Problem/Issue Statement
- Xan Salgado Badas (head of IT for Inditex) and Bruno Sanchez Ocampo (technical lead for the POS) are discussing Zara’s current POS system. Zara, Inditex’s largest chain of retail stores, is currently facing the decision of whether to continue running on the POS system that is DOS based or upgrade to a new operating system such as Linux or Windows. The current POS system is running on DOS which has not been supported by Microsoft for years.
- The main problem for Zara is that all stores are using an outdated DOS operating system which has not been supported by Microsoft since 2003. The internally developed POS application was specifically developed to run on DOS and was written mostly by Sanchez. The POS system is stable, effective and easy to roll out at new locations and requires minimal maintenance. The question is presented: Should Zara risk continuing to run on an outdated DOS system or upgrade to a new operating system? Salgado favors upgrading the POS system however; Sanchez feels the system works wells and is very stable so why change it.
The symptoms of remaining with the DOS based system are as follows:
o A major risk
is posed by the hardware vendor for Zara’s POS terminals. If the vendor decides
to upgrade their machines so they are not DOS-compatible, Zara cannot open new
stores or purchase new terminals. However, the vendor has assured Zara that they are not going to
make any drastic changes and Zara’s is a big customer.
o Store
managers do not have the ability to look up inventory balances in their stores
or other stores since the DOS system does not offer that capability. Store
managers cannot determine replenishment quantities by using an in-store
computer, so they rely on canvassing the store to determine stock levels. In
addition, POS terminals and PDAs do not have the functionality to check other
stores for a particular garment.
o Comprehensive
sales and other data are not automatically sent to Zara’s headquarters. The DOS
based POS system does not have any in-store network so employees copied daily
sales totals from each terminal onto a floppy disk. At the end of each business
day, one POS terminals are used to transmit this data via dial-up modem.
o POS system
is not directly linked to distribution centers for easy replenishment of
stock.
o Handheld
computer devices (PDAs) are used to learn about newly available garments. The
handheld computers had to be liked each night, via a dial-up modem to
information systems at La Coruna. Store managers also complained that this
process took a long time and the screens on the PDA’s were to small to navigate.
- The scope of the problem entails all 531 Zara stores across the world in addition to distribution centers and Inditex’s headquarters. All stores would require new hardware (terminals, routers, modems etc.), operating system and a high-speed Internet connection. This would also involve assembling a highly trained IT department to roll out/maintain the new operating system and train all employees. Inditex will also incur very high operating costs if the decision was made to replace the POS system.
- From 2001 through 2002, Zara grew rapidly, adding 24 new stores in Europe, Americans and Middle East/Asia. From 1999 to 2002, net income has more than doubled from €259.2million to €438.1million ($271 million to $459 million). There are no indications that Zara will cease to expand. Since growth in the forecasted future, Zara needs to decide if they are willing to risk operating on a non-support DOS system or invest in a new operating system and equipment.
The context of
problem stems from two courses of action:
o
Salgado believes the system should be upgraded to alleviate the risk of not
being able to purchase new terminals or receiving support from Microsoft. He is
taking a proactive role so Zara is not caught in a comprising position.
o
Sanchez argues that the system is working with no IT issues and is implemented
in new stores seamlessly. He is also against “fixing something that is not
broke”.
The decision criteria for both possible courses
of action:
- Risks: Is the risk of operating on an outdated system higher than implementing a new operating system?
- Cost: Are the costs associated with implementing a new operating system/terminals worth it? These include purchasing new terminals/POS system, assembling a new IT department, training current staff, ensuring the distribution centers/headquarters are all working seamlessly.
- Future: Can Zara efficiently and efficiently operate on the outdated DOS system? And for how much longer can the system sustain Zara’s growth?
List of Plausible Alternative Courses of Action
There are
two courses of action identified in case study and both options address the
main problem in different ways:
Upgrade
the POS system:
- Change operating system to Windows, UNIX or Linux system
- Eliminates the risk involved with operating on an outdated DOS system and take a proactive role.
