When Harvard Business Review looked at Zara in 2004, it called Zaras management practices questionable, if not downright crazy. That was because Zara defies most of the current conventional wisdom about how supply chains should be run. And yet, strangely, even then, the performance was there: The company can design, produce, and deliver a new garment and put it on display in its stores worldwide in a mere 15 days. Start Your Online Business with Shopify 12 Day Free Trial + Pay Only 1$ For Your First Month. The executive vice president leading the initiative was convinced of speed-to-market benefits where demand forecasts improve with time. 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). Implementing a postponement strategy. The fast-fashion experience formula for success combines frictionless shopping in a highly curated product environment offering scarce supply and new styles that rotate rapidly. Creating customer curiosity is a most powerful pull marketing strategy. Since there are various varieties of sandwiches, They know that it is costly to try and predict individual customers' preferences, so they aggregate orders into common platforms, which consist of a bun, patty, and lettuce, reducing the options. Therefore, by keeping manufacturing at home, Zara circumnavigates this cost. Zara limits inventories, but not at the expense of profits. Established competitors like Gap and Gucci would have to completely reinvent themselves to successfully mimic Zara. The decoupling point is pushed upstream of the supply chain to accommodate wider variety to satisfy customer demand (Figure 4). The World is Flat. You may opt-out by. In line with Zaras high-fashion-at-a-low-price mantra, Zaras location strategy does not lack grandiosity. 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. The synergy between Zaras individual stratagems makes it difficult for competitors to copycat. This is the source of the brand's quick growth and reputation. 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). If Zara needs to promote an event or a new clothing design, all it has to do is post a Facebook status, and its 30 million followers can read it and spread the word. By applying full postponement strategy in both logistics and manufacturing postponement, Zara is able to quickly response to the constant changes in the fashion world and achieves competitive advantages over its rivals. This was driven by investments in information technology and utilizing designer groups. The term postponement in the supply chain is similar to its actual meaning. 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. Adopting postponement strategy, however, has often led manufacturers to situations of higher risk of holding exclusive material in the customization stage. Given the success of Zara in these markets, and knowing that each transaction is engaged in voluntarily, it can be said that Zara has at the very least provided a product at a price many find agreeable. The heart of the Zara supply chain is a huge, highly automated distribution center (DC) called "The Cube". These brand loyalists are also less price sensitive. . Heidelberg: Springer, 54-57 Ferdows, K., Lewis, M.A., & Machuca, J. Swaminathan. This strategy is effective for the company's decision making process as the brand knows and understands the customer's mind. This means Zara does all of the designs, manufacturing, and distribution itself without third-party suppliers. The result is the brand's sales keep getting higher, and the market share keeps increasing. In the context of this paper, we will be looking at the postponement and speculation matrix (Figure 1) by Pagh and Cooper (1998). Furthermore, the average inventory holding at Zara is 6 days, compared to 52 days at H&M and 94 days at Cortefiel. As you can see, Zara doesn't have many marketing campaigns such as other fashion brands. (2016, Mar 06). For example, the full speculation strategy incurs low production and distribution costs but high customer service and high inventory costs, whereas the opposite applies to the full postponement strategy. Product used to be king, but not anymore. Competitors can book factory space in advance abroad for less money and with greater production assurances. But Zara should be wary of the growth of ultra fast fashion retailers. The company base thierkey strategy on every single customer who has a satisfied experience by purchasing fashion online and who wants to repeat online shopping. For example, the most loyal customers for retailers typically account for 80% of the sales. Chaudhry, H.R. Zara's stores have clothing for men, women, and kids as well. Design for Postponement [pdf]. The key is to combine improved speed and efficiency across the entire product cycles driven by what customers actually want, not just inward-looking cost-savings in part of the supply chain. The strategy can be understood by taking an example of a fast-food restaurant that sells customized sandwiches. Postponement is first implemented in manufacturing processes to reduce inventory cost and improve service level within the company while the product variety increases. To get a better understanding of Zara's marketing strategy, we need to see all the important sides of marketing. And it underlines its cost-cutting strategy as it relates to sustainability. We must have the dialogue with the customers and learn from them. The two-way communication between the customer and Zara allows for continual improvement of product and services, she says. There are trade-offs between different levels of customer service and inventory, production and distribution costs when applying different strategies. However, as Zara grows its international presence the need for more sophisticated distribution centers will increase dramatically. 