Zara Case.docx

Zara: IT for Fast Fashion Group No :1

Section: B

1. How would you advise Salgado to proceed on the issue of upgrading Zara’s POS systems? Modern Operating System-Yes Reasons: 

DOS is an outdated operating system. According to the vendor only ZARA is using the DOS Operating System.

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No contract to ensure that the vendor will supply the required POS terminal Hardware’s in the Future.

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Buying the required Hardware Terminal now is not feasible. Even if we they buy Hardware now itself we will face the same dilemma after 5 to 6 years at which point of time there won’t be any suppliers.

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Current Operating system is Time consuming.

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We can’t add new Functionalities like networking capabilities to DOS Operating System.

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In old operating system, Lack of Functionalities to track the store inventories.

In-store Networks- Yes 

Real time tracking of In Store Inventories.

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No need to carry Floppy disks around the store at the End of each business day.

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It will be help in adding the functionality of tracking inventory in nearby stores.

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In depth Analysis of sales can be achieved by real time tracking of inventory, which will help ZARA in management decisions like optimal supply of limited products

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Buying pattern of customers can be tracked and rewards can be given to Loyal Customers.

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Reach of new products can be tracked in real time, which helps in forecasting future demand for new products.

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Offers can be given to idle customers to encourage purchases. This idle customer information can be obtained by using real time tracking.

Employees ability to look up inventory in their store 

Reduces the manual work

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Saves time

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Improves accuracy of current inventory

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Eliminates human Error

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It eliminates inaccuracy created due to theft, damage and other losses.

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Easy to achieve 100 % accuracy on Theoretical Inventory.

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Store Managers can easily make order decisions.

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This decentralises the decision process which is an important aspect of ZARA

Employees ability to look up inventory in other stores, 

Reduces the time spent by managers in searching for near-by stores with the required product in their inventory

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Helps managers know about the sales of near-by stores which helps them in analysing the customer buying pattern in that area.

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The store manager can then consult with other store managers to improve sales in their own store

2. What is the ZARA “business model”? How is it different from the business model of other large clothing retailers? What weaknesses, if any, do you see within this business model? Is it scalable? ZARA business model consisted of following components:  Speed and decision making: In order to respond very quickly to the demands of target customers, who were young, fashion-conscious city dwellers, they kept Speed as a key factor, as this customer base was very hard to predict and influence. In addition to this ZARA believed in taking advantage of intelligence and trust the judgement of employees throughout the company, instead of relying on a small set of decision makers. Hence, they opted for decentralized decision making.  Marketing, merchandising and advertising: They did not focus on spending on advertisements. They only used to do promotion of twiceyearly sales. They used to spend heavily on stores.  Distribution centers: They use highly automated and computerized distribution center. They used conveyor belts which were programmed by IT dept. in collaboration with the vendors of conveyor equipment. They followed following operations: To reach its goal of quickly and accurately responding to shifting consumer demands, Zara has three cyclical processes in place-ordering, fulfillment and design and manufacturing. ZARA differed from other competitors in the following ways:

ZARA They don’t do virtual advertising.

OTHER COMPETITORS Many are focused on virtual advertising.

They spend little on ads, and majorly on stores.

Major spending on advertisements.

They produce short life span clothes.

Majorly focus on classic clothes.

They do not sell clothes over internet.

Major usage on online distribution.

