Zara Case

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Q1a. Should the company upgrade the POS terminals to a modern operating system? It might not be in the retailer’s best interest to perform such upgrade, as the new system will replace three of the existing legacy systems in terms of ordering and fulfillment. The IS department will perceive such upgrade as a radical move and is expected to show high resistance in response to it. Even though Zara has a decentralized decision making process, the retailer’s IS department exercises absolute autonomy on the IT infrastructure and design. The fact that “only one person had left the department” in the past 10 years further confirms that the retailer is suffering from cognitive and action inertia, and thus creating a huge barrier for such upgrade. Nevertheless, Zara should still perform such upgrade in the long run.

Q1b. Should the company build in-store networks?
Yes, it will remove some redundancies in daily operations. For instance, employees no longer have to collect data physically from each POS terminal in order to obtain daily sales totals. In-store network will also enable store managers to have a more comprehensive understanding of sales activities on both a consolidated level and section (Men, Women, or Children) level.

Q1c. Should the company give employees the ability to look up inventory balances for items in their own stores? Yes, this will result in a more efficient and systematic stock auditing and ordering process. In specific, it will not only provide store managers with updated inventory balances, it also helps them when reviewing the latest offer from La Coruna and preparing “the order” in the face of the narrow 24-hour order window. On the other hand, the store product managers can now retrieve more reliable and updated sales figures from each store. This enables the managers to be more effective when making store-to-store transfers. The commercials responsible for matching aggregate supply with demand from each store will demonstrate higher quality of decision making, especially when allocating inventory amongst stores in times of shortage of an SKU. Last but not least, the improved inventory figures will result in a better production schedule and planning that reflect the constantly changing customer demand for different SKUs.

Q1d. Should the company give employees the ability to look up inventory balances for items in other stores? If employees have the ability to look up inventory balances of their own stores, granting employee access to inventory balances for items in other stores is icing on the cake. The is because store managers can have better inventory control, and will be in a better position respond quickly to unexpected surge of demand for a particular item. In the event that commercials at La Coruna didn’t deliver the full amount of a specific item that the store ordered, the store manager can immediately seek for “help” from stores that have extra inventory and thus capturing sales that might otherwise be lost.

Q2. What is the Zara “business model”? How is it different from the business model of other large clothing retailers? What weaknesses, if any, do you see within this business model? Is it scalable? What information does Zara need to operate its business model? Zara “business model”

The Zara business model is to link customer demand to manufacturing and link manufacturing to distribution. Terefore, Zara needs to respond very quickly to the demand of target customers, who are young, fashion conscious city dwellers with fast changing tastes.

Differences between Zara and other large clothing retailers
The business model is different from other large clothing retailers in the followings: -Zara does not rely on advertising and marketing to drive their business. It only spent 0.3% of its revenue in marketing, as compared to 3% to 4% in other large clothing retailers. -The lifespan of the clothes is short. On average, 75% of its merchandise are sold within 3 to...
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