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. Pagh, J.D. Rapid product replacement enables Zara to sample many different designs; however, low inventories allow Zara to do this absent waste. However, some of its strategies have shortcomings. Postponement can be a powerful strategy for managing product variety. Rapid Fire Fulfillment. Zara, for example, has over 25 million Facebook followers, 16 million on Instagram and over one million in Twitter. There are various models on postponement covering a continuum from pure standardization to customization. Zara relentlessly tries to provide the best customer experience. So, what is so special about Zara's marketing strategy that can turn it into a global fashion powerhouse as today? 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). To install StudyMoose App tap Guardian 3 June 2012 http://www.guardian.co.uk/business/2012/jun/03/zara-bucks-spanish-economic-gloom. Manufacturers adopting postponement strategy can lower operational cost and quickly respond customers' personalized demands. 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. Ferdows, K., M.A. 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. speculation strategy, assembly-to-order ATO refers to assembly postponement, make-to-order MTO is linked to manufacturing postponement and engineer-to-order ETO corresponds to full postponement. Instead, it introduces three salient components of Zara: the business model, the environment, and society at large. 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. The New York Times, 10 Nov. 2012. So we can hope for more in the future. Branded value aligns customers needs with a brand deliverable, Kohan stresses. 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. In order for those postponements to happen without affecting time to market, Zara operates an extremely efficient value chain management. (2003). Recycling efforts of furniture and decoration, organic manufacturing processes, and biodiesel fuel all contribute to Zaras environmentally friendly image. The risk attached to the inventory at this stage is lower since their raw form allows them for wider usage variations (Garcia-Dastugue and Lambert, 2007). 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. Every store manager can talk directly to its counterparts in Spain regarding the situation. 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). Hansen, Suzy. All of these processes enable quick dispatch of products driven by real demand. What have you learned from Zara's marketing strategy? Amancio Ortega Gaona, Spain's wealthiest businessman, founded Zara in 1975 and later created Inditex as a holding company. It tries to capitalize on the store experience by always offering reasons for the buyers to revisit the stores. 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 the next decades, Zara's business model gradually earned a reputation among Spanish consumers, with nine more stores in Spain's most prominent cities. For example, Japan stores have smaller sizes, Arab stores have special women's clothes, South America stores have different seasonal products. Indeed, demand for Inditex products and designs is fueling Inditexs expansion. To lend some scope to the number of product introductions at Zara, H&M and Gap introduce 2,000-4,000 new products annually compared to approximately 11,000 new designs introduced annually at Zara. Zara's pricing strategy focuses on the average shopper that wants the latest fashion items at affordable prices. There are various models on postponement covering a continuum from pure standardization to customization. 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. Zara masters the concept of exchange as it is not the cheapest in the fast-fashion arena, but it consistently delivers branded value of trend-right product at appealing prices. By focusing on the brand's core qualities towards buyers, Zara can build its popularity with an effective brand image. In short, Zara products have the latest styles, trending designs, affordable prices, and local-adapted tastes. 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. This strategy is often considered as the main element that justifies the success of the fast fashion business model. For example, in Istanbul Zara "can be found one street away from Cartier, Hermes, and Chanel", three very expensive brands (Suzy Hansen 2012). Zara is every place the customer needs it to be. From China to the U.S. to Europe to Brazil, Zara reaches vastly different cultures. Zara. For example, in Istanbul Zara can be found one street away from Cartier, Hermes, and Chanel, three very expensive brands (Suzy Hansen 2012). In order to compete in the world of rising globalization and shortening of product life cycle nowadays, firms have to deal with the demand for increasing product variety to meet the diverse needs of customers. Zara fosters a highly-engaged workforce that translates into highly-engaged interactions with customers. 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. How Zara can provide an experience for the customer in every place of existence is what the brand has focused on since day one. Opinions expressed by Forbes Contributors are their own. 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. 