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Zara

In: Business and Management

Submitted By Jennifermu
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Zara: IT for Fast Fashion Case
Supply Chain Management Module 1

Date: October 7th, 2009

Executive Summary

My decision is to upgrade the POS terminals used by Zara to ensure the company is current with technology and compatible with the hardware vendor’s machines. January 1st 2004 is the scheduled date the POS terminals will be upgraded and running in all Zara stores around the world. The upgraded POS terminals will include more applications for store managers such as the ability to look up their own inventory balances and the inventory balances of other store locations. This factor alone is considered an advantage by store managers as it will allow each store to look up what they have been selling the most as well as avoid having to canvass the store at the end of each day. Secondly in the event Inditex’s hardware vendor upgrades their machines Zara’s POS terminals will be up to date with current technology.

Key Assumptions

It is anticipated Inditex’s hardware vendor may update their machines in order to stay current with technology. Inditex has no control over whether or not their hardware vendor will update their machinery therefore it would be wise to stay current with technology to avoid disrupting their largest chain of stores (Zara). Updating the POS terminals is not a guarantee of easing or rather improving current operations, however the statement of issues provided in the next section will elaborate further on why staying current with technology will offer Inditex’s largest chain of stores more functionality and networking capability.

Statement of Issues

Zara is an international fashion retailer which originated in 1975 by a man named Amancio Ortega. Mr. Ortega opened his first store in Spain after a German wholesaler cancelled a large lingerie order which almost lead the company near bankruptcy. Founded by Inditex, Zara currently has over 650 stores located in more than 50 countries and continues to grow each day. Inditex is one of the world’s largest fashion distributors and assists Zara with its textile design, manufacturing, and distribution. Zara’s design and production center is conveniently attached to Inditex headquarters in La Coruna with three halls which consist of the women’s, men, and children clothing lines. Zara stores may be found in countries such as Africa, America, Asia, Europe, and the Middle East whereby customers can find new products every week but in limited supply. Although Zara stores are geographically dispersed each store location adheres to strict deadlines with respect to order fulfillment and supply for example store managers in Spain and southern Europe place orders twice weekly by 3:00 p.m. Wednesday and 6: oo p.m. Saturday.
Zara’s possible competition may include H&M, Gap, and Benneton’s or any men’s and women’s fashion retailer. Mr. Salgado is the head of IT for Inditex and is concerned that the point-of-sale terminal used for Zara must be upgraded in the event their hardware vendor decides to upgrade their machines. If the point-of-sale terminal is upgraded Mr. Salgado will also face the issue of explaining to Zara they cannot open any new stores because the company does not have the point-of-sale software to support their own point-of-sale hardware. Another issue the point-of-sale terminal may present aside from Zara not being able to open any new stores is keeping up with the company’s request and or demands. Store managers of Zara are asking and suggesting for point-of-sale to include more applications such as inventory balances in their own stores and other locations. Zara’s “marketing task” is the constant development and design of fashion items to continually attract customers as well as create a sense of urgency to buy “right now”. In order for this marketing task to be successful the supply chain infrastructure must be well executed so items are shipped and arrive in time to meet the demands of consumers as well as provide a means for store managers to communicate and submit their orders. Inditex’s IT department plays a crucial role in this business as all Zara’s stores sales are recorded around the world and transmitted through their point-of-sale terminal every day. In other words Mr. Salgado faces the issue of whether or not updating the point-of-sale terminal will help or hinder Zara. Courses of action Mr.Salgado could take that would run contrary to management and perhaps shareholders is to upgrade the point-of-sale terminals in the event POS is not compatible with DOS or to leave the POS terminals as is. The critical issue Mr.Salgado must decide as mentioned previously is whether or not updating the point-of-sale terminal will help or hinder Zara later down the road. The decision is urgent as Zara’s supply chain is organized in such a way that it carries fewer inventories while maintaining a higher profit margin on sales as well as continued growth in sales. Also the issue of CEO’s Castellano and Chairman Amancio Ortega thought on computers or information technology; both individuals strongly believe technology is critically important enabler for Zara. With this in mind, Mr.Salgado must further weigh the decision to upgrade the company’s point-of-sale terminal so it reflects the interest and concern of Castellano and Ortega. Further beliefs CEO Castellano and Chairman Amancio Ortega share is the ability for Zara to respond quickly to the demands of the target customer and to welcome the knowledge or rather judgement of its employees throughout the company. Both beliefs of acting quickly and trusting the judgement of Zara employees presents the issue for Mr.Salgado to consider more advanced and up to date information technology and point-of-sale terminals.

Criteria
In order to succeed in my marketing task I must adhere to Ortega’s lesson when he opened the very first Zara store in 1975 “you need to have five fingers touching the factory and five touching the customer.” In order to continue this task, effective and up to date IT infrastructure is needed to take control of the company’s product and customer demands. Secondly criteria to consider which may or may not ruin things for my decision is whether or not I chose to explore the advantages and disadvantages of an upgraded point-of-sale terminal, and the outcome of my decision and how it will affect Zara as a whole. Store managers of Zara are seeking two primary things from their point-of-sale terminals; first managers just want their POS to include more applications from what it currently possesses, secondly the ability to look up inventory balances in their own stores and other stores is considered an added benefit from a manager’s point of view. Central management are seeking to upgrade the point-of-sale terminal with efforts to secure their machines if for some chance they’re not DOS compatible anymore. An additional note to make from the central managements perspective involves upgrading the POS will potentially avoid the disaster of any new Zara stores not being able to open because the company does not have compatible POS software. The plan to upgrade the POS terminals would succeed for several reasons with the first reason being it would enhance the store operations for managers wishing to look up inventory balances in their own stores and other locations. Secondly there is the unlikely event the hardware vendor for Inditex will upgrade their own machines which would result in Inditex not being DOS-compatible. An upgraded POS terminal will provide reliability for Inditex and potentially avoiding an incident of Zara not being able to open new stores because the POS software is not compatible with the hardware vendor’s software.
Analysis

