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CODE: HBU 103

TITLE: INFORMATION SYSTEM AND TECHNOLOGY

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NI PUTU DEA PRADNYA - 131603522

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ASHLEY AITKEN

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12-04-2016

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CREATING BUSINESS VALUE WITH IT FRAMEWORK

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BENTLEY

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BUSINESS CONSULTANCT AGENCY

A PLUS

Full report of business strategy analysis

Client: ZARA

Including:

Value chain analysis

Suggestion of new business process, IS and ICT system supported

Author: Ni Putu Dea Pradnya - May, 12th 2016

TABLE OF CONTENTS

1 INTRODUCTION

2 ORGANIZATION

2.1 ZARA’S COMPANY OVERVIEW

2.2 ZARA’S VALUE CHAIN

2.2.1 ZARA’S VALUE CHAIN FIGURE

2.2.2 ZARA’S SUPPLY CHAIN FIGURE

2.3 ZARA’S BUSINESS PROCESS OVERVIEW

2.4 ZARA’S INFORMATION SYSTEM OVERVIEW

2.5 ZARA’S INFORMATION AND COMMUNICATION TECHNOLOGY OVERVIEW

3 VALUE CHAIN ANALYSIS

3.1 VALUE CHAIN ANALYSIS OVERVIEW

3.1.1 VALUE CHAIN DIAGRAM FIGURE

3.2 APPROACHES

3.2.1 5 PORTER’S FORCES

3.2.1.1 5 PORTER’S FORCES FIGURE

3.2.2 CUSTOMER VALUE CHAIN FEEDBACK

3.2.3 VALUE CHAIN ANALYSIS GOALS

3.3 ZARA’S VALUE CHAIN ANALYSIS

3.3.1 ZARA’S VALUE CHAIN ANALYSIS FIGURE

Full report of business strategy analysis

Client: ZARA

Including:

Value chain analysis

Suggestion of new business process, IS and ICT system supported

Author: Ni Putu Dea Pradnya - May, 12th 2016

3.4 ZARA’S 5 PORTER FORCES ANALYSIS

3.5 STEP 1 CONCLUSION

4 BUSINESS STRATEGY – STEP 2

5 SUGGESTED INFORMATION SYSTEM

6 SUGGESTED INFORMATION AND COMMUNICATION TECHNOLOGY

7 CONCLUSION

8 REFERENCES

1 INTRODUCTION

Our consulting firm deals with any issues based on what our client company's problems regarding its value chain analysis, how to deal with it and create a new plan regarding the issues itself. We provide a report of analysis of the company's structure, diagnosing issues within the structure and create a new business plan to solve or increase the wellbeing of the department itself, that will allow our client to be able to apply these business plans, engaging with the clients and create more value towards its products or services. Our service is to improve on what is lacking on the firm, formulate strategies based on its value chain analysis and supply chain process, formulate effective business strategies, and list of facilities of Information System and Information and Communication Technology that necessarily applied to support the business strategies.

First thing first we need to learn the objectives of our client's business, what sort of value they are delivering to the customer and what we need to do to improve its value. The process of creating the value itself starts with analyzing the company's structure, its value chain analysis, its supply chain process, the existing Information Technology (IT) and Information system (IS) they are using at the moment. After we received and analyze all the information, we need to know 5 competitive forces that pressure the company to find which area of its value chain is lacking behind and its value chain's each department improvement percentages. Furthermore, when it is found out what's the issues or what is need to be improve from the value chain department, we will conduct secondary research beside our professional consultant's ideas from brainstorm and diagnosis to provide solutions with a concrete plan and detailed information through a form of a business strategy, IS and ICT system to support it, by identifying the future opportunities as goals of the new business strategy.

In this report, the company that we are dealing with is the famous international fashion retailer brand, ZARA. We already know that ZARA is one of the biggest and successful fashion brand among its market, and as a big international company with thousands of chain stores around the world ZARA needs to deal with multicultural and distribution issues. Our goal is to identify ZARA's issues regarding its supply chain within its value chain as a manufacturer and a retailer. Providing new business strategy to solve the issues and to improve the department to create more value for the customer.

