Introduction:
In 1975, Zara was founded by Amancio Ortega who is still their largest shareholder and wealthiest man in Spain. Ortega started in 1963 with clothing factories and expanded over time to retail and manufacturing. He believed that all functions should be linked in the apparel industry because consumer demand was very difficult to forecast.
In 1985, two important events occurred. The first was the formation of a holding company for Zara and the other retail chains. The second key event was that Jose Maria Castellano Rios joined the company as their IT manager and shared Ortega belief’s that computers were critically important in enabling the type of business they were looking to build. Castellano became Inditex’s CEO in 1997.
In addition to believing in the importance of computers, Ortegano and Castellano agreed on two other topics regarding the company: Zara must respond quickly to the needs of their customers and the two and other senior managers must leverage the intelligence and trust the judgment of the employees throughout the company, which is why stores were given the freedom to order what they thought they would be able to sell.
Inditex operates 1,558 stores in 45 countries out of which 550 stores are a part of Zara chain and generates 73.3% of Inditex’s sales. Zara offers a large array of new style clothes for Men, Women, and Children couples with moderate price point. Women’s clothing accounts for 60% of Zara’s revenue. Zara has developed the business model to sell the garments by following trends and styles, with virtually no advertising and trust the decision of a group of employees called the “commercials” to decide which clothes should be in stores.

Zara experienced a tremendous amount of profit growth. Between the years of 1996-2000 the company had more than tripled their earnings and wanted to continue to expand their future reach. Zara realized early on that in order to achieve the growth they wanted, they had to quickly and accurately respond to the shifting demands of their consumers.

Problem Statement:
Salgado and Sanchez were IT leaders for Inditex, which are a multinational clothing retailer and manufacturer. They faced the challenge of whether or not to upgrade their current POS system. Inditex’s current system worked at the time but was running on DOS which was no longer supported. The concern was if they chose to update, how it would affect both the stores and the IT department versus the potential benefits.
Supporting Facts:
As we read through the case we noticed that the main concern Zara faced was whether or not to update their POS system. Sanchez and Salgado saw several benefits of updating, but also realized there were challenges with the potential to cause harm to the company. * The current POS systems were older in generation and behind the current technology trends. * The current POS software worked perfectly fine but it was running on DOS, which was no longer supported by Microsoft anymore. * If the hardware vendor updated their current machines they could not be DOS compatible, which could slow down Zara in opening future stores. * Zara could purchase several terminals in case there was a change. * Implementation of a new application could increase support calls for the IT department. * At the time, opening a new store required no IT assistance. * Upgrading could offer additional functions such as inventory monitoring which could help with future ordering. * Zara did not produce classic clothing but rather fads. The clothing typically had short life spans which is why it was important to constantly have new inventory to sell. * Orders were placed twice a week for both replenishments and new merchandise, which is why it was important to understand the current inventory to prevent over or under ordering. * Currently, handheld PDA’s were used for ordering which the company felt took too much time and cost too much to fax order forms between stores. * Zara had to constantly purchase new PDA’s as new models were released. * POS terminals and PDA’s were able at the time to share information.

SWOT Analysis:

Strengths

For its fiscal year in 2002, Intidex had posted a net income of $502 million U.S dollars with a marketing budget that barely reached 0.3%, trumping the market average of 3%-4% for its competitors. Zara had an operation that was truly one of a kind; the company did not have to predict what would be selling in the future; it continually sensed what customers wanted and were positioned to provide product.

Due to the uniqueness of Zara’s operations, all of the accounting software was developed by the internal IS department. The IS department also wrote and supported the ordering, fulfillment, and manufacturing applications. The IS department also wrote the applications that controlled the Distribution Centers automation. The staff retention was unheard of; out of approximately 50 people, only one staff member left over the course of ten years. Zara’s process simply worked without hesitation. The POS systems were stable, effective and easy to roll out and maintain. With the current infrastructure, no IT support was required to open a new store, nor was a large IT support organization required to assist the stores.

Weaknesses

Although the POS systems were remarkably reliable, the technology was becoming outdated. The POS systems remained unchanged for over a decade and were based on the DOS operating system, which was no longer supported by Microsoft in 2003. Zara was building a bigger and better company over an obsolete operating system.

The Zara POS needed more functionality; many within the company felt that it was taking too long and costing too much to fax orders around the world twice a week. Shipments and sales were recorded manually, which lead to inaccurate theoretical inventory. Store personnel could not look up their inventory balances on in-store computers; the only way to check stock was to canvass the store. In addition, employees were unable to check the inventory of a nearby store. Newer technology, which enabled the employees to quickly execute returns, network between stores, or even minimize installation cost with wireless connectivity, was being leveraged by competitors causing Zara to reflect on its IT strategy.

