Zara

Zara

In 2003, Zara was experiencing tremendous growth. They had an effective and successful formula for bringing new products to market quickly, 75% of them within three weeks. They were vertically integrated and used technology, like handheld PDA’s, to get immediate feedback from their customers about what items they wanted. However, they had an outdated Point of Sale (POS) system, a surprise for such an innovative company. The head of IT at Inditex, Salgado, was ready to upgrade the systems but got opposition from the IT department that developed the software. They felt the system was working fine and experienced no problems. Furthermore, it was easy and cost effective to implement in a new store and very easy to maintain.

The company has a few decisions to make: either update the POS system or keep the system they have now. If they decide to upgrade their system, what is the best way to go about that upgrade process? We believe Zara would benefit greatly from replacing their current POS system and using a POS system that could better enable the company to track their inventory and accommodate more sophisticated capabilities. An updated POS system would increase the efficiency and responsiveness of Zara’s supply chain by enabling store-to-store communication, allowing more flexibility and productivity in its management of inventory. Updating the system would reduce the risk of the current DOS-enabled system becoming outdated and unsupportable, which has already started to happen.

An updated system would also decrease the bull-whip effect on their supply chain by allowing greater local responsiveness and improving visibility in the strategic growth markets of the Middle East and Asia. Zara can afford the replacement POS systems & hardware based on the financials of the company - in 2002 they have 525.9 million EU in cash and equivalents (see Exhibit 5), as well as a 21% operating margin. Greater efficiency in their networking capabilities...