i.

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.

ii. 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.
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. 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.
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 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.
v. 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.

vi. 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.