Ashutosh Singh (4018/20)

1 | I C T f o r O r g a n i z a t i o n a l E f f e c t i v e n e s s IIM Calcutta

ZARA: IT for Fashion Case Analysis
Business Model-




The business model for Zara, as according to CEO of Inditex was, Link customer demand to manufacturing and
link manufacturing to distribution.
The primary activities in the Firms value chain were- Ordering, fulfillment, design, manufacturing, DCs and
stores. The support activities included- Procurement, Administration, Information systems, HRD, other
business support units.
How its different-
For a competitor in apparel industry, Supply chain was reliant on outsourcing production, while Zara model has
a highly responsive vertically integrated supply chain.
In a traditional system store manager deals with customer and employees while in case of Zara he has decision
taking powers with respect to stocking.
In a traditional system for marketing, ads are primarily for publicizing the whole mixture of clothes while for
Zara, Ads are only for yearly sales & to announce any new store inaugurations (3-4% vs 0.3% of revenue).
In a traditional system the Design was conceptualized by small, elite team common for all segments. In Zaras
case Dedicated teams were created for each section (Men, Women, Children) and collection (Basic and sports).
For competitors, Product life span or average new launches/year was in range 2000-4000, while Zara had a
short life span with new items continuously pumped into the market with average new launches/year at 11000.
For others, due to outsourcing, time to bring a product to market was about 6 months. But as Zara has vertically
integrated manufacturing operations, so lead times as well as time for new products was less, about 3-4 weeks.
The competitors in the industry continuously did Sales forecast while Zara did not do such things due to flexible
factories and short product life cycle.
For competitors the IT spending was 2% of revenue as IT apps are outsourced to vendors while for Zara it was
0.5% of revenue as applications were developed in-house.
Operating the above Business model-
As customer demand was very hard to forecast, Zara made apt use of Information technology, responded very
quickly to the demand of target customers, and took advantage of the intelligence and the judgment of
employees throughout the company, instead of relying on a small number of decision makers. Zara has a highly
responsive vertically integrated supply chain and there existed decentralized decision making. The designing
team relied on feedback from fashion-forward young people, store managers and staff to create the product
line and to make adjustments for manufacturing later in the season. Clothing line of Zara changed continuously
throughout the season. Thus the design team had to create the collections ahead of time, keeping in mind the
Ordering &
Fulfillment
Design and
Manufacturing
La Coruna, DCs
& Stores
Merchandising
& Marketing
Information Systems
Ashutosh Singh (4018/20)
2 | I C T f o r O r g a n i z a t i o n a l E f f e c t i v e n e s s IIM Calcutta

latest trends, the feedback, so as to make appropriate alterations to the clothes. IT was used to make the
orders appropriately and in case of mismatch between demand and supply, an appropriate decision was taken.
Zara unlike the competitors in the industry spent negligible to advertise their merchandise. To attract the
customers, Zara focused on the brick-and-mortar design and location of the stores and created the illusion of
scarcity for its products. Customers possessed a sense of urgency to purchase a Zara product because the
merchandise had a 3-4 week shelf life. Also Zara replenished the stores with new products very frequently.
Garments were projected as clothes to be worn 10 times instead of as being highly durable.
Ordering & fulfillment-
Inventory management by store manager based on current trends, and his own judgment.
Use of PDAs, dial up modem, infrared for order management.
Design & manufacturing-
Vertically integrated supply chain ensured constant introduction of new items with short lead times.
No long range forecasts, Commercials made the initial guesses on how well a garment would sell .
Zara leveraged IT at La Coruna, factories, stores and DCs as follows-
Several IS were used to prepare orders, distribute them over internet, receive them and aggregate them.
Factories had simple applications, for plan production, providing information about order and due dates.
DC had a great deal of automation with complete tracking of SKUs.
Stores used PDAs which communicated to La Coruna via modems.
PDAs were upgraded constantly while POS terminals remained same for over decade.
POS used DOS as OS & its installation & maintenance was very simple. Also all applications were made in house.
Real time feedback was missing from stores to Zaras headquarters and transmission required copying into
floppy disc and then sending it via a modem which occurred at the days end.
Inability to share information between PDA & POS inside a store or between two stores.
Recommendations to Salgado on how to proceed on the issue of upgrading Zara's POS systems-
As a Majority of stores are present in Europe (highest concentration in Spain followed by France), lots of growth
opportunities exist within Zaras current markets. Thus Database size needs to be increased, and also there i s
a need for real time database.
Zara should implement the change gradually. Zara needs to make the change over a long period.
Zara should stop more investment in the current outdated system and probably conduct a pilot test of the new
OS and new up to date machines, to collect the data of its effects.
Zara should make the investment in sequential stages, instead of spending at once.
Zara needs to design a formal chain of decision-making for which Zara should focus on the development of its
IT department by hiring a CIO or CTO, under whose expertise, Zara will be able to tackle the IT related problems.
Update the POS terminals with a more modern and compatible operating system. Replace PDAs with more
user friendly Tabs or probably PCs.
The PDAs and the POS are not connected. In order to improve the networking capabilities, Zara should switch
to a broadband-based network. This will allow Zara to stay connected with the other stores as well as with the
headquarters.
Ashutosh Singh (4018/20)
3 | I C T f o r O r g a n i z a t i o n a l E f f e c t i v e n e s s IIM Calcutta

With the updation of OS on POS, more user friendly applications which can make customer management,
recording of sales, exchanges etc. easy. Also the POS in factories and DCs should have functionality of inventory
control, receiving and transferring of products to and from other locations.
Zara should also use CRM software such as Sap, to reduce cost and increase the decision-making, in order to
compete effectively over the long-term.
Initially, Zara should run the old and the new systems side by side, until the new system is operating smoothly.
Then gradually migrate to the new systems.
Zara should make online sales, and take advantage of the available free social media to promote itself.
Addition of such capabilities will enhance Zaras operations. These will add more entry barriers for the new
competitors and the existing competitors will have to enhance their operations in order to stay in competition
with Zara.