Deck 3: Zara: Fast Fashion From Savvy Systems

Question 1

The U.S. Department of Justice needed to provide a special exemption to the Fair Factories Clearinghouse, and before doing so, had to be convinced that the effort wouldn't be used by buyers to collude and further squeeze prices from competitors.

Answer 1

True

Question 2

The Fair Factories Clearinghouse is subject to network effects.

Answer 2

True

Question 3

Maintaining large inventories is highly essential for the viability of the fashion industry.

Answer 3

False

Question 4

Zara's dominance in the fashion industry is due to its horizontally integrated structure accompanied by a globally dispersed production model.

Question 5

Zara holds a competitive advantage over its rivals in spite of:

A) refusing to implement technology in its operational model.
B) conducting business only through online storefronts.
C) its globally distributed contract manufacturing model.
D) operating through fewer stores across the world than its closest rivals.
E) Keeping large portions of its production processes in-house.

Question 6

Outsourcing production to third-party firms is called _____.

Question 7

Making seasonal apparel decisions is a challenge because it often involves making predictions on what customers will be interested in, months in advance of clothing appearing on store shelves.

Question 8

The U.S. Justice Department initially reviewed the Fair Factories Clearinghouse but eventually approved the effort as described in readings and class. What was the government initially concerned about?

Question 9

What was considered the source of Mickey Drexler's inventory problems at Gap?

A) He personally approved sweatshop-affiliated contract manufacturers
B) He wrote the code for Gap's disastrously broken inventory system
C) The firm guessed wrong about fashion, placing big bets on trends that consumers didn't want
D) He led a botched merger with Disney in the hopes that combining technology with the Disney Store would create a super-efficient set of shopping mall destination stores.

Question 10

_____ is a non-profit organization that shares audit information on contract manufacturers among members of the apparel industry and other industries.

A) Fair Factories Clearinghouse
B) Pricewaterhouse Coopers
C) Amnesty International
D) Klynveld Main Goerdeler
E) Transparency International

Question 11

In an industry where nearly every major player outsources manufacturing to low-cost countries, Zara is highly _____, keeping huge swaths of its production process in-house.

A) privatized
B) vertically integrated
C) publicly traded
D) subsidized
E) autonomous

Question 12

_____ involves outsourcing production to third-party firms.

A) Vertical integration
B) Long tailing
C) Peer production
D) Contract manufacturing
E) Viral production

Question 13

Zara's high fashion styles are inspired by customer tastes, with technology used to gather data on preferences at given store locations.

Question 14

Contract manufacturers used by the apparel industry are often criticized because:

A) they hike up the costs of producing goods.
B) firms cannot maintain high profit margins by employing them.
C) they charge exorbitant labor costs that drive down sales.
D) they are known to grossly overprice their services.
E) of poor working conditions.

Question 15

Most fashion retailers place orders for a seasonal collection a few days before these lines make an appearance in stores.

Question 16

What were the problems encountered by Gap in the early part of the decade following the 1990s? What were the measures taken to overcome these problems?

Question 17

What is contract manufacturing? What advantages can a firm expect to gain from contract manufacturing? What are the downsides associated with this practice?

Question 18

Elaborate customer surveys help Zara designers predict fashion trends months into the future and design products accordingly.

Question 19

In retail in general and fashion in particular, having _____ is considered the kiss of death.

A) excess inventory
B) storefronts in expensive districts with costly rents
C) a large labor force
D) limited production runs
E) dispersed production facilities

Question 20

Zara's clothing look like high fashion, but are comparatively inexpensive.

Question 21

Zara store staff gain as much as three hours in prime selling time to assist customers at stores. Which of Zara's practices is instrumental in these time savings?

A) Concepts going from ideas to appearances in stores in fifteen days on an average.
B) Three hundred member-strong design teams churning out up to thirty thousand items a year.
C) Distribution centers ironing clothes in advance and packing them on hangers, with security and price tags affixed.
D) Collecting data from customers on what kind of clothes to stock in stores, using PDAs.
E) Tweaking shipping models through Air France-KLM Cargo to coordinate outbound shipments with return legs loaded with raw materials.

Question 22

Zara's staff members regularly collect data from customers at its stores. This data is used to:

A) decide the designs and styles of Zara's products for the next few seasons.
B) determine the in-store soundtrack and layout.
C) inform designers on customer preferences and staff on store sales results.
D) determine where future Zara stores should be located.
E) identify the products that customers would like to buy through discounted sales.

Question 23

An information system consists of hardware, software, data, procedures, and the people who interact with and are impacted by the system.

Question 24

Many firms have developed and deployed innovative information systems, only to see these systems go unused by key staff members. How has Zara helped ensure its systems will be used by staff?

