Synopsis

Textile and apparel industry a priority investment sector in Ethiopia. The industry is also a
strategic investment area for Ethiopia as part of ongoing industrialization effort targeted to
boost export, increase forex earnings and create abundant job opportunities for the rising
young population. The sector has a huge potential for developing economy of the country,
but Ethiopian garment industries performance is unsatisfactory due to different problems
are hindering the sectors competitiveness. The problems are caused by both internal and
external factors that are cause for low performance and competitiveness. Internal
factors include poor and wrong performance measurement practice, low financial
capacity, and low productivity, high cost of production, poor quality garment, poor
logistics handling as well as poor customer and supplier relation. Ethiopian garment
industries need to improve their performance to be competitive in local as well as
international market. The garments need to be of high quality, with minimum production
cost with fulfilling the international standard and delivery on time to the respective
customer. Where the thesis aim is to identify key performance indicators (KPI) used
Ethiopian garment industries and analyzing the gap of the industries in terms of
productivity, quality and cost per SAM of the products.

To study this thesis primary and secondary data are collected in different garment industries
by using a well-structured questionnaire, interviews and personal observation will be done.
The thesis study will conclude with identifying and analyzing gap of the current KPI used in
Ethiopian garment industries especially focusing on productivity, quality and cost
parameters and proposing the right way measuring the KPI model for Ethiopian garment
industries.
Identifying and Analyzing Growth Potential Gap of Ethiopian Garment Factories
through Mapping Key Performance Indicators (KPI). Especially Focusing on
Productivity, Quality and Cost Parameters

1. Introduction
1.1 Background of the study

The apparel industry is one of the oldest, largest and among the most global industries being
primarily concerned with the, design and production of clothing and their supply. It is the
typical ‘starter’ industry for countries engaged in export orientated industrialization and is
labor intensive This sector offers a wide range of job opportunities for the unskilled
workforce in developing countries(Gereffi and Memedovic, 2003)
Textile and apparel industry a priority investment sector in Ethiopia. The industry is also a
strategic investment area for Ethiopia as part of ongoing industrialization effort targeted to
boost export, increase forex earnings and create abundant job opportunities for the rising
young population. According to the Ethiopian government GTP plan shows that to get foreign
currency through exporting the apparel and textile products to the developed countries and
inviting international buyers to Ethiopian sourced manufacturing companies to give the
order to the manufacturers the international buyers should knew the KPI level of the
companies.
Ethiopia’s industrialization strategy has given top priority to garment industries, since this
sector uses natural resources and it is labor intensive. Furthermore, it meets the basic
principles that are put in the industrial strategies of the country including employing large
labor force, using agricultural outputs as inputs and creating the opportunity to be
internationally competitive. Africa Sourcing and Fashion Week 2018 that focuses primarily
on sustainability in the clothing industry was recently held in Addis Ababa with the theme
"Sustainability in Production and Transformation in Technology.”

Garment industry is one of the industries that have a potential in developing an economy
such as Ethiopia. History depicts that this industry sector has been a base for many successful
industrial developments (MOLLA, 2016) and hence Ethiopian government has defined a
policy where one of the tasks identified is rapid export growth through production of high
value agricultural products and increased support to export oriented manufacturing sectors
such as textile and garment (Loop, 2003) Studying and updating the KIP of the garment
manufacturing sector in Ethiopia is very important.

The growing global competition have made businesses around the world more challenging
and complicated than before. To get and keep competitive advantage over other market
players in the same industry the manufacturing organizations must produce the quality
products at lower cost with rapidly increasing variety. These are the few among many
valuable objectives of the organizations. To get confirmations regarding the fulfilling of their
objectives and goals organizations must keep check over their performance (Ghalayini et al.,
1997). To achieve these purpose organizations must have to use the performance
management systems

