Executive Summery The Zara case study is a case of the fundamental of whether or not to upgrade an IT system which already works, in this case a POS operating system that uses DOS, to more modern operating systems that includes more functionality to meet new demands.

Zara is a chain fashion store around Europe, Middle East, Africa, and South America that was founded by Amancio Ortega, in 1975. The first store and main headquarters was found in La Cournia, Spain. Mr. Ortega believed and implemented his business model that: Retailing and manufacturing needed to be closely linked. This created the backbone for Zara’s everyday functionality to have all the stores communicate with the main distributors and distribution centers (DCs) which in turn communicated directly to the manufactures. As a result, supply was meet with demand with ease and little latency.

This was all made possible through the use of technology and Zara’s IT department. Salgado Badas, the head of the IT, along with Bruno Sanchez Ocampo, were the main decision makers and brains behind the IT of Zara. For the past decade, Zara has implemented POS systems in each store that would have a direct connection via modem to the main headquarters in La Coruna. Managers on a daily basis transmit comprehensive sales information and other data back to La Coruna. In 2003, PDA’s were also used for ordering and also for tasks such as handling garment returns to DCs and transmitting information from headquarters to all stores. All this technology created a seamless environment that allowed the managers and teams of each store to communicate directly with headquarters which was directly linked to the distribution centers and manufacturers. It was a system that had very little flaws and worked without any major headaches.
However, the main issue was that the aging technology was becoming obsolete. The POS systems which used the aging DOS operating system was a concern

This report provides and analysis and evaluation of the current IT operations of Zara, a segment of Inditex, and concludes with a decision whether to upgrade to a more modern operating system or not. When analyzing the company, many problems arose that centered on the company using an obsolete DOS operating system. Key problems found were that managers are spending too much time on ordering information. POS systems are not linked and there for information cannot be shared between them. As a result, information regarding internal and external inventory cannot be accessed. Further analysis reveals that due to the increase in demand for more proficient, up-to-date operating systems, DOS has been replaced by many companies, leaving Inditex as one of their vendor’s only customers. Moreover, if their vendor is no longer provided with the DOS hardware, Inditex is left without and operating system. Inditex has the option of waiting until this threat becomes a reality, or to purchase the new operating systems now. The report evaluates these problems and concludes that it would be ideal for a new Windows operating system to be purchased immediately and implemented effectively within the next two years. It recommends that inventory systems be changed so that an actual on hand inventory count is known, interaction is allowed between internal POS systems as well as external nearby store inventory systems, and that the new system is widely used by all supply chains in each segment of Inditex.

Issue Identification:

PDA inefficiencies for ordering and keeping track of inventory. PDA devices do not allow access to theoretical inventory or the availability information of supply for each SKU. When placing purchase orders, a canvass of the store must be made entirely to determine what SKUs should be ordered. Orders are placed “blindly” considering no known internal inventory of each SKU is known. Time could be wasted ordering

1. As Mr. Salgado (of Inditex), what will you do concerning the issue of upgrading the POS terminals? Will you upgrade to a modern operating system? Should the POS applications be rewritten to include any additional functionality? If so, what functionality?

The current POS being used by Zara is effective, and easy to roll out and maintain overtime. It is users’ friendly and easy to operate. It does neither require IT personnel to travel from one store to another nor to set-up IT unit in each store. It allows store managers to easily install software, set-up and maintain POS infrastructure themselves. In fact, in the event of any problem, a complete reinstallation of POS is straightforward. In spite of these advantages, Zara is still facing some challenges on IS strategy that will align with its business strategy such as inaccurate inventory management, no real time sales report to the headquarters, and no real time available information of particular SKU within stores.

We propose two strategies that Zara can utilize to meet its short-term and long-term business challenges and opportunities that is related to its POS. First, to achieve short-term IS strategy, Zara needs to keep current POS terminals while adding additional functionality that align with business strategy such as better inventory management. Second, in a long-term Zara will definitely need to upgrade the POS terminals to a modern operating system. This is important because Zara faces the challenges of obsolete information system, and inability to continue getting the DOS infrastructures to support the IS. In addition, it can be complex and more expensive if the upgrade is done later than now especially when the upgrade is the only choice available to sustain its business strategy. Zara can achieve the full upgrade through gradual process.
POS applications should be rewritten to include all functionality such as ordering and reports provided by PDA. In addition, ability to know the information about the SKU in stocks in other outlets without making phone calls should be included as well.

