Zara - It for Fashion

ISM : Written Case Analysis for “Zara: IT for fashion” case

[pic 1]

Submitted by-:

Group 8 | Section A

Group Members:

Jay Kumar Megotia

Vikrant Ranjan

Anaya Kamble

Adithya S

Devank Kumar 2015PGP104

Nitika

 How would you advise Salgado to proceed on the issue of upgrading Zara's POS systems?

The company should upgrade the POS terminals to a modern operating system.

Zara is an international retailer that has uniquely positioned itself as a company with a strong value chain that has vertically-integrated manufacturing operations which allow them to bring fashions from initial design to store shelves in a matter of weeks. Their current IT infrastructure although efficient for past operations, is no longer sufficient to deal with current modern technology and will not be sustainable in the future as the company continues to grow and expand internationally.

Zara should upgrade their information systems to a modernized, supported operating system, and expand many of their distribution center automation and application processes to enable them to continue to create sustainable competitive advantages in this rapidly changing technological environment that they operate in.

The information technology infrastructure at Zara was built based on the business strategy of simplicity and decentralized management structure. Without a clear leader to guide information technology improvement projects, Zara has not been proactive in keeping current with their hardware, software applications, and operations systems. At their retail stores, inventories are determined via manual counts by store managers, which leads to inaccurate and time consuming inventory counts. The currently used POS terminals are not connected to other store POS terminals or to corporate headquarters. These POS terminals use a MS-DOS operating system with internally developed software. Although the software works very well, there is an opportunity to improve the functionality of the POS terminal to allow for better inventory management and additional functionality. Moreover, due to the obsoleteness of the OS and the hardware it runs the risk of losing the technical support and also facing problems when opening new stores in terms of hardware constraints.

Alongside tangible benefits, there are many intangible benefits that Zara’s current processes and implementation of IT upgrades will provide. These benefits include improved operations at their factories and distribution centers due to more efficient scheduling processes and planned production. Information on orders and inventory will also be greatly improved. The information will be timelier, more reliable, and more comprehensive. By upgrading their operating system used in stores, store managers will be able to make more informed inventory decisions, through the increased access to real-time sales and inventory information.

2.    What is Zara’s business model and what information is required to run this business model?

• The following are the primary activities of  the firm:

• Ordering : orders where placed twice a week through hand
• held computers
• Fulfilling : shipping of clothes satisfy the orders
• Design and manufacturing of the clothes
• Distribution centres :  SKUs where transferred from factory to distribution centers
• Supplying to franchise and stores

• Support activities:

• Administration and human resource team
• Procurement design and
•  fashion analysis team : consisted of “commercials” who had great discretion in deciding what clothes to be produced and designed.

• Further they spent 0.5% of the total revenue on IT and developed in house applications
• The organisation was highly decentralised, vertically integrated and  spent only 0.3% of its total revenue on marketing
• The product life cycle was short as it did not keep “classical” cloths and focussed on bringing the trending fashion fast and for a short duration. They did not keep huge inventories.

Info required to run the business:

• Orders: information regarding type and amount of SKUs required at each store
• Sales : daily sales made in the store
• Inventory: amount of inventory available in the store as well other stores in case shortage of supply
• Distribution centres: information was required to track where an SKU was stored in the DC
  
  

3.    Is Zara's business model scalable?

With the present system, the business model might not be scalable.

The people currently employed are trained and act as a network of decentralized information nodes that feed the info back to the system and act accordingly. In design and manufacturing, “commercials” provide information regarding what type of garments are to be produced and in what quantity. Similarly, in fulfillment “commercials” match supply of finished goods coming from factories to DC with stores demand for these items. For ordering, the managers themselves manage the replenishment of existing items and initiate requests for newly available garments. Additionally, the inventory management system at each store is manual and also there is no real time monitoring of inventory levels in different stores. Inter-store information transfer is also manual. So basically there is no integration of these information systems.