“Link customer demand to manufacturing, and link manufacturing to

distribution. That is the idea we still live by.” –Jose Maria Castellano Rios,
Inditex CEO

This is obviously the Motto of Zara, one of the major chain stores of Inditex
fashion group. This successful cycle or link, led Zara to be the most innovative
and devastating retailer in the world.

Zara's managers must decide whether to upgrade the retailer's IT

infrastructure and capabilities. The company relies on an outdated operating
system for its store terminals and has no full time network in place across
stores. Despite these limitations, however, Zara's parent company, Inditex,
has built an extraordinarily well performing value chain that is by far the most
responsive in the industry. Therefore the major problem to the company is to
decide whether it has to upgrade the present system and by doing so, risking
the reliability they have with the current system or to continue with the present
DOS based system which will not be compatible for future changes or
improvements.

Zara’s main strategy is the ability to respond very quickly to the demands of
target customers which called for identifying trends of the customer in
advance. The company has been able to identify the trends and meet the
demand with the help of its autonomously organized structure and its effective
value chain systems. The present system followed by Zara has been very
effective and very easy to maintain, which as a result has persuaded the
company to continue without any change in the present system so far. The
problem that Zara faces right now is that the system that they use in their
Point of Sale terminals runs on DOS which Microsoft does not support
anymore and any hardware change in the POS terminal will not be compatible
with the current POS software. Although the sense of urgency for the change
may not be that high, investing in IT infrastructure is a must as MS Dos is an
obsolete technology and there is no contract or guarantee from their POS
terminal vendor that they will continue supplying the same terminal without
much changes in the hardware for any specific period of time.

The most important core competency of Zara is obviously its Supply Chain
infrastructure relating its customers’ demand to the manufacturing facility.
Store managers were given much more responsibility than those of other
large clothing chains; they placed orders for the items they thought would sell,
rather than simply accepting and displaying what headquarters decided to
send them. Moreover, they can initiate store-to-store transfers when they saw
that garments selling slowly in one area were popular in another.
Decentralized decision making highlights the company’s speed and market
responsiveness.
In order to accelerate and optimize the value chain, prices of the garments
were set in Spain, charged in Euros and noted on the tag attached to the
garment in La Coruna. Prices for other countries were set at a fix percentage
of this baseline, taking into account distribution costs and market conditions.

Zara did not go through online shopping because of its high return rates and
the overhead costs caused by the reverse logistics that might be caused.

Operation wise, to reach its target of rapidly and perfectly responding to

changing consumer demands, Zara established three cyclical processes:
Ordering, fulfilling and manufacturing.

Managers learned about newly available garments by consulting a handheld

scanner that is directly linked each night to the information systems at La
Coruna via a dial-up modem. On a regular base, a digital order form, called
“the offer”, was sent to all of the showrooms. The offer included pictures and
descriptions of the newly available items.

Shipping clothes to stores involved another group of commercials at La

Coruna. Their duty was to match up the supply of finished clothes coming
from the manufacturing facilities into the distribution centers or warehouses
with the stores’ demands for these items. When supply and demand lined up
closely for a particular SKU, the inventory was simply divided among all the
stores that wanted it. However, if demand exceeded supply in a given order,
the commercial had to determine which stores would get the available
inventory by looking at the most successful stores at selling the item.

The commercials and the product managers work together to determine the
future production for each SKU. If demand exceeds supply, production would
be increased promptly.

Garments never stay for a long period in a DC; the goal was to produce then
deliver only what the stores needed and only when they needed it. There was
nearly zero-inventory in Zara’s Supply Chain. Zara had no “back door” or
“back room” where excess inventory could be kept.

Zara manufactures new items continuously throughout the year, including

both, changes to existing garments (new color) and completely new designs.

Zara’s vertically integrated manufacturing operations enabled this constant

introduction of new items with short lead times. Thus, Zara could consistently
move a new design from concept to selling in maximum three weeks. No
other large garment retailer could match this capability.

Not to forget that the automated and computerized distribution centers

contribute to a high extent in the state of art supply chain infrastructure.