This report will be discuss about Zara which is a global fashion company, operated in more than 400 countries in Asia, Africa, Middle East, America, and Europe, with more than 500 stores all over the world (Zara, 2011). Zara's global operations are located in important shopping district in all places. Until now, the operation of the business still using brick-and-mortal system which means that Zara only sell their product in physical store, they do not sell it via online (Brick and Mortal, 2011). Even though Zara is a global company, they are still facing some problems such as decision maker and information management in operation issue and DOS system issue. This report will discuss more about those two issues.
Key Decision Makers and Information Management in Operations
The decision makers in the operation management are the commercials at the HQ and store managers. The decision made by store manager's could impact on the replenishment of garments as it is limited to a single order which is twice a week, based on manually auditing of the quantities required for the store.
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There is a process that should be followed in ordering new garments. Store managers will order the products to a PDA based on regional sales patterns, prediction of sales, and also availability of the garment. After that, the store manager will determines what should be ordered from the list of offer. In every single store itself, the head managers would divide the offer into some segments and allocate this to different employees. Those employees would walk through the store using their own PDA did whatever had been assigned to them, to the store manager's handheld device.
HQ and the commercial team will analyze and determine which stores had been the most effective in selling the products. It is done in order to give the right product to the right store. Since there is a possibility of difference in the local customer demands and ultimately local trends (past performance), the store manager does not have much control over the extent to which its orders will be met. Must be note that the future production for each Stock Keeping Unit (SKU) which is the consolidation of fabric, color, garment, and also size order is determine by the collaboration with the product managers.
Because of the different number in supply and demand in different areas, good prediction should be made in terms of how much demand it will be. It will impact to the number of product that will be produced in the process. Product managers indirectly rely on the information provided by store manager's orders. In addition, the commercials in charge of the fulfillment would occasionally ship samples that were not requested by the store managers. This again suggests where the true decision power lies.
By analyzing the decision makers in all parts of the operations and the flow of information, stronger conclusions can be drawn as to where information is urgently required in order to streamline procedures.
Since the entire supply chain relies on the subjective orders that are placed by the store managers, the accuracy of this information is very important in contributing a success of Zara's operations. This so-called 'theoretical inventory' is required in order to keep the supply chain robust without leading to excess supply (Feinstein and John, 2008, 760). In the current system, store manager's order information is taken to be sacred, and the numbers of it are subsequently used for shipment and production.
At the moment, store managers have to manually assess their inventory. This is a relatively slow procedure and suggests that there is room for improvement. Resources are wasted since managers are preoccupied with a somewhat administrative task.
Admittedly, this is done to ensure that the manager gains an insight of the inventory so that correct decisions can be made for the quantities that need to be replenished. Information would probably help to speed up this process, so that the managers can focus on employees and customers, instead of having to roam the shops twice a week.
When store managers have no clear idea of how much inventory is at the distribution centers, information should be given as a base to make smarter orders that suitable to the market. If store managers assure a customers that a particular sold out garment is reordered and will arrive in two days, the chance that it this order does not come through (due to a lack of information from the distribution centers), could be potentially damaging for Zara. Information from the distribution centers and from the production facilities must be made as clear as possible to make sure a better overview of the garment availability, in order to adjust the orders and pass on this information to the customers. This would overcome the current blind order system.
DOS System Issue
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Other problem faced by Zara is DOS system issue. Zara and the IT partner have agreement in using DOS as their operating system for all the applications of the company for long time ago. DOS is considered to be an outdated system. The question of changing the OS has therefore been raised. It has been already acknowledged that staying so far behind in terms of technology can be risky for the company. But, it is aware that there is also a risk in changing the system to the newest OS. To give an idea whether a new OS investment would give any benefit to Zara or not, the analysis is conducted.
Sustainable competitive advantage of company might be at risk due to a lack in IT investment (Qin, 2009, 13). Other competitors might see this as an opportunity to fight against Zara. Refer back to a more resource-based view, a new operational system might installed a software that more modern and allow Zara to develop its capabilities. Various business processes of Zara could be enhanced and orders could be made much more efficiently.
Referring to the previous information requirements, new software could be used to automatically update the POS terminals for every sale that is made which would prove useful not only at the store level, but throughout the entire supply chain (Dun, Ross, and Michael, 2000, 445). If all POS terminals had been interlinked, store managers would have an online overview of the theoretical inventory order in the store. It helps a lot in determining the order requirements (Ward and Elizabeth, 2006, 60).
Store managers would not have to do a manual audit twice a week. They could more concentrate to the administration, because the system could help them in auditing process. Moreover, a tailored POS application for the new OS could ensure that orders, which form the basis of the shipment and the production facilities, would be made based on theoretical inventory in effect giving more accurate orders.
At present, PDA is used by personnel to count the number of items required by the store and to make new orders based on the perceived demand. If Zara would have the right software, they can remove the use of PDA. If indeed the automated POS terminals would update the theoretical levels with sales at the end of the day, then in principle orders could be made on a continuous basis.
Stagnancy in this case would then not be measured of inventory levels, but rather the frequency at which shipments arrive. Assuming that orders would then occur on a daily basis, optimization of the inventory at the distribution centers is needed. By using modern e-supply management software, orders could be linked through an in-house developed Enterprise Resource Planning (ERP) system that would link orders made from stores to the rest of the supply chain (Leon, 2008, 7). This would allow the demand and supply suitable very closely though a more flexible delivery system. This is not only because store managers would make orders based on inventory levels at the distribution center, but also because HQ could align the supply to the stores demand accurately.
As a result, production could be adjusted on a daily basis by monitoring the orders that would come in, making the production process even leaner. These adjustments would still need to be made based on order quantities, since this would ensure the autonomy of the store managers.
In contrast to the current system, however, the software could provide information on the Economic Order Quantity (EOQ) which is command to make sure the number of a products stock that buyers want is enough in the, to meet customer demands, whilst minimizing the cost of inventory (Sweeney et.al., 2010, 609). The inventory level at which garments also must be reordered (also known as the 'reorder point'). It would provide store managers with a structured approach towards inventory management, without compromising autonomy. Further savings can be made if voice over IP (VOIP) software is installed so they could make calls between shops freely. New OS could also support wireless applications.
In addition, if the distribution centers would be connected to the network on the OS, store managers could easily place the orders after viewing whether the required garments are available or not. The order would be made to keep the inventory level at the store updated, and a signal could get sent online to the distribution centers and the production facilities. It would give Zara more benefit indirectly from extra sales due to more efficient customer service, since more attention can be paid to the customer. But, routine checking still needed to make sure that the theoretical inventory levels match actual levels, since garments could go missing or get stolen.
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Further benefits from an IT network could be derived. If all stores have this online access to other stores, store manager could direct a customer to another local Zara store in case of a stock out if they do not have the stock for certain product. The system should be set up in such a way so that shipments could be made from another local store, further reducing the ordering period. In totaling, ordering information, merging data into one system, and returns information leading to a more precise measurement of the stocks and to a real time measurement.
Not only that, new OS is able to prevent any hold up from its terminal vendors. Indeed at the moment Zara has no insurance that its supplier can provide terminals supporting DOS for a long term. Zara's bargaining power toward its supplier would increase. Therefore, an upgrade of Zara's OS is therefore recommended.