Preparation:
Location - La Coruna
Zara is Inditex's largest chain of stores. Zara was founded by Amancio Ortega.
Case background: Xan Salgado Badas and Bruno Sanchez Ocampo are discussing Zara's Point of Sale system. The debate essentially is "if it ain't broke why fix it".
Current POS system runs on DOS. The software works fine but the technology is behind the times. Microsoft doesn't support DOS anymore. A major risk is that the hardware vendor for the terminals would upgrade their machines so that they are not DOS compatible anymore. The vendor has indicated that they wouldn't change but they would not give that indication in contract form so it is not trustworthy.
Business Model: Speed and Decision Making
Marketing - Zara spent little on Ads but it did spend heavily on its stores. Stores were always located in a city's prime retail district. Layouts were changed every four to five years. Individual stores didn't have the freedom to set garment prices.
Zara did not try to produce "classics" clothes that would always be in style. The clothes were designed to have a short life span.
Zara introduced substantially new design collections at the start of the fall/winter and spring/summer periods. In contrast to competitors, new items were continuously brought out. Approximately 11,000 new items were brought out, while competitors averaged 2,000 to 4,000
Finance and Operations:
Distribution Centers - relied a great deal on automation and computerization.
Stores - heavily relied on PDA's. PDA's used primarily for ordering, handling garment returns to the DC, and transmitting information from headquarters to all stores.
Debate:
Reflection:
The direction of Zara's IT has been a difficult debate these last few years. Still maintaining DOS systems has been a topic of concern that has bothered me for a while now. As a debate, however, the issues seemed to need further investigation. This required the need to seek out consultants who were not influenced by internal agenda's. When the Info Consulting Group arrived for presentation, I was a bit skeptical about what research might have been conducted. However, despite initial skepticism, I was impressed with the consultants presentation.
The consultants grasped our business objectives and included them as vital points in consideration. They even broke down the points into specific categories of key decision making. The categories being Speed, Future and Growth, Low Cost, Decentralized Decision Making, and Stability and Reliability.
Operational flow was well illustrated with the following:
Ultimately, the consultants suggested that at this time there isn't a need for changing the POS system. Initially, at the end of the presentation I was inclined to agree with the consultants that the company should continue our path and not upgrade the POS system. Since the systems still worked and we are making money, I could see the opportunity of investing in growth via expansion over IT infrastructure.
After some reflection, however, I have to say that I am not convinced and need to disagree with the consultants and would prefer to upgrade. It is true that our current systems still work, but our single greatest objective should be to maximize shareholder wealth now and in the long term. While we are still functional and profitable, I believe that the increased value in a successful implementation of a good POS system would lead to greater profits. Obviously, there would be an initial investment required, but we will eventually face that challenge anyway. To clarify, eventually all our technology will at some point in time need to be upgraded. It is just a matter of when.
For some more in depth detail of the data further, we can look at some supply chain commentary. The following is regarding the bullwhip effect. The bullwhip effect in this case being defined as, unforeseen spikes in demand or over-estimations of demand stimulate the supply end of the chain to respond with changes in production. Production and supply issues then impact the consumer end of the supply chain and the effects ripple up and down the chain.
"The first step in minimizing the bullwhip effect is to
understand what drives customer demand planning and inventory consumption. Lack
of demand visibility can be addressed by providing all key players in the
supply chain with access to point of sale (POS) data. Suppliers and customers
must then work collaboratively to improve both the quality and frequency of
information communication throughout the supply chain. They may also choose to
share information through an arrangement such as vendor-managed inventory
(VMI). Eliminating practices that introduce spikes in demand, such as order
batching, can also help. The higher order cost associated with smaller or more
frequent orders can be offset with Electronic Data Interchange (EDI) and
computer aided ordering (CAO).
Pricing strategies and policies can also help reduce the
bullwhip effect. Eliminating incentives that cause customers to delay orders,
such as volume transportation discounts, and addressing the causes of order
cancellations or reductions can help create smoother ordering patterns.
Offering products at stable and fair prices can prevent buying surges triggered
by temporary promotional discounts. Special purchase contracts can be
implemented to encourage ordering at regular intervals to better synchronize delivery
and purchase."
http://www.usanfranonline.com/managing-the-bullwhip-effect-on-your-supply-chain/
I want to note that this is not to say that we have an issue currently with the bullwhip effect, but rather that it can be used as a stressor to indicate that technology can help mitigate certain potential issues.
To conclude, I want to recommend that we upgrade our point of sale system. The discussion warrants further investigation into which specific system to upgrade towards but it should be done. My proposal is to have the consultants re-align their research with the intent of upgrading.
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