© 2013, published by Flat World Knowledge 3-1 Information Systems: A Manager’s Guide to Harnessing Technology, version 2.0 John Gallaugher

© 2013, published by Flat World Knowledge Published by: Flat World Knowledge, Inc. © 2013 by Flat World Knowledge, Inc. All rights reserved. Your use of this work is subject to the License Agreement available here No part of this work may be used, modified, or reproduced in any form or by any means except as expressly permitted under the License Agreement. 3-2

© 2013, published by Flat World Knowledge Chapter 3 Zara: Fast Fashion from Savvy Systems 3-3

© 2013, published by Flat World Knowledge Learning Objective Understand how Zara’s parent company Inditex leveraged a technology-enabled strategy to become the world’s largest fashion retailer 3-4

© 2013, published by Flat World Knowledge Zara: Introduction Game-changing clothes giant with parent company Inditex Corporation Uses a blend of technology-enabled strategy – Firm does not use advertising and rarely runs sales Highly vertically integrated – Most of its production process is in-house 3-5

© 2013, published by Flat World Knowledge Table Gap versus Inditex at a Glance 3-6

© 2013, published by Flat World Knowledge Contract Manufacturing Outsourcing production to third-party firms – Firms that use contract manufacturers do not own plants or directly employ the workers who produce the requested goods Advantages - Lower costs and increased profits Disadvantages - Sweatshop labor, poor working conditions, and environmental abuse – Firms face legal action, brand damage, reduced sales, and decreased appeal among prospective employees 3-7

© 2013, published by Flat World Knowledge Learning Objective Contrast Zara’s approach with the conventional wisdom in fashion retail, examining how the firm’s strategic use of information technology influences design and product offerings, manufacturing, inventory, logistics, marketing, and ultimately profitability 13-8

© 2013, published by Flat World Knowledge Using Technology to Gather Data Zara’s store managers are armed with personal digital assistants (PDAs) – Personal digital assistants: Handheld computing devices meant for mobile use outside an office setting – Used to gather customer input and feedback Point-of-sale-system: Transaction processing system that captures customer purchase information – Shows how garments rank by sales 3-9

© 2013, published by Flat World Knowledge Using Technology to Gather Data Managers can send updates that combine the hard data captured at the cash register with insights on what customers would like to see – Allows the firm to plan styles and issue rebuy orders based on feedback – Improves the frequency and quality of decisions made by the design and planning teams 3-10

© 2013, published by Flat World Knowledge Design Customer demand and sales data dictate the designs that Zara develops Zara design staff consists of young and fresh designers from design school Teams are regularly rotated to: – Cross-pollinate experience – Encourage innovation Individual bonuses are tied to the success of the team 3-11

© 2013, published by Flat World Knowledge Manufacturing and Logistics Fifteen days - Average time for a Zara concept to go from idea to appearance in stores In order for high responsiveness, Zara uses: – Combination of vertical integration and technology- orchestrated coordination of suppliers Vertical integration: when a single firm owns several layers in its value chain – Just-in-time manufacturing – Finely tuned logistics 3-12

© 2013, published by Flat World Knowledge Manufacturing and Logistics Majority of Zara’s merchandise is produced in-house, with an eye on leveraging technology in areas that: – Speed up complex tasks – Lower cycle time – Reduce error Inventory optimization models - Determines how many of which items in which sizes should be delivered to each specific store 3-13

© 2013, published by Flat World Knowledge Manufacturing and Logistics Fabric is cut and dyed by robots in highly automated factories – Half of the cloth arrives undyed so the firm can respond to midseason fashion shifts Zara leverages contract manufacturers – To produce staple items with longer shelf lives Zara employees spend more time on value-added functions rather than moving inventory – Due to efficient logistics and inventory management 3-14

© 2013, published by Flat World Knowledge Manufacturing and Logistics Zara is a pioneer in going green – Use of renewable energy systems at logistics centers Logistics: Coordinating and enabling the flow of goods, people, information, and other resources among locations – Use of biodiesel for the firm’s trucking fleet 3-15

© 2013, published by Flat World Knowledge Stores Benefits of limited runs of bestsellers – Allows the firm to cultivate the exclusivity of its offerings – Encourages customers to buy right away and at full price – Encourages customers to visit often – Reduces the rate of failed product introductions 3-16

© 2013, published by Flat World Knowledge Learning Objectives Detail how Zara’s approach counteracts several profit-eroding challenges that many fashion retailers struggle with Identify the environmental threats that Zara is likely to face, and consider options available to the firm for addressing these threats 3-17

© 2013, published by Flat World Knowledge Limitations of Zara Operations vulnerabilities - By moving all deliveries through just two locations, the firm is vulnerable to disruptions in the region – Operations: Organizational activities that are required to produce goods or services Financial vulnerabilities - Susceptible to currency fluctuations since development and manufacturing occur in one country Rising transportation costs 3-18

© 2013, published by Flat World Knowledge Moving Forward Zara’s value chain is difficult to copy – But it is not invulnerable, nor is future dominance guaranteed Zara’s management must: – Have an understanding of how information systems can enable winning strategies – Scan the state of the market and the state of the art in technology Look for new opportunities and remain aware of impending threats 3-19