2 ORGANIZATION

2.1 ZARA company overview

(Zara Inditex, n.d.) ZARA is a Spanish clothing retailer based in Artexo, Galicia, with its central Headquarters and distribution center in La Coruna. Founded by Amancio Ortega in 1975, it is one of the flagship chain store by the world's largest apparel retailer, Inditex group. There are other brands owns by Inditex such as Pull and Bear, Massimo Dutti, Bershka, and etc. But ZARA accounts for 80% of consolidated Inditex which make it the biggest revenue resource. As a vertically integrated retailer, ZARA control over all Its supply chain, design, manufacturing and distribution of all its product. The company operates about 2,100 retailer store located in leading cities across 88 countries. It is distinguishable for its ability to develop a new product and get it store within 2 weeks while the others commonly take 6 months. With currently with a total numbers of Employees 32,000employees (20,000 are stockman) and professional designer that receive feedback directly from the customer to serve its goals as the fastest provider in react to new trends. ZARA's marketing strategy focus on product variety, distribution speed and store location which success is based on in-house production, quick response, and low advertising cost. Zara's main competitor are H&M, Gap and Benetton.

2.2 Value Chain of ZARA (ZARA clothing company supply chain, 2014)

Figure 2.2.1

Value chain

Primary Activities

1 In-bound Logistics

ZARA purchases raw fabrics from suppliers in Italy, Spain, and Greece. They deliver the orders 5 days after being placed. In-bound logistics from suppliers are mostly by truck. They don't do mass order but far few than the others because they always change the stock after 2 weeks. The raw materials sent to ZARA's owned factories to manufactured after.

2 Operations – Manufacturing

As a company that manufacture the products themselves, ZARA manufactures 60% of its products, about 40% of finishes garments were manufactured internally in Europe, with most of the remaining lines being produced in or sourced from other continents, including Morocco in Africa, Mexico in North America, and China in Asia. By owning in-house productions, the cutting is done in ZARA's owned high-tech automated cutting facilities. The cut pieces are distributed after to gather in a network of small workshops mostly in Galicia and in northern Portugal. The workshops are provided with a set of easy to follow instructions, which enable them to quickly sew up the pieces and provide a constant stream to Zara's garment finishing and packing facilities.

3 Distribution

Zara has its own centralized distribution system, that sits on the headquarters. As a 'fast-fashion' retailer, they manufacture and distribute in a small batches. Owning its own supply chain, ZARA not relying on other organization. After the inventories were ready, it sent to the distribution center from all the manufacturers, and maintain 25,000 short-term inventories. After that the garments were shipped to the stores, arriving within 48 hours by planes, monorails and trucks, ZARA don't use water-shipping in case it took 10 days longer. Each stores receives deliveries twice a week, and give two orders per week on specific days and hours, with shipment in La Coruna usually prepared overnight. The garments, are pre-hung, already labeled and priced.

4 Sales and Marketing

ZARA didn't spend much on their advertising, nor sales on discounting the products. It has a unique marketing strategy which is ' Zero investment in marketing' (ZARA marketing mix, n.d.), its key to market is based on exclusivity, experience differentiation and affordability. ZARA spend to open new stores instead of making advertisement. In essence, ZARA rely much on mouth-to-mouth or oral promotion more than anything else, their target market are 18-40 years old that lives in the city, which the range of age that fashion-concerned. Helped with its already famous brand, it gives the customer feel about affordable but exclusive products.

5 Retail

About ¾ of the merchandises on display is changed every 3 to 4 weeks. The retail store is exclusive yet the prices are affordable. They ask directly to customer, what kind of clothes or styles they wanted as a direct approach to serve the customer in the future, and use their feedback as basic to design the next stocks or products.

Secondary Activities

1 Firm infrastructure

ZARA business model and strategy developed in speed and decentralized supply chain. The central of the infrastructure is the IT technology. The company CEO, responsible for the company, Headquarters for brand coordinators, HR, IT, transportation and real estate. After that, there are commercials which organize and identify the sales figures for over 40 stores in the a particular area, then HR directors who handle all HR issues which unlinked to operations, and there are store manager who responsible for a single store.

