Unit 2: Written Assignment

BUS 5114
Management Information Systems and Technology
Term 2, 2019-2020

Zara: A Case Report

MBA, University of the People.

Zara, a multinational fashion apparel company at La Coruna, Northern Spain was established

in 1976 under Inditex Corporation. With it's vertically integrated in-house production and

technology-enabled system, Zara was able to expand its business in the fashion world in a very

short period, competing with high icon companies like Gap. The ability to manage people,

process, and technology efficiently has qualified Zara to maintain a sustainable competitive

advantage in the fashion world (Gallaugher, 2015).

Zara’s integration of information technology from its inventory management to customer

relationships has set a remarkable example of a winning situation in the competitive market

(Gallaugher, 2015). Excessive inventory in business leads to a decrease in inventory turnover

ratio and increases the cost associated with it. This induces space problems, storage costs,

increased waste and reduced profits (Kokemuller, n.d.). However, Zara’s tech-embedded

information system allowed the company to get quick feedback from customers. Zara’s

approach to design locally targeted apparel based on this information enabled the company to

rapidly fill the stores' shelves with new products. In addition, its vertical integration system and

several layers of its own value chain supported Zara to manufacture and supply products many

times faster than its rivals like Gap and H&M. Moreover, Zara had large distribution facilities

in Spain, which transferred more than two million items each week with no items being stored

for more than 3 days. The logistics and supply management system carefully managed product

packages before they reached the store. This reduced the hassle for store employees to arrange

and prepare the products in the stores. This mechanism bought extra time for the employee to

build customer value and satisfaction (Gallaugher, 2015).

The use of information technology in Zara’s customer management system has outstood other

competitors. All the staff and managers at Zara used personnel digital assistants to interact with

customers and obtain their feedback. This has helped the company to gather and analyze data

and preferences of customers rather than using conventional wisdom in designing future work.

BUS 5114 Management Information System and Technology

In addition, the point of sale system captured the transaction process of the customer enabling

Zara to know the product’s rank of sales. This further provided the company to know the taste

of different communities in fashion. Zara has effectively and efficiently utilized the information

and resources from every department like design, manufacture, logistics, transportation, and

stores to meet the satisfaction of customers (Gallaugher, 2015). Moreover, it is observed that

Zara has been using an enterprise resource planning (ERP) system with the integration of the

supply chain management system and customer relationship management system. Generally,

ERP is software that gathers information and data from every department and prepares a

database. These databases can be used by every department and management team for

operations and specific decision making (Vitez, n.d.). In nutshell, Zara has been able to

dominate the fashion industry with the strategical and efficient use of information technology.

However, the case study highlights the challenges and limitations for Zara which could be a

threat to the fashion market in the near future.

One of the major limitations of Zara’s is its Spain-centric manufacturing model. All of the

apparel and fashion items are manufactured and distributed worldwide only from the

production units located in Spain. The company has a high risk of the shortfall if any

disruptions occur in its operational unit. Any occurrence of disaster, labor strike or political

instability in the region could bring Zara’s at a large scale of loss. Likewise, depending on only

Spain-centric production unit pushes Zara towards financial vulnerabilities. Zara’s

manufacturing cost depends on the Euro and when the Euro value rises relatively high against

the dollar, the production cost also rises compared to its competitors. Similarly, this affects the

transportation cost for Zara to export its product in the international market. These issues

induce challenges for Zara to keep profit margins in balance (Gallaugher, 2015). Adopting a

decentralized manufacturing unit globally allows Zara to manufacture its product close to its

customers with a low risk of fallback. In addition, Zara could also take advantages including

BUS 5114 Management Information System and Technology

low labor costs in different areas (Garrehy, 2014). On the other hand, while lowering labor

costs, companies could violate legal issues and practice unethical behavior in the

manufacturing process.

While decentralizing manufacturing units globally, Zara should seriously take into concern the

ethical issues of the working conditions and environment. The selection of suppliers or

manufactures having unacceptable poor practices like sweatshop labor could drop the image

that Zara has built. In order to mitigate or control such issues using Fair Factories

Clearinghouse system could be an effective solution (Gallaugher, 2015). The Fear Factories

Clearinghouse system facilitates companies to make informed ethical business decisions for a

better working environment. Moreover, it supports business organizations for effective and

efficient management of supply chain compliance (Fair Factories Clearinghouse, n.d.).

Zara’s vertical integration and value chain are difficult to copy; however, many competitors

have progressed and increased its market in the fashion industry. H&M, Forever 21 and Renner

are some of the examples in this lead (Gallaugher, 2015). It is important for Zara to strengthen

its system through continuous updates of technology and information system. Technology

innovations have been taking its speed in business, reducing the production cost, increasing

efficiency and meeting the demand of customers. Here, the prediction of Moore’s law (Watson,

2007) of faster and cheaper computing technology can provide insights and guidance for

maintaining Zara’s competitive advantage over its competitors in the long run.

BUS 5114 Management Information System and Technology

References

Fair Factories Clearinghouse. (n.d.). The FFC Mission: Compliance Solutions for a Better

World. Retrieved from https://www.fairfactories.org/Home/Our-Vision-Mission

Gallaugher, J. (2015). Information Systems: A Manager's Guide to Harness Technology.

Licensed under a Creative Commons Attribution-NonCommercial-Share Alike 4.0

International License.

Garrehy, P. (2014). Centralized Vs Decentralized Manafacturing. Retrieved from

https://industrytoday.com/article/centralized-vs-decentralized-manufacturing/

Kokemuller, N. (n.d.). The Disadvantage of Excess Inventory. Retrieved from

https://smallbusiness.chron.com/disadvantage-excess-inventory-22812.html

Vitez, O. (n.d.). About ERP Systems. Retrieved from https://smallbusiness.chron.com/erp-

systems-13660.html

Watson, R. T. (2007). Information System. Global Text Project: Licensed under a Creative

Commons Attribution 3.0 License.

BUS 5114 Management Information System and Technology