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Fashion industry is one of the most competitive markets with many competitions between companies and brands. Among those, Zara from Inditex has stood out as a unique organization with special knowledge and abilities in revolutionary supply chance, processes, management style and implementation of Information and Information Technology. This report aims to analyse the reason and the contribution of Information System and Information Technology in this success.
Recently Inditex, the parent company that owns Zara, has received new members to the Board of Directors who have vast experience and knowledge of finance. However they have little understanding about the Fashion Industry and Information Technology. The intention of the following report is to give the new members a concise overview of the fashion industry, Zara and the importance of the relation they have with Information Technology. In order to do that, this report will cover topics such as, the Fashion Industry, the success of Zara in the Fashion Industry, the importance of Supply Management in Zara's success and the use of Information Technology in Zara's fashion business model.
Fashion - a competitive industry
The fashion world is very complex; it is not only about the appearance. There are many factors which contribute to the fashion industry such as: culture, style, creativity and many more.
- The fashion world is competitive because different people have different taste. Businesses' wants to capture the trend to suit people's desire before their competitors. The clothing reflects on the personality and characteristic of the person, which therefore creates options for businesses as they can choose their preferred target.
- This could also be due to the culture impact as this is where a person's personality is developed. This is one reason as to why the fashion industry produces different type products.
- Also businesses' depends on the BIG BRAND fashion shows, so they can create new styles which are similar to those seen on the show to attract more customers. Also businesses needs to be able to keep up with the trend in order stratify their customers, as fashion world changing frequently.
- Clothes can reflect on your social status which can be clearly defined in the word 'brand'. Brand is an additional reason which makes the fashion world competitive. Rich people will feel good to have luxury goods which are called 'big brands' because their status are reflected upon these. Well known brands present their product as high quality. Therefore the middle level brand and non brand forms, encourages people with lower purchasing power to buy clothes. Consequently everyone is able to buy clothes they desire.
Success of Zara.
Zara is considered to be one of the pioneers of fast fashion industry and has been dominating the fashion industry across the world for almost two decades. Some aspects that lead to Zara's success are as follows:
- Zara is able to adapt to the changing market trends very quickly and meet the customer demands based on the research on current market trends.
- One of the important key factors that were essential for the success of Zara was, they had their art head quarters with designers, factories and distribution centres all onsite. While most of the competitors moved Far East for much cheaper production, Zara decided to make the clothes at Spain to reduce the lead times and could also make the clothes faster and get them to stores at much faster rate.
- Another aspect is to supply small amounts to each store and monitor which design sold more and produce the design that makes the maximum sale, instead of holding stocks at inventory. The store managers take the task of monitoring the design which sells more and transform it to production managers and they decide how many garments are to be manufactured and transported to the local shops.
- Zara maintained a short lead time to keep up with the fast fashion supply chain and always a step ahead when compared with its competitors. From the indentifying step to final product only take 30-days.
Key processes and Information System's contribution
The important processes are:
- Ordering: is done based on current market trends and customer feedbacks.
- Designing: based on the orders given.
- Manufacturing: After manufacturing the clothes are sent to the distribution centres.
- Distribution: From the distribution centres the garments are sent to the stores.
Improvement of process using IT:
- It saves lot of time
- Handwork is reduced
- Information flow being made easier
- Information is kept in the computer database
Information Systems and Information Technology
Unlike other companies have to spend large amount of money to gain advantages from Information Technology and then pay more money to maintain it, Inditex invests very little on Information System which is referred to simple Technologies "Application at Inditex are written and maintained by an IT staff of 50, which accounts for less than 0.5% of the company's workforce" (McAfee, A 2004).
- Part of Zara's Information System focuses on the communication between its retailer's stores and the head-quarter in La Coruña. Every store of Zara is equipped with the PDAs and DOS based point-of-sales (POS) software so that every order from customer will transfer directly to the head-quarter for analysis purposes. This system is also used for collecting customer comments and opinions on styles and design thus will be used to support the design team to provide exactly products that meet the real-time needs of market's demand.
- Another use of Information System in Zara is that the store's manager can order goods concerned to quantitative and design which they think will sell best for their local markets. However, this information transferring process is not using more complex technology than dial-up internet to transmit the information twice a week.
- Also, based on the Annual Report for Stakeholders (2007) Inditex mentioned the implementation of Store Management Terminal (SMT) at every store to strengthen the communication within store, warehouse and management department.
- Another recent implementation of Information System is the Internet Store (www.ZaraHome.com) which is brought out as receiving online orders and feedbacks from customers.
- Besides that, computer aided design and computer aided manufacturing (CAD/CAM) that converts designs into tangible products. Designers use the CAD/CAM to quickly make the final products based on customer's demands.
Role of Information System and Information Technology
One of the particular characteristic, known as a unique and a pioneer, of Zara is reduced time in whole process from customers' demands to shipping fulfilled products to stores, supply chain. Like fashion shows in Paris, Zara uses this fashion to draw the designs, transmit these designs to Spain, and finalise them within 15 days; whereas, this process takes about six weeks for other competitors do, according to Folpe (2000). One of the methods of reducing lead time is the implementation of Information Technology
Zara staffs have to use Information System in this process:
- Computer hardware and software are used to design and store design patterns.
- Computers and internet are used to transmit these designs to Spain.
- Computers and internet are used to communicate; emails, VoIP, video conferences.
- Information Technology is used to monitor, manage, and process whole process of making products.
- The robotic system in factory is used to cut fabrics, software or program is used to control robot in terms of cutting fabrics, printing image on products, packing clothes, and controlling conveyer belts as well.
- Information system is also used to communicate with suppliers where to get materials, with divisions of operation inside the factory to run whole process effectively and efficiently, and with distributors for shipping as well.
