Zara came a long way

Zara’s Business issues

• There was a need to respond quickly to the demands of fashion conscious consumers, with high volatility in the forecasting abilities.
• Store Managers used to decide on what was likely to sell and then placed the orders accordingly, without consulting the headquarters.
• No Advertising – Only did promote twice a year annual sales and opening of new stores which resulted in a marketing expenditure of just 0.3% i.e. tenth of industry average of 3%- to- 4%. Zara spent  heavily on stores to get a prime location, 
• Zara customers were aware of the frequent change in the design and the short span of availability if the stock, average stock of 3-4 weeks and they also knew that to get the latest design, they should visit the store more frequently.
• Inventory management was a very good, no old inventories were stored, and produced as per the demand, and very less storage time in DC 
• The whole designing, estimation and delivery was based more on intuitive estimation, and the future demands were based on the current trends, which virtually negated the possibilities of stock-outs or replenishments.

Information Technology issues

• Age-Old Point of Sales( POS) system- DOS operating system was  no longer supported which meant that there could be  Requirement FOR UPGRADE
• Managers had to manually check the stock and estimate the new order quantity. The current IT systems were unable to give accurate inventory estimates
• Although they had an IT department, it wasn’t a robust structure with no CIO, no definite budget, no formal justification of the costs and cost benefit analysis. The IT was rudimentary in their approach of a “Need Based Action”
• The record keeping and data transmission was not correct and many irregularities were seen like theft, damage, losses etc.
• The IT approaches were quite peculiar in the sense that most of their systems were developed internally rather than buying commercially available software.

Analysis:

Despite of so many issues Zara had managed to lead the fashion industry, which implies they were managing their business well with whatever IT services they had.

It wouldn’t be a good advice for Zara to change their Point of Sales (POS) systems with immediate effect. The POS could be replaced over time to handle the compatibility issues.  Before moving ahead to change in the POS, Zara should build a strong inter store network such that the store managers have a better estimate of the Inventory. 

If the store managers could get the trends of competitors as well as more definite figures about Zara’s own sales, then they could come up with a better forecast.

Zara’s IT strategy needs a robust central structure with the stores connected to the headquarters. 

Salgado was ensuring that the vendors didn’t change the POS terminals such that they couldn’t work on DOS any longer. Along with that he engaged himself in the thoughts of developing the IT infra-structure.