The Ineffective Operating Procedure At More Uk In Ho Chi Minh City.pdf

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business NGUYEN THI ANH THU THE INEFFECTIVE OPERATING PROCEDURE AT MORE UK IN HO CHI MINH CITY MASTER OF BUSINESS ADMINISTRATION Ho Chi[.]

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-NGUYEN THI ANH THU

THE INEFFECTIVE OPERATING PROCEDURE

AT MORE UK IN HO CHI MINH CITY

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2018

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-NGUYEN THI ANH THU

THE INEFFECTIVE OPERATING PROCEDURE

AT MORE UK IN HO CHI MINH CITY

MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: Dr Phan Thi Minh Thu

Ho Chi Minh City – Year 2018

SUPERVISOR’S REPORT ON THE FINAL THESIS SUBMITTED

FOR THE DEGREE OF MASTER of BUSINESS ADMINISTRATION

Final thesis title: The Ineffective Operating Procedure at More UK in Ho Chi Minh City

Student name: Nguyễn Thị Anh Thư

Supervisor name: Dr Phan Thị Minh Thư

1 General comments:

∙ Remarks on the student’s attitude:

∙ Remarks on the assignment’s academic quality:

2 Overall assessment:

□ Meet requirement for submitting;

□ Not meet requirement for submitting

Table of Contents

Executive Summary 1

Introduction 3

CHAPTER I: INDUSTRIAL OVERVIEW AND COMPANY BACKGROUND 4

1.1 Industrial Overview 4

1.2 Company Background 6

CHAPTER II: PROBLEM JUSTIFICATION 6

2.1 Problem finding process 6

2.2 Company’s Symptoms 7

2.3 Problem Identification 9

2.3.1 Problem mess 9

2.3.2 Potential Problem 14

2.3.2.1 Ineffective partnership management 14

2.3.2.2 Ineffective operating procedure 15

2.3.2.3 Unclear organizational structure 16

2.3.3 Identify the central potential problem 19

2.3.3.1 Central problem definition 19

2.3.3.3 Justify the importance of central problem 21

2.3.3.3.1 Potential Consequences 21

2.3.3.3.2 The problem importance in MORE UK 22

CHAPTER III: ALTERNATIVE SOLUTIONS 23

3.1 Cause validation 23

3.1.1 Affiliative leadership style 23

3.1.2 Lacking of job description 24

3.1.3 Lacking of training 25

3.1.4 Poor planning and scheduling 26

3.1.5 Language and Culture Barriers 26

3.2 Proposed solutions 27

3.2.1 Solution 1: Writing job descriptions 29

3.2.2 Solution 2: Creating an official integrated process planning and scheduling 29

3.2.3 Solution 3: On-the-Job Training 33

3.2.4 Solution 4: Diversity training 34

3.3 Alternative sets of solutions 34

3.4 Action plan 37

3.4.1 Objective 37

3.4.2 Timeline and Cost 37

Conclusion 44

Reference 45

Appendix 47

Appendix 1: The survey questions were contributed for choosing sets of solution 47

Appendix 2: Interview 48

Appendix 3: Related template which using in MORE UK operating procedure 56

LIST OF FIGURE

Figure 1: Value chain of Vietnam’s textile and apparel industry………5

Figure 2: Initial Cause – Effect Map……… 13

Figure 3: Updated Cause – Effect Map……….18

Figure 4: Solution Map……… 28

Figure 5: Sets of solution ……….35

Figure 6: The process of fabric development and importing process ……….40

Figure 7: The process of developing neck ring trims and importing trim ……… 40

Figure 8: The actual hangover date and the docket hangover date……….41

LIST OF TABLE Table 1: The amount of orders which transferred to supplementary factory………7

