Tuesday, September 17, 2013

Zara Case study solution Part 1

Inditex could boast of significant success within the fast-paced fashion industry.  Inditex and their largest chain, Zara, employed an IT operating model that was primarily a ‘Replication’ model, relying on the ability to place a store at a prime location with a few simple IT elements.  These elements consisted of a Point of Sale (POS) system recording sales, PDA devices to provide order requests, and basic SKU (stock keeping units) to maintain inventory.
Zara’s model differed from its competitors in the following ways:
  • Zara could take a new design to market within 3 weeks
  • Decentralization of decision making with respect to clothing order styles and quantities
  • Larger diversity in colors and styles
  • Shift from traditional advertising to investment in premium store locations and layouts

  • Lack of IT investment and infrastructure
To follow their existing business model, Zara required the following information:
  • Daily sales records and twice-weekly order requests
  • Changing tastes via their ‘commercials’ organization
  • Decentralized inventory system with occasional inventory audits
  • Automation of manufacturing and warehouse inventory and delivery
  • Regular informal customer feedback from store managers to commercials
            The simplicity of the platforms utilized combined with the lack of formal IT organizational structures facilitated speed to market and replication of retail outlets.  This led to significant growth for Zara.   Stable, known platforms enabled replication and accommodated process to take merchandise quickly from textile plant to market.
            Zara’s lack of investment in IT represented a significant risk; the platforms, while well understood and reliable, were quickly becoming outdated.  Both the physical hardware and programmers with knowledge of the language represented significant potential points of failure. The lack of integration in IT inventory systems between retail outlets was also a weakness.
The replication model allowed for Zara to grow, but would certainly not be appropriate to all organizations.  Organizations that rely on highly integrated data for decision making would not fare well in Zara’s model of 2002.  Also, most companies with higher IT staff turnover would struggle to find expertise maintaining antiquated systems.
            Zara should view the upgrade of OS and terminals as a strategically critical investment.  Despite the current reliability of the DOS OS, Zara needs to act quickly within the remaining useful life of the existing hardware which could be as short as 3 years.  The risk of POS hardware unavailability in the future could have a significant financial impact (see exhibit 1 for detailed analysis).  Already, DOS is no longer supported by Microsoft.  Therefore, the management team cannot implement improvements in inventory control due to the limitations of the software programming.
           With the new OS it should be developed into a system which maintains a real-time centralized inventory system and can eliminate the handheld Pocket PCS. With this IT structure all stores can share the inventory information between them.  For example, such a new system could provide Zara with the data needed to broker discounted inventory to after-market distributors like TJ Maxx.
            The majority of decisions are made by store managers and program managers by simple judgment without any formal process. The transfer of this knowledge to new hires is very difficult.  By introducing a new OS and with the latest technology this information can be stored in a centralized database. Accounting will not have to match the sales record at the end of the day, but rather the data will be automatically updated not only at store levels but also at the headquarters. Store managers will be able to locate the inventory in the supply chain easily without the wasting time communicating via phone. Algorithms and statistical tools can now predict and forecast the demand more accurately and improve the inventory replenishment process. In addition, the store managers could learn about pan-European trends and leverage those trends in a given sales period.
            Zara should build in-store wireless networks.  This will help individual POS systems to be connected to the internet in real time to leverage the new shared inventory tracking capability.  Handheld pocket PC’s are more easily upgraded to wi-fi enabled technology that will integrate with inventory control processes.  Since there is a cost in terms of hardware, software, and training associated with this system, it should be released via a pilot with a phased–in approach.  Zara should run the old and the new systems side by side until the new system pilot is operating smoothly.  At the same time, Zara should invest in IT personnel development focused on OS programming competencies.  This investment in specialized human capital will support Zara to tackle the unforeseen IT related problems that coincide with launching a new POS system.
            By implementing the recommended upgrades to hardware and operating systems, Zara can move from a Functional IT platform to an Enterprise IT platform that will allow for inventory monitoring and allow Zara to exploit their expertise in supply chain management.

1 comment:

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