Information Systems and Operations Management - TMA 1.

Information Systems encompass all aspects of an organisation in from manufacturing to facility management, it is inextricably linked to Zara’s business model providing core competences and Laudon (2003) states without IS there would be no business. Resource Based View theory is based on the internal view of the company as a collection of resources and capabilities and the concept of economic rent generated as a result as championed by Collis and Montgomery (1997)

Zara use Enterprise Resource Planning to govern IS processes ranging from Electronic Data Interchange (EDI) transferring of customer shopping preference data via store managers PDA’s to centralised database and via the intranet to the design team, using IT to break down barriers such as costs of location of sites, the 9 million square foot warehouse located in Spain, connected to 14 manufacturing plants. Computer Integrated Manufacturing technology coordinates all elements of production, flow of materials ensuring quality control allowing Zara to achieve less than 1% inefficiencies with production. Warehouse item location and physical data stored in coded tabs linked to a warehouse management system, controlling sorting machines capable of handling 40,000 items per hour, manoeuvring products to staging areas ensuring sequential delivery based on location of nearest stores reducing transport costs, the size and sequence of deliveries is fine tuned maintaining this tight schedule. RBV shows the capabilities and economic value added generated through using IS, utilising core competences of a true Just in Time (JIT) pull production system based on customer demand. ERP encompasses sales transaction processing from Zara tills to warehouse inventory management, production, sorting and distribution, in-house sales and marketing as word of mouth part of the value chain as mentioned by Porter (1985) accounting for 0.3% of revenue versus rivals 3-4%. Meticulous planning and coordination of JIT production processes reduce wastage and prevent inventory write-offs, with many products spending only a few hours in the warehouse. Product shortages due to Zara’s production methods add to exclusivity causing quicker stock sales and contribute to higher than average return visits per customer. Management information systems (MIS) use captured data to provide tactical and operational support addressing issues such as stock production quantities, procurement of materials and to manage overheads.

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offset with lower advertising costs also time to market is hugely reduced to 3 weeks.Priem. Designs sent via company wide intranet to factories for garments to be produced in quantities derived from forecasting. without transaction processing data. combining job shop and continuous flow production.Fig 2: Inventory to Sales Ratio Zara’s IS offer improved efficiency and quality control allowing production of mass customised products. trends relayed to design team to create products using Computer Aided Design software. tills producing sales data. 2| Page 31/03/2010 . about 12 times faster than some rivals. which are usually not easy to quantify and analyse such as fashion trends to range which change seasonally and which stores dependent on information derived from MIS systems and all Decision Support Systems. offering greater responsiveness to changing trends focusing on one of the core capabilities that allow Zara to create competitive. preferences sent via store managers PDA to centralised databases for analysis. but still in low volumes to obtain high margins notwithstanding Zara’s manufacturing costs are 15-20% higher than competitors. Criticisms exist of RBV such as all aspects of firms considered resources and the tautological ideologies making aspects of the model operationally invalid . targeting key demographic. Executive Information Systems use information to make strategic usually unstructured decisions. IS would not exist. Fig 3: Product Frontier No one system is more important. customer shopping habits. all intrinsically linked within the ERP system.

distribution and retailing.L (2001a). Porter (1980)argued that dependent on how a firm positions themselves within a industry structure determines how profitable they will be. styles change often. In fashion. quickness to market and flexible decision making are key. ERP is essential to coordinate the IS processes providing Zara with the backbone for the core competencies of the company and the competitive advantages it has over many competitors. organisational governance and firm effects in the form of resource advantages and strategies. Competitive advantage stems from the strategy of Zara of time to market. 1991. Mahoney and Pandian (1992) state competitive advantage is a function of industry analysis. contrasting with the RBV but perhaps offering another explanation why in the same market differing firms with similar Information Systems and Operations achieve differing profit margins and economic value added. so would quality would be an order qualifier in today’s market. 3| Page 31/03/2010 . using MIS. RBV shows how Zara used their resources to harness their core capabilities using IS and IT systems in harmony to create economic rents and how RBV has found use in the MIS literature (Priem .Butler. emulating the right first time approach opined by Crosby (1979) although Hill (2000) states products to be an order qualifier or an order winner. p102) states only if it is not being implemented by competitors. scarcity and choice achieved through balanced vertical integration allowing synchronisation of procurement. production. although (Barney. 2001) which are key to Zara’s success. Zara enjoys competitive advantages that could not achieved with different resource configurations and at present are non imitable thus proving the theory to be sound in its analysis of the economic rent achieved by such processes incorporated at Zara. not relying on outsourcers increases gross profits due to lower costs and creates value. Zara achieves this with utilising IS at all levels.R. competitors such as Levi Strauss use Li & Fung to provide supply chain management that Zara currently produces in-house. Fundamental IS structures and processes differentiate effective competitive advantage strategies. the ERP system allowing the finely tuned JIT system to provide the backbone to support the crucial production and distribution mechanisms in place to deliver products to store. vital for sustainable advantage is minimising inefficiencies but maximising economic rent on inputs keeping costs low and profit margins high. Zara operations produce quality garments with embedded total quality management. EIS to assist on strategic decisions for the long term sustenance of Zara.

