Anil nembang: ZARA CASE STUDY

Anil Nembang | L0030BSBS0811
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Zara: IT/IS for Fast Fashion
STUDENT NAME: ANIL NEMBANG
SUBJECT: MANAGEMENT INFORMATION SYSTEM
LECTURER: DR. UMA MOHAN
CARDIFF METROPOLITAN UNIVERSITY

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Executive Summary:
This paper presents the analysis of Zara, a Pilot retailer of Spanish retail giant Inditex which has
become successful through its simple Business model of speed, flexibility and high fashion. The main
issue in this case is to decide by the company whether to upgrade current system risking reliability
with the current system or continue using DOS based operating system which is not compatible for
future changes or improvements. The current system followed by Zara is effective and easy to
maintain which persuaded the company to continue without any changes in the system. Although the
sense of urgency for new system is not high, MS DOS is obsolete technology. So, it has been
recommended that Zara should upgrade IT infrastructures and introduce modern information systems
in modular basis to capitalize strength, shore up weakness, invest in opportunities and identify threats
in Asian apparel Industry to capture the market shares. Introducing new POS networking system is
beneficial to Zara because 1) It creates more robust and scalable system that is more responsive to
Inditex’s Supply Chain Network, 2) helps to maintain and improve efficiency of decentralization
because of effective flow of information between stores, Distribution Centres and Plant and 3)
removes the risks of the system becoming obsolete.

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Table of Contents
Executive Summary:...............................................................................................................................2
Introduction to the study:........................................................................................................................4
Background of Zara ................................................................................................................................4
Strategic Planning:..................................................................................................................................4
Mission Statement:..............................................................................................................................4
Zara Business Model: .........................................................................................................................6
Comparing Business Model with H&M: ............................................................................................6
PEST analysis: ....................................................................................................................................6
Political Environment: ....................................................................................................................6
Economic Environment: .................................................................................................................7
Socio-cultural Environment............................................................................................................7
Technological Environment:...........................................................................................................7
SWOT Analysis ..................................................................................................................................7
Strength:..........................................................................................................................................7
Weakness: .......................................................................................................................................8
Opportunities: .................................................................................................................................8
Threats: ...........................................................................................................................................9
Decision making and information requirements:....................................................................................9
IS Recommendation:.............................................................................................................................11
Sales and Marketing Information system: ........................................................................................12
Manufacturing Information System:.................................................................................................13
Logistic Information System: ...........................................................................................................14
IS Recommendation for Resource Planning Department .................................................................15
IS Recommendation for Department of Supply Chain Management ...............................................15
Is Recommendation for Customer Relations Department ................................................................15
Conclusion: ...........................................................................................................................................15
Other Recommendations:......................................................................................................................15
Reference: .............................................................................................................................................17
Appendix...............................................................................................................................................19
Pictorial representation of Zara business model ...............................................................................19
Comparing Zara’s business model with conventional business model:............................................20
Comparing Zara’s Price Markdown Strategy with regular retail:.....................................................20
Zara’s success factors: ......................................................................................................................21
Value chain of Zara...........................................................................................................................22

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Introduction to the study:
The main strategy of Zara is the ability to respond very quickly to the demands of target customers.
The company has been able to identify the trends and meet the demand with the help of autonomously
organized structure and effective value chain system. The present system followed by Zara has been
very effective and easy to maintain. The problem with Zara is that the current system that they use, P-
O-S (Pont of sales terminals), runs on DOS which Microsoft doesn’t support anymore and any
hardware change in the POS terminal will not be compatible with the current POS software. The other
main issues the Zara facing is that the stores don’t share inventory information electronically and
hence inventory management becomes highly difficult and manual.
The decision making process is based on judgement of employee instead of relying on small set of
decision makers; the majority of decisions are made by store managers. The basic ordering activity in
store happens with the help of PDA devices which do not share the information with POS terminals
because of which the access to information in not very effective. However, despite of these limitations
Inditex, the parent company of Zara has made extraordinarily well performing value chain that is by
far the most responsive in the industry.
Background of Zara
Zara is flagship chain store of Spanish retail giant Inditex Corporation owned by Spanish tycoon
Amancio Ortega. Headquarter of the group is in Coruña , Spain where the first store of Zara, most
renowned and fashion icon is founded in 1975. Zara, well known fashion designing and
manufacturing company is declared most effective and market responding enterprise in Fashion
Industry (Murphy, 2008).
Strategic Planning:
Mission Statement:
Zara’s Vision:
Leading apparel industry driven by customer demand and fast fashion.
Zara’s Mission:
To hold big market share among young and fashion conscious city-dwellers in all continents by
quickly responding their demand
Zara’s Goal:
Long term goal: Open 120 new stores in prime location of Asia, America, Europe and Africa by 2021
with all business functions of the company interlinked via computer network.
Short term goal