2 Research and Development

With over 200 young designer, they go around to universities and clubs and attend fashion affairs to research and design, in additional, customer feedback from each stores also support

the information to create every new design to new stocks. in a integrative heavy workload of 1,000 new styles every month, design and development team producing around 1-2 styles every week each person. With these constant process, each style would provide around 200,000-300,000 of retail sales.

3 Human Resources Management

There HR directors from Inditex groups which manage all HR issues. ZAR train their new employee one week before they actually work, they manage the development team to attend exhibition and fashion fairs as much as possible. Although, store manager have slightly full command for their own store to introduce the feeling of freedom and act as they are the one who owned the company and manage it better.

4 Procurement

Fabrics, and other inputs and finished products are sourced from external suppliers in low cost markets. With over thousands of suppliers from Inditex group.

Figure 2.2.2 zara supply chain

2.3 ZARA's business process overview

As a retailer, ZARA's business process starts from input the clothing design from the development team, which the received from several sources such as; fashion exhibition, direct overview to universities and clubs, direct interview from the customer itself, and to determine; what the garment will look-like, what fabric it will be made out of, what it will cost, what price it will sell the store manager. Then after the design were develop and chosen, they send it to the

headquarters to cut the garments which received by suppliers, and from then will distribute to small workshop to process the sewing, coloring and etc. From all the manufacturers that spread over Europe, and other contingent, the clothes will be back again to ZARA's distribution center or its warehouse to be able to track. After received orders from the store manager, the inventory will distribute to every ZARA's store around the world. There are not so much stock in the store, because if it's not selling well that product will be withdraw immediately from the store, so customer now if they will not be able to see the same products for a long time. The process in the store itself include; service from the store assistant, customers are presented by racks of clothes, merchandise and accessories to choose and try on. With the help of store assistant they could ask for what's in the inventory and paid directly to the counter. The store assistant then here would ask directly what kind of styles or improvement of the products would the customer wanted and report after to the headquarters to process by the designer and development team.

2.4 ZARA's Information System

1 CRM

CRM is customer relationship management, it is a system which company used for maintaining the relationship with customer, including all the practices, strategies and technologies used to identify and analyze customer interactions, demands, and information with the goal of improving the lifespan of the relationship with the business itself. ZARA's usage of CRM is using the software which include; the company's website, telephone, live chat, direct mail, marketing materials and social media that are working fully integrated for the customer and along with systems that can also give customer-facing staff detailed information on customers' personal information, purchase history, buying preferences and concerns. It is to collect information about sales from each stores and workout which products sell high, and which one aren't. And with this data is easily received, the designer could produce new items quickly based on the latest trend and in styles or color which the customer's preferred. with this system applied, ZARA could maintain the relationship and attract new customer despite of its lack of advertisement and promotion. (Rousse, n.d.)

2 POS

POS stands for point of sales, the system include software and hardware that enable stores to track and record the product's sales. In the retailer environment, it is used in the checkout or counter cashier or where the transaction occurred, including but not limited to : electronic cash register systems, touch-screen display, barcode scanners, receipt printers, scales and pole displays and the majority of retail POS systems also include a debit/credit card reader. This information ranks clothing items by popularity and sale results. The main questions of all

clothing retailers, who is buying what and where are they buying it, becomes clear. Zara uses this data to plan ahead for new styles or send more inventories to existing stores.

2.5 ZARA's Information and Communication Technology Overview

1 PDA

PDA stands for Personal Data Assistant which is any small mobile hand-held devices that provide computing and information storages and retrieval capability for business uses. ZARA usage of PDA is mostly on the retails store. When a customer tries on clothes, the staff will ask them ongoing question as approach if they seem to need assistance, such as; would you prefer this shorts in grey or more colorful? What if the length was longer? And as they answer, immediately the staff enters the input information into their PDAs. This process collects data from every store. The valuable data allows firm to plan styles and issue re-buy orders based on feedback rather than hunches and guesswork. (The zara method, 2011)

Database management system : SQL (programming language for relational database) , oracle, used in the headquarters for placing all their database from every supply chain and stores.

Enterprise resource planning (ERP) a software that Zara use to collect, store, manage and interpret data from many of its business activities, including: product planning, purchase. manufacturing or service delivery.

