Analysis Of Zara’s IT Infrastructure

free essayNowadays, companies in the fashion industry should quickly respond to the changing fashion trends, new environments, and customers’ demands. Similarly to the other companies in the fashion industry, Zara recognizes this fact and develops a business model, where speed and decentralized decision-making are essential. However, the company’s outdated IT system does not allow to effectively conduct this business model. This paper consists of several parts. First, it provides a background analysis of IT project upgrade and justification of proposed solution. Second, it describes work breakdown structure of the project as well as responsibilities and roles of the project team. Third, the paper explores project risks and proposes the strategy of their mitigation. Moreover, the paper provides a detailed project schedule costs and budget estimation, and describes change control procedures.

Project Background Analysis

According with the analysis provided by McAfee et al. (2007), Zara has an outdated IT infrastructure that requires significant improvements as information and communications technologies are vital for Zara’s business. The key element of its infrastructure is its POS terminal system, which ensures the work of Zara’s stores all over the world. There are several areas on which the POS system focuses. First, it collects information from the company’s stores regarding the consumers’ needs. This information flows daily to the head office databases, where the analysis is conducted. The next area of POS terminals operations is based on providing product information and inventory management. As a result, thousands of Zara’s manufacturing locations are able to design a garment with available stocks.

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However, the outdated POS terminals infrastructure lowers the efficiency of the company’s business. The availability of new information and communication technologies provides various opportunities for improving the current state of Zara’s IT infrastructure. Thereby, the proposed project type is its technology migration, which is based on new operating system and new equipment for Zara’s POS terminal structure.

The proposed operation system for the company’s POS terminals is a web-based platform developed by VendHQ (2016). Comparing with the other platforms, this one is more flexible since it can be run on any computer having access to the Internet. Moreover, this web-based software does not require any software installations or updates. Additionally, cloud-technologies provide a high level of security since data is based on secure servers in multiple data centers, which also provide real-time backups. Moreover, VendHQ POS terminals’ software was designed especially for retail stores and allows managing sales, inventory, customers, and rewards (VendHQ 2016).

Business Justification

The POS software provided by VendHQ has various advantages as compared with the other similar software. First, it is easy to use as well as accept payments and process sales as it provides various operations. For instance, it provides opportunities for time-saving features due to the inventory management opportunities. Further, the VendHQ software for POS terminals includes various marketing tools, staff management, tools for customer data gathering, and thus allows automation of the other processes related with stores management. Additionally, the vendor provides 24/7 customer support. Moreover, VendHQ software provides opportunities for effectively managing goods and sorting them by images, prices, and variations of color and size (Software Advice 2016). Besides, the new software will allow Zara reach online sales and sell its products both on online and offline channels without creating extra admin work. The chosen multi-outlet plan provided by VendHQ (2016) costs only $199per month (in case of annual purchase). This plan allows conducting multi‑outlet management, developing central customer database, and collecting outlet reporting. Moreover, it is developed for unlimited users and product numbers (VendHQ 2016).

Since it is hard to estimate clear financial benefits from implementing new POS system, the NPV analysis will conduct the cash outflow required for the project implementation. As the table 12 shows, the total cost for the first year of project implementation is €1,082,714. This value includes annual fee for the multi-outlet plan for VendHQ software, fees for priority phone support, hardware purchase, administrative costs, and costs for staff training (Table 12). Most of these costs are required only for the first year of project implementation, and only fee for the multi-outlet plan for VendHQ software and fees for priority phone support will remain the same during the next years. Additionally, it was assumed that the cost of priority phone support and annual fees for software license will increase by 1% each year. Since the discount rate was assumed at 5%, the present value of the project costs is €1,035,674. Additionally, annual maintaining costs for the new hardware were assumed as 20%. Thereby, table 1 demonstrates the cash outflow for the three-year period of the project functioning.

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According to the company’s annual report in 2015, its sales comprised €20,900 million, while the net income was €2,882 million (Inditex 2015). Moreover, the annual growth rate for Zara’s sales was 8.67%, whereas for Zara’s net income, it was 8.17% over the last five years (Inditex 2015). Since marketing costs are usually calculated in relation to the total company’s net income, the project NPV analysis will be conducted in response to Zara’s net income forecast (McAfee et al. 2007). Therefore, it is assumed that during the next three years, Zara’s net income will continue growing with the rate of 8.17% by each year (Table 1).

Table 1. NPV analysis.

