⦁ Executive summary:
Zara runs its software system for the point-of-sales (POS) terminals off of Microsoft DOS system, which Microsoft stopped supporting in 2000. Zara is Inditex’s largest chain store and Sanchez believes upgrading the system will not be beneficial to the company, as the system presently runs perfectly smoothly. (See Appendix 3 and table 1) The main purpose of this analysis is to explore effective avenues and present an alternative to the present system that will allow the company to have a more user friendly, faster and more efficient system that will benefit its managers and customers in every Zara store around the world. (See table 1) Ultimately, the alternative solution brought to the forefront of this report is to upgrade the system in a timely manner.
⦁ Problem Statement
Zara’s main issue with the system is that the hardware vendor for their POS terminal could upgrade the systems or some peripherals for them but then the company would not be DOS-compatible anymore. This is important to the Zara stores because computers are critically important in enabling the kind of business that the company wants to build. Not upgrading may be temporally manageable but in the long run prolonging the upgrade could lead to shortage and/or problems that Microsoft cannot help them with or any other software company.
⦁ Environmental and Root Cause Analysis
Zara is one of the largest international fashion companies. It belongs to Inditex, one of the world’s largest retail distribution groups. (See appendix 1). “The customer is at the heart of our unique business model, which includes design, production, distribution and sales through extensive retail network.” The average middle range income family is Zara’s main customers: children, men and women with a high fashion sense. Zara needed to be able to respond quickly to the demands of these targeted customers. The company is able to introduce 11,000 new items within a year; competitors such as H&M, GAP etc. averaged 2000-4000. (See table 2). Zara continuously brought out new designs for their customers, about 75% of merchandise in the average store was changed over three to four weeks.
With rapid changing inventory comes Zara’s first causal factor; there was no way for employees or managers to look up inventory balances in the store or other stores. This was due to the lack of memory space in the operating system. DOS could only consume 8 MB of installation space. The process of going through the store having to count inventory is time consuming for the employees. If a garment was not available at a certain location, employees would call another location, and the employee would have to check the store for the specific garment. PDAs could not share information.
Every Zara location used PDAS, primarily for ordering and also for tasks such as handling garment returns to DCs and transmitting information from headquarters to all stores. Causal factor number two, which is a quantitative factor as well is that the Zara store constantly had to upgrade the store PDA’s. Throughout the days, months, years, technological advances take place and devices are discontinued. At the end of each business day employees would have to connect via dial up, to beam information and use floppy disks to tally up total sales. Decisions on what to order and which garments to put on sale was based on these numbers and was the responsibility of managers which made inventory count less accurate.
Causal factor number three is dial-up. Dial up can encounter many problems such as sudden disconnection and sometimes it may take 3-4 retries to establish a connection. This is caused because you are using the same line as your phone and calls are being placed through that same line.
A separate team was responsible for inventory of each SKU at each store. Shipments to different stores around the world allowed for the inventory to increase but sales would decrease it. This is causal factor number four: misguidance. This is a reason why inventory or sales were not recorded perfectly. “Theoretical inventory” was inaccurate; theft, damage, and other losses would also make a poor reflection of reality. Salgado didn’t stress over this factor, he believed that being 95% right was just as good as being 100% accurate.
Ordering was only one part of Zara’s established three cyclical processes; ordering, fulfillment and design and manufacturing. Using this network, the company could easily invent new designs and have them produced into the DC in as little as three weeks. This was an advantage for Zara because no other large apparel retailer could match this capability, not even their competitors. Zara used intuition and guessing to order new garments. They did not rely on accurate long-range sales forecasts.Causal factor five, which underlies one of the qualitative factors, is that this wouldn’t allow the company to predict sales and plan for or estimate loss. Developed internally was the accounting software that the IS department wrote. Much like the other teams of commercials, each dedicated to a section of the store, IT consisted of 50 people. Causal factor number six; having systems overworked. There was little or no formal justification for IT efforts, nor were cost/benefit analyses conducted for a proposed effort. The IT department wrote applications that controlled the DC’s automation, which relied heavily on automation and computerization. Conveyor belts were given as an example, which facilitated the ongoing task of receiving bulk quantities of each garment from factories then recombining these garments into shipments for each store. Information systems tracked where each SKU was stored as it entered the DC. Humans did play a role in the distribution centers, at the end of the conveyor belts, they would have to take garments off the belt and put them on hangers or cardboard boxes, which than could be shipped to each store. (See appendix 2)
⦁ Alternatives and Options
⦁ Causal Factor number 1: Inventory
One of Zara’s biggest strengths is their rapid changing style of inventory. (See table 2) Frequent change in inventory, results for better demand from customers as to never seeing the same items. The weakness of this, proteins more to the managers and employees who have to deal with the constant change of inventory count. Because the installation space of the software is so small, inventory needs to be accounted for manually. This is time consuming for the employees and management. That being said the option of upgrading would allow the stores to see what was in stock, in the given store as well as other stores. No need to call or wait. This alternative would give them the benefit of saving money on their phone bill. This could benefit the company intangibly as well. Communications between the stores will be faster and allow for quicker searches through the inventory system. In result this will give employees higher productivity measures and give them time to utilize other activities throughout the store. The time consumed from counting inventory could be focused on customer service and satisfaction instead.
