ZARA Supply Chain

Management

Mona Singh 14868329

AUT UNIVERSITY | MEPM 2015
 ZARA Supply Chain Management

Table of Contents

1. Introduction....................................................................................................2
2. Supply Chain Model........................................................................................3
2.1 Design and order administration................................................................4-6
2.2 Sourcing and Manufacturing.....................................................................6-9
2.2.1 Suppliers of Zara............................................................................9-11
2.3 Distribution................................................................................................11-13
2.4 Retailing.....................................................................................................14
2.5 Merchandising............................................................................................15
2.6 Store Operations.........................................................................................15
2.7 Contracts......................................................................................................15-16
3. Cultural Aspects.................................................................................................17
3.1 Cultural comparison between countries.......................................................18-20
3.2 Cultural challenges.......................................................................................21
3.3 Key policies for senior management and leadership....................................22
4. Unethical Risk Management in Supply Chain...................................................23
4.1 Supply Chain ethics......................................................................................23
4.2 Unethical activities in supply chain management.........................................23
4.3 Tools for unethical risk management in supply chain...................................24-26
5. References............................................................................................................27

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1. Introduction

Supply chain is defined as the global network used to deliver products and services from raw
materials to end customers through an engineered flow of information, physical distribution
and cash. Supply Chain Management encompasses the planning and management of all the
activities involved in designing, sourcing and manufacturing, distribution, retailing and
logistics. It also includes coordination and collaboration with channel partners which can be
suppliers, intermediaries, third party service providers and customers (Ayers).
Zara is a Spanish clothing brand based in Arteixo, Glacia owned by a Spanish tycoon
Amancio Ortego Gaona. Zara is a flagship chain store of Inditex Group which is the world’s
largest apparel retailer. The business model of ZARA is characterized be a high degree of
vertical integration as compared to models developed by international competitors. The
vertical integrated business model include all the phases of fashion process: Design,
manufacture, logistics, distribution to its owned stores. The key to this model is ability to
deliver products to customer as per their desire in shortest span of time. Time is the main
factor that is been considered as compare to the production cost in ZARA. Vertical
integration shortens the turnaround times and achieves greater flexibility thereby reducing the
stock inventory to minimum and hence reducing the fashion risk to greatest possible extent.
The best feature of ZARA supply chain management is that it takes maximum five to six
weeks to deliver the product to the customers as compare to its competitors which deliver the
final product in five to six months (Garcia).
The total brand value of ZARA is $9.4 billion as of May 2015 and the revenue generated is
around $14.8 billion.

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2. Supply chain Model

Zara has 2000 stores strategically located in 88 countries around the world. It becomes
challenging for such a firm to supply the orders as per the latest demand. Although Zara uses
its flexible business model in order to adapt to new changes as per the season and thereby
delivering the best output to the consumers as per their desires. Specific retail locations are
selected after an extensive market research to ensure that the target market segments by
ZARA is of sufficient size in that particular locality to render the store financially viable.
Moreover ZARA always tries to locate its stores in most up market with high traffic and
prestigious locations. These prime locations gives the opportunities to the customers to
browse the stores as and when they are going back from work.

The supply chain management of ZARA is divided into four categories as shown below:-

Information Flow

Design and order

Administration

Sourcing &
Manufacturing

Distribution

Retailing

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Zara vertical supply chain

2.1 Design and Order Administration

Zara designs all its products. It has a “commercial team” which consists of designers, market
specialists, and buyers. All of them are involved in detailed designing of the products where
the designers are the key players. Almost 40,000 products are designed every year out of
which 10,000 are selected for production.
The teams work on both next season’s design and simultaneously updating the current
season’s design in order to maintain a competitive edge. There is dynamic atmosphere among
the designers and design inspiration is from global sources which includes catwalk,
magazines, trade fairs, discotheques etc. Zara creates two basic collection each year- one in
fall/winter, other in spring/summer season. The designers take around nine months before the
start of season to make initial sketches. After the sketches are done, the sketches are redrawn
using Computer Aided Design (CAD) and further adjustments are done in order to find the
better matching of weaves, textures and colours. Later, the fabric and other components are
finalised by the designers. Simultaneously the price of the product is determined at which it
will be sold in future. The samples are presented in front of sourcing and product

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development unit for selection process. The sourcing unit identifies the production
requirement and decides whether the item will be insourced and outsourced.
Based on this, the sourcing unit allocates a timeline to ensure that initial collection arrives
before the start of selling season.

