zara postponement strategy

It offers significant business value to a range of retail companies whose product cycles are accelerating and influenced by celebrities, luxury brands, and media hype. The total revenue of Inditex in 2019 is estimated to be 23.31 billion euros. Web., 20 November 2012, Zara: Taking the Lead in Fast-Fashion, BusinessWeek, 4 April 2006, Zara, a Spanish success story CNN June 15, 2001. The industry that is mercurial and trend- driven. 808 certified writers online. Fast Fashion can apply. For example, customers prefer to order flexibly from manufacturers so as to be able to respond flexibly to their . 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. Journal of Business Logistics, 19(2), 13-32. Keywords Supply Chain Supply Chain Management Product Variety Moreover, the firm employs standardisation of the design modules. This is the new distribution model for retailers today: Delivering the brand experience and products when and where the customer demands it. Not only that, but Zara also delivers the brand experience and products when and where the buyers demand it. Therefore, depending on the demand, costs, market and nature of the products or services, each strategy can be applied accordingly. . The critical elements include postponing commitments on finished goods to reduce lead times and inventories; using real-times sales to determine production during the selling season; optimizing total profit to include the financial impact of markdowns, and offering fresher and more frequent new products. Zara Postponement Strategy. Firms can therefore achieve mass customization through postponement strategy without incurring huge operational costs that are associated with proliferating product variety. Control over design and manufacturing by keeping manufacturing processes close to management centers also makes garments both higher quality and easier to manipulate. 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. Zara has accomplished the benefits of agile and flexible supply chains for its innovative fashion items. By buying more than 50% of its fabric un-dyed, speed and flexibility are improved because the fabric can be used for a variety of garments and line later. But Zara doesn't compromise the product's quality, so it will be lower when compared to other brands such as Hugo Boss or Uniqlo. You can see from Chart 3 above that the quantity of products Zara discounts pales in comparison to other retailers. The whole editorial process is done online with a newly released 28 item collection. While the number of garments manufactured by Zara (in blue) has increased steadily since 2008, industrial waste (in green) has decreased or maintained very low levels. Opinions expressed by Forbes Contributors are their own. It tries to capitalize on the store experience by always offering reasons for the buyers to revisit the stores. Online selling has been carefully planned and limited to specific countries as well. Zara uses data to understand customers' insights and current trends. Postponement is defined as a strategy to intentionally delay activities, rather than starting them with incomplete information about the actual market demands (Yang, Burns, & Backhouse, 2005). Innovative Quick Response Programs in Logistics and Supply Chain Management. It doesn't want to be a trendsetter; it just wants to be a fashion company that customers need. First, it enables Zara to adapt to consumer demands quickly, aligning itself with demand in a meaningful way. and Cooper, M.C. In the context of this paper, we will be looking at the postponement and speculation matrix (Figure 1) by Pagh and Cooper (1998). This proprietary software, on top of a specially trained professional workforce to do the same, capitalizes off of Zaras rapid product replacement cycles by cataloguing in real-time which products are being purchased, in what quantity, and where. Let's see how Zara strategizes in these four sections. Postponement is defined as a strategy to intentionally delay activities, rather than starting them with incomplete information about the actual market demands (Yang, Burns, & Backhouse, 2005). Beginning in 1974 as Amancio Ortega Gaonas very humble clothing shop, Inditex has grown steadily for years. Implementing a postponement strategy. More specifically, Zara could be counteracting natural human psychology that identifies more expense with greater quality and prestige. Zara's strategy allows products that are not labor-intensive to be outsourced; nevertheless, the items that require more resources are produced in the brand's factories (Ferdows et al., 2004). To make this happen, the company designs and cuts its fabric in-house and it acquires fabrics in only four colours to keep costs low. Zara, the Spanish Inditex Group subsidiary, started its international expansion in 1988 in Holland where the first overseas store was opened. Copernican revolution in management mindsets. The long and guarded industry process of translating fashion design into street wearor from elite runway shows to department store floorsis now completely transparent to sophisticated fashionistas, young people whose purchase influence is 24/7 mobile access to stores, stars and sources that truly reflect demand- driven impulses.. In line with Zaras high-fashion-at-a-low-price mantra, Zaras location strategy does not lack grandiosity. Its team uses state-of-the-art IT systems to track sales and customers preference for specific garments, styles, colors and combinations. Zaras mission includes little to give the reader a sense of what Zara is and what distinguishes Zara from the rest. This determination of production needs for each type of item warrants higher cost-effectiveness. In order to achieve that, Zara's designers are required to use the cloth that Zara has in stock. Swaminathan. Fast product replacement does two things for Zara. The result is the brand's sales keep getting higher, and the market share keeps increasing. However, the case experience was not rapid roll out of the pilot, but rather the description of organizational rigidity, which confronted the EVP. 500,000 items were stocked and sold out in just three days. Zara is an "instant fashion" brand, which means it identifies the latest fashion trends and brings the design to its stores quickly at reasonable prices. Whereas Zaras markdowns are typically around 15%, the markdowns at US apparel retailers and department stores are typically in the 50-70% range. : 12 : Now if the fall of them be the riches of the world, and the diminishing of them the riches of the Gentiles; how much more their fulness? Certainly, Zara presents a beautiful case analysis of interesting strategy and business operations and how the latter can be vital to far-reaching success. Kate Middleton wears a black and white Zara skirt during a visit to . According to Zaras official website, sales by geographical region show Europe with 66%, Asia with 20%, and America with 14% of sales. If products are discounted to remove excess inventory, customers may look for discounts in the future, delaying purchases. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters. Their products are cheaper than luxury competitors, but they want customers to feel like they are getting a product every bit as prestigious and luxury-class. ISBN 978-0-374-29279-9. Abstract. Zaras network is strongly integrated, where 60% of the production is carried out in-house in Europe and 40% of its fabric is sourced from its parent company group Inditex. I write about 21st century leadership, Agile, innovation & narrative. Yet as in other sectors, the economics is forcing the change. How Zara can provide an experience for the customer in every place of existence is what the brand has focused on since day one. (1998). Zara has a highly evolved data infrastructure that can analyze what is selling and trending on social media platforms. This vertical integration approach gives Zara a lot of control over how it operates. (Slate Magazine 2014). The length of the delay is specific to a product. And in Zaras success, Gaona has become the worlds third richest man. In an industry in which customer demand is fickle, Zara has grown rapidly with a strategy to be highly Hausman analyzed public data available from 53 retail and short-product lifecycle businesses. Zaras strategy is to project high-class fashion from all of its retail locations and to do so right next door to its luxury brand competitors. 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. 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. : 13 For I speak to you Gentiles, inasmuch as I . Women typically love the ideas by being more than half of Zara's target market, mainly because they prefer to change their styles once in a while more. In the new retail economy, experience matters more than product in the mind of the shopper. The old pricing formulaPile it high, sell it cheapworked well through the 20th century, but in the new experience economy, it has been replaced by the concept of exchange. It is a big win for both the customer and the company, she says. Postponement is first implemented in manufacturing processes to reduce inventory cost and improve service level within the company while the product variety increases. 1) The Postponement strategy Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zara's success is its postponement strategy. The principle of this is that forecasting demand at component level is easier than that at finished good stage (Yang at al., 2005). This is one of Zara's first steps to move into online selling more, and it received good feedback from the customers. Order winners are the competitive advantages such as quality, delivery speed, reliability, product design, flexibility, and image that cause a firm's customers to select that company's products. Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zara's success is its postponement strategy. Shipments from the distribution centres to stores are made twice a week, based on customer demand in each individual store. Such a pace is unheard-of in the fashion business, where designers typically spend months planning for the next season.. This responsiveness and the postponement of decisions until after trends are known allow Zara to reduce inventories and forecast error. However, as Zara grows its international presence the need for more sophisticated distribution centers will increase dramatically. (2007). Inditex, which includes Zara, Bershka, and Pull & Bear, donated three million euros and 500,000 pieces of warm apparel to the Turkish organisation Red Crescent for the humanitarian emergency. Zara spends little in advertising but focuses on locations' uniqueness. 1 of 18 Supply Chain Management of ZARA Nov. 14, 2013 116 likes 390,878 views Download Now Download to read offline Business Technology Sai Praveen Chettupalli Follow Deputy Manager at IndusInd Bank Advertisement Advertisement Recommended ZARA Case Study: Role of Supply chain in organizational Success sadia butt 9.5k views 27 slides Zara has the courage to continually strengthen its portfolio by closing underperforming stores and opening new markets, so its flagship stores keep the reputation among loyal shoppers. That translates into great value. In 2015, a Zara store in Tokyo received a lady named Miko who asked for a pink scarf, but there was none. View zara.docx from 6500 MISC at University of Akron. Companies employing fast fashion tend to have significantly lower markdowns (both in items and in magnitude of markdown) than other classes of retailers.. Zara capitalizes on very inexpensive but highly effective social media advertising strategies. This leads us to a traditional marketing research method, which is called the 4p's strategy, which includes products, place, price, and promotion. The flagship locations are located in the most critical markets that appeal to their most loyal shopper. In . Zara is revolutionizing its products even more" %}. Postponement can be a powerful strategy for managing product variety. Analysis of Zara's fast-fashion retailing strategy with FIT Shelley E. Kohan, based on the 4Es model of marketing, where Experience replaces Product, Exchange in new Price, Evangelism is now . The brand's products look somewhat similar to the hottest items in the market, but they have different traits depending on specific markets.