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 Increase market share and sales in Asia
 Upgrade Information Technology infrastructure
Zara’s Objective:
Marketing objective: To increase market share of Zara in Asia by 5% and sales by 10% by 2016.
Marketing Strategy:
 Increase purchase frequency among current customers by 15% by 2016.
 Increase the number of new customers by 10% by 2016.
 Open 30 stores (10 stores per year) by 2016 in prime location of Asian cities.
Communication objective:
 To increase brand awareness.
Communication Strategy:
 Build strong relationship among existing and potential customers through CRM.
Customer satisfaction objective: To create convenient shopping environment and instant
acknowledgement of customer feedback by February 2014.
Customer satisfaction Strategy:
 Make business online by end of January 2014.
 Introduce Brick and click e-commerce business model
 Integrate customer forum page in website.
Technological Objective: To collect and analyse information to achieve effective and efficient uses
of company assets/resources by 2015.
Technological Strategy: Set up integrated ERP, CRM and SCM by 2015.
Generic Marketing Strategy of Zara:
Zara mainly adopts Differentiation Strategy to meet its mission statement. Zara produces and markets
unique clothes base on sense of style and fashion. However, it also blends Cost Leadership Strategy
and Market Segmentation Strategy to some extent to its main strategy. Zara produces in small
quantity to lower the inventory cost. It employs a group of commercials dedicated to a section of store
namely Men, Women, or Children.
Core Strategy of Zara:
 Decentralize the decision making process
 Integrated supply chain
 Stores in prime places
 Short lead time
 Small quantity production principle to lower the inventory risk and cost
Key Success Factors of Zara:

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 Vertical systematization of production
 Recreation of fashion
 Utilizing store
 IT system
 Small quantity production principle
 Utilizing geographical conditions
 Collecting customers data and feedback
Zara Business Model:
Fashion retailer Zara has achieved spectacular growth via a distinctive design-on-demand
operating model.
Zara Business Model is mainly based on its business concept. The fundamental concept of Zara is to
rapidly respond to customer trend in fashion. Zara sells medium quality but fashionable apparel in
affordable price. Zara believes that constant flow of fashion world is driven by customer demand not
the supply. So, Zara maintains tight control over business functions by keeping design, production,
distribution and retail stores in close proximity to each other. In Zara, design is linked to
production, production is linked to distribution, and distribution is linked to retail store.
Zara has short lead time because of its effective in-house production mechanism. Zara maintains 80%
of its production in Europe of which 50% in Spain close to headquarter. Zara has business model of
forward integration where company takes direct control of its production and distribution. Moreover,
Inditex Corporation is holding company atop Zara.
Comparing Business Model with H&M:
The Swedish clothing firm, H&M outsources no-care operations. H&M doesn’t own any factories;
instead H&M buys clothes and other items through an abundance of detached suppliers. On the other
hand the business model of Zara is vertically integrated. Zara controls every step of the value chain;
only clothes with a longer shelf/fashion life time are outsourced.
PEST analysis:
Political Environment: East Asian countries have liberal trade policies and are well integrated to
global economy. Hong Kong and Singapore are free ports. South Korea and Taiwan are liberalized
substantially in recent years. Malaysia is fairly open but with significant protection. China has open
trade policy with European Countries while Japan has defensive (Sally, 2012).
There are around 52 countries in Asia. Asia currently has mixed political situation. West Asia and
South Asia has fragile political situation. Countries like Afghanistan, India, Pakistan, Iraq, Israel, and
Syria lie in West Asia and South Asia where the political situation is delicate because of domestic
conflict and war. However, Arabic countries like United Arab Emirates, Saudi Arabia, Oman, Qatar
and Bahrain have stable political situation. On the other hand, most of the countries in Southeast Asia
and East Asia have sound political situation. Countries like Singapore, Brunei and Malaysia in
Southeast Asia and China, Hong Kong, Japan, South Korea, and Taiwan (Republic of China) are best
potential countries for the company to expand.

