oscm_zara for it fashion_hbr case analysis_group i
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GHBR Case Analysis on Zara caseTRANSCRIPT
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CFV
Pro
ject
-M
AP
I
Binus Business School,
MM Executive Batch 20
Presented by Group I
Alexander Christian
Dina Sandri Fani
Jenna Widyawati
Ridwan Martawidjaja
Case Study AnalysisZara: IT for Fast Fashion
Table of Contents
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Introductions
Zara’s Issues
Analysis
About Zara
Recommendations
1
2
3
4
5
Cas
e A
nal
ysis
–B
arill
a Sp
A
Table of Contents
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3
Introductions
Zara’s Issues
Analysis
About Zara
Recommendations
1
2
3
4
5
Cas
e A
nal
ysis
–B
arill
a Sp
A
Inditex Landmarks
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1963 Amancio Ortega Gaona, chairman and
founder of Inditex, launches his business as a
clothing manufacturer.
1975 Zara is founded with the opening of the
first store on A Coruña (Spain) city center street
1976 The Zara fashion concept is well
received by the public, allowing it
to expand its network of stores to major
Spanish cities
1985 Inditex founded as the head of the
corporate Group
1986 Group manufacturing companies sell all
of their output to Zara and lay the groundwork
for a logistics system capable of addressing
expected rapid growth
1988 1st Zara store outside Spain opens in
December 1988 in Porto (Portugal)
1989-1990 The Group expands to the United
States and France with the opening of stores in
New York (1989) and Paris (1990)
1991 Launch of Pull&Bear. The Group
acquires 65% of Massimo Dutti Group
1995 Inditex buys 100% of Massimo Dutti’s
share capital
1998 Bershka launches, targeting a younger
female market
1999 The acquisition of Stradivarius makes it
the Group’s fifth concept
Inditex Landmarks
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2000 Inditex moves its headquarters into a
new building in Arteixo (A Coruña, Spain).
2001 Launch of the Oysho lingerie brand. On
23 May 2001 Inditex goes public and is listed
on the stock market
2003 The first Zara Home stores open. Inditex
inaugurates its second Zara distribution centre,
Plataforma Europa, in Zaragoza (Spain),
supplementing the Arteixo logistics hub (A
Coruña, Spain).
2004 Opens store number 2,000 in Hong Kong,
bringing its presence to 50 countries in Europe,
the Americas, Asia and Africa
2006 Opens store number 3,000 in Valencia
(Spain), a Zara Home store in one of the city’s
busiest shopping areas.
2007 Adds two news logistics platforms in
Onzonilla (León) and Meco (Madrid), both in
Spain. Inditex has eight logistics platforms in
Spain.
2008 Launch of fashion accessories concept
Uterqüe, the company’s eighth chain. Inditex
opens the store number 4,000, this time in Tokyo.
2010 The Group reached the 5,000-store mark
with the launch of a cutting-edge, eco-efficient
Zara store in the heart of downtown Rome (Italy).
In September, Zara began selling its products
online and by year’s end the online store was
available in 16 European countries.
