Zara Inditex (www.inditex.com) is the world’s largest fashi

Zara Inditex (www.inditex.com) is the world’s largest fashion… ZaraInditex (www.inditex.com) is the world’s largest fashion group, operating more than 7,200 stores in93 markets worldwide. The company’s flagship store is Zara (www.zara.com), but it also owns thechains Zara Home, Massimo Dutti, Bershka, Oysho, Pull and Bear, Stradivarius, and Uterque. Zara(www.zara.com), founded in Spain in 1975, operates more than 2,100 stores worldwide. Inditexreported sales of USD $30 billion in 2017.Zara is a clothing and fashion retailer that is using its supply chain to significantly changethe way it operates in a traditional industry. Zara’s core market is women between the ages of 24and 35. The firm reaches these consumers by locating its stores in town centres and locationswith high concentrations of women in this age range.Zara’s business model. Traditional fashion brands employ the business model of seasonalfashion. With seasonal fashion, brands design and manufacture the majority of their inventorybefore the beginning of each year’s fashion seasons, allowing no design improvements orchanges during the season. (The two major annual fashion seasons are Spring/Summer andFall/Winter.) Traditional brands reserve 80 percent of their inventory for seasonal fashionclothing, meaning that they commit to manufacturing their inventory at least six months beforethe beginning of the next season.In contrast, Zara devotes about 75 percent of its production to its fast fashion clothinglines and the remainder of its production for its seasonal lines. Zara stores respond in near realtime as customer preferences evolve. As a result, Zara’s business model is a good fit for therapidly changing, unpredictable fashion industry. This model enables Zara to manufacture itsfast-fashion clothing based on highly accurate, short-term (2-6 weeks) demand forecasts.Zara does not sell clothes over the Internet because the return rate is too high. BecauseZara’s clothes are unique, the firm believes that it is difficult for its customers to see them clearlyon a web page. As a result, Zara encourages its customers to come to its stores to try on itsunique fashions.Zara’s supply chain and its highly automated distribution centre, called the Cube, areessential to its successful business model. The Cube, located in Arteixo, Spain, is Zara’s centreof worldwide operations. The 5-million-square-foot, highly automated facility is connected to 11Zara-owned factories with high-speed, underground monorail links.We discuss Zara’s fast fashion business model in this case. To produce fast-fashionclothing, Zara employs three essential phases in its supply chain: procurement, production, anddistribution. Let’s look at each phase in turn.Procurement. Because traditional brands devote 80 percent of their inventory to seasonalfashion, they must make early forecasts of the number of clothing items that they manufacture.In contrast, Zara does not forecast the number of finished goods that it will need. Rather, itsprocurement team forecasts the quantity of fabric that Zara will need to manufacture clothesbefore placing orders with the firm’s fabric suppliers.Zara buys large quantities of only four or five types of fabric per year. The retailer canalso change these fabrics from year to year. Fabric manufacturers make rapid deliveries of bulkquantities directly to the Cube. Zara purchases raw fabric from suppliers in Italy, Spain, Portugal, and Greece. Its suppliers deliver fabric, primarily by truck, within five days of orders beingplaced.Unlike finished goods, fabric does not go to waste because it can be used to make newclothes. The availability of fabric allows Zara to respond in near real time to its customerdemands and to changes in fashion trends.Zara is able to keep its prices low because it does not place a premium on fabric quality.Traditional fashion brands emphasize the quality and origin of the textiles they use. In contrast,Zara buys fabric from suppliers who sell textiles inexpensively.Production. Zara’s competitive advantage lies in quickly identifying the latest fashion trends. Atthe Cube, market specialists, many of whom previously worked as store managers, monitor allcommunications from Zara store managers. These managers are trained specifically to engagecustomers to obtain their reactions to the clothes on display. They then send sales figures andcustomer feedback to the market specialists on a daily basis. The specialists also receive fashioninput from a large number of fashion observers who attend fashion shows and pay attention towhat types of fashions traditional brands and traditional designers are producing.The marketing specialists convey this information to the design and production teams.The design team develops fashion designs in accordance with this information. After the designsare approved, they are given to the production team.Most traditional fashion brands outsource their manufacturing to China and parts ofSoutheast Asia and the Far East. In contrast, Zara manufactures all of its fast-fashion clothing inthe 11 plants located close to the Cube. Once the fabric is cut and coloured inside the Cube, Zaraships it to its 11 factories on its monorail.A fascinating fact about Zara’s manufacturing process is that at any day or time of theyear, a majority of the firm’s factories can possibly be idle. The reason is that, with fast fashion,two factors are critical: time and changes in demand.For example, consider a drop in demand that reflects the declining popularity of aparticular design. This drop triggers a response from the teams in the Cube, which can either be achange in or a complete overhaul of the design. To maintain its rapid turnaround time, which istypically two weeks, Zara must deploy its resources immediately. The retailer cannot afford anydelays because one of its factories was busy.In the fashion industry, turnaround time is the time that it takes for a current fashioncollection to be replaced by a new one. For traditional