1.0 Executive Summary
I recently had dinner with Bruno Sanchez Ocampo where we had a discussion regarding the possible upgrading of Zara’s point-of-sale (POS) terminals to units that operate in the modern Windows Operating System (OS). Zara’s current POS terminals run on the Microsoft Disk Operating System (DOS).
As the largest retail chain established by Inditex, Zara generates 73.3% of the group’s sales. With the ability to quickly respond to the demands of their target customers, young fashion-conscious city dwellers, Zara are able to produce and deliver styles while they are still hot. Zara has three departments (Men, Women, and Children), each department, at corporate level in La ...view middle of the document...
Twice a week store managers place an order for replenishment of existing items and initial orders for newly available garments. As the store POS terminals still operate on DOS and are not linked to an onsite computer, the store managers and staff have to manually inventory the store as part of the order using personal digital assistants (PDAs). PDAs are also used for handling garment returns and for transmitting information from headquarters to all stores. Each night, via dial-up modem, the inventory, or order, is transferred back to La Coruna. A group of commercials are then responsible to fill and ship the orders via Distribution Centers (DC) while consulting the new order information and the known inventory within a DC. If demand for a stock-keeping unit (SKU), the combination of garment plus fabric plus color plus size, is greater than the supply, the commercials will decide which orders get filled base on which stores have been most successful selling the particular garment. These commercials work closely with product managers to determine future production for each SKU. Zara has a vertically integrated manufacturing operation that allows the constant introduction of new garments and also ensures short lead times for the manufacture of goods. In as little as three weeks, a garment can go from design conception to arriving at a DC.
Like Zara’s approach for speed in the design, manufacture and delivery of garments, the company takes a similar approach with regards to information technology (IT). With no budget process, no chief information officer and no commercially available accounting software in place, the company has developed its own accounting, ordering, fulfillment and manufacturing software. As a result, there is no integrated IT system across the company.
2.0 Issue Identification
Zara is building a bigger and bigger company, while at the same time; internal systems are not being upgraded to follow in line with current technology. Microsoft no longer provides support for DOS. Should the vendor that provides our POS terminals discontinue or upgrade their machines to systems that are not DOS compatible, Zara would not be able to open additional stores, as in planned for further expansion in Italy, nor would they be able to replace any existing POS terminals should they breakdown. As a result, should Zara have to upgrade the current POS terminals that operate on a Windows OS, there is no IT department in place to handle the task of installation and implementation. At the moment Zara write their own software, the installation of POS terminals supported by DOS is quite simple with no IT support required. As a result IT spending is 0.5% of revenue compared to 2% of the competition.
3.0 Environmental and Root Cause Analysis
Founded by Amancio Ortega, Zara is an industry leader for “fast fashion”, it has built a reputation for responding quickly to the demands of its target customers and for its constantly changing store...