2011 All the Inditex concepts have online stores.
About InditexInditex presents in 88 markets in all five continents, with upwards of 6,460 stores and
128,000 employees
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About InditexInditex’s presence in Europe
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About InditexInditex’s presence in America
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About InditexInditex’s presence in Asia
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About InditexManufacturing strategy
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About InditexSupply chain strategy
Inditex’s Business Structure
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Traditional model Inditex model
Design
Sourcing
Store
Customer
Customer
Store
Sourcing
Design
Opposite of traditional clothing
cycles
Pull type production process
Quick response
Real-time sales information from its
stores
Small batch quantities allow the
retailer to see what items are
working with shopper
A central distribution center in
Arteixo, with strong IT systems
developed by Inditex and third
parties, supports its supply chain
model
All items are shipped back to Spain
where they are then shipped out to
stores around the world
Inditex Retail Chains
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Founded in 1975
Continuous design based on
customer desires, for
women, men, & children
Acquired in 1995
Higher fashion for men and
women
Founded in 1998
Trendy clothing for a
younger market
Founded in 1981
Offering casual clothing at
affordable prices
Acquired in 1999
Youthful urban fashion
Founded in 2001
Lingerie
Table of Contents
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Introductions
Zara’s Issues
Analysis
About Zara
Recommendations
1
2
3
4
5
Cas
e A
nal
ysis
–B
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About Zara
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Opened its 1st store in 1975 in A
Coruña (Spain) by Amancio Ortega
Operates in 87 markets with a network
more than 1,900 stores located in
major cities
Consists of more than 200
professionals and aimed to bring Zara’s
design process closely linked to public
Introduce vertical integration of
activities in order to be flexible and fast
in adapting to the market
Require to constantly updated
merchandise: new garments must be
landed in stores twice weekly
Pays special attention to the design of
its stores in order to deliver a superior
customer experience
About Zara
Vision and Mission
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Vision
“Zara is committed to satisfying the desires of our customers. As a
result, we pledge to continuously innovate our business to improve
your experience. We promise to provide new designs made from
quality materials that are affordable”
Mission
“Through Zara’s business model, we aim to contribute to the
sustainable development of society and that of the environment with
which we interacts”
About Zara
Competitive Advantages
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Cost Leadership
Fashionable (quality) at
reasonable price
“Cheaper price than
Benetton and GAP, and
still being fashionable”
Fast Production
Ability to design and get
finish goods in stores
within 4-5 weeks
Very quick to get
designers-influenced
products into their
stores
Product Variation
Ability of Zara to launch
new trends, design,
and variation of
product
Low level of inventory
Efficient distribution
system
Product turnover is high
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About Zara
Perceptual Mapping against its competitors
Perceived as a brand with a low price but with a high fashion taste!
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S W
T
Strengths
• Cost leadership strategy
• Efficient distribution
• Fast delivery of new products
and trends
Opportunities
• Global market penetration
• Online market
• Distribution center in US and
developing countries
Threats
• Local competitors
• Global competitors
• Zara based in Spain and has
a huge number of stores in
Europe will dent in revenues
O
Weaknesses
• Centralized distribution
system
• Low marketing expenditure of
0.3% of its revenue
• Only has one manufacturing
and distribution center in the
world
About Zara
SWOT Analysis
Zara’s Business ModelValue Chain Model
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OR
DE
RIN
G
FU
LF
ILLM
EN
T
DE
SIG
N
MA
NU
FA
CT
UR
ING
DIS
TR
IBU
TIO
N C
EN
TE
RS
ST
OR
ES
Business Support Units
Procurement
Administration & Systems
Pri
mary
Acti
vit
ies
Su
pp
ort
Acti
vit
ies
Firm’s
Value
Chain
Michael Porter’s Value Chain Model for Zara
“Link customer
demand to the
manufacturing,
and link
manufacturing
to
distribution”
Zara’s Business ModelEmpowering the store managers and commercial teams
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InputProcess
Output
Fabric Wool
Raw material
1 Design
2 Extend & modify
3Place production
orders
4 Set pricesLeather
1 Sketch
2 Approved sketch
Commercial
Team
Served as La Coruna’s main interface with Zara stores
Helping the design teams to keep abreast of fast-
changing trends
Traveled extensively: mystery shopping on what resident
wears; interviewing store managers to find out what
kinds of clothes were selling
Communicate the findings to the design teams
Store Product
Manager
Zara’s Business ModelVertical Integration Model
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Design/Production/Logistics Store Customer
Full discretionary of
commercial team, i.e.
