Zara: IT for fast fashion

Soham Dakhole
ISM
24148
 Business Model

1. Speed and Decision Making

As Ortega and Castellano kept on thinking about improving the organization's
data innovation, there were two convictions that went ahead their way. Right off the
bat, Zara should have been ready to react in a flash to the requests of objective clients
– youthful, design cognizant city occupants whose preference for garments changed
quickly, difficult to foresee, and difficult to impact. It is consistently thought, in any
event by different organizations in the attire business, that promoting and publicizing
efforts could be compelling at persuading purchasers to purchase their garments.
Nonetheless, it has likewise been demonstrated that "design misses" were basic even
with broad promoting, and that new styles could abruptly show up, would flood in
notoriety, at that point quickly blur. Zara's objective was to create and convey such
styles while they were yet hot, instead of depending on the adequacy of its
showcasing to push things it had discharged previously.
Also, top administrators of Zara needed to boost their human limit all through the
organization as opposed to depending on a little arrangement of chiefs. Store
directors at Zara, for instance, were given more obligation than those of other huge
dress chains. These store supervisors, beside managing clients, workers, temporary
workers, and landowners, were the ones to choose what articles of clothing would
be marked down at their very own stores. They put orders for the things they thought
would sell, as opposed to just tolerating and showing what home office chose to send
them.

Soham Dakhole 24148 Zara: ISM

2. Marketing, Merchandising, and Advertising
Practically all organizations on the planet pitch their items, contributions or
administrations to the market. Organizations spend a great deal of cash on promoting
and publicizing. Primary worldwide dress retailers create ads to showcase their items
to general society, yet Zara isn't one of them. Zara did no publicizing aside from the
advancement of their business two times per year and opening of new stores.
Contrasted with its rivals' 3-4%, Zara's advertising consumptions found the middle
value of just 0.3% of their incomes.
All new store formats were planned and tried to a 1,500-square-meter pilot store
in La Coruña. Following a fruitful new plan of stores, a La Coruña-based group
would make a trip to each Zara store to set up the new arrangement. They ordinarily
do the overhauling of stores each four to five years. Costs of pieces of clothing are
dictated side-effect directors and considering different factors, for example,
conveyance cost, the costs in each store are set as fixed rates of costs in the store
situated in La Coruña.
One of Zara's strategic approaches is to deliver pieces of clothing that have a
short life expectancy both inside the store and in clients' storage rooms. They never
produce garments that would consistently be in style. There are three ramifications
exciting from this methodology. To start with, clients would purchase garments on
the spot since they realized it would never again be on the shop on their following
visit. Second, clients would visit the store regularly on the grounds that new styles
are shown constantly. In conclusion, Zara articles of clothing were portrayed as
"garments to be worn multiple times" thinking of it as was not exceptionally strong.
Since they are not creating works of art, clients would normally purchase garments
to be in style.
Although Zara has a site (www.zara.com), this solitary fills in as a presentation
of their various pieces of clothing and their costs and isn't utilized for web-based
shopping. There are two purposes behind supporting it. In the first place, Zara's
conveyance focuses (DCs) were not designed for picking little requests and
transporting them to shoppers. Besides, it is confounded to deal with returns of
product purchased on the web. Retail mail-request industry had return rates as high
as half 60%, which Zara contrasted ominously and their ordinary 5% store returns.

Soham Dakhole 24148 Zara: ISM

3. Financials and Growth
In 2003, Inditex worked 1,558 stores in 45 nations and 550 of it is in accordance
with Zara store chain. Forty-six percent of Inditex's deals were from their activity in
Spain and 73.3% of it was created by Zara. The Women's dress division of Zara was
represented 60% of their deals, while Men's and Children's specialization both
comprise 20% of the deals.
In 2002, Inditex had a net gain of €438 million (about $502 million U.S. dollars)
with incomes of €3,974 million (about $4,554 million). The organization's profit
dramatically multiplied somewhere in the range of 1996 and 2000.
Officials of Inditex felt that there is a conceivable development with its present
markets. Zara had not very many stores in Italy despite the way that individuals there
were probably the most design cognizant. Zara's Italian stores were very famous.
They believe Inditex's development can occur in Western Europe without structure
completely new generation and appropriation system to help this future
development.

