Photo AI
Assess the extent to which Zara’s use of just in time (JIT) may have contributed to its success. - Edexcel - A-Level Business - Question 2 - 2019 - Paper 2
Question 2
Assess the extent to which Zara’s use of just in time (JIT) may have contributed to its success.
Worked Solution & Example Answer:Assess the extent to which Zara’s use of just in time (JIT) may have contributed to its success. - Edexcel - A-Level Business - Question 2 - 2019 - Paper 2
Step 1
Reasons why it has contributed to Zara’s success
Answer
Zara’s use of just in time (JIT) inventory management has played a significant role in its success for several reasons:
-
Encourages Frequent Purchases: The limited stock in Zara stores encourages customers to make purchases every time they visit. This is because customers are informed that new products are constantly being introduced and may not be available on their next visit. On average, customers visit Zara stores 17 times per year, which increases overall sales.
-
Reduces Unsold Stock: By employing JIT, Zara minimizes the risk of overproduction and the resultant unsold stock. This is crucial in the fast-moving fashion market where trends can change rapidly. The quick turnaround from design to retail allows Zara to react swiftly to market demand, thus maintaining a lean inventory.
-
Cost Efficiency: JIT operations mean that Zara can reduce storage costs as items are only produced when needed. This efficiency can translate into better profit margins, allowing for more competitive pricing strategies, attracting more customers.
-
Rapid Response to Trends: Zara can quickly adapt its inventory in response to consumer trends by analyzing purchase data and sales patterns, ensuring that what is offered aligns with customer preferences.
Step 2
Possible Counterbalance
Answer
While JIT has many advantages, there are also some potential drawbacks:
-
Risk of Stockouts: The danger of running out of stock can frustrate customers, as they might find that desired items are no longer available. This could potentially damage Zara's reputation as a reliable retailer.
-
Increased Costs: Selling limited quantities might increase average costs due to distribution. For instance, relaying orders from factories to stores frequently can lead to higher expenses which could erode profit margins.
-
Challenges of Scale: It can be difficult for Zara to achieve economies of scale since they may not buy larger quantities due to their limited stock philosophy. This could lead to higher per-unit costs and affect pricing flexibility.
Step 3
Potential Judgement
Answer
In conclusion, Zara's use of JIT has significantly contributed to its success by driving frequent customer visits and reducing unsold inventory. However, the potential risks associated with stockouts and increased operational costs must be managed carefully. Overall, JIT is a fundamental aspect of Zara’s strategy, although Zara's success is also likely influenced by factors such as effective product design, marketing strategies, and responsive supply chain management.