Zara: IT for Fast Fashion This case is part of the course Managing in the Information Age (MIA) at Harvard

Business School.

Managing in Information Age IT Categories

IT Category Function IT (FIT)

Definition IT that assists execution of discrete function or task

Example Simulators Spreadsheets CAD/CAM software Statistical software Enterprise Resource Planning (ERP) systems Supply chain management (SCM) systems Customer Relationship Management (CRM) systems Sourcing/procurement software

Enterprise IT (EIT)

IT that integrates multiple functions by imposing new work structure

Network IT (NIT)

IT that integrates multiple functions without imposing new work structure

E-mail Instant messaging Wikis Social Media

EIT Capabilities:

Design and redesign of business processes; Standardization of workflows across an arbitrarily large footprint; Monitoring of activities and events, often in something close to real time.

Complements: Complements and work structure are synonymous. Complements to IT are organizational. They are changes in organizations configurations that maximize the positive impact of the new technology. Responsibilities:

Selecting IT based on desired capabilities. Adopting the new technology by putting in place appropriate complements. Adoption is defined as preparing both the technology and the organization before the go live date. Exploiting technologies once theyre up and running to maximize the capabilities delivered.

1. What are the important points to be summarized using one or one and half pages? (Comment: This section should serve as an introduction to the entire case. Avoid being too specific about any details. However, their major products, typical features, and the issue under discussion should be briefed.) Zara is a large chain of stores run by Inditex, a multinational clothing retailer and manufacturer. For closely knitted clothing-industry,

Zara management wanted to integrate the retail and manufacturing unit of the business for Zara future successful turn-around. To assimilate the retail requirement with manufacturing units, Zara critically needed a network of computers, which fills the gap and helps the business onto an effective and successful path. Through Inditex, Zara opened a chain of retail store outlets supported by the internally owned suppliers. These retail stores are located in busy prime retail districts and best known streets of a town. All the inventories in a retail store are geographically based, in others words, the clothes available in each store are different and most locally popular. The major issue under debase within Zara management y was whether to upgrade the POS terminals which ran on DOS, an outdated software. The POS was stable but executives within the company were concerned that their hardware vendors could upgrade their machines or some peripheral soon, so that they would not be DOScompatible anymore. 2. Please analyze the business model and the major strategies at Zara. Business Model Vertically Integrated Retailer in apparel industry, linking customer demand to manufacturing, and link manufacturing to distribution and to retailing business. Their goal is to respond quickly to market demands which are always changing. Major business strategies at Zara include Speed Quickly respond to the demands of target customers (young, fashionconscious city dwellers). Use JIT manufacturing philosophy to meet fast changing fashion market demand and trends. This strategy is to time fashion trends and strike while a trend is hot, and not be stuck with inventory when it dies off. Decentralized Decision Making Centralized at La Coruna by a group of commercials made up of store product managers, but decentralized within functional groups. Those centrally located store product managers served as the main interface between centrally located design teams and Zara stores around the world. They could initiate store-to-store transfers when garments selling slowly in one area were popular in another. Each design team of commercials consisted of two designers and two product managers, dedicated to a section of the store (Men, Women, or Children). Those teams purchased material, placed production orders with the factories, and set prices for retail stores. Zara relied on those teams to decide on the fashion trends. Other employees within the commercial function also exercised a great deal of autonomy. They decided which clothes each store would be able to order. When total orders from stores exceeded availability for an item in any period, commercials decided which stores would get clothes and which would not. No Advertising Marketing Strategy Low marketing expenditures of 0.3% on average. Zara spent relatively heavily on its stores to drive business. These retail