Every company is continually exploring ways to of have tried to search for a solution to make
them survive and for making their business remain successful and being competitive to
ensure long term survival. To survive the global competition, companies are improving their
streamline business process, inventories, cycle times and factors related to cost.
Factors related to cost involve reducing the manufacturing costs, strengthening
relationships with suppliers, increasing product variety is most importantly to reduce the
response time of their customers need and expectations. It has been estimated that about
50% of manufacturing costs are attributed to purchase items, the raw material account for
80% of a finished product’s lead time and 30% of its quality problems (Hillman Willis et al.,
1990)
The KPIs report acts as a health check on the performance of the company by providing
results in different areas, which in turn leads to a diagnosis of what action need to be taken
to achieve improvements. The definition of what they are and how they are measured does
not change often, but Key Performance Indicators may change as the company’s goals change
(Baroudi, 2014).The KPIs report is considered as a health check of a company, which
diagnoses the needed actions to undertake for a better performance, in different fields, such
as: productivity ( operators efficiency), company structure (link and relation between
administration and operators), human resources (level of absenteeism), quality (level of
defect per 100 units) (Velimirović et al., 2011). The reasons why the company should
measure its performance include: estimation of how well the company performs, planning
the budget, showing how the managers should control the operators work, motivating,
promoting, improving.
Performance assurance establishes confidence that the system performs as intended. This
requires the ability to assess a proposed design and monitor performance of a manufacturing
system operation. In essence, performance assurance emphasizes the proactive approach,
i.e., forecasting and monitoring, and preventing problems (King, 2004).
Key Performance Indicators (KPIs) are quantifiable variables that can indicate the
effectiveness and efficiency of performances(Camarinha-Matos et al., 2008, Neely et al.,
1995) KPIs have been one of the most critical business management tools and they can be
tailored by each individual to fit for his/her own purposes. Managers may use them to
evaluate the performance of team members and keep them on the right track. Employees can
use it to monitor his/her own performances and adjust them accordingly(Pan, 2013).
Key performance measurement provides necessary information to decision makers and
plays a role in monitoring performance, enhancing communication, and diagnosing and
solving management problems(Baroudi, 2014)&(Chen and Cheng, 2007). (Taticchi et al.,
2010) noted that the process of measurement is crucial to improving business performance.
(Keegan et al., 1989) and (Ahmad et al., 2002) proposed that performance measures should
be derived from and be aligned with the business strategy. They synthesized a set of common
performance objectives for manufacturing, namely, safety and environment, flexibility,
quality, and dependability. They carried out an extensive review of performance measures
used at that time, and synthesized those necessary for “world-class manufacturing”, namely,
top management commitment, customer service, price/cost, quality, facility control, speed,
innovation, and technology
 1.2 PROBLEM OF STATEMENT

Survival of any company is strictly dependent on its competitiveness at market. The higher
it is competent; the better will be its existence. The competition may be in a national or
international level. As technology grows fast, production method of different products
becomes simple and simple. The key performance indicator management is an important
factor for manufacturing organization to get a competitive advantage over their competitors.
This is the only way for organizations to check either they are going in right direction and
achieving their targets in terms of their preset objectives and goals or not.
However, the practice of Ethiopian garment industry is insignificant due to internal and
external factors that are cause for low performance and competitiveness. Internal factors
include poor and wrong way of performance measurement practice, low financial capacity,
and low productivity, high cost of production, poor quality garment, poor working station,
poor logistics handling as well as poor customer and supplier relation. Developing the local
garment company’s capacity and performance is important to increase the local company’s
competitiveness in nationally and internationally. The Key Performance Indicators (KPIs)
are important for monitoring the performance of the industry. They can be used to identify
poor performance and the improvement potential.
The international buyer should get a real information of the company’s performance like
production capacity, quality level and cost per SAM of the company. However most Ethiopian
local garment companies have no clear the KPI which gives a clear information of the
companies, to the international buyers as well as to researchers and most textile and apparel
related training University and College students. This study will identify and analyze the gap
of Ethiopian garment companies through help of key performance indicators in terms of
productivity, quality and cost.
1.3 RESEARCH PURPOSE AND OBJECTIVES
1.3.1 Research Purpose
This study will investigate the KPI used in Ethiopian garment industries and the gap which
the companies are following the write KPI using or not. As well as the what they are current
KPI level using semi-structured interview and questing them.
The reasons why the company should measure its performance include: estimation of how
well the company performs, planning the budget, showing how the managers should control
the operators work, motivating, promoting, improving their manufacturing system. Also
identifies they track the impact of initiatives, which gives the company valuable insight into
which initiatives they should be pursuing, and they highlight weaknesses within an
organization

1.3.2.1 Research Objectives

1.3.2.1. General objective: - Identifying what type of key performance
indicators (KPIs) are used in Ethiopian garment industry and Analyzing
Growth Potential Gap of Ethiopian Garment Factories through Mapping Key
Performance Indicators (KPI). Especially Focusing on Productivity, Quality
and Cost Parameters
1.3.2.2 Specific Objectives: -
a. To identify the company’s productivity level in terms of quality, production
and cost per SAM
b. To manage available resources efficiently and effectively
c. To make companies competitive in local and internationally.
1.3.3 Justifications
The thesis study focuses on identifying and analyzing the growth potential of
Ethiopian garment industries through help of KPI in Ethiopian garment industry.
Mainly the study focuses on the on productivity, quality and cost parameters of the
industries. Key Performance Indicators (KPIs) management is very important KPIs
are factors that are tracked by organizations to analyze their manufacturing
processes. Most of Ethiopian garment industries are not competent with local as well
international level because of different factors affecting them internal and externally.
The internal factors include inappropriate way of measuring KPIs, poor quality
management, and poor employee handling method these factors lead the factories to
the low efficiency and productivity as whole.
So Key Performance Indicators (KPIs) are the critical (key) indicators of
progress toward an intended result. KPIs provides a focus for strategic and
operational improvement, create an analytical basis for decision making and
help focus attention on what matters most.
Managing with the use of KPIs includes setting targets (the desired level of
performance) and tracking progress against that target. Managing with KPIs
often means working to improve leading indicators that will later drive lagging
benefits. Leading indicators are precursors of future success; lagging
indicators show how successful the organization was at achieving results in the
past. Key performance indicators (KPIs) form an important part of the information
required to determine and explain how a company will progress to meet its business
and marketing goals. KPIs help organizations understand if the company is headed in
the right direction and if not, where it needs to divert its attention. No matter what it
measures, a KPI's goal is to improve the company’s health. Anyone working in
marketing needs to understand exactly what constitutes a KPI.
 2. REVIEW OF LITERATURE