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Economic Environment: The economy of East Asia is one of the most successful regional
economies of the world. It has some of the world’s largest economies: China, Japan, Hong Kong,
Taiwan and South Korea. Functional Differentiation, autonomy of economic system and abundant
natural resources are the main economic success factors of East Asia.
The economy of West Asia is diverse. Some of the countries has high economic growth rate. Turkey
has the highest economic growth rate followed by Saudi Arabia. Petroleum Industry is the major in
the regional economy.
South Asia has relatively poor economy in compare to other regions. Many countries are
underdeveloped and people are living under poverty. Sri Lanka has the highest economic growth rate
while Afghanistan has the lowest. India has the largest economy in South Asia and achieved 9% GDP
growth in recent year.
Socio-cultural Environment: Asian countries have mixed religions. East Asia has majority of
Buddhism and Taoism while West Asia has Muslim and South Asia has Hinduism, Muslim,
Christianity and Buddhism.
Asia has mixed lifestyle trends. Due to technological advancement, lifestyle of Asian countries is
highly influenced by European/western cultures. There is cultural exchange among the countries
over the world. Asian countries like China, India, and South Korea are coming to be regarded as
cultural hotspot and influencers of the futures.
There is fashion consciousness and brand awareness in Asian consumers. The trend of consumer
spending in lifestyle and fashion is increasing day by day.
Technological Environment: East Asia is highly advance in term of technology. East Asian
countries like Japan, China, Malaysia, South Korea, Taiwan, and Hong Kong are some of the leading
countries in technology in the world. They have highly advance and sophisticated IT infrastructure.
Technology is one of the key factors for vibrant economy in East Asia. East Asian countries are using
Technology for efficient and effective mobilization of resources in industry.
South Asia and Central Asia have developing countries. So, technology is still primitive in these
regions. However, India, the South Asian country has already moved forward in technological
advancement.
Arabic countries in West Asia are highly advance in terms of technology. Technology is playing key
role in the robustness of their economy.
SWOT Analysis
Strength:
High Brand Value: Zara is also known as popular clothing brand.
Vertical integration: Zara apparel chain works differently than the traditional retailer. Traditional
apparel retailers generally outsource all of their productions while Zara manages all design,
warehousing, distribution and logistics functions itself.
Advantage of vertical integration:

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Zara’s business model is vertically integrated and highly capital intensive because of which the
company has following advantages:
 Cost is reduced because no channel is outsourced.
 Avoid conflicts emerging form different channels.
 Swift, efficient, and effective designation, production and distribution.
Strong distribution channel: Zara’s distribution channel is expensive but is very strong. Its
distribution network mainly works by plane and trucks rather than trains and ship to deliver twice a
week. By this system Zara has achieved 98.9% accuracy in distribution process (Dishti, 2010).
Spot emerging trend and react quickly: Zara has pull strategy rather than forecasting. Designers of
Zara walk around the world to pick the latest trend. Store managers frequently report the central office
about the inventory and sales which helps to identify the tendency of customers. Another strong
aspect of Zara is that the items are produced in the decision of manager and as per the customers’
choice rather than mere designers’ creativity.
Stores around the world: Zara has 1,721 stores over 70 countries to capture the apparel market.
Inexpensive but fashionable: The apparel in Zara is fashionable and affordable which is helping
Zara to undercut its rivals.
Customers ‘comments and feedbacks: Zara remains very close to customers. Each Zara store wants
and welcomes customer comments and feedbacks which help stakeholders to make future
merchandising policy and strategy. One of the managers of Tesco says ‘Our customer is based on
listening to customers.’
Weakness:
Advertising: Advertising is the persuasive communication device through which customers become
aware of the product and services of a company. Through awareness and knowledge thus acquired by
the buyers, they show their likings and interest towards products and finally purchases. But, Zara has
zero advertising policy.
Online presence at Zara is weak: Online is becoming very essential tool to display and sell the
products. The rival companies like H&M and Gap are much more benefited by their online business
activities.
Centralized distribution system: Centralized distribution system involves suppliers delivering
products in a centralized warehouse rather than to retail store. Sometimes centralized distribution
system may cause delay in meeting the demands in the stores.
Opportunities:
Online Market: The internet marketing provides tremendous opportunities to a business to improve
marketing effort and achieve competitive advantage. Online marketing can benefit business mainly on
three ways:
Effective communications
Product development
Business efficiency

