General Chemistry - Marshall University Personal Web Pages

Information Systems: A
Manager’s Guide to Harnessing
Technology, version 2.0
John Gallaugher
© 2013, published by Flat World Knowledge
Published by:
Flat World Knowledge, Inc.
© 2013 by Flat World Knowledge, Inc. All rights reserved. Your use of this work is subject to the
License Agreement available here No part of this
work may be used, modified, or reproduced in any form or by any means except as expressly
permitted under the License Agreement.
© 2013, published by Flat World Knowledge
Chapter 3
Zara: Fast Fashion from Savvy
© 2013, published by Flat World Knowledge
Learning Objective
• Understand how Zara’s parent company Inditex
leveraged a technology-enabled strategy to become
the world’s largest fashion retailer
© 2013, published by Flat World Knowledge
Zara: Introduction
• 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
© 2013, published by Flat World Knowledge
Table 3.1 - Gap versus Inditex at
a Glance
© 2013, published by Flat World Knowledge
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
© 2013, published by Flat World Knowledge
Learning Objective
• 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
© 2013, published by Flat World Knowledge
Using Technology to Gather Data
• Zara’s store managers are armed with personal
digital assistants (PDAs)
– Personal digital assistants: 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
© 2013, published by Flat World Knowledge
Using Technology to Gather Data
• Managers can send updates that combine the hard
data captured at the cash register with insights on
what customers would like to see
– Allows the firm to plan styles and issue rebuy orders
based on feedback
– Improves the frequency and quality of decisions made
by the design and planning teams
© 2013, published by Flat World Knowledge
• 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
© 2013, published by Flat World Knowledge
Manufacturing and Logistics
• Fifteen days - Average time for a Zara concept to go
from idea to appearance in stores
• In order for high responsiveness, Zara uses:
– Combination of vertical integration and technologyorchestrated coordination of suppliers
• Vertical integration: when a single firm owns several
layers in its value chain
– Just-in-time manufacturing
– Finely tuned logistics
© 2013, published by Flat World Knowledge
Manufacturing and Logistics
• 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
– Reduce error
• Inventory optimization models - Determines how
many of which items in which sizes should be
delivered to each specific store
© 2013, published by Flat World Knowledge
Manufacturing and Logistics
• Fabric is cut and dyed by robots in highly automated
– 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 rather than moving inventory
– Due to efficient logistics and inventory management
© 2013, published by Flat World Knowledge
Manufacturing and Logistics
• 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
– Use of biodiesel for the firm’s trucking fleet
© 2013, published by Flat World Knowledge
• Benefits of limited runs of bestsellers
– Allows the firm to cultivate the exclusivity of its
– Encourages customers to buy right away and at
full price
– Encourages customers to visit often
– Reduces the rate of failed product introductions
© 2013, published by Flat World Knowledge
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
© 2013, published by Flat World Knowledge
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
© 2013, published by Flat World Knowledge
Moving Forward
• Zara’s value chain is difficult to copy
– But it is not invulnerable, nor is future dominance
• 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
• Look for new opportunities and remain aware of
impending threats
© 2013, published by Flat World Knowledge