Table 2: The CMT Price in VC factory and supplementary factory……… 8

Table 3: The transferring expense to supplementary factories……… 9

Table 4: Proposed solution assigns the tasks for employee in Solution 2.1……… 31

Table 5: Proposed solution assigns the tasks for employee in Solution 2.2……… 32

Table 6: Survey result ………36

Table 7: Timeline and estimated cost for Solution 1 ……… 38

Table 8: Timeline for a bulk fabric ………39

Table 9: Timeline for a bulk trim ………40

Table 10: Timeline and estimated cost for Solution 3……… 42

DEFINITION OF TERMS

1 Merchandiser is a person who is the bridge between the industry and the buyer

Merchandiser have to look after every job like buying the raw material which is required to finish the product, making the garment, finishing the garment,

documentation, finally shipping

2 Pattern maker is a person who take responsible for taking fashion designers

clothing

3 Trims: The raw materials used in sewing room other than fabric, which materials

are directly attached to the fabric to make a garment are called trims For example: Threads, buttons, lining, Interlining, zippers, labels, etc

4 Docket is the production orders to the factory The docket is the order to your

factory that tells them exactly: What style to make, how many garments and the size breakdown What the hangover date is

5 PP sample (Pre-production sample) is essentially an example of what will be

produced during the manufacturing process The PP samples are garments that are produced in the facility that is planning to manufacture the bulk order

6 Lead time is the latency between the initiation and execution of a process For

example, the lead time between the placement of an order and delivery of bulk of button from a manufacturer may be from 10 days to 15 days

7 Hangover date is the delivery date of garment

Executive Summary

The purpose of this paper is to point out the problem that exists in the operation of

MORE UK in Ho Chi Minh City and the author have proposed alternative solutions to solve problems that help to manage the company become more effective

In Chapter I, the author introduces MORE UK as well as the general situation of the garment industry in Vietnam According to the company size, MORE UK is a rep office which specializing in processing women's clothing and export to countries such as

England, Australia, America, Korea, as well as describe company products and

company structure

In Chapter II, the author analyzes the problem that MORE UK is facing From problem finding mess, the author presents the symptoms of the company that is MORE UK

looking for supplementary factories with better production capacity and clearer

production plans to take over orders because the main factory can not continue to handle orders because of many problems between related parties such as: Customers changing order detail information, low capacity of factory for production, Insufficient dealing FOB price between MORE UK and factory, Lacking of person who charge in controlling sample room and Lacking of merchandiser's role clarity internally MORE UK

Therefore, MORE UK noticed that with the VC production capacity will not complete the progress to export garments in time, hence, the Chief Rep make decision to find supplementary factories which leads to pay higher CMT price and other costs as

transferring cost and importing cost

By the interview method, the authors proposed some potential problems leads to the company symptom are Ineffective partnership management, Ineffective operating

procedure and unclear organizational structure, the central problem is ineffective

operating procedure However, to justify the existence of problem, the author analyzed the main problem in ineffective operation management, which led to issues related to Ineffective partnership management, Ineffective operating procedure and unclear

organizational structure These problems are linked together, however, the central

problem leading to the symptom is ineffective operating procedure officially

The authors also show the importance of central problems by pointing out the potential consequences which are increasing cost management, affecting firm performance and

customer satisfaction, which is unavoidable if the situation is not resolved At the same time, the author had pointed the level of important of these potential consequences when this problem occurs at MORE UK to justify the importance of this central problem.

In Chapter III, the author is continuing to analysis the cause validation to find out what causes of core problem of MORE UK is the presence of unexpected supplementary

factories By interview and related theories, the author identified the potential causes of the problem are Affiliative leadership style, Lacking of job description, Lacking of

training, Poor planning and scheduling and Language and Culture Barriers Because the cause “Affiliative leadership style” is an objective cause, the author did not build a

solution for this cause but focused on solving the remaining causes By doing survey and analysis, the author choose the set of solution is the combination of Writing job

description, Each employee in the merchandiser team will take responsible to follow up one or two customer in whole process, from receiving purchasing orders to exporting the goods and On- the- job training to develop action plan to solve problem of MORE UK is ineffective operating procedure

The above is a executive summary of the thesis to give the reader a preliminary view of the content of the paper There is the full thesis "The ineffective operating procedure at MORE UK in HO CHI MINH CITY" from the author

