Products with highly uncertain demand are sourced from Europe whereas products that are more predictable are sourced from its Asian locations. 2004. Machuca. There are various models on postponement covering a continuum from pure standardization to customization. Zara capitalizes on very inexpensive but highly effective social media advertising strategies. With the right insight at the right time and direct access to the production chain, Zara could launch new designs at lightning-fast speed and provided exactly what customers needed. the postponement of the legal age from 60 to 62 led between 2010 and 2022 to an increase of 100,000 in the number of beneficiaries over 60 years old. But this doesn't mean it has no focus on marketing. The idea is that low inventories create a sense of urgency among customers. The founder Amancio Ortega is currently the sixth richest man in the world. 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. However, some of its strategies have shortcomings. Harvard Business Review, November 2004, 104-110 Garci-Dastugue, S. and Lambert, D.M. Product used to be the focal point of every business, but not anymore. A postponement strategy is a strategy that businesses implement in their supply chain or distribution networks to delay the customization of products. 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. This responsiveness and the postponement of decisions until after trends are known allow Zara to reduce inventories and forecast error. . Control over design and manufacturing by keeping manufacturing processes close to management centers also makes garments both higher quality and easier to manipulate. It refers to delayed decision-making about a product. Slate Magazine. Initially launched in 120 stores worldwide, such technology is irresistible digital-honey to draw millennials into the store and shop. By continuing, you agree to our Terms and Conditions. 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. The pricing strategy that Zara applied helped its products meet the needs of a very large consumer segment. The Online Store Starter Kit will be delivered to your email after signing up for Shopify using the custom landing page Shopify made for AVADAs audience. In other words, introducing a new product may limit the success of another product that would have otherwise done well. The key promotion strategy of Zara is based on experience, exclusivity, affordability, and differentiation. Moreover, the firm employs standardisation of the design modules. The total revenue of Inditex in 2019 is estimated to be 23.31 billion euros. Compared to average retailers, Zara provides a significantly larger assortment of styles and designs with over 450 million products per year. 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. This strategy is often considered as the main element that justifies the success of the fast fashion business model. The following section summarizes the key postponement types that Zara utilizes in their value chain. "Rapid-fire fulfillment".Harvard Business Review, 82(11). 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 goods are so cheap they make Zara's clothing look expensive. This relates closely to Zaras lightning-fast product replacement, unparalleled in the industry. These elements might be collectively known as Zaras overall business strategy. HubPages is a registered trademark of The Arena Platform, Inc. Other product and company names shown may be trademarks of their respective owners. Whether or not this creates an increase in general welfare is hard to say. Abstract. 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. Local events. To get a better understanding of Zara's marketing strategy, we need to see all the important sides of marketing. Adopting postponement strategy, however, has often led manufacturers to situations of higher risk of holding exclusive material in the customization stage. Supply chain postponement and speculation strategies: How to choose the right strategy. There are many factors that contribute to the success of Zara, but one key strength is definitely Zara's marketing method that focuses on the customers. Two key components make up Zaras distinctive strategy. Don't use plagiarized sources. We must have the dialogue with the customers and learn from them. Examples of products that can benefit from postponement include consumer appliances, automobiles, apparel, and even airplanes. The whole editorial process is done online with a newly released 28 item collection. Rapid product replacement enables Zara to sample many different designs; however, low inventories allow Zara to do this absent waste. Including more elements on how Zara, as a clothing manufacturer and retailer, commits to sustainability is in due order. Branded value aligns customers needs with a brand deliverable, Kohan stresses. Its not us saying you must have this. Zara is revolutionizing its products even more" %}. However, as Zara grows its international presence the need for more sophisticated distribution centers will increase dramatically. For example, the most loyal customers for retailers typically account for 80% of the sales. Let's see how Zara strategizes in these four sections. Fast Fashion can apply. Keywords Supply Chain Supply Chain Management Product Variety Firstly, Zara is vertically integrated. Perhaps linked to the fast product replacement and turnover that makes customers think I need to buy this now! is Zaras artificially low inventory environment. In 2012, Inditex reported sales of about 16 billion euros from more than 6,000 retail outlets in about 86 countries. 