Case Study of Zara: Use of Technology to Improve Operational Responsiveness - MBA Knowledge Base (2024)

Fashion giant, Zara, forms part of the retail group ‘Grupo Inditex’ which is one of the “largest, fastest growing and successful” clothing retailers across Europe. Grupo Inditex is formulated by an amalgamation of major high street names from across Europe, including Zara, Pull and Bear and Bershka, in total boasting 3825 stores across 68 countries. Zara’s success story begins by offering a product range capable of catering for men, women and children, providing affordable and stylish clothes whatever the season. Coupled with this, is their keen eye for discovering new fashion trends and translating these trends from the catwalk to the high street, both quickly and affordably. Zara boasts a marketing strategy of firstly product variety with a focal point of ensuring speed to market. At present, Zara launch 10,000 new articles per year across their portfolio of stores. Finally, store location, as any marketing is left to store location rather than advertising. Opting for a strategy of minimal advertising provokes the consumer into having to visit their stores. Securing a foothold in as many markets as possible with the intended outcome of building brand awareness and an increased market share has resulted in Zara developing their brand, launching Zara Home. Zara opened their first store in Spain in 1975 and have since expanded internationally, opening their first international store in Portugal in 1988, and later opening a further store in New York, US, in 1989. Today the Zara name is recognized throughout the entire world.

Identification of fashion trend at Zara is part of the culture. A point-of sale (POS) system is used in the stores and the information gathered is sent to Inditex. Also, the POS technology has allowed to tight up the links between vendors and led to improvements in the ordering process, in deliveries and in the distribution system as a whole, thus contributing to increase the level of responsiveness of ZARA. Moreover, managers consult personal digital assistant on daily basis to check the availability of new designs and to place their orders to what they think will be much appreciated by their customers. By so doing, the store managers assist shape designs.

Information and communication protocols at Zara are radically different from its competitors. The company spends less than 0.5 percent of total revenue on information technology and employees in the IT department account for only 0.5 percent of the company’s total workforce. This differs from their competitors who spend about 2 percent of their total revenue on information technology and have 2.5 percent of their total workforce dedicated to IT.

Zara makes use of human intelligence and information technology such as their PDA devices to come up with a hybrid model for flow of information from stores to the headquarters. For instance, the company’s managers utilizes handheld devices to send formalized information concerning feedback from customers and ordering needs straight to in-house designers. Apart from keeping Zara’s designers informed on fast-changing demand and trends, this technique also provides the company with imminent on less-desirable products. Unlike Zara’s hybrid model (which combines IT application and human intelligence), competitors rely mostly on information technology.

The hybrid model results into well managed inventories, reduced costs from obsolete products, linkages between supply and demand, nevertheless, there is still room for upgrading in their IT processes to realize more reliable management of inventory levels. Therefore, this unique approach of human astuteness assisted IT solution provides cost advantages to the company’s operations and assists Zara to abide by her primary principle to be in a position to quickly respond to changes in consumer demand.

The SKU system allows the gathering of data to help identifying and producing garments sought by customers, and in the right quantities, thus improving the ordering system at the distribution center. ZARA, then, successfully maintain control of its inventory while keeping inventory costs at a lower level.

Zara also made considerable investments to improve its logistics system and to develop its IT infrastructures. ZARA chose to implement a Just-In-Time (JIT) manufacturing system as well as to invest in a sophisticated telecommunication system, thus improving the information flow between headquarters and supply, production and sales sites and thus avoiding any type of bureaucratic structure. Furthermore, this system allows ZARA to take appropriate and quicker decisions due thanks to the information flow being very fluent. The JIT system allows ZARA to improve quality, to diminish manufacturing time, to eliminate waste, to increase productivity and to have better relationships between suppliers, thus improving its overall responsiveness.

The use of a consumption information system linking together the merchandising and the back-end processes is an original technique used by ZARA that permits designing teams to possess relevant information about customers’ preferences. This technology contributes without doubt to ameliorate the responsiveness of ZARA: indeed, the data gathered by this system allow teams to propose new designs that match consumers’ expectations, and in a timely manner.

A high-tech mobile tracking system speeds up the distribution system by proceeding high numbers of garments in a short period of time, thus minimizing intervention of labor force while increasing productivity. As garments did not stay for a long time in the warehouse, the company is able to cut down storage costs.

Zara’s capabilities, concepts and strategic planning as demonstrated through their business model, tend to be heading in the right direction. Their concentration on core operation as well as production capabilities, resistance to outsourcing, and focus on the fashion pulse have made this company one of the most victorious clothing retails.