Centralized server: napster , server for the database that allow every stores to download the information needed from the headquarters and vice versa.

Radio frequency identification : track tags , used in every store for transactions

3 VALUE CHAIN ANALYSIS – step 1

3.1 VALUE CHAIN ANALYSIS OVERVIEW

Figure 3.1.1 value chain analysis diagram

Value chain analysis is a process which firm identify and describe its primary and support activities which each of that add value to its products or services, including input and output of the value presence to the customer. In this case we will describe and identify the value chain analysis model of a clothing retailer as industry with physical products as a product.

Primary activities

It is which the actual products are handled directly from getting raw materials until it received by the customer, or may be in a form of supply chain.

1. In-bound logistics, it is where the raw materials are purchased and send to the company's manufacturer to be able to process into actual clothes. The value added here is where the company could deliver the finest materials as what they offer to the market and in their business strategy overall and deliver them in time to the manufacturer.

2. Operation or manufacturing, it is where the raw materials are process into actual products that sell and can sit as inventory. The value added here is where company could do as good as they can to meet the customer demand about quality and style. How the process of cutting, sewing, coloring and etc. run smoothly and carved professionally by the machine or staff it works for.

3. Out-bound logistics, it is the process of distributing and warehouse management of the company. From the products freshly made and send to the warehouse to distribute again to the actual retail store which customer can buy. The value added here is when the company successfully track, placed and distributed in the right amount and on time. Whether the decision of transporting will affect the arrival of the product itself, and the cost of fuel will affect the price of the product, so the decision of the company regarding this is important.

4. Sales and marketing, it is where the company attract the customer or the market to buy, to create brand awareness, to offer what sort of strength and benefit from the product that the customer should buy. The value added here is to make customer aware of the products, which will after benefit the customer for the usage of the product, such as its exclusivity, price, brand pride and the style of the clothes itself.

5. Retailing and service, it is where the company run the stores and give service to help the customer buy what they wanted in the right size, style, color and etc. How the store looks like and the design of the store as well as the service by the staff. The value added here is where the customer actually feels the feeling of purchasing the product, as well as received good impression of the company through the staff that helps them and the vibes of the store.

Secondary activities

It is where beside handling the products, the other departments that support the company add value to the product directly or indirectly to the product itself.

1. Firm infrastructure, it is include the form of the company's buildings, factories and stores as well as the infrastructure of the firm insider or the management. The value added here is whether the firm is working effectively and the roles of each staff and manager distribute well in order to make an efficient process to manage the product.

2. Human Resource Management, the value added here is to maximize the potential of the employees' work performance in processing the product as well as the service to customer.

3. Research and Development, it is where the company research for the market demand to be able to apply and develop it to the product.the value added here is where the company can make innovation and improvement to actually meet the demand of the customer.

4. Procurement, it is where the company manage to search for supplier and getting or receiving the raw materials. The value added here is whether the company can search for the right supplier to maintain the quality of the material for the product.

3.2 APPROACHES

3.2.1 Porter's 5 Forces

Figure 3.2.1.1 porter's 5 forces

5 Porter Forces is a model of determining the power of a business, which identify that there are 5 important forces that helps or attack the business, and determine the competitive power. (5 porter's forces, n.d.)

1. Supplier power, here where the business identify if the supplier have power over control the bargaining of the raw materials with the business. Driven by the cost they offer, the availableness of other supplier to switch. The fewer option of supplier the business have, the more the business depends on supplier then the more control the supplier have to the business.

2. Buyer power, here where the buyer can control the pricing, driven by the numbers of constant buyer the business had, the cost for them to switch to other product. If the business deal with few customer, then their power is likely to be stronger.

3. Rivalry, the important thing here is the number of the existing competitors and their ability or their unique selling point over the business. If there are many competitors meaning there will be more of choices of products and services, because not just the buyer even the supplier will go elsewhere if they don't get a good deal. So if the business have a unique selling point , will likely have the power over.

4. Threat of substitution, it is determine by the ability of the customer to find a different way of getting the same result but not with the product. For example if the business require a process of system that make the customer not easily reach the product, they will find a way to do it easily. Then the business power will eventually weaker.

