Importance of Total Quality Management and Sustainability in the Supply Chain at Zara

This document discusses the importance of adopting Total Quality Management (TQM) and sustainability in the supply chain at Zara. It explains how TQM can reduce costs, improve customer satisfaction, and increase inventory movement. It also highlights how sustainability can increase revenue, improve quality and productivity, and reduce financial risks. The document provides insights into the need for TQM and sustainability in the fashion industry, specifically at Zara.

OPERATIONS
MANAGEMENT
OPERATIONS
5/9/2019
ZARA
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Organization Summary
The important information about the chosen organization for this assignment are given below:
 Name of the organization: Zara
 Industry: Retail
 Parent Company: Inditex Group
 Founding Country: Spain
 Founding Year: 1974
 Chief Executive Officer: Oscar Perez Marcote
 Size of the Organization: Zara has more than 2200 stores currently operating in all
major countries worldwide. Its size can be estimated from its revenue which is
approximately $18.9 billion annually.
 Geographical Areas of Operation of the Company: It is headquartered in Arteixo, in
Spain. The outlets of sale are spread in all major American, European and Asian
countries.
 Examples of Products and Services: Zara has clothing items for both men and women.
It also has a kid’s chain. Zara is said to produce more than 450 million items per year. It
does not offer any services per se.
 Key Competitors: The main competitors are Channel, Prada, H&M, Christian Dior,
Ralph Lauren, Burberry, Gucci, Louis Vuitton, Hugo Boss, Hermes International,
Versace, etc.
 Main Customer Segments: Zara has its eyes all customer segments across all countries
of the world. The most common customers of Zara are females within the 18-30 age
group.
 Target Focus: The focus is on customers with a medium to high purchasing power and
those who want clothes for both work and play.
 Known for: Its quick production to sale outlet process. The processing time from
designing to selling of items is done in less than a few weeks.

Task 1
Total Quality Management (TQM)is an approach which helps to improve quality and
performance in the organization by integration of all quality related functions throughout the
organization. It looks at improving overall quality actions in the organization at all levels of the
organization structure (Murray, 2019). Total Quality Management includes management of
quality performance and control, quality design and development, and quality improvement and
assurance. The principles on which TQM focusses on are – executive management, training and
placement, customer focus, decision making, appropriate use of all equipments and tools, and
continuous improvement in the overall organization. In this task, the purpose is to assess whether
or not there is need for adoption of total quality management at Zara, our chosen organization.
In today’s competitive world, businesses no longer can exist on the basis of following a
traditional approach to quality. At Zara, innovation, transformation of fashion and bringing
sustainability are the three core factors that add to the success of the fashion chain. Total quality
management is needed in Zarafor the maximization of production efficiency and the
minimization of costs (Golden, 2018). The justification of the reasons why total quality
management is needed in Zara are given below:
 Cost Reduction: The major reason for implementation of Total Quality Management at
Zara is that it will lead to reduction in cost of production. When the principles of TQM
are applied constantly over time, it leads to reduction of costs of production as well as
distribution throughout the organization (Kanji, 2010). At Zara, these costs of production
and distribution flow directly into the bottom-line profits without any extra costs being
incurred and therefore, application of TQM in this fashion giant will help add to its
profitability. The areas where special focus is required for implementation of TQM for
cost reduction are management of scrap, areas of rework of designs, field service among
others.
 Fast Movement of Inventory: Zara is known for its incredible speed of movement of
inventory – from sketches of the latest designs on fashion to reaching stores within a

