Answer to the question from Learning Task #2
Zara is a company which deals in the manufacture and retail of textiles in markets in Europe and other parts of the Globe. The company is a fast growing enterprise with a record estimated opening of a Zara store every day across the globe. The company uses a business model which is focused on making a connection between the needs of customers and manufacturing in fashion and ensuring that manufacturing meets the needs of the customers within the shortest period of time. The company’s uptake of information technology in its operations has been restricted to the use of applications which serve very limited needs of the various operations of the company.
Business Model for the industry
The apparel industry works under a business model which is focused on meeting the seasonal needs of customers and adjusting the designs of apparels available in the market to met the current fashion trends. The industry relies heavily on the good working relationships between the designers of apparels in the merchants who market those clothes. As illustrated in the working of the Gap Inc, there is a need to ensure that the limits that designers always push to bring into the markets new fashions in the market are kept at level which should ensure that they are well within the needs of the customers who are ultimately targeted by the whole process. The end result of such a relationship will be the development of products which meet the needs of the customers while at the same time meeting the sales margins of the merchants.
In the apparel industry, there is an apparent relationship between the manufacturers and the merchants which require the very fast, if not immediate meeting of the orders that are placed to manufacturers. This relationship works through merchants receiving designs of the trending fashion of the day and submitting these to the manufacturers who work to deliver these in mass quantities. This process is under usually under strict deadlines and its working is on the faith that the manufacturers will deliver the orders within the appropriate time, otherwise a longer lead period will result in losses since garments which are out of season will be delivered to the manufacturers.
The industry is heavily reliable on well established distribution networks. These distribution networks are usually architected on the needs of every particular player in the industry and seek to meet the needs of each individual company. These distribution networks are structured to ensure that the products that are developed by players in the industry reach their target markets within the shortest time possible. In this way, replenishment of dwindling stocks and brings into the stores new designs which may be available. These distribution networks are like very important veins to the flow of products to manufacturers.
The business model of the apparel industry is also anchored on the personal interaction with customers. It relies heavily on the personal contact that occurs in boutiques and is based on the establishment of goodwill to the customers. This goodwill ultimately results in the development of a close relationship between the customers and the merchants, and as a result more return visits are likely to occur and repeat sales are made. This close relationship with customers ensures that there is a constant flow of business and a constant demand for products is maintained at all periods.
Another key issue on which the apparel industry is based on is the development and adoption of new fashion in the market. The source of new fashion trend in the market is varied and very vast. From the fashion statements brought about by celebrities and the designs developed by fashion companies, there is need to ensure that these fashions hit the markets at the appropriate time. This is because in the industry, fashion trends are very likely to have very short life spans, and a particular collection may have a lifespan of only a few months or less. As such, the industry is very reliant on development of new fashion trends, a characteristic that makes fashion designers very important part of the industry.
Pricing in the industry is dependent on many factors, with the major ones being the target markets and the profitability margin that companies operating in the industry. Pricing is a key issue in the industry since it determines the level of revenues that accrue to any individual company working in the industry. After taking into consideration the costs that occur in the process, pricing becomes an important factor in the dynamics of the industry. As a norm, many of the prices are almost similar across the industry for the same products and variations, if any, are very insignificant. This price similarity ensures that any competitive advantage that may be gained by any player in the industry is lost, and companies operating in the industry have to develop strategies other than pricing to ensure competitive advantage over their competitors.
The apparel industry is highly brand centric. The focus is usually on the development, production and marketing of established brands which bear with them reputation, class or style. There are popular brands which are manufactured under licences such as Calvin Klein, Marks and Spencer and Armani. As such, manufacturers and marketers will always try to ensure that they market these brands in their markets. As a result, there are few established brands in the industry which keep evolving appropriately as the fashion industry demands. It is an established fact that the apparel industry is brand centric rather than being customer centric.