The process of adapting to the changing trends and differences across market is more
revolutionary in order to find the demand of customers. The demand of target customers who
are very young and fashion conscious city dwellers plays an important role. Thus frequent
conversations with store managers becomes important to capture the sales data in IT system.
Various other sources of information includes TV, internet, university campus, film industry,
and even Zara’s fashion conscious staff. Market specialist plays an important role in linking
the designers and stores. Several dozens of items are designed each day but only one third of
the items goes into production. Due to time constraint, very limited volumes of items are
prepared and presented in key stores to determine customer response. If the customer
response is unambiguously positive then those items are produced on large scale.

Market specialist are in constant contact with the store managers through phones discussing
the sales order, new lines and other matters. The store managers are equally in contact with
Market specialist and thereby rely heavily on these discussions before placing the final order.
Thus the failure rate is supposed to be 1% compared with an average of 10% in this sector.
Overall, the responsibility of the design team is to track customer preferences and use sales
information along with other factors for a detailed analysis of product life cycle. Based on
this analysis the orders are repeated and new designs are given to internal and external
suppliers. Thereby the design teams with market specialists bridge the merchandising and
back end production process (Kasra Ferdows).

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2.2 Sourcing and Manufacturing

Zara manufacture approximately 50% of its product in its own store in Spain but uses
external suppliers for all its sewing operations. Zara sources fabrics, threads and other
components from external supplier with help of purchasing offices in Barcelona, Hong Kong
along with sourcing personal in headquarters located at Arteixo, Spain. About one half of the
purchased fabric is not dyed in order to provide latest season fashion with maximum
flexibility, thereby reducing the waste cost. Comditel, a 100% owned subsidiary of Inditex
deals with number of external suppliers of fabric and other components. Comditel deals with
dyeing, patterning and finishing undyed fabric.

Due to the vertical integration of Zara, it makes around 40% of its own fabric and purses rest
of the dyes from its own subsidiary. After cutting and dyeing, the items are stitched with help
of many local cooperatives. Since Zara manufactures around 60% of its own product, hence it
is more flexible in variety, amount and frequency of new style that are produced. Fifty
percent of the items that are sold by Zara are being manufactured in Spain, 28 % in Europe,
and 24% in Asia and rest of the world. Zara has a global distribution centre that functions as
mentioned below:

There is more risk involved in most fashionable item hence these type of items are produced
on small scale and if the customer response is positive then these items are reordered
depending upon the demand. The items that are price sensitive rather than time sensitive are
been outsources to Asia as the manufacturing cost in Europe is 15-20% higher as compare to
Asia. Zara has the ability to create rapid product turnover due to limited stock production and
controlled inventory. This creates opportunities in retail stores of Zara.
The quick response system of Zara is unique which consists of human resources and
Information technology. Zara focuses on ultimate customers and emphasizes on the use of
quick backward vertical integration rather than manufacturing efficiencies. It becomes crucial
for Zara to speed up the information flow from consumer desires to apparel designers. The
combination of vertical integration, technology-orchestrated coordination of suppliers, fined
tuned logistics and just in time manufacturing makes Zara so much competitive.

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Inventory optimization helps the firm determine the exact requirement of items that needs to
be delivered twice a week and how much stock needs to kept to fulfil the requirement of
retail stores. The average time taken by Zara to implement an idea into a final product is
maximum 15 days as compare to other firms which takes four to five months. Zara is twelve
times faster than its competitors in delivering a product. Generally, there is a lead time of
about four to five weeks for new garments and two weeks to restock. In this period, Zara is
able to find the response of fashion items that are selling well and items that are to be
discontinued.

