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Zara - A case study

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Amritanshu Mehra
Amritanshu Mehra

This document discusses the case of Zara, a large international clothing retailer known for its rapid response to fashion trends. It describes Zara's business model, which relies on vertical integration, in-house production, quick response times, centralized distribution, and low advertising costs. The document also discusses Zara's use of information systems across various parts of its business to gather customer data, track sales, coordinate design and production, manage logistics and distribution, and engage in other activities. Some challenges of implementing and maintaining such information systems are also outlined.

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Case Analysis Amitava Manna Ankit Sharma Amritanshu Ankita Varma Mehra Anuj Chhabra Animesh Ranjan
 Zara is by far the largest, most profitable, and most internationalized of the chains.  Zara‟s marketing strategy focuses on product variety, speed-to-market, and store location.  Zara‟s success is based on a business system that depends on vertical integration, in-house production, quick response, one centralized distribution center, and low advertising cost all of which made it so successful thus far.  Zara faced tough competition internationally with companies including H&M, Gap, and Benetton.
 Collecting vital information, such as daily sales numbers, allow designers to approximate what types of fashions are selling well.  The designers have real-time information available when deciding which type of fabric, cut, and colors to use when designing new clothes or modifying existing ones.  IT advantage has shortened the time it takes to go from design conception to the time of arrival at the distribution centers and finally to the stores to be placed on racks.
DESIGN SOURCING AND RETAILING MANUFACTURING DISTRIBUTION
DBMS ERP SQL , Oracle SAP ,people soft CENTRALIZED SERVER RFID NAPSTER
Zara - A case study
Sourcing and manufacturing  About 40% of finished garments were manufactured internally, and of the remainder, approximately two-thirds of the items were sourced from Europe and North Africa and one-third from Asia.  The most fashionable items tended to be the riskiest and therefore were the ones that were produced in small lots internally or under contract by suppliers who were located close by, and reordered if they sold well.  More basic items that were more price-sensitive than time sensitive were particularly likely to be outsourced to Asia, since production in Europe was typically 15%–20% more expensive for Zara.
DESIGN  The teams used information systems to track customer preferences and sales  Zara‟s store managers lead the intelligence gathering effort that ultimately determines what ends up on each store‟s racks.  Digital assistants (PDAs) are used to gather customer input, staff regularly chat up customers to gain feedback on what they‟d like to see more of.  The valuable data allows the firm to plan styles and issue re-buy orders based on feedback rather than hunches and guesswork. The goal - to improve the frequency and quality of information system allows for the best design trends.
Sources of Information  POS data  Industry Publication  TV Internet  University Campuses
 Zara uses software like C-Design and Corel Draw. Based on the power of CorelDRAW Graphics Suite, C-DESIGN Fashion is a computer assisted design (CAD) and technical pack tool that allows ZARA to create and merchandise its collections quickly and efficiently.  Customers can choose a single software solution that supports the full creative lifecycle including design, textile drawing, technical packages, collection plans, line sheets and visual merchandising.
Distribution  Zara has its own centralized distribution system. Sources of Information  Centralised Distribution System  Mobile Tracking Systems  PDA Distribution center in La Coruna
Vertical integration  Zara defies most of the current conventional wisdom about how supply chains should be run. Zara keeps almost half of its production in-house and uses smart technologies to have a competitive advantage.  Rather than chase economies of scale, Zara manufactures and distributes products in small batches
 Instead of relying on outside partners, the company manages all design, warehousing, distribution, and logistics functions itself. It uses latest technologies to keep up with latest trends.  Under computerized system, the company reduced its design to distribution process to just 10 to 15 days.
