zara postponement strategyzara postponement strategy
While this amounts to something like a psychological ruse, low inventories enable Zara to decrease the number of price reduction events (sales). The following decade saw the rapid expansion of Zara into global markets, including the US, France, Portugal, Mexico, Greece, Sweden, Belgium, Cyprus, Malta, Norway, and Israel. The choice for these US fashion firms is simple: change or die. For the Spanish case company, time is the main factor to be considered, above and beyond production costs. Zara has devoted significant time, money and resources to develop a synchronized strategy between online and offline commerce, Kohan explains. In contrast to traditional make-to-forecast approaches, postponement is a make-to-order tactic, where products are rapidly customized from stocks of almost complete products, often in close proximity to customers. For example, customers prefer to order flexibly from manufacturers so as to be able to respond flexibly to their . Zara does its research before releasing anything to suit the local culture and people's tastes. Thorbeck lists the excuses that US retail executives offer: Thats not our customer. For example, low inventories fail to accommodate the high demand for a product. The parent company Inditex also has other fashion brands in its portfolio, such as Zara Home, Pull & Bear, Massimo Dutti, Bershka, Oysho, Bershaka, and Uterqe. The founder Amancio Ortega is currently the sixth richest man in the world. For example, rapid product replacement cycles relate closely to vertical integration. Astonishingly, they have not yet entered the Creative Economy. Yes, we can! If more of one kind of sandwich is ordered or less of another, the total number of buns is not affected by this deviation in demand; however, the amount of cheese would be. Whereas Zaras markdowns are typically around 15%, the markdowns at US apparel retailers and department stores are typically in the 50-70% range. However, some of its strategies have shortcomings. Ortega created a new working process that is called "instant fashion," - which could reduce lead times and adapt to new trends in shorter periods. There are trade-offs between different levels of customer service and inventory, production and distribution costs when applying different strategies. The strategy can be understood by taking an example of a fast-food restaurant that sells customized sandwiches. In this paper, we will analyze how Zara achieves mass customization through postponement, with a particular focus on the supply chain structure, relationship and enabling activities supporting postponement strategy across the supply chain. However, the case experience was not rapid roll out of the pilot, but rather the description of organizational rigidity, which confronted the EVP. While multiple product offerings can be useful in determining trends and aligning designs with demands, sometimes products can cannibalize each other. Product development postponement As the average design-to-sales cycle instances in the apparel industry are more than six months, Zara offers achieved circuit times of seven or more weeks. This vertical integration approach gives Zara a lot of control over how it operates. In short, Zara products have the latest styles, trending designs, affordable prices, and local-adapted tastes. Zara is every place the customer needs it to be. When it comes to promotion, Zara has also used the power of social media channels effectively. By continuing, you agree to our Terms and Conditions. Thanks for reading! This means Zara does all of the designs, manufacturing, and distribution itself without third-party suppliers. Firms can therefore achieve mass customization through postponement strategy without incurring huge operational costs that are associated with proliferating product variety. In a sort of proactive way, technology, already readily implemented at Zara, could be expanded to connect preliminary data points and offer forecasts. From China to the U.S. to Europe to Brazil, Zara reaches vastly different cultures. And secondly, it encourages customers to buy in a timely manner because the particular product or design that strikes your fancy today may be replaced by something else tomorrow. Zara fosters a highly-engaged workforce that translates into highly-engaged interactions with customers. At the start of each selling season, the designing team create a library of models that serve as platforms for the models that will be eventually launched (Swaminathan and Le, 2003). In this paper, we analyze the operations vital to Inditexs success including vertical integration, supply chain management, comparative advantage and competition, key success factors, strategy, and philosophy. Something many other clothing retailers simply cannot replicate because they rely so heavily on cheap manufacturing labor from Asia. The following section summarizes the key postponement types that Zara utilizes in their value chain. Zara has the courage to continually strengthen their portfolio of stores by closing unprofitable ones, opening new markets, and expanding sister brands in existing markets (Zara Home, Massimo Dutti), Kohan says. In a 2014 interview, an Inditex spokesperson addressed Inditexs remarkable expansion and concerns over its sustainability: It depends on the customer and how big the demand is. By clicking Check Writers Offers, you agree to our terms of service and privacy policy. The New York Times, 10 Nov. 2012. We must have the dialogue with the customers and learn from them. In Chart 4, you see total revenue in billions of dollars between 2003 and 2007 for 4 major clothing retailers. Let's see how Zara strategizes in these four sections. Firstly, Zara is vertically integrated. That translates into great value. Web. Keywords Supply Chain Supply Chain Management Product Variety The rest of the ingredients, like cheese, meat, and pickles, are specific to each end product. Ingredients common to all sandwiches, like buns and lettuce, are ordered based on a total forecast of sales for each type of sandwich. This determination of production needs for each type of item warrants higher cost-effectiveness. First, it enables Zara to adapt to consumer demands quickly, aligning itself with demand in a meaningful way. Zara is a clothing retail brand owned by Inditex, a Spanish textile manufacturer that was established in 1963. In . The Decoupling Point differentiates between two segments of the chain, one of which operates without clarity on customer demand whereas the other operates after information regarding final demand has been received (Figure 3). . Machuca. While this may not have much relevance to business operations, analyzing Zaras advertising lends some understanding of Zaras overall philosophy and strategic approach. The result is the customer and the company work cooperatively together so that the Zara customer becomes the Chief Customer Officer providing feedback on all aspects of the business, Kohan concludes. Postponement strategy can be established through the material flow decoupling point, where the firm manages its supply chain using a pull strategy. Question: Zara: Apparel Manufacturing Zara is a chain of fashion stores owned by Inditex, Spain's largest apparel manufacturer and retailer. If other retailers were to try Zaras approach without 1) vertically integrating and bringing manufacturing closer to markets and 2) reducing inventories, they would likely experience profitability loss as manufacturing and transport costs add up and excess inventories reduce margins. When expanded it provides a list of search options that will switch the search inputs to match the current selection. Zara likes to distinguish itself, too, by establishing stores in unique settings such as the San Antonio el Real, an 18th-century convent in Salamanaca; a historic cinema in Elche, Spain; and 666 Fifth Avenue in New York. The industry that is mercurial and trend- driven. In this type of restaurant, ingredients are ordered in aggregate because it is unknown what the final customer orders will be. This is used to improve operations, services, and products to keep customers satisfied. Supply chain postponement and speculation strategies: How to choose the right strategy. Now Dr. Warren H. Hausman, professor of management science and engineering at Stanford University, has quantified the financial value of fast fashion to reduce unwanted markdowns and lost sales, or stockouts, enabling firms to increase profits by as much as 28 percent. In sum, Zaras mission statement does reflect the companies prevailing sentiments. Zara has a highly evolved data infrastructure, Kohan also notes, that allows for super-efficient analysis of whats selling and being said on social media platforms. This article will explore the different outsourcing strategies and provide real-life examples of companies that have used them to achieve success by striking the right balance between cost savings and quality control. Agile management is usually associated with software development, but it is having equally transformational effect on the US fashion industry under the label, fast fashion.. While the average design-to-sales cycle times in the apparel industry are more than six months, Zara has achieved cycle times of five to six weeks. a. And as we explored early, there may be some vertically integrated evidence to back that assertion up. Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zaras success is its postponement strategy. Zara has two main distribution centres in Spain that distribute all its EU distribution and some of its global distribution, and a few smaller satellite distribution centres elsewhere. In contrast, logistics postponement involves delaying the distribution or actual delivery of a product until customer demand is known. Journal of Business Logistics, 19(2), 13-32. Zaras fast fashion business model exploits consumer and cultural changes, with dramatically improved financial results. Additional materials, such as the best quotations, synonyms and word definitions to make your writing easier are also offered here. Zara's product offerings include clothing, shoes, accessories, beauty products, swimwear, and perfumes. The key is the familiar Agile technique of postponement: transforming a product into its final form at the latest possible moment. Zara is revolutionizing its products even more" %}. They must weigh the benefits of scaling markets with the prospects of them losing some of the strategic advantages that enable them to do so. Branded value aligns customers needs with a brand deliverable, Kohan stresses. Over the past 25 years, retailers and brands have obviously exploited sourcing and distribution efficiencies. Moving on, while vertical integration and product replacement highlight two of Zaras strategic and very unique approaches to retail fashion, there exist many other stratagems that merit mention. In this paper, we introduce concepts related to postponement, discuss successful industrial applications and identify key enablers and factors influencing the successful implementation of postponement. an academic expert within 3 minutes. The local strategic partnerships that Zara maintains with manufacturers in Europe allow for a product throughput time of 3-4 weeks from conception to distribution. Appealing to the loyal segment of the target market, like Zara does, allows for higher profit margins and caters to customers who seek out branded value, she emphasizes. Zara is thus able to introduce new products more regularly in smaller patches, which in turn results in less markdowns and reduced stock holdings than competitors in general. Zara understands this. That is what I'm going to show you in this article. Ferdows, K., M.A. This is one of Zara's first steps to move into online selling more, and it received good feedback from the customers. Share your thoughts in the comments section below, and I would love to have a conversation. This enables Zara to realize the newest fashion trends. Its you saying it. Zara is one of the most successful fast-fashion chains in the world, which is famous for its ability to keep itself up to date with fashion trends and the incredibly short time to introduce new products. The brand's products look somewhat similar to the hottest items in the market, but they have different traits depending on specific markets. On social media channels, Zara has over 28 million Facebook followers, over 39 million on Instagram, and over one million on Twitter. But Zara is not reactive in the same way that other retailers are. Design for Postponement [pdf]. Rather than spending more on pushing marketing out (it only spends about 0.3% of sales on advertising), Zara pulls customers in and turns them into brand evangelists to spread word of mouth about the brand. According to recent data, the answer is yes. Gap continues to sell many more garments than Zara. Zaras mission includes little to give the reader a sense of what Zara is and what distinguishes Zara from the rest. http://www.guardian.co.uk/business/2012/jun/03/zara-bucks-spanish-economic-gloom. The U.S. to Europe to Brazil, Zara has devoted significant time, money resources. 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