The case of Zara – The Postponement strategy
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. Mass customization has become a requirement for many businesses especially in the dynamic, fast-changing industries. However, the more product varieties, the more difficult it is to forecast demand, control inventory and manufacture. Therefore, some innovative companies have integrated “postponement” strategies with their supply chain operations to gain control of product variety proliferation.
Zara is one of the most ...view middle of the document...
There are various models on postponement covering a continuum from pure standardization to customization. In the context of this paper, we will be looking at “the postponement and speculation matrix” (Figure 1) by Pagh and Cooper (1998).
Figure 1: The postponement and speculation matrix
Figure 2: The postponement and speculation matrix 2
According the matrix, the “full speculation” strategy relies fully on forecasting, where all the manufacturing operations are performed before knowing customer demand. On the other hand, “manufacturing postponement” refers to the situation where certain stages of the manufacturing process for a product are delayed until receiving a customer order. In contrast, “logistics postponement” involves delaying the distribution or actual delivery of a product until customer demand is known. Finally, the “full postponement” strategy is the highest level of delay in the supply chain, which makes use of both manufacturing and logistic postponement. There are trade-offs between different levels of customer service and inventory, production and distribution costs when applying different strategies. 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. Therefore, depending on the demand, costs, market and nature of the products or services, each strategy can be applied accordingly.
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). 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).
Figure 3: Postponement process flow (Chaudhry, 2010)
Applying the matrix into Zara, the company uses the full postponement strategy, where the manufacturing and logistics operations are initiated after the knowledge on customer demand. The decoupling point is pushed upstream of the supply chain to accommodate wider variety to satisfy customer demand (Figure 4).
Therefore, Zara is able to react to consumer demand by delaying decisions until the last minute. Zara commits to only 50 to 60 percent of production in advance of the selling season, compared to 80 percent for most clothing retailers.
Figure 4: Full Postponement Strategy
There are different terminologies used to define different postponement types, which are often defined on the basis of activities. The following section summarizes the key postponement types that Zara utilizes in their value chain.
a. Product development postponement
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. In order to achieve that, Zara’s designers are...