Description
Zara Fast Fashion IT Case
Zara - IT for Fast Fashion
Group 6 Kartik kumar Gopinath S Nikhil Bhat Ajit Nafde Arvind Menon Ritesh Mishra
Zara Background
• Fashion retailer • Founded by Amancio Ortega • First store opened in La Coruna, Spain in 1975 • Believe retailing and manufacturing need to be closely linked
– “Link the customer demand to manufacturing, and link manufacturing to distribution.” ~ Zara business Model
Zara’s Dilemma
• Zara has never changed it’s IT systems & policies since inception
– Small IT department with basic technology – Using same computer applications they wrote years ago – Not many resources into technology systems
• Decision: Upgrade IT systems or persist with the current systems which have been stable till now?
Zara’s Business Model
• Adopts Fast Fashion strategy and not the traditional designer-push model. • Vertically integrated retailer controlling design, manufacturing & distribution all by itself. • Zara’s flexible processes enable
– shortened time to develop and get a new product to stores thereby enabling quick response to changing trends. – Design to finished goods take 4-5 weeks and modification of existing products take as little as 2 weeks.
• Reduced time & small shelf quantities keep handling and disposal costs to a minimum. COMPETITIVE ADVANTAGE via: Speed to market, product differentiation & variety in styles
ZARA Business Model Diagram
Short lead times/ smaller lots
Increase customer visit
Frequent assortment changes
Higher sales and & higher revenues
Better forecasts
Less discounts
Information flow(POS & store managers
Less holding & disposal costs
Conventional Business Model Supply chain Reliant on outsourcing production.
Zara’s Business Model Outsources only labor intensive production and maintains in-house capital intensive work.(Vertically integrated manufacturing) Authorized to decide which garments would be on sale Ads only for yearly sales & announce new store inaugurations.(0.3% of revenue)
Role of store manager Marketing
Deals with customers , employees Ads primarily for publicizing the assortment
Design teams
Design conceptualized by Small elite team common for all segments. Generally apparel firms produced CLASSIC clothes. Average new launches per year:20004000 Comparatively high due to outsourcing. Industry average is 6 months. It is done. 2% of revenue as IT applications are outsourced to vendors
Dedicated teams for different segments. Ex: Women-Night Wear, Kids-Sports wear etc. Short life span but increased launches of new style clothing. Average new launches per year:11000 As Zara is vertically integrated lead times as well as time for new product launches are less(2-4 weeks) Not done due to flexible factories. 0.5% of revenue as in-house applications were developed
Product life span
Time to market
Sales Forecast IT Spending
How ZARA does it fast?
Vertically Integrated Manufacturing system + Store Manager data
Constant introduction of new items and shorter lead times for existing items
Increased frequency of customers visits and orders
Quick response to fast changing and unpredictable customer tastes
No reliance on long range sales forecasts. Value proposition for customers in the form of variety and trends
Information flows for the process
Physical inventory count- tedious – No IT in place.
Production : Factory & Distributor
PDA’s used for ordering existing products from factory
No real-time communication between stores
Need constant upgrades as technology advances
Telephone Stores
Inventory
Obsolete POS operating system Application keeping track of theoretical inventory.(For checking material availability)
Stores
POS terminal used for giving sales data to Head Quarters. This helps in keeping a close watch on trend & buying behavior
Design & Commercial team
Marketing
Sustainability
• What if consumers increasingly favor quality and buy superior goods? • What if they become concerned about the impact of environmental impact of disposable clothing? • Zara may not be able to move as fast in geographies like South America or Asia. • Cannibalization due to multiple stores in the same city.
Pros of the current IT system
• Simple to use (They use DOS OS currently) • Low maintenance cost • Less number of bugs • Customized applications coded internally as per the business model
Cons of current IT systems in ZARA
• POS vendors – Only client using “ancient operating system” – Would not sign contract promising compatibility • PDA vendors – Zara is not updating operating systems – Probably not DOS-compatible • Other retail chains have real-time communication – May lose market share to competitors • Store managers requesting a upgrade to look at inventory balances at other stores • Replenishment quantities calculated manually and sent at EOD. • Current system may not work after expansion(there is ample scope of growth the in current markets & new markets)
Benefits in Up-gradation
Intangible benefits Less pressure on store managers and employees as the current 24 hr frame can be eliminated New OS will create a community feeling Tangible Benefits New OS means newer capabilities which means improved communication flows. Automated POS terminals for every sale enhances orders & fulfillments. No wastage of store managers’ time. Network will help a store manager to direct a customer Help Designers to more closely follow sales of items
Costs involved
Tangible Costs Cost of Upgrade: $14.5 million Recurring Cost: $210,000 Cost=3.31% of net income Intangible costs Cost of removing old POS terminals Changes to store cabling and redecorations Increased administration costs ands high internal assistance Employees resistance in accepting the change Dependence on OS vendors might be there.
Reliance on single vendor
Security risk
Outsourcing over In-house software development
• Zara can go for a reverse auction for software vendors . • Need not worry about staff with specific experience or skills and no monitoring required • Less investment and vendor will take care of updates & upgrades. • Easier during expansions to different geographies
STRENGTHS
In-house manufacturing Quick flexible production Efficient distribution
WEAKNESSES
No IT budget POS systems obsolete Physical inventory count No real time communication
SWOT
OPPORTUNITIES
Communication with potential buyers Online sales
THREATS
POS vendors PDA vendors Competitors with real time communication systems
Expansion of stores
Recommendations
• Upgrade to new POS. Benefits will be added functionality, less time consuming. • Set up a wireless network to ensure real time communication • To set up a IT budget in place according to the firm’s needs rather than benchmarking against industry
doc_689542389.ppt
Zara Fast Fashion IT Case
Zara - IT for Fast Fashion
Group 6 Kartik kumar Gopinath S Nikhil Bhat Ajit Nafde Arvind Menon Ritesh Mishra
Zara Background
• Fashion retailer • Founded by Amancio Ortega • First store opened in La Coruna, Spain in 1975 • Believe retailing and manufacturing need to be closely linked
– “Link the customer demand to manufacturing, and link manufacturing to distribution.” ~ Zara business Model
Zara’s Dilemma
• Zara has never changed it’s IT systems & policies since inception
– Small IT department with basic technology – Using same computer applications they wrote years ago – Not many resources into technology systems
• Decision: Upgrade IT systems or persist with the current systems which have been stable till now?
