BPC1153: Business Information System

Sem I 2023/2024
Group Project (15%)
Can Zara Keep Up with Speed Chic? In the fast-paced world of fashion retailing, nothing seems
more important than time to market. Express, the large U.S. clothing retailer, rotates the front
displays of its stores every week. Instead of the traditional four-clothing fashion seasons (spring,
summer, autumn, and winter), styles now change once a month or even faster. Many women's
clothing store chains get a delivery of new styles twice a month. Welcome to the world of Speed
Chic. Fashion retailers have taken two very different approaches to satisfy the need for Speed Chic.
Many retail chains sell through franchises and farm out their production to low-wage countries,
hoping to benefit from lower labor and operating costs. To turn out new fashions at a fast pace,
firms, such as Levi Strauss, Ann Taylor, and the Limited, contract with outsourcing firms, such as
Hong Kong's Li & Fung, that manage the production and shipping of their garments. Li & Fung
provides a one-stop shop for product development, raw material sourcing, production planning
management, quality assurance, and shipping. By using the Internet to communicate with clients
and its global network of more than 7,500 suppliers in 40 countries, Li & Fung can have a new
product in retail stores five weeks after it receives an order.
Time to market is even faster for Zara, a worldwide apparel chain headquartered in La Coruna,
Spain, which is one of eight chains in the Inditex global retail conglomerate. Zara took a different
approach to turning out fast-paced fashions, opting for vertical integration. Instead of relying on
outsourcers, the company owns its factories, stores, and distribution network. It manages most of
its own production because it believes it can minimize time to market by meticulous coordination
of the entire production process. Zara's management believed that this ability to respond quickly
to shifts in customer tastes is much more efficient and profitable than outsourcing to low-cost
contract manufacturers. Vertically integrating production and retailing enables Zara to react much
more quickly than competitors to percolating fashion trends.
About half the items Zara sells are made in its own factories, the rest are outsourced. Zara restocks
its stores twice a week, delivering both reordered items and completely new styles. Zara's prolific
design department churns out about 12,000 new products each year. No competitor comes close.
"It's like you walk into a new store every two weeks," observes Tracy Mullin, president and CEO
of the National Retail Federation. If Jennifer Lopez appears in a stunning new outfit, Zara can get
a version of it on its store racks in a matter of weeks. Because Zara stores' merchandise changes
so frequently, customers return often to check out what is new-and often return home with another
Zara purchase. Zara's clothes are considered "very hip, " very trendy, many resembling the styles
of big-name Italian fashion houses but with moderate price tags.
Every working day, the manager of a Zara store continually reports customer preferences and
behaviors to a central planning office using a personal digital assistant. In addition to placing
orders, the manager makes recommendations for colors, fabrics, cuts, or even new products, such
as a man's knit vest. This information is quickly relayed to the Zara design department, which can
create or alter products in a matter of days. Zara's 200 designers draw the latest fashion ideas on
their computers and send them over Zara's intranet to Zara's nearby factories. Within days, the new
garments are cut, dyed, stitched, and pressed. In only three weeks the clothes will be hanging in
Zara stores all over the world. Zara was able to launch a new line of apparel featuring the color
black in only two weeks after the terrorist attacks of September 11, 2001, a time of great mourning.
Zara's time to market is 12 times faster than rivals such as the Gap.
Zara does not concern itself with the possibility that its methods may sometimes result in product
shortages. The store believes that shortages give the impression of product scarcity and exclusivity,
causing customers to buy immediately and then return often to see what the next hot product is.
Zara maintains a gigantic 9-million-square-foot warehouse in La Cornua that is connected to 14 of
its factories through a maze of tunnels, each with a rail hanging from its ceiling. Along these rails,
cables transport bunches of clothes on hangers or in suspended racks into the warehouse. Each
bundle is supported by a metal bar with a series of coded tabs to indicate exactly where in the
warehouse that bundle should be placed. There, the merchandise is sorted, rerouted, and resorted
