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Zara Case Study

Zara Case Study

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Published by Muayad Faraj

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Published by: Muayad Faraj on Dec 14, 2010
Copyright:Attribution Non-commercial

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01/16/2013

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i.
 
Executive summary
The purpose of this report is to discuss the issue of Zara`s operating system that runson DOS . Zara is anxious about its IT infrastructure being obsolete and the possabilitythat hardware vendors will upgrade their machines leaving them unsuited with DOS.Zara`s rapidly growing business can not be continually supported by the existing ITsystem. Zara will need ultimately to change its system to a more modern system. Thenew system will permit Zara to persist its vertical integrated structure by providing astrong and scalable system, eliminating IT obsellence, and improve effeceincy of decentralization.
ii.
 
B
ackground
Zara was founded by Amancio Ortega in La Caruna, spain 1975. Zara garments storessell fashionable clothes for young, fashion concious city dwellers. Zara`s businessmodel is designed to respond quickly to rapidly changing fashion trends . The original business idea was very simple, link customer demand to manufacturing, and link manufacturing to distribution. Production process of Zara is vertically integrated sothat clothing can be designed, manufactured, and placed in stores within three weeks.Management at Zara is decentralized. Teams known as "commercials" appraiseexisting trends and choose which garments must be designed and produced.Another group of commercials, called store product managers, decide which items will sell bestin their stores and also relate to headquarter what their clients are wearing and whatextra items they think will sell in their region.Zara`smain competitors, which were other multinational clothing retailers are H&M,GAP, and Benetton. Zara is different from its compititors in four ways: 1) Zara doesvrtically no advetisment. 2) Zara only sell trendy clothes and do not try to produceclassic clothes. 3) Zara introduces new design collection throghout the year whilecompititors introduce their collections at the start of the fall\winter and spring summer season. 4) Zara has eefectivaly managed integration of demand chain with supplychain.At the beginning of 2003 Zara`s paret company , Inditex, operated 1,558 stores in 45countries of which nearly 550 were part of Zaras chain. Zara generated 73.3% of thegroup`s sale. Of the three departments inside Zara, women accounted for 60% of sales,with the rest evenly split between men and the fast growing children segment. For itsfiscal year 2002 ,Indiex has posted a net income of 502 million U.S dollars andrevenues of 3,974 million U.S dollarsm continuing a trend of rapid and profitablegrowth. The company`s earning , for instance, had more than tripled between 1996and 2000.
 
iii.
 
Problems
 
Operating system used by Zara run on DOS ( THE MAIN PROBLEM )The main problem that Zara faces now is that the system that they use run on DOS,which microsoft does not support anymore and any hardware change in the Point-Of-Sale (POS) terminal will not be compatible with the current POS system. Eventhoughthe terminal vendor has assured that they are not going to make any drastic changesand that Zara is a big customer, we believe that this assurance could be risky becauseZara could not include this assurance in Zara`s contract with the terminal vendor. Thisundoubtedly is Zara`s biggest IT problem because its entire operations rely on thereliability of its POS terminals to give it the ability and speed to capture trends.
 
Zara`s system does not keep track of inventoryOne weakness of Zara`s system is the lack of ability to check inventory within stores.Instead of having a modern POS system that updates inventory in stores in real timewhen items are scanned for sale , Zara managers and employees have to investigateracks and take inventory. This is time consuming work and inexact.
 
Zara`s system has no networking capabilitiesEach POS terminal inside a Zara store does not communicate with any other terminal.Only one terminal for each store is equipped with a modem for the ability tocommunicate with headquarters in LA Crouna. Moreover, Personal Digital Assistant(PDAs) used by Zara employees to complete the ordering process are not connected inany way to the POS terminals. Therefore, Zara is not capable to communicate betweenits stores and the home office in a fast and efficient manner.
 
Zara does not have Chief Information Officer (CIO)Decision on IT initiatives and investments are prepared by a committee at Zara. Thiscan be a trouble since there is no ultimate definitive voice. Companies usually requirethat one person be in charge for all IT and system related issues ,such as a Cheif Information Officer (CIO). For instance, Zara has never set a tur IT budget for itsoperations and cost-benefit analysis have never been conducted to see if replacing theold POS system or adding a wireless network would be beneficial.
 
iv.
 
Alternatives
 
Maintain current operating system (DOS)Zara could maintain the original system since the POS terminals with DOS and proprietary applications works well. The benefit with staying with the current systemis that it is stable and requires less IT support. The benefits of upgrading the systemsimply do not outweigh the costs. The costs include not only the new terminals andsoftware, but the cost of switching to the new system, retraining the staff, and mostlikely hiring a full time IT staff to maintain a new system.The biggest problem withmainatining the current operating system is that Zara will not grow quickly since mostvendors are changing their machines and eventhough one vendor assured that he willkeep providing Zara with DOS system , yet the risk associated with the vendor is high because Zara could not include this assurance in Zara`s contract with the terminalvendor.
 
Gradually integrate new IT system into the companyZara could change the operating system slowly , gradually ,and not to add allfunctionality initially. Instead Zara can shift to the new system with minimumrequired functions giving the company the time for the transition and at the same time bringing some reliability to the system. Once the system become reliable, theadditional functionality can be added later in sequential manner according to the priority.
 
Change the whole operating system immediatelyZara could immediately begin investing in the new IT system that will improvecomunication between stores, reduce floopy disk use, and allow addition of newfeatures. However, the system will be a big investment for Zara. The cost will be veryhigh on Zara since it has to install the new system, train employees to use the newoperating system and the new functionalities, and it will lead to a drastic change whichis too expensive.

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