Introduction

In recent years, in the tendency of world integration, Vietnam has succeeded and developed the products in the country and has exported many kinds of goods such as petrolium, textiles and garments, agricultural products, footwear, software, etc to the world and brings great value for this country One of the main exporting goods is garments

MORE UK is a garment manufacturing company headquartered in Leeds, UK with the main line of clothing for women, which is the intermediary company between the

factory, supplier and customer The main purpose of this thesis is to explore the causes of appearance of unexpected supplementary factories at MORE UK since the beginning of

2017 It leads to the increasing of related expenses, for instance, CMT price, transferring expenses or garment quality The methodology is the combination between validated data and theories which collected through in-depth interview and company survey to explore the causes of problem The finding of the study revealed that ineffective operating

procedure is the main problem why it occuring the unexpected supplementary factories and leads to the thing is that MORE UK have to pay higher CMT price for factory From the analysis, the author point out the central problem is the ineffective operating

procedure in MORE UK from receiving purchasing order from customer to ship the garment back to customer is not effective The causes led to it happens are from are Affiliative leadership style, Lacking of job description, Lacking of training, Poor

planning and scheduling, Language and Culture Barriers To solve the problems, the author proposed the set of solution Writing job description, Each employee in the

merchandiser team will take responsible to follow up one or two customer in whole process, from receiving purchasing orders to exporting the goods and On- the- job

training to help MORE UK can decrease the expenses which happens if the situation continues

CHAPTER I: INDUSTRIAL OVERVIEW AND COMPANY BACKGROUND 1.1 Industrial Overview

The garment industry is a craft industry in Vietnam and it has a long history The

garment industry has experienced with rapid growth over the past years This industry is supplying clothes for the society, creating jobs for a large resource, and bringing a large source of foreign currency from exporting and contributing a source of revenue to the state budget

Following the report of Textile and Garment industry, this industry is one of Vietnam's key exporting sectors over the years The total export of garment industry has always been the leading exporters of Vietnam, behind petrolium In 2013, Vietnamese garment textile products are exported to more than 180 countries and territories with exporting turnover of USD 17.9 billion, taking 10.5% of GDP in the whole country

According to VITAS statistics in 2014, the percentage of exporting garment by CMT is still around 85%, FOB is only 13% and only 2% is exported by ODM

- CMT (Cut- Make - Trim) This is the simplest method of textile export and

bringing the lowest added value By cooperating in this method, the buyer

provides the whole of the input to the production company including trims,

transportation, design and specific requirements; Manufacturers only make

cutting, sewing and finishing products The company have exported by CMT only need to be able to produce and have a basic understanding of the design to

implement product samples Finished products will be collected and distributed by buyers

- OEM/FOB (Original Equipment Manufacturing/ Free on Board) This is “buying raw materials, selling products” For FOB orders, companies are responsible for importing raw materials and producing orders When producing this method, company will actively add input materials to produce products Accordingly, there are two forms of FOB: FOB level 1 - purchasing of materials from the supplier specified by the customer and FOB level 2 - the company takes responsible for finding materials

- ODM (Original Design Manufacturing) This method is including the designing stage and the production process from purchasing fabric, trims, cutting, sewing,

finishing, packing and transportation Design capabilities represented a higher level of knowledge of the vendor, thus, it brings a much higher added value to the product ODM businesses create designs, complete products and sell them to buyers/customers who often the owners of major brands around the world

Due to its strong potential production with abundant labor resources, low labor cost and

it is prioritized to develope by government, Vietnam garment industry has attracted a large amount of foreign investment and facilitating production, contributing to improving product value According to statistics by the General Department of Customs, in the first

11 months of 2017, Vietnam garment industry exports reached $28.84 billion, an increase of 11% over the same period of 2016 This is a relatively high growth rate compared to 5.2% growth in the same period of 2016 In 2017, foreign investment in garment increased by 10% mainly from US, EU, Japan, Korea China, Russia, Hong Kong, Thailand, This contributes significantly to balance the trade balance of the economy In fact, in recent years, the tendency of shifting production orders from China

to Vietnam because low labor price is more competitive than China

According to Vietnam Textile and Apparel Association (VITAS), the main components

of its value chain include tight connection among raw material suppliers, domestic manufacturers, intermediaries and international customers, as shown in Figure below