Figure 1. Zara’s Value Chain

Soham Dakhole 24148 Zara: ISM

 Information Technology
1. Approaches and Organization
The company provided clothes before they got out of style, generally with the
help of employees who dealt with young, fashion-conscious customers whose tastes
in clothing changed rapidly. Zara’s approach to IT was similar to its view on business
– decision making was decentralized, and speed was a crucial part.
Zara had no chief information officer and no formal process for setting an IT
budget or deciding specific technology investments or projects. What the company
had was an IS department of approximately 50 people. The department’s
responsibilities were mainly application development and other IT activities. For
example, instead of buying software, Salgado and his colleagues preferred to write
the applications themselves. They believed that commercially available software
would not fit Zara’s unique operations. Most applications were developed internally.
Additionally, there was little or no formal justification for IT efforts, nor cost/benefit
analyses were conducted for a proposed effort.
The IS department was divided into three groups: Store Solutions, Logistics
Support, and Administrative Systems. Personnel were recruited from local
universities and mostly from Galicia.
2. La Coruña
Internally developed applications were used to support Zara’s operations.
They served various functions such as (a) preparing offers and distributing them
internationally to the stores via Internet, (b) receiving orders from stores and
aggregating them, (c) comparing the aggregated order to available inventory for each
SKU, (d) highlighting situations where supply and demand were imbalanced, (e)
executing commercials’ decisions about how to allocate products when demand
exceeded supply, (f) and keeping track of the “theoretical inventory” for each SKU.
The last one, i.e. keeping track of the “theoretical inventory”, was mainly used
to help make allocation decisions. Each store transmitted the day’s sales back to La
Coruña using a modem connected to one of the store’s POS terminals. Shipments to
stores increased the theoretical inventory, and sales decreased it. Admittedly, this
inventory was a poor reflection of reality, but Salgado claimed that the theoretical
inventory did not have to be 100% accurate.
3. Distribution Centers (DCs):
The distribution centers of Zara greatly relied on automation and
computerization. Miles of conveyor belts at the La Coruña DC are used to receive
bulk quantities of garments from factories. Also, they used these conveyors to
recombine garments to be shipped for each store. Stock-keeping units were tracked
by Zara’s information systems to make sure the garments were picked up and
dropped off at appropriate places. Even though Zara relied on computerized DCs,
humans still play a very important role. Particularly, workers put garments on hanger

Soham Dakhole 24148 Zara: ISM

racks or in cardboard boxes. The application that controlled the DCs’ automation
was written by Zara’s IT department, in collaboration with the conveyor equipment
vendors.
4. Stores
Zara stores had PDAs and POS systems worldwide. Before Zara used PDAs,
many employees inside the company felt that it was costly and too long to fax order
forms back and forth twice a week. It was time-consuming to send and receive a 15-
meter long order forms containing a lot of SKUs. Also, the unreliability of fax
machines and paper shortages presented delays and frustration into the ordering
process.
The use of PDAs was introduced in 1995. To fix the problem, Salgado and
his colleagues decided to use handheld computers that would communicate with the
headquarters in La Coruña via modem. Zara became one of the largest users of
Apple’s Newton device. Zara switched to another PDA manufacturer when Apple
discontinued manufacturing Newton in 1998. Zara upgrades the PDAs as devices
are discontinued or technological advances are available.

Keeping the current system means buying more DOS-compatible POS

terminals. These terminals costs between $1,000 and $3,000 each, and even less for
multiple terminal purchases made at a single time. Upgrading to a newer operating
system, on the other hand, entails numerous expenses as shown in the following
exhibit:

Soham Dakhole 24148 Zara: ISM

 Category Value

Operating Systems for POS terminals (costs per

computer/CPU)
Windows: One-time license cost € 140
Annual maintenance fee € 30
Unix: One-time license cost € 16
Annual maintenance fee € 25
Linux: One-time license cost €0
Service contract € 10 – €
150

Hardware (per store, avg. 5 terminals needed

per store)
POS Terminals € 5,000
Wireless Router (1 per store) € 180
Wireless Ethernet Card (1 per POS terminal) € 50

Connectivity (annual cost per store)

High-speed Internet connection € 240

Overall programming time required to:

