Problem/Issue
Statement
Rapidly growing retail clothing chain Zara is facing a
problem of increased business risk caused by use of a DOS operating system.
This system is no longer being supported by Microsoft since 2003. The heads of
IT for Inditex, a multinational clothing retailer and manufacturer, are faced
with a decision whether to upgrade the operating system and POS terminals.
The scope of the problem includes all Inditex operated
stores (1,558 stores in 45 countries) of which nearly 550 were part of Zara
chain. While having about a third of the company’s stores, Zara generated
almost three quarters of the group’s sales. Many symptoms of the problems the
company is experiencing include: lack of operating system support, risk of
inability to upgrade machines that will not be compatible with DOS, inability
to look up or instantly verify inventory in group’s stores, inability to sell
clothes over the Internet, inefficiencies in store ordering and return
processing, and no reliable inventory information. Furthermore, one of the
decision makers appears to have a personal stake in the continuation of current
state as he wrote most of the POS application and appears to be reluctant to
change.
Situation Assessment
Zara is currently using point-of-sale terminal (POS) system
that appears to be behind current technology. The system is reliable and very
simple to operate but it runs on DOS, which is no longer supported by
Microsoft. IS department wrote their own
accounting software as well as application that supported ordering,
fulfillment, and manufacturing. The hardware vendor supplying Zara could
upgrade their machines or some peripherals making them incompatible with the
DOS system. This would prevent Zara from opening new stores. Such problem could be detrimental to the
chain’s success as the group opens on average one store per day across the
world and ample growth still existed in the current markets. One of the factors that contributed to Zara’s success is the
fact that they managed to respond to demands of target customers, who were
young, fashion-conscious city dwellers, very quickly. The company did virtually
no advertising spending - only 0.3% of revenue as compared to competitors who
spent 3-4% on advertising. The company allocated more spending to its stores
selecting prime retail locations. While Zara’s vertically integrated
manufacturing operations enables constant introduction of new items as well as
short lead times, the company was unable to take advantage of all distribution
channels. The company did not sell
clothes over the Internet as the distribution centers were not configured for
picking small orders and shipping them to consumers as well as due to the fact
that handling returns of merchandise bought online was complicated. Store managers determined replenishment
quantities for their inventory by walking around the store and determining what
has been selling by counting garments and talking to dales people – a time
consuming and ineffective process. Store personnel could not look up their
inventory balances on any in-store computer and was unable to check their
inventory in any other way than calling the store directly. Store sales were
transmitted daily, at end of business day, using a modem connected to one of
the store’s POS terminals. The inventory balance was theoretical rather than
actual, theft, damage and other losses would further make a theoretical
inventory a poor reflection of reality. Stores used PDAs for ordering and also
for tasks such as handling garment returns to distribution center and
transmitting information from headquarters to all stores
List of Plausible
Alternative Courses of Action and Evaluation of Alternatives
The IT leadership of Zara needs to consider the following
solutions:
1) Continue using the current system and platform
since it has not been causing any troubles and is very simple to operate. The
vendor assured Zara that, although the company is its only customer using the ancient
operating system, they will not make any drastic changes to the POS’s.
Selecting this option is easy for the company and does not
provide for any additional spending. This solution, or should I say lack
thereof, is very short-sighted and does not address the problems the company is
facing. To the contrary, it makes the situation and future assessment even
riskier.
2) Purchase a number of current terminals so that
store growth can be temporarily accommodated while the company ports the POS
application to new OS such as Windows, UNIX, or Linux.
This option could allow for additional functionality and
address part of the problem. Zara would be covered in the event of sudden loss
of support from the vendor and work on more permanent solution. Pursuing this
option would take the company a step further but will not eliminate the
symptoms or provide efficiencies necessary to improve the process.
3) Research and implement a new operating system,
purchase new POS units and application compatible with the new system as well
as and take the opportunity to build new capabilities into the software.
This option would require potentially significant capital
investment to implement (if we consider 1,558 the company will spend over a
million euros on OS, around eight million on hardware, close to four hundred thousand
on connectivity, nine million on programming, and about one hundred thousand
euros on installation time per store) . This option will also complicate the
current simplistic IT infrastructure. IT would have to be trained on application
and installation of new systems. The IT department may need to increase its
headcount to accommodate for additional assistance needed to be provided to various
personnel, including store managers.
Despite the increased cost if implementation, and possibly maintenance,
the company’s problem would be fully addressed. The company would realize
efficiencies in its store operations (managers would no longer need to use PDAs
to complete returns or place orders, which are very time consuming). An updated POS application could easily
incorporate additional functionality, allowing store personnel to use larger
screen, keyboard, and mouse to quickly execute returns. Modern POS terminals
could accommodate more sophisticated capabilities, especially networks within
company. Every location could know the theoretical inventory of all SKUs, as
well as the theoretical inventory in all other stores. This would allow stores
to request transfers from one another online, eliminating the need for phone
calls to see if an item is in stock.
Recommendation
Based on the assessment of the risk and potential future
economic benefits, I believe that the logical recommendation would be to
purchase enough POS to support the company’s growth while working on selection
and implementation of a new OS. Nevertheless, it is my assessment that the
company should go for more permanent, quality, and sustainable solution that
will bring all parts of the system up to speed and I therefore recommend that
Zara needs to invest not only in the new operating system but also take the
opportunity to upgrade its POS terminal network. As stated above, this will
address all symptoms of the problem as well as the problem itself. It will
improve the overall quality of data processing and create efficiencies at the
stores and in inventory management. It could also allow the company to expand
to other selling channels (Internet).
Presentation
No company can exist without its customers. While clothing
offered by Zara is trendy and fashionable, it is of rather low quality. Being a
customer, if I go to the store, cannot find a side and need to wait longer than
just a few minutes for a salesperson to tell me whether I can get it in another
store, after repeating this experience twice, I will not go back to the store.
It is worth to highlight that the solution will also improve customer
experience.
I would also try to find information about competition – how
far behind is Zara with their ancient technology? How does the current
situation pay in terms of competitive advantage? And finally, no sales on-line?
This has got to change!
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