Zara: Fast Fashion and IT Infrastructure

Mt. Diablo: Group 6 (Lavinia Frank, Pervez Mahmud, Hong Song,

Nikhil Sawe)

Background
• In 2003, Zara’s CIO needed to decide whether to upgrade the
retailer’s IT infrastructure and capabilities.
• At that time, the company relied on an out-of-date operating
system, (Microsoft DOS) for its store terminals and had no full-time
network in place across stores.
• Despite these limitations, Zara’s parent company (Inditex) built an
extraordinarily well-performing and responsive value chain.

Zara’s IT Infrastructure:
• No Chief Information Officer.
• No process for setting an IT budget.
• No process for deciding on specific IT investments.
• Preference for writing IT applications themselves.
• Stores had multiple PDAs and POS systems.
• Unchanged environment for 10+ years.

Business Model of Zara

• Zara's business model is selling "medium quality fashion clothing
at affordable prices" accomplished though vertical integration and
rapid-response to changing trends.
• Rapid response is possible due to flat management structure and
heavy investment in information and communication technology.

Zara's customer base is young, fashion conscious with constantly

changing tastes in clothing. To satisfy this market, Zara’s clothing lines
need to move from concept to market extremely quickly before the
demand for a style fades. Zara’s average turnaround time is roughly
three weeks with a 75% inventory changeover every three weeks.
Competitors like H&M and the Gap require up to two months to design
and manufacture clothing. This capability allows Zara to respond to the
rapidly-changing and unpredictable taste of their customers faster than
anyone else. Zara is able to accomplish this operational feat through
the empowerment of store managers who identify the latest trends to
sell in their locality rather than having a central division manager who is
more distanced from consumers decide.

Collecting vital information such as sales numbers, daily, allows

designers to accurately create fashions that will sell well. Thus, the
designers must have real-time information available when deciding
which type of fabric, cut, and colors to use when designing new clothes
or modifying existing ones. Information and Communication technology
is at the heart of Zara's business as it enables Zara to operate at such
high levels of speed and efficiency.
 Zara: Fast Fashion and IT Infrastructure

Issues at stake:
The main concern is that Microsoft is the only supplier of Zara’s POS
systems. DOS is obsolete and cannot be relied upon to guarantee
continued production and service.. Although DOS works well, is cost-
effective and Microsoft says they will continue to service Zara, it leaves
Zara entirely dependent on Microsoft.

Zara needs to protect its IT advantage that allows a shortened

timeframe to go from design conception to arrival at distribution centers
and store racks. Currently information from headquarters to the stores is
transmitted through the PDAs after being entered by employees. An IT
upgrade would make data transmission more immediate and accurate
through an upgraded POS system.

Drawbacks and Risks to Upgrading:

• An upgrade of the entire technical network in all the stores would

be costly and complicated and require a long implementation
schedule.
• Integration of the new systems into their present business
practices and processes could be problematic.
• New systems require training and adaptation.

Risks of not Upgrading:

• A system that is incompatible with future software applications

could lead to operational and security problems in the future.
• Zara is hostage to Microsoft should Microsoft raise prices to
service DOS.
• DOS has been thoroughly incorporated into Zara's business model
so it would also be risky to not upgrade to a new system that
offered more security and longevity.

Advisement:

• Upgrade the system but roll out the upgraded systems at a test
site. This will help Zara test operations and adaptation of
workforce and see what type of problems that may arise.
• The new system should also address the weaknesses in current
systems. Currently, PDAs and POS terminals are not connected
with Zara’s headquarters or with other stores so that employees
can see each other’s available inventory. There is also is no in-
store connection to link daily sales data for replenishment orders.
Employees have to do a hand count and copy this information on a
 Zara: Fast Fashion and IT Infrastructure

disk. This is time consuming, costly and subject to human error.

Changing the system should fill this weakness of intra-
communication.

To make a real decision, Zara needs to know the costs and abilities of
alternative systems. How much time will it take to implement and train
employees and how much technical support the new system will
require? The new system needs to fit the culture of the business as well.
It needs to foster independence, communication with headquarters and
interaction with customers. It needs to facilitate the speed of fast fashion
without impeding upon the customer experience provided by sales staff.

Reference

"Rapid-Fire Fulfillment," Harvard Business Review, Vol. 82, No.11, November 2004.