Any manufacturing company or organization must use Key Performance Indicators (KPI) are
performance assessment tools that identify the extent of achieving the desired parameters
in the industrial production lines, which is of major importance for the success of the
manufacturing company.
They are also used to measure and compare the performance of different organizations both
within the organization and outside of the organization. The performance can be compared
within the departments, sub departments, teams and individual processes (Ghalayini et al.,
1997)
Enhanced manufacturing competitiveness is an important driver for structural
transformation and broad-based growth. At the initial stage of industrial development, the
manufacturing sector is relatively more labor-intensive, requires modest skill sets, exhibits
higher returns to scale, and is associated with gains in productivity that generates spillover
effects to the rest of the economy (Parteka and Wolszczak-Derlacz, 2013)

Ethiopian garment manufacturers did not use the advantage of the available large labor in
the sector as well as the preferential market access provided by EU and US such as EBA and
AGOA respectively. The reasons for these are manifold and extend vertically through the
supply chain from inadequate raw materials to poor finishing. There are external and
internal factors that directly or indirectly affect the performance of Ethiopian garment
industries. The internal factors are those within the control of the industries and directly
related with the performance activities of the industries while the external factors are those
which are beyond the control of the individual garment industry(Altenburg, 2010)
The phenomenon performance measurement is used by the organizations to ensure that
they are going in right direction, achieving targets in terms of organizational goals and
objectives. The performance measures are used to evaluate and control the overall business
operations. They are also used to measure and compare the performance of different
organizations in the industry, plants, departments, teams and individuals(Ghalayini et al.,
1997, Mapes et al., 1997, Morran et al., 2009) . Thus, the beginning of the performance
measurement starts from the identification of performance indicators that allow for a
detailed specification of process performance. Many authors have suggested many
categories of indicators for different approaches of performance measurement. There are
two main groups of indicators which are used to determine the organizational performance.
One is called the financial or cost based measures of performance and the other is called
nonfinancial or non-cost-based measures of performance. The costs / financial, quality, time,
delivery reliability, flexibility are largely accepted indicators of organizational performance
(Gao et al., 2005) But several authors have defined other indicators as well on the basis of
their case study researches. (Sinclair et al., 1995) have found the customer satisfaction,
quality, delivery reliability, employee factors, productivity, financial performance, safety and
environment / social performance as the indicators of business performance used by many
organizations.
Many companies are working with the wrong measures, many of which are incorrectly
termed key performance indicators (KPIs). Very few organizations really monitor their true
KPIs. The reason is that very few organizations, business leaders, writers, accountants, and
consultants have explored what a KPI is.

