Running head: ZARA: IT FOR FAST FASHION 1

ZARA: IT for Fast Fashion

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ZARA: IT FOR FAST FASHION

2 ZARA: IT for Fast Fashion

Background of the Case Situation Zara is among the top international fashion brands under Indite ! Aman"io Ortega founded the "ompan# in 1$%& 'ith its first store in (a )oruna! Ortega had a primar# goal of lin*ing "ustomer demand to manufa"turing+ and at the same time lin*ing manufa"turing to distribution! Indite 'as "reated in 1$,& as a parent "ompan# for Zara! In the same #ear+ -ose )astellano .oined Zara! /oth Ortega and )astellano belie0ed that fast response to "ustomers+ usage of 1)s+ and de"entrali2ed de"ision3ma*ing 'ere *e# to the su""ess of the "ompan#! Zara a""ounts for %4!45 of Indite 6s total sales! The "ompan# spe"iali2es in ne' st#le "lothes for 'omen+ "hildren+ and men! 7omen segment a""ounts for 895 of the "ompan#:s re0enues! Zara:s business model ma*es use of "urrent st#les and trends to sell its "lothes 'ithout ad0ertising! The business full# relies on a team of emplo#ees *no'n as ;"ommer"ials< 'ho ma*e de"isions on 'hi"h "lothes are sold in the stores! The "ompan# 'as the pioneer in its ni"he mar*et in se0eral "ontinents in"luding Asia+ =iddle >ast Ameri"a+ Afri"a+ and >urope! The "ompan#:s approa"h to information te"hnolog# mat"hes its "ore business model! Although the "ompan# has a 'ebsite3'''!2ara!"om+ it is onl# used for displa#ing "lothes and not for selling! The "ompan# prefers to de0elop its appli"ations internall# instead of pur"hasing "ommer"iall# a0ailable soft'are! As at the publi"ation of this "ase+ Zara 'as rel#ing on an outdated operating s#stem and a 1oint of Sale ?1OS@ terminal for its stores! In addition+ the "ompan# la"*ed full time net'or* in all its stores! Zara:s 1OS s#stem operates on AOS infrastru"ture that is no longer supported b# =i"rosoft! Aespite the fa"t that the s#stem is out of date+ it is eas# to use and maintain+ and it is be"ause of this s#stem that Indite has de0eloped an outstanding and e "ellentl# performing 0alue "hain! Ho'e0er+ in 2994+ the "ompan#:s )>O had to ma*e a

ZARA: IT FOR FAST FASHION

de"ision on 'hether to upgrade the "urrent AOS s#stem and ris* fa"ing reliabilit# issues 'ith the ne' s#stem or retain the old s#stem that is in"ompatible 'ith future impro0ements or "hanges ?="Afee+ Aessain B S.oman+ 299%@! Problems Facing the Organization and Probable Causes To ha0e a "omprehensi0e understanding of the problems Zara is fa"ing+ the paper e amines the "ompan#:s primar# and se"ondar# a"ti0ities using 1orter6s Calue )hain =odel frame'or*! The model is useful in assessing the areas of 'ea*ness that need strengthening for the "ompan# to impro0e its "ompetiti0eness and profitabilit#! Applying the Model to the Case

As refle"ted in the abo0e figure+ Zara underta*es numerous operations! Its primar# a"ti0ities in"lude but not limited to ordering+ fulfillment+ and design+ 'ith priorit# gi0en to ordering! The "ompan# differentiates itself from the rest of "ompetition through 0alue addition in e0er# stage beginning 'ith manufa"turing to sales! The business is supported b# a number of a"ti0ities that in"lude pro"urement+ human3resour"e management te"hnolog# de0elopment+ and business infrastru"ture! Additional support a"ti0ities in"lude its internal IT department that internall# de0elops 0arious appli"ations under dire"t management of the )>O!

ZARA: IT FOR FAST FASHION Problems in Primary Activities

Ordering =anual "he"*ing of in0entories for ordering purposes and the use of handled "omputers ?1AAs@ has "aused se0eral problems in ordering! Firstl#+ the 1AAs ha0e small s"reens ma*ing their use diffi"ult! Se"ondl#+ the business la"*s in3store "omputers that "an be used in "he"*ing in0entor#E as a result+ the business is unable to mat"h the e a"t in0entor#! Similarl#+ store managers are not able to see the in0entories in other stores! Fulfillment3 "ommer"ials are unable to a""uratel# mat"h demand to suppl#! This is be"ause the orders for "ommer"ial ship items are not made b# the stores! In addition+ the absen"e of in3store "omputers has made it impossible to determine 'hi"h stores reFuire the items! !esign3 "ommer"ials are full# responsible for the design+ ho'e0er+ there is a problem be"ause those "ommer"ials in the design team ma*e guesses 'ith regard to design and "ommuni"ate the same to fa"tories for manufa"turing! The se"ond problem is that instead of tra"*ing sales data+ the "ommer"ials sur0e# the mar*et b# simpl# tal*ing to people! The use of information te"hnolog# "an help in tra"*ing sales data and ma*e it eas# for "ommer"ials to "ommuni"ate 'ith store managers! Manufacturing the "ompan# uses simple internall# de0eloped appli"ations to plan its produ"tion! This has "reated a number of problems! Firstl#+ the simple appli"ations la"* "omple mathemati"s to produ"e optimal s"hedules and plans! Se"ondl#+ the manufa"turing s"hedules and plans are manuall# "ommuni"ated instead of using information te"hnolog#! In addition+ Zara:s internall# made soft'are appli"ations are in"ompatible 'ith appli"ations made b# other e ternal 0endors! !istribution centers3 Zara:s distribution "enters hea0il# depend on "omputeri2ation and automation be"ause the IS tra"*s all the Sto"*3Geeping Hnits! Similarl#+ the distribution "enters

