Executive Summary

The purpose of this document is to discuss the issue of Zara’s DOS-based IT infrastructure and how it affects Zara’s performance. The concern is the current system is out of date and there is a possibility that hardware vendors will upgrade their machines leaving them incompatible with DOS. As well, Zara’s core business model is speed and responsiveness, this system is unable to keep up with this model. By assessing the pros and cons of the new IT system, with Zara’s brand image, I determined that implementing the new operating system and POS terminals is beneficial for Zara because 1. It will help to improve efficiency of information flow between Zara’s supply chain networks, 2. It removes the risk of the system becoming obsolete and no longer compatible with vendor’s machine upgrade, and 3. The new system will eliminate the need for small screen PDAs and their continuous upgrades. Issue Identification
Immediate Issues
- The current DOS system has not been supported by Microsoft since 2003.
- Personal digital assistants (PDAs) have small screens and make it time consuming for managers to do daily tasks such as orders and returns.
- The screens on the PDAs are small, therefore making it difficult to view new items.
- The availability of several PDAs at each store location allows for redundancy at time of ordering.
- The POS terminals and PDAs contain no information about theoretical inventory within each store.

Systemic Issues
- Hardware vendor for POS terminals could upgrade their machines which would no longer be compatible with the DOS system. While they have said they would not do so, there is nothing in writing, and so to ensure breathing room back-up terminals would need to be purchased.
- Implementing a new system in all 531 stores worldwide will incur high costs: purchasing new terminals, new software, and training staff.
- Having a system that is incompatible because it has not been upgraded with future software applications could lead to operational and security problems in the future.
- The need to constantly upgrade several PDAs as devices are discontinued or as technological advances become available. The current PDAs have been in use since 2003, therefore will require updates shortly.

Environmental & Root Cause Analysis
Qualitative Analysis

Zara is the leading brand in “fast fashion”. The fundamental concept is to maintain design, production, and distribution processes that will enable quick response to consumer demands. To maintain and manage this rapid-fire supply chain, Zara follows three main principles:
1. Close the communication loop. Zara’s organization, operational procedures, performance measures and unique office layouts are all designed for seamless and timely information transfers. This system depends strongly on a constant exchange of information, throughout every part of the supply chain, from the customers all the way through to the designers. Exchange of information is done without any layers of bureaucracy bogging it down between departments, something many other companies have inserted into their supply chain.
2. Stick to a rhythm across the entire chain. The supply chain moves to a fast but predictable rhythm. To ensure this rhythm moves this way, Zara does not hesitate to spend money on anything that will help increase and enforce the speed and responsiveness. Zara’s vertical integration through the entire supply chain, from the designs, manufacturing, distribution and individual stores, allows the ability to set the pace at which products and information flow.
3. Leverage your assets. A common wisdom shared by most businesses, in a volatile market where product life cycles are short, is to own fewer assets. Zara, however, own the factories that produce over half of its products. By owning its in-house production, Zara has the ability to be flexible in the variety, amount and frequency of the new styles they produce.
Purchasing plays a strategic role in keeping with Zara’s model for vertical integration. Items that are purchased, such as fabrics and dyestuff, come from another Inditex company. When it comes to using local subcontractors for simple and labour-intensive processes, such as sewing, they seek out small workshops where Zara will be their primary customer.
When looking at Zara’s three main principles, it is clear the most important characteristics to be maintained throughout the supply chain are speed and responsiveness. Zara must respond very quickly to the demands of target customers, young, price-conscious, and highly sensitive to the latest fashion trends. Zara’s information and communication protocols are well structured, giving us the ability to maintain these characteristics at high levels. Collecting vital information, such as daily sales numbers, allows designers to approximate what types of fashions are selling well. Therefore, designers have real-time information available when deciding on new designs and modifying existing ones. This IT advantage, through PDAs, phone conversations and point-of-sale (POS) terminals, has shortened the time it takes to go from design conception to the sales floors. Zara utilizes human intelligence and information technology in order to have a hybrid model for information flow from stores to headquarters, whereas competitors rely almost completely on information technology. Zara’s unique approach of a hybrid model results in well-managed inventories, linkages between demand and supply, and reduced costs from obsolete merchandise.
Though IT is clearly an integral part of Zara’s success, it surprisingly encompasses a small portion of its spending as well as its workforce. Zara spends less than 0.5% of total revenue on IT and IT employees account for only 0.5% of the total workforce at Zara. The competition, however, spends on average 2% of total revenue on IT and 2.5% of their workforce devoted to IT. Below average spending in this area have been largely in part to the low maintenance disk operating system (DOS) and POS terminals currently in use. The simplicity of the system and POS terminals have been revolutionary in the process of opening a store by transforming it to simply a “plug and go” system that any store manager can perform. However, having a system which has not been upgraded with software applications could lead to operational and security problems in the future. Zara’s DOS system and POS terminals have remained essentially unchanged for well over a decade. The current DOS system hasn’t been supported by Microsoft since 2003. And there is fear that the hardware vendor for the POS terminals could upgrade their machines so they are no longer DOS-compatible. The PDAs used by store managers are updated as needed, however the current PDAs are from 2003 and store managers find it time consuming and difficult to accomplish returns using the small PDA screens. Quantitative Analysis

The assumed costs associated with upgrading the system, such as hardware, programming and training, as well as comparison between different systems can be found in Table 1.