5. Threat of new entrants, this is determine by the environment or the market. The ability for people to penetrate or enter the market. If it cost a little money and time to enter the market, it will be easier for people to create this power.

3.2.2 Customer Value Chain Feedback

A customer value chain is a diagram of the business concept and process that represent the creating or added value of the products for the customer. Similar to supply chain which analyze various stages from getting raw materials to the sale of the final products to the end customer, but it is based on the increase value of the products in each stages not the measured cost to the end customer. (Customer value chain, n.d.)

3.2.3 Goal of The Value Chain Analysis

The goal of the value chain analysis is to identify which department on the value chain area that need to be improve or maximize the potential efficiently and effectively to gain competitive advantages, which is a form of the company strength in its market to offer to the customer.

3.3 ZARA'S VALUE CHAIN ANALYSIS

After describing the value chain of ZARA in section 2, we will now deeply analyze the value added of each stage of its value chain.

VALUE CHAIN ANALYSIS of ZARA figure 3.3.1

The figure above shows the percentage of ZARA's value chain feedback and which department need to be improve, which we will cover below in the value chain analysis.

Primary activity

In-bound logistic

ZARA purchases raw fabrics from suppliers in Italy, Spain, and Greece. Mind that almost all their suppliers are from Europe, and as they manufacture the materials themselves, ZARA make sure that the raw materials are close to the factory to decrease the shipping cost, as this would be the competitive advantages on this step. Comparing to the others which heavily depend on overseas suppliers/manufacturers which they couldn't get over control and they have to placed the orders few months in advance. ZARA placed the orders and get them received after 5 days, because it is close, and this is where it adds value, the raw materials are precisely good for its standard as the decision for the supplier is effective considering the fast received materials from orders which lead to not spend too much cost for the shipping that would add the price of the products.

Operations - manufacturing

As ZARA manufactures 60% of its products, and by owning its in-house production, ZARA competitive advantage here is they are able to be flexible in controlling the amount, frequency, and variety of new styled products.The cutting is done in Zara's own high-tech automated cutting facilities. Thus, what takes months for other companies, takes no more than a few days for Zara. So the with these process the value from the production and manufacturing is how the products are fast-designed (and customer-based) and fast-made to distribute to the store.

Distribution

Zara has its own centralized distribution system, that sits on the headquarters. As a 'fast-fashion' retailer, they manufacture and distribute in a small batches. Owning its own supply chain, ZARA not relying on other organization. After the inventories were ready, it sent to the distribution center from all the manufacturers, and maintain 25,000 short-term inventories. After that the garments were shipped to the stores, arriving within 48 hours by planes, monorails and trucks, ZARA don't use water-shipping in case it took 10 days longer. Each stores receives deliveries twice a week, and give two orders per week on specific days and hours, with shipment in La Coruna usually prepared overnight. The garments, are pre-hung, already labeled and priced.As a result of this clearly defined rhythm, not only every stage of the supply chain from design to procurement, production, distribution, and retail know their activities, but even the regular customers know to visit stores more often on shipment days for the fresh designs.This large and high-tech facility also has extra capacity on hand to enable Zara to react to weekly and monthly demand fluctuations. For example, it operates typically 4.5 days per week, around the clock on full capacity, and extra shifts and temporary personnel are added when needed. Thus the value added in this step is where ZARA can maintain its 'fast-fashion' label to the customer.

Marketing

ZARA's unique approach to marketing in advertising is their zero policies of advertisement. They only spends 0,3% of their revenues on advertising and marketing, compared to competitors which on average spend 3-4% of total revenues on similar expenditures. But to effectively compete, ZARA uses location which they strategically locates all of their store in prime retail district which visible enough for marketing, store layout which they spend heavily on in order to keep the stores looking fresh and trendy to give good shopping vibes to the customer through re-modelling each stores after 5 years, and product life cycle (which is fast-changing) which give the feeling of scarcity because it is oftenly not restocked to encourage customer to come to the store often, to act as their marketing tools. Therefore, their competitive advantage here is they can maintain a cost advantage to their competitors in marketing activities which affect to no addition to the product price. Their cost advantage and ability to maintain brand recognition and customer loyalty are essential elements of Zara’s capabilities that build value in the company.