stores were always located in a citys prime retail district, often on the best-known street. Store layouts were completely changed every four to five years, with artwork, window displays, and sales racks changed more frequently. All new store layouts were designed and tested in La Coruna, before being rolled out around the world. Fashion Design Strategy Low cost, fast turnaround of trends. Responsive to instant changes No staple fashions (classics). Produce high fashion product in limited production runs with short life span. Product managers were encouraged frequent repeat visits to store to see whats new. No elite designers. Utilize team concept in design, pairing product managers and creative designers in groups of four to streamline the design process. IT Management Strategy - No traditional IT department. Utilize technology that is simple, cost-effective and easy to use for the company and does not require a lot of IT support. This strategy had supported Zara operations up to this point, but as the technology became obsolete, and new technology changes adopted by the competitors, the issue was to make their IT stay in line with the strategies detailed above. Please think: How well is Zaras business model working? How scalable is this model to ensure a continuous growth? 3. What is Porters firm-based value chain model? Why use this model in this case analysis? The Porters firm-based value chain model is a sequence of internal activities of a company involved in creation, manufacturing, and distribution of the companys products and services. These activities are differentiated into two types: primary activities and secondary activities. The primary activities are pertaining to the companys core competencies of producing the good and services. Secondary activities are supportive of the primary activities. This value chain is a horizontal view of a firm with a process-product perspective versus a department view of the firm. The companys survivability depends on the effectiveness of performing these activities. The business processes of a company are usually complex. The use of Porters firmbased value helps an analyst to break down the processes into small value-added activities for better understanding. Value chain analysis helps a company to find areas of weakness and ineffectiveness for making improvements, for the purpose of strengthening the companys competitiveness and profitability; better understanding of the firm-based value chain also helps to identify areas where IT can be implemented to improve performance excellence.

4. What is the value chain model at Zara? What is the decision-making structure at Zara?

Support Activities: (Easy to find in the case) Primary Activities: (Easy to find in the case. Starting on page 5) Decision-making structure: Exhibit 10 and IT part of the case (page 7) gives details. Both a diagram and text explanations are required in the paper. (Version 1) The primary activities at Zara comprised ordering, fulfillment, design and manufacturing. It is interesting to note that of these processes, ordering was the most regular, precisely defined, and standardized around the world. The decision-making structure is flat because each store manager has the discretion of what garments would be on sale instead of relying solely on headquarters directive. Furthermore, even low level employee ideas are integrated into the decision making of each store. Managers are dependent on the input of the employees in order to create an aggregated form being an order that gets sent back to the headquarters. This type of structure is imperative to Zara due to the fast paced changes that occur in the fashion industry. (Version 2) Zaras decision making is decentralized and individual store managers are allowed to select inventory for their individual stores. This allows Zara to respond quickly to changing market trends and meet the needs of customers. Store layout design is centralized in the head office; after layouts are determined, the stores are built according to the approved design. Design decision is the responsibility of each team of commercials that forecast product sales on new ideas and implement them. 5. What were the needs in terms of functional area, process, and decision levels for IS/IT implementation at Zara? (Information Technology on page 7) (evidence 1) Unreliable fax machines, 15 meter long inventory requests, inefficient inventory control process, disconnect between the stores worldwide and corporate office in Spain. (evidence 2) DCs relied on automation and computerization, however, the stores did not. (evidence 3) POS terminals and PDAs could not share information within a store or across stores; specifically, inventory could not be shared between stores to meet localized demand if DC could not deliver in time.

(evidence 4) Outdated IT infrastructure - Floppy discs still used in stores instead of modern day technology to increase efficiency and accuracy. DOS was still in use and no longer supported. While the factories do have high tech machines for cutting the material, there is no sophisticated way of scheduling. The distribution heavily relies on peoples work, without any help of IT /IS. Lastly, the stores are opened by inserting floppies, and inventories are counted by managers walking daily around the store. Also, the sales records and orders are communicated by phone instead of using emails or some kind of internal system. Zara lacked a significant level of infrastructure and organization in the IS/IT area. The company was missing a chief information officer, formal processes for IT budgets, and investments for strategies and IT projects. Theoretically speaking, Zara had an outdated business process and implementation within their operations (IS/IT). The decisions for facilitating IT/IS infrastructure were performed internally through development of software and applications. There was very limited effort in applying new IS/IT to the company operations. In your paper, please use the provided table structure at the class website. 6. Please evaluate the effectiveness of IS implementation in support of a specific strategy or for operational problem solving at Zara by considering the tangible and intangible costs and benefits of the implementation. (Information Technology on page 7) Zara was a company that followed a very European business model to some extent. Zara preferred to invest internally within its own software development rather than buying new technology developed by external companies. A perfect example of Zaras business solvency and accuracy was their inventory control. Theoretical inventory would be inaccurate due to several factors and externalities. The company followed the 95 percent accuracy rule is good enough. The greatly outdated DOS system, which Zara was operating in for decades, stopped being supported by the vendor. At this point Zara does not have a reliable system which would support future planning, whatsoever. Not keeping up any historical data means being unable to predict any sells, plan or estimate loses / gains and margins on particular designs. One of the greatest costs of this operating system is a stressful work environment, which could be easily resolved by adding IT/IS support. The cost of developing a new system would be quickly offset by the benefit of getting work done more efficiently and accurately. Telephones are less reliable than computers due to workers mistakes, such as basic problems of mishearing and misunderstanding.