Year Cash out-flow, € Cash in-flow, € Net cashflow, €
1 1 082 714.68 3 117 483 794,55 3 116 401 079,87
2 202 538.73 3 372 208 608,36 3 372 006 069,63
3 404 564.12 3 647 746 595,57 3 647 342 031,45
NPV 9 177 221 116.61

Source: made by the author on the base of VendHQ (2016).

Table 1 demonstrates that the total project investments value for the next three years is €1,689,817.54. Since the first-year investments in new POS equipment valued only for 0.03% from Zara’s net income in 2015 and project expenditures during the next years will decrease while the company’s net revenue will grow, it is evident that the project is beneficial for the company.

Project Objectives

The main project goal is to develop a sustainable IT system for Zara’s stores, thereby increasing the efficiency of its business operations. The new POS system will allow increasing inventory control, reducing merchandise shrinkage, and improving the company’s marketing. Additionally, the upgraded POS system will provide network accommodation within Zara’s stores and across the company. As a result, stores’ managers will be able to immediately discover the theoretical inventory of the other stores and avoid phone calls and the other time-wasting procedures conducted in order to get additional goods to the store. Thus, it will improve the company’s capability and will reduce the risk of low product availability.

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Assumptions and Constraints

While developing the project plan, it was assumed that Zara’s vendor will change its ancient operating system, and therefore the company will need to choose another operating system for its POS terminals or even change the whole hardware system. Additionally, while calculating the NPV of the project, it was assumed that the discount rate for the cash outflow is 5% during the next three years. Finally, in order to estimate future project costs, it was assumed that the fees for licensed fees software will increase by 1% each year.

Work Breakdown Structure

Personnel Table

To ensure consistent upgrade of the POS system in all company’s stores, it is necessary to develop a personnel table, which will describe the following: (a) the role of each member of the project team, which identifies his/her function in the project; (b) a team, to which a person was assigned; (c) workers’ responsibilities; and (d) competency, which refers to a set of skills necessary for successful project implementation. The key roles of the project personnel are the following: project manager, executive sponsor, project sponsor, project board, supplier-side project manager, project team member, project coordinator, systems developer, system administrator, and program manager. These roles were divided into three groups: planning team, development team, and system team, which are responsible for different project stages (Tables 2, 3, and 4).

Table 2 includes all necessary information regarding the project team members. A project manager is a person responsible for managing and dealing with the project. He/she ensures that that the project is delivered on time. Besides, a worker occupying this position is responsible for the budget and that the required quality standards are fulfilled. Moreover, a project manager handles relationships with the other groups of persons engaged in the project implementation (Table 2). An executive sponsor acts as a visible champion of the project, while a project sponsor acts as an in-house champion of the project (Table 2). The former is a high-ranking top management team member that is an ultimate decision-maker. On the other hand, the latter works closely with the project manager. He/she is a senior staff member, whose area of responsibility will be directly affected by the POS system upgrade (Table 2). He/she is also a leader of the project board, which is a group of management grade personnel responsible for overseeing the progress of the project and reacting to any strategic complications (Table 2). As tables 2 and 3 show, a project manager, an executive sponsor, a project sponsor, and the project board belong both to planning and developing teams. Besides, a system developer and a system administrator contribute to technical strategy, policy and procedure, and are thus members of the planning team.

Table 2. Personnel table of planning team

Role Responsibilities Competency (Required knowledge and skills)
Project manager 1) Manages and leads the project team

2) Recruits project staff.

3) Develops project plans.

1) Leadership skills.

2) Strong technical background.

3) Definition of a project and the triple constraints.

4) Communication skills.

Executive Sponsor

 

1) Approves changes to the IT system.

2) Makes key organizational/commercial decisions for the project.

1) Strategic vision.

2)  Proactive issue resolution.

Project sponsor 1) Communicates the project’s goals throughout the organization.

2) Approves the project budget.

3) Leads the Project Board.

1) Leadership skills.

2) Knowledge of the store system requirements.

3)  Proactive issue resolution.

4)  Ability to find quick creative solutions.

Project Board 1) Approves POS system implementation strategies and plans, project scope, and milestones.

2) Allocates resources to support project implementation.

3) Resolves strategic and policy issues.

4) Advises on strategic partnerships.

Familiarity with Zara’s IT system.

 

Systems developer Contributes to the technical strategy, policy, and procedure. 1) Decent computer skills and good writing skills.

2) Strong technical knowledge.

System administrator Contributes to the technical strategy, policy, and procedure. Technical knowledge.

Source: made by the author on the base of Newton (2015) and University of Glasgow (2015).