Retailing

ZARA business model and strategy developed in speed and decentralized supply chain. The central of the infrastructure is the IT technology. The company CEO, responsible for the company, Headquarters for brand coordinators, HR, IT, transportation and real estate. After that, there are commercials which organize and identify the sales figures for over 40 stores in the a particular area, then HR directors who handle all HR issues which unlinked to operations, and there are store manager who responsible for a single store. About ¾ of the merchandises on display is changed every 3 to 4 weeks, and the service on the stores is managed by the store manager. So the value added here is where the customer actually feel the vibe of shopping and get the service from the staff helps.

Secondary activities

Firm infrastructure

ZARA business model and strategy developed in speed and decentralized supply chain. The central of the infrastructure is the IT technology. The company CEO, responsible for the company, Headquarters for brand coordinators, HR, IT, transportation and real estate. After that, there are commercials which organize and identify the sales figures for over 40 stores in the a particular area, then HR directors who handle all HR issues which unlinked to operations, and there are store manager who responsible for a single store. With more than 2,000 stores across 88 countries, 1,600+ suppliers and more than 5,300 factories that make up the Inditex

supply chain are located in over 50 countries, enabling they to guarantee a wide range of products for the customer. The centralized infrastructure bring full control for ZARA to manage the supply chain and the value chain which add value to how effective is the product will received by the customer.

HRM

Not just in their research and development department, ZARA also hired young people that are highly motivated which reflects ZARA HR policy, they are train at least one week before the actual workforce with fair incentives schemes which result in high and effective communication. Even in the store itself, the staff also sell and market the name by dress as represent the fashion. All of the employees play vital roles whether designers, logistics and sales staff. so the value added here is ZARA managing their human resources effectively and represent their own employee as their fashion represent brand to the customer, and giving the best service to their role and the customer.

Research and development

ZARA's product development teams are responsible for attending high-fashion fairs and exhibition to translate the latest trends of the season to the design. This also include visiting university, campus and clubs to observes what young leaders are wearing, daily feedback from the customer, and from sales report. Additionally, the young, fashionable, and international staff helps to interpret the desire of the moment. Young Designers (26 average) draw the design sketches then discuss it with market specials and planning & procurement staff. Out of 40,000 designs only 10,000 are approved. This illustrates the flexibility of ideas generation and on the other hand the huge number of designs reflects the ability to meet almost all the fashion requirements by customers of all ages (up to 55). So the value added here is how the design itself are based on customer demand and trend, which customer will assured that buying ZARA's product will never be old-school and always up to date.

Procurement

Fabrics, and other inputs and finished products are sourced from external suppliers in low cost markets. With over thousands of suppliers from Inditex group, as well as the similarity of in-bound logistic the value added here is whether ZARA successfully get the best supplier that match with their quality standard of material and close location to not spend too much on shipping.

3.4 ZARA's 5 PORTER'S FORCES ANALYSIS

As how we already describe the value chain analysis based on the diagrams that also include the percentage of its feedback, we choose to analyze the 5 forces furthermore. (Ghabshi, 2013)

High Competitive Rivalry

This business market that ZARA targeted, is in a high level of competitive rivalry. Because of the fast expansion of the apparel industry. Its main competitors are H&M and GAP, because they share the same business strategy which placed their product in affordable yet good quality design and materials. The problem here is in some way the competitor get to manage lower cost which that's why they have their own customer with similar styles and design with ZARA.

Low Threat of Substitutes

ZARA experience a low level of threat from its substitutes. This happens because in the apparel industry and clothing, there are highly doubt or no real existence substitutes for clothes. This business ensured that it goes for developed, fast and trendy fashion at affordable price, which made the customer difficult to look out for substitutes and even would not mind the cost to get the fashion they need (target market).

Low Threat of New Entrants

ZARA faces low threats of new entrants. Because the existing company in global apparel industry already heavily dominated by few chain of retail stores including ZARA, GAP, and H&M around the world. So the chances for new entrants to access the stage of this international market are slightly low.