The procedure of design and procurement starts five to six months prior to the selling season
in order to find the requirement of approximately 65% of the fabric needs, rest depends on
the latest trends of market. Zara manufactures about 15-20% of the items before the season in
order to check the response of customers towards the newly designed items, it later
manufactures 50-60% at start of season and rest is manufactured in the season. The
manufacturing of the items is done is such a way that customer inputs are received at all
stages in order to determine the items produced are according to the expectations of the
fashion diva’s.

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Zara always keeps the customers priority first and always delivers as per the below strategy:-

ZARA
SCM Focus Speed
Target Customers Young Women
Products Fashion conscious item
Manufacture System Small quantity batch production
Outsourcing Vertical Integration
(Design-Manufacture-Sales
R&D Strategy Trendy designs
Inventory Control Low inventory, short implementation
cycle

The production commitment of the company is different from other apparel industries. The
inventory of Zara is regulated and the items are been revealed on different stages as per
modified designs to maintain curiosity among the customers and not unlike other industries
where the designs are revealed in one stage and the same stock is repeated throughout the
season , thereby creating monotony among customers.

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Product precommitment zara vs other industries

2.2.1 Suppliers of Zara

Supplier Product/Services Country

Sol System Trading L.L.C. Cloth Fabric Spain
ModaStock LLC Leather Spain
Mansana Adams International Ltd Belt Buckles Spain
Feelecco LTD Textile Stock London
Acacio Pacheco Unipessoal LDA Apparel Stock Portugal
Three Stars Group Co. Ltd. garment accessories Pakistan
YCC Zippers Zips China
Sunshine Garment Accessory Co.,Ltd lace, embroidery, beadwork China
Guangzhou Super U Shop Fitting Ltd display rack, gondola, garment display, China
shop design
Four Seasons Vina Ltd button, plastic button, polyester button, Vietnam
garment button, metal button, hook
eye, toggle,snap button, rivet, plating
button
Seaart Rhinestone Transfers Factory accessories, embroidery, laser cut, China
trimming
Jiangsu Hongdou Industrial Co., Ltd Sewing support China
Dongguan Fu Ngar Garment Co.Ltd foil transfer, crochet design China
Cu Tekstil San Ve Tic A.S. T-Shirt material Turkey
Teamlead Factory Sewing of fabrics China
D M Enterprises Apparel stock India
Moreenapparels Jacket, jeans material Bangladesh
Firma Handlowa Fur and woolen material Poland
Inter stock Cotton fabric Poland
Red Edge Concepts Ltd TA Kate's Weaving threads U.K
Clothing
Stock-Hurt Machinery Poland

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Zustocks Flannel Romania

Dani&Mur Linen Israel
OUTEXX S.R.O. Cashmere blend Spain
Texport Acrylic fabric Bulgaria
Textil Brno Cheese Cloth Czech Republic
Matthias Bourdil Chiffon Spain
Sarl Eurostock International Corduroy France
Hugnkiss Georgette Vietnam
Ricoche Hemp, Shipping tote United Arab
Emirates
Stocklotsforsale.Com Mohair India
Mekki Polyester Moldova
M&G Textilvermarktung GmbH Silk, sequin, beaded design Germany

Atlantis Retail Co Ltd Cowhide, Lambskin,Faux, Patch Morocco

leather
Eurofashon Stock venise Israel
enjana sl velvet Spain
Inditex 50 % of Zara’s fabric Spain
Comditel Dyes, Colours, Sweing Spain

Since Zara has a very wide network across the world, hence delivery of raw materials
becomes crucial within the define timeperiod. In order to deliver the raw materials on time,
the transport logistics should be strong and reliable. Zara makes sure the order of raw
material is placed before start of season in order to avoid any last minute rush. Moreover,
Zara has a very strong and flexible transport system that ensures timely delivery of raw
materials. Also, majority of the fabric suppliers are based in Europe and Spain, hence the
delivery of raw materials is speedy. The raw materials that have cost constraint and no money
constraint are usually delivered from across the world mainly HongKong and rest part of
Asia.

