Zara Company’s Operations Management

Introduction

Technology is becoming an integral element in the execution of business processes in the current times. This is due to changing nature of business requirements and dynamism of the business requirement. As such, the deployment of technology in business procedures plays an integral role in fostering the competitive advantage of a business enterprise. In addition, technology can be integrated effectively to facilitate the management of the business enterprise. This implies that business organizations have the responsibility of ensuring that they are using up to date technological infrastructures in order to upbeat the competitive nature of the present environment.

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Operations management is primarily concerned with ensuring that the execution of business operations of an organisation are in an efficient manner using minimal resources in order to facilitate the realisation of business requirement. Typically, it is an example of a management strategy that aims at the conversion of the business resources into profitable outputs with the aim of customer satisfaction. In the context of Zara and its integration within business, Information Technology is of significant importance in diverse ways (Wu and Blackhurst 78).

Current state of affairs at Zara during the case analysis

Zara has been stagnant for a long time with respect to their business strategies; this is evident by the repetitive use of the same business strategies that the company used in the past. With respect to technological developments, the company has maintained a small IT department during the course of its existence up to the current times. In addition, the company uses outdated computer applications to aid in the execution of their business operations despite significant changes in the business environment and the market structure, which requires the use up to date technological infrastructures in order to be successful. Another significant constraint associated with Zara is the lack of integration of Information Technology in the company’s resources. The principal decision is whether to upgrade the Information Technology systems in the company, or continued usage of the old IT infrastructures that the company has been using for a long time (Waters 56).

A SWOT analysis of Zara reveals that the business enterprise suffers from significant weakness such reliance on basic Information Technology infrastructures, there are no formal processes towards allocation of funds to foster IT projects, the current point of sale terminals are over 10 years old. In addition, the computers at the stores use the DOS operating system. Most of the inventory reporting is done manually as evident the physical inventory count. There is real-time communication with other store branches. It is widely evident that the company has invested little towards the embracement of Information Technology in order to facilitate smooth running of the business. This serves as a significant constraint in upholding the competitiveness of the Zara retail store (Wu and Blackhurst 123).

A review of opportunities available to Zara is the expansion of the store locations, with plans being underway to expand to Italy. Another significant opportunity for Zara clothes store is online sales and communication with prospective customers. The opportunities serve to increase the business competitive advantage only if appropriate strategies are used. Some of the threats of the Zara stores are its POS vendors, who are constantly supplying them with POS systems that use outdated operating systems and their failure to engage in a contract that facilitates compatibility. The PDA vendors are also a significant threat to Zara is its PDA vendors who are not updating their systems, and lack of compatibility with the DOS operating system. Lack of real time communication between the stores implies that Zara stores risks losing its market share to its competitors who are using up to date technology to facilitate their business operations.

The inventory and reports is handled by the employees manually through various communication channels, for example: by phone, invoices, delivery notes, or physical counts. This method is not efficient, time consuming and requires physical efforts, so most of the time there are many mistakes, risk on loosing customer by providing them with wrong information or delivering entirely different product to them is very high.. With the increasing customer base and the expansion strategy, these approaches to information management and transaction processing are proving inefficient and unreliable due to increasing errors in reporting and transaction processing. The manual paper based approach is time consuming, and in the long run affects the service delivery to the clients, therefore posing a potential loss of the clients.

With the current manual paper based system, access to information is limited, for instance, the employees cannot access various products information in cases of inquiries by the clients, and the clients too have no access to the shops basic information such as location, and the list of available products and their respective prices. The communication between the various branches of the shop is also inefficient since they rely on the use of the telephone. This implies that in case of any transfer of goods among the branches, there is a probability that they may not be accounted for at the branch level. Quantity tracking is also done through manual compilation of the reports from the various branches of the shop; this is prone to errors due to late submission of the reports by the respective branch managers.