fashion brands, the turnaround time isbetween three and six months.Zara realized that there is a direct relationship between the degree to which it utilizes thecapacity of its factories and the length of the factories’ turnaround times. That is, the busier afactory is, the longer it would take to manufacture a fast fashion item. Therefore, Zara keepsmost of its manufacturing capacity idle so it can respond to demand changes with more agilitythan its competitors.Distribution. Once the factories turn the fabric into finished clothes, the items are transportedback to the Cube on the monorail. At the Cube, the clothing is inspected, packed, and shipped tothe Zara logistics hub in Zaragoza. From there the items are delivered to stores around the worldby truck and plane. Zara can deliver garments to stores worldwide in only a few days: China in48 hours, Europe in 24 hours, Japan in 72 hours, and the United States in 48 hours. Stores take deliveries twice per week, and they often receive inventory within two daysafter placing their orders. Items are shipped and arrive at stores already on hangers with tags andprices on them. Therefore, items come off delivery trucks and go directly to the sales floor.Problems. In March 2017, Inditex stated that its profitability had decreased to an eight-year low.At the same time, major rival Hennes & Mauritz (H&M; www.hm.com), the world’s secondlargest fashion company, announced its first monthly sales drop in four years. These reportsillustrate the difficulties facing the fashion industry as consumers purchase more of their clothingfrom an increasing number of online suppliers.In an effort to be more competitive with Zara, in April 2017, H&M stated that it wouldsignificantly increase its supply chain investments, including, among other things, greater levelsof automation. The company also planned to optimize its lead times and to move moreproduction to Europe from Asia.Compounding Zara’s problems, shoppers in Istanbul have found tags on their Zaragarments with complaints from Turkish workers who claim they have not been paid for theirwork. The tags assert that the workers were employed by Bravo, a manufacturer to which Zaraoutsourced some production. Bravo closed down abruptly, and workers maintain the companyowes them three months of pay as well as a severance allowance.Zara has had other problems with traditional fashion brands as well as with independentdesigners. For instance, in 2012 luxury brand Christian Louboutin(www.christianlouboutin.com) took legal action against Zara for allegedly imitating one of itsshoe designs and then selling the shoes at half the price. Although the case was dismissed,fashion journalists speculated that Zara manages keep out of trouble by changing its designs justenough to avoid copyright violations.The Results. Short production runs, meaning that Zara produces relatively few items of a givendesign, that can be perceived scarcity of these designs. This process generates a sense of urgencyamong customers and a reason to buy because items can sell out quickly. As a result, Zara doesnot have a great deal of excess inventory, nor does it need large mark-downs on its clothingitems. Zara’s annual rate of unsold inventory is 10 percent, compared to industry averages of 17-20 percent. Furthermore, Zara has 12 inventory turns per year, compared to 3-4 turns for itscompetitors.Zara prices its clothing items based on market demand, not on the cost of manufacture.The short lead times for delivery of unique fashion items combined with short production runsenable Zara to offer customers more styles and choices. Furthermore, a particular item or stylemay not be available again after it sells out. Significantly, Zara launches 12,000 new designseach year. In contrast, its competitors carry 2,000-4,000 items. Furthermore, Zara changes itsclothing designs every two weeks on average, compared to every two or three months for itscompetitors. Significantly, the retailer sells 85 percent of its items at full price, which issignificantly higher than the industry average of 60 percent.Increased Competition. Inditex is developing new technologies to compete with newer, onlineonly companies such as Boohoo (www.boohoo.com) and Missguided (www.missguided.com).The two companies, both founded in England, are producing clothes at higher speeds than Zara, often in one week from design to point of sale. They also refresh their websites daily withhundreds of new items.To compete with these startups, Inditex has formed an innovation unit which is testingmany new technologies:§ Inditex is testing robots from Fetch Robotics (https://fetchrobotics.com) to work instock inventory.§ Inditex is testing technologies that emphasize an asset that its rivals lack, physicalstores. For example, it is testing location intelligence, which uses ultrasoundtechnology to track the sounds of customers’ steps in stores. In that way, stores canmap traffic patterns and place best-selling items appropriately. Location intelligencealso allows apps to switch to instore mode when a customer enters a store, so he or shecan locate products and receive offers.§ Inditex has formed partnerships with Jetlore (www.jetlore.com), which uses artificialintelligence to predict customer behaviour, and Spanish Big Data startup, El Arte deMedir (http://elartedemedir.com). Read the first two pages of this assignment, to help you effectively organize your answer according to thestated requirements.Note that for grades to be awarded, case answers must be different for each question part of theassignment.Go to Session 6 of our web site and read the document titled How to stay within the page limit and build agood example. Good examples satisfy the three characteristics provided. This means that each exampleneeds to:(i) link to the specified case using terms specific to the business and functional area under discussion,(ii) clearly illustrate the concept or theory being addressed or examined using an example and(iii) differentiate from other theories, by being specific enough that your example could not readily applyto other concepts or theories, i.e. provide enough information to illustrate WHY the example is relevant tothe concept or theory being discussed.Read IT’s About Business 11.4 Zara, pages 345-347Required: (10 marks)A. (2 marks, 1 mark for each example).Provide an example of communication and collaboration network applications that could be used byZara’s employees.