The reason is that very few organizations, business leaders, writers, accountants, and
consultants have explored what a KPI is. There are four types of performance measures
1. Key result indicators (KRIs) tell you how you have done in a perspective or critical
success factor.
2. Result indicators (RIs) tell you what you have done.
3. Performance indicators (PIs) tell you what to do.
4. KPIs tell you what to do to increase performance dramatically
Many performance measures used by organizations are thus an inappropriate mix of these
four types. result indicators, and the core represents the key performance
indicator(PARMENTER, 2010).
Figure 1 Four Types of Performance Measures(PARMENTER, 2010)
Key Result Indicators
What are KRIs? KRIs are measures that often have been mistaken for KPIs. They include:
 Customer satisfaction
 Net profit before tax
 Profitability of customers
 Employee satisfaction
 Return on capital employed
The common characteristic of these measures is that they are the result of many actions.
They give a clear picture of whether you are traveling in the right direction. Thus, KRIs
provide information that is ideal for the board (i.e., those people who are not involved in day-
to-day management). KRIs typically cover a longer period than KPIs; they are reviewed on
monthly/quarterly cycles, not on a daily.
Performance and Result Indicators
The 80 or so performance measures that lie between the KRIs and the KPIs are the
performance and result indicators (PIs and RIs). The performance indicators, while
important, are not key to the business. The PIs help teams to align themselves with their
organization’s strategy. PIs are nonfinancial and complement the KPIs; they are shown with
KPIs on the scorecard for each organization, division, department, and team.
Performance indicators that lie beneath KRIs could include:
 Percentage increase in sales with top 10% of customers
 Number of employees’ suggestions implemented in last 30 days
 Customer complaints from key customers
  Sales calls organized for the next week, two weeks
 Late deliveries to key customers
The RIs summarize activity, and all financial performance measures are RIs (e.g., daily or
weekly sales analysis is a very useful summary, but it is a result of the efforts of many teams).
To fully understand what to increase or decrease, we need to look at the activities that
created the sales (the result).
Result indicators that lie beneath KRIs could include:
 Net profit on key product lines
 Sales made yesterday
 Customer complaints from key customers
 Hospital bed utilization in week
Key Performance Indicators
What are KPIs? KPIs represent a set of measures focusing on those aspects of organizational
performance that are the most critical for the current and future success of the organization.
KPIs are rarely new to the organization. Either they have not been recognized or they were
gathering dust somewhere unknown to the current management team. According to
(PARMENTER, 2010) Seven Characteristics of KPIs From extensive analysis and from
discussions with over 3,000 participants in my KPI workshops, covering most manufacturing
organization types in the public and private sectors, the seven characteristics of KPIs. KPIs:
1. Are nonfinancial measures (e.g., not expressed in dollars, yen, pounds, euros, etc.)
2. Are measured frequently (e.g., 24/7, daily, or weekly)
3. Are acted on by the CEO and senior management team (e.g., CEO calls relevant staff to
enquire what is going on)
4. Clearly indicate what action is required by staff (e.g., staff can understand the measures
and know what to fix)
5. Are measures that tie responsibility down to a team (e.g., CEO can call a team leader who
can take the necessary action)
6. Have a significant impact (e.g., affect one or more of the critical success factors [CSFs] and
more than one BSC perspective)
7. They encourage appropriate action (e.g., have been tested to ensure they have a positive
impact on performance, whereas poorly thought-through measures can lead to
dysfunctional behavior)
3 RESEARCH METHODOLOGY
To accomplish the objective of the thesis, the researcher will apply the following
methodologies.
Complete literature surveys will be conducted regarding the concept of key performance
indicators; identifying the current key performance measurement systems of Ethiopian
garment industry, the KPIs improvement indicative factors and overview about
Ethiopian garment manufacturing industries. Following literature survey, to identify and
analyze Ethiopian garment industries growth potential gap through KPIs, data collection
will be carried out, both primary and secondary data were collected using a well-
structured questionnaire, face to face interviews and telephone conversations, mail
conversation, personal observations and review of previous research work will be done.
The researcher will design the survey questionnaires to identify and analyze the KPIs
practices in the selected garment industries. This questionnaire was distributed to research
co-advisor, colleagues, work mates for comments and suggestions before finalizing it. The
questionnaire will be finalized considering the above suggestions under the guidance of the
advisor.
3.1 Data Collection
The data collection will be carried out, both primary and secondary data will be collected
using a well-structured questionnaire, face to face interviews and telephone
conversations, mail conversation, personal observations and review of previous research
work will be done.

Method of data collection

Primary data Secondary data

Documents

Companies
Questioners Interview Observation
Government
publications
Mailed
questioners Structured Direct Earlier
Observation research’s
Unstructure Indirect
Collaborativ Personal
d Observation
e
questioners

Figure data collection method

3.2 Data analyzing technique
The data analysis techniques used in this study will be analyzed using different data analyzing
techniques like SPSS, Origin and Microsoft excel tools.

3.3 Data presentation

After analyzing of the collected data, then the researcher will try to show the identified and
analyses growth potential of Ethiopian garment industry KPIs level.

 Analyze the existing practice of KPIs and the write KPI for Ethiopian of garment
industries.
 Showing the growth potential gap of the Ethiopian garment industry through help of the
write garment KPIs.
 4.Work plan

No. Activity Months for research activity in Year 2017/18

Aug Sep Oct Nov Dec Jan Feb Mar Apr May June

Writing proposal

2 Presentation 1

3 Data collection &

Literature
review

4
Presen.2 (Literat.)

5 Data formulation

6 Data analysis

7 Presen.3 result1

8 Documentation

9 Final presentation
5.Budget

S.no Activities Total day Unit Cost in Birr Amount in Birr

1 Transportation 6*3 400 7200
2 Bed rent for investigator 10 400 4000
3 Accommodation (Perdium) 60 150 9000
for data collection
4 Miscellaneous 3000 3000
5 Documentation 3000 3000
Total Expenses =26,200
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