Further, a supplier-side project manager, a project team, a project coordinator, and a systems developer belong to the development team. A supplier-side project manager is a representative of the VendHQ responsible for managing supplier-side input to the project (Table 3). The project team comprises Zara’s employees who are actively engaged in the different stages of the project during its lifetime. Thus, the responsibilities of the project team members vary depending on the project stage. A project coordinator provides administrative support to the project manager (Table 3). Since the process of upgrading the POS system within the whole Zara organization is a large cross-functional project, the role of project coordinator is necessary for ensuring the efficient project implementation. Further, the systems developer works closely with the project manager on defining and executing development requirements.

Table 3. Personnel table of the development team

Role Responsibilities Competency (Required knowledge and skills)
Project manager 1) Monitors project progress and performance.

2) Provides status reports to the project sponsor.

3) Approves the final system design specification.

4) Identifies staff training needs and manages staff training programs.

5) Provides regular status reports to the Project Board.

1) Effective Progress Reporting.

2) Earned Value Management.

3) Risks identification and reporting.

4) Negotiation.

Executive sponsor 1) Provides additional funds to the POS system upgrade.

2) Approves project deliverables.

Forward-looking course correction
Project sponsor Ensures the availability of resources for IT changes. Negotiation
Project Board 1) Drives and manages change through the organization.

2)  Ensures communication with the other top managers of the company.

1) Communication skills.

2) Organizational skills.

Supplier-side project manager 1) Ensures the effective use of supplier resources.

2) Manages the production and approval of the supplier side of the budget.

3) Develops communication within the project team and the organization and supplier.

4) Produces and monitors financial reports.

5) Is involved in managing the supplier staff assigned to the project on a daily basis.

6) Encourages the transfer of product knowledge and skills to the appropriate staff within the organization.

1) Organizational and communication skills.

2) Good at taking initiative.

3) Sociability.

4) Effective coordination skills.

 

Project team members 1)   Develop project documentation and analyze current and future POS systems.

2)   Identify and map project information needs.

3)   Provide staff training.

4)   Provide functional expertise in an administrative process.

1)    Experienced in IT system work.

2)    Good team players.

3)    Communication skills.

Project coordinator 1) Manages support project functions, such as planning, quality management, internal communication, and reporting.

2) Produces the following reports to the Project Board: milestone summary, summary of costs incurred, project issues, risks, and benefits.

3) Manages data security.

4) Provides assistance with the production of user documentation and testing.

1) Coordination skills.

2) IT knowledge.

 

Systems developer 1) Ensures data migration.

2) Provides interface integration with the other systems.

3) Develops technical strategy, policy and procedure.

1) Cloud-based POS system knowledge.

2) Responsibility.

Source: made by the author on the base of Newton (2015) and University of Glasgow (Project roles and responsibilities 2015).

Finally, the systems team includes systems developer and system administrator (Table 4). A system administrator is responsible for managing and supporting Zara’s IT system environment.

Table 4. Systems team.

Role Responsibilities Competency (Required knowledge and skills)
Systems developer 1) Produces technical documentation.

2) Develops report on progress/issues.

1) Cloud-based POS system knowledge.

2) Reporting and presentation skills.

System administrator 1) POS system environment management and support.

2) Management and support of stores’ databases.

3) Development of technical testing programs.

4) Development of technical documentation according to quality standards.

1) Cloud-based POS system knowledge.

2) Responsibility.

 

Source: made by the author on the base of Newton (2015) and University of Glasgow (Project roles and responsibilities 2015).

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Work Breakdown Structure (WBS)

Work breakdown structure (WBS) is shown in table 5. The main elements of the WBS are the following: the new POS system development; acquisition of hardware and software; store engineering; the new POS system installation; and store staff training.

Table 5. Work breakdown structure of POS system upgrading in Zara stores.

POS system upgrading
Requirements Acquisition Store Engineering System installation Training a store staff
–  Develop technical requirements for the upgraded POS system.

–  Develop internal requirements for the upgraded POS system.

–  Develop external requirements for the upgraded POS system

–  Compare available software and choose the best variant.

–   Sign a contract with a software provider about purchasing the POS system.

–  Compare available hardware and choose the best variant.

–  Purchase necessary POS hardware package, which seamlessly works with new POS operating system.

–  Complete engineering plans.

–  Develop a schedule the construction process.

–  Complete the training area.

–  Install check-stands.

 

–  Create a plan of store system.

–  Order the store system.

–  Develop a schedule of new POS system installation.

–  Install new server system.

–  Conduct a test of the store system.