Port existing POS application to new OS 15,000 hours
Expand POS application to include
1. Lookups of same-store theoretical inventory 3,000 hours
2. Lookups of other-store theoretical inventory 1,000 hours
3. Inventory transfers 1,000 hours
Cost per day of programming time € 450

Time required per store to:

Install new POS terminals with new POS 16
hours
application
Establish wireless network 8 hours
Train staff on new POS application 8 hours
Cost per day of installation/training time € 2000

Soham Dakhole 24148 Zara: ISM

 Alternatives

A. First Alternative: Maintain the existing system to prevent the company from
the possibility that it would make a decision that would result to more costs
than benefits.
Pros Cons

• Easier to use • Limited functions

• Compared to a newer OS, • Outdated systems
maintenance cost is • Time consuming to use
significantly lower. • Less accuracy
• Maintaining competitive
advantage

B. Second Alternative: Upgrade to an internally-developed modern system that

would help the company in monitoring its operations.

Pros Cons

• Improve customer service • High maintenance costs

• Faster operations • Prone to failures due to
• Better access to information unfamiliarity in usage
• Establish easier and faster • Prone to hackers
network across the enterprise • Efficiency is not assured
• More detailed view of the • Risky
business – easier to pinpoint
problems in the operations
• More accurate theoretical
inventory
• Expanded network

Soham Dakhole 24148 Zara: ISM

 C. Third Alternative: Outsource the software development to eliminate the cost
that comes with creating the software internally.

Pros Cons
• Provides opportunities for cost • No assurance that Zara’s
reduction. sensitive information would be
• Search of in-house staff with kept confidential
specific experience and skills • Presence of cultural differences
suitable for the enhancement of and political instability in the
IT system is no longer Zara’s outsourcing country
responsibility • Language barriers and
• Supplier is legally obliged for communication problems
any in case problems of the between Zara and the software
system company
• Outside suppliers might be • Some factors being very
more specialized and be able to difficult to stipulate in a contract
achieve greater economies of
scale over in-house production

D. Fourth Alternative: Continue using the existing OS while a newer system is

being developed internally so there would be a back-up in case any of the
system fails.

Short Term

Pros Cons
• Less risky • Costly
• Employees will have a enough • The company should take time
time to adjust and learn the new and effort in finding and hiring
system. IT professionals.
• Operations of the company will • Prone to failures due to
not be affected by the ongoing unfamiliarity in usage
study regarding the system, if
they will create a specialized
team.
Long Term

Soham Dakhole 24148 Zara: ISM

 Pros Cons
• Enhanced inventory • High maintenance costs
management (Implementation costs a lot of
• Ease of communication between money, time and effort. Since
Zara stores employees are not familiar with
• Improve customer service the new system, productivity
• Faster operations can also be affected.)
• Better access to information • Prone to hackers
• Establish easier and faster
network across the enterprise
• More detailed view of the
business – easier to pinpoint
problems in the operations

V. Implementation
For Zara to upgrade the current system, it should implement the change
gradually. In the short term, there is no immediate need to upgrade the system. Zara
needs to make the change over a long period. For Zara to maintain its status in the
industry, it should first develop a strategy for the change.
Parallel running mode of implementation stands to be the most appropriate
option. This means that the new system is started, but the old system is kept running
in side-by-side (parallel) for a while. All of the data that is input into the old system,
is also input into the new one. In the long run, once the new system has been proven
to work, the old system will be stopped.

Image 7. Parallel Running

Soham Dakhole 24148 Zara: ISM

References
Hansen, Suzy. (2012). How Zara Grew into the World’s Largest Fashion.
Retrieved 16 Feb 2015, from
http://www.nytimes.com/2012/11/11/magazine/how-zara-grew-into-the-
worlds-largest-fashion-retailer.html?pagewanted=all&_r=2&
Scribd.com. (2015). Zara Fashion Case Analysis. Retrieved 16 Feb 2015, from
http://www.scribd.com/doc/28476479/Zara-Fashion-Case-Analysis
Slideshare.com. (2012). Zara IT Case. Retrieved 18 Feb 2015, from
http://www.slideshare.net/raulpin101/zara-it-case
Zara.com. (2015). Official Website. Retrieved 24 Feb 2015, from
http://www.zara.com/

Soham Dakhole 24148 Zara: ISM