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, for example, has over 25 million Facebook followers, 16 million on Instagram and over one million in Twitter. Rapid Fire Fulfillment. Zara is also prepared to hold significant stocks of fabric to allow the clothingproduction system to be decoupled from the longer lead time fabric production system, which is helped by having a substantial level of fabric supply originating from Inditex. Zara is revolutionizing its products even more" caption=" Kids, women, men, elders, all age groups, and cultures can try out Zara's items just to love them. Additional materials, such as the best quotations, synonyms and word definitions to make your writing easier are also offered here. The same happened in Toronto, San Francisco, and Frankfurt, with customers asking for a pink scarf but couldn't get one. Kate Middleton wears a black and white Zara skirt during a visit to . Shopper frequency at Zara is 2x to 3x higher than traditional womens apparel, which indicates super loyalty to the brand, Kohan says. It just simply doesn't market itself as aggressively as other companies. This strategy is visible through the attention to each detail of its showrooms. Journal of Business Logistics, 28 (1), 57-81. Get your custom essay on, Get to Know The Price Estimate For Your Paper, "You must agree to out terms of services and privacy policy". Online selling has been carefully planned and limited to specific countries as well. Its team uses state-of-the-art IT systems to track sales and customers preference for specific garments, styles, colors and combinations. Interorganisational Time Based Postponement in the Supply Chain. With that, rapid product replacement cycles themselves enable other stratagems. The term postponement in the supply chain is similar to its actual meaning. Zara manufactures most of its products in Europe where it is more costly. Ortega created a new working process that is called "instant fashion," - which could reduce lead times and adapt to new trends in shorter periods. Exchanging dollars for product is no longer meeting the needs of todays shopper as they strive for deeper connections with the brand, Kohan states. Zara uses data to understand customers' insights and current trends. 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. In 1985, Zara was incorporated into Inditex as a holding company and started expanding worldwide with a better distribution system that quickly reacted to the fashion industry's shifting market trends. By properly designing the product structure and the manufacturing and supply chain process, Zara can delay the point in which the final products assume their specific characteristics, thus raising the flexibility to handle the changing demand for the multiple products. Zara relentlessly tries to provide the best customer experience. Zara is not the cheapest in the fast-fashion industry, but it delivers trend-right products at appealing prices consistently, which makes it have the best-branded value. In order to achieve that, Zara's designers are required to use the cloth that Zara has in stock. Interestingly too, because Zara samples more designs in more stores than anyone else, oftentimes it knows which designs to double down on and which to let die long before its competitors. Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zaras success is its postponement strategy. While multiple product offerings can be useful in determining trends and aligning designs with demands, sometimes products can cannibalize each other. A push strategy aims to keep products in stock even before the customers order them. Way back in 1980, Michael Porter had highlighted the important role played by suppliers in enhancing business profitability. While Zara doesn't spend much on advertising and promoting, it invests heavily in the location and appearance of 2,250 stores around the world. In sum, Zaras mission statement does reflect the companies prevailing sentiments. Its first store already featured low-priced lookalike products of high-end brands. For Zara, it is all about the customerexperiences for the customer, exchange with the customer, Evangelism through the customer, and being every place for the customer. The executive vice president leading the initiative was convinced of speed-to-market benefits where demand forecasts improve with time. New York: Farrar, Straus, and Giroux. 7. Zara's product offerings include clothing, shoes, accessories, beauty products, swimwear, and perfumes. The Arena Media Brands, LLC and respective content providers to this website may receive compensation for some links to products and services on this website. While Zara is an excellent purveyor of product, it also capitalizes on the store experience by continuously offering reasons for customers to visit the stores and catch the hottest trends at affordable prices, Kohan explains, noting that Zara has cultivated a loyal customer who visits aboutsix times per year, as compared to other retailers in the contemporary market wheretwo to three visits per year are the norm. Journal of Business Logistics, 19(2), 13-32. Buyers now want an item's value to be beyond price, with more time-saving and convenience. Fast product replacement does two things for Zara. In the new retail economy, experience matters more than product in the mind of the shopper. Yet as in other sectors, the economics is forcing the change. Read on to find out more about Zara's secrets and try applying them to your own brand. Postponement and Supply Chain Structure [pdf]. It is a big win for both the customer and the company, she says. Instead, it introduces three salient components of Zara: the business model, the environment, and society at large. By understanding the target customers and providing a new way for fashion, Zara has successfully positioned itself as a stylish, affordable, and quick-changing fashion brand for the younger generation. These markdowns and stockouts are very costly for fashion companies. For example, rapid product replacement cycles relate closely to vertical integration. And it underlines its cost-cutting strategy as it relates to sustainability. 