Deck 3: Zara: Fast Fashion From Savvy Systems

Question 1

Much of Zara's products are stitched together through a network of local cooperatives that have worked with Inditex long enough to operate without written contracts.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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 production model.
D) operating through fewer stores across the world than its closest rivals.
E) keeping its production processes in-house.

Question 5

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

Question 6

_____ involves outsourcing production to third-party firms.

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

Question 7

Contract manufacturers are widely 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) they often employ child labor.

Question 8

Managers in Zara's stores are motivated by the company's strong social service ethic to interact with customers.

Question 9

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 10

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

A) excess inventory
B) too many storefronts
C) a large labor force
D) limited production runs
E) dispersed production facilities

Question 11

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

Question 12

_____ 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 13

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

Question 14

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 15

Zara's high fashion styles are inspired by customer tastes.

Question 16

Firms that use contract manufacturers do not directly employ the workers who produce the requested goods.

Question 17

Outsourcing production to third-party firms is called _____.

Question 18

Zara has managed to reap profits in spite of limited production runs and rarely run sales.

Question 19

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

Question 20

Zara's design staff consists mostly of young, hungry designers fresh from design school.

Question 21

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) profitable products or services, the market for which is dominated by a large number of small firms.
E) consumers who conform to industry-determined profiles of profitability for competing firms.

Question 22

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) using feedback rather than hunches and guesswork to plan and issue rebuy orders.
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 23

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) plan styles and issue rebuy orders.
D) determine where future Zara stores should be located.
E) identify the products that customers would like to buy through discounted sales.

Question 24

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 25

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

Question 26

Zara's clothing lines are designed:

A) by star designers like Stella McCartney.
B) in collaboration with celebrities like Madonna.
C) by design school graduates to suit customer demand.
D) by designers who win talent shows sponsored by Zara.
E) mostly by foreign designers from France and Italy.

Question 27

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

Question 28

Zara negates the risk of maintaining high inventory by:

A) outsourcing production to contract manufacturers in Turkey and Asia.
B) using technology-driven goods distribution systems for stores around the world.
C) recruiting young designers fresh out of school to design its clothes, rather than employing star designers.
D) keeping large swaths of production processes in-house.
E) having limited production runs of its wares.

Question 29

_____ are critical for capturing sales data, and are usually linked to inventory systems to subtract out any sold items.

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

Question 30

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 the latest catwalk fashion shows, 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 employing star designers, Zara manages to conceive a wider range of fashion trends than its rivals.

Question 31

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 32

As the world's largest chain of coffee houses, Starbucks sources most of its raw materials such as coffee beans and vegetables from suppliers owned by it. It also holds equal or majority stakes in most of the foreign direct investment it carries out in other countries to set up franchisee coffee shops. Based on this information, Starbucks can be said to be:

A) privately owned.
B) vertically integrated.
C) operationally effective.
D) publicly traded.
E) logistically stacked.

Question 33

In terms of percentage of revenue spent on advertising, Zara has possibly the lowest figures in the whole industry.

Question 34

Limited production runs ensure customers do not have to visit Zara's stores as often as they visit other stores.

Question 35

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 36

Zara's limited production runs are not attractive for most customers, as they would rather wait for the products to go on sale.

Question 37

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) 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 38

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) end up with little variety in their wardrobes.
E) can offer effective suggestions on what they wish to see in the stores.

Question 39

The PDAs used by Zara staff are linked to the store's point-of-sale system which shows:

A) data on the average footfall in the store over a period of time.
B) number of items bought by a customer for every item tried on.
C) the number of customers interviewed by each member of staff.
D) the average number of clothes sold for every customer visiting the store.
E) how garments rank by sales.

Question 40

A firm is said to be vertically integrated if:

A) its subsidiaries are involved in the production of variants of the same product or service.
B) its competitors are in the same stage of production and in the same industry.
C) it acquires a majority stake in a competing firm in its own industry.
D) its stock value has been increasing at a higher rate than its competitors' for at least one quarter.
E) it owns several layers in its value chain.

