Case Study: Zara's IT Challenges in the Fast Fashion Supply Chain

This case study examines Zara's dilemma regarding upgrading its existing information technology system, specifically its POS terminals. Despite Zara's success and customized supply chain, the aging DOS-based POS system presents challenges like increasing operating costs, inability to integrate with newer PDAs, and lack of real-time inventory data. The analysis identifies problems such as outdated technology, rising operating costs, and inefficient inventory management. Recommendations include upgrading to a real-time database and modern POS terminals, implementing the changes gradually, and streamlining organizational processes to improve operational efficiency. The goal is to enhance inventory management, facilitate information sharing, and maintain a competitive advantage in the fast-fashion market. Desklib provides this and many other solved assignments for students.

Running head: SUPPLY CHAIN MANAGEMENT
Supply chain management
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1SUPPLY CHAIN MANAGEMENT
Zara IT for Fast Fashion Case Study
Problem Summary
Zara being a well-known brand of Inditex, is facing a dilemma that whether they should change their existing
information technology system by incorporating different operating system. The organization has been
expanding at a rapid rate and upgrading their POS terminals was necessary. Zara had developed their own
customized logistic and supply chain, which was supported by their own written programs so incorporating a
new system had a risk of high magnitude. The case analysis will identify and evaluate the facts within the case
to provide relevant findings.
Analysis of Problem
The problems faced by Zara retail managers and the loopholes within their designed systems are as follows:
 The POS terminals used by Zara were out of data as they were still running on DOS. The net margin of
Zara was 11.02% but their operating cost were increasing simultaneously thus, reducing their profit
margin. Moreover, H&M had made more profits in the year of 2002, which is 12.49% by overtaking
Inditex.
 The Hardware vendors were unable to upgrade their machineries and peripherals as the POS terminals
were DOS based.
 The store managers were unable to check their inventory balances by using the POS terminal so in order
to count the number of replenishment quantities they would have to walk around the store and count
them manually. They had to make conversation with the sales executives to identify the demand of the
products. This was the only way they could examine their stock levels. Moreover, their inventory stock
control is 95% but in order to gain competitive advantage in the market it had to be maintained at 100%
all the time.
 The PDA’s were upgraded on regular basis keeping the POS same for over a decade. Therefore, there
was no sharing of information between the PDA and POS. Similarly, there was no sharing of
information between two stores. Zara used multiple PDA’s that increased redundancy. The ROE of
Inditex is 24.9%, which could be further increased by improving their business model by increasing
their operating margin.
 Even though use of DOS with POS were stable, effective and easy to maintain, the increase in number
of stores would become much more difficult to manage.
 None of the PDA’s or POS terminals were connected the headquarters to different stores. The daily sales
data was stored in a floppy and then had to be carried to the terminals for transmitting the data to the
headquarters.
Recommendations:
The recommendations are as follows:
 There is a need for real-time database due to increase in growth opportunities and number of stores.
 There is a need for updating the existing POS terminal by incorporating latest software so that the store
managers could manage their inventory and share information with other stores. The overall cost of
upgrading the POS system will be € 3, 83,250 for a single store. Even though, the cost is high, the
operating efficiency of the organization will increase at the same time.
 The implementation of the new software into Zara business Model will have to be executed slowly and
gradually and a time slot of 20,000 hours have been set for programming software in each of the stores.
Pilot test should be conducted of the new operating system with new machineries to identify its impact
on the supply chain and logistics.

2SUPPLY CHAIN MANAGEMENT
 These gradual spending on new supply chain and logistics management will enable them to maintain
inventory easily just checking on the POS terminals about the daily sales.
 All the organizational processes will have to be streamlined so the operational efficiency can be
increased.
 There are separate orders for each segment so it takes more amount of time to receive the inventory so
single ordering system will have to be established for reducing the time taken in restocking.