Blog# 6: Zara: IT for Fast Fashion Case Pre- and Post-Notes

Case: Zara: IT for Fast Fashion

Problem/Issue Statement

• The problem presented in the case revolves around a discussion between Xan Salgado Badas (head of IT for Inditex) and Bruno Sanchez Ocampo (technical lead for the POS system) about Zara’s current POS system. Currently, Zara’s (Inditex’s largest chain of stores) POS system is DOS based, which is an outdated operating system that Microsoft is no longer supporting. The problem is: Should Zara risk changing their OS system to risk continuing as is and an outdated OS?
• The distinction between the problems and symptoms within the case analysis are as follows:
• Main Problem: Zara is currently using a DOS based POS system that is not even being supported by Microsoft and also causes a risk for Zara if their hardware vendor upgrades their machines that make it no longer DOS-compatible. Whereas Salgado is in favor of modernizing their IT infrastructure, Sanchez is content with not fixing what’s not broken.
• Symptoms: From Salgado’s point of view, he listened to the complaints of store personnel in that an updated POS operating system could allow the use of a large screen, keyboard, and mouse to execute transactions currently reserved for the PDAs used by the staff. Also, stores would be able to see inventory of other locations instead of having to manually call. Finally, ordering could be done more efficiently by connecting a store’s inventory to the company’s distribution center for easier replenishment of stock.
• The scope of the problem involves approximately 531 Zara stores that would need to be switched to a new operating system, which would involve a lot of money, essentially creating an IT division to maintain all the upgrades and constant monitoring, and training of sales personnel. However, the benefits would also extend to the distribution centers, which would now have access to any store’s inventory. Overall, any influx of money spent on making this change would affect Inditex by incurring these new costs.

Situation Assessment

• The context of the problem is really split into two:
• Salgado: Upgrading from DOS to a Windows, Linux, or another more efficient operating system.
• Sanchez: As it was himself who created the programming and implementation of the DOS based system, he did not see a need to have to make the change to a different operating system. In fact, he was against it for the reasons of spending money, fixing something that is not broken, and going from opening a store that requires no IT involvement to having to create a department if this change took place.
• This is an ongoing discussion between the two individuals as they realize that times are changing and even their hardware vendors can change their peripherals and machines which would then leave Zara in a dangerous position; no more support for their DOS POS.
• The decision criteria to consider include:
• Salgado: Adding functionality, adding networking capability, sharing information between stores, and making the company run more efficiently with ordering and restocking items.
• Sanchez: Keeping the status quo, needing no IT involvement with the daily operations, having a store manager just unpack the POS terminal, insert some floppy disks, plug a modem into a phone line, and be ready to make sales. Also, the fact that DOS hasn’t been supported for years now and that has not caused one problem for their company is another reason he does not want to make the change.

List of Plausible Alternative Courses of Action

• This case presents two alternative courses of action:
• Salgado: Change to a Windows, UNIX, or Linux system.
• Sanchez: Continue using a DOS POS system and possibly purchasing extra current POS terminals in the event that the company’s vendor discontinued support.
• Both options address the main problem by:
• Salgado (Upgrading): By upgrading and adding functionality, you gain access:
• Live inventory
• Connecting to other stores to view inventory and not having to manually call each store
• Instantly transmitting current data to HQ and the distribution centers, specifically if needing to order an item that is running low in the store.
• Removing the need to use a PDA, which is time consuming and inconvenient (small screens).
• By having a wireless network, managers would no longer have to rely on floppy disks to tally up total sales from the registers and then transmit.
• If all the stores were permanently connected to the Internet, every location would know the theoretical inventory of all its SKUs.
• Sanchez (No Changes): By staying the course and not making any changes, you:
• Eliminate the risks of IT failure during implementation and changing the IT infrastructure of a company that is not used to having an extensive one.
• Save costs on having to replace the operating system in every store.
• Save costs on not having to train employees on the new software and functionalities.
• Putting the company at risk in regard to the robust and scalable infrastructure that would have to be built.
• Not having to create an IT department to handle any changes.
• Allowing for easier store openings by just uploading two floppy disks into the terminals and being ready to go.