product managers
Product managers to
set the garment prices
Invested heavily on
stores
Store layout completely
changed every 4-5
years
New layouts designed &
tested before being
rolled out
La Coruna traveled
around the world to set
up the new configuration
Short product life spans
within customers’ closet
Impulsive buying: grab it
as soon as they saw
Generate repeat
customers: visit the
store often as new
styles showed up all the
times
Zara’s Business ModelContinuous design, production, and distribution
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Creative Departments: 200+ staffs
Samples: prototypes made in-house & by
suppliers
Spreading: material for
garments laid out in layers &
marked
Cutting: a machine cuts the fabric
according to the patterns
Sewing: cut fabric is shipped to
workshops to be stitched
Finishing: garments are pressed,
dressed, and quality checked
Shipping: from logistic centers to
stores, road and air
Delivery: garments arrive in stores within 48 hours of ordering
Design, Product,
and Market Cycle
1. Final design: 1
day
2. Manufacture: 3-
8 days
3. Transport: 1 day
4. Selling: 17-20
days
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Zara’s Operating ModelThree cyclical processes involved
Order
(twice a week)Fulfillment
Design & Manufacturing
Replenishment Initial Request
Predetermined quantities based on
past selling data for those who missed
the order submission deadline
Store manager to decide
replenishment quantities by using
canvassing model
Order made through PDA handheld
that was linked to information systems
at La Coruna
Personalized offers for each store
(developed by commercial team)
Divided the offer into segments
Store staffs fill in the offer for their
segment
Beam backs to the store manager
Store manager to review and
send the completed form back to
La Coruna
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Zara’s Operating ModelThree cyclical processes involved
Order
(twice a week)Fulfillment
Design & Manufacturing
Received orderSKU ≤
Supply?
Yes
No
Inventory to be divided to all stores
Determine which stores should get
the available inventory and which
wouldn’t based on past
performances
Commercial team to consult with
product managers in determining future
productions
Increase the production a.s.a.p. when
demand > supply
Decrease replenishment request and
stop placing new factory orders when
supply > demand
Showed up at stores 1 or 2 days after
order was placed
Truck delivery for stores in Western
Europe from 2 Spanish DCs
Replenished from smaller local DCs for
stores in Latin America
Air delivery from Spanish DCs for
remote stores
Zara’s Operating ModelThree cyclical processes involved
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1 Zara’s design team monitors
fashion trends and store sales.
Based on this they come up
with 1,000 designs a month
Des
ign
tea
m
They send these out
for manufacturing
around the world
Manufacturing
3
2
Completed designs
are shipped back
to Spain
Local store manager
in each country tells
the Zara HQ in
Spain what the store
needs and much
4
The design team then
flies or trucks out
consignments for each of
Zara’s stores based on
local needs and trends. A
store gets consignments
twice a week
5
Retail
Design & Manufacturing
Table of Contents
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Introductions
Zara’s Issues
Analysis
About Zara
Recommendations
1
2
3
4
5
Cas
e A
nal
ysis
–B
arill
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Zara and Information TechnologyInformation systems at La Coruna, factories, stores, and DCs
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No CIO and no formal processes for setting
an IT budget, including on deciding a
specific technology investments and
projects
Zara’s IT spending was below average of
North American retailers, i.e. 0.5% vs. 2% of
its revenue or amounted to €25 million
Little justification for IT efforts
Cost-benefit analysis conducted only for a
proposed efforts
Prefer to build in-house application rather
than buying commercially available software
as operations were too unique and complex
IS Department consisted of 50 people;
divided into 3 functional areas i.e. Store
Solutions, Logistics Support, and
Administrative Systems
Zara and Information TechnologyInformation systems at La Coruna, factories, stores, and DCs
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Several information systems are used to prepare
orders, distribute them over internets and collect
them
Factories had simple apps which provided
information about order and due dates
DC had largest automation with complete
tracking of SKU’s
Stores used PDA’s which communicate to La
Coruna via modems
PDA’s were upgraded constantly while POS
terminals remained same for over decade
POS used DOS as operating system and its
installation and maintenance was very simple
No real time feedback from stores to Zara’s HQ
Transmission required copying into floppy disc &
then sending it using internet which happened at
the end of the day
No dialogue between PDA and POS inside store
or between two stores
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Zara and Information TechnologyCurrent Status & Dilemma
Current Status
Currently uses POS system based upon DOS which is
very easy to use & working fine for them
Does all the basic ops of billing but does not provide any
customer insights, real-time data or any advanced sales
projections
Zara is getting bigger & bigger: operations are becoming
more complex
Hardware vendor may modify peripherals for POS so
they may not run on ancient OS such as DOS
Dilemma
Shall they let go off DOS which is working great for them
& migrate to modern OS such as Windows, Linux?