–  Install new POS equipment.

–  Conduct a test of new POS equipment.

–  Create a network between the stores and inside the store.

–  Provide database migration.

–  Develop monitoring system.

–  Develop training materials.

–  Develop a schedule of staff training sessions.

–  Complete the store training system.

–  Complete the checker training.

–  Complete the total POS management training.

Responsibility Assignment Matrix

On the basis of the WBS and personnel table, a responsibility assignment matrix was developed. To describe the role of each person in the project, the following symbols were taken: R – responsible; A – accountable, C – consulted; and I – informed. Therefore, in the table 6, the letter R refers to the role that executes the activities to achieve the task, the letter A refers to the roles that own the quality of the deliverable and sign off on work, the letter C describes the roles that provide subject matter expertise, and the letter I describes roles that receive information about the task.

Table 6. Responsibility assignment matrix for the requirements stage

Function Project manager Executive sponsor, Project sponsor, and Project Board Supplier-side project manager Project team members, and Project coordinator Systems developer
Develop technical requirements for the upgraded POS system.

 

A I I R I
Develop internal requirements for the upgraded POS system.

 

A I I R R
Develop external requirements for the upgraded POS system A I I R R

Table 7. Responsibility assignment matrix for the acquisition stage

Function Project manager Executive sponsor Project sponsor, Project Board Supplier-side project manager Project team members, Project coordinator Systems developer, System administrator
Compare available software and choose the best variant.

 

A I I C R C
Sign a contract with a software provider about purchasing the POS system. R A I A I I
Compare available hardware and choose the best variant. A I I C R C
Purchase the necessary POS hardware package, which seamlessly works with new POS operating system. R A I A I I

Table 8. Responsibility assignment matrix for the store engineering stage

Function Project manager Executive sponsor, Project sponsor, Project Board, Supplier-side project manager Project team members Project coordinator Systems developer, System administrator
Complete engineering plans. A I R A C
Develop a schedule of the construction process. A I R A C
Complete the training area A I C A R
Install check-stands A I C A R

Table 9. Responsibility assignment matrix for the system installation stage

Function Project manager Executive sponsor, Project sponsor, Project Board Supplier-side project manager Project team members, Project coordinator Systems developer System administrator
Create a plan of store system. A I C R A R
Order the store system.

 

A I C R C C
Develop a schedule of new POS system installation A I C R C C
Install a new server system.

 

A I C C I R
Conduct a test of the store system.

 

A I C C A R
Install new POS equipment. A I C C A R
Conduct a test of new POS equipment.

 

A I C C A R
Create a network between the stores and inside the store.

 

A I C C A R
Provide database migration.

 

A I C C A R
Develop monitoring system A I C R R C

Table 10. Responsibility assignment matrix for the training of a store staff stage

Function Project manager Executive sponsor, Project sponsor, Project Board Supplier-side project manager Project team members Project coordinator Systems developer, System administrator
Develop training materials A I R R A C
Develop a schedule of staff training sessions A I C R A C
Complete the store training system. A I C R A C
Complete the checker training. A I C R A C
Complete the total POS management training. A I C R A C

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Project Risk Assessment

Risk Analysis

While implementing a project of POS system upgrade, several risks may appear. First, Zara’s project managers may not achieve the forecasted project benefits. As a result, the company may spend a significant amount of money and time, and achieve lower benefits than planned. Second, there is a risk of damaging reputation. In case of unsuccessful implementation of the new POS terminals system, the company’s customers will be dissatisfied. Consequently, they may lose their loyalty to the company and move to the other stores with a more convenient purchase system. Additionally, there are legal risks of implementing software. The company should consider privacy issues that will appear while managing the private data of its employees and customers. Further, there is a risk of schedule slippage. While developing and implementing a project, responsible persons may procrastinate, and thus the project will require more time for completing than it was forecasted. Besides, the actual project costs may overrun the estimated project budget. It may happen in case of wrong budget cost estimation. Finally, there is a risk of increased complexity or dependencies. For instance, due to operator error or cyber-attack, some parts of new POS system may be damaged. As a result, the implementation of the new IT system will be paused and Zara will lose a significant amount of money. Additionally, the new system design may not conform to POS software requirements, and therefore the company will have to redesign the whole system.