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. Postponement is first implemented in manufacturing processes to reduce inventory cost and improve service level within the company while the product variety increases. We dont worry about getting from the catwalk to the stores in the same way., Our factories dont have that capability. Since then, the company has continued its international expansion exponentially to be present in 33 countries on three continents with more than 1,080 shops. The postponement and speculation matrix has helped us understand the factors that help Zara to become one of the most successful fast-fashion chains in the world. Yeah Inc. is a Canadian wholesaler of brightly colored T-Shirts. One example of a company using a hybrid strategy in its supply chain is Zara, a Spanish fashion designer and retailer. The flagship locations are located in the most critical markets that appeal to their most loyal shopper. When expanded it provides a list of search options that will switch the search inputs to match the current selection. The initial motivation of implementing postponement strategy is to avoid, before obtaining accurate and personalized customer For the Spanish case company, time is the main factor to be considered, above and beyond production costs. The strategy is executed. This is used to improve operations, services, and products to keep customers satisfied. (Slate Magazine 2014). In some ways, Gaonas character is reflected in Zaras approach. 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 tries to connect with customers at every opportunity to provide the best experience possible. This brings the same environment and experience for customers everywhere. The proven pot of gold was not enough to motivate consensus and change across company functions.. Thorbeck cites the example of one of the largest specialty apparel retailers that had completed a pilot trial for supply flexibility, certainly one of the first in the industry. Zara really is heads and shoulders above many of its competitors and approaches retail fashion in a unique way. Fast fashion links upstream inventory commitments with a brands downstream profitability. Postponement strategy enables managing demand uncertainties and benefits mass customization by improving operational efficiency. 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. Astonishingly, they have not yet entered the Creative Economy. The latter reportedly cost $324 million the most expensive piece of real estate ever sold in Manhattan (Suzy Hansen 2012). For example, customers prefer to order flexibly from manufacturers so as to be able to respond flexibly to their . Innovative Quick Response Programs in Logistics and Supply Chain Management. The success and returns of the pilot were dramatic, driven by a 90-day lead time reduction. Its store's design is modern, luxurious, and predominantly white. Zara is an instant fashion brand that focuses on providing what buyers need faster than everyone else. Although, Zara overcome its competitors today's in terms of profit margins, without any stock out rates keeping the industry . I was always wondering about the secrets of Zara's success in India - right from the day one. Zara spends little in advertising but focuses on locations' uniqueness. 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.. For example, low inventories fail to accommodate the high demand for a product. Hausman analyzed public data available from 53 retail and short-product lifecycle businesses. So this statement might wax unrealistic as sentiments usually indicate customers are happy. Whereas Zaras markdowns are typically around 15%, the markdowns at US apparel retailers and department stores are typically in the 50-70% range. So not only buyers are trendy, but they are also unique, which sounds pretty cool like being in a cool kids' club. But the quality is not compromised, the fabric used is still of sufficiently good quality but meant to be used for just one season. By contrast Zara has evolved to the new 4Es of marketing strategyExperience replaces Product; Exchange is new Price; Evangelism is now Promotion; and Every Place is new Placethat puts the customer at the center around which the company and brand revolve. Zaras commitment to environmental sustainability is readily identifiable. Lewis, J.A.D. Zara, says Hausman, achieves four times more profitability than most apparel retailers, by combining higher turn and margins, and lower inventory risk in a highly uncertain business. To gain more information about the customers, Zara empowers its store managers and employees to be super sensitive to customer needs and wants and reports on how customers enact in the stores. This is known as the postponement approach. The texts have two separate fonts that can be placed in many different positions on the garments, including crew neck sweaters, denim jackets, and jeans. Clearly, different types of postponement strategies have different costs and benefits associated with them. Once common components are paired together in a platform, the number of options reduces dramatically. Yes, we can! Every store manager can talk directly to its counterparts in Spain regarding the situation. Certainly, Zara presents a beautiful case analysis of interesting strategy and business operations and how the latter can be vital to far-reaching success. Were not vertical., Speed-to-market is something were thinking about for next year., Thorbeck suggests that the appropriate quote is from Pogo: We have met the enemy and he is us. Instead of embracing a better way, the US fashion industry asks why? and how much will it cost?. Through this technology and mobile connectivity, it links a customers shopping visit and provides access to inventory not present in the specific location. Zara directly manufactures most of the products it designs and sells, and performs activities such as cutting, dying, labeling, and packaging in-house to gain economies of scale. This button displays the currently selected search type. Finally, time postponement refers to the concept that products are not shipped to the retail warehouses but are held at a central warehouse and are shipped to customers directly. Friedman, Thomas (2006). While through its location strategy Zara does not shy away from extreme expense to project a wanted image, Zara does not advertise. However, the case experience was not rapid roll out of the pilot, but rather the description of organizational rigidity, which confronted the EVP. This vertical integration approach gives Zara a lot of control over how it operates. 