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Expansion plan: Zara has been investing billions of euros to open new stores around the world and it
could be the robust plan for revenue growth in the future. The rate of opening new store of Zara is
about 640 stores per annum.
Outsourcing: Zara need to think about the strategies to take benefits from other corner of world
where the currency is weak and labour cost is low. Many companies are benefited from outsourcing
strategy.
Growing apparel market in Asia: Growth rate of apparel market in Asia is being high. Growing
population in Asia, higher disposable income and consumer consciousness in international brands are
the major factors which motivates Zara to enter into Asian apparel market.
Brand Image: Zara is the popular brand name among the customers around the world. Zara is able to
win the heart of customers because of its customer-centric policy.
Threats:
Euro centric production: Inditex Corporation focuses of designing and manufacturing most of its
products in European land where labour cost is in increasing trend. Increase in operating cost cut
down the profit.
Threat of new entrants: Although the rate of new entrants in apparel industry is low as big players
are dominating the market, there are still the threats of few entrants. The new entrants increases
competition and in return the bargaining power of customer increases which also cuts down the profit
of the company.
Economic recession: Economic recession makes the pocket size of consumers small which decrease
the spending power of consumer.
Global and Local competitors: Many apparel industries are evolving around the world with
unbeatable strategies. Brand names like H&M, GAP are the major competitors of Zara.
No advertising campaign: Zara doesn’t undertake advertising campaign because of which there is
probability that the rival company can slash down the consumer number due to their strong
advertising strategy.
Fluctuation in exchange rate: Zara has opened its stores in all continents Europe, America, Asia,
and Africa. Because of its national and international network, fluctuation in exchange rate of currency
contributes huge in loss and gain of Company.
Market entry barriers: Zara has global market penetration strategy. Each country has own law of
land. In some country international investments are welcomed while in some countries it has been
Decision making and information requirements:
Decision making is the process of recognizing opportunities and problems and finding the solution to
it. Decision making structure of Zara is flat. Decision making is decentralized which allow Zara to
respond quickly to the changing market change and meet the customers’ needs. Low level decisions
are also integrated to make higher level of decisions in Zara.

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Level of Decision Type of Decision Information Required
Strategic Level Prime Location Density of potential customers and socio-
cultural and economic details of the
location.
Investment on opening New
Stores
Political, Economic, Technological, Socio-
cultural, Environmental and Legal
background and status of location of
interest.
No advertising marketing
strategy
Analysis of advantages and disadvantages
in opening new store over advertising.
Franchises and alliances Quality and reliability issue as well as legal
system of country.
Design driven decisions Information gathered by team of 200
experts in design and development field.
Look and feel of stores Consumer behaviour and psychology
Life-span of product Research about consumer behaviour
In-house building of software. How unique the company operation is.
Tactical Level Online presence of the
company
Pros and cons of online shopping and
online shopping trend and behaviour. In
addition, competitive advantage achieved
by rival apparel industries like GAP and
H&M.
Creation of logistic network Geography and geographical distance
among manufacture, Distribution Centre,
and sales stores.
Requirement of IT Employee and customer feedback and
competitive advantage gained by
competitors like GAP and H&M.
Future production of each
Stock Level Unit (SKU)
Ratio between demand and supply of each
SKU.
Price determination Production cost, distribution cost and
market condition.
Outsourcing for synthetics and
fabrics
Cost, turnaround time and geographical
distance.
Inventory Planning and
optimizations
Statistics of desired service level, demand,
supply and supply lead time.