Table 1

In table 2 you can see the costs associated with implementing each system.
Table 2

Table 3 will show the cost associated when continuing with the DOS system and current POS terminals.
Table 3

Alternatives

Alternative 1: Zara would continue to use the current DOS system and POS terminals.
Pros: This system has proven to be remarkably stable, effective, and easy to roll out and maintain over time. As a result, no IT support is required to open a new store, nor is it necessary to run a large IT support organization to assist the stores. This in turn, makes the current system very cost effective. Due to Zara’s unique operations, myself and the IT department wrote the necessary applications ourselves, as there seem to be no commercial packages suitable, making us very familiar with the system.
Cons: This DOS system has not been supported by Microsoft since 2003, while we have not encountered a problem in this respect as of yet, there is concern about the terminals being discontinued by the current hardware manufacturer. If we continue with the current terminals, as suggested by Bruno Sanchez Ocampo, we will need to purchase back-ups, in the event this happens we have a large amount of breathing room while we port the POS system to a new operating system. This can become very costly and goes against Zara standards of keeping little inventory. In conjunction with the current system we are using the PDAs, which constantly need to be upgraded, allow for redundancy and are time consuming for store managers to make returns, orders and get inventory information.
Alternative 2: Zara would update the operating system as well as all POS terminals.
Pros: Enhancing the POS terminals would eliminate the need for floppy disks, keeping track of inventory via wireless networks, as well they would be visibly appealing to consumers. This would also give Zara the ability to build new capabilities into the software, such as security measures. Implementing this system would mean eliminating the PDAs and having one computer per store where managers can make orders and do returns in a timely and easy manner.
Cons: With an upgrade of the entire operating system in all the stores, an extensive IT department and budget would need to be formed to deal with the long implementation schedule and related costs.

Recommendation

I recommend upgrading the operating system as well as the POS terminals as discussed in Alternative 2. Implementing this new system will prove costly, however, in line with Zara principles, we do not hesitate to spend money on anything that will help increase and enforce the speed and responsiveness of the supply chain. A new operating system will mean eliminating PDAs which have proven to slow the process of communication. My recommendation would be to continue with a Microsoft operating system, considering Zara staff and IT are familiar with it and it has proven longevity with our company. To coincide with Zara’s vertical integration standards we will hire two IT graduates specialized in new Microsoft systems. These specialists, once trained and integrated into the Zara Corporation, can train our current IT staff on the newest Microsoft systems, this will eliminate the need to contact an outside source with the launch of a new store or troubleshooting issues. I also recommend rolling out the upgraded systems in two of the local stores, as test sites. As a contingency plan, if after a specified time period, speed, responsiveness, manager and customer satisfaction are not increased then a company-wide implementation will not be considered and I would then recommend purchasing back-ups of our current POS terminals. The new IT personnel will be hired on a contract basis, dependant on the success of the system upgrade. In the end, the decision lies with Amancio Ortega and José Castellano.
Implementation

With an upgrade of the operating system, extensive IT training will be required. I, Salgado Badas and Bruno Ocampo will begin the hiring process as of Monday, October 24th. The process should take about 3 months to find the appropriate people, hire them and train them on Zara principles and procedures. Once qualified, the new IT personnel will begin the upgrade in two store locations, chosen by Bruno Ocampo. Concurrent with implementing the system, they will also train our current IT department on launching and troubleshooting. The reason for launching at two locations will be to divide the IT department; this will help the learning process run smoothly. The launch will remain isolated to the two stores for a time frame of 8 months. This will give the appropriate time to truly determine how suitable the system is for Zara. After the time frame is complete, and successful, we will do a full launch worldwide.

Implementation of the new operating system is highlighted in table 4 below.
Table 4 Monitor and Control

There are two aspects of this new system that need to be monitored. First it will need to be determined if use of the system is in fact saving time for the managers when looking for inventory numbers and placing orders and returns. This will be monitored by the managers themselves. During the time of new IT hiring, I will have managers keep track of how much time is currently spent on daily activities, related to technology use. Once the new system is implemented I will have them do the same, for a comparison. Also, 3 months into the new system launch I will have store managers and employees do a survey related to the new system. Secondly, we need to monitor the number and nature of any technical difficulties to determine if the new system is in fact causing more headaches than necessary. This will be monitored by Bruno Ocampo and I. We will keep detailed logs and records of all issues that may arise. On Monday August 20th, I will bring a detailed report, highlighting all findings over the 8 month period, to Amancio Ortega and José Castellano for review and final decision.