Opportunities

Zara has many opportunities, but it’s up to the business to decide whether or not to take advantage of them. Migrating away from DOS can help introduce new functionality such as reporting, networking, automation and communication.

Manual inventory can be eliminated by using wireless PDAs or handheld scanners. This could link demand to manufacturing, so that stores could stock inventory based on that demand. Electronic inventory would save time and money by the software dictating store replenishment. Also, if a customer has a concern or question about a garment that is not in stock, the employee could look up in real-time if that garment is at a nearby store, currently on order, or place an order. With all the stores able to communicate with each other, stores can set sales at key points in time based on the fashion trend in that region.

Store Product Managers currently travel extensively to view trends in different areas in the world. If they were to start embracing technology, travel could potentially be greatly reduced their job duties. Customers are able to utilize their website to send trends directly to email or phone. If they wait 5 or 6 years, they could develop an app for smartphones so customers could send trends to them more easily.

A La Coruna based team traveled to each location to implement the store re-design. With the amount of stores under Inditex control this becomes a daunting task to complete. The stores could be designed via interior design or architecture software, then sent to each store manager to implement. If it was a major re-design, the store manager could ask local construction companies to bid on the projects, and they could be decimated the design created by the software.

The biggest opportunity Inditex has for Zara is to move to a centralized IT infrastructure and become the industry pioneer to streamline company operations. Sanchez is correct to argue against revamping the POS because it simply can’t be done using decentralized IT.

Threats

Theft or lost items could become more of an issue overtime as it may become easier for thieves. This can set unreliable trends in regions which will make inefficiencies trickle all the way to manufacturing.

Inditex’s idea to purchase hundreds of POS terminals in the case that the POS vendor stops supporting DOS; however this can not last forever. Unfortunately, the longer they wait to update, the more difficult the migration is because the hardware/software is that much more outdated. It’s not in Inditex’s best interest to be the POS vendor’s only customer using their DOS based systems. No software company will support a platform forever as it eventually becomes counterintuitive.

The biggest threat to Zara is if Inditex did not take advantage of emerging technologies to run a more efficient operation. Supply and demand can become critically out of sync when executed and analyzed manually, given their fast paced strategy. Internally written software can be a blessing or a company’s demise. If there is high turnover, it can be extremely problematic to migrate from platform to platform as there is heavy reliance on well written documentation for it to be successful.

Conclusion and Alternative Solutions:

Zara had a decision to make that is common to many organizations. That decision is whether to continue using an existing application, or to upgrade due to an end deadline. Zara must determine whether the benefits outweigh the risks or whether the savings outweigh the costs for continuing to use this application. Upgrading an application is not a simple decision; there are budgetary impacts, skill and availability issues. In this case, the application in question is the Zara POS system and the problem derives from lack of support for a MS DOS run application.

For Zara the main benefits of continuing to use the application include but are not limited to: stability of the system, well versed users, low support costs and the ease of implementing deployments at new stores with limited support. In summary, the current POS application works relatively efficiently. On the other hand, there are significant risks or opportunity costs that result from not upgrading the POS System. They include but are not limited to the system running on an unsupported OS, the hardware vendor could discontinue the POS hardware, users are requesting new capabilities and compatibility with new input devices is difficult.

Due to detailed cost calculations having not been compiled regarding the impact of risks or the opportunities that have not been implemented, we are going to review some of the core principles or attributes of Zara that will impact the option they choose.

* Jose Maria Castellano Rios and Ortega believed that computers were critically important in enabling the type of business they were looking to build. * Zara must respond quickly to the needs of their customers. * Senior managers wanted to leverage the intelligence and judgment of the employees throughout the company which is why stores were given autonomy to order what they thought they would be able to sell. * They planned to expand. To achieve the growth desired they quickly and accurately responded to the shifting demands of their consumers. * Due to the uniqueness of Zara’s operations, all of the accounting software was developed by the internal IS department. In addition, IS department wrote and supported the ordering, fulfillment, and manufacturing applications. The IS department also wrote the applications that controlled the Distribution Center’s automation. * The POS systems were stable, effective and easy to roll out and maintain. With the current infrastructure, no IT support was required to open a new store, nor was a large IT support organization required to assist the stores.
After considering all of these elements, Zara identified three main options available for solving the issues with their POS system. Those options include: re-write the application with a new version, continue running the existing application or upgrade the application by porting over to a new OS.

Option 1: Re-write the application

One of the main options for Zara would be to re-write their current POS system. The main advantages of this solution would be that it would address their concerns about running on an unsupported OS and they could enhance the system with new features. The primary disadvantage would be the costs associated with the re-write costs. A more detailed look at the advantages and disadvantages of this option are listed below.

