Zara. 462i3i

1. How would you advise Salgado to proceed on the issue of upgrading Zara's POS systems? a) Should the company upgrade the POS terminals to a modern operating system? b) Should the company build in-store networks? c) Should the company give employees the ability to look up inventory balances for items in their own stores? d) Should the company give employees the ability to look up inventory balances for items in other stores? It’s a strong belief that Zara’s POS systems should be upgraded to work in the modern operating system. One of the reasons is that DOS is no more ed by Microsoft. The vendor had made it clear that Zara is the only customer using the ancient operating system. So if the vendor goes to upgrade their operating system, then it will be a problem for Zara. The vendor can go with up gradation at any point as Zara is not the sole customer for them. Another disadvantage or problem faced by employee is the usage of PDAs which have small screen and hard to accomplish returns. The employees feel that, if Zara upgrade their operating system, then they can use larger screen, keyboard and mouse to quickly execute the returns transactions. Another advantage by upgrading POS system is that it enables adding networking capability. In the existing system, neither the POS terminal nor the PDAs are connected to the head quarters or with the other Zara stores. Because of this employees had to carry the daily sales data in floppy disks and use in the other system. Within the store also there was no sharing of information between POS terminals and PDAs. The company should build in-store networks for the benefits of employees and for the proper communication. If they install a wireless connection with in the store, there is no need to carry floppy disks around the store. Zara should give employees the ability to look up inventory balances for the items in their own store as well as in the other Zara stores. If all the stores are permanently connected over internet, every location would know the inventory level about the SKU’s in the other stores. In this scenario, the store can ask for inventory transfer if any unexpected demand arises and that is not available in the store. These things are not possible with the existing POS terminal which runs on DOS system.

Another advantage by upgrading the system is the reduction in the cost involved during ordering. Customers or store need not rely on the fax machines, paper shortages etc. The physical count of inventory takes more time than selling the goods. And there are high chances for miscommunication. By upgrading the existing system to latest operating system, the chances of automation is high and thus bringing the cost efficiency and time consumption.

The

automated

counting

system

reduces

the

count

error

and

miscommunications. The customers can be served easier and efficiently if there is a good network within the store and among the different stores.

2. What is the Zara "business model"? How is it different from the business model of other large clothing retailers? What weakness, if any, do you see within this business model? Is it scalable? Zara’s target market is young, price-conscious, and highly sensitive to the latest fashion trends. Zara’s business model is characterized by high level of vertical integration . At its heart the company is building on a vertically integrated demand and supply chain, while most other textile chains rely on outsourcing and cheap labour in China. Zara studies its customers demand in the stores and tries to instantly deliver. Zara spends relatively little on advertising (0.3% of revenue), instead they reach their target market by locating their stores in prime town-centre locations. Zara produces around 12,000 styles per year (compared to the retail average of 3,000), which means that fresh fashion trends reach the stores quickly. The company can design a new product and have finished goods in its stores in four to five weeks; it can modify existing items in as little as two weeks. The company's success lies in it having total control of every part of the business. It designs, produces and distributes itself. A traditional retailer outsources all of its production while focusing on distributing and retailing those goods. This is due to the fact that the global apparel industry is “highly-labor intensive” rather than capital intensive ,In contrast, Zara is a chain that has developed a successful method of doing business in the fashion industry. Zara by working through the whole value is very vertically integrated and highly capital intensive. By owning its in-house production, Zara is able to be flexible in the variety, amount, and frequency of the new styles they produce. Zara’s marketing expenditures averaged 0.3% of revenue, instead of the 3%– 4% typical for competitors.

Vertical integration often leads to the inability to acquire economies of scale, which means they cannot gain the advantages of producing large quantities of goods for a discounted rate. Zara’s speedy and recurrent introduction of new products incurs increased costs as well. They have higher research and development costs. They also have elevated costs due to the constant changeover of production techniques to create their different apparel lines. That also means that employees must be trained in order to use the new manufacturing techniques, which again leads to increased costs.

3. What information does Zara need to operate its business model? To operate its business model Zara needs to be rightly informed of the needs of the customers. They should be able to accurately judge the taste of the people. They produce around 12000 styles per year therefore they should be well aware of the current requirements of their customers so that the styles do not fail. Also they should be able to ensure that the styles reach the stores in time so that the style does not become obsolete. They also need to know the inventory within the system so as to make the replenishments.

