Zara Case

Introduction

Zara, the largest retailer within the Inditex portfolio, has been able to maintain a competitive advantage over its competitors by offering up-to-the-minute fashions in its stores throughout Europe, Asia, the Middle East and the Americas. Zara is the result of a clothing factory integrating forward to take advantage of linkages between manufacturing and retailing. These linkages are facilitated by information technology and Zara has developed a highly automated production and distribution system to service its stores. The information systems within Zara stores are easy to use and stable, but much discussion is taking place regarding whether or not to upgrade them to take advantage of new technologies which could better support the company’s business strategy.

Strengths & Opportunities

1. Strategy: Speed & Style

Zara’s strategy is to deliver up-to-the-minute fashions to its customers who are looking for the latest trends. In order to achieve this goal, all of Zara’s operations are developed around the tenants of speed and decentralized decision-making. All of Zara’s divisions work to decrease the time it takes to bring products from the design table to the sales floor to ensure customers find what they are looking for. By delivering new styles to stores quickly Zara is able to respond rapidly to changes in clothing trends and in the market. This allows the company to spend very little on advertising and still maximize revenue by constantly introducing new styles. This rapid merchandise turnover encourages customers to visit stores frequently as they know there will be new items available and to purchase items they like immediately since they know the offerings will be different the next time they visit.

Speed in design, production, and distribution are enhanced by empowering a number of employees with the authority to make decisions as opposed to all orders being given from the company’s headquarters. Individual store managers choose which items will be sold in their stores. Designers determine what items should be produced based on current styles, while product managers have the authority to transfer merchandise from one store to another if necessary. Together, speed and decentralized decision-making allow Zara to respond to environmental factors at a speed no other major retailer has attained, leading to increased sales for the company.

2. Organizational Structure: IT Embedded

Both Inditex’s Chairman, Amancio Ortega, and its CEO, Jose Maria Castellano Rios a former IT manager, believe that computers and technology are imperative to the execution of the company’s strategy. Inditex does not have a CIO. Instead, a technology steering committee, including Ortega and Castellano Rios, is responsible for initiating new technology initiatives. Even with this high-level attention to the opportunities offered by information systems, no cost/benefit analysis of IT projects is undertaken and there is no formal procedure for determining which projects will be undertaken.

All of the company’s IT employees work from the company headquarters. Zara prefers to write its own applications, as opposed to buying commercially available software, because it believes this is the only way to meet its unique business needs. When developing production and distribution applications, Zara programmers work with the company’s equipment vendors to ensure the software interface works well. Currently, IT expenditures are just .3% of revenue, far below the industry average of 3-4%.

By providing high level attention to IT matters, Zara has succeeded in fully integrating its information systems into its business process. Unfortunately, no current metrics are available to determine the value these systems provide to the company.

3. Production & Distribution: Automated

In order to quickly respond to changes in the marketplace, the production and distribution of Zara merchandise is highly automated. It takes less than three weeks to move a new design through production to the sales floor. Because Zara is constantly introducing new styles and strives to keep very low levels of inventory throughout its supply chain, its manufacturers must be flexible and able to meet short lead times. Product managers keep track of supply and demand levels for merchandise and order more of an item if supply is running low or call off additional production if demand slows. Advanced machines are used to cut cloth into patterns to minimize waste and keep productivity levels high, although no technology is used to optimize production schedules. Instead, managers set the production schedule based on given quantities and due dates, offering the opportunity to create further improvements by utilizing information technology to increase production efficiency.

Garments are manufactured in response to orders from stores and are immediately sent to one of several distribution centers where computers and conveyor belts sort and move the merchandise to fulfill each order. People only get involved in the process if there is a shortage of a particular item, in which case a product manager will determine which stores will receive the merchandise. The automation of the fulfillment process at distribution centers works very well for assembling the large orders for stores but is not optimal for small orders so Zara does not sell clothing through its website.

4. In-Store Operating System: Behind the Times

Although Zara utilizes advanced technology to increase the speed in which its designs are produced and distributed, the company has not chosen to utilize new technology as it relates to its in-store information systems. The company’s internally developed point of sale (POS) application, used in all stores, runs on DOS which is no longer supported by Microsoft. Since DOS is a rather old system it is possible that the manufacturer of Zara’s POS terminals could change the design of the units so they are not compatible with DOS, leaving the company unable to acquire additional POS terminals for store expansion. To mitigate this problem, Zara can invest in a large supply of the terminals in case changes are made in the future.

One POS terminal in each store is connected to a modem which transmits sales and inventory information to company headquarters once per day. POS terminals within each store are not networked so information must be transferred via floppy disk from each