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". Way back in 1980, Michael Porter had highlighted the important role played by suppliers in enhancing business profitability. Opportunities for Zara Postponement Strategy can be obtained from things such as: Change in technology and market strategies Government policy changes that is related to the company's field Changes in social patterns and lifestyles. How about you? Start your Shopify Free Trial now and get it for free! That is what I'm going to show you in this article. Journal of Business Logistics, 28 (1), 57-81. Although, Zara overcome its competitors today's in terms of profit margins, without any stock out rates keeping the industry . In a sort of proactive way, technology, already readily implemented at Zara, could be expanded to connect preliminary data points and offer forecasts. 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. This enables them to manage one of the most efficient supply chains in the fashion industry, and to create the fast fashion category as a market leader. Zara uses proprietary software to analyze fashion trends from each of its many hundreds of stores around the world. But Gaona is humble. So not only buyers are trendy, but they are also unique, which sounds pretty cool like being in a cool kids' club. A postponement strategy is a strategy that businesses implement in their supply chain or distribution networks to delay the customization of products. Its not us saying you must have this. Greenpeace.org, 20 November 2012, Zara: Taking the Lead in Fast-Fashion, BusinessWeek, 4 April 2006, Zara, a Spanish success story CNN June 15, 2001. Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zaras success is its postponement strategy. That said, it is a challenge for Zara in the future to adapt to a changing market. Its team uses state-of-the-art IT systems to track sales and customers preference for specific garments, styles, colors and combinations. 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. HubPages is a registered trademark of The Arena Platform, Inc. Other product and company names shown may be trademarks of their respective owners. The model comprises of different postponement strategies, which when analysed, indicated that Zaras postponement applications were supported by its dynamic value chain structures. For Zara, it is not about how much it spends on advertising, but it is all about the customer. But Zara is not reactive in the same way that other retailers are. Today, value is measured beyond price, but also in time and convenience.. 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. Marketing aims and objectives Zara mainly operates thier business on objectives which range from being short term and long term. A fascinating story that can show this is how Zara creates its products to leverage the buyers' input. Through its business model, Zara aims to contribute to the sustainable development of society and that of the environment with which we interact." Zara fosters a highly-engaged workforce that translates into highly-engaged interactions with customers. 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.. The screenshot below shows a closeup satellite view of this facility. That is the Zara difference. However, brand communication is crucial in Zara's marketing strategies. 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). Zara Postponement Strategy. 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. When expanded it provides a list of search options that will switch the search inputs to match the current selection. Zara actually listens and reacts to customer feedback as its most valuable brand asset to improve its products and services, she says. The length of the delay is specific to a product. In studying these two oft-compared brands, the essential differences revolve around their overall approach to marketing. 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. According to Postponement and Supply Chain Structure: Cases from the Textile and Apparel Industry, Zara purchases more than half of its fabric in a raw state that is undyed so that it can later. These loyalitsts become brand evangelists who share excitement about the brand with their networks. While this may not have much relevance to business operations, analyzing Zaras advertising lends some understanding of Zaras overall philosophy and strategic approach. For Zara to successfully compete with luxury brands, it must first identify with customers as being a luxury brand. 2004. Online selling has been carefully planned and limited to specific countries as well. . Clearly, different types of postponement strategies have different costs and benefits associated with them. It is beneficial to delay commitment to product-specific characteristics as late as possible to avoid a mismatch between orders and inventory on hand. In this type of restaurant, ingredients are ordered in aggregate because it is unknown what the final customer orders will be. Supply chain postponement and speculation strategies: How to choose the right strategy. Not only that, but Zara also delivers the brand experience and products when and where the buyers demand it. Don't use plagiarized sources. Sometimes high demand for various fashion items wanes very quickly. "Zara Gets Fresh Styles To Stores Insanely Fast. Buyers now want an item's value to be beyond price, with more time-saving and convenience. 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. These elements might be collectively known as Zaras overall business strategy. 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