Evaluation of Alternatives

• The basis for determining how to evaluate the two modes of thinking involve the time, labor, expenses, and real need for changing the POS vs. not changing the POS. Both individuals are aware that their company is the only one using a DOS-based system that their hardware vendor is supporting. This is cause for concern if their vendor dropped support, yet there was no indication that this would ever occur (based on the relationships formed). However, for as innovative as the company was with clothing, they were not up-to-date on technology. The article states that the company’s website was used primarily as a virtual window to the store’s merchandise and that selling online was not even an option. Yet, by integrating a new OS system, the potential for online sales could create a stream of revenue and opportunities for the company.
• The evaluation relates to the decision criteria developed because by taking into account the benefits and drawbacks, an informed conclusion can (hopefully) be made by Salgado and Sanchez. As the company continues to grow and expand, should the company continue relying on an obsolete operating system?
• In this scenario, I would not be very imaginative. You have to look at the cost factor. On one hand, by not making any changes, that is $0 of extra money being spent. Yet, as exhibit 13 points out, a lot of money will be going into upgrading Zara’s POS. By running the calculations, I got the following:
• Just the time it takes to program and train per store:
• Programming: 375,300 Euros
• Training for one store: 2,660 Euros
• Training for all 531 stores: 1,412,460 Euros
• Cost of Operating Systems (One Store):
• Windows:
• One-time costs: 25,570 Euros
•  Annual Costs: 270 Euros
• Unix:
• One-time costs: 25,590 Euros
• Annual Costs: 265 Euros
• Linux:
• One-time costs: 25,430 Euros
• Annual Costs: 25,440-25,580 Euros

Recommendation

• This is a tricky scenario. On one hand, one might say that the quality recommendation would be to invest into upgrading. The benefits, especially as the company continues to grow, can create real time savers by not having to manually submit order forms or spending the time to count inventory in an outdated method. Yet, by not making the change, the status quo remains and the company’s business model/operations are working. The company is profitable, growing, and creating a unique way to shop for clothes.
•  The logical recommendation goes hand in hand with the quality recommendation. Personally, I see a big risk in staying as-is, especially considering that Zara is looking to expand into new geographic territories. As the company gets bigger, that will result in more ordering, restocking, and needing instant updates on inventory levels. From personal experience, I worked for a company that initially started with a DOS-based system and eventually moved to a Windows based. The transition from a training perspective had very little growing pains and helped grow the company exponentially. Now, stores could communicate with each other, consumers could look online to see what each store had in stock, and transmitting data to HQ was done instantly throughout the day. Also, when e-mails were sent, you would not just get them in the morning and then have to wait until the next day to get more.  
• I would really consider weighing the costs vs. benefits of transitioning to a new OS system. One suggestion would be to test pilot it in two of their locations to see how effective the new functionalities are. From there, a more informed decision could be made.
• UPDATE: After giving this a second thought, my logical recommendation would be to have Zara continue on its existing OS system and not upgrade. The reason is that the risks of failure, issues, delays, and increased costs do little to convince me that this move would be wiser than keeping with DOS. Yes, Zara is the only company their hardware vendor is supporting that uses DOS, but the company’s records and revenue show that this company is working and is profitable. I would not feel comfortable jeopardizing the day-to-day operations, which would have an impact on sales personnel, distribution centers, etc.

Presentation

• If I were presenting, I would sum up the case by stating two friends (and colleagues) are seriously considering the benefits and disadvantages of upgrading Zara’s POS system from DOS to a Windows, Unix, or Linux based. There are many changes (both positive and negative) for making the change and continuing with the current system.
• The key visuals I would include are:
• PowerPoint
• Outlining the costs of upgrading
• Outlining the costs of saving by upgrading (in regard to fulfilling orders and increasing customer convenience functionality).
• Screenshots of how the new system could look on the monitors
• Testimony from store managers as to what they are looking for on a day-to-day basis from their IT infrastructure.
• I would “sell” the recommendation by keeping the focus on Zara being a growing company and showing that their DOS system is working, albeit is outdated. Yet, I would still be just as unbiased in explaining the benefits of upgrading to a newer system.
• The other delivery considerations to keep in mind are to always remain unbiased, but to have the understanding that a decision is needed and needed soon. Just like in the clothing industry, styles come and go in a matter of weeks and Zara has to know how important it is to stay ahead of competition, which could cause them to upgrade their OS in the future.