- Inventory levels will be available to managers so canvassing the store will be eliminated.
- PDA’s will no longer be needed to replenish inventory.
- Connects stores so they can view inventory levels and will no longer need to call each store manually.
- Adds functionality, adds network capabilities, easier replenishment of stock, inventory management from stock to stock
- Costs involved:
o
Cost per day for
programming: €450
o
Training per day:
€2,000
o
Hardware per
store: €5,230
o
Internet (annual
cost per store): €240
o
Cost of Operating
Systems (per computer/CPU):
§ Windows:
One-time costs: €140
Annual Costs: €30
§ Unix:
One-time costs: €160
Annual Costs: €25
§ Linux:
One-time costs: €0
Annual Costs: €10-150
Maintain
current POS system:
- Continue operating on DOS POS system
- Purchase extra inventory of POS terminals for new stores in the event that current vendor does not offer same terminals
- Current system is efficiently operating
- Little/no IT issues and support needed
- IT department can remain the same
- Risk involved with running outdated system
- New stores can open and roll out DOS POS in a timely manner
Evaluation of Alternatives
- When evaluating the two courses of action, it is important to analyze which option will minimize risk for Zara, accommodate future growth and be cost effective. As stated above, implementing a new operating system will minimize the risk of the company being caught in a position where DOS terminals are discontinued from the vendor. However, maintaining the current system is proven to be effectively working with no IT problems. The growth of the company is key. The case study pointed out that Zara’s website is simply a virtual window to the store’s merchandise and that selling online is not an option. If the new operating system is implemented, the potential for developing a website with online sales is created which will lead to additional growth and revenue. Costs stemming from both equipment and labor need to be evaluated when making a decision.
- The evaluation relates to the decision criteria developed because it analyzes the risks, benefits and drawbacks to both courses of action. Salgado and Sanchez need to decide if the current outdated DOS POS system can sustain growth in the future. From that decision, the rest of the decision criteria can be evaluated.
- Sanchez and Salgado cannot be imaginative in this decision. Real risk is presented with maintaining an outdated system, while extraordinary costs are unavoidable with implementing a new system. The evaluation of alternatives needs to be realistic since it affects all 531 Zara stores worldwide.
Recommendation
- After reviewing both courses of action, I recommend to Zara a two phase process: maintain the legacy system in the short term, while developing a new POS system on an upgraded operating system to accommodate for future growth. I believe Zara should remain operating on the DOS POS system. The operating system functionality is proven to be effective for running all Zara stores. The system was specifically developed for Zara and the employees are familiar with it. The system is easy to roll out and does not demand the IT department to visit each store and train employees on it. In addition, Zara will not incur additional costs of running on the system. Even though Microsoft does not offer support for the DOS system, private IT vendors that specialize in DOS can be retained to help maintain the system.
- With the stated, Zara should start planning for the long term and begin developing a new POS system that operates on an updated operating system. Since there is no urgency to switch to a new operating system, Zara has the luxury of writing their own POS program. The new operating system and POS software can be tested at the La Coruna store to determine effectiveness before rolling out at all Zara stores.
Presentation
- If I were presenting as a consultant to the class, I would state that I have been commissioned to identify the risks, benefits and drawbacks involved with upgrading the POS system or maintain the DOS system. I would discuss the current system’s lack of functionality but stability while discussing the high costs and training involved with a new operating system.
- Visual aids to be used in presentation:
o
PowerPoint presentation for the major issues stemming from both alternatives
o
Decision criteria for Zara; and
o
The pros and cons of the both alternatives
- I would “sell” the current DOS system by stressing it is an effective system that all 531 store current operate on. The company would not be incurring additional costs to maintain it and there are never any IT issues. Installation at new stores is easy and does not require the IT department to train new employees. Even though Microsoft does not offer support for the DOS system, private IT vendors that specialize in DOS can be retained to help maintain the system.
·
Other Delivery Consideration to Keep in Mind:
o
Pros and cons of both courses of action
o
Obstacles with both alternatives system including learning curve, future growth
and risk, etc.