Moderate Bargaining Power of Buyers

The bargaining power of ZARA's buyer is moderately low, because as it's already in its right standard for quality and affordable prices, the buyer couldn't ask for more, as long as they still meet the demand and fast-fashion brand as they offer to the buyer.

Low Bargaining power suppliers

ZARA has high power to its supplier, because most of them solely depend on ZARA for their business, as their dependency it creates low bargain from them to ZARA. And in apparel clothing most likely the supplier is far from scarcity. In addition,Zara does not depend on external suppliers, for it gets an estimated 50% of its raw materials from inditex's group companies.

Problems and improvement

The problem with ZARA supply chain is that they owned all the channels, it becomes difficult to expand to far location as ZARA keep growing and wanted to expand more, thus it is expensive to distribute products far away from where all the inventory sits in the distribution center in Spain. U.S makes up 29% of the total apparel market yet ZARA hasn't invested in distribution facilities in there, it will make them as 'subject to diseconomies of scale' which means due to their centralized distribution, even though they are aware of how to quickly supply 1,000 stores, they may not be able to supply more retail locations. This system may work well with the current number of stores because majority of the stores are centralized in Europe. As 80 percent of Zara's production is carried out in Europe which is within the small radius of its headquarters in Spain. In fact, almost half of its production is in owned or closely-controlled facilities.

3.5 Step1 conclusion

after analyzing each value chain, the area that needed change and improve the most is the distribution, with Zara's centralized distribution channel and owned supply-chain channels, it is difficult and requiring more budget to distribute and expand the markets that miles away from Europe, such as Asia and USA that occurred to add more burden in the product pricing itself, therefore it will decrease the value of the product compare to the competitors that have similar value. Furthermore, change will be needed for the distribution process in order to add more value which are decreasing the pricing that burdened from distribution cost before, and making it faster to arrived in the store which will effective for overseas markets.

4 BUSINESS STRATEGY - Step 2

The business strategy to this is outsourcing the distribution channel, making more flexible production, separation of the core activities such as designing and choosing the materials to the in house production and non core to foreign suppliers. With partnering everywhere near the market would decrease the price.

Outsourcing distribution channels means cooperate and hiring other company to do one of our supply chain work to make it easier for the business especially that deals internationally and have stores across the world.

With ZARA's centralized distribution, it is wasting money on how from all manufacturer, the products has to be brought back to Spain to its central warehouse. So this report suggested to outsourced or even builds new distribution channels across the place where it is potentials for the market and which are very distance from Europe.

It will change or renegotiate small or big, the overseas shipping costs. Building new equipment or even distribution center may be very expensive, so it is better to outsourced a warehousing center somewhere it needed to be. Because the fact that ZARA's shipments will grow as they continue to expand can help them renegotiate the shipping cost to reduce overall cost.

Zara maintains its competitive advantage in Europe through its fundamental concept to maintain design, production, and distribution processes that enable quick response to customer demand. Global expansion means that Zara needs to carry its business model to America in order to maintain short production and lead times. The close proximity of the distribution center to the American market will allow Zara to effectively interpret the particular American fashion. The increased cost of product variety will increase cost due to possible changeover of production techniques to create different apparel lines but this cost is warranted since the monetary gain is much greater than the cost. Central distribution centers, however, will help cut some the cost of quick, high fashion since it can help streamline some of the processes and techniques used to create different apparel as they vary from country to country.

Step 2 conclusion: the business process that has to be changed are the distribution system. The existing process is Zara's warehouse after manufacturing, production and distribution center are centralized in Europe while controlled fully by the headquarters which needed more budget and not risk-free, the headquarters should be responsible and focus on the core of creating the production such as designing and manufacturing the base materials. The existing business process is when after the products freshly produced from several manufacturers throughout Europe, they will only stored into one main warehouse and after that distributed again to every stores, zara should outsourced several distribution center in some particular high-potential consumer market area and instead of storing and manufacturing in a single place it should be separated close to the market. Outsourcing the distribution system will reduce cost of distribution and help the design reach various customers' demand as they are different across the world.

