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Chapter 3

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McGill University
Management Core
MGCR 331
Animesh Animesh

Chapter 3 – Fast fashion from Savvy Systems 3.1 Introduction - Inditex Corporation = parent of Zara, based on La Coruna - Zara unique because: o Few sales o Low advertising o Vertically intergrated (in-house production - Tripled from 1996-2000; sales went from 2.43B to 18.3B in 2008 Why Zara? - expanding very fast –one store per day - high fashion at an affordable price - twice-weekly delivery, keeps inventory/styles up to date and changing Comparing to Gap: -inventory is death in fashion industry –need to predict what will be in style months in advance - GAP guessed wrong –couldn’t attract younger customers; alienated older customers Contract Manufacturing - cheaper –produce in developing countries o Cons: lacking safety, environmental prudence and uses child labor - Firms using child labor: Gap, Nike, Wal-mart, - Need to consider ethical practices of suppliers and partners as well The Fair Factories Clearinghouse –tech: - sweatshop labour makes it hard for honest firms to compete with the lower prices of firms that use this option Technology’s role: Reebok uses in-house information system to track audits of suppliers –labor, safety and environmental practices - ensures that all divisions would have same information as to which contract supplier is approved/disapproved - system was donated to Fair Factories Clearinghouse –industries can share audit information on contract manufacturers o department of justice needed to approved the system first  prevent suppliers from colluding and increasing prices KEY TAKEAWAYS  Zara has used technology to dominate the retail fashion industry as measured by sales, profitability, and growth.  Excess inventory in the retail apparel industry is the kiss of death. Long manufacturing lead times require executives to guess far in advance what customers will want. Guessing wrong can be disastrous, lowering margins through markdowns and write-offs.  Contract manufacturing can offer firms several advantages, including lower costs and increased profits. But firms have also struggled with the downside of cost-centric contract manufacturing when partners have engaged in sweatshop labor and environmental abuse.  Firms with products manufactured under acceptable labor conditions face multiple risks, including legal action, brand damage, reduced sales, lower employee morale, and decreased appeal among prospective employees. 3.2 Don’t Guess, Gather Data - Zara uses PDAs to gather customer input and feedback –what products do they want? - Analyzes what is sold and not sold –patterns in style, color choice etc. - PDAs are linked to POS system –POS tells managers sales rankings - Improves frequency and quality of design and production decisions Design - “The Cube” = design center o pull-strategy  produce based on customer demand o ~300 designers create 30,000 items/year (vs 2-4000 avg retailer) Manufacturing and Logistics: - Zara is able to get locally targeted designs onto store shelves quickly –average of 15 days vs 1-2 seasons by the average retailer o Small tweaks take ~10days - “Zara is twelve times faster than Gap despite offering roughly ten times more unique products!” How? - Vertical integration –60% of products are produced in-house o Uses technology to reduce error, increase productivity o 40% of fabric is produced in-house; dye is purchased from subsidiary
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