Figure 1: Value chain of Vietnam’s textile and apparel industry

representative office is only to carry out trade promotion activities and market research

In the range of this paper, we only analysis the situation in Representative Office in Ho Chi Minh City, Viet Nam

CHAPTER II: PROBLEM JUSTIFICATION

2.1 Problem finding process

Being a representative office, the main activity of the office is to carry out market research and promote trading activities in the textile and garment industry in Vietnam With a source of customers which are cooperated directly by parent company in the UK, MORE UK Rep Office will search for factories, suppliers to carry out garment processing operations in Vietnam then export garment under the outsourcing factory’s name

At present, VC is one of the main outsourcing factory which product MORE UK orders

of blouse and trousers With a close and cooperative relationship for many years, VC usually offer reasonable CMT price and quality of products are accepted by customers

By observing all aspects of the company, the author finds that the appearance of another factory (HUY HUNG, CONG PHAT, PHU KHANG) to replace the main factory (VC)

orders to catch up the hangover date which takes proportion is 35% -55% The author checked the order numbers from quarter I/2017 to quarter II/2018 and interviewed related staffs who are merchandiser, planning employee and the pattern makerworks with the factory to find out the cause of the problem The first symptom is the increasing costs including CMT prices, the cost of transporting the materials to the supplementary factory

2.2 Company’s Symptoms

According to finding unexpected supplementary factories, it leads to increase some

expenses, especially CMT price The VC factory's failure meets the hangover date lead to find an unexpected supplementary factory The consequence when occurs the replace

factories are the increasing of CMT prices and other costs that have affected the

profitability of orders since the beginning of 2017.These tables below show the detail

symptom

The amount of order in

Table 1: The amount of orders which transferred to supplementary factory

In table 1, it shows the amount of orders which transferred to supplementary factory

(PHU KHANG, HUY HUNG, CONG PHAT) Because VC factory can not produce the good of garments meet the hangover date, MORE (UK) have to transfer all raw materials

to replaced factory Based on the data in Table 1, the percentage of orders to be shipped

to other processing supplementary is significant, especially in the IV/2017 and I/2018 As this is the peak season of the apparel industry, the volume of garment exported to

countries in the UK and Australia is big, therefore the orders are full capacity in VC Due

to many objective and subjective causes that will be explain in Situation analysis, many orders can not put inline for production in VC factory that leads to MORE UK looking for supplementary factories with better production capacity and clearer production plans

to take over orders

Finding supplementary factory increases costs such as the CMT price at the new factory will be higher than the CMT price at the VC Generating operating expenses such as the cost of transporting the fabric from the VC factory to the new factory, the cost of

importing and export goods at the new factory At the same time, the cost of PP production samples increases as each factory needs to sew PP samples to know how to produce samples in bulk

pre-In the limit of this article, the author only mention to the average CMT Price for each blouse and trouser with MILLERS customer for instance

CMT Price in supplementary factory $1.7 $2.5

Table 2: The CMT Price in VC factory and supplementary factory

The cost of transporting goods by truck to the replacement plant depends on the distance between the plants and the number of fabrics and materials, if the bulk order, the

maneuvering 2-3 trucks for transportation high cost According to data from the

accounting department, the average costs incurred are listed in the table below

Table 3: The transferring expense to supplementary factories

In addition, the cost of making PP samples is doubling, depending on the requirements of customers, such as customer MILLERS, PP samples will be 3 pieces, a size 10 and 2 size

14 When VC factory receives orders from MORE UK, after receiving the bulk fabric for the production, the factory will sew 3 PP samples to know how to process the garment

and apply for production Depending on the type of blouse or trouser, the cost of these

styles will increase with its complexity

2.3 Problem Identification

2.3.1 Problem mess

After the symptom analysis, the increasing of CMT price and management expenses are the result of “unexpected supplementary factories” company symptom To have a deep understanding and find the potential problems, the author have conducted the interview with Ms Kim Dung - Merchandiser who working directly with the VC factory and have new findings To sum up, there are many causes for the symptom “unexpected supplementary factory” in MORE UK situation