2. What are the most important aspects of Zara’s approach to information technology? Is this approach applicable and appropriate anywhere? If not, where and when would this approach be inappropriate?

Zara has made extensive use of information technology to implement dramatic reductions in the time it takes in the design, manufacture, and distribution process. With the help of information technology, Zara could strengthen its competitive advantage of fast speed and decentralized decision making strategy. First, information technology can improve quick response approach to follow fast fashion by develop communication channels. For example, as fax is considered to take too long and very costly to deliver orders, every store equipped with identical handhelds, known as personal digital assistants (PDAs). Using PDAs via modern could save much time and thus speed up the communication process to headquarters. In addition, PDAs were also used for other tasks such as handling garment returns to DCs and transmitting information from headquarters to all stores. Second, information technology may also available for facilitating decentralized decision making strategy. Other large clothing retailers mainly rely on sophisticated mathematics forecasting to generate optimal plans and schedules. Executed by computers at headquarters, to determine which cloth will sell in each location and in which quantity, headquarters just push these clothes to stores without input of managers. By contrast, Zara's store managers, almost have entirely discretion over which cloth to order and based on local tastes and instant demand.
Because Zara expansion in 2003 was already predicted to grow very quickly and operations volume are increasing at the same pace, it might me convenient for Zara to switch to a new technology.
Thus, Zara might one day be forced to switch in order to accommodate the market demand and in order to keep up with competitors. If not, the company risks not to be able to expand in certain markets due to the lack of compatible IT systems and centralized data that would help worldwide expansion.
The company would have to go through one-time costs. These costs would include the replacement of the DOS system, installation, and the creation of a proper IT department. The company would need to add to its annual costs only the annual connectivity charge which would enable all shops to be constantly connected in order to exchange data.
This would enable Zara to have a better inventory management, essential for the company’s expansion. Stores would be interconnected and they could have real time customer insights and make constant trend analysis.

3. What benefits does Inditex/Zara get from its IT infrastructure? How difficult would it be for a competitor to acquire the same benefits?

(Exibit:4 and 5) The firm tripled in size between 1996 and 2000, then skyrocketed from $2.43 billion in 2001 to $13.6 billion in 2007. By August 2008, sales edged ahead of Gap, making Inditex the world’s largest fashion retailer. While the firm supports eight brands, Zara is unquestionably the firm’s crown jewel and growth engine, accounting for roughly two-thirds of sales. The blend of technology-enabled strategy that Zara has unleashed seems to break all of the rules in the fashion industry.
Zara preferences are speed and decentralized decision making, and its information technology approach is in consistent with the preferences. Zara wrote applications internally to support its operation systems. This software is tailored towards Zara’s business uniqueness.
The application would be difficult to copy by competitors because it’s not commercially available. In addition, it empowers people; store managers and commercials; to make decisions. Zara also links customer demand to manufacturing, and link manufacturing to distribution.

4. What current or potential weaknesses, if any, do you see in Zara's IT infrastructure and IT strategy?

What is more, there are some areas that Zara could achieve improvement of its IT infrastructure. For example, there is a lack of connection of in-store network; employees have to copy daily sales on a disk first. The weakness of intra-communication should be filled when developing systems. Moreover, personal handhelds which used in every store could not connect to other stores or headquarters, it also should be considered at the time changing the system. Meanwhile, real-time inventory tracking could also been improved as currently Zara does not have ability to see other stores' inventory. What is more, Zara has to keep updating its information flow to forecast future trends; with efficient IS it could keep leadership of the industry. In a word, the change of Zara's IT infrastructure is absolutely unavoidable and necessary because Zara such a big company cannot run with obsolete technology, and an effective IS should help with company's growth.

Introducing new POS networking system is beneficial to Zara because 1) It creates more robust and scalable system that is more responsive to Inditex’s Supply Chain Network, 2) helps to maintain and improve efficiency of decentralization because of effective flow of information between stores, Distribution Centres and Plant and 3) removes the risks of the system becoming obsolete.