until it gets to the staging area of the distribution center. Zara's sorting machines can handle 40,000
items per hour. Every Zara store has its own staging area in the warehouse to assemble its orders.
As soon as a store's order is complete, it is carted directly to a loading dock, and packed with other
stores' shipments, in order of delivery. Deliveries to European stores that are within 24 hours'
driving time are placed on trucks; shipments outside Europe are sent by plane. The vast majority
of items are only in the warehouse a few hours, and Zara constantly fine-tunes the size and
sequence of deliveries to maintain that tight schedule. A large new center that recently opened in
Zaragoza in northeastern Spain doubles this capacity.
Zara has been opening new stores at a rate of one per week and shows no signs of slowing down.
Although Zara's manufacturing costs run 15 to 20 percent higher than those of rivals, they are
offset by the advantages of split-second time to market and lower advertising costs (1%-2% of
revenues versus the standard 3%-4%). By responding so quickly to customer tastes, Zara has rarely
needed to correct merchandise blunders or stage across-the-board inventory write offs. The
company boasts a rate of less than 1% inefficiencies in its processes. It also experiences net sales
growth rates of 20% per year, net profit margin of 10%, and higher than average return visits per
customer per year. Zara accounted for two-thirds of Inditex's total sales in 2004. In 2005, Zara was
said to be worth $3.73 billion.
For any company that cares about time to market, response to customers, and streamlined business
processes, Zara is clearly the company to watch. However, its business model is facing increased
challenges as the company expands. As the U.S. dollar declines, it widens the price gap between
Zara's products, which are primarily made in Spain, and competitors, such as Hennes & Mauritz
(H&M), Adidas, and Aigle of France, who use low-wage countries and pay goods in depreciating
dollars. Although Zara has historically maintained steady profit margins that are among the best
in the industry, its European competitors that manufacture in East Asia are now reaping profit
windfalls that it cannot match. (Zara does outsource some basic items, such as T-shirts and jeans,
in Asia, but most of its merchandise is produced in Span.)
Zara's European market is still not saturated, but if it wishes to become a truly global brand, it will
have to replicate its finely tuned manufacturing and distribution system on other continents. Zara
has expanded slowly in the United States. Right now it has 10 stores there. To fully penetrate the
U.S. market, however, Zara would need a manufacturing and distribution system in North
America. Inditex, Zara's parent company, is moving into many new ventures at once. While
expanding its other retail brands, it has introduced a home furnishings outlet called Zara Home,
now operating in 15 countries, and added lines of larger-sized garments in Zara stores for older
women. Some worry such moves may dilute Zara's brand image. Given all of these changes, will
Zara's business model be viable in the future?
Sources: "US: Zara fast fashion workshop announced," Just-style.com, February 28, 2006;
Lachlan Colquhoun, "Deal with it," The Sydney Morning Herald, February 11, 2005; "Apparel
costs cut ad spends," TMCnet.com, February 10, 2006; Kurt Kuehn, "Collaborate to Innovate,"
Supply & Demand Chain Executive, December 2005/January 2006; John Tagliabue, "A Rival to
Gap That Operates Like Dell," The New York Times, May 30, 2003; Hadley Freeman, "Spanish
Designers Make a Pitch for Larger Women," The Guardian, May 8, 2003; Nicole Graev, "Rags to
Riches," The Washington Post, May 7, 2003; "Supply Chain Challenges: Building Relationships,"
Harvard Business Review, July 2003; Miguel Helft, "Fashion Fast Forward," Business 2.0, May
2002; and "Inditex: A Business Model That Is Tailor-Made," Barcelona Business, May 2001.
INSTRUCTION / TASK:
1. Read and understand on the above case study - Can Zara Keep Up Speed with Chics
2. Prepare a PowerPoint presentation slide and video presentation. Outline for presentation slide:
i. Summarize Zara’s company profile
ii. Perform SWOT analysis of Zara case study -
iii. Discuss information systems related to the way Zara run its business and identify the
types of systems that are the most essential for this company
3. Submit your PowerPoint presentation and video presentation on the scheduled date: i. Maximum
number of slide presentation - 10 slides ii. Maximum duration of video presentation - 10 minutes

RUBRIC (Mark Allocation) - 30marks:

SUBMISSION: Friday, 20 Jan 2023 (Week 13), 11.59pm