Zaras E-Tailing Plan - Essay Example

Operations Strategy for Zara's E-Tailing Plan Executive Summary This Management Report set out to identify the operations strategies useful in guiding Zara's migration into cyberspace, the wave of the future in business. In so doing, the report examined the role and goals of operations strategy, its specific performance objectives, the contents, processes and accepted patterns of its development, strategic fit, and the functions and contributions of various aspects of operation. The study also assessed the applicability of these operation strategies in the five countries that Zara intends to pilot-test its online business, namely, UK, Spain, Germany, France and Poland. The evidence is that the five initial target markets are a good choice for Zara, except for Poland, which is a newly opened economy where market barriers and regulations are still perceived to be high and Internet usage still in its infancy stage. In the other four target markets, Internet use is matured and well developed, but another problem may present itself in the form of stiffer competition. As a result, web development, operation and maintenance costs are expected to be costly. There is also the possible risk that the online operation would not yield the desired results. For these reasons, the report provides a road map for Zara in overcoming the challenges to its successful entry into e-tailing. Table of Contents Executive Summary Objectives Market Analysis E-tailing Advantages Spain France Germany Poland UK Strategy 1. IT Systems 2. Sourcing of Supplies 3. Storage & Distribution 4. Control Systems 5. Strategic Fit 6. Online Offerings 7. Customer Satirsfaction Execution 1. Speed 2. Flexibility 3. Cost Leadership 4. Differentiation 5. Single-Minded Focus 6. Capacity 7. Facilities 8. Processes & Technology 9. Vertical Integration 10. Workforce/Organization 11. Inventories 12. Product Flow 13. Communication & Transport 14. Operating Systems 15. Designs 16. Roles & Skills 17. Stocks 18. Preparations 19. Payments 20. Handling of Returns 21. Customized Service Bibliography Objectives 1) Identify the operations strategies appropriate for Zara in guiding its business expansion online. 2) Assess the methods of operations strategy ideal for the start-up of online business and the IT systems useful to Zara. 3) Explore ways on how Zara's planned online operation could attain a personalized touch and thus ensure consumer satisfaction, the primary goal of operations strategy. Market Analysis E-Tailing Advantages Access to the global market at less operational costs and through the more cost-efficient network production. Mass customization. Broader choices and greater control and influence of customers over how products are made and delivered. Innovation can be copied easily at least investment. E-tailing is a less expensive way of expansion than putting up a physical store. 1. Spain This market is the logical site of the first Zara e-tailing site because it is the company's home base where its facilities and resources are concentrated. For this reason, no problem is expected in so far as supply chain management, speedy communication and transport of products are concerned. Spain has over 52 million people, its per capita income is high by EU standards, and the Internet is increasingly used for acquiring goods and services. The Basque rebellion seems to be under control. 2. France Paris is the world's fashion capital, which makes France an even better site for Zara's initial online stores. Internet usage is highly advanced among France's over 70 million people. However, the world's most renowned fashion companies are based in France and this poses a big challenge to Zara's operations strategy. 3. Germany Of the five initial targets for Zara's online operation, Germany has the highest population following unification, which approaches 100 million now. Internet use is also well developed and the Germans have the highest per capita income among EU members. Moreover, the credit card culture in Germany is as extensive as in the US, which is a vital element in online operations. 4. Poland Poland has 55 million people and a fast-growing economy, but there are still high levels of market regulation and low Internet usage. One of the reasons is that 17 percent of the population lives below the poverty line and 30 percent of Polish workers are in agriculture. Consequently, workers are perennially agitating for higher wages, which problem reflects in the low average national income. 5. UK UK leads the top 20 countries in the world with the most e-business readiness. It has high internet usage with highly developed credit culture suitable for online operations, and a number of website certification schemes to guarantee quality, confidentiality and integrity of e-tailing transactions. These include Which Web Trader, Clicksure and TrustUK. Market Ratings 1-10 Spain France Germany Poland UK --------------------------------------------------------------------------------------------------------- Feasibility 9 10 8 6 9 Acceptability 10 9 8 6 9 Vulnerability 10 9 7 5 8 ---------------------------------------------------------------------------------------- Strategy In its proposed e-tailing operations, Zara needs a shared digital business infrastructure equipped with production and distribution capabilities, which would allow business participants to create and utilize the network economies of scale and scope. 