Zara’s Business Model
• Adopts Fast Fashion strategy and not the traditional designer-push model. • Vertically integrated retailer controlling design, manufacturing & distribution all by itself. • Zara’s flexible processes enable
– shortened time to develop and get a new product to stores thereby enabling quick response to changing trends. – Design to finished goods take 4-5 weeks and modification of existing products take as little as 2 weeks.
• Reduced time & small shelf quantities keep handling and disposal costs to a minimum. COMPETITIVE ADVANTAGE via: Speed to market, product differentiation & variety in styles
ZARA Business Model Diagram
Short lead times/ smaller lots
Increase customer visit
Frequent assortment changes
Higher sales and & higher revenues
Better forecasts
Less discounts
Information flow(POS & store managers
Less holding & disposal costs
Conventional Business Model Supply chain Reliant on outsourcing production.
Zara’s Business Model Outsources only labor intensive production and maintains in-house capital intensive work.(Vertically integrated manufacturing) Authorized to decide which garments would be on sale Ads only for yearly sales & announce new store inaugurations.(0.3% of revenue)
Role of store manager Marketing
Deals with customers , employees Ads primarily for publicizing the assortment
Design teams
Design conceptualized by Small elite team common for all segments. Generally apparel firms produced CLASSIC clothes. Average new launches per year:20004000 Comparatively high due to outsourcing. Industry average is 6 months. It is done. 2% of revenue as IT applications are outsourced to vendors
Dedicated teams for different segments. Ex: Women-Night Wear, Kids-Sports wear etc. Short life span but increased launches of new style clothing. Average new launches per year:11000 As Zara is vertically integrated lead times as well as time for new product launches are less(2-4 weeks) Not done due to flexible factories. 0.5% of revenue as in-house applications were developed
Product life span
Time to market
Sales Forecast IT Spending
How ZARA does it fast?
Vertically Integrated Manufacturing system + Store Manager data
Constant introduction of new items and shorter lead times for existing items
Increased frequency of customers visits and orders
Quick response to fast changing and unpredictable customer tastes
No reliance on long range sales forecasts. Value proposition for customers in the form of variety and trends
Information flows for the process
Physical inventory count- tedious – No IT in place.
Production : Factory & Distributor
PDA’s used for ordering existing products from factory
No real-time communication between stores
Need constant upgrades as technology advances
Telephone Stores
Inventory
Obsolete POS operating system Application keeping track of theoretical inventory.(For checking material availability)
Stores
POS terminal used for giving sales data to Head Quarters. This helps in keeping a close watch on trend & buying behavior
Design & Commercial team
Marketing
Sustainability
• What if consumers increasingly favor quality and buy superior goods? • What if they become concerned about the impact of environmental impact of disposable clothing? • Zara may not be able to move as fast in geographies like South America or Asia. • Cannibalization due to multiple stores in the same city.
Pros of the current IT system
• Simple to use (They use DOS OS currently) • Low maintenance cost • Less number of bugs • Customized applications coded internally as per the business model
Cons of current IT systems in ZARA
• POS vendors – Only client using “ancient operating system” – Would not sign contract promising compatibility • PDA vendors – Zara is not updating operating systems – Probably not DOS-compatible • Other retail chains have real-time communication – May lose market share to competitors • Store managers requesting a upgrade to look at inventory balances at other stores • Replenishment quantities calculated manually and sent at EOD. • Current system may not work after expansion(there is ample scope of growth the in current markets & new markets)
Benefits in Up-gradation
Intangible benefits Less pressure on store managers and employees as the current 24 hr frame can be eliminated New OS will create a community feeling Tangible Benefits New OS means newer capabilities which means improved communication flows. Automated POS terminals for every sale enhances orders & fulfillments. No wastage of store managers’ time. Network will help a store manager to direct a customer Help Designers to more closely follow sales of items
Costs involved
Tangible Costs Cost of Upgrade: $14.5 million Recurring Cost: $210,000 Cost=3.31% of net income Intangible costs Cost of removing old POS terminals Changes to store cabling and redecorations Increased administration costs ands high internal assistance Employees resistance in accepting the change Dependence on OS vendors might be there.
Reliance on single vendor
Security risk
Outsourcing over In-house software development
• Zara can go for a reverse auction for software vendors . • Need not worry about staff with specific experience or skills and no monitoring required • Less investment and vendor will take care of updates & upgrades. • Easier during expansions to different geographies
STRENGTHS
In-house manufacturing Quick flexible production Efficient distribution
WEAKNESSES
No IT budget POS systems obsolete Physical inventory count No real time communication
SWOT
OPPORTUNITIES
Communication with potential buyers Online sales
THREATS
POS vendors PDA vendors Competitors with real time communication systems
Expansion of stores
Recommendations
• Upgrade to new POS. Benefits will be added functionality, less time consuming. • Set up a wireless network to ensure real time communication • To set up a IT budget in place according to the firm’s needs rather than benchmarking against industry
doc_689542389.ppt