1.

EXECUTIVE SUMMARY
Focuses on Inditex, an apparel retailer from Spain, which has set up an extremely quick
response system for its ZARA chain. Instead of predicting months before a season starts what
women will want to wear, ZARA observes what's selling and what's not and continuously
adjusts what it produces and merchandises on that basis. Powered by ZARA's success,
Inditex has expanded into 39 countries, making it one of the most global retailers in the
world. But in 2002, it faces important questions concerning its future growth.
Link customer demand to manufacturing, and link manufacturing to distribution.
The point-of-sale (POS) terminals used by Zara, Inditexs largest chain of stores.

1.1

Issue
Zara needs to respond quickly to their clothing product as fashion changes rapidly, so
time is an extremely important to the unique clothing line.
Zara is Inditexs largest chain store and they use point-of-sale (POS) terminals with a
Microsoft disk operating system (MS-DOS). A major weakness of Zara is the speed of
implementing a new technological system. Zara has not upgraded its operating system
since 10 years and remains to be the only customer still using DOS. While this system
is efficient in all ways and Zara is able to run their POS application, there is no
guarantee that their vendors will change their hard drive & decide to upgrade its
software.
The key problem is Zara needs to upgrade their applications and add functionality, and
networking capability.

1.2

Anticipated Outcomes
The reasons in support of the upgrade are that the upgraded POS software will enhance
functionality and network capabilities. On the other hand, the primary reason against the
upgrade is that Zaras current system works almost flawlessly. There is currently no IT
intervention required to open a new store and the IT department seldom receives call for
IT support and issues. Upgrading the system is a major project, with potentially large
ramifications that could be costly and detrimental to Zaras current way of doing
business. Also with the updated POS systems,
The inventory levels will be available to managers so canvassing the store will
be eliminated.
PDAs (Personal Digital Assistants) will no longer be needed to replenish
inventory.
Connects stores so they can view inventory levels and will no longer need to call
each store manually.

1.3

Adds functionality, adds network capabilities, easier replenishment of stock,

inventory management from stock to stock.

Recommendation
The analysis of Zaras activity reveals that its main strategy is the ability to identify new
trends and to satisfy the demand of customers with its value chain system that is really
effective and its structure very organized.
The system that they have worked with has been easy to maintain and very effective.
But, change is inevitable because even if changing the system is not urgent, the company
needs and it has to invest in IT infrastructures because MS Dos is an obsolete technology
and their POS terminal doesnt guarantee that they will continue to supply the same
terminal without any changes in the present hardware.
PDAs (Personal Digital Assistants) which are used in all Zara stores and POS terminals
are not connected with Zaras headquarters or with other stores, moreover there is no instore connection to link employees information like daily sales and the employees have
to copy this information on a disk. Changing the system should fill this weakness of
intra- communication.
Finally, the main needs of the company are an actualization of the IT and the
improvement of the in-store connection and the connection with the companys
headquarters. So, we can say that change is unavoidable because such a company cannot
continue to run with obsolete and unconnected technologies. So, it is clear that the
improvement is necessary.
A choice needs to be made now between the different options that are available with this
solution. We have to forecast the different cost of each solution (Windows, UNIX or
Linux). At 5 years, globally costs of investing are reasonably close and not significant.
The main difference is the annual fees generated by this investment. The cheapest is the
UNIXs solution. WITH THIS SOLUTION Assumptions for Zara upgrade decision
Store's number 1558 Avg computer per store 5 Number of new store a year 80 Hours
worked a day 8 Cost per new store 34 230,00 Annual fees per store 365,00.

1.4

Justification
Castellano estimated Inditexs IT budget for 2002 was 0.5 % of the revenue, as
compared to the 2% of the revenue of other North American retailers. As there is no
formal justification of IT efforts, there is also not any cost/benefit analysis. However, to
maintain business competitiveness is the most important factor to consider when making
any decision regarding the upgrade of IS.

Zara needs to analyze and compare the Tangible (quantitative) costs and benefits as well
as the Intangible (qualitative) costs and benefits of the old system and the new system.
We can quickly calculate how much it would cost: The average store sales is about
2million a year, with 80 new stores every year: 160m a year. Much more than the
price needed to put into this investment. To sum up the current IS system is a drawback
to the future development. The second main risk is that Zara has to keep up to date its
information flow to foresee as much as possible the future trends. With an effective IS
they will be able to stay ahead the curve and keep their leadership.

2.