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Centrally located distribution
centres
Geographical location and distances among
design and manufacturing and retail stores.
Price markdown Inventory information, store sales, cost, and
target margin.
Effective Transportation
strategies to be adopted.
Pros and cons of all transportation means
like roadway, railway, airway, and
waterway. Moreover, geographical location
and distance between manufacture,
Distribution centres, and store.
Knowledge Level Which store would get the
available stock in case demand
exceeds supply?
Which store is more successful to sell the
particular garment?
What clothes would be
designed and produced
Inventory information, store sales records,
information regarding climatic factors.
Operational Level Where to send and assess the
demand of completely new
product.
Socio-cultural background, geography,
climate, and fashion trend of a place where
the store resides. Also the sales history of a
particular store is informative
Placer order of a particular
garment
Inventory details and sales trend of the
garment.
Order replenishment quantity Sales record, sales trend, stock in store of a
particular product.
What to stock? Store demand
Store to store transfer What residents are wearing and what
garments are selling?
What garments of sales Sales record
Change merchandise over four
week
Understanding about consumer psychology
and behaviour.
IS Recommendation:
Zara has flaws in existing information systems in terms of its expensiveness, effectiveness and
efficiency. Thus, following information systems are recommended to Zara to further improve in its
performances.

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Sales and Marketing Information system:
Level System Type of
Decision
Type
of IS
Description of
IS
Competitive
Advantage
of IS
Relation to
Goals and
Objectives
Strategic
Level
Stakeholder
analysis
Stakeholder
management
ESS Identifies and
analyse
stakeholders
and prioritize
and engage
them
accordingly.
Stakeholder
satisfactions,
capacity
utilization.
Easier to
recognize
person and
organization
who can
impact new
stores in
Asia.
Situational
analysis
Choice of
strategies,
assessment of
organization’s
SWOT.
ESS Systematically
collects past
and present
economic,
political,
social and
technological
data.
Effective and
efficient
strategy.
Helps to
design
effective
strategy to
overcome
internal and
external
forces in
Asia.
Lead
management
Lead
planning,
qualification,
routing,
nurturing and
automation
ESS Tracking and
managing
prospective
customers,
their
conversions
into sales and
establish long
term
relationship.
Expands
market
share, better
growth in
business.
Generates
potential
clientele in
Asian
apparel
market.
Sales trend Prepare long
term forecasts
ESS Predicts future
sales based on
past
performance.
Business
expansion
Expands
business in
Asian
apparel
industry.
Tactical
level
Pricing
analysis
Determines
price
MIS Analyse
production and
determines
effective cost.
Helps in
scientific and
accurate
pricing.
Attracts
customer
because of
reasonable
price.
Knowledge
level
Market
analysis.
Customer
demand and
habits.
KWS Analyse the
customer
shopping
behaviour and
habits.
Customer
satisfaction.
Helps to
increase
sales and
margin.
Operational
level
Order
processing
Daily sales TPS Enter process
and track
orders.
Effective and
efficient
monitoring
of sales.
Superior
control over
operations.

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Manufacturing Information System:
Level System Types of
Decision
Type of
IS
Description of
IS
Competitive
Advantage
Relations
to Goals
and
objectives
Strategic
Level
Manufacturing
and planning
control (MPC)
Human
resources
capabilities,
technology
and
geographical
location to
meet the
future needs.
ESS Helps to make
decisions on
appropriate
capacity to
meet the
market
demands of
the future.
Faster
decision
making.
Helps to
maintain
shorter lead
time.
Tactical
Level
Production
planning
Number and
schedule of
products
MIS Helps to
decide
number and
schedule of
products.
Cost
leadership,
less
throughput
time,
flexibility
and
reliability
Cheaper
price which
leads to
customer
satisfaction
and big
market
share.
Knowledge
Level
CAD
(Computer
Aided Design)
New designs KWS Assists
creation,
modification,
analysis, and
optimization
of design.
Accuracy,
flexibility
and
reliability
There is
highly
likelihood
of meeting
designs
needed to
customers.
Operation
Level
CAM
(Computer
Aided
Manufacturing)
Tools
procurement,
materials
ordering,
production
and quality
control,
packaging
and
shipping.
TPS Control
machine tools
and related
machinery in
the
manufacturing
of work
pieces.
Accurate
allocation
of
resources.
Effective
production
and better
cost control
Makes
production
effective
and
maintains
short lead
time.