Zara Business Model
Information Technology
The use of information technology in Zara has been restricted to the most essential functions which enable the company to operate its core functions more easily. The company has been using information technology to ensure that it keeps up with its policy of decentralization, and communication with the stores, the distribution centres in the regions and its headquarters is carried out on a bi weekly basis as a way of supporting the key functions of ordering and distribution. This is contrary to the model of the use on information technology in the apparel industry in which companies use information technology for management purposes. This is a disruptive business model that is applied by this company because it deviates from the norm in its application of information technology in its operations. By using information technology in the only key areas which smoothen and fasten the distribution of its products, it ensures that it keeps its budgetary allocation to information technology very low, a characteristic which is not very popular at this point in time when many companies are moving eagerly towards the adoption of technology in many of their functions.
The company relies on the use of applications that are developed in house by its IT department. This is against a backdrop of adoption of commercially available applications by the industry which rely on working under established protocols and procedures. As a result, the company is able to meet its information technology needs in a very specific way. This can be regarded as a disruptive business model since Zara makes many cost savings both in the human resources required and the cost of purchasing the applications from the market that are commercially available. From the analysis, it is very clear that the company’s cost of information technology is far much lower than the industry average, a strategy which in the long run can prove to be very decisive in determining the competitive advantage of the Zara Company.
Distribution
The company’s distribution is well established and is conducted within set timelines which are followed by all the stores that Zara operates. The distribution system used by Zara is based on the stores that it operates making requests for their supplies from the distribution centres based on the expected sales and the replenishment based of the immediate past sales of the store. The distribution channel is so refined that the commercials who operate the stores have a discretion of what is needed and make orders that are appropriate to meet the specific needs of their stores. This is in stark contrast to the operations that are traditional in the industry where most company operated stores are given tight thresholds for sales and whose performance is measured based on the level of sales that are made during a particular peri0d. In the long run, this mode of distribution based on the needs of each store may be an advantage which may hand the company a competitive edge over its competitors.
Retailing
The Zara Company operates its own stores and takes charge of staffing them and monitoring their operations. The company utilises a decentralised system of operations where stores have operations which have managements who enjoy a large degree of autonomy in decision making. This decentralised mode of operation means that the company is able to meet the specific demands of the markets in which it operates in since its managers (called Commercials) will make orders to the distribution centre that are specific to its needs. As such, this mode of decentralization is a move away from the industry norm of operation of retail chains which are highly centralized in terms of management and decision making. Decentralised decision making is a factor which may play to the advantage of the company in the long run and give it an advantage over its competitors.
Risk Management
As regards risk management, Zara should take measures that do not expose it to potentially high losses in case of the information technology failure. Its decision to continue using the DOS against a backdrop of a developing new technology available in the market may have been informed by the specific needs of the company. However, the risks of high losses in case of failure of this system are uncharacteristically high and continuation of its usage may not be well informed. As much as the company does not wish to make use of commercially available applications for stores terminals, as a risk mitigating measure, they should do away with the use of hardware that depends on DOS. The fact that the supplier of the hardware for the POS terminals of the stores has been unable to provide assurance that he will not change to machines that do not support DOS should act as a wakeup call for the company to shift it applications to a more readily available software, otherwise its decision to continue using DOS will be ill informed.
Since the company depends on a unique system of operation which is decentralised, one of the most logical measures that it can take to minimise risks is to develop its own applications internally to meet its specific needs, but based on a more current OS. In this way, it will have avoided the associated risks of using an outdated OS.
Another way of dealing with the need to change the OS of the POS terminal at its stores is to source the commercially available terminals and make the appropriate changes to them to ensure that they are well fitting to its needs. This would mean making the required adjustments to the commercially available version to ensure that they fit into the demands of the company’s stores.
The failure to adopt new technologies in the use of IT by Zara may result in the establishment of more efficiency by competitors, and as a result weaken the company’s competitive advantage. This would be disastrous in the long run since the associated costs in the long run would overrun the benefits that the company derives from the use of its current system.
Zara Business Model
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