 The IT implementation of the OR models was relatively challenging, in that it required establishing dynamic access to several large, live databases (store inventory, sales, and warehouse inventory) to compute, under very stringent time constraints, many decisions that are critical to the company's distribution activities
 About three-quarters of the merchandise on display is changed every three to four weeks,  The average time between visits given estimates that the average Zara shopper visited the chain 17 times a year, compared with an average figure of three to four times a year for competing chains and their customers.
 Promoting Quick response  Coordination between retailing and manufacturing  Sales and trend forecasting  Marketing Strategies for different markets  The aggregated demand is ascertained and the supply is allocated according to past performance of the various garments at the stores
 Pricing was market-based.  Zara uses information systems for customer profiling, to analyze the purchase patterns and direct targeting  The company is able to more quickly respond to fluctuating customer demands in fashion trends. Zara's Unique Selling Proposition (USP) is to create or imitate the latest trends within a short two-week period  Zara uses policy of zero advertising the company preferred to invest a percentage of revenues in opening new stores instead.“  Zara's marketing strategy is very effective because of its  1) affordable prices  2) unique response to market demands.
 Challenges can be broadly seen under the following heads: People Data Process Software Devices
 The resistance of change to new process methods by management and supervision.  Inadequacy, inconsistency in the requirements agreed upon at the planning phase of the IS design phase and the actual requirements fulfilled by the system.  General lack of user acceptance when the System has gone live.  Inadequately educating the workforce to operate the new system properly.  Possible changes to kitting demand during „go live‟ may stretch the new system and those operating it on a learning curve beyond capacity.
 Values between the systems were incorrect, so comparisons need to be made on the values from the legacy system with those on the new system.  Possible failure to cut over to the new system through the inappropriate systems testing of volume, stress and data conversion.  User authorization problems, such as, password and user level clearance.  Temporary halt of work on the stores due to unavailability of systems.
 Transaction problems while dealing with multiple systems and problems in accurate communication between diverse systems.  The possible failure of providing inadequate and ongoing support after implementation.  Maintenance difficulties may occur on bridged legacy systems and with external partner systems.  Issues may occur in the security implementation and encryption of the data being transmitted.
 At Zara PDAs were used primarily for ordering and for tasks such as handling garment returns to distribution centers and transmitting information to all the stores.  The PDAs may result in problems of lack of expertise in staff which may lead to manhandling of the device.  Connectivity issues may be there between PDA and the main backend system.  Proper maintenance activities need to be regularly carried out for each store location.
 The POS terminals used at ZARA stores used back dated DOS operating system that was no longer supported by Microsoft. This could lead to problems if in future the hardware vendor decides to upgrade its software.  The employees had to copy daily sales data from each terminal onto a floppy disk and then carried these disks to one modem-equipped terminal to accomplish the data. This could lead to serious implementation issues from human errors of copying sales data.
 The IS at ZARA need to use sophisticated mathematical models to generate “Optimal Solution and Plans”. Hence a better software with the necessary capabilities will be required.  The data from the Customer Relationship Management System (CRM) can become cumbersome and difficult to understand for an ill-trained user.  The IS needs to be able to handle multiple access to the system from varied geographical locations simultaneously.  The roles of each individual accessing the system needs to be clearly defined and appropriate rights and privileges need to be administered.
 Accurate capturing and storing data from multiple points need to be ensured.  Gaps may occur while transmitting data between various systems in an IS leading to inconsistencies.  Data theft and other data loses may occur if the data is not secured.
Zara - A case study