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An increase in the scale of business operations requires an effective information management strategy. The current paper based system could not support the scale of operations for the shop. This implies that a new strategy had to be implemented towards the management of information. This project was driven by a number of factors such as:

  1. Communication between the branches to book any items if requested by other branches
  2. Product availability

Recommendations concerning the Upgrade to a modern operating system for the POS

Zara has for a long time preferred the use of DOS operating system in all the applications in the franchises of the company. DOS is usually considered as an outdated system, although the company still uses it. It is evident that staying backward in technology is a risky venture for the company but upgrading the operating systems will not function without risks too. The following section assess whether the upgrade of the POS operating system will be helpful for the company.

A point of Sale is one of the most important requirements for a retailing business; this is because it serves the core purpose of the business through effective transaction recording and inventory reporting capabilities. Therefore, it is recommendable for the company to upgrade its POS terminals to a modern operating system. This is because POS terminals implemented using modern operating systems have diverse functionalities that could help in streamlining the business operations of the company. For instance, an operating system upgrade on the POS will comes with capabilities of being able to generate Inventory reports and offer customer information management; which will be used for marketing purposes, management of the receivables and buying analysis of the customers (Wu and Blackhurst 78).

Another included functionality in modern POS systems will be history tracking of the customer purchases, Barcode reading devices and Touch Screen input; which supports both barcode tag printing and other hand held devices which can be used for ordering and receiving. POS systems implemented in modern operating systems have the ability of interlinking of the various franchises of the company, which facilitates quantity tracking in the various branches at the different locations. In addition, Modern POS systems have frameworks for inventory reporting and accounting applications that are helpful in the analysis of business trends by the company. It is widely evident that upgrading the POS systems to a modern operating system will serve a great deal in the elimination of core threats to the business (Tungate 145).

Salgado is advised to proceed with the building of in store networks, since they are principally used to facilitate real time communication between the different branches of the company. Real time communication is an integral aspect of operations management since intercommunication helps in the supply and demand tracking of the various company branches. The plan of approach should incorporate setting up a wireless network; appointing an innovative CIO, setting up a budget according to needs, not off of industry standards; sharing the inventory information via network; Keeping the PDA’s for backup use and Using the demo store to test new systems, then integrate them into the other stores’ Network and POS terminals. In order the network to serve its purpose, the company should give the employees the ability to look up inventory balances for items found in their own branches, in addition, it is will be an added advantage if the employees had access to the inventory balances of other stores, so that they can foster transparency and make helpful suggestions regarding the trends of supply management (Slack 45).

Zara Business Model

Zara business operations are based on a global perspective, as evident with their expansion to 45 countries, havening a total of 531 stores. Over the course of its expansion, Zara has managed to maintain its central fashion philosophy that embodies creativity and quality during the design of their cloths. In addition, the company has always depended on market demands to increase its profitability levels in the global market place. In order for Zara to effectively meet its core business functions, the company has deployed a business model that is based on the following three principal goals for operations: development of systems that need short lead durations; reduce the production quantities to curb inventory risk; and a combination of moderate pricing with faster production trends compared to its competitors. The above three goals play an integral in shaping the company’s business model, which is described below (Badía 134).

The business model deployed by Zara can be scaled down to three core components, which entail the use of concepts, value drivers and capabilities. The principal concept is to uphold a design trend, production and distributive trends that are helpful in making the company to respond effectively to changes in the market structure with respect to consumer demands. The Chief Executive Officer of Zara holds the view that the fashion world is significantly influenced by consumer demand, and supply plays a limited role in market dynamics, therefore the company have to give the consumers what they want in a timely manner so as to make use of the opportunity. This is the operation principle behind the idea of quick response to consumer demands (Waters 89).