Post-Presentation Reflection

Good morning Mr. Salgado and Mr. Sanchez,

After having the evening to reflect upon the information presented by the consultants, I believe Zara is better off (at this time) remaining with its current legacy DOS-system. Given the costs of implementing a new operating system as well as finding a compatible and reliable POS provider, the risk is too high to comfortably upgrade our entire chain of stores. Whereas there are considerations that must be addressed, specifically the long-term availability of DOS support from our vendor, our operations run smooth with little to no errors. Even with our small IT department of 50 employees, everything is maintained in-house and that also includes upgrades and changes within the system.

I do not believe the risk of changing vs. not changing our OS is worth the investment at this time and we should remain status quo. That is not to say that in the years ahead, we really need to consider how to proceed should our vendor no longer offer support and more companies are utilizing Internet capabilities to enhance the store’s image, shopping experience, and order fulfillment. The consultants did discuss Wincor Nixdorf and implementing their hardware/software into an upgrade POS. 

However, it appears that the costs only reflected the amount of the installation and we would need to gather further data to accurately assess the cost savings (or increase) that would come with this project. At this time, I stand by my original decision to remain with our current DOS-POS system as the risks associated with making this change do not outweigh the efficiency we have already established in our organization. As always, I will be more than happy to further discuss this matter, but again, our best course of action for Zara is to continue with our legacy system in the present time. 

Thank you.

Blog# 5: 1-800-JUNK-VAN Case Pre- and Post-Notes

Case: 1-888-JUNK-VAN

Problem/Issue Statement

• The problem presented in the 1-888-JUNK-VAN case involves the owner and founder of the company (Marcus Kingo) deciding on the best information technology tool that would reduce order entry errors and allow his business to grow.
• The distinction between the problems and symptoms within the case analysis are as follows:
• Main Problem: Information errors and inefficiencies were impacting operations, reputation with customers, and increasing costs. With Mr. Kingo wanting to grow his business into a franchise, he needed to find a way to streamline the information correctly and to make the entire process smoother.
• Symptoms: The symptoms discussed in the case analysis were simple administrative tasks were taking up a lot of the driver’s time, drivers’ data consolidation was time consuming, errors in customer contact information, forgotten e-mails, manual calculations, and billing mistakes were a handful of problems that Mr. Kingo saw. One of the biggest symptoms came from the data clerk, where the clerk was sending the wrong version of the database to the morning operators, which would not include current jobs. For this reason, jobs were being missed and customers were becoming more irate.
• The scope of the problem involves JUNK VAN’s entire operations. To begin with, this is an entirely online company with no brick-and-mortar location. For that reason, having information come in through phone, fax, e-mail and then being inputted and distributed correctly to the various personnel is critical. On top of that, the waste collection business in Canada was growing and was a highly competitive industry. This led to clients being very sensitive to price. With these low costs, Mr. Kingo cannot afford to waste time, money, and resources fixing mistakes and losing customers in the process.

Situation Assessment

• The context of the problem is looking at the inefficiencies that are apparent within JUNK VAN’s current virtual business model. Currently, the business runs in a very structured manner with two call center operators, one data clerk, three drivers, and three helps. The customer’s requests (jobs) came in via phone and from that point information would be inputted into a custom-built MS-Works database. From there, information would be e-mailed to the morning and evening operators and to the drivers. Mr. Kingo wants to maintain this virtual business and eventually move into franchising and growing. Before that can happen, he would like to have a central database and remove the manual process of e-mailing internal information.
• The decision criteria to consider include the cost of the various alternatives to their current business model with MS-Works, ease of use as his staff and himself do not possess a high level of IT know-how, and adaptable to changes within the industry. Two other criteria that were discussed was having vendor support and being able to implement this change as soon as possible.