Suppliers across Zara Manufacturing

World unit Spain

Logistics Others suppliers in Inditex, Comidetel

Europe
Spain

Basic material flow

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Detailed material flow(Group 2013)

2.3 Distribution

The distribution system of Zara is centralized giving it a copetitive advantage by miminizing

the lead time of the goods. Zara has a system which is about 600.000 square meter facility in
Spain and other smaller satellite centres in Argentina, Brazil, Mexico that consolidate the
entire shipment from Spain.

Distribution System

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Zara has four main warehouses in Spain that receive shipments of finished clothes from
internal and external suppliers across Europe and different parts of world. These finished
items are then directed to Zara store in the world twice a week during regular periods and
twice during sale seasons. New models of items are incorporated with each delivery for
constant refreshing stock maintenance in stores. The products are inspected in order to check
if there are any defects in the stock that has to be delivered, after proper inspection the stock
is immediately shipped. There is a rule in Zara that the stock will not be kept on hold in
warehouses for longer period. As a result the items are shipped as soon as the stock arrives
from various suppliers after inspection. In order to increase the delivery speed, the shipments
are scheduled by time zones and the stock is shipped either through land or air. The retail
stores that are located closeby Spain recieves the stock through land transport. Rest the
shippment is done through air across the world for speedy delivery.

Basic logistic flow of Zara

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Distribution centre of Zara Area

Galicia (Arteixo) 280.000 sq mt

Leon 40.000 sq mt

Madrid 160.000 sq mt

Zaragoza 125.000 sq mt

The software of logistic system is designed by the company’s own team, hence it reduces the
time between receiving the order at distribution center to the delivery of order in stores. On
an average it takes 24 hours to deliver the order within Europe and 48 hours for order
delivery in America or Asia. The distribution center moves around 2.5 million items per
week. Trucks serve closer locations like Europe and chartered cargo flights serve destinations
that are far from central distribution center.

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2.4 Retailing

The aim of Zara is always to offer fresh newly designed style garments and acessories like
bags, jewelry, scarves, shoes at relatively low prices in order to draw attention of fashion
divas so that these customers become regular. Zara focuses on backward vertical integration
instead of manufacturing efficiencies to determine the next order of customers. As the
inventories are strictly control, hence Zara ensures that backward vertical integration is been
tracked carefully so that the following orders can be delivered on time with new designs and
latest fashion inventory. The merchandising and store operations help in achieving the goal
for the firm. The deadlines to order items are very strict and are been followed across the
world. If any store misses the deadline then it has to wait for the next upcoming deadline.
Orders have to be placed before 3 PM on Wednesday and 6 PM on Saturday in Spain and
southern part of Europe while in rest of the world orders needs to be placed by 3PM on
Tuesday and 6 PM on Friday. The orders are closely tracked through centralized IT system
that helps in maintaing the track record of incoming orders across the globe.

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2.5 Merchandising

The merchandising policies of Zara’s product focus on high fashion content, changing
product lines and reasonable physical quality. Product lines are divided in three main
categories – Women’s wear, Men’s wear and children’s line. Women’s line is segmented in
three set of offerings price, fashion content and age targets. Since Zara has zero advertising
policy hence the expenses saved in zero advertising is utilised in international expansion of
the market making it more economical. This signifies Zara mainly relies on its store to project
the image of clothing. This is the reason why Zara acquires global prime locations acroos the
world. There are special departments in Zara that do an extensive reasearch in finding the
prime locations where Zara stores will be made.