4. In your opinion, what are the most important aspects of Zara's approach to information technology? Are these approaches applicable and appropriate anywhere? If not, where would they NOT work well? Zara is operating in a highly volatile industry. First, we can notify that this sector is really influenced by the taste of customers. On top of that, their tastes change all the time and very quickly, so it is difficult to forecast the new clothing trends. Their feelings are very hard to predict and even more to influence. It is a superficial sector; a new fashion trend can appear suddenly because of a small event. A trend can be popular and just a moment later fade. It is difficult to be coherent with the taste of the customers. It is all the more difficult for manufacturing than they don’t be in touch with the client. Therefore, we can also declare that there is a lack of link between manufacturing and retailing. The analysis of Zara’s activity reveals that its main strategy is the ability to give a quick answer to target customers’ demand and its capacity to anticipate the customers’ trends. Zara is able to identify new trends and to satisfy the demand of customers with its value chain system that is really effective and its structure very organized. The system that they have

worked with has been easy to maintain and very effective. Thanks to that, the company decided to continue with this system without changing anything. The project proposed by Salgado would be a revolution for the IS of Zara. It would change everything and can be considered as a big step in Zara’s framework. Update the POS operating system is expensive and irreversible. If the project mess it would black out the global sale system and would cost bunch of dollars. That’s why an IS improvement has to but taken very seriously. Zara has been keeping its POS OS (which is Microsoft DOS) because it is stable, easy to use and cheap. The main risk is that their POS supplier drops them. Actually Zara is the only customer of their supplier running on DOS. This would involve incapacity to open new stores – without POS it is impossible. We can quickly calculate how much it would cost: The average store sales is about €2million a year, with 80 new stores every year: €160m a year. Much more than the price needed to put into this investment. To sum up the current IS system is a drawback to the future development. The second main risk is that Zara has to keep up to date its information flow to foresee as much as possible the future trends. With an effective IS they will be able to stay ahead the curve and keep their leadership. Nevertheless Zara is now confronted with a problem: their POS system (Point Of Sale) runs on DOS and Microsoft doesn’t this system and also the POS terminal won’t be compatible with the current POS software. But, change is inevitable because even if changing the system don’t urgent, the company needs and it has to invest in IT infrastructures because MS Dos is an obsolete technology and their POS terminal doesn’t guarantee that they will continue to supply the same terminal without any changes in the present hardware. PDAs (Personal Digital Assistants) which are used in all Zara stores and POS terminals are not connected with Zara’s headquarters or with other stores, moreover there is no in-store connection to link employees’ information like daily sales and the employees have to copy this information on a disk. Changing the system should fill this weakness of intracommunication. Finally the main needs of the company are an actualization of the IT and the improvement of the in-store connection and the connection with the company’s headquarters. So, we can say that change is unavoidable because such a company cannot continue to run with obsolete and unconnected technologies. So, it is clear that the improvement is necessary.

5. What current or potential weaknesses (if any) do you see in Zara's IT infrastructure and IT strategy? The absence of a Chief Information Officer, processes for setting up an IT budget, and low activity over the internet can be seen as potential weaknesses in IT Strategy of Zara. Although the DOS is working fine with the POS equipments, and vendors of those equipments have assured that they would not be upgrading their machines soon, it is better for Zara to improve applications on the POS across its worldwide stores because it would help the store managers to quickly track the inventory of each segment without wasting their time in canvassing and enable them to focus on selling more. With the scale of operations they have it would be helpful for commercials at La Coruna to quickly track sales at a given point of time and prevent them from depending on store managers’ information. Let the POS and PDAs be connected to Zara’s headquarters and also to each other such that in case of shortage of items in a store it may get informed of about the status of particular stock in the nearest SKU. Website can be promoted to have social networking features and allow s to express their experiences via tweets, status updates and blogs. It should have applications that would enable s to suggest designs they would wish to see at Zara. Above all, Inditex should enable online purchase of its products over the portal even though it is not as profitable as normal retail sale. As they hire people for application development from local universities the istrative overhead is not huge to bother. Usage of an advanced production plan application would enable them to utilize their potential optimally and cut costs wherever possible.