Question 41

Zara's production costs could rise at higher rates than its competitors because its costs are pegged to the _____.

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

Question 42

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

Question 43

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 44

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 assumed information systems are made up of only hardware and software.
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 45

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

Question 46

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 47

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

Question 48

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 49

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

Question 50

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

Question 51

The term operations is used to represent:

A) a way of doing business that competitors struggle to replicate and that frequently involves technology in a key enabling role.
B) attempts to match the benefits of a successful position while maintaining an existing position.
C) the process of performing different tasks than rivals, or the same tasks in a different way.
D) the organizational activities that are required to produce goods or services.
E) the flow of goods, people, information, and other resources among locations.

Question 52

_____ 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 53

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 54

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

Question 55

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 56

ROI is a term used to represent the:

A) average IT expenditure of a firm as a percentage of its revenue.
B) efficiency of converting collected raw data into information that can be leveraged.
C) relative profitability of an investment project, of a capitalist enterprise, or of the capitalist economy as a whole.
D) amount earned from an expenditure.
E) rate of return on the ownership interest of common stock owners.

Question 57

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 58

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.

Question 59

Which of the following activities is a part of operations?

A) Marketing
B) Training
C) Advertising
D) Accounting
E) Maintenance

Question 60

Zara is so _____ integrated, the firm makes 40 percent of its own fabric and purchases most of its dyes from its own subsidiary.

Question 61

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

Question 62

Which of the following factors is considered key to Zara's ability to maintain a winning business formula?

A) Keeping the design and conception process in-house against the conventional wisdom of outsourcing
B) The practice of limited production runs that keep customers interested and asking for more
C) Keen understanding of how information systems can enable winning strategies
D) The twice-weekly delivery model which ensures that newer stock is available for customers more often than in rival stores
E) The model of globally dispersed production that leverages low-cost labor and keeps profit margins high

Question 63

The Zara experience involves a regular supply of new stocks 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 64

Zara has one of the lowest advertising budgets in the fashion industry. _____ is one of the factors responsible for this.

A) Low-price model
B) Vertical integration
C) In-house production
D) Twice-weekly delivery
E) Technology

Question 65

Dell's fall in market share due to rivals copying its value chain is cited as a precedent for Zara. However, which of the following factors suggests that Zara's value chain might be more difficult to copy?

A) Zara is backward vertically integrated while Dell has tended to be more forward vertically integrated.
B) Zara's scale advantage ensures its market share is more than that of all its rivals' put together.
C) Zara's costs are pegged to the stronger euro as compared to Dell, which was dollar-based.
D) Clothing is more complex than computing, in terms of number of new models offered.
E) The computer industry, unlike clothing, is influenced by several extrinsic factors, such as economic recession.

Question 66

What implications do rising fuel costs have on Zara's operating model?

A) Zara will have to open up its highly vertically integrated model.
B) The twice-weekly delivery model will become more expensive to maintain.
C) Zara will have to sell more of its products in American and Asian markets than in European markets.
D) Customers will end up visiting Zara stores less often driving up marketing and advertising costs.
E) Zara will have to increase its prices in European markets to offset the low prices in overseas markets.

Question 67

Which of the following is one of the potential financial vulnerabilities that Zara could be exposed to?

A) The cost of Zara products could rise in Spain and other European markets due to the resurgence of the dollar.
B) The costs of maintaining a globally dispersed production model could curtail Zara's profit margins.
C) The high costs of Zara products compared to other retail clothing manufacturers could turn customers away.
D) Most of Zara's products are sold in non-European markets, which are lower-priced and decrease profitability.
E) A strong Euro means Zara's Spain-centric costs rise at higher rates compared to competitors.

Question 68

What are the operational and financial challenges that Zara faces?