Zara: IT for Fast Fashion
Individual Case Essay
BUS 510 Management Information Systems Dr. Y. K. Mortagy
Table of Contents
Value Chain Analysis
Implementations of Porter Models
Conclusion and Recommendations
This case essay provides a business analysis on Zara--the most profitable and well-known fast fashion brand under the world’s largest fashion distributor Inditex Group. The analysis will evaluate Zara by using Porter Models, looking at its Supply Chain Management and defining its current IT challenges. Then, the essay will discuss the costs and benefits of upgrading to the new OS systems. The essay will give recommendations on whether Zara should upgrade its POS terminals after considering all above factors.
Founded by Amancio Ortega, the richest man in Spain and its biggest shareholder, Zara is a clothing and accessories retailer that opened its first store in La Coruna, Spain in 1975. Zara has been operated under Inditex Group, the world’s largest fashion distributor, since 1985. Zara was originated on a simple business idea explained by the CEO of the company Jose Maria Castellano Rois who joined Inditex in 1997 that: Link customer demand to manufacturing, and link manufacturing to distribution. (McAfee, Dessain, & Sjoman, 2007) As a flagship chain store of the company, Zara plays a very important role in the Inditex Group. By 2003, Inditex has 1558 stores in 45 countries which nearly one third of them were part of the Zara Chain. For the fiscal year of 2002, Inditex’s net income was posted as €438 million on €3,974 million revenue, which Zara alone generated nearly three quarters of sales. Women clothing accounts for 60% of Zara’s sales, and Men’s and Children’s segment each accounts for about 20%. (McAfee, Dessain, & Sjoman, 2007) Zara’s operation system is very critical. Compare to other companies that it takes them about six months to develop a product and deliver it to the store, Zara only needs three weeks to complete the whole procedure. And Zara launches about 11,000 garment items on average each year. (Business Week, 2006) Only the fast speed of Supply Chain Management (SCM) can assure Zara to respond very quickly to the demand of target customers who are young, fashion-conscious city dwellers. And to reach its goal to quickly respond to customer demand, Zara developed three cyclical processes from ordering to fulfillment to design and manufacturing. Zara’s Information Technology has matches its preferences for speed and decentralized decision-making. There’s no CIO within Zara, but instead, Salgado and Castellano are on board of the technology committee who makes decisions around IT. Due to Zara’s business uniqueness, most of its IT applications are established internally by its IS department rather than buying commercially available software or outsourcing. At August 2003, Salgado and Sanchez must make a decision on whether Zara should upgrade its operating system or not. In every Zara store, there are basically two technological systems that are used—PDAs (short for Personal Digital Assistant) and POS (Point of Sales) terminals. PDAs are handhelds that were used primarily for ordering and were upgraded constantly. POS terminals are cashier computer systems with Zara’s own application installed and had remained unchanged for over a decade. Zara, at 2003, was using the DOS operating system that was no longer supported by Microsoft. The POS application that was ran on top of the DOS system worked very fine and efficient for Zara so Sanchez insists on not changing it. Salgado, on the other hand, thinks that there are potential problems with the outdated system and there...
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