SECTION A (Total: 80 marks) INSTRUCTION: Answer ALL questions. All questions are based on the given article.

Information Systems at Zara in Keeping Up with Faster Fashion Inditex, the worlds largest clothing retailer and owner of the Zara chain, faces growing competition from younger, online-only players like Boohoo.com and Missguided. Its rivals are churning out clothes at higher speeds, as little as one week from design to point of sale, refreshing their sites daily with hundreds of new items. Being by far the largest, most profitable and most internationalised fashion retail chain, Zaras success is based on a business system that depends on vertical integration, in-house production, quick response, one centralized distribution centre and low advertising cost.

In an attempt to keep its edge, the Spanish company is developing new technologies, hooking up with tech firms and hiring talent from start-ups. The success or failure of such efforts could help determine whether Inditex can adapt to the changing landscape of apparel retail, where Amazon is set to overtake Macys as the biggest seller of clothing to Americans. More broadly, it could point to whether the model of combining online sales with a large network of physical stores can ultimately prevail in mass-market fashion, where tailored trousers sell for under 30 euros (USD 35) and sequined dresses for under 50 euros.

Inditex has an innovation unit, led by former telecoms engineer Alejandro Ferrer and startup founder David Alayon, but has previously revealed little about its work. The unit is testing ways of improving stock handling. It has hooked up with California-based Fetch Robotics to test robots to work in stock inventory. It has also partnered with chipmaker Intel on creating devices that can quickly gauge the volume of clothing in boxes. The unit tests technologies that make the most of an asset new rivals lack physical stores. Inditex said it was focusing on areas like location intelligence, ultrasound technology used to track footfall in stores, as well as virtual assistants to help customers. Location intelligence allows apps to switch to instore mode when a customer enters a store, so the customer can locate products and receive offers.

A source familiar with the matter said Inditex has also formed development partnerships with technology companies like Jetlore, which uses artificial intelligence to predict consumer behavior, and Spanish big data start-up El Arte de Medir. Executives at Inditex, who are famously tightlipped and rarely grant interviews, confirmed the tie-ups but said the projects were at the testing stage. The company would not give details, saying it was commercially sensitive information.

When it comes to apparel, theres no secret sauce, said Felipe Caro, a business professor at UCLA Anderson School of Management who wrote a case study on Zara. To shorten lead times, theres no other way than doing local production.

Inditex is seeking to integrate online sales with its bricks-and-mortar network by focusing on large, attractive stores where customers might try on items to buy later on computers or smartphones. In February, the firm hired Sergio Alvarez who co-founded CARTO, a start-up focusing on location intelligence, to work in its online business. Inditex has worked with its alarm provider, Tyco, to incorporate a tiny micro-chip into security tags carrying style and size information about the garment and allowing the company to locate its whereabouts at any point in the supply chain. Inditex CEO Pablo Isla told analysts that tight control of stock through tagging means more clothing items can be sold at full price as items in stock at a store can be also offered online. This is full integration between store and online stock rooms, he said.

Zaras business system that include vertical integration, in-house production, quick response, one centralized distribution centre and low advertising cost can be summarised as follows.

Design: The goal of the information system at Zara is to discover the best design trends. Designers estimate what sells well by collecting vital information such as daily sales numbers. The real-time information helps designers to decide about fabric, cut and colours when modifying existing clothes or designing new ones. Information technology (IT) has shortened the time from design conception to the arrival of clothes at the distribution centers and finally to the stores to be placed on racks.

Zara use information systems (IS) to track customer preferences and sales. Store managers lead the intelligence gathering effort. This helps to determine what ends up on each stores racks. Personal Digital assistants (PDAs) or handheld PCs are used to gather customer input. Staffs talk to customers to gain feedback on their preferences and issues. The valuable data gathered helps the firm to plan styles and issue re-buy orders based on feedback. Zara uses software like C-Design and Corel Draw. C-Design and Corel Draw Graphics Suite allows Zara to create and market its collections quickly and efficiently.

Distribution: Zara has its own centralised distribution system. It keeps almost half of its production in-house and uses smart technologies to have a competitive advantage. Instead of relying on outsourcing, the company manages all design, logistics, warehousing and distribution functions itself. It uses latest technologies to keep up with latest trends. The company manufactures and distributes products in small batches. Using the computerised system, the company has reduced its design to distribution process to just 10 to 15 days.

The IT implementation of the operation research requires establishing dynamic access to compute several large live databases (store inventory, sales, and warehouse inventory) under very strict time constraints. This helps Zara to change about three-quarters of the merchandise on display every three to four weeks and customers average time between visits to its stores is more than its competitors at 17 times a year.

Pricing is market-based. Zara uses information systems for customer profiling, to analyse the purchase patterns and direct targeting. The company quickly respond to fluctuating customer demands in fashion trends.

Question 1 : Analyse ONE (1) competitive force that Zara faces and how Zara makes strategic use of IS. (16 marks)

Question 2 : Zara implements location intelligence that allows apps to switch to instore mode. Identify the possible business strategy that Zara aims to achieve by implementing this technology. Justify your answer by explaining how the business strategy can be achieved. (8 marks)

Question 3 : According to the value chain model, the competition is based on adding value to a product or service so that the customers will pay more. Explain how Zara implements strategic information systems to acquire accurate information for added value in its value chain. (14 marks)

Question 4 : The store managers believe that they need to implement knowledge management system in Zara to fully support the organisational strategy. Suggest the extension of the existing strategic information systems implementation in Zara to support this need. Explain using infrastructure components table. Take note of the existing components that can be integrated into the knowledge management system. (12 marks)

Question 5 : Based on the answer in Question 4, illustrate an overall system architecture for Zaras knowledge management system. (10 marks)

Question 6: Assuming that there is a threat of new substitute to the products and services that Zara provides, suggest TWO (2) strategic uses of information resources to influence this new competitive force. (20 marks)