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.
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.