Zara has achieved success through a vertically integrated supply chain model that allows for rapid production and distribution, getting new designs from concept to stores in as little as three weeks. However, Zara's reliance on outdated information technology systems, including a DOS-based point-of-sale system and lack of internal communication capabilities, presents weaknesses that could threaten its competitive edge if not modernized. Upgrading its IT infrastructure would enable Zara to improve inventory accuracy, facilitate real-time communication across its global operations, and help it continue responding quickly to fashion trends.

1. SUPPLY CHAIN MANAGEMENT

2. Zara Business Model
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
• 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

3. 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

4. Design & Distribution
• Collections were created, then extended and modified over time
• Seasons and continuous introductions
• 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.

5. ORDERING
• each department (Mens, Womens,
Children)-placed an order twice a week
• Replenishment orders made by physical
shelf count and employee survey
• Digital order forms and “offers” were all
completed on hand held devices

6. FULFILLMENT
• commercials were responsible for matching orders to each store
• if demand was greater then supply, commericals had to make decisions
through past sales about order fulfillment
• commercials would also ship items that stores did NOT order
• fulfillment was subjective and inaccurate based on production and
forecasting system
• orders were usually fulfilled within 2 days by truck or air
• little inventory was left over, no emergency stock

7. 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.

8. 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

9. 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.

10. 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
• most sophisticated technology found
at this level

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. Merchandising
• Spent heavily on store experience
• located in prime retail district
• store layout was updated every 3 - 4 years (including artwork, window displays, sales racks)
• All new layouts were designed and tested in La Coruna
• Pricing was based upon Spanish market and fixed accordingly per for each distributed country
• Fast merchandise turnover > 75% of merchandise in store was changed every 3-4 weeks
• Online shopping was not available

17. 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

18. Customer Expectations
• 1. If I see a garment I should buy it
because it may not be here when I
come back.
• 2. I should visit Zara often to see what
new styles have been introduced and
what changes have been made to the
store.
• 3. The products I buy at Zara are not
high quality, but the value lies in the
fashion.
• garments were not expected to be worn more
than ten times

19. Marketing & Advertising
• Zara used virtually no advertising or marketing
• average marketing expenditure of 0.3% of
revenue

20. 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

21. 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 “95% is pretty good”

22. IT ISSUES
r
yo
op
• Problem: Time consuming to fax order forms back and forth to all stores
• Issues with unreliable fax machines, paper shortages etc.
tC
• faxes could be over 15 meters long
• Solution: Utilize IT with handheld computers that could communicate via
No
modum
• All stores had handheld devices (PDA’s) and POS systems
•
Do
PDAs were used for ordering and garment returns
• Time consuming and small screens

23. 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

24. STRENGTHS
• Local Manufacturing
• Fast Production
• Distribution Centers
• Basic IT

25. 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

26. Opportunities
• Communication with potential buyers
• Online Sales
• Expansion

27. Threats
• Only company using “ancient operating system”
• Refusal to go online
• Zara is not updating operating systems
• DOS is incompatible with industry, unsupported,
and outdated
• Other retail chains have real-time communication
• May lose market share to competitors

28. 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