If they are not migrating to new OS then should they
stock up on current POS terminals to protect them from
sudden loss of support from vendor?
If they migrate to new OS, can they use this opportunity
to build new capabilities in POS?
If they are building new POS, can they extend its
capabilities so that it can have network across the stores
& within the company?
Table of Contents
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Introductions
Zara’s Issues
Analysis
About Zara
Recommendations
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2
3
4
5
Cas
e A
nal
ysis
–B
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DOS based POS
Zara and Information Technology
Why DOS based POS work for Zara
DOS based POS is in alignment with Zara’s business
philosophy
Majority of business concentrated in Europe
especially in Spain
Zara prefers speed based decentralized decision
making
Highly responsive vertically integrated supply chain
reduces need for long range sales forecast
More dependant on market feedback from
‘commercials’ than from customer data insights
Believed in ‘manufacturing on fly’ rather than long
range sales forecast
Low level of inventory in current scale operation:
reducing need for smart inventory management
Current scope of operations makes ordering and
fulfillment possible using DOS based POS
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IT Installation
Zara and Information Technology
Easy installation & ease of operation
Use of DOS based POS is very user friendly, stable,
and easy to maintain
Layman like store employee can switch on system &
set up entire POS architecture
Complete software installation does the trick in the
event of serious software malfunction
No need to separate maintenance crew for POS as
employees can do it by themselves
Ease of customization on POS: Zara operated in
various geographies & currencies which necessitates
need of customization
Majority of complex operations such as sewing,
dyeing were outsourced by Zara. Hence factories
require simple apps rather than complicated apps
due to its current scope of business
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Need for new system
Zara and Information Technology
Why we need a new system
Zara is the only customer using DOS
DOS does not get support from Microsoft anymore:
exposed to system malware
DOS cannot catch up with the evolved needs at
stores
Hardware vendor might upgrade their machines
which are not DOS-compatible
Shipments and sales were not recorded perfectly
under the old system
Hardly to monitor the stocks; thus open the room for
theft, damage, and other losses
Centralized data may help to expand in different
countries
The expansion of Zara in Asian continent would
require new system
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Solving the problemShould the project to revenge the IS be fully or practically externalize?
18,000 hours
Basic assumption for
the IT investment
Assuming that only 10 people are devoted to
POS software
10 people are available to handle the project working 8
hours a day
Estimated project timeline is 7 months
Would take too much time to set up this project.
However, notices that they have the skill to handle
perfectly the project
Assuming we outsource the project
Faster timeline but will be more costly
Have to integrate a training system of the staff to lower
the outsourced fees
However, not sure if it match Zara’s IT policy as it
always develops its own IT solution
Proposal
Partially outsourced assisted by internal IT staffs
Faster timeline and lowering the professional fees
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Solving the problemWhich solution would you recommend and why
The change of old system is unavoidable
DOS is an obsolete system as Microsoft doesn’t
support the system anymore
POS terminal will not be compatible with the
current POS software
PDAs used in all Zara stores and POS terminals
are not connected with Zara’s HQ or with other
stores
No in-store connection to link employees’
information like daily sales and the employees
have to copy this information on a disk
Windows as the preferred solutions
Noticed that UNIX provided the cheapest fees
But Windows is the leading player on the IT
solutions and has been tested
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Solving the problemThe Calculation
CAGR of 22% calculated using past data of 1996-2002
Rest of the costs such as COGS, operating costs are calculated based upon past data
Migration to Windows based POS will cause net margin decreases to 9.98% but well
above average net margin of 8.29%
Cost of system upgrade can be funded through cash & cash equivalent of 525 million
Euros
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