3. What information does ZARA need to operate its business model? To efficiently operate their business model, the most crucial thing that Zara needed to take care was to be able to respond to the targeted customer’s demands very quickly. Most of these customers were young, fashion-conscious city dwellers because of which their taste in clothing changed frequently and was very difficult to predict. To do this prediction Zara senior managers trusted the judgement of employees throughout the company instead of relying on small set of decision makers. Unlike other companies, each store Manager in Zara was having the additional responsibility of deciding which garments to keep on sales in their store. Zara’s collection is not conceptualized and designed by small elite team. Its creation is modified overtime by teams of commercials, each dedicated to a section of store and within that too, to a specific collection. Team consists of 2 designers and 2 product managers who set the prices. Another group of commercials travelled extensively, observing what residents were wearing and talking at length with store managers to find out what kind of clothes are selling. They also try to learn what kinds of clothes would sell if Zara made them. Zara believed in company’s speed and emphasis on decentralized decision making. Zara believed that their customer should visit the store often because any item that’s there on the shelf will not be in their next visit. All the products are described as “clothes to be worn 10 times” i.e. they are not designed and manufactured to be highly durable. Apart from all the customer related information, every Zara store should also have real-time information about the inventory at other nearby stores, so they can replenish the shortage if required urgently. 4. In your opinion, what are the most important aspects of ZARA’s approach to information technology? Are these approaches applicable and appropriate anywhere? If not, where would they not work well? Even though Zara’s approach to information technology was consistent with its preference for speed and decentralized decision making, It had no chief information officer and no process for setting an IT budget on deciding on specific technology investments or projects. No formal justifications for IT efforts nor were cost/benefit analyses conducted for a proposed effort. They wrote application rather than buying commercially available software. They still used DOS operating system, which in 2003

was no longer supported by Microsoft. Advantages of using DOS with internally developed POS system on it.  

Stable, effective and easy to roll out and maintain over time No IT support required to open new store.

Disadvantages of using DOS with internally developed POS system on it.   

Building a bigger and bigger company on top of more and more obsolete operating system. Risk of hardware vendor for POS system changing operating system that no longer use DOS. No assurance from terminal maker on not changing its machine that run on DOS.

Advantages of new operating system       

Large screen, keyboard and mouse to execute quickly return transactions. Networks within stores and across company. Wireless networks cheaper to install within store. No longer necessary to carry floppy disk around the store to tally sales. Since the SKU s are connected they can order inventory transfers from nearby store. Proper inventory records can be maintained. More functionality can be added.

The current approach is not applicable and appropriate for a growing business firm like ZARA where the whole technology has changed drastically. The company would itself be at risk if it does not change according to technology. The current approach would not work well in a competitive world where the competitors are looking forward to sales-oriented growth. There is a lot of time waste in the current IT technology used by ZARA. If new system is implemented a lot of man hours can be saved on inventory accounting and sales can be increased by proper networking with other stores and by proper inventory management. 5. what current or potential weaknesses do you see in ZARAs infrastructure and IT strategy? The major weakness in IT infrastructure of Zara is Outdated/obsolete technology, they still rely technology which they think they could survive for long with it just because it works fine then. They have already missed the first mover advantage and still cannot accept the changes and also management is aware that the vendor of the software, Microsoft stopped the support for the existing system and they don’t take the potential online threats it possesses in a rapid growing and dynamic IT environment, and they trade off these threats and weaknesses with cost advantage of not implementing a newer IT strategy. Zara is a company with rapid growth, but the fact of Non-availability of POS Terminals and software for future expansion is neglected, which reflects the lack of information about the external environment of the business and , they consider these IT infrastructure as a tool or a supportive system in the business, and fails to realise IT as a component of business, as a part of core business strategy, which can expose the business model to potential risks from the competitor in the near future and also they are not having information regarding the windows operated terminals. The other aspect of weaknesses of IT infrastructure and strategy possessed by Zara is in the internal environment of the business.at present, the they don’t have an inventory management tool, which reduces the scope of inventory management, which is a crucial factor in a clothing business, which is contemporary and dynamic, which in turn increases the time factor for assessing the trends and inventories. Zara has a decentralised organisational structure, but it cannot be leveraged to the best extend, as the store managers lack information regarding the inventories and they cannot coordinate themselves in a simpler structure. The adoption of newer strategy could easily compile all the aspects and Zara can have better information and better processing and utilisation of resources in relation with day to day running of the business in each store and maintaining parallel channels between store managers.