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also use the internall# de0eloped soft'are appli"ations in "ontrolling their automation in "on.un"tion 'ith de0elopers of "on0e#or eFuipment! The problem is that the internall# de0eloped soft'are ma# not be "ompatible 'ith appli"ations from other de0elopers! Stores all Zara stores use 1oint of Sale s#stems and 1AAs! The stores ha0e to use flopp# dis*s to share information and store managers ha0e to "he"* their in0entor# le0els manuall#! These problems ha0e been "aused b# the absen"e of "omputers in the stores other than the 1OS and 1AA terminals! These de0i"es la"* the "apa"it# to share data both 'ithin a store and 'ith other stores to "he"* sto"* a0ailabilit#! Furthermore+ no in3store net'or*s e ist! Problems in Support Activities Administration and systems3 the administration department uses standard "ommer"ial soft'are and appli"ations su"h as emails and 'ord pro"essing! Ho'e0er+ the IS department de0elops all internal soft'are! The problem is that the de0eloped appli"ations ma# not be appropriate for use be"ause of in"ompatibilit# 'ith 0endor soft'are! Procurement3 the absen"e of in3store "omputers has made pro"urement diffi"ult be"ause it is nearl# impossible to mat"h the e a"t in0entor#! Business support areas the absen"e of information te"hnolog# has made "ommuni"ation diffi"ult+ more time is reFuired+ and offi"es need to be in "lose pro imit# to allo' "ommuni"ation! Analysis of Alternative Solutions From the anal#sis of the abo0e problems+ it is e0ident that the solution is for Zara to in0est in information te"hnolog#! Ho'e0er+ the AOS s#stem eFuall# has its strengths! As a result+ there are t'o alternati0es3 Hpgrading to 7indo's+ HNII+ or (inu s#stem and

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maintaining AOS operating s#stem! This se"tion anal#2es and "ompares the "osts and benefits of the "urrent s#stem 0ersus the ne' s#stem! Costs Analysis Current system3 the e isting 1OS terminals that use the AOS s#stem reFuire less maintenan"e+ 'hi"h *eeps the "osts do'n! In addition+ the IT department internall# de0elops AOS "ompatible soft'are instead of bu#ing them from third3part# 0endors! Similarl#+ gi0en its global operations+ it is diffi"ult to manage its a""ounting using "ommer"ial soft'are! As a result+ the "ompan# maintains an IT department 'ith &9 emplo#ees a""ounting for no more than 9!&5 of its total labor for"e+ 'hi"h is 0er# "ost effe"ti0e! On the negati0e side+ the fa"t that the stores are not interlin*ed+ store emplo#ees ha0e to ma*e telephone "alls to "onfirm the e isten"e of in0entories! This pro"ess is "ostl# in times of time+ phone "osts and lost produ"ti0it#! In addition+ be"ause of the inappropriate "ommuni"ation+ the business reFuires more 'or*ers to manage its in0entor#+ resulting in in"reased "osts! "he ne# system3 a modern operating s#stem su"h as 7indo's+ HNII+ or (inu 'ill permit the "ompan# to de0elop its "apabilities! A number of "osts 'ill be in0ol0ed in the upgrade! 7hen 'e "ompare the "ost of ne' operating s#stem+ (inu has no li"ense "ost! On the other hand+ the one3time li"ense "ost for 'indo's is J1D9+ 'hile that of HNII is J189! As a result+ (inu appears to be the "heapest alternati0e for ZaraE ho'e0er+ it has higher ongoing "osts that in"lude ser0i"e "ontra"t "osts ranging bet'een J19 and J1&9! Ki0en that the "ompan# 'ill ha0e to install the ne' operating s#stem on man# "omputers+ Zara has to ta*e into a""ount the "ost of ea"h operating s#stem! Similarl#+ to upgrade its s#stem+ the "ompan# has to repla"e the 1OS terminals at "ost of J&999! This 'ill also reFuire the installation of ne' routers+ "ables