couple of weeks. This is because Zara does not rely on production in far-off Asian
countries. Instead, production is carried out in neighboring countries. For smooth flow of
this quick production process, there is need for implementation of a total quality
management system. TQM helps in improvement of quality of processes and focusses on
inclusion of quality into the process itself rather than just the outcome of the process. It
helps in improvement of movement of inventory rather than just the inspection of the
movement (Tinsley and Ormsby, 2010). Also, another advantage of TQM here is that it
not only reduces time involved in movement of inventory and fixation of errors but also
reduces the need for employment of a large number of quality assurance personnel.
 Customer Satisfaction: The customer satisfaction is a measure of the number of
customers who are satisfied with their experience at a business unit. At Zara, customer
satisfaction is considered as one of the key philosophies of work. With the
implementation of TQM at Zara, the focus is on how quality management can be assured
in the business processes in such a manner that it leads to its ultimate aim – customer
satisfaction. TQM ensures that all the business processes at Zara are streamlined in a way
in which reduces errors. Reduction of errors means that the resources which are aimed at
solving problems can be reduced, thereby serving two purposes – customer satisfaction
and reduction of investment in problem solving methods. TQM, by increasing customer
satisfaction at Zara, will eventually lead to increased market share and reduced customer
complaints.
 Defect Reduction: The tools of total quality management focus on reduction of defects
in processes, goods and services.The principle of ‘zero defects’ is an integral part of the
process of total quality management. At Zara, the focus is on introducing the principles of
TQM into the baseline production processes in such a manner that it helps reduce the
defects in production. TQM helps in changing the groupthink towards the process of
production, analyzing customer requirements, and altering the production processes in
such a manner that it reduces defects (Dahlgaard and Park-Dahlgaard, 2016). At Zara, the
ultimate goal is to improve the management processes with the implementation of TQM,
and reduction of defects helps in achieving this aim.
 Improvement of Morale: The implementation of total quality management helps in the
improvement of morale of workers in such a manner that it leads to high tolerance

towards changes in the organization and increase in worker participation. At Zara, the
principles of TQM can bring a noticeable change in the workers’ morale in a way which
will help the final customer in noticing the efforts that have been put by the management
team in this direction. The initiation of quality assurance and management also secures
the workers about their future at Zara, because they know that the organization has its
long term goals in mind (Nayab, n.d.). The long term success of Zara means the long
term success of the workers. The introduction of TQM at Zara focusses on employee
satisfaction, reduction in labor workload, increase in the pay scales and elimination of
non-productive tasks.
All these factors discussed above show the importance of adopting total quality management
at Zara. Therefore, it can be said with ease that it is imperative that these points be taken into
account and quality principles be developed in such a way that it leads to the success of Zara
as well as the employees at Zara.
Task 2
Sustainability in the supply chain means that the organizations’ management understands that
they are a larger part of the system of the world. This means that there is need to introduce
sustainability in the supply chain of the organization in such a manner that it leads to long
term impact on the environment. This sustainability includes reduction in costs of upstream
suppliers and also, partnering with non-governmental organizations and other such entities in
order to introduce focused efforts in the supply chain (Prokesch, 2010). It is becoming
increasingly important to know the environment, social and economic viability of the actions
of the business being carried out. This sustainability is partly due to Governmental pressures
and partly due to the world being more aware of should be ethically acceptable and what
should not be. Sustainability can be introduced in the businesses by taking a look at the
manufacturing processes of the company – from where the raw materials are sourced, how
these raw materials are obtained, how the production process is carried out, and how finally,
the waste material and scrap is treated in the organization.

According to UN Global Compact, the sustainability in the supply chain of a particular
business is ranked as the biggest challenge in today’s businesses (“Supply Chain
Sustainability”, 2010). The supply chain sustainability of an organization should be treated as
the top most priority of any organization. In view of this, the importance of sustainability
in the supply chain of Zara is discussed below:
 Increase in Revenue: The introduction of sustainability in the supply chain of Zara
will lead to increase in revenue of the fashion giant. The customers in the past were
not aware of the ethical actions of a firm from which they bought goods. But today,
the times have changed. Customers today are more aware of their actions and the
impact that these actions have on the environment. They know that it is essential that
they bring sustainability into their actions so that their children get to see a better
future than what currently looks like. At Zara, the managers believe that the
sustainability of the supply chain not only benefits the environment but also leads to
increase in revenue. In view if this Zara has taken a pledge to become more
sustainable in its actions. It has vowed to improve working conditions for its
workers, increase the pay scales, and not use harmful materials in its production
processes that takes years to get out of the environmental supply chain (Hardy,
2018). The ultimate aim of this is that the customers have become aware of these
actions of Zara and have flocked in masses to buy its products. Zara has launched
the Zara Join Life Range, a range of clothes made from recycled items and ethically
conscious business processes (Cotton, 2018). Many customers have also shifted
from rival fashion houses due to their belief in the sustainable actions of Zara. This
has led to increase in revenue.
 Quality and Productivity Benefits:Sustainability in the supply chain leads to leads
to the introduction of lean business processes in the organization. The lean
production processes include focus on the long term results of the sustainable
actions of the business and introduction of quality in the supply chain. Sustainability
is not a short term process. It involves training the employees on a very fundamental
level so that they are conscious of every action they take and the impact of that
action. The normal process of a fashion house involves contacting the cheapest
designing and production sources in the world and involving them in the production

