Zara
IT for Fast Fashion
Zara was established in 1975 by Amancio Ortega.
He was the largest shareholder of Zara and the richest man in Spain until 2003.
Jose Maria Castellano joined the company in 1985. He had worked as an IT
manager and shared Ortega’s belief that computers were critically important in
enabling the kind of the business they wanted to build.
Issue
Description:
Zara is facing an issue whether to upgrade its
current IT system or not. Salgado has the priority to upgrade the current POS
system whereas Sanchez thinks that it is not necessary. Salgado believes the
system should be upgraded in order to avoid the risks due to hardware changes
by the vendor. He doesn’t want Zara to be in any compromising situation. The retail
Point of Sale (POS) system is working smoothly and it requires minimum
maintenance. Sanchez’s argument is that why fix the POS if it is not broken. Company
continued to use an outdated, DOS operating system for their POS terminals. Microsoft
no longer supports DOS system. Sanchez developed the in-house POS application that
was specifically designed to run on DOS. Sanchez and Salgado are having dilemma
of choosing between current IT system based on DOS or upgrade to a new
operating system such as Linux or Windows.
Drawbacks of current POS
System:
- One problem is that the hardware vendor for POS terminals could upgrade their machines or some peripherals that they are not DOS compatible anymore. Because of that, Zara cannot purchase the new POS terminals for new stores.
- This system is lacking in terms of individual stores’ inventory management. When a sale is entered into a terminal, there is no way to report that in the inventory. Store managers manually count the items in stock to conduct the inventory in order to determine which items need to entered into the order forms twice a month.
- Current POS terminals cannot report the daily sales directly to Zara’s headquarter automatically. Employees need to copy daily sales on floppy disk and bring it to the terminal with a modem to transmit sales information to headquarters.
- Personal Digital Assistants (PDAs) are used primarily for ordering and also for tasks such as handling garment returns to distribution centers and transmitting information from head quarters to all stores.
- Zara’s website exists but serves only a digital display window, showing a few typical garments at any time.
Situation Assessment:
Zara is growing at a rapid pace, adding 24 stores from
2001-2002 in various countries. It has 531 stores in addition to distribution
centers and Inditex headquarters. There is no reason to believe that this
expansion and growth would cease in the near future. With this immense success,
should company take the risk of having more issues later as it opens more stores?
The basis of this decision is not only about the cost for the
change to the new operating system and risks associated with the existing outdated
system but also about opportunity cost to be more effective and profitable. The
company will need to evaluate cost and risks of the two alternatives.
Existing System and its
evaluation:
Current DOS based POS system is functioning efficiently to
fulfill today’s needs and employees are already familiar with this system. Until 2003, there is no major cost foreseen
for repairing or maintaining this system. The company can purchase extra DOS
based POS terminals in advance in order to avoid the situation when the vendor does
not offer them anymore. It allows Zara to open new stores and use these extra
POS terminals without any delay.
There is no drastic change in the system as any major change could
cause a domino effect. It can affect the company positively or negatively. If the
POS terminal vendor suddenly starts making changes in the hardware, this can
delay Zara from opening new stores as it prohibits the use of DOS. If the company
continues with existing trend, this could end up costing Zara millions of
dollars in lost sales.
Upgraded System and its
evaluation:
Zara has another alternative to switch to the upgraded or new
operating system. It has three choices for new operating system such as Microsoft,
Linux or Unix. Zara does not have any cost hurdle to overcome and it does not use
cost and benefit analysis for selecting new operating system. Their decision
criteria should be to evaluate the cost of the three providers for each
operating system. The cost for three operating systems per computer is: Window
(€140 one-time cost and € 30 annually); Linux (€0 one-time cost and € 10-150 annually);
and Unix (€160 one-time cost and €25 annually). The hidden cost is also there in terms of
employees training.
This option eliminates the risk involved with using an
outdated system. New terminals enable the system to be networked not only
within stores, but with other stores and Zara’s headquarters. There will be no
need of PDAs. The terminals can handle returns as well as track the inventory with
each transaction. There is no need of floppy disks and dialup modems. Sales can
be automatically transmitted over the network to headquarter at the end of the day.
Recommendation:
After going through evaluation of two alternatives, I would
recommend that Zara should continue with the existing operating system while
building or upgrading the POS system. In order to address the needs due to fast
growth trend, Zara should start planning to develop POS system for the long
run. As the existing system functions smoothly and it is effective for running
all stores and employees are familiar with this system, there is no rush to
switch to new POS system immediately. Zara can hire IT specialist who can sit
with Sanchez to develop POS application as per the company’s need.
They should also update their employees regarding new system
and provide them the training. Any sudden change in the POS system can hammer
the company’s growth and efficiency. Once they establish new POS system they
should run it in a few stores for testing the system initially. If it works
successfully they should adopt it for the rest of the stores.
Presentation:
If I were the consultant of Zara, I would analyze the current
system and its limitations and threats and their impact on company’s financial
standing. I would then explain why upgrading to the new system is necessary to
keep up with the current technology trends. I would enhance my presentation
using MS Powerpoint, Excel charts and tables and Visio diagrams to visualize
process changes. I would then present the benefits of upgrading to the new
system and how it will save the company money in terms of lost labor to do
inventory and reporting financial data to the headquarter
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