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Logistic Information System:
Level System Type of
Decision
Type
of IS
Description of
IS
Competitive
Advantage
Relation to
Goals and
objectives
Strategic
Level
Inventory
management
and control
system.
Inventory
planning and
management.
ESS Forecasting,
order quantity
engineering,
replenishment
planning, and
service level
optimization.
Maintains
the lowest
inventory
level
possible to
make
inventory
system cost
effective.
Helps in
cost
control,
makes
products
cheaper
and helps
to increase
sales.
Tactical
Level
Transportation
system
Shipment
management,
fleet and
container
management,
carrier and
freight
management.
MIS Links all pick-
up and
delivery to
points with
response to
time
requirements
and customer
service policy.
Cost
control,
customer
satisfaction.
Sales
increases
because of
cheaper
price led
by tight
freight
cost
control
Operational
Level
Warehousing
System
Receiving,
put away,
storage, order
picking,
shipping
TPS Minimize cost
and fulfilment
time.
Increase
efficiency
of entire
supply
chain.
Effective
and
efficient
delivery

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IS Recommendation for Resource Planning Department
System Type of
Decision
Description of
IS
Competitive Advantage Relation to Goals and
objectives
Enterprise
Resource
Planning
(ERP)
Human
resources,
Tangible
and
intangible
company
assets.
Collects and
analyses
information to
achieve effective
and efficient use
of company
resources and
assets.
Customer satisfaction,
maximization of profit, big
market share.
Helps to organize
resources either human or
other resources by
executives of the
company.
IS Recommendation for Department of Supply Chain Management
System Type of Decision Description of IS Competitive
Advantage
Relation to Goals
and objectives
Supply Chain
Management
Procurement,
inbound and
outbound
logistics.
Interconnects all
the nodes
involved in
supply chain
Make decision
based on unique
business
constraints.
Reduce cost,
increases margins.
There will be
strong bond
among various
nodes of supply
chains.
Is Recommendation for Customer Relations Department
System Type of Decision Description of IS Competitive
Advantage
Relation to Goals
and objectives
Customer
Relations
Management
Current and future
customers.
It organizes,
automates and
synchronizes
sales, marketing,
customer service
and technical
support.
Customer
satisfaction, brand
awareness.
Increase in sales,
higher market
shares.
Conclusion:
Although the existing system is working fine, Zara has been recommended to upgrade its POS system
in order to cope with future changes. Zara has been recommended to introduce modern information
systems to maintain the flaws prevailing in current Supply Chain, Customer Relations and Resources
Planning. It has also been suggested to implement other Information Systems to make its
performance more effective and efficient.
Other Recommendations:
In fashion, what industry requires is information or data about what’s going to happen, not what
already happened. So, Zara should allow fashion merchants and buyers to leverage crowdsourcing to
get forward-looking, fast-turnaround, predictive analytics that can improve the style picking

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capabilities. The pilot research conducted by one collective intelligence company has identified that
the crowdsourcing can improve product selection by more than seven times (Ziv, 2010).
Moreover, Zara can opt for cloud computing as a platform for its financial software to help business
rapidly expand to new markets in new countries. Zara has been recommended to go through Brick and
Click business model of e-commerce. So, the main challenges that Zara faces are high percentage of
returns. Therefore Zara is recommended to introduce Virtual Fitting Room where robotic mannequin
takes body measurements and mimics shape so that customers can see exactly how clothing would fit
(Ziv, 2010).

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14. The Guardian Will rising cost spark a new social trend in the fashion industry [Online] Verified
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16. Sehgal V. (16/05/2008) Replenishment Policies and Inventory Planning [Online] Verified on:
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Appendix
Pictorial representation of Zara business model

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Comparing Zara’s business model with conventional business model:
Comparing Zara’s Price Markdown Strategy with regular retail:

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Zara’s success factors:

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Value chain of Zara

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