ZARA
ZARA
ZARA
Zara Philosophy
Role of store Deals with customers , employees Decision taking powers with respect to
manager stocking
Ads primarily for publicizing the Ads only for yearly sales & announce new
Marketing assortment store inaugurations.(0.3% of revenue)
Design teams Design conceptualized by Small elite Dedicated teams for different segments. Ex:
team common for all segments. Women-Night Wear, Kids-Sports wear etc.
Product life span Generally apparel firms produced Short life span but increased launches of
CLASSIC clothes. new style clothing.
Average new launches per year:2000- Average new launches per year:11000
4000
Time to market Comparatively high due to outsourcing. As Zara is vertically integrated lead times as
Industry average is 6 months. well as time for new product launches are
less(2-4 weeks)
Sales Forecast It is done. Not done due to flexible factories.
DESIGN &
PRODUCTION TEAM
Factories
–
Dying & cutting
clothes
Commercials Commercials-
- Dedicated to 3 WEEKS Small Local
Store Product Departmentin
Shops
Managers stores
-
Sewing
DISTRIBUTION
CENTRE
2 DAYS
STORES
Current Status
• Zara currently uses POS system based upon DOS which is very easy to
use & working fine for them
• This system does all the basic operations of billing but doesn’t provide
any customer insights, real-time data or any advanced sales projections
• As Zara is getting bigger & bigger its operation are becoming more
complex
CURRENT • Hardware vendor may modify peripherals for POS so that they may not
run on ancient OS such as DOS
STATUS
Dilemna
• Shall they let go of DOS which is working great for them & migrate to
modern OS such as Windows, Linux?
• If they are not migrating to new OS then should they stock up on
current POS terminals to protect them from sudden loss of support
from vendor?
• If they migrate to new OS, can they use this opportunity to build new
capabilities in POS?
• If they are building new POS, then can they extend its capabilities so
that it can have network across the stores & within the company?
Why DOS based POS works for Zara!
• DOS based POS is in alignment with Zara's business philosophy
• Majority of business concentrated in Europe specially Spain
• Zara prefers speed based decentralised decisionmaking
• Highly responsive vertically integrated supply chain reduces
need for long range sales forecast
IT • More dependant on market feedback from ‘commercials’ than
DOS based POS from customer data insights
• Believed in ‘manufacturing on fly’ rather than long range sales
forecast
• Zara doesn’t require theoretical inventory to be 100% accurate
• Low level of inventory in current scale of operation: Zara
stores maintained low inventory levels thus reducing needfor
smart inventory management
• Current scope of operations makes ordering & fulfillment
possible using DOS based POS
Easy installation & ease of operation
• Use of DOS based POS is very user friendly, stable & easy to
maintain
• Layman like store employee can switch on system & set up
entire POS architecture
• Complete software installation does the trick in the event of
serious software malfunction
IT • No need for separate maintenance crew for POS as employees
can do it by themselves
Installation
• Ease of customization on POS: Zara operated in various
geographies & currencies which necessitates need of
customization
• It is very easy to customise & write their own softwares on
DOS based POS
• Majority of complex operations such as sewing, dying were
outsourced by Zara
• Hence factories required simple applications ratherthan
complicated applications due to its current scope of business
Zara approach to IT policy
NO. OF STORES
450 419
UK
400 4% OTHERS
12%
350
PORTUGAL
300 8% SPAIN
TOTAL - 531
48%
250 GREECE
6%
200
GERMANY
FRANCE
150 5%
17%
100 75
50 30
7
0
MIDDLE EAST ASIA-PACIFIC AMERICAS EUROPE
PDA- 1
Common Network
PDA-2 PDA-3
Store -2
Store -1 Modem
DC Factory
PDA: 1
PDA : 2 PDA: 3
• Communication between stores
possible
• Bi-directional communication with
PDA- 1
Modem
3 1.5
2.5 1
2
0.5
1.5
0
1
Inditex North American
0.5 Retailers
0
Inditex North American
Retailers
Efficiency
• Better inventory
Total investment (8.3 management
€ mn) • Inter-connected stores
• Cost of replacing existing •Real time customer
DOS systems insights
• One time cost • Trend analysis
(License, installation, hard
ware)
•Annual connectivity
charges
• Human resource for IT
Order Fulfillment Process
Current Order Fulfillment Process
Segment 1
Store 1
(Men)
Offer received in Store
Segment 2
digital format Store 2 manager Combined Order
(Women)
from La Coruna (Infrared)
Segment 3
Store 3
(Kids)
Order is
generated & given
to La Coruna
Store 1
Order is
Store
Offer received in generated &
Store 2 manager
digital format given to La
from La Coruna Coruna
Store 3
Financials in millions of Euros Total cost of up gradation
Particulars Cost (in Euros)
Year 2003 estimated 2002
Operating System cost (windows) 4,51,350
Net Operating Revenues 4,848 3,974.0
Hardware cost 28,83,330
Cost of Goods Sold 2,368.3 1,954.9 Connectivity cost 1,27,440
Gross Margin 2,480.0 2,019.1 Installation charges 42,48,000
Operating Expenses 1,480.6 1,179.8 Programming cost 6,00,000
Annual operating cost 0.127 - Total cost 83,10,120
Break up of costs
Operating Profits 999.4 839.3
Onetime costs 81,82,680
Non-Operating Expenses 288.1 224.3
Recurring cost 1,27,440
POS up gradation cost 8.2 -
Pre-Tax Income 703.0 615.0
Income Tax 213.2 172.5
Minority Interest 5.8 4.4 • Recurring cost includes annual connectivity
charges
Net Income 483.9 438.1
• Rest of the costs are one time cost only
Net Margin 9.98% 11.02%
• A pilot run of the system for a country having less customers as compared to other
countries
• Existing system running in parallel to the new system
Migration • Migration of data from old system to the new system after the successful pilot run