process. While this may reduce the cost of production of clothes, it increases the
harmful effects of such wide scale production on the environment. At Zara, the focus
is on keeping the shortest distance between the production centers and the sale
outlets. This leads to two outcomes – increase in productivity and decrease in the
harmful effects of long – distance production (Ferdows, et al. 2015). Zara also has a
more flexible supply chain than others. The result of this is that there is
improvement in the quality of the supply chain of the company and its final
products. This is known as the ‘bull-whip effect’ and Zara is a master of it. The
focus of its supply chain is on improving productivity and reducing the damage to
the environment (Aftab, et al, 2018).
 Reduction of Financial Risks: A sustainable supply chain leads to reducing the
financial costs and risks that a company might have to bear as a result of its
production processes. A business is exposed to many risks – risks from the
customers, from the competitors, from its stakeholders, from the government and
from the production processes. Firms have to spend tons of money and time in
building processes which help to reduce risks and insure against any practices which
might cause harm to the business in the long run. One such harm is the financial risk
to the business, in this case Zara. The possibility of financial risk to Zara can be
reduced by mitigating the effect of the risks posed by the other parties to the
business. This can be done by improving the social and ethical activities of the
fashion group. If the firm practices ethical and sustainable activities in its supply
chain, the stakeholders have reduced chance of filing any sort of claims against the
business (Mefford, 2011). If no such claims or suits are filed against Zara, it reduces
the possibility of financial risk to the company by a considerable amount. Also, this
sustainable supply chain of Zara when made public, invites positive reaction from
the community as a whole.
The few points discussed above highlight the importance of introducing sustainability in
the supply chain of the business. In the recent times, many have argues that large scale
corporations do not consider the environmental impact that their production processes
and supply chains might have on the community. The purpose of this task is to explain
the importance of sustainability in the supply chain to Zara. An effort has been made to

show the major benefits that Zara has over others – long-term environmental, social and
economic value for all stakeholders - if it introduces the concept of sustainability in its
processes.
Task 3
It is important for the organization to decide whether it wants to carry out its production
efforts by out-sourcing its materials or by focusing on in-house supply. Every business
is different and so its production and supply need are also different. When the
manufacturing is done in-house, the company gets major advantages. It is able to keep
control of all its production activities – there are less chances of important things
slipping by. There is a quicker market response and the product changes can be easily
brought into on the basis of the needs of the customers. There is a coordination between
the designing and the production departments. There is immediate access available to
the supply managers in case of any emergency situations (“In-house vs. Outsourcing
Manufacturing”, n.d.). On the other hand, the out-source supply pf materials and
production processes has its own set of benefits. There can be an increased focus on
areas of the business which matter the most. The supply chain managers need not be
concerned with every aspect of the production process. Also, the out-sourced parties are
professionals and the professionals can get work done faster than any in-house parties.
Out-sourcing also leads to increased efficiency and reduction in wastages (Shukla,
2010).
The focus in the internal strategy meeting at Zara, is on whether the production should
be in-house or there should be out-sourcing.As the consultant hired by the board at
Zara, I would suggest that the focus should be on in-house supply of materials and
production activities. Zara focusses on its strategy of fast action – the speed with
which the organization works is a threat and inspiration to all rivals. The clothes are
produced in small numbers and sold out within a few days. Zara keeps a check on the
latest trends in fashion, designs them, produces them and has them in stock within a
couple of weeks. The reason of this agility is that they do not depend on out sourcing.

