Please read the article: Zara: Fast fashion from savvy systems available for free at http://www. flatworldknowledge. com/pub/gallaugher/41128#pdf-7 This article makes up Chapter 1 of the free, open access book titled, Information Systems: A Manager’s Guide to Harnessing Technology, by John Gallaugher. Please ensure that you read the entire Chapter 1 of the book consisting of 3 parts (Part 1 Introduction; Part 2 Don’t Guess, Gather Data; and Part 3 Moving Forward). Now answer the questions below: Question 1: The Zara case shows how information systems can impact every single management discipline.
Which management disciplines were mentioned in this case and how does technology impact each? (50% of the total mark) The case study mentioned management disciplines including information gathering, processing, storing, distributing and use of information. Gather market information One of the successful factors in Zara is they know the market trends. Zara deploys the latest information technology tools to facilitate the information exchange and collect market data through both formal and informal channels – the PDA and POS systems.
The Personal Digital Assistants (PDA) system Zara’s store managers were given personal digital assistants (PDAs) so they could gather customer input outside an office setting. The staff in Zara would regularly gather information from customers, such as the trend of fashion customers preferred and feedbacks of garment that they would like to see more in the shop. The range of information collected included colours, length and even small detail of the clothes were collected from customers through front line shop staff.
Besides getting information directly from customers, they staff have another channel to gather customers’ preferences. The staff will investigate the unsold items that customers tried on but didn’t buy, to find out their preferences in cloth, color, or styles offered among the products in stock. The Point-of-sale (POS) system Besides the informal channel to gather customers needs (through conversations), the head office will collect information through a formal channel, the store’s point-of-sale (POS) system.
This system is a transaction process that captures customer purchase information, in order to show how garments rank by sales. Since the POS system is linked with the PDA system, in less than an hour, managers can send updates that combine the hard data captured at the cash register with insights on what customers would like to see. Information on customer needs and trend information collected daily are fed into a database at head office regularly. The PDAs support the connection between the retail stores and head office.
Each store managers are assigned with market specialists, they will communicate regularly through PDAs to transmit all kinds of information to head office.  Zara store management and staff use PDAs and POS systems to gather and analyze customer preference data to plan future designs based on feedback, rather than prediction. Data driven product development The data collected from PDA as well as POS system formed a valuable marketing database and provided data allows the design teams to plan styles and issue re-buy orders based on feedback rather than hunches and guesswork.
The goal is to improve the frequency and quality of decisions made by the design and planning teams. The designers from “The Cube” follow evidence of customer demand. When they deign new garments or decide which kind of fabric, cut and price points to be used or modify existing designs, they will base on information from PDAs and POS rather than create trends by pushing new lines via advertisements or catwalk fashion shows. Vertically integrated value chain Inditex is a vertically integrated group, it owns several layers in its value chain.
The distribution center in La Coruna equipped with up-to-date equipment for fabric dyeing and processing, cutting and garment finishing. The vertically integrated ability allows the group to response faster against the latest fashion trend including provide the appropriate for new lines. Zara’s IT expenditures are low by fashion industry standards. The spectacular benefits reaped by Zara from the deployment of technology have resulted from targeting technology investment at the points in the value chain where it has the greatest impact, and not from the sheer magnitude of the investment.
This is in stark contrast to Prada’s experience with in-store technology deployment. Inventory control Zara uses Toyota-designed logistics system and overnight parcel services to manipulate items stocked in the five-million-square-foot distribution center in La Coruna, or a similar facility in Zaragoza in the northeast of Spain. About two and a half million items were handled every week and none of them stayed in the warehouses more than 3 days. Before sending to each store, clothes are ironed in advance and packed on hangers, with security and price tags fixed beforehand.
This system helps staff in Zara utilize their time efficiently with the inventory during busy periods. Just-in-time manufacturing (JIT) The JIT approach to manufacturing involves timing the delivery of resources so that they arrive just when needed. Inventory optimization models help the firm determine how many of which items in which sizes should be delivered to each specific store during twice-weekly shipments, ensuring that each store is stocked with just what it needs.