2.6 Store Operations

Sale is not the end of process rather it’s restart as the store provide feedback to the design
teams about the trends. Store layouts are spaciously designed so that the customers can easily
explore the options available and share their feedbacks to the store manager. The store
manager constantly updates the design teams about the customer feedbacks and accordingly
the designers start working on the updated trends in order to prepare for the next assignment.
Customer feedback are of utmost importance to the store managers to find the exact
requirement of customers so that the next order sales increases by providing the exact item
that customer requires.

2.7 Contracts

A voluntary, deliberate and legally binding agreement between two or more companies is
called a contract. Contracts not only helps in building trust between two parties but also
influence decisions regarding Plan Procurement Management process. The assests that
influence the Plan procurement management process in the organisation are :-


Formal procurement, policies and guidelines.
Management system considered in developing procurement plan and selecting


contractual relationships that will be used among the company and suppliers.
Established mutli-tier supplier system of prequalified suppliers based on experience.

The legal contractual relationships aer classified in three categories :-

I. Fixed Price Contracts: In this category, the total price of a product is fixed. Fixed
price contracts includes financial incentives for achieving or exceeding project
objectives like delivery dates, exceptionally well designed product in limited
deadlines, or anything that can be quantified and measured. In case of any financial

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damages the seller has to take full charge of the damages. Fixed price contracts are
further classified into three categories –

Firm fixed Price Contracts (FFP) : This type of contract is mainly possessed
by the buyer. In this contract the product cost is defined and will not change
until the scope of work changes. Any increase in the cost due to poor
performance is the responsibility of the seller. Under FFP contract, the buyer
should clearly specify the products that are to be procured or else increase in
cost will be the responsibility of buyer.

Fixed Price Incentive Fee Contracts (FPIF) : This price agreement gives
flexibility to the buyer and seller that allows performance deviation with
financial incentives. Financial incentives incorporates cost schedule . The final
contract price is determined after the delivery of product based on the
performance of seller.

Fixed Price with Ecoomic Price Adjustment Contracts (FP-EPA) : It’s a

fixed term contract with a special provision where contract price changes due
to changed conditionds, such as inflation, increase in cost of raw materials.
This contract is intended to both seller and buyer as it includes price changes
due to external factors which are beyond control.

II. Cost- reimbursable contracts: This category involves payments to the seller for all
the actual cost that have been incured while completing the work along with seller
profit. Cost – reimbursable contracts has three categories –

Cost Plus Fixed Fee Contracts (CPFF) : It is a fixed cost contract where the
seller gets the calculated cost for completed work. In this contract the fee does
not chnages until there is change in project scope.

Cost Plus Incentive Fee Contracts (CPIF) : In this contract the seller
recieves predetermined incentive fees based upon performance achievement.
If the final cost of the project is lesser or greater than the estimated project
cost then in that case the buyer and seller share costs based on pre-negotiated
cost sharing formula.

Cost Plus Award Fee Contracts (CPAF) : This cost is based on seller
performance and fee is determined by buyer based on the performance and is
generally not subject to appeals.

III. Time and Material Contracts: These contracts are mixture of cost – reimbursable
and fixed price contracts. Time and material contracts are used for staff augmentation,
experts acquistion, etc.

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3. Cultural Aspects

The understanding of cultural aspects becomes crucial while doing business across the
globe. The cultural differences between the nations affects the business
communication which leads to failure of the company in that particular nation.
Sometimes the companies may loose business because of difference in understanding
the cultural requirements across the borders. The cultural classification system
designed by Geert Hofstede helps in understanding the dynamics of organisation
across national boundaries. The classification system consists of six dynamics:-

Power distance Index (PDI)

It expresses the degree to which less powerful members within an organisation

in a country expect and accept that power is distributed unequally.

Uncertainty Avoidance Index (UAI)

It expresses the degree to which members in a society feel uncomfortable with

uncertainty and ambiguity.

