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Zara Case

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Zara: Information Technology For Fast Fashion
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|Problem Statement: In 2003, Zara's CIO must decide whether to upgrade the retailer's IT infrastructure and capabilities. At the time of the |
|case, the company relies on an out-of-date operating system for its store terminals and has no full-time network in place across stores. |
|Despite these limitations, however, Zara's parent company, Inditex, has built an extraordinarily well-performing value chain that is by far |
|the most responsive in the industry. Therefore the major problem to the company is to decide whether it has to upgrade the present system |
|and by doing so, risking the reliability they have with the current system or to continue with the present DOS based system which will not |
|be compatible for future changes or improvements. |
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|Analysis & Recommendation: Zara’s main strategy is the ability to respond very quickly to the demands of target customers which called for |
|identifying trends of the customer in advance. The company has been able to identify the trends and meet the demand with the help of its |
|autonomously organized structure and its effective value chain systems. The present system followed by Zara has been very effective and very|
|easy to maintain, which as a result has persuaded the company to continue without any change in the present system so far. The problem that |
|Zara faces right now is that the system that they use, P-O-S (Point of Sale terminals), runs on DOS which Microsoft does not support anymore|
|and any hardware change in the POS terminal will not be compatible with the current POS software. Although the sense of urgency for the |
|change may not be that high, investing in IT infrastructure is a must as MS Dos is an obsolete technology and there is no contract or |
|guarantee from their POS terminal vendor that they will continue supplying the same terminal with out much changes in the hardware for any |
|specific period of time, therefore change is unavoidable. The other main issue that Zara faces is that the stores don’t share inventory |
|information electronically and hence inventory management becomes highly difficult and manual. The decision making process is based on the |
|judgment of employees throughout the company instead of relying on a small set of decision makers; the majority of the decisions were made |
|by store managers and as a result they placed orders for the items rather than simply accepting and displaying what headquarters decided to |
|send them. Hence the majority of the decisions are made by the judgment of employees on just the customer needs and trends; the transfer of |
|knowledge to other personnel is very negligible in the present system. The basic ordering activity in store happens with the use of a PDA |
|device which did not share the information with the POS system and this made it really difficult to access all information effectively. |
|Upgrading the present system will help in increasing the functionality and networking capability which will help in further improvements in |
|Zara’s operational activities, including better demand forecasting and better inventory replenishment, which can give additional improvement|
|to the current status of demand fulfillment. The main advantage of upgrading the system is that ordering can be done through the POS system |
|and would be much easier. At the same time this would aid increasing networking capability which would result in better information access |
|to make effective decisions. Apart from the above mentioned operational benefits, investing in technology right from beginning will give the|
|competitive advantage to the company when competition increases and help the company to be a pioneer in the industry. The new system would |
|allow real time inventory management which will help to increase the overall service level and help in cross-selling between stores and |
|thereby provide better service to the customer. The cons that the company will be facing in going for the new system is lack of expertise in|
|windows based operating systems which will be a huge challenge for the company to develop the system according to their unique requirements.|
|The other major challenge that the company will be facing is the huge maintenance cost. The whole process would be time consuming, and |
|implementing the new system would be very difficult as the reliability of the system is not certain. The main decision that the company may |
|face in developing the new system would be whether to make or buy the new system. As the sense of urgency is low, making the system in-house|
|may sound better, however because of the lack of expertise and this not being the company’s core competency, buying the software would be |
|ideal. Although there are many functionalities that can be added to the new system, Zara should not try to add all the functionality |
|initially, but instead shift to the new system with minimum required functions giving the company the time for the transition and at the |
|same time bringing some reliability to the system. Once the systems become reliable, the additional functionality can be added later in a |
|sequential manner according to the priority. |
| |
|The cost incurred by the company for implementing the new system will be around €8,728,920 for a total of 531 outlets and will cost around |
|€207,090 as maintenance cost every year. |

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