All materials and processes are kept in-house based. The justification for this choice has
been given below:
 Quick Reaction to Market Changes: In – house supply of materials leads to a
quicker reaction to market changes. These changes can be of many types such as
changes in mobility of labor, changes in fashion and trends, changes in
technology of production, changes in consumer demand, changes in facilities of
production, etc. Zara is known for its quick response to the market changes. The
speed and eagerness with which it responds to changes in fashion trends sets an
inspiration to many. To keep up with these changes, it is essential that the
supply of materials is in – house. In case of Zara, outsourcing of materials
would lead to a delay in its production process and the ultimate result of this
would be loss of its competitive advantage (“The Advantages of Manufacturing
your Products In-House”, 2012).
 Quality Control: For Zara to remain on top its game, it is essential that it keeps
a check on its quality. In this case, the quality of both the production process
and the product are important. In-house supply of materials and processes would
help Zara too keep the quality in control. It is easier to keep a close eye on the
quality when the processes are not out-sourced (Gartenstein, n.d.). The major
reason behind this is that the intent of those working in-house is the long term
development of the fashion giant whereas the intent of those out-sourcing is the
maximization of profit.
 Control of Production Expenses: in case of in-house supply and production, it
is much easier to control the production expenses. Outsourcing leads to a higher
expense of both production and then the distribution of those produced goods.
The suppliers and the intermediaries charge the most part of the profit which is
made by the firm (Ashe-Edmunds, 2017). They increase the cost of production
and thereby, the final selling price of the good by a huge margin. If Zara
produces in-house, it will lead to a low cost of production and thus, the
company can make a higher profit from every item that it sells. On the other
hand, outsourcing will increase the cost of production and reduce the profit

margin. If higher prices are charged to increase the profits, there is a threat of
customers shifting to its competitors.
 Logistics Issues: Outsourcing will always lead to issues arising in the logistics
side of the business. The storage and shipping needs of an international giant
like Zara are plenty. If they depend upon outsourcing to fulfill these needs, the
end result be chaos and cost. The chaos of logistics might lead the firm to risk
its position in the market and those who depend upon in-house material sourcing
will become the market leader. In-house sourcing of materials and streamlining
of production activities would lead to a clearer system of logistics at Zara and
overall improvement of its production processes. The direct shipment from the
producer to the final outlet of sale also greatly reduces the expense of
production as explained above.
 Better Public Relations Management: In-house supply of materials and in-
house production processes leads to a better management of the public relations
system of the company. Zara is an international brand known and loved by one
and all. In order to maintain this status of having a universal appeal, it should
focus on its in-house operations such that it leads to an improvement in the
public relations side of the business. Also, in-house production and the publicity
that arises from it leads to a feeling of patriotism in the consumers and also
increases the job opportunities to the people of the country. Outsourcing will
only lead to loss of jobs and negative publicity.
Thus, it can be said that Zara should focus on in-house supply and production
processes keeping in mind the above given advantages of it.
Task 4
Just in Time (JIT) plays an important role in fulfilling customers’ need for a
“better product quality, increased responsiveness, short lead times, and lower
costs”. Just in Time inventory management system is a system of management of
inventory where the organization does not hold any safety stocks and extremely low
levels of inventory are maintained (Peavler, 2018). The purpose of using this