BUSINESS CASE ANALYSIS TEAM

The Zaras staff devoted to IT contains about 50 people divided in several departments (store
solutions, logistic support, and administrative system). So we can suppose that only 10
people are devoted to POS software and so 10 people are able to handle this project. With a
brief calculation we can figure that it would take too much time to set up this project with an
internal team (about 7 months for a 10 people task team working 8 hours a day.)
Furthermore, nothing notices that they have the skill to handle perfectly that project. That is
why we are prone to think that externalize would provide a more efficient solution,
completely handle by an outsourced professional team. It could be a little more expensive at
short and long term that is why if we choose this option we have to integrate a training
system of our staff to lower the outsourced fees. An important point is that Zara has always
developed its own IT solutions and if we make it through subcontractors we are not sure that
it would match with Zara values or way of doing. Zara has been used to make it alone. Thus
we think that some member of the IT staff could work with subcontractors in order to lower
these expenses and help them to create an It solution which fit in Zaras practices.
The following individuals comprise the business case analysis team of Zara:

Role

Description

Name/Title

Executive Sponsor

Provide executive support for the project

Jos Mara Castellano, Deputy Chairman and CEO

3.

Technology Support

Provides all technology support for the project

Xan Salgado, VP Information Technology

Process Improvement Advises team on process improvement techniques

Jim Jones, Process Team Lead

Project Manager

Manages the business case and project team

Fernando Aguiar, Project Manager

Software Support

Provides all software support for the project

Bruno Snchez Ocampo, Technical Lead

ROBLEM

DEFINITION

1.1

Problem Statement

Zara has been continually using its POS OS (which is Microsoft DOS) because it is
stable, easy to use and cheap. The risk involved here is that Zara is the only customer of
their supplier running on DOS. In case the supplier decides to stop supporting the DOS
OS, Zara will suffer an incapacity to open new stores, until the migration to new OS is
complete. Despite these limitations, however, Zara's parent company, Inditex, has built
an extraordinarily well-performing value chain that is by far the most responsive in the
industry.
On the other hand, the project recommended by Salgado would without a doubt
revolutionize the Information System of Zara leading to an enormous change in Zaras
framework.
Therefore, the major problem to the company is to decide whether it has to upgrade the
present system. Updating the POS operating system is an expensive and irreversible
process. It needs to be carried out meticulously to avoid any discrepancy to the global
scale system and thus avoiding wastage of company resources.

1.2

Organizational Impact

The scope of the problem entails all 531 Zara stores across the world in addition to
distribution centers and Inditexs headquarters. All stores would require new hardware
(terminals, routers, modems etc.), operating system and a high-speed Internet
connection. This would also involve assembling a highly trained IT department to roll
out/maintain the new operating system and train all employees. Inditex will also incur
very high operating costs if the decision was made to replace the POS system.
Nevertheless, this initial investment of money spent on making this change would affect
Inditex by incurring these new costs as an advantage in future.
Tools: the existing legacy POS system (including hardware and software) will be phased
out completely as the new POS system becomes operational. This will require training
employees on the use and maintenance of the new POS system.
Processes: The main advantage of upgrading the system is that ordering can be done
through the POS system and would be much easier. At the same time this would aid
increasing networking capability which would result in better information access to
make effective decisions. The new system would allow real time inventory management
which will help to increase the overall service level and help in cross-selling between
stores and thereby provide better service to the customer.
Roles and Responsibilities: Although the initial investment would involve a lot of
money, essentially creating a need for an IT division to keep up with constant

monitoring, upgrading and training of sales personnel; on a long term it would be

beneficial to the distribution centers who would now have access to the stores
inventory. Thus we need to add few more IT professionals to the current team to develop
and in future maintain the upgraded POS systems.
Hardware/Software: A choice needs to be made now between the different options that
are available with this solution. We have to forecast the different cost of each solution
(Windows, UNIX or Linux). At 5 years, globally costs of investing are reasonably close
and not significant. The main difference is the annual fees generated by this investment.
The cheapest is the UNIXs solution. WITH THIS SOLUTION Assumptions for Zara
upgrade decision Store's number 1558 Avg computer per store 5 Number of new store a
year 80 Hours worked a day 8 Cost per new store 34 230,00 Annual fees per store
365,00.

Zaras process has been working fine for all these years and the company is growing at a rapid pace,
adding 24 stores from 2001 2002 in various different countries. This expansion and growth would not
stop Inditex in the coming years and to continue using an archaic system with no vendor support in the
future would mean a risk of having more problems later when the company has more stores coming up
across the globe.
The decision criteria for Zara should be adding functionality in the business processes, networking
capability, sharing information between stores as smoothly as possible, and making the company run more
efficiently with ordering and restock the items. It is not necessarily in relation to the cost of the changing
to a new operating system in 2003, but what would be the difference in cost if they are stuck by their
outdated IT system in the future. The company will need to evaluate where they see the most risk and
combine that with the cost of an upgrade.