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Zara - A case study

  • 1. Case Analysis Amitava Manna Ankit Sharma Amritanshu Ankita Varma Mehra Anuj Chhabra Animesh Ranjan
  • 2. Zara is by far the largest, most profitable, and most internationalized of the chains.  Zara‟s marketing strategy focuses on product variety, speed-to-market, and store location.  Zara‟s success is based on a business system that depends on vertical integration, in-house production, quick response, one centralized distribution center, and low advertising cost all of which made it so successful thus far.  Zara faced tough competition internationally with companies including H&M, Gap, and Benetton.
  • 3. Collecting vital information, such as daily sales numbers, allow designers to approximate what types of fashions are selling well.  The designers have real-time information available when deciding which type of fabric, cut, and colors to use when designing new clothes or modifying existing ones.  IT advantage has shortened the time it takes to go from design conception to the time of arrival at the distribution centers and finally to the stores to be placed on racks.
  • 4. DESIGN SOURCING AND RETAILING MANUFACTURING DISTRIBUTION
  • 5. DBMS ERP SQL , Oracle SAP ,people soft CENTRALIZED SERVER RFID NAPSTER
  • 7. Sourcing and manufacturing  About 40% of finished garments were manufactured internally, and of the remainder, approximately two-thirds of the items were sourced from Europe and North Africa and one-third from Asia.  The most fashionable items tended to be the riskiest and therefore were the ones that were produced in small lots internally or under contract by suppliers who were located close by, and reordered if they sold well.  More basic items that were more price-sensitive than time sensitive were particularly likely to be outsourced to Asia, since production in Europe was typically 15%–20% more expensive for Zara.
  • 8. DESIGN  The teams used information systems to track customer preferences and sales  Zara‟s store managers lead the intelligence gathering effort that ultimately determines what ends up on each store‟s racks.  Digital assistants (PDAs) are used to gather customer input, staff regularly chat up customers to gain feedback on what they‟d like to see more of.  The valuable data allows the firm to plan styles and issue re-buy orders based on feedback rather than hunches and guesswork. The goal - to improve the frequency and quality of information system allows for the best design trends.
  • 9. Sources of Information  POS data  Industry Publication  TV Internet  University Campuses
  • 10. Zara uses software like C-Design and Corel Draw. Based on the power of CorelDRAW Graphics Suite, C-DESIGN Fashion is a computer assisted design (CAD) and technical pack tool that allows ZARA to create and merchandise its collections quickly and efficiently.  Customers can choose a single software solution that supports the full creative lifecycle including design, textile drawing, technical packages, collection plans, line sheets and visual merchandising.
  • 11. Distribution  Zara has its own centralized distribution system. Sources of Information  Centralised Distribution System  Mobile Tracking Systems  PDA Distribution center in La Coruna
  • 12. Vertical integration  Zara defies most of the current conventional wisdom about how supply chains should be run. Zara keeps almost half of its production in-house and uses smart technologies to have a competitive advantage.  Rather than chase economies of scale, Zara manufactures and distributes products in small batches
  • 13. Instead of relying on outside partners, the company manages all design, warehousing, distribution, and logistics functions itself. It uses latest technologies to keep up with latest trends.  Under computerized system, the company reduced its design to distribution process to just 10 to 15 days.
  • 14. The IT implementation of the OR models was relatively challenging, in that it required establishing dynamic access to several large, live databases (store inventory, sales, and warehouse inventory) to compute, under very stringent time constraints, many decisions that are critical to the company's distribution activities
  • 15. About three-quarters of the merchandise on display is changed every three to four weeks,  The average time between visits given estimates that the average Zara shopper visited the chain 17 times a year, compared with an average figure of three to four times a year for competing chains and their customers.
  • 16. Promoting Quick response  Coordination between retailing and manufacturing  Sales and trend forecasting  Marketing Strategies for different markets  The aggregated demand is ascertained and the supply is allocated according to past performance of the various garments at the stores
  • 17. Pricing was market-based.  Zara uses information systems for customer profiling, to analyze the purchase patterns and direct targeting  The company is able to more quickly respond to fluctuating customer demands in fashion trends. Zara's Unique Selling Proposition (USP) is to create or imitate the latest trends within a short two-week period  Zara uses policy of zero advertising the company preferred to invest a percentage of revenues in opening new stores instead.“  Zara's marketing strategy is very effective because of its  1) affordable prices  2) unique response to market demands.
  • 18. Challenges can be broadly seen under the following heads: People Data Process Software Devices
  • 19. The resistance of change to new process methods by management and supervision.  Inadequacy, inconsistency in the requirements agreed upon at the planning phase of the IS design phase and the actual requirements fulfilled by the system.  General lack of user acceptance when the System has gone live.  Inadequately educating the workforce to operate the new system properly.  Possible changes to kitting demand during „go live‟ may stretch the new system and those operating it on a learning curve beyond capacity.
  • 20. Values between the systems were incorrect, so comparisons need to be made on the values from the legacy system with those on the new system.  Possible failure to cut over to the new system through the inappropriate systems testing of volume, stress and data conversion.  User authorization problems, such as, password and user level clearance.  Temporary halt of work on the stores due to unavailability of systems.
  • 21. Transaction problems while dealing with multiple systems and problems in accurate communication between diverse systems.  The possible failure of providing inadequate and ongoing support after implementation.  Maintenance difficulties may occur on bridged legacy systems and with external partner systems.  Issues may occur in the security implementation and encryption of the data being transmitted.
  • 22. At Zara PDAs were used primarily for ordering and for tasks such as handling garment returns to distribution centers and transmitting information to all the stores.  The PDAs may result in problems of lack of expertise in staff which may lead to manhandling of the device.  Connectivity issues may be there between PDA and the main backend system.  Proper maintenance activities need to be regularly carried out for each store location.
  • 23. The POS terminals used at ZARA stores used back dated DOS operating system that was no longer supported by Microsoft. This could lead to problems if in future the hardware vendor decides to upgrade its software.  The employees had to copy daily sales data from each terminal onto a floppy disk and then carried these disks to one modem-equipped terminal to accomplish the data. This could lead to serious implementation issues from human errors of copying sales data.
  • 24. The IS at ZARA need to use sophisticated mathematical models to generate “Optimal Solution and Plans”. Hence a better software with the necessary capabilities will be required.  The data from the Customer Relationship Management System (CRM) can become cumbersome and difficult to understand for an ill-trained user.  The IS needs to be able to handle multiple access to the system from varied geographical locations simultaneously.  The roles of each individual accessing the system needs to be clearly defined and appropriate rights and privileges need to be administered.
  • 25. Accurate capturing and storing data from multiple points need to be ensured.  Gaps may occur while transmitting data between various systems in an IS leading to inconsistencies.  Data theft and other data loses may occur if the data is not secured.