inventory management system is to reduce the investment made in inventory and to
increase the efficiency required to maintain the stock levels. The goal here is to
reduce the non-essential costs of holding inventory and making accurate forecasts
when it comes to management of stock levels.
At Zara, the Just in Time management system is of prime importance. The store
managers take daily account of the needs of the customers and report the collected
information back to the designers. The designers develop new design and the
produced goods reach the stores for sale within a few weeks as compared to few
months for other similar chains. This system of inventory gives rise to the need of
Just in Time inventory system. The stock levels are maintained in the minimum
quantity possible and quick replenishment of stocks is done at Zara.
Just in Time System in the Supply Chain of Zara
Zara decides only 20% of its fashion line in advance as compared to about 50% or
more in similar fashion stores. For the remaining inventory, Zara adopts the Just in
Time system of management of inventory (Dossa, 2015). This includes responding
real time throughout all seasons and producing goods as soon as information about
the latest fashion trends is available in the market. Zara has hi – tech operations to
keep up this type of Just in Time production system.
How can this be pulled of? Zara manages this system of Just in Time inventory by
vertical integration of the supply chain. The company uses state-of-the-art
distribution networks in its supply chain. The headquarters in Spain are linked
through underground tunnels to its nearby factories and the tunnels are fitted with
rails to transport the garments as soon as they are manufactured. This system
reduces the need for maintain a safety stock and the supply chain is extremely
shortened. These rails in the underground tunnels include optical scanning,
conveyor belts and other such devices (Lopez and Fan, 2019).
The Zara example is a classic example that excess inventory means the death of the
inventory. The company has been able to maintain its unique position in the market
only by following the Just in Time system of inventory. The small batch size of

inventory for Zara not only helps it to keep up with the current trends but also helps
to minimize the losses which the company might have to face if the stock remains
unsold. Zara stocks remain on shelves for only about a month – its average turnover
rate of inventory is more than 10% as compared to industry average turnover rate of
3-4%. The stocks or inventories are updated twice a week and that too at precise
times. For this, Zara has much more control over its supply chain and inventory
systems than most other retailers. This system of Just in Time inventory
management has led to Zara being more profitable than other retailers by more than
four times (Robinson, 2015).
Just in Time inventory management system has given the following advantages to
Zara:
 Reduced Obsolescence of Inventory: The high rate of inventory turnover
at Zara leads to minimum obsolescence of stock – there is minimum loss
due to unsold stock and minimum wastage of warehousing space to store
excessive stocks.
 Easy Changes in Production: The Just in Time management system of
inventory leads to bringing easy changes in the inventory types at Zara. It is
extremely easy to halt one type of production if there is immediate change in
demand and to begin a new type of production as and when required. This
cannot be said for those firms where this system of inventory maintenance is
not followed (“The advantages and disadvantages of just-in-time inventory”,
2017).
 Minimum Cost of Holding Inventory: The Just in Time system has
minimized the costs of holding excessive inventory at Zara. The costs and
therefore, the risks that come along with the costs are reduced such that the
inventory can be said to be held without any additional spending.
 Less Damage to Inventory: Usually excessive inventory leads to excessive
costs pf holding that inventory and excessive risks associated with the
damage that might happen or accidents that might occur when that inventory
is held in the warehouses. Just in Time system at Zara leads to a system

where there are virtually no excess stocks in the warehouses and therefore,
least chances to the inventory.
 Quick Action in Case of Mistakes: At Zara, one of the prime features
which sets it apart from other similar businesses is that in case of mistakes
regarding the management of inventory, there can be quick corrective
actions that can be taken.
The advantages may render Zara as untouchable in the aspect of inventory
management, but there are also certain drawbacks to this system:
 Disturbance in the Supply of Goods: The inventory management system
at Zara even though on schedule most of time, could sometimes lead to a
shortage of items in the supply chain. Excessive reliance on the quick
supply of inventory can lead to a disturbance in the supply chain. One
delay leads to a delay in the entire supply chain.
 Shut Down of Information Technology Systems: When a quick action is
needed in case of management of inventory, it is during that time that most
of the inventory systems fail. The information technology systems required
to manage the supply chain and the inventory at Zara could breakdown at
any point of time and this will lead to a shortage of materials in all outlets.
Thus, after having analyzed all the above points in detail, it can be said that the Just in Time
system of inventory is a boon to Zara. However, care should be taken to ensure that this does not
turn into a bane due to improper management.

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