniques.”
(C. Rohwedder and K. Johnson, “Pace-Setting Zara Seeks More Speed to Fight Its Rising Cheap-
Chic Rivals,” Wall Street Journal, February 20, 2008).
Finally, firm financial performance can also be impacted by broader economic conditions.
When the economy falters, consumers simply buy less and may move a greater share of their
wallet to less-stylish and lower-cost offerings from deep discounters like Wal-Mart. Zara is also
particularly susceptible to conditions in Spain since that market accounts for nearly 40 percent
of Inditex sales (J. Hall, “Zara Is Now Bigger Than Gap,” Telegraph, August 18, 2008), as well as
to broader West European conditions (which with Spain make up 79 percent of sales). (C.
Rohwedder, “Zara Grows as Retail Rivals Struggle,” Wall Street Journal, March 26, 2009). Global
expansion will provide the firm with a mix of locations that may be better able to endure
downturns in any single region. Recent Spanish and European financial difficulties have made
clear the need to decrease dependence on sales within one region.

Conclusion
Zara’s winning formula can only exist through management’s savvy understanding of how
information systems can enable winning strategies (many tech initiatives were led by José
Maria Castellano, a “technophile” business professor who became Ortega’s right-hand man in
the 1980s). (C. Rohwedder and K. Johnson, “Pace-Setting Zara Seeks More Speed to Fight Its
Rising Cheap-Chic Rivals,” Wall Street Journal, February 20, 2008). It is technology that helps
Zara identify and manufacture the clothes customers want, get those products to market
quickly, and eliminate costs related to advertising, inventory missteps, and markdowns. A strat-
egist must always scan the state of the market as well as the state of the art in technology,
looking for new opportunities and remaining aware of impending threats. With systems so
highly tuned for success, it may be unwise to bet against “The Cube.”
Source: http://2012books.lardbucket.org/books/getting-the-most-out-of-information-systems-
v1.3/s07-zara-fast-fashion-from-savvy-s.html

References
 http://core.ac.uk/download/pdf/334655.pdf
 http://2012books.lardbucket.org/books/getting-the-most-out-of-information-systems-
v1.3/s07-zara-fast-fashion-from-savvy-s.html
 www.ebhsoc.org/journal/index.php/journal/.../218ZARA-INDITEX
 www.ebhsoc.org › Home › Vol 25 (2007) › Crofton
 http://galinzhelyazkov.com/wp-content/uploads/2011/09/AgileSupplyChainZara-
casestudyanalysis.pdf
 http://www2.uhv.edu/luj/MGT6352/Samples/Student%20Sample%203.pdf
 http://thirdeyesight.in/articles/ImagesFashion_Zara_Part_I.pdf
 http://thirdeyesight.in/articles/ImagesFashion_Zara_Part_II.pdf
 http://s3.amazonaws.com/ppt-download/zaraitfinal-edit1-120826055208-
phpapp01.pptx?response-content-disposition=attachment&Signa-
ture=zjm1ScmAC9RdubVIAgp5W64j2LA%3D&Expires=1441803144&AWSAccess-
KeyId=AKIAIA7QTBOH2LDUZRTQ

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