Case Study- Zara: IT for Fast fashion

Current scenario and Business processes:

Zara’s business model values responding to changing consumer demands as quickly as possible with maintaining
decentralization in decision making. Clothes are designed, extended and modified by a team of commercials and not
just by elite designers. Store Product Managers connect b/w Zara stores around the world. They talk, observe and
reallocate inventory. Low spending was done on ads and high spending on store location and layout. Store Managers
had no choice on store layout. Prices were decided by the Product Manager. Zara believed in frequent turnover for
store inventory and new styles were also released frequently with no durability. Their distribution channels were not
optimised for small orders and deliveries. There were 531 stores globally and they were eyeing to expand more in
Italy.
Zara had a cyclical process that included ordering, fulfilling and design and manufacturing. Order form was shared 24
hours before the deadline. Fulfillment was done by commercials at La Coruna. They used to match up the supply of
finished clothes coming from factories into the DC with the stores’ demands for these items. Information regarding the
aggregated orders from all stores, which was finalized soon after the order deadline had passed and the total supply
of inventory in the DC at the same point in time was of the utmost importance. All these were at the level of the
stock-keeping unit (SKU). All Zara stores had identical handhelds (personal digital assistants (PDAs)) and POS
systems.

Problem in hand:

In 2003, the IT officials of Zara were in a dilemma to either update the current POS system to the new OS or continue
with the current POS system which is DOS based.
The issue that is currently faced by the IT heads is that the DOS based POS system is not supported by Microsoft
anymore and Zara is the sole buyer of such a system.
The existing terminals were not connected to the headquarters or other stores and each store had only one modem
so employees had to copy daily sales totals in a floppy disc then transmit the information through a modem equipped
terminal. Also, they didn’t have any resource of information to know about the availability of a particular SKU in the
store.

Pros(if we update):

1) New system could make the work of checking and feeding inventory balances easy and can make the
process faster. It would also reduce the chances of missing on the deadline for order.
2) Order form shared 24 hours before the deadline. Thus, there was less time to undertake counting activities
post that. Things need to be in place well before and thus having a system that gives a count of inventory
would be great!
3) Lengthy and complex processes could be simplified with a central representation for inventory. That would
also reduce the chance of manual error of filling the segment by respective individuals.
4) Zara functions on theoretical inventory and short term forecasting, and accept an error rate of 5%. Reducing
manual errors while counting SKUs becomes important for short term forecast
5) Commercials responsible for matching store demand to manufacturing units and allocation of items were
dealing with a pool of information, which if mismatched due to manual error from stores demand collection or
any other reason, would lead to a ruckus and it can be avoided with new systems where data flows
seamlessly between stores and within organization.
6) Zara honours speed and decentralized decision making, new systems with additional POS features and
wireless connectivity can ensure both these aspects are fulfilled and would add to more fluid DM and
information flow.
7) Thus, also a need to upgrade the POS system

Cons(if we update):
 1) Existing robust and built infrastructure would be put at risk and will be disrupted.
2) Huge costs will be incurred for updating.
3) Skill of the current workforce “seems” to be low. (From the case fact that IT employees were hired for local
universities and have stayed in the same firm, working on same technology)

Recommendation​:

Clearly there was a lack of a formalized IT initiative in the firm. It was majorly because of the legacy systems being in
place and meeting the objectives upto that point.
However, as the case talks about the expansion in Europe(Italy), it seems strange to expand with the legacy systems
in the upcoming digital world due to following reasons:
1) Zara is aiming for expansion and growth opportunities. WIth technology turning obsolete and soon they will be
lacking support for DOS systems, Zara might lack its objective of speed if it doesn't decide to update its systems to
ensure more accuracy and speed.
2) If they expand, and later on realize the need to change/upgrade their systems, it would be a strenuous task. Thus,
there is a need for a longer term vision for IS in the firm.
3) Zara has given importance to theoretical inventory. Thus, again systems that help in accurate measurement and
count of existing inventory are needed!
4) Store managers deem the current method to be complex and wireless systems can make it easier. Also, new
capabilities could bring in cross-store and inter company data leverage.

Decision​: Zara should opt to update their systems.

Recommendation-1: Lay Down a concrete IT structure within the organization. They have sufficient internal
processes which require attention and have scope for improvements and development as well. For instance:
Developing sophisticated systems for optimal plans and schedules.

Recommendation-2: Update systems and process of SKU tracking. Redundancy is an issue while tracking SKUs. It
would again lead to an error in short term estimates, which is of utmost importance for Zara.

Recommendation-3: Company can begin with updating the POS system of one store in every region. It will not
completely disrupt the functioning of stores in the same region and customers can fulfill their demands by visiting
another store in the same region. It will also help in starting the updation simultaneously for multiple regions and will
reduce the overall time for complete updation in all the stores globally.

Cost associated with the change(update): Excel Attached

Financials​:
- No information is given for the case if Zara decides to buy terminals enough to safeguard them from sudden
discontinuation by supplier. But, opting for this option would still not address the issue of obsolete
technology and its related expenditure issues with support and larger scale upgrade costs.
- Assuming that out of 1558 Indtex stores, all stores get equal contribution to the net income ( Broad
assumption,), Zara should be making a contribution of ~​€​150 mn. And the total expenditure is of ~​€3 ​ .5mn
which is feasible for a store as large as Zara.