List of Plausible Alternative Courses of Action

• The five alternative courses of actions in the case study include:
• Microsoft Access Database
• Custom Application
• Google Docs
• Platform as a Service Software as a Service
• Enterprise Resource Planning (ERP) System
• Each of these address the key problem as follows:
• Microsoft Access Database: This software can be installed locally on multiple computers or on a centralized server that can be accessed remotely through the Internet or a secure VPN (virtual private network). This would help with putting all of the customer’s information in one location that can be viewed by everyone who needed to see it. This could eliminate the wrong spreadsheets/databases being sent to the driver and result in fewer customer complaints.
• Custom Application: Mr. Kingo would be looking at a web-based system that would be part of a central database and provide remote access. With a custom application, Mr. Kingo could have the features he needed on his software to ensure the correct information was being inputted/stored and also reduce the need for the data clerks to send out wrong information.
• Google Docs: Mr. Kingo realized that this was a free software (up to 10 user accounts) and he could create text documents, spreadsheets, presentations, and forms with Google Docs. One of the main benefits was it would address the problem (like the other software applications) of allowing the drivers to easily access the job(s) information and reduce human errors by creating various security/access levels for the various employees.
• Platform as a Service (PaaS) Software as a Service (SaaS): This was another software that was similar to Google Docs in that was based on a cloud-computing infrastructure. Through this option, Mr. Kingo could also build custom applications and have a better setup for organizing, storing, and sharing company data.
• Enterprise Resource Planning (ERP) System: These systems were designed to be accessed remotely and via a central database. The main features of this system were that one could include every part of the business (sales, marketing, logistics, etc.) within it and there were various packages offered around small and medium-sized businesses. Again, the main problem is making sure the right information is inputted by his employees and the right information is being seen by those in the field.

Evaluation of Alternatives

• Given the five choices of alternatives, one has to be aware that Mr. Kingo is not investing his time and money into software that is beyond the scope of his business needs. Currently, with having a small operation, but wanting to eventually franchise, he needs to be sure his current business model is sufficient and performing the necessary functions correctly. The main goal is to continue building his customer loyalty base and that requires have a system that stores and transmits data with zero errors.
• When evaluating the five alternatives, I would reference the concept of what I am basing my decision(s) on. In this particular case:
• Microsoft Access Database: By utilizing this software, Mr. Kingo would face a relative short transition period between his current MS-Works database. As stated earlier, this program could uploaded on multiple computers and also on a centralized server. The installations were easy enough for Mr. Kingo to perform on his own and the licenses per computer were only $179. However, he did not have enough technical know-how on setting up the shared server for remote access. Also, he would need to determine the costs of possibly hiring someone to install these features as well as hosting.
• Custom Application: For this option, the initial build-time for a custom application would be approximately four weeks and $2,000 upfront. Maintenance was price at about $60/hour per developer and there was no knowledge of how much maintenance would eventually be needed or have to be maintained. A few other concerns to consider would be data migration, not being able to see the software beforehand as it was going to be custom made, and how much work would have to be for upkeep once the system was in place.
• Google Docs: With Google Docs, Mr. Kingo would have the ability to set various user level security, have information updated and viewed instantaneously, and could even continue using e-mail distribution. As discussed earlier, this was free for up to 10 users, but for a small business the costs could range from $5/month or $50/year. The drawbacks would be that even though all the data would uploaded onto an online spreadsheet, it could not be cross-referenced with relational databases. This would mean that data would be shown all at once and that could cause confusion for those that were seeing data that did not pertain to them. A big concern that Mr. Kingo would have to be aware of was the lack of formal customer support as well as users not owning the tools and resources meant to store sensitive company data properly. Finally, if Google dropped Google Docs, where would that leave his company?
• Platform as a Service: Software as a Service: This service was very IT focused and Mr. Kingo does not possess the necessary skill level to utilize these option. He would have to look for providers and considering the early stages of PaaS SaaS, there were not many options available. The service package costs range from $300-$600/month and that is dependent on storage space, how many users are needed, and the applications. The benefits include the quick implementation and data migration time (approximately three day), but if upgrades or changes had to be made, he could be looking at $180/hour for support. One other advantage was the lack of a long-term contract and he could scale the service up/down at any point or cancel within one month’s notice.
• Enterprise Resource Planning (ERP) System: There are several ERP packages available for small and medium size businesses. Yet, these can cost a great deal of money and go up if the user minimum is not met. For instance, to install an ERP system for a small company with 20-25 users, it could cost about $2,500 per user per year. A starting pack for only four licenses could cost $12,000, but the fact that these systems were more oriented toward finance and manufacturing did not help the decision making process with his waste removal business.
• If I were Mr. Kingo, I would want to be imaginative when it comes to determining all the needs of his current business and future prospects. However, I would want to alleviate any of the problems that he is facing with his current business model and that seems to stem around incorrect information and an inefficient method of providing information to the drivers. Also, with the five options, you will want to look at costs and the timeframe for implementation and upkeep.