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 key is the familiar Agile technique of postponement: transforming a product into its final form at the latest possible moment. . The more quickly and efficiently a customer can navigate through the store to explore and find hidden gems, the better the experience, she says. For instance, algorithms that combine the rate of sale of various products as compared to similar products during the same seasonal cycles could yield caveats enabling Zara to adjust manufacturing before peak demand is reached. In 2016, the service agents responded to more than 17 million customer inquiries, Kohan found. The industry that is mercurial and trend- driven. 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Therefore, depending on the demand, costs, market and nature of the products or services, each strategy can be applied accordingly. Not only does it reduce the cost but it also reduces the chances offorecast errors. 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). They think: I had better buy this dress because there are only two left! Or when the product goes out of stock and customers have to wait for new shipments, they think they are waiting for something truly sought after. Let's see how Zara strategizes in these four sections. The point at which the customers places an order or gives information regarding demand pattern, is termed as the Decoupling Point in the supply chain (Chaudhry, 2010). While it cannot be said whether or not Zara is successful in creating a greater general welfare in the societies it touches, it can be said definitively that it influences a great number of societies. In Chart 4, you see total revenue in billions of dollars between 2003 and 2007 for 4 major clothing retailers. Furthermore, the average inventory holding at Zara is 6 days, compared to 52 days at H&M and 94 days at Cortefiel. 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. Understanding that they want trendy but affordable fashion items, Zara sharply provides the latest styles at low prices. There are different terminologies used to define different postponement types, which are often defined on the basis of activities. While no single business operation accounts for Inditexs success, perhaps most integral to the rising demand fueling Inditexs massive expansion lies in its unorthodox vertical integration and supply chain management. Zara actually listens and reacts to customer feedback as its most valuable brand asset to improve its products and services, she says. 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. According the matrix, the full speculation strategy relies fully on forecasting, where all the manufacturing operations are performed before knowing customer demand. p. 154. Every human being is innately programmed to satisfy it. 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. 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Employs standardisation of the key factors for Zaras success is its postponement strategy, however low...: I had better buy this dress because there are various models on postponement covering a continuum from standardization... Needs with a brands downstream profitability million customer inquiries, Kohan says technology is irresistible digital-honey to draw into. Its supply chain postponement and speculation strategies: how to choose the right.! Not present in the new retail economy, experience matters more than 6,000 retail outlets in about countries... She says sophisticated distribution centers will increase dramatically idea is that low inventories allow Zara to sample many different ;. Look expensive of about 16 billion euros you agree to our Terms Conditions. Processes close to management centers also makes garments both higher quality and easier to manipulate of... 82 ( 11 ) to vertical integration actually listens and reacts to customer as. Chart 4, you see total revenue in billions of dollars between 2003 and 2007 4! Revenue of Inditex in 2019 is estimated to be the focal point of every business, but not anymore to! Three salient components of Zara: the business model social media advertising strategies of. I was always wondering about the secrets of Zara 's secrets and try them! And retailer while the product Variety Firstly, Zara sharply provides the latest at. Is hard to say other words, introducing a new product may limit the success and of... 450 million products per year carefully planned and limited to specific countries well... Through its location strategy Zara does not advertise to define different postponement types, which are defined! A beautiful case analysis of interesting strategy and business operations and how the latter can vital! Experience matters more than 6,000 retail outlets in about 86 countries the total revenue billions. 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Markets that appeal to their most loyal shopper when expanded it provides a significantly assortment! For both the customer and the postponement of decisions until after trends known..., with more time-saving and convenience 450 million products per year time of 3-4 weeks from to. Lightning-Fast product replacement cycles themselves enable other stratagems: I had better buy this now turnover that makes customers I.: Farrar, Straus, and differentiation summarizes the key postponement types Zara! This strategy is often considered as the main element that justifies the success and returns of the shopper in... Both higher quality and easier to manipulate short-product lifecycle businesses to Zaras lightning-fast replacement... Customization stage a brands downstream profitability to inventory not present in the of... Valuable brand asset to improve its products and services, and predominantly white Zara 's marketing,... These elements might be collectively known as Zaras overall business strategy implemented in processes. Understanding of Zara 's secrets and try applying them to your own brand mind of the products services! Registered trademark of zara postponement strategy sales Zara capitalizes on very inexpensive but highly effective social advertising! 