As Jessup and Valacich (2008) said that Information System/ Technology can help to do things faster, better, smarter. Zara has considered as successful example of information and technology ethically.
Could Zara be successful without Information Technology?
Many companies in the fashion industry are based on a demand-driven and network based supply chain where data-flow and effectiveness delivery of products are crucial to success. This success in the fashion industry cannot be achieved without a significant investment Information technology. Information technology overcomes communication barriers and helps to interconnect all the entities in the supply chain by sharing information. These facts demonstrate the important role that a proper Information technology investment has in the success of an organization in the fashion industry.
Recommended improvement in Information Technology and Information System
More effective improvements in Information System could support Zara as it could support the relationship and communication with other companies and within Zara. These advantages can be done by the implementation of new Information Technology and Information System:
- Maintaining the producing process always stay at the top performance by supporting stock supplying through better understanding with the material suppliers, scheduling the delivery time more efficient, or technical support immediate associate with manufacturing engines problems.
- Supporting expanse and off-shoring decision by make sure the head-quarter can monitoring the business as well as understanding the new market through analysing sales and customers feedbacks.
- Investment in building private information network within the organization will maximise the ability of flowing of information, efficient management and better security.
Security in Zara
- Data safety: In case of system crashed or any thread that can destroy data. Inditex's report (2007) written "there are contingency systems in the event of computer stoppage, with double equipment and data storage in a different location to the main Centre, which would reduce the consequences of a breakdown or stoppage to a margin of just a few hours."
- Information security: By using of hardware and software, Zara can avoid destruction of virus, stealing from spyware.
- Operation safety: Robotics system does not only cut down time of process but also limit accidents that may cause by worker's mistakes.
- Transaction security: any payment from customers paid by cards need to be secured and any online transaction as well.
- Communication amongst branches: make sure that communication system amongst branches around the world is uninterrupted.
The role of supply chain management
Since fashion tendencies are short-lived, the success of a company in the fashion industry lies on "its ability to meet demand and respond quickly to fluctuations and change" (Strategic Direction, 2005). This success is only possible if an excellent agile supply chain management system is present to respond to these demands.
Supply Chain Management is an approach to control and join together all the activities, it also improves the connection between all the entities in the chain supply, by the linkage of all the departments leads to fast and proper delivery of high quality products. Liz Barnes and Gaynor Lea-Greenwood (2006) stated that management strategy moves to achieve success and respond demands along with fluctuations in the market: Just-in-Time, agile supply chain and quick responsive systems.
Just-in-time , according to Bruce (2004), is a term in that defines the ("... delivery of finished goods to meet demand without carrying up front supply chain inventory , but in time to meet market demand. This is retailer driven concept aimed at reducing costs for businesses in the supply chain").
Agile Supply Chains, the concept of agility in the supply chain management is centred on "responsiveness" (Christopher et al., 2004); as it was mention before the fashion industry is unstable and unpredictable, therefore the ability of being "responsive" in this industry is a crucial factor for any company's success. It was proposed by Harrison (Christopher et al, cited in Harrison 1999) that an agile supply chain has the following characteristics:
- Market sensitive: the capability of read and respond to real demand and capturing emerging trends by analysing point-of-sale data from customer's feedback.
- Virtual: an agile supply chain is virtual for the reason that connects and shares information on real demand between all the partners in the supply chain, this contributes to collaborative planning.
- Network-based: it means working closely with other specialists, for instance Zara, which assigns all its finishing stages of manufacturing to small subcontractors.
- Process aligned: is the ability of an agile supply chain to have a high degree of process interconnectivity and cooperation between network members.
Quick response is a key strategy in the fast fashion market that focuses on the ability of an organisation to provide the customer the same quantity of different range of high quality products at the right time, the right place and the right price. This is achieved because of the real-time customer/ consumer demand system, where the client's feedback influences decisions in the manufacturing, distribution and speed of delivery processes.
Risky in supply chance management
Zara's current model of supply chain has endured for more than two decades and has generated multiple successes for the company. On the other hand, this approach could create some risks for the company. Michael A. Lewis (2004) explores what could be a possible risk in the supply chain; Zara is characterized by exclusivity and maintaining limited supply, consequently for instance, a costumer that often buy at Zara finds a new product but is in limited supply, this customer likes what he wants but feels pressure because if it does not get it immediately, it is certain that it will lose the chance to purchase it in the near future. As a consequence some of Zara's costumers will be left out.
E-commerce for Zara
Zara has archived tremendous success with its retail stores over the world. So should it expanses on the online market?
The 'yes' side:
- Zara could get in touch with foreign markets that have not been reached so far.
- Improvement in customer satisfaction will lead to better reputation.
- Using internet based sales can be considered a good way of advertisement.
- Providing opportunity for customer to check new products.
- Earn more profit from selling rather than focus on retail stores.
- Easier to get feedbacks and requests from customers on specific or general products.
The 'no' side:
- Cost associated with delivery will become a huge burden for business.
- More sophisticated in management.
- Heavily investment on Information System / Technology is required to gain benefits and overcome security issues.
- Increasing in threats of losing confidential information.
- Style copying from competitors is also a problem.
- Customer may not passionate with this new type of transaction since most people prefer to try on products before making decision.
To conclude, the success of Zara is formed by the outstanding management in supply chance and processes and the brilliant in implementation of Information System. By understanding deeply the use and meaning of Information System, Zara has applied and improved its use to build up the certain victory in this highly competition environment. However, Zara should think of improvements in suitable Information System and Technology to gain more competition advantages in the future.
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Zara´s Architectural team (Inditex's annual report 2007, p.34)
Inditex's conferences (Inditex's annual report 2007, p.132)
Computer room in headquarter in Spain (BBC-Store Wars)