2011

ENTERPRISE RESOURCE PLANNING

MID TERM SUBMISION

SHRUTI SHARMA DFT 7 (17)

9/23/2011

TOPIC :SUPPLY CHAIN MANAGEMENT RELATED TO APPAREL INDUSTRY

Abstract In recent years, supply chain management (SCM) has been developed as essential management philosophy and practice for all business operations. As with other business management principles, SCM also applies to the apparel industries. Supply chain members should cooperate with its downstream customers and upstream suppliers to achieve supply chain goal. The activities such as Quick Response (QR) to improve supply chain competitive advantage have been implemented in apparel industries for years.

Key Words: SCM practice, competitive advantage, business operation

Introduction

Entering the new millennium, organizations must consider the issues of increased competition, rising customer expectations and the demand for increased product variety. Organizations will simultaneously be forced to decrease profit margins and cope with changing governmental regulations, such as taxes and tariffs to remain competitive. To handle these pressures, organizations are forced to consider the impact of operational decisions on not only their own company but also all members of their supply chain. No longer will firms compete against each other individually but rather they will compete with their respective supply chains . Thus, developing close, long-term relationships with both customers and suppliers can take significant wastes out of the supply chain, and is a potentially valuable way of securing competitive

advantage. Understanding and practicing supply chain management (SCM) have become an essential prerequisite to staying in the competitive global race and to growing profitably.

As with other business management principles, SCM also applies to apparel industries.The same general principles that apply to all businesses apply to the textile and apparel industries, but they are magnified when the product is fashion" because of the nature of fashion product. Fashion products are unique, dynamic, emotional and cyclical, which makes the rate of change in the apparel industry much faster than in other businesses. Because of the synergy SCM can generate, it has been given much attention by both scholars and practitioners in textile and apparel industries.

Theoretically, the goal of SCM is to coordinate the activities of each tier, as well as the transition between tiers, to facilitate the smooth and efficient flow of products down the value-added chain at the lowest cost, and at the same time, to match the supply with market demand. Supply chain members should cooperate with its downstream customers and upstream suppliers to achieve supply chain goal. The activities such as Quick Response (QR) to improve supply chain competitive advantage have been implemented in apparel industries for years.

Supply chain business processes in apparel industries

A process is a structured and measured set of activities designed to produce a specific output for a particular customer or market. It is a group of activities within sequential or parallel relationships that span over a period of time. Integrating nature of these processes across functional and organizational barriers that suits the need of supply chain design and improvement so well that from the very beginning, supply chain study are generally believed to be process-based.

Lamber and Cooper (2000) propose a SCM framework that consists of three closely interrelated elements: the supply chain network structure, the supply chain business processes and supply chain management. The supply chain structure element tells who the members of a particular supply chain are, how many tiers are involved in the chain and how many members are in each tier. A supply chain looks rather more like an uprooted tree than a pipeline, which suggests that supply chains are very complicated to manage. Within such complex network structure, the key to successful SCM is to identify the key processes, which need the coordination of all

the tiers in one supply chain, and mange these processes in an integrated fashion.

Even though different researchers give different categories of the processes involved in a supply chain, these processes are somewhat functionally independent and quite similar in that sense. The underlying business processes as mechanisms and included these processes in a complete supply chain: (1) Forecasting demand based on information such as market research (2) Placing and receiving customer orders (3) Purchasing between supply chain partners (4) Processing orders internally (5) Identifying new sources for capacity and/or inventory when needed (6) Managing inventory (7) Planning production (8) Managing distribution (shipping) (9) Communicating between supply chain partners (10) Supporting customer service. The supply chain processes identified by members of the Global Supply Chain Forum (GSCF) are: (1) Customer relationship management (2) Customer service management (3) Demand management (4) Order fulfillment (5) Manufacturing flow management (6) Procurement (7) Product development and commercialization (8) Returns. These processes strengthen the customer side, but do not put enough emphasis on managing the supplier side; therefore, weakening the spirit of integrated SCM. The seven substantive supply chain decision areas are : purchasing/procurement

inventory management transportation order processing customer service production scheduling relations with vendors.

These seven areas do not include any process that relates to demand forecasting while joint forecasting or demand management is one of the processes that are critical for a successful supply chain to be able to compete in the market.

Supply chain activities for the direct sales channel within the telecommunication industry, which included forecasting, processing customer orders, placing purchase orders, manufacturing/procuring goods, storing goods, shipping goods, monitoring goods movement, invoicing customers, collecting cash and operational and financial reporting. This list, for a very specific industry, not only illustrated the kind of activities that are involved in the supply chain and showed the relationship between goods movement and the exchange of information between relevant parties, but also included financial issues involved in SCM.

Apparel wear are the final products of the apparel supply chain. The creation and development of apparel items into a matching collection or a product line involves a series of steps. Each step is closely related to and influenced by all the other steps in the process.

The objective of apparel supply chain is to provide the right fashion products to market, with the lowest cost and in the fastest speed, and to achieve the maximum profit simultaneously. Based on the above literature, and considering the convenience of data collecting, the main business processes in apparel industries explored in this study are: (1) Product design and development: It determines whether the supply chain can provide right product to market. (2) Forecasting: Without accurate forecasting, the supply chain cannot be efficient enough. The markdown or stock-out cost will be increased. (3) Order placing: It concerns with the speed of the supply chain. (4) Replenishment: It concerns with the inventory cost and the flexibility of the supply chain. (5) Price negotiation:With ideal price negotiation pattern, transaction cost between supply chain partners will be low and the lead time will be decreased.

