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The deployment of RFID technology in Zara

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The purpose of this report is to explore the deployment of RFID technology in Zara. It includes howRFIDcontributes to Zara’s supply chain, supports fasterlogistics activities, provides greater and cheaper products quality with more responsiveness and improvescustomer satisfaction.

1. Introduction

ZARA, a chain of apparel brands owned by the Spanish company Inditex Group. Inditex is Spain’s number one apparel retailer with more than 2,000 locations in 52 countries.Inditex Group also owns Massimo Dutti, Pull and Bear, Uterque, Stradivarius and Bershka. ZARA is one of the most successful apparel stores in the world. It is considered to be one of the European brands which has the highest research value.

Headquartered in A Coruña, Spain, ZARA opened its first branch in 1975. Today, Inditex Group is probably the fastest-growing retailer in the world, with more than 70 countries worldwide. More than 2213 stores are ZARA’s branches. It generated more than 15 billion sales in 2016 worldwide.

The purpose of this research to analyze the following:
The function of RFID
How RFID works
Benefitsof RFID in supply chain
Risks involved
Case study: ZARA

2. Literature Review

2.1 What RFID is
RFID stands for Radio Frequency Identification, which uses radio waves to identify physical objects automatically. RFID is a form of wireless communication that integrates the use of electromagnetic or electrostatic coupling in the radio frequency portion of the electromagnetic spectrum to identify an object, animal or person. RFID is a very valuable business and technology. It can replace theexisting identification technologies like the bar code. RFID offers strategic advantages for business because it can track inventory in the supply chain more effectively, provide real time in transit visibility and monitor general enterprise assets.

2.2 How RFID works
An RFID system is mainly made up of four parts: a computer system host, a reader, an antenna, and a tag.The reader sends out specific electromagnetic waves through the attached antenna. The antenna of the targeted tag is tuned to receive these waves, and it gains power from the received field to activate the microchip that will modulate new waves to send back to the reader. The reader then converts the radio waves to a more usable data. Information collected from the tags is then transferred through a communications interface to a host computer system, in which the data can be kept in a database and analyzed later. This is a brief introduction of how RFID works.

2.3 RFID’s benefitsto the supply chain
RFID technology can benefit the supply chain in the following ways. First, RFID enhances information visibilityand captures customer demand, thus decreasing uncertainty in the supply chain (Gaukler et al, 2007; DeHoratius & Raman,2008; Zhou, 2009).

RFID provides different levels of information visibility. They are enhanced inventory visibility, enhancedshelf visibility, and enhanced storewide visibility. These visibility levels all lead to the same type of benefits but to different extents. Next, RFID enabled changes in inventory, shelf, and shrinkage management processes at three levels of RFID implementation.

Regarding enhanced inventory visibility, providing RFID readers in the backstore and at POS can improve the backstore inventory management process. It can also update inventory records at the backstore entrance/ exit doors and at POS when an item is purchased.

The Perpetual Inventory (PI) is updated automatically according to this visibility. Inventory accuracy is improved by the visibility of items, and so the record of items on the shelves is more accurate. Shrinkage, such as theft and misplacement, can be detected easily and usually through automatic PI. Itinvolves the lowest cost and fewest technical restrictions. Several case studies from Dillard’s (Hardgrave, 2009a), American Apparel (2009), and Bloomingdale’s (Hardgrave, 2009b) have shown the benefits of item-level RFID on inventory management in retail stores with evidence.

For enhanced shelf visibility, it refers to real-time shelf visibility on the store floor and in the backstore, which further enhances inventory accuracy, shelf replenishment and loss detection.(Doerr & Gates, 2003). The visibility of items on shelves results in real-time detection of misplacement and theft and, hence, adjustment in the inventory level.Besides, shelf visibility also allows retailers to monitor customer shopping behavior to some extent.
According to a research, shelf space can be released and inventory holding can be reduced by adopting RFID at the shelf level (Szmerekovsky et al, 2009), as shelves can be replenished more frequently. Moreover, inventory inaccuracy drops due to faster detection of misplacement and theft, as well as fewer execution errors. Particularly, while retailers encounter high demand uncertainty, enhanced item-level visibility on shelves allows retailers to lessen the impact of this demand variation and hence provide better performance compared to retailers without this visibility.

For the storewide level of RFID implementation, it offers maximum information visibility and contributes more to inventory management than the other two levels. Not only can items be tracked on shelves and in the inventory, but also at any location on the sales floor. Besides that, it is more likely to generate benefits such as identifying customer shopping behavior and preventing theft by figuring out patterns.

In fact, RFID technology can benefit not only the supply chain, but also merchandising and marketing. For instance, promotion planning and execution and customer service could potentially be enhanced with RFID.

2.4 Risk in RFID
There are both security risks and privacy risks in RFID.

For security risks, the first type is called ‘data eavesdropping’, which means the interception of communications between RFID tags and readers. Corporate espionage is also possible via data eavesdropping. For instance, competitors may spy on one retailer’s confidential business information, including sales trends, pricing trends, stock selections, and stock turnover rates(Juels, 2006; Li & Visich, 2006; Shih et al., 2005).

By monitoring RFID tags on the sold items, a seller organization may also try to get visibility into the downstream of the supply chain after the seller can no longer have physical access to the items (Kapoor et al., 2009).

The second type of security risk is referred to as“data corruption,” which means erasing or modifying RFID tag contents. The tag contents include price information. Via data corruption, hackers could reduce the price of expensive retail items, and then choose an RFID-enabled self-checkout counter to avoid detection by store staff. (Li & Visich, 2006).
Spoofing, which involves the retrieval of confidential data by impersonating authentic readers (Shih et al., 2005). Spoofing can cause, for instance, counterfeiting of retail products by falsely authenticating fake products using stolen authentication data. Finally, denial of service is a type of attack that hinders the function of RFID tags temporarily or permanently (Zuo, 2010). Denial of service can lead to a loss of business information and disruptions to an organization’s operations.

