Zara was originally established in 1975 as Zorba. Over the years, it has turned its founder Amancio Ortega to a billionaire and has expanded globally. Zara has continued its philosophy of centralized design, manufacture and distribution model even through its expansion. They finetuned the craft of fast fashion that it is difficult to be replicated by competitors as of writing of this caselet (2009).

How does fast fashion get accomplished? Instead of designing clothes ahead of the season, as done by other companies like Gap, Zara waits for a fashion trend to appear and then respond quickly. Because they are vertically integrated, their lead time to prepare newer design is 2 weeks instead of the typical 6 months. So, their products are always fresh. In fact, they annually manufacture 11,000 SKUs compared to the average 2000-3000 SKUs by their competitors. Another unique feature of their operations is that they only produce limited quantities of each SKUs. Imagine, fresh clothes and limited edition! It creates a perception of scarcity, which leads to people buying those clothes off the shelf.

Existing Digital Platform: Zara runs its business with remarkably little information technology. Many crucial activities are accomplished without much help from computers. For example, production requirements for new and existing garments are distributed to factories without any smart supply-chain optimization software. Planning and scheduling within each factory are informal, as is the process of deciding which stores get garments whenever demand exceeds supply. Every store sends the headquarters a detailed order twice a week. However, store personnel cannot look up their own inventory balances when preparing this order; in-store systems do not track inventory. In fact, the five point-of-sale (POS) terminals in each Zara store are not connected to one another or to headquarters. At the end of the day, an employee manually copies the sales information from each POS to the main POS terminal using thumb drives. From the main POS terminal, stores use dial-up modems to send daily sales totals and twice-weekly orders; beyond this, there is no network that links the stores to La Coruna. Similarly, no private exchange or extranet covers the supply chain of factories, subcontractors and distribution centers.

The relatively minimal presence of information technology throughout Zara is amazing. As mentioned earlier, stores have no PCs; they record sales on DOS-based POS terminals and submit orders for more clothes using PDAs. At company headquarters, computers run only internally developed applications; The company uses no commercially available enterprise software.

Applications at Zara are written and maintained by an IT staff of 50, which accounts for less than 0.5% of the companys workforce. (The Gartner survey of large North American retailers found, in contrast, that 2.4% of employees worked in IT.) The company does not track its IT budget, but it is estimated to be 25 million euros per year or approximately 0.5% of revenue, compared to about 2.5% by other retailers. Zara also has no formal process for defining and prioritizing IT initiatives. They have a steering committee head by the IT lead that convenes when new applications and infrastructure are needed to support the company as it grows.

Decision: Imagine it is 2009 now and they are considering technology options. Even though Zara is thin on IT investments, the company has been growing steadily about one new store opened every day. Their profits continue to grow steadily. Compared to its competitors, Zara continues to maintain a high margin. The following features and issues have become salient for the IT committee to consider.

• One of the problems facing the company is that their POS manufacturer does not guarantee to support the POS terminal in the future. Microsoft has already stopped supporting DOS.
• Instead of sending daily sales information using modems, some would like to connect each store to the headquarters so that individual store sales are tracked on a real-time basis.
• They would like to implement WiFi throughout the store so that they dont need to transfer the sales information from one POS system to the other via a floppy disk.
• Even though the company is doing well, their operations has always assumed only 95% accuracy in the inventory information for their operations (because of shrinkage such as stolen item). The store employees feel that having WiFI will help them keep track of the inventory information accurately.
• Employees have repeatedly indicated that they would like the technology to enable store lookup so that they would like to like to see the inventory level information in other stores. This is so that they can redirect their customers to the other store.

The costs for writing code and installing the new POS system in all the 543 stores is 0.24% of the revenue (or about 1.88% of the net income). The wireless infrastructure implementation costs 0.05% of the revenue (or about 0.42 % of the net income). Finally, the store look-up coding and installation costs 0.05% of the revenue (or about 0.44% of the net income). Evaluate Zaras decision with their digitization efforts. Which options are worth considering? Why?