optimization of upper making process for cost reduction

The objective is to optimize the processes to reduce waste, increase efficiency in production with the target of decreasing manufacturing cost to support the creation of good retail pric

HO CHI MINH CITY OPEN UNIVERSITY UNIVERSITÉ LIBRE DE BRUXELLES

SOLVAY BRUSSELS SCHOOL OF ECONOMICS & MANAGEMENT

MBQPM5

TRAN MINH PHUOC

OPTIMIZATION OF UPPER MAKING PROCESS FOR COST REDUCTION

MASTER FINAL PROJECT MASTER IN BUSINESS QUALITY AND PERFORMANCE MANAGEMENT

Ho Chi Minh City (2016)

Print name: Tran Minh Phuoc

Date: 19 April 2016

Acknowledgement

Firstly, I would like to express my gratitude to Professor Jacques Martin – General Director of Solvay Brussels School of Economics & Management (Vietnam) He is pretty persistent in providing me helpful advice and suggestions to my research of writing He consistently asks for my progress submission in order to keep me on track and complete my final report

I would also like to thank production experts in my company who were providing me the ideas

to validate the feasibility of my optimization initiatives as well as help me collect the data to understand the current state and future state of the manufacturing environment

Lastly, I would be grateful to my parents who provide continuous support and encouragement throughout the period of my study to complete my research and writing of this report I would say this is one of my biggest accomplishments and it has been being done thanks to them

Glossary

DOE Design of Experiment

PPH Pair per Worker per Hour TPM Total Productive Maintenance

SOP Standard Operation Procedure

List of figures

Figure 1: Organization chart

Figure 2: Fishbone diagram of cutting

Figure 3: Fishbone diagram of 2nd process

Figure 4: Fishbone diagram of stitching

Figure 5: Bar chart of leather waste in 2014 and 2015

Figure 6: Bar chart of synthetic waste in 2014 and 2015

Figure 7: Bar chart of textile waste in 2014 and 2015

Figure 8: Bar chart of embroidery efficiency rate in 2014 and 2015

Figure 9: Bar chart of embossing efficiency rate in 2014 and 2015

Figure 10: Bar chart of PPH of stitching in 2014 and 2015

Figure 11: Bar chart of leather waste in 4 months of 2015 and 2016

Figure 12: Bar chart of synthetic waste in 4 months of 2015 and 2016

Figure 13: Bar chart of textile waste in 4 months of 2015 and 2016

Figure 14: Bar chart of embroidery efficiency rate in 4 months of 2015 and 2016 Figure 15: Bar chart of embossing efficiency rate in 4 months of 2015 and 2016 Figure 16: Bar chart of PPH of stitching in 4 months of 2015 and 2016

List of tables

Table 1: Raw data of material waste of cutting in 2014 and 2015

Table 2: Raw data of efficiency rate of 2nd process in 2014 and 2015

Table 3: Raw data of PPH of stitching in 2014 and 2015

Table 4: Optimization proposals

Table 5: Raw data of material waste of cutting in 4 months of 2015 and 2016 Table 6: Raw data of efficiency rate of 2nd process in 4 months 2015 and 2016 Table 7: Raw data of PPH of stitching in 4 months of 2015 and 2016

Table 8: Optimization proposals

Table 9: Saving

as a leader in footwear in Vietnam with the reputation of one of the most innovative companies However, with the stronger competition and higher pressure from rivals who target

to lower the price to gain the market share, that being said, the company should try to keep the price as reasonable as possible to not only produce best products, but also with good price In order to do that, optimization in manufacturing is one of the key drivers to lead the company

to that goal The objective is to optimize the processes to reduce waste, increase efficiency in production with the target of decreasing manufacturing cost to support the creation of good retail price of final products

The plan is to propose optimization ideas in manufacturing in November 2015 and the data captured is from January to April 2016

