Problem/Issue Statement
The question in front of Zara is whether or not to upgrade a currently functioning system, based on the fear of falling behind the technological times. The age old comment is “if it ain’t broke, don’t fix it”; but how could a Company in 2003 continue to use an out of date, DOS operating system for their retail point of sale (POS) terminals. DOS was no longer supported by Microsoft at this time and the Company’s vendor for POS terminals advised Zara that they were the only company that continued to use the “ancient” operating system. While they [the vendor] had no plans to change the POS terminals in such a way that DOS would no longer function on them, Zara management could not get this in writing.
The main issue was that DOS and the applications Zara had built to run on the system worked well. There were hardly ever any calls to IT and the stores were running quite smoothly with the existing infrastructure. Where the existing POS terminals and applications were lacking were in terms of the individual stores inventory management. When a sale was entered into a terminal, there was no way to track that drop in inventory. Inventory was monitored by store managers manually by walking around the store and actually hand counting the number of items that were still on shelves in order to determine what items should be entered into their bi-weekly order forms.
Terminals were also using floppy disks with no networking. One terminal at each location was connected to Zara’s headquarters via a dial-up modem. Employees would need to copy daily sales onto a floppy disk from each of the other [non-networked] terminals and bring it over to the terminal with a modem to transmit sales information to headquarters.
Situation Assessment
While the process that Zara has in place is working just fine for now, the Company is growing at a rapid pace, adding 24 stores from 2001 – 2002 in various different countries. There is no reason to believe that this expansion and growth would cease in the near term. That being said, continuing to use an ancient system with no vendor support runs the risk of having more issues down the road when the Company has even more stores.
The decision criteria for Zara are not necessarily about the cost of the change to a new operating system in 2003, but what the difference in cost would be if they are blindsided by an issue further down the road. The Company will need to evaluate where they see the most risk and combine that with the cost of an upgrade.
Alternative Courses of Action and Evaluation
Zara really only has two main choices in front of them – whether to keep their existing DOS operating system for their POS terminals or to switch over to a newer, supported operating system. They have 3 choices for which Company to use for a new operating system; Microsoft, Unix or Linux.
Zara does not have any cost hurdles to overcome and does not typically use cost-benefit analysis for justifying IT decisions, however their decision criteria should be to evaluate the cost of each of the three providers for a new operating system; running that analysis will give management an idea of the costs in front of them at the present time. They will also need to be very realistic about the probability that terminals will not be able to use DOS in the future.
Management should also consider benefits of upgrading in their decision. New terminals will have the ability to be networked not only within the store, but with other stores and Zara’s headquarters. The terminals would be able to handle returns (currently only done on PDAs) as well as track theoretical inventory with each transaction. Individual stores would also be able to see if other Zara stores had an item in stock, as opposed to calling another store to see if they have a specific item. Also, there would be no need for floppy disks and dial-up modems. With networking sales could automatically be transmitted to headquarters each night. A new operating system would bring about many efficiencies.
Evaluation of Alternatives
Alternative 1 would be to do nothing. While this would cost the Company nothing currently, this runs a very high risk of having issues down the road that will need to be taken into consideration. If Zara’s terminal vendor were to make changes to the terminal that would prohibit the use of DOS going forward, this could delay Zara from opening any new stores. If the Company were to kept the existing growth trend, averaging one new store every two weeks, this could end up costing Zara millions of dollars in lost sales.
Alternative 2 is to choose a new operating system. Here the Company will need to evaluate the three operating systems, mainly on cost. Microsoft, Linux and Unix will all be able to provide the Company with an updated, vendor supported operating system that they can use for all retail stores into the future. All three will have networking capabilities, the ability to better monitor inventory and continue to be used for point of sale transactions. The main difference will lie in the upfront and annual costs for all three.
Recommendation
Choosing Alternative 1 and doing nothing currently is really just postponing the inevitable. DOS is not going to be around forever, the one person at the Company who built the DOS applications may retire and the last thread of support that the Company had will be gone. Zara should choose a new operating system with the decision of which one being based on cost as all three options have the functionality that the Company will need.
Presentation
The presentation should reinforce that while DOS is currently working for Zara, it is an ancient system. Work flow diagrams showing how processes could be more efficient would be helpful. Higher levels of efficiency could tie to better inventory management which in turn leads to higher sales and revenue for the Company.
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