- Time consuming for sample approval: According to Ms Dung, "It is very

time-consuming to wait for approval from customers for fabric and trims which making

by suppliers, which leads to MORE UK merchandisers sometimes fail to order controlling and late delivery to the factory " In this industry, every single details which are main fabric, buttons, zippers, eyelets, lining, labels, which are

approved by customers After receiving the purchasing order and the technical packs from customers, MORE UK has to find suitable suppliers in terms of price

and product quality that require the suppliers to provide trim samples The

supplier will take of few days to send sample to MORE UK then will send to customers to get approval Because almost of MORE UK customers are

Australian and UK branches, hence the delivery time by DHL, FEDEX or UPS will take a few days In addition, because of difference time zone and MILLERS customer is only give response in every Tuesday and Thursday, it takes long time, sometimes we lost a whole week to get approval for a button Then, if the

customer approves, the bulk will be imported to the factory in Vietnam

- Changing order detail information: This problem rarely happens but MILLERS

customer sometimes make some changes to the product, for example, changing information in the price ticket label while MORE UK had placed the all label orders and put it in finished garment So when customers change information it will take time and money to MORE (UK) order and produce the price tag from the beginning This is also one of the factors that affect to the time of production orders and leads to main factory can not have enough ability to finish it and need the support from supplementary factory

- Low capacity of factory for production: After the contract is executed with CMT

price for each order or multiple orders at the same time, MORE UK will cooperate

to main suppliers and import fabrics, trims from China or in local and transfer to

VC factory to start production Under the contract, VC have committed to ship garments to the customer on the hangover date However, in reality, "VC did not conduct cutting, sewing activities at the factory until the hangover date, the fabric was not spread out to make the fabric cutting, which led to the factory have not had garments to ship out They received so many orders at the same time but limited capacity, therefore they can not control all orders that have the same

hangover date”

- Insufficient dealing FOB price: Because MORE UK customers are in the

medium and low cost segment, the company always co-operate to factories who offer the lowest CMT price with the right quality, including VC factory From beginning 2017 to now, almost orders of MORE UK have been signed processing contract with VC factory, especially the blouse and trouser orders According to

Ms Dung "For MILLERS customer, for instance, their orders are blouse and trouser almostly, their FOB offers to us is very cheap, therefore, we place orders

at the VC factory because the CMT is cheap as well with the designs and customer requirements, which is a prerequisite to choose factory"

- Insuffcient ordering fabric and trims process: Because the lead time of fabric

and trims are not the same, it’s hard for merchandisers control when it should import materials For example, the lead time of fabric is 60-70 days, trims such as buttons, zipper, lining, takes about 10-15 days for production which then sent to customers for inspection and approval for production” The period of time for all trims and fabric to be delivered to the factory takes a months, this is also one of the causes that the factory can not produce the hangover date In addition,

sometimes, the quality of the trims are not guaranteed or the supplier produces and sends the defective product to affect the progress of the factory because of cutting time, making and sewing is not synchronized with the time of the fabric and

materials imported, which caused the factory to be delayed in the production Merchandiser have to know the lead time of materials carefully, but they do not really effective to control and make sure all materials have to be in factory at the same time, which make sure the factory have all materials to start production

- Lacking of person who in charge of controlling sample room: At present,

MORE UK has only technical controls on the samples.The requirement for

specific samples has not been controlled, which only under the control of

merchandiser leads to the sample room does not know which sample is the

priority At the same time, the quality of samples was not checked closely, so many samples were sewn several times to meet the customer’s standard This time consumes in the production process, the factory can not catch up the hangover date in time

- Lacking of merchandiser’s role clarity: Merchandisers and planning staff have

similar job There are many internal issues to be considered Management system and work assignment are not clear, merchandiser department has not really

worked effectively The order receiving department and the planning department

do not have a clear working assignment that leads to across function and working