A) employees are monitored by in-store cameras
B) employee time on information systems is recorded each time the system is engaged
C) system use drives store success and as much as 70 percent of salaries are tied to sales performance
D) all employees must have a Fair Factories Clearinghouse account, which is used to log and report employee activity
E) systems were designed by employees, who feel a sense of ownership in the technology deployed

Question 25

Limited production runs ensure customers do not have to visit Zara's stores as often as they visit other stores, allowing the firm to save money through staff reductions when compared to peers.

Question 26

A value chain is a set of:

A) similarly profitable firms competing against each other in any given industry.
B) large firms that are vertically integrated.
C) activities through which a product or service is created and delivered to customers.
D) a large number of small firms that dominate a given market.
E) robotically controlled conveyor belts that deliver product quickly from manufacturing stations to shipping containers.

Question 27

_____ are critical for capturing sales data, and are usually linked to systems which manager a firm's inventory.

A) Point-of-sale systems
B) Legacy systems
C) CRM systems
D) Server farms
E) Data aggregators

Question 28

Zara's IT expenditure is low by fashion industry standards and is also highly effective. Which of the following makes this possible?

A) Targeting technology investment at points in the value chain where it has the most significant impact.
B) Utilizing the money spent on IT infrastructure to improve the IT skills of its employees through training programs.
C) Using the best and most expensive software and hardware in the market, as it lowers any maintenance costs later.
D) Outsourcing IT management to third-party firms which provide IT services at lower costs.
E) Investing IT funding in improving the infrastructure and cutting down employee overhead costs.

Question 29

RFID tags allow Zara staff to take in-store inventory less frequently than rivals, saving money on staffing.

Question 30

Due to limited production runs, Zara's customers:

A) tend to delay their shopping until the products go on sale.
B) visit the stores more often.
C) buy products at discounted rates after a few weeks.
D) visit stores less often.
E) create a greater opportunity for increased markdowns and writeoffs.

Question 31

High-end fashion house Prada's experiment of implementing the latest technology in its flagship store failed because:

A) Prada targeted technology investment only at points in its value chain where it would have the most significant impact.
B) Prada managers were enamored with technology and failed to consider implications across all components of the new information systems.
C) the effort was unlike Prada's signature style, being more functional than fashionable.
D) Prada skimped on spending with its IT expenditure being lesser than one-fourth the fashion industry average.
E) the RFID technology used on items in the store were not state of the art and suffered from legacy system problems.

Question 32

According to an independent study, Zara books some 85 percent of its products at full price compared to the industry average markdown ratio of 50 percent. This is made possible by:

A) keeping a major part of the production processes under direct proprietary control.
B) coordinating the outbound shipments of all Inditex brands with return legs loaded with return materials and half-finished items.
C) applying data analytics to purchase trends.
D) the practice of having limited production runs of its designs.
E) leveraging contract manufacturers to produce only staple items with longer shelf-lives, which account for one-eighth of dollar volume.

Question 33

Personal digital assistants are:

A) transaction processing systems that capture customer purchases.
B) small chip-based tags that wirelessly emit a unique identifying code for the item that they are attached to.
C) systems that provide rewards and usage incentives, typically in exchange for a method that provides a more detailed tracking and recording of customer activity.
D) handheld computing devices meant largely for mobile use outside an office setting.
E) artificial intelligence systems that leverage rules or examples to perform a task in a way that mimics applied human expertise.

Question 34

Zara's IT expenditure, measured by IT workers as a percentage of total employees, is only slightly higher than the industry average.

Question 35

Zara's use of technology across the value chain allows the firm to manufacture more unique items than rivals H&M and Gap.

Question 36

Small chip-based tags that wirelessly emit a unique identifying code for the item that they are attached to are called _____.

A) Personal Digital Assistants
B) Smart adaptors
C) Trackbacks
D) Legacy labels
E) RFID tags

Question 37

How does Zara differ from its competitors in converting ideas into products?

A) Zara concepts appear in stores in fifteen days on average compared to rivals who receive new styles once or twice a season.
B) Zara's ideas are inspired by social media, compared to the intrinsic design processes followed by its competitors.
C) Zara's design and concept teams use data from customers to predict fashion trends many months into the future and stock up inventory accordingly, as opposed to its rivals.
D) Collaborations with celebrities help Zara churn out a limited, yet profitable, volume of items every year, while rivals produce a higher volume of less fashionable items.
E) By focusing on a smaller number of products than rivals like Gap, Zara manages to limit exposure to wrong guesses.

Question 38

Which of the following is not a benefit achieved through Zara's integration of technology throughout the firm?