bandwidth issues. Zara need another warehouse/distribution centre. but for market penetration. Venkatraman (1993) points out no single IT application can deliver a sustained competitive advantage. The USA offers a huge customer base. which is expensive for no guarantee of profits. technological innovation allowed Zara benefits with a sophisticated ERP system controlling all business functions to sustain competitive advantage is inherently more difficult. Zara has resisted online sales until now. 1979) IT architecture must be considered.2. with multiple warehouses and stores. Organisational Infrastructure must incorporate a new warehouse into the current system. Iniditex Global Conglomerate is Europe’s largest clothing retailer as of 2010. so not to affect production flow strategies. new competitors situated in the US. issues of finding staff with the right expertise. the vast scope of internet sales account for a 4| Page 31/03/2010 . JIT systems are expensive to set up and staff must be trained to the emulate the same quality control techniques of right first time approach with ‘zero defects’ (Crosby. IT technology such as the PDAs. all IS and IT processes and strategies must be reworked to be full integrated to include this centre and new stores opening. Currently Zara has 23 stores in the US. facing issues to continue to be market leader. transaction processing data and decision support systems have to operate across countries. machinery costs. server. Computer Aided Design to Computer Integrated Manufacturing are all IT functions that must be integrated with business processes and strategy. Zara achieves 75% of their sales. Key to consolidating Zara’s position is a fully aligned effective Business and IT strategy plan with “four domains of strategic choice” using the Strategic Alignment Model pioneered by Henderson and Venkatraman (1993) to analyse the business. intranet must be able to cope with demand.

Zara may find the laws of diminishing return become prevalent with the opening of multiple stores. Zara has combated this thus far with introduced artificial scarcity. Zara produces over half its stock with some outsourced using Li Fung reported by Business Week.large percentage of sales. Business and IT Strategy alignment can be achieved and Barney (1991) indicates a firm has competitive advantage when the value creating strategy is not used by potential competitors. so has chosen to open online stores in 6 European cities and in the US as reported by the Wall Street Journal. 5| Page 31/03/2010 . fashions in different countries also follow different demand patterns. however its rivals enjoy larger profit windfalls from cheap labour from the Far East. If one component fails on the process it has a knock on effect. individual managers may need more autonomy in decision making using current MIS and EIS employed. Since early 2010 Zara has also opened offices in India to monitor supply chain activities again deviating away from the core values of the company with a view to opening its first store in May 2010 reported in the Financial Times. this will not be cheap and in new markets new competitors are potentially more established with loyal customer bases.The law of diminishing returns states that the more of a product is produced. 2010. sold than the perceived marginal benefit of utility the user gets. outsourcing more in traditional clothing channels would however increase time to market affecting one of Zara’s core competences and affect its competitive advantage. requiring more stock to be produced increasing costs and finding the marketplace becoming saturated . 2010. there is small room for error. Porters Five Forces Zara is vertically integrated along the supply chain. using a centralised database can create hold-ups in processing time. With a larger global presence. Zara to become a truly global brand must conquer other continent with its unique truly JIT system.

Seeking to outsource more to steal a march on rivals can result in product quality issues such as the impounding of Zara clothing in China as quoted in (Business Week. The Resource Based View states the internal environment of a firm is more critical to the determination of strategic action than the external environment.Ansoff Matrix Zara is using lateral diversification with new products into new markets. It is the riskiest of the four strategies in the recognised by (Ansoff. knock on effect of reduced quality in production processes and time to market. however taking account of micro and macro economic conditions such as the gap between the US dollar for countries with manufacturing operations in the Far East and Zara’s products produced in Europe this widen the price gap between competitors products and Zaras. The danger is they move away from core competences in fashion market. affect profit margins and costs. a risk in terms of investment and potential loss of economic rents. also ranging larger garments. As Hammer points out “operational innovation” is a basis for sustained competitive advantage 6| Page 31/03/2010 . and diversification may serve to dilute the brand image affecting customer loyalty. pricing strategies from competitors also which have to be considered. 2010). however Porter (enter quote from 5 forces) regards the external environment as being fundamental to the ability of a firm to create and sustain competitive advantage. product positioning of Zara’s clothes are viewed as trendy high fashion for young people. Zara Home being an area they currently have no expertise in. which is fundamental if they wish to expand and crack the US. 1957).

Zara owes perhaps more to this relationship and divergence from core competences can result in loss of its sustained competitive advantage. 2000. Zara needs to expand to survive competition from the new markets. M. 1. 2001. 7| Page 31/03/2010 .. R. D. Crosby. 17. and C. (1991). Manufacturing Strategy: Text and Cases. 99-120. 3rd ed. Harvard Business Review. pp.Although the European market is not saturated and represents the highest profit margins of 10% with net sales growth rates of 20% year on year. B. pp. Phillip B. Barney (2001) . The resource-based theory of competitive advantage: implications for strategy formulation. Strategies for Diversification. Terry (1985) Competitive Advantage: Creating and Sustaining Superior Performance . 114-35. Strategic Management Journal 26(1): 41-56 Collis.. 1997. McGraw-Hill/Irwin. 35 Issue 5. Vol. (1979) “Quality Is Free”. Hint et al say the business strategy should allow the firm to best exploit its core competencies relative to opportunities in the external environment as shown in the SAM and Porters models. (1991) ‘Firm Resources and Sustained Competitive Advantage’. California Management Review. Montgomery. McGraw-Hill Books Grant. I. Vol. No. Hammer. References: Ansoff. 33(Spring).” Harvard Business Review.Barney J. April 2004: 85-93 Hill. Is the resource-based "view" a useful perspective for strategic management research? Yes.113-124 Barney. “Deep Change: How Operational Innovation can transform your company. Sep-Oct 1957. Boston: Irwin McGraw-Hill. Luftman says how half of a firms profit can be explained from alignment with IT.J.M. Zara presently does this but as the company expands it inherently becomes harder to govern all areas.A. J. Journal of Management. Corporate Strategy: A Resource Based Approach. B.

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