In short, security risks affect organizations and cause financial losses.

For privacy risks, the first issue involves RFID’s ability to collect end-consumer information without an individual’s knowledge or approval. The extremely small size of RFID tags makes it possible to inconspicuously attach the tags on items. In addition, the scanning process of RFID tags is wireless, so it cannot be seen by human eyes or ears. Thus, a retailer has the ability to conduct market research, for instance, by tracking RFID tags on pre-sale products inside the store without the approval of the consumers.(Jones et al., 2004).

The second problem is that RFID is able to infringe on individual anonymity. Traditionally, RFID tags involve product information, instead of consumer data. Yet, as an RFID tag has the ability to provide a unique identifier to an item, any connection between the item and an individual can become the specific identifier of the individual. For instance, a female customer who carries a previously bought item in her handbag can be detected as a frequent customer if the tag is read on her re-visit of the shop.

Although the retailer is not able to gain full information on her identity, it is still possible to build a personal profile according to the data such as the how frequent, at what time, on which day she visits the store, as well as the record of what her purchase of other items (Wasieleski & Gal-Or, 2008). These consumer profiles could then be used for price differentiation strategies or could even be sold to third parties (Jones et al., 2004; Peslak, 2005). Furthermore, if the item was medicine such as drugs carried by an individual, then the product information could disclose a piece of sensitive personal data.

The thirdissue relates to the surveillance of movement of individuals, owing to the connection between a product and an individual by the use of RFID. By tracking RFID tags on items that are possessed by individuals, people may be tracked in the shops,on the streets, and even in their own homes (Jones et al., 2004; Rutner et al., 2004).RFID tags seem to raise the possibility of the idea of ‘Big Brother’, in which the authority can monitor individuals’ move.
In a word, privacy risks affect individuals and lead to ethical issues. In fact, all the ethical issues have triggered opposition to the use of RFID from different consumer groups, namely Consumer Against Supermarket Privacy Invasion and Numbering (CASPIAN), the American Civil Liberties Union, the Privacy Rights Clearinghouse (PRC)(Barut et al., 2006; Jones et al., 2004).

Zara is chosen as our target store in our case study. On ____ October 2017, our group conducted our store visit at the branch in Hong Kong Pacific Place, with the store manager Yan Wong. We learnt from her about the actual practice of their RFID operation in store. The implementation of RFID technology on each garment tag has begun since 2014. RFID chips can store information about whatever item they are attached to and, when prompted, emit that data via radio signals to a scanner.
It is an innovation that allows the ‘fast fashion’ chain to reuse them after the tags are removed at checkout. The security tag’s plastic case would protect the chip, allowing for reuse, and it would be removed at checkout.

Inditex is tag the chips inside its garments’ plastic security tags,

Appropriate connections??
During the store visit, we learnt the actual strategic flow of RFID in Zara, from the designer, the supplier, the manufacturer, the distribution, the logistics centre, the hubs, to the retail stores.
(Figure 1) The RFID application starts from the logistics center to use RFID tag when all the manufactured clothes are shipped back to Spain. They tag and programme each garment with hang by RFID tag and it can help to stock allocation.
Items are then distributed in different countries and hubs are based on individual requirements and needs of the particular locality.It can also help to keep real time trace the delivery status around the world.
Hubs will distribute the productsto several retail stores that require location. It can make agile replenishment, fulfill customer requirement and make sure the retail shops receive their products ordered.

Practical contribution

Zara has maintained its status as a leader in the apparel industry and what makes it so profitable is its unique supply chain strategies. After implementing RFID,Zara uses the following principles to increase their net income and maintain a standing of being a brand that is both fashion forward and affordable.

RFID has been deployed to improve supplier relationship managementsuch as
enabling trends analysis for better forecasting and planning visibility, more strategic supplier’s relationship and reducing supply costs with stable and accurate demand.
Moreover, it can also improve customer relationship management such as ability to provide better service using real time information about produce, better security control, effective stock reallocation and distribution to different regions (high inventory visibility), quick replenishment less storage (higher demand visibility)

Quick response to Demand – Zara follows a pull model in their inventory and supply chain management. They create up to 1000 designs every month based on store sales and current trends. They monitor customers’ spending in the store to evaluate and understand what types of designs are being consumed and then accordingly iterate on their next designs

Small Batch Productions – Zara has a fast turnover, they produce small number of quantities for every product. This gives them the opportunity to quickly understand what designs are successful. It is also a great way to explore new designs and understand its acceptance rate in the market. This also heavily reduces the risk of producing large quantities of something that the customer does not want. Even though it might seem like a bad idea to invest in different designs, Zara optimizes by using the same material only in different ways.

Central Distribution Center – Zara has very strong IT systems that support its distribution. All the clothes are shipped back to Spain, the central location. From here, it is distributed to different countries and stores are based on individual requirements and needs of the particular locality.

From our group discussion we recommend a collaborative planning forecasting and replenishment (CPFR) is a model which can enhance a better information sharing to maintain the pullfollow and react fast.

Board of Committee which involvesdesigners, logistics, retailers, suppliers and manufacturers should be set up so that all these parties can share and exchange information, understand each party’s procedure flow and response, increase the productivity with better visibility, fast react to current visible issue in order to avoid more layer structure communication. In short, it can predict future problems and ensure the flow can be run more smoothly.

A conceptual framework is proposed exploring the RFID benefit in supply chain and
risk of RFID across the fashion supply chain, the main issue to its introduction and the fashion supply chain logistics activities in which RFID could be found. This represents an important contribution to Zara and in this industry

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