Masculinity versus Femininity (MAS)

It expresses the degree to which the gender roles in an organisation are distinct
and adhered to within a society

Individualism versus Collectivism (IDV)

Individualism is basically taking care of oneself and immediate families while

collectivism is a dimension where the individuals can expect their relatives or
particular group members taking care of them in exchange of loyalty.

Indulgence versus Restraint (IND)

A society that allows free gratification basic and natural human drives to enjoy
life and have fun. It restrains strict social norms that hinders the social life of
the society.

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Long term orientation versus Short term Normative Orientation (LTO)

Society has to maintain links with its own past while dealing with present and
future challenges. In business terms the dimensions are referred as Normative
versus pragmatic (Hofstede).

3.1 Cultural comparison between countries

Zara originated from Spain which has a hierarchical society. The people in
Spain accepts hierarchical order where everyone has a space and nobody
S needs further justification. Spain has a collectivist dimension where people
work together towards achieving an objective. This helps Zara to work with
P many non-European countries who follow the same dimension. Excessive
competitiveness is not a part of Spain dimension and people work in harmony.
A Higher Management authorities consult their subordinates to know their
opinions and make a collective decision. Spain is a country of rules where
I there is rules for everything. This results to a lot of stress, thereby
confrontation is avoided that can cause further tension and stressful
N environment. Spain is a normative country where people like to live in the
moment. People like quick results without any delays. Spain is not an
indulgent country.

Comparison of cultural dimension between India and Spain

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Zara stores in India needs to take into account different perspective while dealing with
I indian market. India scores high on power distance which clearly indicates ther is high
appreciation for hierarchy and top down structure in society and organisations in
N India. India is a society with both individual and collective dimension. In
Masculanity, India is male dominated society where major leadership roles related to
D power and success are been occupied by males in industry and females occupy roles
that are related to less strategic and related to quality of life. In India, people have
I medium low preference for uncertainity avoidance. India has a long term pragmatic
culture where long term plans are prefered and people always plan for future. India
A has a restraint dimension with high tendency to cynicism and pessimism.

Comparison of cultural dimension between Spain and New Zealand

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Comparison of cultural dimension between Spain and US

Comparison of cultural dimension between Spain and New Zealand

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3.2 Cultural challenges

Compatibility and potential issues arises among corporate due to differences in

national cultures. When companies decide an offshore outsourcing strategy, they have
to take into account the national cultures along with risk dimensions that can harm the
business in future. The detail study of these factors becomes crucial to achieve
successful output in other countries. The challenges faced by company while
outsourcing is mentioned as follows:-
Corporate culture differences: It includes client’s corporate culture and the
suppliers. It defines the operational policies, reward structures, control system,
corporate policies and employee evaluation system that exist among the
organisations.

National culture Differences: It plays a major role in determining the success

of business. An example of Zara where most of the clothes are designed
keeping European market in mind, hence the colours of clothes are subtle. But
in country like India, people prefer vibrant colours in clothing. Thus in such
cases Zara studies the national cultures that govern the country and bring
vibrant clothing designs in market to overcome such challenges.

Communication barriers: It is again a major issue while outsourcing abroad.

Extra time is required to educate interpreters on issues. Hence it’s also advised
to have written email communications to avoid confusion and conflicts in
future.

Weather: It plays a major role in manufacturing process of the organisation.

Countries like New Zealand and Australia experiences winters in June and
July while summers in December and January. If this is compared with other
parts of the world, then weather experienced in other parts of the world is vice
versa. Hence Zara has to manufacture the products as per the weather
requirements of the country.

Gender: In countries like India where major leadership and powerful roles are
dominated by males and females look after the less strategic roles. In such
scenarios the organisation has to study the masculinity of the country and then
accordingly perform supply chain management functions for an effective
outcome.

Clothing size: Zara designs slim fit clothes where the size choices are limited.
In countries like US, the limited size becomes an issue hence the company has
to change the few manufacturing processes as per the needs and requirements
of the country. More size availability is required in order to increase the sales
output.

