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INFORMATION SYSTEMS: A
MANAGER’S GUIDE TO
HARNESSING TECHNOLOGY V 3.0
By John Gallaugher
CHAPTER 3
ZARA: FAST FASHION FROM
SAVVY SYSTEMS
LEARNING OBJECTIVE
• Understand how Zara’s parent company, Inditex, leveraged a technologyenabled strategy to become the world’s largest fashion retailer.
• Contrast Zara’s approach with the conventional wisdom in fashion retail,
examining how the firm’s strategic use of information technology
influences design and product offerings, manufacturing, inventory, logistics,
marketing, and ultimately profitability.
INTRODUCTION TO ZARA
• Game-changing clothes giant with parent company, Inditex Corporation.
• Uses a blend of technology-enabled strategy.
– Firm does not use advertising and rarely runs sales.
• Highly vertically integrated.
– Most of its production process is in-house.
GAP VERSUS INDITEX AT A GLANCE
GAP
INDITEX
Revenue
$16.2 billion
$22.7 billion
Net annual income
$1.28 billion
$3.23 billion
Number of stores
3,179
6,393
Number of countries
31
88
Biggest brand
Gap
Zara
Number of other brands 4
8
Based in
San Francisco, USA
Artexio, Spain (near La
Coruña)
First store opened
1969
1975
Sources: Year-end 2013 figures from http://www.gapinc.dom, http://www.inditex.com, and http://www.Bloomberg.com
CONTRACT MANUFACTURING
OUTSOURCING PRODUCTION TO THIRD-PARTY FIRMS:
FIRMS THAT USE CONTRACT MANUFACTURERS DO NOT
OWN PLANTS OR DIRECTLY EMPLOY THE WORKERS
WHO PRODUCE THE REQUESTED GOODS
• Advantages - Lower costs and increased profits
• Disadvantages - Sweatshop labor, poor working conditions,
and environmental abuse
– Firms face legal action, brand damage, reduced sales, and
decreased appeal among prospective employees
USING TECHNOLOGY TO GATHER DATA
• Zara’s store managers are armed
with personal digital assistants
(PDAs): Handheld computing
devices meant for mobile use
outside an office setting.
– Used to gather customer input
and feedback.
• Point-of-sale-system: Transaction
processing system that captures
customer purchase information.
– Shows how garments rank by
sales.
• Managers use the information
gathered from these systems to
make decisions more quickly and
more accurately.
DESIGN
• Customer demand and sales data
dictate the designs that Zara develops.
• Zara design staff consists of young and
fresh designers from design school.
• Teams are regularly rotated to:
– Cross-pollinate experience.
– Encourage innovation.
• Individual bonuses are tied to
the success of the team.
MANUFACTURING AND LOGISTICS
• Logistics: Coordinating and enabling the flow of goods, people, information,
and other resources among locations.
• Zara concepts go from idea to stores in fifteen days on average.
• To achieve this high level of responsiveness, Zara uses:
– Combination of vertical integration and technology-orchestrated
coordination of suppliers.
• Vertical integration: When a single firm owns several layers in
its value chain.
– Just-in-time manufacturing.
• The majority of Zara’s merchandise is produced in-house, with an eye on
leveraging technology in areas that speed up complex tasks, lower cycle
time, and reduce error.
• Inventory optimization models determine how many of which items in
which sizes should be delivered to each specific store.
MANUFACTURING AND LOGISTICS
• Fabric is cut and dyed by robots in highly automated factories.
– Half of the cloth arrives undyed so the firm can respond to midseason
fashion shifts.
• Zara leverages contract manufacturers.
– To produce staple items with longer shelf lives.
• Zara employees spend more time on value-added functions.
– Due to efficient logistics and inventory management.
• Zara is a pioneer in going green.
– Use of renewable energy systems at logistics centers.
• Logistics: Coordinating and enabling the flow of goods, people,
information, and other resources among locations.
– Use of biodiesel for the firm’s trucking fleet.
STORES
• Bestsellers benefit from limited runs:
– Allows the firm to cultivate the exclusivity of its offerings.
– Encourages customers to buy right away and at full price.
– Encourages customers to visit often.
– Reduces the rate of failed product introductions.
LEARNING OBJECTIVES
• Detail how Zara’s approach counteracts several profit-eroding challenges
that many fashion retailers struggle with.
• Identify the environmental threats that Zara is likely to face, and consider
options available to the firm for addressing these threats.
LIMITATIONS OF ZARA
• Operations vulnerabilities: By moving all deliveries through just two
locations, the firm is vulnerable to disruptions in the region.
– Operations: Organizational activities that are required to produce goods
or services.
• Financial vulnerabilities: susceptible to currency fluctuations since
development and manufacturing occur in one country.
• Rising transportation costs.
MOVING FORWARD
• Zara’s value chain is difficult to
copy.
– But it is not invulnerable, nor is
future dominance guaranteed.
• Zara’s management must:
– Have an understanding of how
information systems can enable
winning strategies.
– Scan the state of the market and
the state of the art in
technology.
• Look for new opportunities
and remain aware of
impending threats.