Zara Target Costing Case Study

Target Costing: Process
Just as every industry, more specifically every company is unique, there is no “one size fits all” kind of approach to target costing process. Every organisation has developed their own processes and practices being followed. There is a huge strategic shift from a cost plus approach to a more involved process taking in different business functions and streamline it to specifications.
There is no single source about the necessary steps that need to be followed by a company to achieve target costing see Brausch (1994), Cooper (1995),Cooper and Slagmulder (1997), Fisher (1995), Kato (1993), Kato et al. (1995), Monden and Hamada (1991), Morgan (1993), Sakurai (1989) and Tanaka (1993).
Some key steps followed are:
Market

Due to active participation and effective control they achieved 128% of the goal within that period.
Just in Time System: Zara
According to Lopez, C. and Fan, Y. (2009), Zara was a pioneer in bringing ‘Fast Fashion’ into the realm of the apparel industry. Due to wide customer demand and huge competition, major fashion brands like GAP, Abercrombie & Fitch, H&M to name a few moved their manufacturing to East Asian countries. These competitors followed a concept of well-defined season and market trends according to different fashion houses.
What differentiates Zara from its competitors is the involvement of stores as information centres and its turnaround time. With traditional garment manufacturers taking upto 8 months to bring the garment onto the store Zara reduced that to 4 weeks and changes of an existing garment to be reduced down to 2 weeks. This it achieved by using vertical integration of the manufacturing, flexible structure, low inventory rule, and feedback from stores about consumer

With low batch production and delivery to specific outlets, it creates a “climate of scarcity and opportunity” (Crawford, 2000). Which leads to an average customer stepping into the store around 17 times a year whereas 4 times a year for its competitors. The store acts both as a point of sale and an influencer of the design and speed of the production. About 11,000 new items are launched every year (Ghemawar and Nueno, 2003).These are just the few advantages with JIT system, further elaboration would require a separate study

Lean Manufacturing
Lean manufacturing is based on the Toyota Production System(TPS) developed by Toyota focuses on eliminating waste, reducing inventory, improving throughput, and encouraging employees to bring attention to problems and suggest improvements to fix them (Womack et al. 1991).
To implement Lean manufacturing in their plants Toyota formed a task group for their factory floor involving people from different divisions in the organisation having through knowledge about the product and the different processes involved of production, equipment and planning. The objectives were
To reduce the level of non-value