1. IT Systems The web development, operation and maintenance costs may be costly but such costs are insignificant compared to the expense required in putting up brick-and-mortar structures. For Zara, the recommended IT systems are: Commerce One - a browser-based and XML-enabled automation software that puts buyers and sellers in one online trading community. Because of this network structure, the search costs and fees in the processing of transactions are lower. SESAMi.NET - this system is linked to the Global Trading Web, the world's largest network communities on the Internet. Through this link, users reach an extensive network of regional, vertical and industry-specific e-markets around the world for sourcing of supplies and buy and sell of goods in real time. 2. Sourcing of Supplies Through web-based purchasing of supplies, Zara can slash its acquisition costs by half. The reason is that it enables the company to access a wider number of suppliers, from which it can choose. Sourcing of supplies enhances operations if there are predetermined policies on when supplies should be outsourced, how suppliers will be selected, what type of relationship to maintain with the suppliers, how many suppliers should be used, and how to harness the suppliers' collaboration on quality and dependability. 3. Storage & Distribution Zara needs to set up a central warehouse and distribution facility in every host country of the online stores, where the goods and raw materials acquired in big volumes from foreign suppliers will be stored. 4. Control Systems The quality department should be accountable for measuring product quality, meeting the target levels of quality at all times and involving all employees in quality improvement. Among the control systems of choice are those that enable centralized buying and bulk contracting, with the "push" system for suppliers and "pull" system for buyers. 5. Strategic Fit Under the concept of fit, the company seeks to excel in many activities instead of just a few because poor performance in one activity is likely to show in the other activities. Thus, Zara needs to sustain its advantage in product design by utilizing other system components and processes. The challenge in e-tailing is to create a strategic fit among the IT components and other business elements (Porter, 1985) 6. Online Offerings In more developed countries, it is advisable to offer expensive designs, but in less developed markets Zara would do well to make do with simple and low-cost designs. 7. Customer Satisfaction Zara must explore ways to give its websites a personal touch and a distinctive feature to make it rise above the competition. Investment in a good web page designer is the key to success in this undertaking. Individualism is one of the more popular trends in operations strategy. Execution 1. Speed Fast service is the formula for success of many commercial websites. Southwest Airlines in the US, for example, realized savings of $30 million by speeding up its web-based bookings and ticket sales. 2. Flexibility A flexible e-tailing system yields great benefits because it will enable Zara to adjust its operations to market demands and current conditions. One of the signs of flexibility is product variation, a strategy used to advantage by National Bicycle Industrial Co. in the US, which offers no less then 11,000 product variations. 3. Cost Leadership Zara can gain competitive advantage by using a proprietary technology and seeking preferential access to raw materials and economies of scale. It may also be a good idea to offer low prices everyday (MDO21 Online). 4. Differentiation Zara needs to select one or more attributes perceived as more important and then tailor its operations strategy to these attributes in projecting itself as unique. Strategy is a plan of action that develops the distinctive competence of a business with the intention of compounding it over time (MDO21 Online) 5. Single-Minded Focus Under this strategy, the company selects an industry segment and then concentrate its online operations on this market at the exclusion of others (Porter, 1985). To achieve this kind of focus, it may be useful to adopt separate sets of skills, competencies and vocabulary for products and services. Products are tangible objects existing in both time and space, while services are acts and processes that exist in time only (Nie & Kellog, 1999). 6. Capacity The best practices of operations strategy call for the continuous upgrading of capacity by putting up additional stores through franchising. Zara needs to decide when, how much and what form of its capacity should be increased. 