A) limited product runs of many unique products
B) higher markdowns
C) fewer write-offs
D) less need for advertising

Question 39

Zara's clothing lines are designed:

A) by star designers like Stella McCartney.
B) in collaboration with celebrities and pop artists.
C) by design school graduates to suit customer demand.
D) by designers who win talent shows sponsored by Zara.
E) mostly by foreign designers in European design hotspots of Paris and Milan.

Question 40

Zara encourages employee use of technology by tying employee salaries to sales performance.

Question 41

Zara also saves money by simplifying pricing. An item sold in Bangkok is likely to cost the same as a similar item sold in Barcelona.

Question 42

Zara's vertically integrated model is easier for rivals to copy compared to Dell's, as computing is more complex than clothing in terms of number of new models offered.

Question 43

Rising fuel costs are likely to make Zara's model of twice-weekly deliveries more expensive to maintain.

Question 44

Briefly explain the intelligence-gathering exercises carried out by Zara in its stores and the role of technology in such efforts.

Question 45

Describe how Zara's counterintuitive practice of making limited production runs is profitable and effective in maintaining a competitive advantage over the firm's rivals.

Question 46

When a single firm owns several layers in its value chain, it is said to be _______________.

Question 47

Coordinating and enabling the flow of goods, people, information, and other resources among locations is known as _____.

Question 48

ROI is a term used to represent the:

A) return on information
B) rate of information-generated
C) regular order intake
D) return on investment
E) relay-ordered inventory

Question 49

_____ represents an integrated solution that combines hardware, software, data, procedures, and the people who interact with and are impacted by the system.

A) A neural network
B) Artificial intelligence
C) An information system
D) Supercomputing
E) Cloud computing

Question 50

Our analysis of Inditex's Zara stores showed the power of data to fuel competitive advantage. List the two acronyms for technologies that Zara uses to collect data in stores, and describe what the data from each of these respective systems 'tells' the firm.

Question 51

How does RFID improve in-store customer service?

Question 52

At Zara, clothes are ironed in advance and packed on hangers, with security and price tags affixed. This system means that employees in Zara stores simply move items from shipping box to store racks, spending most of their time on:

A) outsourcing their sales activities.
B) value-added functions like helping customers find what they want.
C) wrestling with inventory during busy periods.
D) packing unsold merchandise that need to be returned to the distribution center.
E) whisking items from their stores to the staging areas.

Question 53

An information system is an integrated solution that combines five components: hardware, software, data, _____, and the people who interact with and are impacted by the system.

Question 54

Why has Zara been more effective in leveraging technology to enhance its operating strategies than its rivals? Provide an example to contrast Zara's handling of technology in its operations.

Question 55

A(n) _____ is a transaction process that captures customer purchase information.

Question 56

Factors such as weather, natural disaster, terrorism, labor strife, or political unrest can shut down a firm's operations. Which of the following is one of the measures taken by firms to hedge such risks?

A) Driving up profitability by increasing prices of market goods
B) Spreading productions facilities across the globe
C) Requesting government intervention in the form of subsidies or nationalization
D) Sourcing raw materials from countries with low labor costs
E) Diverting marketing and advertising budgets to accommodate greater production

Question 57

What role does Zara's headquarters play in the running of its stores?

Question 58

Walmart is a large firm, but some suggest that Zara has had more success implementing effective RFID. Why?

Question 59

The strengthening of the euro relative to the dollar has insulated Zara against financial vulnerabilities.

Question 60

Many firms have developed innovative information systems, only to find that employees fail to adopt these tools. How does Zara encourage store managers to effectively use the systems deployed in stores?

Question 61

The organizational activities that are required to produce goods or services are known as _____.

Question 62

The Zara experience involves a regular supply of new stock on the shelves, because of which customers tend to visit Zara's stores more often than they visit other retailers' stores. However, such a policy will become more expensive to maintain if:

A) star designers demand a higher fee for its designs.
B) PDAs are not used.
C) fuel costs rise.
D) Zara's horizontal integration fails.
E) Zara outsources its production process.

Question 63

What are the operational and financial challenges that Zara faces?

Question 64

Zara's production costs could rise at higher rates than its competitors because many of the firm's costs are tied to the _____.

A) euro
B) dollar
C) yen
D) pound
E) franc

Question 65

Zara is susceptible to any disruption in northern Spain because:

A) it moves all of its deliveries through just two locations, both in Spain.
B) it conducts its trade operations based on the American dollar rather than the stronger euro.
C) most of Zara's products are sold in markets outside Spain and Europe.
D) Zara's products are sold at much lower costs around the world than in Spain, and this harms profitability.
E) Zara's production facilities in Asia and Central America are threatening employment in Spain.