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among others! In addition+ it 'ill in"ur staff training "osts+ "onne"ti0it# "ost per store+ and soft'are installation and maintenan"e "osts! Benefits Analysis Current system the "urrent infrastru"ture has allo'ed the "ompan# to redu"e its operating "osts and in"rease its effi"ien"#! Ki0en that the soft'are is internall# de0eloped+ the "ompan# reFuires onl# &9 'or*ers and its IT e penditure is belo' 2&5 of the fashion industr# a0erage! The internall# de0eloped appli"ations allo' the "ompan# to e e"ute $&5 of its dail# operations and *eep upgrade "osts lo'! From 1$$8 to 2992+ internall# de0eloped appli"ations "ontributed 22!$5 to the "ompan#:s RO> redu"ed outside 0endor "osts+ and sa0ed 1&+999 de0elopment hours! As a result+ the lo' "osts impl# good profit margins! The "urrent IT infrastru"ture has allo'ed the "ompan# to ha0e the se"ond largest net margin of 19!D$5 and 11!925 in 2991 and 2992 respe"ti0el#! $e# system3installing the ne' s#stem 'ill ha0e a positi0e effe"t on the "ompan#:s re0enues! It 'ill permit effe"ti0e "ommuni"ation among the store managers and bet'een the stores and the headFuarters! The "ompan# 'ill be in a position to predi"t future material needs of all its stores! It 'ill also allo' the "ompan# to manufa"ture its garment protot#pes mu"h faster and get prompt response from "ustomers! As a result+ the "ompan# 'ill be able to a"hie0e high sales le0el+ more re0enues+ and more profits at a redu"ed "ost! For instan"e+ the upgrade 'ill offer better effi"ien"#+ impro0e net'or*ing bet'een stores+ and as a result redu"e operating "osts and number of emplo#ees per store! %ecommended Solution The "urrent AOS 1OS s#stem has been effe"ti0e and is properl# aligned 'ith Zara:s "ore business! Ho'e0er+ the "ompan# should no' "hange to a ne' 7indo's+ HNII+ or (inu s#stem

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be"ause there is un"ertaint# as to 'hether the supplier 'ill "ontinue to support the AOS s#stem! Se"ondl#+ the "ompan#:s obsolete AOS operating s#stem is in"ompatible 'ith future impro0ements or gro'th! =igrating to a ne' operating s#stem 'ill #ield signifi"ant benefits in terms of "ommuni"ation 'ithin and bet'een stores! In addition+ it 'ill impro0e all the primar# a"ti0ities in"luding ordering+ fulfillment+ design+ manufa"turing+ and distribution! The "ompan# "an progressi0el# migrate to the ne' IT infrastru"ture as it "ontinues to use its e isting s#stem! This 'ill permit the "ompan# to impro0e its effi"ien"# 'ithout fa"ing sudden sho"*s asso"iated 'ith introdu"ing the ne' IT infrastru"ture at on"e! Ans#ers to Specific &uestions Posed for the Case Zara should upgrade to a ne' operating s#stem+ but the implementation pro"ess has to be gradual! In the short3run+ there is no urgent need for the upgrade! Zara should implement the "hanges o0er a long3time hori2on! Hpgrading to a ne' operating s#stem and building of net'or*s 'ithin and bet'een stores 'ill not ris* Zara:s robust and s"alable infrastru"ture! Instead+ it 'ill enhan"e the net'or*ing "apabilities 'ithin and bet'een stores 'hi"h allo' store managers to sta# in tou"h not onl# 'ith other stores+ but also 'ith the headFuarters! As a result+ it 'ill onl# impro0e on the e isting robust and s"alable infrastru"ture that the "ompan# has de0eloped for man# #ears! Ki0en that Zara is using an out of date AOS s#stem+ there is an urgent need for the "ompan# to update its 1OS terminals 'ith a ne' and "ompatible operating s#stem! =odern 1OS terminals 'or* 'ith ne' operating s#stems su"h as 7indo's+ (inu + or HNII! 1orting the 1OS appli"ation to a ne' operating s#stem 'ill result in ne' "ustomer "entered fun"tionalities su"h as real time re"ording of sales+ e "hanges+ and returns! In addition+ ba"* offi"e "omputers using

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the 1OS s#stem 'ill no' handle ne' fun"tions su"h as "ontrolling in0entor# and transferring of items from one store to another! The "ompan# should not pur"hase more of the e isting 1OS terminals no' to a"t as insuran"e! This 'ould amount to in0esting more resour"es in an old s#stem that 'ill soon be"ome obsolete! Instead+ Zara should in0est these resour"es on the ne' operating s#stem and do a pilot test b# running it side b# side 'ith the old AOS in the initial stages and "olle"t data on its fun"tionalit#! This 'ill pro0ide the "ompan# 'ith an opportunit# to de0elop "apabilities in the ne' soft'are! Auring this transition period+ the "ompan# should fo"us on de0eloping its IT department b# emplo#ing a )IO to be in "harge of the department as opposed to the )>O! Hnder the leadership of the )IO+ the "ompan# 'ill be able to de0elop the ne"essar# "ompeten"ies reFuired to address an# IT related problems asso"iated 'ith the ne' OS!

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19 Referen"e

="Afee+ A!+ Aessain+ C! B S.oman+ A!+ ?299%@! Zara: IT for Fast Fashion! Harvard Business School+ 1324!