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Zara has most obvious three business strategy: More fashionable clothes (Short life pan product); Scare supply ( lower quantities); and More styles ( more choice)
Zara is not like its major competitors such as Gap, H&M, which have completely outsourcing to cheap Asian manufacturers. Zara doesn't outsourcing its manufacture to Asian factories, even though cost of production is more expensive than Asian. Zara has 80% of materials made in Europe. Half of them are produced in Zara controlled facilities in Spain. As Zara's local strategic manufracture in Europe allows the time of launching a new product reduced to less than 30 days form a conception to final customers. Zara's fundamental strategy is to quickly identify and catch up a fashion trend faster than its competitors. With shorter response time, Zara could ensure the company is able to catching the fashion trend and produce clothes that the consumers want. Thus manufacturing in europe gives Zara a competitive advantage to keep up with fashion. In comparison, most of Zara's competitors have a long timeline from design to distribution which usually stretch into 4 months. Therefore, they have to attempt to forecast what their customer want to buy and how much they will sell. While Zara moves in step with fashion and accurate customer's need.
Zara outsourced fabric to external supplier worldwide with the help of its purchasing office in Barcelona and Hong Kong. Among half of the fabric purchased was undyed to maximize the usage flexibility. Zara designed and cut the grey fabric in house and dyeing and printing design until close to produce clothes in order to reduce waste and maximize flexibility in adopting various design with grey fabric and raw material base on changing fashion trend and market demand. Moreover, it also lower the cost of holding inventory.
Organizational strategy is the organizational design and the choices it makes to define, set up, coordinate and control its work processes.(â€¦â€¦â€¦.)
Zara gave significant autonomy to each store manager in deciding the quantity of product its need for a store and determining the products to display in their stores and which product to place on sale. It's responsibility is to make these decision based on market research and store trends back to their headquarters. There are specialized team in headquarters to deal with feedbacks and information from each store, then design and produce their products. Zara's design team came up with approximately 12,000 new styles per year. In the contrary, most of apparel firm give little autonomy in determining which products to display or place on sale, because headquarters planed everything according to its market forcast. Therefore, Zara's rapid speed to market in product development outperformed its competitors.
IT business processes reengineering
Zara transform its business through Business process reengineering ( BPR). Zara created a cross functional process, which organization, operational procedure, performance measures, and its office layout are all designed to make information transfer easy. Zara's designer and product planners are collocated with the production team, which encourage new ideas to be exchange among designer, production planner and market specialists. Thus, the efficiency and speed of production is significantly enhanced by cross- functional progress
And Information technology provide a platform and tool to various business processes to communicate
Zara's Information system enhanced its value chain
Zara's information system enabled its Just-in time strategy. Zara possess a effective nformation and communication network, although Zara only spend less than 0.5% of its total revenue on IT and its IT employee just account for 0.5% of its total workforce. Zara combined its business strategy, organizational strategy with IS strategy based on its cross-functional progress, well designed Information system in order to support its communication and collaboration.
Zara's stores functioned as both the retaillor to customer and as information source. Zara combined its human intelligence such as store managers and market research with information technology such as PDA device in order to obtain a hybrid model for information flow transfer from each stores to headquarter. For instance, managers at each store use handheld device to send information about customer feedback, demand and ordering needs directly to in-house designers. This model keep Zara's product planner and designer informed of fast changing demand and fashion trends and less desirable product. This hybrid approach allow organizational strategy interact with IS strategy. This well-managed linkages optimizes its supply chain management. Information system enable Just-In-Time strategy possible and then well balanced its demand and supply.
Information system management in operations
Store managers are the decision makers in ordering process. Store managers have larger extent of autonomy for the ordering of new products. A tailored order form is entered into a PDA based on several factors such as current garment availability, sales, and forecasts according to customer behavior. Store managers decide what should be ordered and when should replenished their garment. In each store, the manager divided products into segment and delegate various product segment to different employees. These employee would sent information to the store by using their own PDA to their manager's handheld device, after checking the amount of the products.
Zara's various business processes have been enhanced more efficiently. New software has been installed to be used to automatically update the terminal information from every sale, which is not only useful at the store level, but through the entire supply chain. All information is interlinked, store manager can have an online overview if inventory order in the store to determine specific order requirement. Sales can be checked online. This means that store manager spend less time and energy and personnel resource are saved which instead could be service customers. In addition, PDAs are used in every store can count the number of items required by each store and order replenishment base on perceived demand. a tailored order application can decrease the cost from inventory by giving more accurate orders. Zara follows fashion but it did make some mistakes. Due to effective information system, rapid turnover and relatively cheap price allows Zara easier to cover for any risky items. Product that are slow to sell will be weeded out by store managers and return to distribution center.
The design and manufacturing department of Zara is base on production information network