(i) Network applications: communication(ii) Network applications: collaborationB. (2 marks, 1 mark for each example).Provide an example of how Zara could (or did) implement two different E-Commerce Business Modelsfrom Table 7.1. State the name of the e-commerce business model with the example.(i) Name: __________, Example:(ii) Name: __________, Example:C. (2 marks, 1 mark for each example).Describe one example of how the adoption of each of the following technologies could be used to benefitZara.(i) Near-field communications (NFC)(ii) Internet of Things with RFID (radio-frequency identification) 4D. (2 marks, 1 mark for each example).Assume Zara uses social computing in its marketing and customer service departments. Describe anexample of how social computing could be beneficial and how it poses risks to Zara in these functionalareas.(i) Benefit(ii) RiskE. (2 marks, 1 mark for each example).Provide an example of how each of the following types of reports could be used by Zara to provideinformation about its retail sales operations.(i) Key-indicator(ii) Exception  WORD LIMIT DOCUMENT – How to stay within the page limit and build agood example  Note that if you are asked to use a template to write your answers, then each answer must remain in a separate box of the template.TIPS TO STAY WITHIN THE PAGE LIMITo Do not indent your work.Instead, start at the edge of the page with your materials.Avoid extra spaces between questions and question parts.Avoid including the entire question in your answer and include reference numbers instead. For example, use A (i).Learn how to format the page your way, instead of using automatic indenting from Word.Automatic indents will give you the following.:A. (i) answer to part (i)(ii) answer to part (ii).Using backspace and aligning your tabs to avoid the indenting will give you more space for your answer, while still using the designated one inch margins as follows:A. (i) write the answer for part (i) and then keep writing so that your answer starts at the beginning of the next line rather than under the question reference (not indented). Use Command [Z] or Control {z} depending upon whether you have a Windows or Apple machine to eliminate the automatic tabs. It will take some practice to give you the extra page space.Avoid providing definitions that are from the book or are lengthy. Definitions or quotes from the text (or elsewhere) do not earn marks. Use terms that connect your example with the definition and use ideas from descriptions  that can be linked to the case.THREE CHARACTERISTICS OF A GOOD EXAMPLE:Good examples for the purposes of ADMS 2511 case-based questions satisfy three characteristics. Each example needs to:(i) link to the specified case using terms specific to the organization and functional area under discussion,(ii) clearly illustrate the concept or theory being addressed or examined using an example and(iii) differentiate from other theories, by being specific enough that your example could not readily apply to other concepts or theories, i.e. provide enough information to illustrate WHY the example is relevant to the concept or theory being examined.BUILDING A GOOD EXAMPLE WITH ALL THREE REQUIRED CHARACTERISTICS1. Start with the example, not with the theory.I will use an example that is supposed to illustrate a case that is a paint store, that has an online sales transaction processing system, i.e. the functional area of sales. Let us say that you are supposed to illustrate the use of a sales transaction processing system and e-commerce. Read the definitions for transaction processing system and e-commerce. Close the book and practice the definitions so that you understand them. Then have the textbook definitions available as you build your example.Basic example: Send an invoice to the customer.The example does not match the case (it does not talk about a painting store in any way), does not illustrate theory (there are no transactions and no e-commerce), and does not differentiate.2. Add relevance to the case: Send an invoice to the customer for paint purchases in their favourite colours.Now the example matches the case but does not illustrate theory and does not differentiate. It could have been sent by email, by snail mail or by a chatbot.3. Illustrate transaction processing and e-commerce: The customer has ordered their favourite paint on the store’s website, made payment via credit card online, and the invoice (or payment receipt) was automatically sent to the customer.So now we have e-commerce. We have added a payment transaction, and there are two transactions: the payment (e-commerce) as well as the sales order or invoice (or payment receipt).4. Check your work for all three aspects of a good example.o Does it match the case? Yes, you have referred to something specific at the case (paint in a favourite colour)o Does it match the theory? For most examples you will be asked to talk about one theoretical concept. To show you that it can be done, this example uses two theoretical concepts. We have illustrated (1) sales transaction processing: generating an invoice and (2) the use of e-commerce: processing of payment online using a credit cardo Does it differentiate from other theories? Here is where you need to use your judgement and think about the example that has been written. Could it apply to other theories? Does it sound like email or a different kind of system such as an ERP or social networking? Often, it is the addition of a single word or two that will help differentiate your example. Engineering & Technology Computer Science ADMS 2511

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