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3.3 Key policies for senior management and Leadership

I. Financial and Accounting Policies: It provides guidelines about where the capital is
coming from, how the capital will be used and how recurring needs will be met.
Accounting policies deals with questions related to inventories, expenses and cost.
These policies can make a huge difference in success and failure of the organisation.
Capital: Long term versus short term capital to finance business activities.
Lease or Buy: Policy related to lease certain classes of assets will change the
nature of need for funds over time and nature of balance sheet.
Investment Risk: Financial policies are designed while evaluating the
proposal for investment in certain project. It measures the financial risk
involved in the project before investing.
Use of Assets: Specific policies target current assets and cash flows that are
needed for inventories.

II. Marketing Policies: It uses the competitive tactics in marketing mixture. Specifically
how will price promote, distribute, quality of product.
Products and Market
Distribution and Promotion
Price

III. Product Operations Management Policies: It includes issues like can business be
handled with present facilities and number of shifts, firm’s inventory safety level,
level of productivity and costs etc.
Capacity and utilisation
Location of facilities
Processes
Equipment and maintenance
Sourcing

IV. Research and development Policies: It emphasizes on product and process

improvements, technology that should be pursue, management of transit from one
technology to another, focus on commercial development etc.
Products and processes
Basic and Applied Research
Offensive or defensive strategies
Allocating R&D Resources

V. Personnel, Legal and Public Relations policies: It includes standards and methods
used for promotion, recruitment through advertising or personal contact, adequate
work force, types of specialists required, payment policies, legal policies etc.
Personnel
Legal Issues

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VI. Integrating Policies: It ensures there is internal consistency in policies developed for
line and staff. It is related to assessment of strength and weakness as they are related
to development of competitive advantage.

4. Risk Management in Supply Chain

Management of risks that are imposed by unethical practices in Supply Chain.

A system of moral principle where human actions or proposals are judged right or
wrong is defined as ethic.
Code of ethics is a document that represents values, how professionals are supposed
to approach problems.

4.1 Supply Chain ethics

Management of supply chain without any unethical activities is termed as ethical

supply chain. The ethics of supply chain are subdivided into four categories:-

 Relationship Orientation
 Channel Orientation
 Completion Orientation
 Environmental Orientation

4.2 Unethical activities in Supply Chain Management

In order to minimize the unethical practices in supply chain, it becomes crucial to

identify cause of problem. Unethical issues that arise in the supply chain are listed
below:-
 Procurement
 Using obscure contract terms to gain advantage over other party.
 Following specifications that favour particular supplier.
 Exaggerating a problem to gain concessions.

 Bias Attitude
 Allowing only certain suppliers to bid.
 Giving preference to suppliers.
 Offering gifts
 Allowing suppliers to bid after closing date.

 Unethical Behaviour
 Bribery
 Misleading the other party purposefully.
 Asking other party information about the competitors.

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 Unethical business Strategies

 Use of backdoor selling techniques.
 Over committing resources or production schedules.
 Increasing prices when there is shortage of product supply.

4.3 Tools for Unethical Risk Management in Supply Chain

The ISM standards are used to identify the ethical practices that govern the supply
chain management of the organisation. The professionals involved in supply chain
must abide by these code of ethics in order to avoid unethical behaviour towards the
organisation. The ISM standards are as follows:-
 Impropriety
Prevents the intent of unethical conduct in relationship, communication and
actions. Guidelines to implement impropriety
 Maintenance of business professionalism in all communication that
includes social media.
 Identify situations that can have negative impact on business
relationships.
 Discuss potential impropriety with management and take
appropriate action.
 Avoid actions that could lead to impropriety in organisation.
 Avoid discussing personal matters.