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Concerning the capabilities of Zara, there are various resources that the company requires in order to make good use of the opportunities and put into action the conceptual strategy. Zara takes into account the production process, which involves maintaining the design, in house manufacturing and use of strategic partnerships. In Europe, Zara is responsible for approximately 80 per cent of its production volumes. In Spain, Zara maintains a production percentage of 50 per cent. The company engages into strategic agreements with local companies in order to foster on time delivery and quality service as a strategy for quick response. The use strategic agreements are an effective operational strategy deployed by the company to endure nearness of manufacturing and facilitate the execution of the business operations as a response strategy. Design flexibility capability of Zara allows the company to achieve their operational strategy concerning the shifts in consumer demand (Wu and Blackhurst 156).

An over view of value drivers for the company reveals that there are a number of tangible and intangible benefits for all the stakeholders of the company. A tangible value for Zara is that its parent company, Inditex, has about 11.02 per cent of the net margin operations. In addition, the company is continually attracting new consumers due to emphasis on design at affordable prices. The success in the implementation of this business model has helped in the differentiation of Zara from its competitors. The following are the key aspects of the Zara business models with respect to the operations of the company (Badía 102).

Product development

Zara makes use of a distinctive strategy during the development of its products; this has played an instrumental role in the success of the company. A significant characteristic of its product development is that the company does not dictate the products to be displayed at the stores; rather, the branch managers have the autonomy regarding the display products and the place of display. This accompanied by propagating the market research to the company headquarters. This helps in the process of trying to have an idea of market information in order to develop appropriate marketing strategies and design their products according to the consumer demands. Zara has a total of 200 people in its design team, which has the responsibility of developing over 1200 designs annually.

This is contrary to most of its competitors who rely on a small team for their product development, thereby resulting to lack of variability in their design. In addition, most of Zara competitors reveal that branches has minimal autonomy concerning the products to display and the orientation of the display. This difference in terms of product development has helped Zara to upbeat its competitors in the sense that they have precise market information, and therefore, they tailor their products to accurately reflect the demands of the fashion market place from a global perspective.

Strategic agreements

Zara competitive edge of its competitors is due to the company’s engagement in strategic partnerships and maintaining the costs of production. Its competitors such as Gap and H&M do not deploy the use of Asian outsourcing in their business operations. In addition, Zara makes use of their regional controlled facilities in order to respond to market demands in those regions. These strategic engagements tend to leverage the cost of production for the company. This implies that there is a cost advantage for the company compared to its competitors, the result id quality design at affordable prices (Slack 79).

Information Technology

Zara has invested little with respect to the use of IT and communication infrastructures in comparison to its competitors. Zara uses less than 0.5 per cent of the company revenue on Information technology, and that IT staff of the company only make up 0.5 per cent of the company’s workforce. Zara’s strategy is to make effective use of human intelligence as evident in their market research experts and store managers. Contrary to Zara operations strategy, most of its competitors completely depend on the use of Information Technology for their operations. Zara on the other hand depends on the hybrid model, which serves to integrate human intelligence with technology, as evident by the use of PDAs (Badía 78).

Conclusion

Zara business model have proved to be successful in context of the company’s business. This is due to their objectivity to outsourcing, which serves as a cost reduction strategy. In addition, their focus on production processes and their quick response strategy to market dynamics have played a significant role in fostering their success. The company only needs to deploy the use of more information technology in its operations.

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Works cited

Badía, Enrique. Zara and Her Sisters: The Story of the World’s Largest Clothing Retailer. New York: Palgrave Macmillan, 2009. Print.

Slack, Lewis. Operations Management: Critical Perspectives on Business and Management. New York: Routledge, 2003. Print.

Teresa, Wu and Blackhurst Jennifer. Managing Supply Chain Risk and Vulnerability: Tools and Methods for Supply Chain Decision Makers. New York: Springer, 2009. Print.

Tungate, Michael. Fashion brands: branding style from Armani to Zara. New York: Kogan Page Publishers, 2008. Print.

Waters, Donald. Operations management. New York: Kogan Page Publishers, 1999. Print.

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