Salgado is concerned the point-of-sale terminals used by Zara are not up to date and must be upgraded. As head of IT for Inditex Mr.Salgado must ensure that the company’s largest chains of stores (Zara) is prepared and up to date in the event their POS terminals are not compatible with their hardware vendor. Mr. Sanchez has written most of the POS applications and is not in favour of updating the point-of-sale terminals as he feels it is risky to upgrade a system that has worked well for so long. The POS terminals operate by recording the sales in each store around the world and are submitted the same time every day. The decision made is to upgrade the point-of-sale terminals used by Zara with the intent that the upgraded software will improve business practices, procedures, as well as provide the opportunity for increased efficiency within Zara stores. Upgrading the point-of-sale terminals used by Zara is currently the best solution for Inditex as they are the sole provider of IT for Zara and the fact that Zara is Inditex’s largest chain of stores. An analysis of Inditex store locations by country and group in Exhibit 5 can depict how large a chain Zara is in comparison to other Inditex chain stores. For example in 2003 Zara opened 419 stores in Europe in comparison to Oysho who opened 60 stores in 2003. This figure should reinforce the message of how large a chain Zara is and the need for upgraded point-of-sale terminals. An upgraded point-of-sale terminal including increased applications for store managers is yet another reason behind the decision to update the POS terminals for Zara. The ability for store managers to check their own inventory balances and the inventory balances of other stores is seen as a tremendous upgrade and improvement in the POS terminals. Furthermore the operations of Zara with respect to ordering, fulfillment, and design and manufacturing are crucial cyclical processes developed by the company which rely heavily on the use of Inditex’s IT support. Exhibit 7 is a picture of a handheld computer used by managers each night in order for each store to submit its order. Without the use of the handheld computer store managers would be faced with harsh penalties of receiving garments they previously sold not what they felt would sell well in their own store. Last but certainly not least the cost and effort required to upgrade the POS terminals was a big concern for Sanchez as he felt it isn’t necessary to tamper with a practice that has worked for so long. Exhibit 12 provides an overview with the associated costs if Salgado decided to upgrade the point-of-sale terminals used by Zara. It may appear costly and time consuming however for a business that is very structured in terms of their businesses practices, it would be in the best interest to upgrade the POS terminal to again avoid the possible occurrence of not being DOS-compatible.

Plan of Action
Mr. Salgado’s plan of action will be to update the point-of-sale terminals used by Zara in effort to accommodate the requests of store managers and build upon an existing base. The implementation of an upgraded POS will be completed by a team of Inditex’s IT professionals at their head office location in La Coruna. The upgraded POS terminal will commence official operations in the New Year in order to allow each store the time needed to familiarize themselves with their new POS terminals. All store managers will attend an info rmation and learning seminar regarding the upgrading of the POS terminal, this will provide store managers the opportunity to share and train their staff members.

August 2003
• Mr.Salgado will call Mr. Sanchez into his office and inform him Inditex will be updating the POS terminals.
• Mr. Sanchez will be responsible for writing most of the POS applications.
• Mr. Sanchez will be further advised he will commence updating and writing the POS terminals as early as mid August. (Mr. Sanchez will not be pleased as he is believes the POS terminals work perfectly as is and Inditex should not update the POS if it is working well.)
• CEO of Inditex Castellano and founder of Zara Mr. Ortega will attend a meeting held by Salgado and Sanchez whereby both men will present their proposal to upgrade the POS terminals as well as how upgrading the POS terminals will benefit the company.
• Salgado informs the hardware vendor Inditex will be upgrading their POS terminals.

Monday, August 15th
• Mr. Salgado & Mr. Sanchez advise the IT department of the plans to update the POS terminals and how this will affect their current positions and job duties.
• All 50 people in the IT department are from Galicia but the activities are carried out by an IS department, Mr. Salgado and Mr. Sanchez will further analyze whether or not recruitment will be necessary for their plans to upgrade the POS terminals.

September 1st, 2003
• Inditex will arrange information seminars for store locations to attend, this will allow store managers the opportunity to familiarize themselves with the new POS terminals as well as asked or present their own questions and concerns.
• The information seminars will be arranged in each country in order for the POS terminals and applications to be ready for use in the New Year.

September 7th, 2003
• Mr. Sanchez, Mr. Salgado and their colleagues will determine the exact new systems that will be used and which IS department personnel will be responsible for working on them.
• Once the chosen personnel are determined the new applications will be created.

October 1st, 2003
• At this point in time the new applications have been created; the personnel responsible for the new applications have been assigned their duties and responsibilities.
• All IS and IT personnel will attend another seminar in order to practice and familiarize themselves with the new applications. This will include store solutions, logistics support, and all administrative personnel.

Mid October, 2003
• Inditex will arrange and organize for each POS terminal to be set up and delivered to all Zara stores in the New Year.
• During this time recruitment and selection of IT and IS personnel will also be delegated by Inditex.

January 1st, 2004
• POS terminals are upgraded and are installed in all ZARA stores around the world.

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