Problem/Issue Statement:
The main issue of the debate is whether or not to upgrade Zara's current POS system. Zara is the largest chain of retail stores owned by Inditex and their current POS operates on a DOS system. Xan Salgado Badas, the head of IT, and Bruno Sanchez Ocampo, the tech lead for the POS, are trying to decide if Zara should upgrade their system to Linux or Windows or keep working on DOS, which has not be supported by Microsoft since 2003.
The main issue is that all of Zara's stores across the world are using an outdated operating system. Inditex IT's tech lead created a customized POS application that runs successfully on DOS. The program has been stable, effective and easy to implement in newly opened stores without requiring much maintenance by IT or store staff.
The main question is should Zara continue to use the outdated DOS to operate their POS system or upgrade to a new system for their POS needs. Both Salgado and Sanchez are on opposing sides of the debate.
The symptoms of the problem with the current DOS system are that Zara runs a risk in continuing to run their POS on an unsupported system. They run the risk of potentially losing their system if their vendor chooses to abandon DOS in favor of a more current system. If this were to happen then new stores would not be able to install new terminals and the current terminals could potentially become buggy and unstable. Even though Zara's vendor has assured them that they won't be making any changes to the POS system there has been no written guarantee to state that.
Another symptom of the problem deals with inventory. With the current DOS based system the store managers have to do a manual inventory count each week because their system does not allow an inventory application. Each week when they need to do a re-order with corporate they must do a physical count in the store by department using PDAs rather than being able to look at what they ordered and sold on an in store computer. Another sub-issue is that the PDAs and the POS system do not communicate with each other or with other stores. So if a customer wants to know if another nearby store has a specific garment in their size in stock there is no way for their home store to check without calling the other store and asking one of their employees to check, which takes a lot of time and causes delays in the sales process.
Currently each store's computers can not communicate their daily sales to the corporate headquarters via an internet network. Each day the staff has to copy the sales on each computer to a floppy disk and at the end of the day one of the POS terminals is used to transmit the data using a dial-up modem. Also, the PDAs are used by store managers to see the new styles that are going to be available to them but in order for them to see this information they need to be linked to the dial-up modem each night to the main network in La Coruna. This process not only takes a lot of time but it is also very difficult for the managers to look at all the information on such a small screen each week.
Currently, this problem affects of all Zara's stores and their main headquarters and need to be evaluated to see if an updated system would better benefit their business.
Situation Assessment:
Since Zara grew so rapidly due to their unique business model and there has been no indication that they are slowing down anytime soon they must decide whether or not to keep their current POS supported DOS system or upgrade to a new one to keep their business going on the right track. These two courses of action are really central to the issue. On one hand Zara doesn't want to fix something that isn't broken but they also don't want to get left behind or find themselves in a compromised situation if their vendor all of a sudden decides to drop DOS. The major risk of operating on an outdated system is the possibility that one day the vendor could just drop DOS from their products and then Zara is left in a compromising position - they have to immediately find a new operating system for their terminals or risk loosing money. On the other hand the risk of implementing a new IT system is that they could be spending a lot of money on a system they don't currently need and may never require. Zara's higher-ups need to decide if they want to invest in a new operating system, a new POS system and new terminals or continue to stay with their current DOS based POS system.
List of Plausible Alternatives:
There are two courses of action for Zara:
1) To continue to employ the use of their current IT system - relying on their vendor to keep supplying them with DOS.
2) Upgrade their operating system to use Windows or Linux etc., upgrade their POS system so they don't have to manually count inventory, order new merchandise via a PDA, contact stores via telephone to find out about their inventory, connect their terminals to one main terminal by floppy disk, and upload new styles to their PDA's via a dial-up modem each night to the main store in La Coruna.
The major difference in between these two is that of cost. It will take a good deal of money to switch to a new system but since Zara's parent company does not spend much on advertising for their stores - it is roughly 0.3% of their revenue.
Evaluation of Alternatives:
Looking at these two options for Zara, the issues that seem to be the most important involve finances, potential growth in the coming years and minimized time and effort for company.
To adopt a new system it would cost money, bottom line. Finances would take a hit but we can look at a breakdown of the costs: (All costs are looked at per store - each store has an avg. of 5 terminals)
Operating System:
Licensing costs: €0-€700 (one time fee)
Annual Maintenance Fee: €125-€150
Service Contract (Linux only): €10-€150
Hardware:
POS Terminals: €5000
Wireless Router: €180
Wireless Ethernet Card: €250
Connectivity:
€240
Overall Programming:
Cost of Day of Programming Time: €450/day
Estimated hours: 20,000
(includes porting old POS system, expanding POS application, inventory evaluations and transfers)
Time Required:
Cost/day of Installation/Training Time: €2,000
Estimated hours: 32
Taking out the calculation of programming and time hours/pay we are looking at a base cost between €5,805-€6,670 per store.
On top of the financial aspect would be the idea that a new POS system would potentially facilitate future growth. If Zara were to adopt this new system they would be able to cut down on the amount of time spent taking physical inventory counts, connecting their terminals' sales reports via floppy disks, and connecting their PDA's through a modem to look at new styles and make their weekly orders. This alone would facilitate not only their in-store process but it would also help their shipment and order fulfillment process. The other option that a new software system would possibly bring to the table would be that of an e-commerce store. Right now their website is more or less akin to window-shopping but if Zara upgraded their new system might be able to be formatted to one day work well with an online shopping experience.
On the other hand the current IT system is working for Zara without any technical issues. The inventory and fulfillment process takes longer due to the slow nature of the PDA and the force of having the managers hard count their inventory is more of an inconvenience than an actual problem for the company.
Recommendation:
My recommendation for Zara is a two phase process. I think they should continue to operate on their current DOS system for the next 1-3 years and during that time frame save up additional funds and start developing a new POS system to work on their new IT system, wether it be Windows, Linux or Unix - they would have to decide which platform best suits their needs. Then after the 1-3 year time frame they should institute their new system. I believe it is highly important for them to turn to a new operating system. Continuing to use the old platform beyond the 1-3 year timeframe is parallel to standing on the edge of a cliff with a giant crack in it. At some point it is going to come tumbling down and you don't want to be on the edge when it does. I think preemptively switching to a new system will cause more room for improvement company wide down the road. Having a system that allows all terminals to communicate to each other and to the main store is highly important. It is critical for the main management to be able to track how each store is selling throughout the day not just once the store is closing for business. I think being able to track sales quicker will allow them to forecast re-orders more timely and effectively. It will also help the main team figure out cross store merchandise trades earlier than every two weeks like it is at the current system. Also, having the possibility of opening an online store in the future would be much more easily facilitated if they had a more current POS system to rely upon.
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