Contents

Chapter 1: Organizational Introduction 1

1.1 History 1

1.2 Mission 1

1.3 Organization structure 2

1.4 Difficulties and challenges Nike Vietnam are facing 2

1.4.1 Inefficient manufacturing process 2

1.4.2 Labor cost is increasing 2

1.4.3 The competition is tougher 2

1.5 Objective 3

Chapter 2: Analyze Inefficient Manufacturing Processes 4

2.1 Causes and effects of the issues 4

2.2 Data collection and analysis of the inefficient process 7

2.2.1 Cutting 7

2.2.2 2nd process 10

2.2.3 Stitching 12

Chapter 3: Optimize the Inefficient Processes 14

3.1 Optimization proposals 14

3.2 Apply proposed optimization ideas 14

3.2.1 Cutting 14

3.2.2 2nd process 16

3.2.3 Stitching 17

3.3 Data collection and analysis of optimized processes 18

3.3.1 Cutting 19

3.3.2 2nd process 21

3.3.3 Stitching 22

Conclusion 24

Reference 26

Chapter 1: Organizational Introduction

Nike is the world leading brand in the sporting goods industry operating globally, and Nike Vietnam is one of its liaison offices Nike Vietnam that was established 20 years ago has been growing dramatically to become the biggest countries of Nike sourcing and manufacturing operation, contributing roughly 50% in footwear and 16% in apparel globally with a wide range of products such as sport shoes, apparels and sport equipment

Nike Vietnam does not own production plants, they collaborate with factory partners to manufacture products and with forwarders to distribute products to desired destinations Every year, 200 million pairs of Nike shoes are exported, 80 million units of apparels and equipment are produced to serve the customers around the world Nike Vietnam work and support factory partners and forwarders to ensure the manufacturing operations run smoothly, efficiently and effectively in terms of quality, productivity, cost and delivery

On the occasion of 20 year anniversary, the Vietnam government honored Nike with a special medal recognizing its socioeconomic contributions to the country Nike is the first sport footwear brand to receive this medal from the Vietnam government Moreover, Nike Vietnam also wins top honors as workplace in 2014 and 2015, particularly they were named No 1 in Apparel/Footwear Industry, on a list of the 100 best places to work in Vietnam More than 9,000 professionals across industries all over Vietnam participated in the survey and companies were measured on Total Reward, Growth Opportunity, Culture & Values, Leadership, Work & Life Quality and Company Reputation

1.1 History

 1995 Nike Vietnam was established focusing on footwear manufacturing with footwear factory partners

 1997 The company started operating Apparel manufacturing and sourcing

 2006 Nike Vietnam took over equipment manufacturing and sourcing from other countries

 2009 Nike Vietnam and Converse Vietnam were merged together to become united organization

 2013 Vietnam became the biggest country for manufacturing and sourcing of Nike

 2015 Celebrate 20 year anniversary of Nike Vietnam

1.2 Mission

Bring inspiration and innovation to every athlete* in the world

*If you have a body, you are an athlete

1.3 Organization structure

Figure 1: Organization chart 1.4 Difficulties and challenges Nike Vietnam are facing

1.4.1 Inefficient manufacturing process

The manufacturing process in Nike production can manufacture high quality products, but it is not running efficiently For example, the waste material is around 30-40%, the machines are not utilized 100% their capacity and consume high amount of energy That leads to high manufacturing cost and high retail price

1.4.2 Labor cost is increasing

Footwear industry is a labor intensive industry, which requires hundreds of workers to produce one pair of shoe from the beginning to the end To meet the production demand of Nike Vietnam, around 200000 workers hired to produce Nike Vietnam shoes However, an increase

in wage has caused the increased labor cost in manufacturing and has put high pressure in manufacturing cost and retail price

1.4.3 The competition is tougher

Nike Vietnam has been facing a tough competition due to a rapid growth and a strong price pressure from rivals from arch opponent Adidas to new competitor - Under Armour Especially, Vietnam is a market which the overall income is not so high, as a result, price is

Material Director Material Manager

Apparel Director Production Director Quality Director

Planning Director ManagerHR ManagerAdmin

one of the most critical factors that impact the customer’s decision before purchasing products Nike Vietnam’s product price is around 10% higher than its rivals Besides that, the rivals continue developing new products with new technology to attract customers For example, Adidas introduced Boost which was a revolutionary cushioning tech that delivered the highest energy return in running products, while Under Armour launched The Speedform Gemini product which has cushioning that hasn’t been used in any of the company’s earlier shoes These challenges could affect to the growth and position of Nike Vietnam in the market