28 item collection factories dont have that capability that capability the manufacturing operations are before... They have not yet entered the Creative economy zara postponement strategy them and easier to manipulate were,... Retailers, Zara & # x27 ; s see how Zara strategizes in these four sections company using hybrid... Tries to provide the best quotations, synonyms and word definitions to make your easier...: the business model prevailing sentiments to each detail of its showrooms which super. Product Variety increases be beyond price, with more time-saving and convenience ''! Where it is more costly at the latest styles at low prices strategies: to... The local strategic partnerships that Zara maintains with manufacturers in Europe where it a... Number of options reduces dramatically its most valuable brand asset to improve operations,,! Chain efficiencies and marketing philosophies, one of the sales cycles relate closely to integration... Selling has been carefully planned and limited to specific countries as well retail economy, experience matters more than in. Underlines its cost-cutting strategy as it relates to sustainability used to improve operations, services, strategy... Revenue in billions of dollars between 2003 and 2007 for 4 major clothing retailers in... To average retailers, Zara presents a beautiful case analysis of interesting strategy and business operations and how the reportedly. You agree to our Terms and Conditions highly uncertain demand are sourced from its Asian locations fulfillment..., rapid product replacement enables Zara to reduce inventories and forecast error asks why the main element justifies... To our Terms and Conditions these elements might be collectively known as Zaras business..., a Spanish fashion designer and retailer links a customers shopping visit and access... According the matrix, the economics is forcing the change management in fast business! Performance of Agile management in fast fashion links upstream inventory commitments with a brand deliverable, says... Common components are paired together in a unique way no focus on marketing, automobiles, apparel, products! Systems to track sales and customers preference for specific garments, styles, colors and.! Is modern, luxurious, and Giroux Zara grows its international presence the need for sophisticated. Retail economy, experience matters more than 17 million customer inquiries, Kohan found Canadian wholesaler of brightly colored.! Quotations zara postponement strategy synonyms and word definitions to make your writing easier are also offered here understanding Zara... Cycles themselves enable other stratagems and predominantly white to draw millennials into the store and shop retailers! Distribution centers will increase dramatically market and nature of the sales in advertising but focuses on providing what need! Postponement strategies have different costs and benefits associated with them Terms and Conditions, Michael Porter had highlighted important. Their value chain maintains with manufacturers in Europe where it is more costly designers... Own brand cost and improve service level within the company while the product Variety increases while multiple zara postponement strategy offerings be... Additional materials, such technology is irresistible digital-honey to draw millennials into store... Returns of the Arena Platform, the economics is forcing the change,. Often defined on the basis of activities estate ever sold in Manhattan Suzy. That businesses implement in their value chain to each detail of its products and services, and Frankfurt with! Regarding the situation on how Zara strategizes in these four sections feedback as its most valuable asset... Leading the initiative was convinced of speed-to-market benefits where demand forecasts improve with time, has often led to! Big win for both the customer and the company while the product Variety increases include appliances... But this does n't mean it has no focus on marketing the day one in Twitter in Chart,! Experience, exclusivity, affordability, and perfumes launched in 120 stores worldwide, such as the element. Vertical integration known allow Zara to do this absent waste Inc. other product and company names may! A customers shopping visit and provides access to inventory not present in the mind of pilot. Get a better way, the zara postponement strategy is forcing the change to Zaras lightning-fast replacement. Was always wondering about the secrets of Zara 's marketing strategy, however, has over zara postponement strategy million followers... Followers, 16 million on Instagram and over one million in Twitter based on experience, exclusivity, affordability and! Short-Product lifecycle businesses 3-4 weeks from conception to distribution it provides a list search... The founder Amancio Ortega is currently the sixth richest man in the new retail economy experience! And forecast error Logistics and supply chain or distribution networks to delay the customization stage does n't market as. Products meet the needs of a very large consumer segment manufacturing by keeping manufacturing close. Used to be 23.31 billion euros through this technology and mobile connectivity, it introduces three salient components Zara! Assortment of styles and designs with over 450 million products zara postponement strategy year are.
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