 Conflict of Interest
Ensures that personal business and other activities do not conflict with lawful
interests of your employer. Guidelines to avoid and manage conflicts:-
 Potential Conflicts: Discuss the conflicts of interest with management
and reassign responsibilities.
 Guidance on Conflicts: Notify the person under whose guidance the
responsibilities were allocated.
 Conflict of Interest Statement: The employer must review conflict of
interest with its employees to ensure the conflicts are resolved before it
becomes a major issue.
 Inside Information: The inside information should not be used for
personal gains.
 Outside Information: Never use your position as an employee to
detriment your employer or its reputation.
 Secondary Business/ Employment: Do not harm the interests of your
employer by engaging yourself in secondary business.

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 Influence
Any behaviour or action that influence supply chain management decisions
should be avoided. Guidelines to avoid matter of influence
 Strictly follow employer policies in supply chain management
professionalism.
 Avoid in gift giving activities that influence business decisions of
supply chain.
 Avoid situations where relationships can have negative impact on
business decisions.
 The negative impact of political matters in internal and external forces
of organisation can be mitigated by adopting organisational policies
based on ethical principles and standards.
 Follow organisation media policies.

 Responsibilities to the Employer

Reasonable care and granted authority should be used while delivering value
to the employer. Guides used for satisfying responsibilities to employer
 The authority granted by employer should be well understood.
 Avoid activities that compromise the interests of employer.
 Ensure the working arrangements deliver value to the employer.
 The employer should be notified about unethical activities.
 Avoid unauthorized use of name of employer.

 Supplier and customer relationships

Positive customer and supplier relationships should be promoted. Guidelines
to maintain positive relationships
 Unreasonable demands should be avoided.
 Prompt and fair resolution must be encouraged.
 Communication must be prompt, open and direct.
 Establish process for customers and suppliers where unethical
activities can be reported to the employer.

 Social Responsibility and Sustainability

Best social responsibility and sustainability practices must be encouraged in
organisation. Guidelines includes
 Anticorruption
 Diversity and inclusiveness among workforce and supply base
 Protection and preservation of natural environment
 Ethics in business conduct
 Financial transparency and integrity
 Health and Safety
 Human Rights
 Global citizenship

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 Confidential and Proprietary Information

Protect confidential and proprietary information of the organisation. This
includes information regarding bids, production cost, designs and drawings,
Wages, contract etc. Guidelines recommended
 Use confidential information for its intended purpose.
 Mark and identify confidential and proprietary information.
 Protect the information given to you.
 Accept no confidential and proprietary information which is not
relevant to you.
 Use nondisclosure agreements.

 Reciprocity
Avoid improper reciprocal agreements.
Recommended guidelines
 Understand suppliers that are also customer.
 Apply and obtain ethical, legal guidance if reciprocity arises.
 Recognise reciprocal relationships which can be illegal in some
countries.

 Applicable laws, regulations and trade agreements

Know and obey the letter of intent in laws, regulations and trade agreement in
supply chain. It includes agency laws, trade regulations, environmental laws,
financial laws, employment laws, health and safety laws etc. Recommended
guidelines
 Seek training in legal aspects of supply chain management.
 Understand and follow laws, regulations and trade agreement.
 Understand and apply government laws.
 Seek legal counsel when conflict arises.

 Professional Competence
Develop skills, expand knowledge and conduct business that demonstrate
competence and promote supply chain management profession.
Recommended guidelines
 Adopt and promote ethical standards
 Support and participate in ethical trainings.
 Mentor and teach those who want to learn.
 Active involvement in supply chain management
 Earn and maintain Certified Professional in Supply Management
(CPSM) and other professional certificates.

(Derry 2014)

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References
Ayers, J. B. Retail Supply Chain Management

Derry, T. (2014). "Principle and Standards of Ethical Supply Management Conduct with guidelines."

Garcia, J. M. C. "Zara and Benetton: Comparison of two business models."

Group, I. (2013). "Transparency is the fundamental principle that inspires inditex in its relations with
its stakeholders."

Hofstede, G. "Dimensions of National Culture."

Kasra Ferdows, M. L., Jose A.D. Machuca "Zara."

Business Policy and Strategy Management by William F.Glueck & Lawerence R. Jauch

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