Zara It For Fast Fashion

Published Date: 02 Nov 2017

Zara is currently using a POS system based on DOS. This system manages all operations of billing, however it does not provide any customer insight, real time data, or any advanced sales projections. This system is perfectly aligned with Zara business model and it preferred due to the company’s decentralized decision-making process. Moreover, due to the fact that Zara has a very quick replacement of collections it does not require a long-term sales forecast on the same product, which POS system could not provide. In addition, Zara relies very few on customer data insights and does not require a 100% accurate data in inventory. The latter is due to the fact that Zara has very low level of inventory, thus the company doesn’t need of a smarter inventory management system. DOS-based POS is very user friendly, stable, and easy to maintain. In fact, employees can modify the entire architecture of the system adapting it to their needs. This system does not require any outside maintenance, because everything can be fixed directly by the employees.

Zara’s approach towards IT management is extremely POVERO. In fact, it has a very low IT spending, which is equal to 0.5% of revenues (low compared to the industry average = 2%). Zara has no separate IT department, and the top management takes IT decisions. The company does no cost/benefit analysis or formal justification for IT efforts. This is because Zara prefers a customized IT application due to the unique nature of the business model, and its motto reflects perfectly their kind of approach: "keep is simple, keep it effective".

Because Zara expansion in 2003 was already predicted to grow very quickly and operations volume are increasing at the same pace, it might me convenient for Zara to switch to a new technology.

Thus, Zara might one day be forced to switch in order to accommodate the market demand and in order to keep up with competitors. If not, the company risks not to be able to expand in certain markets due to the lack of compatible IT systems and centralized data that would help worldwide expansion.

The company would have to go through one-time costs. These costs would include the replacement of the DOS system, installation, and the creation of a proper IT department. The company would need to add to its annual costs only the annual connectivity charge which would enable all shops to be constantly connected in order to exchange data.

This would enable Zara to have a better inventory management, essential for the company’s expansion. Stores would be interconnected and they could have real time customer insights and make constant trend analysis.

Value Chain Model – Internal Analysis

In 2003, Zara preferred to create its own applications internally and tailor them for their personal internal use, rather than relaying on already exiting applications. However, the OS used is too much out of date and it is risky for Zara not converting to a new OS due to the fact that one day their system will not be compatible anymore with the company’s growth and needs.

Zara’s first focuses when talking about IT use are the stableness of system and the highly decentralized decision making attitude of business model. Very few is invested in IT and has no dedicated budget, neither makes cost/benefit analysis of potential new technology to be adopted. Zara’s IT operations are all controlled from headquarters in La Coruna.

Firm Value Chain Model:

This model is very useful in order to assess strengths and weaknesses of the company and determine ways in which IT management could be implemented.

Primary Activities:

Zara’s primary activities include: designing, manufacturing, ordering, and fulfilling. Decision making approach is highly decentralized. In fact, store managers decide autonomously both inventory and items to put on sale in their stores without consulting La Coruna. Moreover, commercials are responsible for the design and production of clothes, without the need of manager’s consensus.

Zara’s DC manage logistics of delivery, warehousing, and inventory control. However, Zara has no inventory stock.

Implementation opportunity analysis:

IT is used in functional areas processes and decision levels.

PDA’s are used to order and for tasks such as handling garment returns to DC’s and transmitting info from headquarters to all stores

Primary activities could be implemented my updating the IT system. With POS system it was very difficult to control and check inventories and share info between stores.

Very weak web presence, the web site was used neither for e-commerce nor for marketing and advertisement.

Proper IT management implementation could make Zara’s value chain operation better off.

First of all, increasing the control of in store inventory with in store computers and not only PDA’s could administrate ordering more efficiently. Second, by implementing IT system also store fulfillment could be organized in a more proficient way, knowing always which stores need what item. Third, IT could be used also in order to implement the track of sales and help with the understanding of market preferences in each area and store. Lastly, distribution centers could be connected in real time with stores in order to fulfill their request more quickly.

Supporting activities:

Purchasing

Technology development

Human resources management

Firm’s infrastructures

IT department divided in three:

Logistics support

Store solutions

Administrative system

Zara’s administration would benefit enormously from an IT management system upgrade, due to the fact that the existing applications developed internally might not be compatible with external use and decrease efficiency when Zara’s operations will grow and the company will further expand in other markets. Moreover, communication between headquarters, DC’s, and stores would be clearer and it would be possible to centralize operations in real time with a broadband connection.

Costs/Benefit analysis:

With the current IT system stores are not connected. Store managers use telephone calls to check inventory. This increases phone call costs and time consuming. Moreover, due to improper communication and the systems incapability to predict sales, productivity and efficiency decrease. Continuing to invest in something that one day will not be compatible with any OS is not the wisest choice Zara can make.

The current system helped Zara to reduce costs and expenditures. In fact, all applications are developed internally, instead of using commercial ones, and it has a very low upgrade cost. However, it will not be possible to implement the POS system forever.

A drastic change in IT management is needed. However, this must be a gradual change in order to better distribute cost and insert the new technology slowly so that the employees and all the company can get used to it. This upgrade is crucial also for keeping up with competitors and be ready for further expansion in other markets. It is also essential for Zara to assign a proper budget for IT spending and also establish a department responsible only for IT purposes.

Decision making process should be more centralized in order not to have communication problems and misunderstanding. Improve network capabilities with a broadband based network

SWOT – Find competitive advantage

Cisco similarities with Zara:

Developing technologies internally

80% of customer requests handled electronically

All internet applications internet enabled – competitive advantage

Network applications to integrate suppliers - respond quicker to customer: Zara real time customer insight

Possibility to ship directly from partners to customers

Better inventory management and control

Access to info about sales through internet

Unable to support rapid growth

Unauthorized access

Inefficient system

New ERP: better supply chain management

Moore case:

CRM: more info on customers and sales

Integrate customer interactive channels

Achieve higher perfect order

Improve suppliers efficiency

ERP like POS does not help forecast demand

Decide to do e-commerce

ERP unable to forecast demand

Ordering process long and inefficient

CRM implementation: forecast demand and market trends