Zara needs to implement spread sheets, emails, and other kind of communicating and transmitting data features. Zara has been successful, but there is a lot of room for improvement. The vision of implementing accuracy is more cost effective without significant distortion of the revenue. Moreover, these adjustments would unite the company, improve internal integration, and help establish Zara as a long term leader in the industry. In your paper, you have to analyze the implementation effectiveness using tangible and intangible costs and benefits list provided at the class website. 7. Was the IS/IT implementation a good match to the business needs? What were the current and potential problems which need a system upgrade?

Zaras internally developed application is not a good match for the business needs because of the following: a. Zara is a rapidly growing company with a small IT department and in-house application development will use needed IT/IS resources. Zaras IT department was five times smaller than that of the industry average. b. Internally developed applications are difficult to upgrade and not compatible to other applications. Although, within the unique situation at Zara they felt that because of their unique business strategy that commercial applications would not be suitable for their needs. An example of one issue they was faced with was the need to perform accounting practices in multiple countries and currencies. c. Zara needs to upgrade their POS terminals as well as the supporting software to ensure that there is no more infrastructure problem. If their terminal maker changed hardware, Zara would be on an updated system to cope with anticipated changes. d. Zara was not prepared for online and digital sales. In the current market, ecommerce is becoming an essential part of todays business competition.

8. Your recommendation(s) for the system upgrade at Zara. Please provide a sound rationale based on literature review and other evidences. Please also provide an action plan. Student answers vary. Here are three examples:

Zara should consider upgrading its DOS based Point-of-Sale (POS) system to IntuitHP Retail Solution, the industry-proven software. This solution is more sophisticated than a cash register and more durable than a PC. In addition to being a cash register, the Intuit-HP Retail Solution could provide Zara a robust solution to also track customers, manage inventory, and get business insights. These are the missing capabilities of the current DOS POS that put Zara at a disadvantage compared to its competitors. As Salgado had pointed out, the store managers are increasing requesting the ability to look up inventory balances in their stores and other stores. In addition to DOS not being supported by Microsoft, most of the current POS system was written by only Sanchez. Therefore, it put Zaras business continuity at high risk depending on Sanchez and his knowledge. The Intuit-HP Retail Solution comes complete with: HP's Point of Sale System, monitor, USB keyboard and mouse, Receipt Printer, Credit Card Reader, Cash Drawer, Barcode Scanner, and Intuit Point of Sale software. To upgrade Zaras current POS system, Zara should keep the old POS system running until the new system is ready for cut-over. The first plan is to upgrade the Information Infrastructure to support the new system. Zara must first upgrade its companys network infrastructure from modem based to broadband based. Zara must ensure the network connectivity is available at every store. Once the network infrastructure is in place, Zara should contract with Intuit-HP professional services to install the IntuitHP Retail Solution and necessary servers at its headquarter first. The installation contract should also entail training sessions and materials for the users at headquarter. When the implementation at the headquarter is completed, the new POS and training should be deployed the local stores. When all the stores get their new POS and all employees are properly trained, with the support of Intuit-HP professional service, Zara should perform a dry-run or integration testing of the solution after-hour to iron out some final glitches or process issues. Upon the completion of the integration testing, Zara could decide on a cut-over day where Zara stores switched to the new system and old data being migrated to the new database. The old POS system should still be kept for a short period of time after the cut-over to make sure the new system running smoothly prior to fully be shut down permanently. Zara should consider implementing SAP. SAP is currently the leader in financial application and very compatible with most commonly used applications in industry. SAP can run on Windows or UNIX and can be applied to their POS terminals. SAP application has reliable tech support and installation team available at the time of purchase. SAP is a complete industrial suite providing the capability to manage financial, asset, cost accounting, production operations and materials, HR, plant and records management.