5 INFORMATION SYSTEM TO SUPPORT THE BUSINESS STRATEGY - STEP 3

Suggested IS system to support the business strategy

1 Distribution Management System

It is a system in form of application that designed to used by the manager, to monitor and control the entire distribution network efficiently. It acts as decision-support system to assist the control room and field operating staff to control the distribution channel. DMS access real-time data which means direct report from each distribution channel, and provide all

information on a single console at the control center. It shows overall process of the operation in the distribution department. With maps and track devices of the moving logistics. As ZARA will have to outsourced, it needs another DMS that focus on its outsourced party in each location it placed to be able to track the separation of the distribution from the distribution center in Spain and the other one that outsourced. (Distribution Management System, n.d.)

2 Warehouse Management System

WMS is system that supports the day-to-day operations and activities in a warehouse. After outsourcing or renting a warehouse, ZARA needs a system to be able to track the inventory even though it is not owned by them. This system allows the company to track inventory levels and stock locations in a warehouse. With some software and devices, the goal is to provide the management with the information it needs to efficiently control and track the movement, input and output of the products in a warehouse. Even it is outsourced, ZARA still needs to put its head warehousing management in that area to perform and manage the system itself, so it is not full controlled by the outside party but still reducing the headquarters work, also the more the warehouse close to the expanding market it will be less cost. (Warehouse management system, n.d.)

3 Inventory Management System

Having the similar goals as WMS, this system includes the combination of desktop software, barcode scanners, barcode printers and mobile devices to streamline the management of inventory. The inventory control works by tracking the two of main function or operation that happen in the warehouse which are the input and output. The purpose is to accurately know the current inventory levels, and automatically minimize understock or overstock situation if arise. By efficiently tracking inventories across location, the management are help to make decision regarding inventory. (Inventory management system, n.d.)

6 INFORMATION AND COMMUNCATION TECHNOLOGY TO SUPPORT THE INFORMATION SYSTEM

1 DMS, WMS and IMS software

It is the software or application that allows the manager to input data of the total inventories, the location of the products in the warehouse, separate the product line such as colors, size and etc. To track the input and output from the warehouse and which categories in inventories it affects. It also need a computer or portable desktop in order to use the software.

Also for the DMS the headquarters also need portable desktop or server computer to host the console at time and specialized to only manage the 'outsourced' distribution channels.

2 RFID, Radio Frequency Identification

It is a small electronic device that consist of small chip and an antenna. It served similar purpose as a bar code or magnetic strip like on the back of a credit card. It provides a unique identifier for the object, the RFID need to be scanned to get information. RFID will work within up to 20-feet for high frequency devices to recognize. It is placed in each group of inventories to be able to track, and after that the date could be input to the software above. (RFID, n.d.)

7 CONCLUSION

After all what this report have been covered, here comes the conclusion. As our goals are to determine in which part of ZARA's value chain step needs to be improve and maximize the potential. First we describe ZARA's company in overview and brief explanation about its business, the existing IS and IT they used and their value chain. Furthermore, we already covered and explain what is value chain analysis and by using 5 porter's forces analysis in order to analyze the forces that threat ZARA by linking it to which is its rivalry power, how they in some way could produce as same quality in lower prices which attract more customer. In the same line as the value chain analysis which occur that its distribution system that lacking, making ZARA's fast fashion retailer in doubt after in the future, it will continue to expand far away and more from its distribution center in Spain, which here we found the problem. Because the continue of expanding store, the only distribution center will harm the distribution process overseas itself, as it is difficult and cost so much money. So the suggested business process that need to be change is outsourcing the distribution channel so it is not only concentrated in Europe. By outsourcing, or cooperating and hiring 3rd party warehousing and inventory system and place, in the potential market that have great distance from the distribution center. In addition, ZARA still have to placed its internal staff to track and manage the outsourced system in able to still have the control over the distribution chain yet still decrease their work in the headquarter and reduce cost. The IS required is Distribution, Warehouse and Inventory Management system that deals with the distribution and the activities inside the warehouse to track the inventory with several required ICT devices and software. The value added here in the distribution step is to make it faster and easier for the company to distribute the products because by outsourcing near the market or the store will reduce the cost of distributing thus will reduce the production cost and product price and maintain the 'fast-fashion' label of ZARA that offered to customer as the store will expand eventually and could attract new customer, rather than have to send the product to the distribution center in Europe.

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