Trucks serve destinations that can be reached overnight, while chartered cargo flights serve farther destinations within forty-eight hours. And the firm can coordinate outbound shipment of all Inditex brands with return legs loaded with raw materials and half-finished clothes items from locations out-side of Spain thanks to the revised shipping models through Air France–KLM Cargo and Emirates Air. Zara’s products are manufactured for a limited production run. This approach encourages customers to buy right away and at full price.
The constant parade of new, limited-run items also encourages customers to visit often. Staff allocation Headquarter of Zara uses software to arrange staff’s roster. The manpower is allocated based on each store’s forecasted sales volume, with locations staffing up at peak times such as lunch or early evening. The firm claims these more flexible schedules have shaved staff work hours by 2 percent. This constant refinement of operations throughout the firm’s value chain has helped reverse a prior trend of costs rising faster than sales.
Zara’s combination of vertical integration and technology-orchestrated supplier coordination, just-in-time manufacturing, and logistics allows it to go from design to shelf in days instead of months. [pic] Question 2: Do you think information systems are a strategic liability for Zara? Give reasons. (50% of the total mark) Porter’s five forces analysis To understand the business condition of fashion industry, we need to use Porter’s five forces model. It is shown how the market behaved at the very beginning of the company according to the Porter’s 5 forces analysis.
Bargaining Power of Suppliers This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company’s margins and volumes, then they hold substantial power. • There are many suppliers for raw material • There are many substitutes • Presence of substitute inputs • The nature of the products allow to storage them long time, unless the trends conditions. Bargaining Power of customers This is how much pressure customers can place on a business. • Switching to another (competitive) product is simple The product is not extremely important to the buyer; they can do without it for a period of time. • Customers are price sensitive • Buyer do not have switching costs • Many availabilities of existing substitute products • Buyer is price and style sensitive • Low purchase volume per customer. • Highly dynamic, customers preference changes frequently in short time Competitive rivalry within an industry This describes the intensity of competition between existing firms in an industry. Garment industry is highly competitive generally earn low returns.
For many industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc. • It is a mature industry with very little growth. Companies can only grow by stealing customers away from competitors. • It has a lot competitors in the industry about the same size • Little differentiation between competitors’ products and services. Key competitors include Gap,, Benetton, H, Forever 21 , etc.
Pfeifer, (2008); Rohwedder and Johnson, (2008) H has increased the frequency of new items in stores, Forever 21 and Uniqlo get new looks within 6 weeks and Benetton, a firm that previously closed some 90 percent of US stores, now replenishes stores as fast as once a week • The barriers to get out of the industry are low in distribution and high in manufacture • Since the chances of clothes getting damaged before sold is very little, the storage costs would be low • High manufacture costs because of high raw material cost and manpower cost Threat of new Entrants No distribution barriers to entrance because it only consists on low costs of renting a shop, no administrative restrictions, low initial capital to start • Reduced reaction possibilities in front of new entrants • In production, there are barriers for the existence of economies of scale. • The start up capital needed is high • Need time to build up relationship with supply chain and suppliers Threat of substitute products What is the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses to be a serious threat. Buyer can easily found substitute • Relative price performance of substitutes • Buyer switching costs is low • Perceived level of product differentiation • Fad and fashion • Technology change and product innovation The main issue is the similarity of substitutes. For example, if the price of coffee rises substantially, a coffee drinker is likely to switch over to a beverage like tea because the products are so similar. If substitutes are similar, then it can be viewed in the same light as a new entrant. Zara’s success factors
The success factors/ competitive advantages include always producing the style that customers are looking for, short production time from design stage and limited quantities. Information system plays strategic liability in the following: – Collecting Market Data ; customer’s needs – Product development – JIT production Considering the information technology investment helping Zara to maintain it’s competitive advantages, it is strategic liability for the firm. ———————–  Zara’s Secret for Fast Fashion, Kasra Ferdows, Michael A. Lewis and Jose A. D. Machuca (http://hbswk. hbs. edu/archive/4652. html)