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Executive summary The purpose of this report is to discuss the issue of Zara`s operating system that runs on DOS . Zara is anxious about its IT infrastructure being obsolete and the possability that hardware vendors will upgrade their machines leaving them unsuited with DOS. Zara`s rapidly growing business can not be continually supported by the existing IT system. Zara will need ultimately to change its system to a more modern system. The new system will permit Zara to persist its vertical integrated structure by providing a strong and scalable system, eliminating IT obsellence, and improve effeceincy of decentralization.
Background Zara was founded by Amancio Ortega in La Caruna, spain 1975. Zara garments stores sell fashionable clothes for young, fashion concious city dwellers. Zara`s business model 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 so that clothing can be designed, manufactured, and placed in stores within three weeks. Management at Zara is decentralized. Teams known as "commercials" appraise existing trends and choose which garments must be designed and produced.Another group of commercials, called store product managers, decide which items will sell best in their stores and also relate to headquarter what their clients are wearing and what extra 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 does vrtically no advetisment. 2) Zara only sell trendy clothes and do not try to produce classic clothes. 3) Zara introduces new design collection throghout the year while compititors introduce their collections at the start of the fall\winter and spring summer season. 4) Zara has eefectivaly managed integration of demand chain with supply chain. At the beginning of 2003 Zara`s paret company , Inditex, operated 1,558 stores in 45 countries of which nearly 550 were part of Zaras chain. Zara generated 73.3% of the group`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 its fiscal year 2002 ,Indiex has posted a net income of 502 million U.S dollars and revenues of 3,974 million U.S dollarsm continuing a trend of rapid and profitable growth. The company`s earning , for instance, had more than tripled between 1996 and 2000.
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-OfSale (POS) terminal will not be compatible with the current POS system. Eventhough the terminal vendor has assured that they are not going to make any drastic changes and that Zara is a big customer, we believe that this assurance could be risky because Zara could not include this assurance in Zara`s contract with the terminal vendor. This undoubtedly is Zara`s biggest IT problem because its entire operations rely on the reliability of its POS terminals to give it the ability and speed to capture trends. Zara`s system does not keep track of inventory One 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 time when items are scanned for sale , Zara managers and employees have to investigate racks and take inventory. This is time consuming work and inexact. Zara`s system has no networking capabilities Each 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 to communicate with headquarters in LA Crouna. Moreover, Personal Digital Assistant (PDAs) used by Zara employees to complete the ordering process are not connected in any way to the POS terminals. Therefore, Zara is not capable to communicate between its 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. This can be a trouble since there is no ultimate definitive voice. Companies usually require that 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 its operations and cost-benefit analysis have never been conducted to see if replacing the old POS system or adding a wireless network would be beneficial.
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 system is that it is stable and requires less IT support. The benefits of upgrading the system simply do not outweigh the costs. The costs include not only the new terminals and software, but the cost of switching to the new system, retraining the staff, and most likely hiring a full time IT staff to maintain a new system.The biggest problem with mainatining the current operating system is that Zara will not grow quickly since most vendors are changing their machines and eventhough one vendor assured that he will keep 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 terminal vendor.
Gradually integrate new IT system into the company Zara could change the operating system slowly , gradually ,and not to add all functionality initially. Instead Zara can shift to the new system with minimum required 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, the additional functionality can be added later in sequential manner according to the priority.
Change the whole operating system immediately Zara could immediately begin investing in the new IT system that will improve comunication between stores, reduce floopy disk use, and allow addition of new features. However, the system will be a big investment for Zara. The cost will be very high on Zara since it has to install the new system, train employees to use the new operating system and the new functionalities, and it will lead to a drastic change which is too expensive.
Reccomondation Gradually integrate new IT system into the company Zara can benefit by the gradual integration of new IT system through: - Remove the risk of the system becoming obsolete - Less costly than a whole change at once - Give the chance to test the new IT system - Maintain and improve efficiency of decentralization Create position of Chief Information Officer (CIO) While we are recommending that Zara changes its operating system gradually, we believe it would be important to create a CIO position within Zara. A CIO would be able to plan an obvious direction to the company in terms of IT , and can simplify the IT and IS troubles that Zara may encounter in the future.
Implementation plan Integrating new terminal in the Demo store at La Coruna. Using the cyclical process from the initiation stage. Establishing a department for the new terminal to provide support and training. Geographic test. Integrate the new terminal in Spain stores that is less active than others. Integrate the new terminals in second best selling market, France. And every new store that will be opened.
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