Case Study on Zara: IT for Fast Fashion

I. Executive Summary
After reviewing Zara: IT for Fast Fashion, it is concluded that the problem the company is facing is their need to upgrade from their POS (point-of-sale) terminal system that uses a DOS (Disk Operating System) to a POS terminal system that does not run on DOS. Upgrading would allow the company’s stores to be interconnected and instantly check the stock of a certain SKU in another store. It is recommended that this upgrade be made before the company furthers their global expansion, specifically into Italy in order for the new stores to open with the new POS terminal system.

II. Issue Identification
The main issue Zara is facing is the operating system they are using. They are currently using POS (point-of-sale) terminals which run on DOS (Disk Operating System) that are no longer supported by Microsoft. If the hardware vendor decides to upgrade their machines in a way that they are no longer DOS compatible, Zara would not be able to open new stores until they switched to an upgraded system.

III. Environmental and Root Case Analysis
Other issues that are causing problems: * The communication barriers between the stores * Many difficulties with faxing order forms which led to the use of personal digital assistants (PDA). * However the POS terminals and PDAs do not contain information that can be transferrable to another store when they wanted to know about a particular SKU in stock. Employees must personally call another store to get that information. * Inventory management * There was no in-store network to connect the POS terminals therefore employees need to copy daily sales totals from each terminal onto a floppy disk, and then carry the disk to the modem to complete the transition. * This creates more area for error in the process of keeping track of inventory. * Short life of the clothing * Does not help create customer loyalty. * Consumers may stop buying from the store once they notice the clothing does not last very long. * Does not affect new customers as they do not yet know about the quality of the clothing. * Limited growth into Italy * Consumers in Italy follow similar fashion trends and similar styles as the other European countries in which Zara has many store locations. * The ability to grow in the Italian market would be beneficial to Zara by increasing revenue. * Would not cost much more to ship to this area as it is still near their headquarters.
These factors are important to allow Zara to grow and expand into other areas. It is believed that solving these problems before opening new stores would create fewer problems for the company in the future.
Financially, Zara is in good standing. Their net income has had a steady yearly increase which is a reflection on the yearly increasing of their revenue. However, the increasing liabilities could potentially become a problem if something were to happen that would lower sales.

IV. Alternatives and Options
Listed below are the possible solutions to Zara’s issues. * Upgrade from their current POS terminal system – communication between the stores would improve.
Pros
* If the machine vendors decide to upgrade it will no longer have relevance to Zara as they would already have new machines. * Existing stores will be able to transfer stock information more rapidly and efficiently.
Cons
* May initially be costly as they would need to purchase the new equipment and spend time and money training current employees. * There is no Chief Information Officer or processes for setting an IT budget, therefore no single person would be making this decision which could create problems if the people have opposing views.

* Produce longer lasting clothing – for classic styles there should be an emphasis on having longer wear, however trend clothing can stick with their current manufacturing process as this type of clothing is meant to last as long as the trend and in fashion that is a short period of time.
Pros
* Ability to create higher brand loyalty. If a consumer is able to get more wear out of the classic style clothes, they would be returning year after year rather than buy from another retailer because they know it is quality clothing. * Possibility of increase in sales due to higher amount of returning customers.
Cons
* Increased manufacturing costs due to higher quality of fabric and/or time to produce the clothing.

* Open more stores in Italy – this country is a fashion capital of the world.
Pros
* It would not cost an extraneous amount of money to ship clothing and supplies to this area as it is in Europe. * Fashion trends in Europe are similar in most western European countries; therefore Zara’s products would appeal to these consumers as well.
Cons
* Competition from other retailers may be the reason they have not already expanded into this region.

V. Recommendations
It is recommended that Zara upgrade from their current POS terminal system. This will allow the company to share information between stores more easily as they would be interconnected. They would no longer be risking not being able to use the system if the vendors decided to upgrade the machines. This upgrade should take place as soon as the financial means have been allocated because it would be best to open new stores with an upgraded system rather than the current one so that new employees would not have to be trained on two systems. Expansion into Italy should take place within 2 or 3 years once managers have had time to adjust to the upgraded POS system and learn the best ways to work with it. In this time management will be able to see if this system has had a positive or negative effect on the financial state of the company. There is much revenue to be gained from expanding into Italy which would be able to offset the cost from upgrading POS systems and the cost of opening new stores.

VI. Implementation
They would need to begin by contacting their current vendor to see if they have a POS terminal system that is not DOS compatible. If their current vendor does not, the company would need to research to find a vendor that has the product they are in search of. This task would be brought upon Xan Salgado Badás since he is the head of IT for Inditex and is most familiar with the current terminal system. Salgado would be responsible for implementing the training plan with the new terminal system as well, therefore, he should be the one to find the terminal system and test it first-hand. The process of finding a new terminal system, replacing and installing new devices should be completed in 6 months. In order to make it so that the stores are interconnected, the new terminal system should be installed by region, therefore there is never a store within a certain radius that is following the old terminal system.
Ramón Renón who is the head of expansion for Zara would be in charge of finding the cities in Italy that would best accommodate a new store. He would need to find an area with high density and medium to high income consumers. Although the process of expanding will not take place until after the upgrade of POS terminal system, Renón should know where he thinks it is best to expand in 3 months so that the process of making arrangements to open a new store may begin.
VII. Monitor and Control
In order to see if the new POS terminal system has had a positive or negative effect, a survey will be sent to all employees that work with the system on a daily basis. This will allow management to take their feedback and assess whether or not they should keep this new system.