DO NO ANSWER THE QUESTIONS IN THE SCREENSHOT!!

ANSWER THE QUESTIONS BELOW:

C. Describe one example of how the adoption of each of the following technologies could be used to benefit

Zara.

(i) Near-field communications (NFC)

(ii) Internet of Things with RFID (radio-frequency identification)

D. Assume Zara uses social computing in its marketing and customer service departments. Describe an

example of how social computing could be beneficial and how it poses risks to Zara in these functional

areas.

(i) Benefit

(ii) Risk

IT's About Business 11.4 Zara Inditex (www.inditex.com) is the world's largest fashion group, operating more than 7,200 stores in 93 markets worldwide. The company's flagship store is Zara (www.zara.com), but it also owns the chains Zara Home, Massimo Dutti, Bershka, Oysho, Pull and Bear, Stradivarius, and Uterque. Zara, founded in Spain in 1975, operates more than 2,100 stores worldwide. Inditex reported sales of US $30 billion in 2017. Zara is a clothing and fashion retailer that is using its supply chain to significantly change the way it operates in a traditional industry. Zara's core market is women between the ages of 24 and 35. The firm reaches these consumers by locating its stores in town centres and locations with high concentrations of women in this age range. a good fit for the rapidly changing, unpredictable fashion indus- try. This model enables Zara to manufacture its fast-fashion cloth- ing based on highly accurate, short-term (2-6 weeks) demand forecasts. 346 CHAPTER 11 Customer Relationship Management and Supply Chain Management Zara's supply chain and its highly automated distribution cen- tre, called the Cube, are essential to its successful business model. The Cube, located in Arteixo, Spain, is Zara's centre of worldwide operations. The 450,000-square-metre, highly automated facility is connected to 11 Zara-owned factories with high-speed, under- ground monorail links. Zara's Business Model Traditional fashion brands employ the business model of seasonal fashion. With seasonal fashion, brands design and manufacture the majority of their inventory before the beginning of each year's fashion seasons, allowing no design improvements or changes during the season. (The two major annual fashion seasons are spring/summer and fall/winter.) Traditional brands reserve 80 per- cent of their inventory for seasonal fashion clothing, meaning that they commit to manufacturing their inventory at least six months before the beginning of the next season. We discuss Zara's fast fashion business model in this case. To produce fast-fashion clothing, Zara employs three essential phases in its supply chain: procurement, production, and distribution. Let's look at each phase in turn. Procurement Because traditional brands devote 80 percent of their inventory to sea- sonal fashion, they must make early forecasts of the number of cloth- ing items that they manufacture. In contrast, Zara does not forecast the number of finished goods that it will need. Rather, its procurement team forecasts the quantity of fabric that Zara will need to manufac In contrast, Zara devotes about 75 percent of its production to its fast fashion clothing lines and the remainder of its produc- tion for its seasonal lines. Zara stores respond in near real time as customer preferences evolve. As a result, Zara's business model is For example, consider a drop in demand that reflects the declin- ing popularity of a particular design. This drop triggers a response from the teams in the Cube, which can either be a change in or complete overhaul of the design. To maintain its rapid turnaround time, which is typically two weeks, Zara must deploy its resources immediately. The retailer cannot afford any delays because one of its factories was busy. In the fashion industry, turnaround time is the time that it takes for a current fashion collection to be replaced by a new one. For traditional fashion brands, the turnaround time is between three and six months. Zara realized that there is a direct relationship between the degree to which it utilizes the capacity of its factories and the length of the factories' tumaround times. That is, the busier a factory is, the longer it would take to manufacture a fast fashion item. Therefore, Zara keeps most of its manufacturing capacity idle so it can respond to demand changes with more agility than its competitors. Distribution Once the factories turn the fabric into finished clothes, the items ing items that they manufacture. In contrast, Zara does not forecast the number of finished goods that it will need. Rather, its procurement team forecasts the quantity of fabric that Zara will need to manufac- ture clothes before placing orders with the firm's fabric suppliers. Zara buys large quantities of only four or five types of fabric per year. The retailer can also change these fabrics from year to year. Fabric manufacturers make rapid deliveries of bulk quantities directly to the Cube. Zara purchases raw fabric from suppliers in Italy, Spain, Portugal, and Greece. Its suppliers deliver fabric, pri- marily by truck, within five days of orders being placed. Unlike finished goods, fabric does not go to waste because it can be used to make new clothes. The availability of fabric allows Zara to respond in near real time to its customer demands 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 that sell textiles inexpensively. Production Zara's competitive advantage lies in quickly identifying the latest fashion trends. At the Cube, market specialists, many of whom pre- viously worked as store managers, monitor all communications from Zara store managers. These managers are trained specifi- cally to engage customers to obtain their reactions to the clothes on display. They then send sales figures and customer feedback to the market specialists on a daily basis. The specialists also receive fashion input from a large number of fashion observers who attend fashion shows and pay attention to what types of fashions tradi- tional 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 designs are approved, they are given to the production team. Most traditional fashion brands outsource their manufacturing to China and parts of Southeast Asia and the Far East. In contrast, Zara manufactures all of its fast-fashion clothing in the 11 plants located close to the Cube. Once the fabric is cut and coloured inside the Cube, Zara ships it to its 11 factories on its monorail. A fascinating fact about Zara's manufacturing process is that at any day or time of the year, 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. Distribution Once the factories turn the fabric into finished clothes, the items are transported back to the Cube on the monorail. At the Cube, the clothing is inspected, packed, and shipped to the Zara logistics hub in Zaragoza. From there the items are delivered to stores around the world by truck and plane. Zara can deliver garments to stores worldwide in only a few days: China in 48 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 days after placing their orders. Items are shipped and arrive at stores already on hangers with tags and prices 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 second-largest fashion com- pany, announced its first monthly sales drop in four years. These reports illustrate the difficulties facing the fashion industry as con- sumers purchase more of their clothing from an increasing number of online suppliers. In an effort to be more competitive with Zara, in April 2017, H&M stated that it would significantly increase its supply chain. investments, including, among other things, greater levels of auto- mation. The company also planned to optimize its lead times and to move more production to Europe from Asia. Compounding Zara's problems, shoppers in Istanbul have found tags on their Zara garments with complaints from Turkish workers who claim they have not been paid for their work. The tags assert that the workers were employed by Bravo, a manufacturer to which Zara outsourced some production. Bravo closed down. abruptly, and workers maintain the company owes them three months of pay as well as a severance allowance. Zara has had other problems with traditional fashion brands. as well as with independent designers. For instance, in 2012 luxury brand Christian Louboutin (www.christianlouboutin.com) took legal action against Zara for allegedly imitating one of its shoe designs and then selling the shoes at a fraction of the price. Although the case was dismissed, fashion joumalists speculated that Zara manages keep out of trouble by changing its designs just enough to avoid copyright violations