Advantages or reasons for re-writing the application: * The current POS systems were older in generation and behind the current technology trends. * The current POS software was running on DOS which was not currently supported by Microsoft. * The hardware vendor for their POS hardware is no longer enhancing DOS compatible equipment. * Zara would no longer need to constantly pay for new PDA’s as new models were released. * The POS application could be enhanced such that the POS terminals and PDA’s could more readily share information. * The POS application could be enhanced so that inventory monitoring, which could help with future ordering. Sales were recorded manually, which theoretically could lead to inaccurate theoretical inventory. * Orders were placed twice a week for both replenishments and new merchandise which is why it was important to know the current inventory to prevent over or under ordering.
Disadvantages to re-writing: * Re-writing the existing application will require more staff; including but not limited to developers, testers and support personnel. * Re-writing the existing application may not result in a stable platform. * Re-writing the application may result in more support needed for deployment of a new store * Re-writing the POS application may cause more integration work with other Line of Business applications. * Upgrading the application will require a plan to visit all existing stores to replace existing systems and re-train and implement the new system.
Option 2: Continue using the current application
A second option for Zara would be to leave the current POS system in place. As clearly articulated in this case study the current system is stable and has served the organization well though its significant growth. A more detailed look at the advantages and disadvantages of this option are listed below.
Advantages to continuing to use the current application: * The current POS software worked effectively. * The low number of support calls for to the IT department would remain the same. * Maintenance costs will remain low. * Personnel throughout the company are already trained. * Deployment costs for a new store are low and the process is simple. * The solution was developed in house and offers a competitive advantage. * Current infrastructure will support continued growth patterns as the company grows. * Personnel can continue working on technology they are currently familiar with, which will afford existing workers a sense of comfort and stability.
· Disadvantages to use the current application: * The risk of running on an unsupported OS. * The risk of hardware vendor POS platform changes. * The risk of hardware vendor PDA changes. * Missing capability to add features that are highly valuable such as inventor, automatic transfers, wireless, more frequent ordering and improved ordering options. * Time consuming to process returns.
Option 3: Port the application to a new OS
A third option would be to port over the application to another OS; Linux. Porting an application over is the work of re-writing an existing piece of software so that it is compatible with another OS. “With a little care, the average DOS application can be easily ported to the Linux system. This article looks at some of the techniques involved, and tries to provide a small “builder's kit” of handy little DOS routines people always want under Linux.” [1]. A more detailed look at the advantages and disadvantages of this option are listed below. The advantages and disadvantages to this option are very similar to that of the re-writing the application with the exception that it provides more flexibility for implementation.

Advantages to porting the application to a new OS:

* Porting to a new OS will address the current POS system issue of being behind the current technology trends. * Address the issue of running on DOS, which was no longer supported by Microsoft. * Address the issue of the hardware vendor for their POS is no longer enhancing DOS compatible equipment. * Address the issue of purchasing new PDA’s as new models were released. * Allowing for the POS application could to be enhanced, such that the POS terminals and PDA’s could share information. * Allowing for the POS application to be enhanced so that inventory monitoring (which could help with future ordering). Sales were recorded manually which lead to inaccurate theoretical inventory. * Allowing for the POS application to be enhanced so that orders were placed twice a week for both replenishments and new merchandise. This is why it was important to know the current inventory and prevent over or under ordering.
· Disadvantages to porting the application to a new OS: * Porting the existing application will require more staff, including but not limited to: developers, testers and support personnel. * Porting the application may result in more support needed for deployment of a new store. * Porting the POS application may cause integration work with other Line of Business applications. * Porting the application will require a plan to visit all existing stores to replace existing systems and re-train and implement the new system. * Porting the existing application may not result in a less stable application. * Porting the application to a new platform will require integration planning and potential disruption to production. Recommendations:
After careful considerations of each alternative, we recommend Salgado and Sanchez re-write their current POS system. The company was founded and operated on several core principles that have become the cornerstone of their success. Re-writing the application will best support the advancement principles, which include but are not limited to: knowledge that computers are critically important, Zara’s need to respond quickly to consumer demands and Zara’s trust in the judgment of employees. The advantages of re-writing the application allows for the building upon a currently solid application, implementing capabilities that will enhance the speed of current ordering processes while delivering a platform that can be leveraged for enhanced communication and collaboration. Thus providing a greater experience and closeness with their target consumers. We do however, recommend Inditex plan for a slower implementation rather than a quick and drastic change. Developing a technology roadmap that identifies the core functionality the system the unsupported DOS platform then addresses then more important new capabilities such as inventory tracking, nearby store lookup, and then moves on to new capabilities such as commercial collaboration tools and social media.(Run- on sentence… not quite sure how this should be fixed.)

Works Cited:
McAfee, Andrew, Vincent Dessain, and Anders Sjoman. "Zara: IT for Fast Fashion." Harvard Business School (2007): n. pag. Print.