Preliminary Strategies for Risk Mitigation

To successfully deal with the risks described in the previous section, it is necessary to develop an appropriate preliminary risk mitigation strategy. First, a project manager should conduct a detailed analysis of advantages and disadvantages, namely by using the SWOT analysis technique. It will allow developing a clear picture of project results and focusing on the critical areas of the potential risks. Besides, the company should develop an alternative to the given project, thereby allowing to mitigate the possible risks of POS system drawbacks or damage. Additionally, a project manager should take care of developing a project according with the schedule. Thus, it will be necessary to provide weekly and daily reports about the actual project results. In case of a necessity to deal with any negative aspects, a project team will be able to quickly react to them. Moreover, there is a necessity to develop an appropriate cybersecurity system, which will allow the company’s IT managers successfully deal with any cyberattacks on Zara’s IT system. Finally, before purchasing any element of the new system, there is a necessity to ensure that the company’s hardware can be used for installing new POS system software.

Project Schedule

A project schedule was developed on the basis of the WBS. The purpose of the project schedule is to provide clear timeframes and milestones for people engaged in the project. Thus, it will ensure understanding of project processes for all involved staff. The following table provides the implementation schedule for the high-level milestones of the POS system upgrade.

Table 11. Project schedule.

Milestone Scheduled Completion Date
Develop technical requirements for the upgraded POS system.

 

2017/01/15
Develop internal requirements for the upgraded POS system.

 

2017/01/15
Develop external requirements for the upgraded POS system 2017/01/15
Compare available software and choose the best variant.

 

2017/01/20
Sign a contract with a software provider about purchasing the POS system. 2017/01/23
Compare available hardware and choose the best variant. 2017/01/20
Purchase the necessary POS hardware package, which seamlessly works with new POS operating system. 2017/01/30
Complete engineering plans. 2017/01/25
Develop a schedule the construction process. 2017/01/25
Complete the training area 2017/02/10
Install check-stands 2017/02/05
Create a plan of store system. 2017/01/20
Order the store system.

 

2017/01/23
Develop a schedule of new POS system installation 2017/01/15
Install a new server system.

 

2017/02/07
Conduct a test of the store system.

 

2017/02/21
Install new POS equipment. 2017/02/07
Conduct a test of the new POS equipment. 2017/02/21
Create a network between the stores and inside the store.

 

2017/02/28
Provide database migration.

 

2017/03/01
Develop monitoring system 2017/03/03
Develop training materials 2017/03/01
Develop a schedule of staff training sessions 2017/03/01
Complete the store training system. 2017/03/10
Complete the checker training. 2017/03/14
Complete the total POS management training. 2017/03/20

Cost Estimates and Budget

Budget and cost estimates were provided on the basis of information submitted by the VendHQ (2016) about its pricing strategy. Thus, it is proposed to purchase a multi-outlet plan for the POS software provided by the VendHQ (2016). In 2016, VendHQ provided this software package for $199, which can be expressed as €191.21 (Currency converter: EUR to USD 2016). Table 12 includes budget estimation for Zara’s POS system upgrade. While conducting a cost analysis, it was assumed that administrative costs will require around 5% of the total value of software and hardware, and staff training costs will require around 3% of their value (Table 12).

Table 12. Annual project budget for Zara’s stores

Item Value, €
Annual fee for the multi-outlet plan for VendHQ software 2294.52
Priority phone support 219.07
Hardware 1,000,000.00
Administrative costs 50,125.68
Staff training 30,075.41
Total 1,082,715.68

Source: made by the author on the basis of VendHQ (2016).

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Change Control

The purpose of change control is to provide the project stakeholders (manager, sponsors, Project Board, project team, etc.) with the standard process for managing changes on Zara’s POS system upgrading project. Thus, the staff engaged in the project will be able to manage change requests while ensuring the high level of schedule and plan control.

To ensure efficient change control, the following procedures of each request should be conducted. First, it is necessary to identify and document the required change. Second, the project team member should verify whether the change is valid and requires management. Third, a manager should analyze and record the following elements of change: cost, schedule, and required sources. Further, it is necessary to decide whether the change should be executed. After that, a manager should take action and execute change if necessary. His/her actions should also include revision of project plans. Finally, manager should verify that the change action is complete and needs no change request.

Conclusion

Zara stores require a significant upgrade of their POS system. The paper has described necessary elements that will allow company’s managers successfully implement a project focused on the improvements of the stores’ IT system. On the basis of the analysis of various alternatives, it was proposed to implement cloud-based POS terminals software provided by VendHQ Company. According to the cost estimation, it was assumed that the annual budget of implementing the new POS system in Zara’s stores will require €1,689,817.54. The NPV analysis proves that such investment is beneficial for the company and Zara should reinvest only 0.03% from its net income collected in 2015 in order to start the project in 2017.