(6) Quality control. (7) Information sharing: Information sharing is without question quite important, because all the decisions in the supply chain should be made according to the information shared. Information sharing in supply chain The types of information that need to be shared among supply chain partners are: (1) Inventory level:Access to supply chain inventory status can contribute to lowering the total inventory in the supply chain. In practice, sharing of inventory information is implemented in different forms. Continuous replenishment program (CRP) and vendor managed inventory (VMI) are two of them. (2) Sales data:Depending solely on orders from downstream will lead to the distortion of true market dynamics. Using sell-through and/or POS data, manufacturers can better forecast the demand and develop a better production plan that is closer to the volatile reality. (3) Order status for tracking/tracing:Customers can get information about order status by one stop because all the players in the supply chain have access to each other's order databases. (4) Sales forecast: Suppliers can share the forecast developed by the downstream player who is closer to the end consumer to develop their production plans. (5) Production/delivery schedule: Manufacturers can use their suppliers' production or delivery schedule to improve their own production schedule. Additionally, suppliers can use manufacturers' production schedule to ensure reliable re-supply. (6) Other information sharing, including performance metrics and capacity.

Competitive advantage in supply chain

Competitive advantage is the extent to which an organization is able to create a defensible position over its competitors. They are potential points of differentiation between an organization and its competitors and are not directly controlled by management, but are outcomes of critical management decisions . Consensus on the identification of the following important competitive advantages exists within the empirical literature :price/cost, quality, delivery, and flexibility. Expanding the above list, a research framework for competitive advantages and define the following five dimensions: competitive pricing, premium pricing, valueto-customer quality, dependable delivery, and product innovation. Moreover, recent conceptual work suggests that time-based competition will emerge as an important competitive priority.

The above aspects of competitive advantages are mainly from the perspective of outcome, not process-based. In this study, supply chain practice is explored in their business operations. Relatively, the competitive advantages are also examined from the perspective of business processes. The perceived competitive construct is made up of product design and development, planning and forecasting, sourcing, production, transportation/distribution, warehousing and information capacity.

Methodology

The above mentioned seven types of supply chain business practice both with their customers and with their suppliers are investigated. The investigated styles of each process are thought to be frequently used methods in industries after being discussed with industry practitioners.

(1) Product design and development: Respondents are required to indicate their way of product design and development. The alternatives are independently, cooperate with customers, cooperate with suppliers, cooperate with both customers and suppliers, and no product design and development.

(2) Forecasting: Five types of forecasting styles and their accuracy are examined. They are independently, combine information from customers, combined information from suppliers, combine information from both customers and suppliers, and no forecasting. Four types of forecasting methods are also examined. They are simple forecasting model manually or using Excel, special software or system such as ERP, experiment such as test order, and qualitatively.

(3) Order placing: Both traditional order placing methods and electronic methods are explored. They are orally, by fax, by post, by email, EDI, system based on Web, special software or system such as ERP. Respondents are requested to rank three most frequently used methods of order placing.

(4) Replenishment: The replenishment styles with customers and suppliers are: one order placing one delivery, one order delivery multiple deliveries, multiple order placing multiple deliveries, multiple order placing one delivery, multiple order placing multiple deliveries, and special project such as vendor managed inventory (VMI). Respondents are requested to rank three most frequently used methods of replenishment. Minimum order limitation to customers and from suppliers is also investigated.

(5) Price negotiation: Four frequently used price negotiation methods are examined. They are: by orders with many rounds, by orders with few rounds, by time (per month/season/year), and by project. Respondents are requested to rank two most frequently used methods of price negotiation.

(6) Quality control: The methods of quality control are: no quality control, only final inspection, in-line and final inspection, quality control staff resident in your company, and third party. Respondents are requested to rank three most frequently used methods of quality control.

(7) Information sharing: The seven types of information to be shared are new product design and development, product specifications, inventory level, sales data, order status for tracking/tracing, sales forecast, production schedule, and delivery schedule. Subjects were asked to rate the degree of information sharing between the company and its suppliers and the company and its customers separately. For each type of information, a five-point bi-polar scale was used to get the degree of information sharing for this specific type. In the competitive advantages are described by the respondents' self-evaluation of their supply chain's advantage or disadvantage in performance among these key supply chain processes compared to their primary competitor.

Conclusions Based on the literature review and discussing with industry practitioners, seven business processes in textile and apparel industries are explored. They are: (1) product design and development;(2) forecasting; (3) order placing; (4) replenishment; (5) price negotiation; (6) quality control; and (7) information sharing.

The competitive advantage is also explored. Production and sourcing are the most often claimed advantage, while information capacity and planning and forecasting were least often claimed as competitive advantage and most often claimed as competitive disadvantage. Different product design and development styles lead to significantly different competitive advantage in product design and development of the supply chain. Different forecasting styles also lead to significantly different competitive advantage in planning and forecasting of the supply chain.