Recommendation

• A quality recommendation might be to install an ERP system that could manage all aspects of the business. Mr. Kingo has to remember that one he begins to franchise his operations, it will be helpful for his locations to be working in the same system where all data can be stored and viewed. This system can be accessed remotely which will solve the problems of having the data clerks send the wrong spreadsheets and it will allow for accurate information and satisfied customers. Yet, the installation and maintenance can be costly, considering that it would initially be used for his ten person (including himself) organization.
• The logical recommendation would be for the custom application. I believe that if Mr. Kingo can obtain estimated rates and quotes, he could essentially have a system built around the needs of his organization and allow him to grow in the right manner. He would have to understand that there is room for programming error or high startup costs, but if done correctly, it would completely revolutionize his business model and make it more efficient for everyone. By having a web-based system, it could be accessed remotely, include only the business functions he wants to have, and could provide different access levels to ensure that those not meant to input data are not able to.

Presentation

• If I was presenting, I would sum up the case by stating Mr. Kingo has identified the inefficiencies within his organization and wants to adopt a suitable IT solution in the form of software. This is to ensure that the right information is being entered an seen by those directly impacting the performance of the organization and the reputation of the company. Overall, the goal would be to expand the business into franchising and to improve customer relations.
• The key visual aids I would present would be a PowerPoint presentation with the following:
• Table showing the pros and cons to each of the five options
• Explanation of the costs between the five options in the short- and long-term.
• Possibly a sample of how his databases/spreadsheets might look like if using one of the five options.
• Providing examples of companies utilizing the five options and how it has directly impacted their operations.
• I would “sell” the recommendation by being un-biased when explaining the five options, but understanding that a decision has to be made relatively quickly and showing Mr. Kingo the benefits of a custom-built application software
• The other delivery consideration that I should keep in mind include:
• Keeping the discussion relevant to the current problem and symptoms evident within his organization.
• Be clear and concise when going over the five options and allowing room for questions throughout the presentation.
• Detailed cost analysis for choosing one option over another during the start-up and then maintenance phases.  

POST-NOTES:

Good morning Mr. Kingo,

            After having the evening to reflect upon the consultants’ presentation, I believe our company’s best course of action would be to continue pursuing Software as a Service (SaaS) option. I know that Platform as a Service (PaaS) was discussed, but we clarified that it was SaaS that was being referenced. Given the current size of our operations and eventual move to franchising, SaaS would allow customization and flexibility today as well as when our organization expands. With its reasonable costs, quick implementation time, and Internet enabled functionality, I see no reason to prolong move forward.

            It was understood that the main problems evident in our organization involved the inefficiency of providing the right information to the drivers and keeping the customers satisfied. SaaS can meet those challenges by having information stored on a cloud service and giving the drivers, and all other essential personnel, real-time access to the jobs and eliminate the need to email potentially incorrect data.

            I would be more than happy to continue discussing our options, but we must act quickly as these problems are causing lost sales and lost customers in a highly competitive industry.