⦁ Causal Factor 2 and 3: Quantitative Factor
The use of PDA’s in the Zara stores, is their strength but also give the company an opportunity in the long run. The use of the PDA’s and the use of dial-up wouldn’t be necessary, because if upgraded to let’s say Windows 98, the internet wouldn’t need dial-up and the PDA’S wouldn’t be necessary because everything could be accessed on the computer; quicker and easier. This new software wouldn’t require the team to scoot around the store; all inputs would be utilized during the sale. Employees would also benefit by locating new garments online, rather than wait for the store to beam them information. This would be less time consuming for both employees and customers. Many employees would be able to access the information they need, at the same time and provide information faster for their customers. This may be a con for Zara because it would take time for employees and managers to learn the new system. It would be a risk because adapting to a new system may be even more time consuming in the long run.
⦁ Causal Factor number 4: Misguided
Zara’s alternative to a better count of inventory or better guess, would be to upgrade their system. Although, currently the system runs smoothly there is room for improvement. Upgrading could help managers maintain better reporting and better informed decisions. Scanning of the items at the time of purchase will reduce the loss of inventory due to thefts as well as damaged goods in the long run.
⦁ Causal Factor 5 and 6: Ordering, fulfillment and design and manufacturing
A tangible benefit the company could encounter by upgrading their system, could improve efficiency which in turn could benefit Zara in the long run, in terms of revenue. Dealing with ordering, the team would have an opportunity to better plan future productivity or inventory for sales, saving costs related to materials. Giving the estimates more accurately, will enable the department that deals with ordering, to buy the essential materials needed in the quantity needed during the time in which managers had ordered them. This will factor into the time they have to make the clothing. It would help be even quicker due to more efficient planning. With better and more efficient planning, comes happier customers which in turn will result in more sales, less cost and more revenue to generate a greater profit for the company.
⦁ Causal Factor number 6: Stressful environment
Zara has different departments within their company that are stressed on just a specific task. The example was for the IT department which consists of only 50 people. Zara has not had an issue in the past with stressed out employees but the space to improve is there. Being that the operating system could reduce workload, and time, the work environment in general will become less stressful.
⦁ Recommendations:
Although the operating system runs smoothly, and the company is generating profit at this time, it would be wise to upgrade the operating system because it could be a great opportunity for Zara to be that much better and keep up to date with the changing environment. The new system will generate will also help to generate more profit. Upgrading could save the company money in the future as well as keep their position as a “fast fashion” retailer. There would be no hold backs, and although some risks of training and time consummation do apply at first, there are greater opportunities, which include more accurate inventory count, less handling of floppy disks, and better statistics and numbers generated to report back to the company. With the new upgrade in technology Zara would be keeping up with the environmental changes allowing for more efficient and effective customer service. New upgrades or initiatives coming out would be more compatible with a more up to date system then with an older system. They could add functionality as well as networking capabilities.
⦁ Implementation
All this being said the alternative for each causal factor to upgrade ties into quantitative factors for Zara. To upgrade each system, it would cost an estimate of €140 per computer for Windows Operating System and roughly €160 per computer for a UNIX operating system. Zara also uses little revenue on advertising; marketing expenditures average 0.3%, whereas competitors use up to 4%.(See table 2). Most of the revenue goes to the stores itself, but with that being said, Zara could innovate with higher technology by implementing this change slowly, overtime. With money that they save on labor and the little money they spend on advertising, Zara could start by planning which operating system would best be served. They would need to train staff on the new operating system who would then train the employees. In the short-run they would need to start upgrading slowly, having customers as well as employees get use to the change. In the long-run as employees start to notice faster and more improved ways of doing their job, this upgrade will be beneficial and worrying about upgrading or any hardware not being compatible wouldn’t be threat.
⦁ Monitor and Control
For the time being, the stores are running smoothly and Zara is making profit. There is room for growth and opportunity for the company to present itself even further. Moving forward, by implementing the option of an upgraded system, Zara could start slow, piloting the system at a few stores to evaluate its opportunities and then roll it out to all the stores, and monitor the changes of the company, the employees and even the customers.
⦁ Conclusion
A Company needs to continuously be proactive in order to keep up with emerging trends and developments going on around the world. We live in a generation run by technology that is constantly being upgraded, changed, updated and discontinued all at the same time. By the time we are up to date something new has emerged which is bigger and better. In order to survive in this generation and in the world of business, it is important to keep up with the environmental changes and enhancements that are being presented. It will benefit the company greatly. In this case, Zara will continue to grow as a company and maintain a high level of customer service and provide customer satisfaction with the quality of their products and the customer relations.