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CFV

Pro

ject

-M

AP

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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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2

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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4

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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14

Introductions

Zara’s Issues

Analysis

About Zara

Recommendations

1

2

3

4

5

Cas

e A

nal

ysis

–B

arill

a Sp

A

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

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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

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

1

2

3

4

5

Cas

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nal

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–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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