7. Facilities Zara's stores need to be highly standardized so that they look exactly the same in every country. Decisions are critical on: 1) whether customer demand should be met with a few large facilities or with many smaller ones, 2) whether facilities should focus on certain geographic regions, product lines or customers, and 3) where the facilities should be located. (Russel & Taylor, 2006) 8. Processes & Technologies Faster and more standardized processes and technologies need to be adopted for high-volume production. Several options are open for Zara: 1) one-at-a-time production per customer order, 2) batch production using a systems process, 3) mass production of standard products, or 4) continuous production, especially for fast-selling items. 9. Vertical Integration The objective of this setup is to promote innovation and quality improvement at the suppliers' end. Without such collaboration from suppliers, Zara runs the risk of coming out with products that are flawless in design but spotty in material quality. 10. Workforce/Organization The efforts to enhance the efficiency of the workforce and the organization itself are directed at the franchisees. A set of guidelines is standardized at the central office but the franchisees may improvise according to local conditions and requirements. 11. Inventories Inventories must be kept low so that no single product shows at the stores and e-tailing sites for a prolonged period, which may bore customers who want to see something new everyday. This is one of the more successful operations strategies at Wal-Mart. 12. Product Flow The product flow from the store to the customer must be as short as possible. This can be done by making communication and transport between stores fast and efficient through such processes and technologies as EDI-satellites, cross-docking and focused locations. 13. Communication& Transport Communication between stores, and between the e-tailing stations and warehouses, should be fast and efficient. The same capabilities must be achieved in the use of transport facilities to deliver the products to customers. 14. Operating Systems The chief concerns in making online operations proceed smoothly are: how the company's operating systems should execute strategy, how IT is aligned with the goal of operations strategy, and how the IT system supports decisions regarding inventories, scheduling priorities and reward systems. (Russel & Taylor, 2006) 15. Designs In the more developed markets of Spain, UK, Germany and France, Zara would do well to offer the most expensive product lines on its e-tailing outlets. For Poland and other less developed economies, the more simple and low-cost designs are appropriate. 16. Roles & Skills To sharpen its operations strategy, Zara should determine what skill levels and degree of autonomy does it need for supervisors and employees, what training requirements and selection criteria to use, what performance, evaluation, compensation and incentive policies will work best for its particular workforce, whether to pay employees on a salary, hourly or piece rate basis, and whether to allow profit sharing. 17. Stocks Zara needs to change its stocks according to the volume of sales. If sales on one stock item are sluggish, replenishing would do more harm than good. 18. Preparations April 1, 2007 - Target date for opening of commercial website. March 10 to 30, 2007 - Preparations to include: 1) training and selection of IT personnel, 2) setting of policies on performance, evaluations, compensation and incentives, 3) settling the questions of whether to pay by salary, hourly or piece rates, 4) setting up of distribution centers in each country website, and 5) acquiring the technology. (Russel & Taylor III, 2006) 19. Payments A system has to be devised for customers pay for their online purchases only through a pre-registered card. 20. Handling of Returns The planned online stores need membership in website certificate schemes that are available in many countries with highly developed Internet environment. This guarantees the security, confidentiality and trust in the online transactions. The assessment fee is minimal and carrying their logos gives customers an assurance of product quality and integrity. In the event customers decline to accept product deliveries, Zara must endeavor to replace them with the items desired. 21. Customized Service A philosophy of customized service drives the operational success of such companies as Ritz-Carlton and Custom Foot shoe store. Ritz-Carlton pursues the one-customer-at-a-time policy, while Custom Foot mails its products directly to customers, have their feet scanned electronically for exact measurement and offer prices comparable to off-the-shelf shoes. (Russel & Taylor III, 2006) Bibliography Brewer, H., 2005, ' One More Time: Strategy not Operations is Key for Rest-of- Decade Performance,' Plante & Moran PLLC, Southfield, Michigan. Householder, B., 2005, ' Process Change for Successful Execution of your Business Strategy,' Frontline Solutions, May 2005. MDO21, ' Management and Operations,' Available online at: http://www2. bc.edu/xue me/MDO21/class%20notes/operations%20strategy.doc Nie, W. & Kellog, D., 1999, ' How Processes of Operations Management View Service Operations,' Production & Operations Management, Fall 1999. Porter, 1985, ' What is Strategy' Harvard Business Review, vol. 74, no. 6. Russel, R. & Taylor III, B., 2006, ' Operations Strategy,' John Wiley & Sons Inc. Read More