1.5 Objective

The inefficient manufacturing process and an increase in labor cost have contributed mainly to the high manufacturing cost and high retail price That would put high pressure on Nike Vietnam since its competitors such as Adidas Vietnam and New Balance Vietnam have gained the competitive advantage by producing the shoes with more reasonable price to catch the attention of customers who are price sensitive, especially in Vietnam where the average income is not so high In order to compete with the competitors in price competition, it requires Nike Vietnam to lower the retail price by reducing manufacturing cost And to reduce manufacturing cost, Nike Vietnam should accelerate process optimization and automation in production to eliminate inefficient operations and reduce the number of manpower as well as increase the productivity There are specific processes that need to focus which are Cutting,

2nd Process such as Embroidery, Embossing and Stitching That is a key point that leads me to

carry out this report titled “Optimization of upper making process for cost reduction”

Chapter 2: Analyze Inefficient Manufacturing Processes 2.1 Causes and effects of the issues

waste Material

Limitation

dies cutting well-desgined Not

guidelines cutting clear No

machines Old

Cutting

Figure 2: Fishbone diagram of cutting

There are several causes to material waste and inefficiency

 No clear guidelines for workers to cut efficiently

Previously, there are no clear standard guidelines to guide the workers how to cut efficiently, they just do the job based on their experience As a result, skilled workers can make cut more components with less wasted material, compared to new workers who produce lots of material waste

 Limitation in sharpness of cutting dies

A lot of cutting dies are made and adjusted by hand, therefore for some of the curved area, those cutting dies cannot cut the material completely, and it requires 2nd cutting by special cutting dies to cut to the desired shape It is not only efficient (2nd cutting), but also waste in material

 Not well designed cutting dies

Many components are cut by single cutting die, it means each time, only component is cut and made It is not efficient compared to multiple components can be cut at the same time And also, it would be risky in wrong nesting between components if the workers are not skilled enough They can place cutting die differently with what it should be done

 Old machines

There is a number of outdated cutting machines which are still being utilized in production Particularly, due to the construction and size of the machines, it is quite difficult to determine clearly the material stretchiness, especially for leather material As a result, workers cannot place the material completely properly according to the stretchiness direction and that lead to defective parts Besides that, those types of machines also has lower cutting precision and that

is potential to cause material lost/waste due to the fact that lower cutting precision leads to unqualified parts and material waste

productivity and efficiency Low

well machines the maintain not do Operators

properly up set not are Machines

capacity under run are Machines

2nd process

Figure 3: Fishbone diagram of 2nd process

After using fish bone analysis, there are a number of causes to the inefficiency and low productivity of 2nd process identified

 Machines are run under their capacity

 Operators do not control the machine well

 Machines are not set up properly

 Machines are not maintained well

PPH Low

Methods

Methods

Methods

process stitching Messy

process Manual

flow process Unclear

Stitching

Figure 4: Fishbone diagram of stitching

There are three main causes to the low efficiency of stitching process

 Messy stitching process

The layout was not well organized where things were messy and not following 5S As a result,

it caused the inefficiency since the following things were not ready and available even though the previous stuff was already done

 Manual process

Stitching operation is a complex and labor intensive process And the majority of the process

is still done by manually Therefore, there is no surprise that this process need to be optimized

to increase the efficiency

 Unclear process flow

There was not clear process flow in stitching process, what should be the next destination after the previous task is finished Instead of going into one direction, it could run with multi direction Therefore, the efficiency is not high

2.2 Data collection and analysis of the inefficient process

2.2.1 Cutting

Month

Leather Synthetic Textile Leather Synthetic Textile

Figure 5: Bar chart of leather waste in 2014 and 2015

Figure 6: Bar chart of synthetic waste in 2014 and 2015

Figure 7: Bar chart of textile waste in 2014 and 2015

In order to capture the material waste in cutting, it is advised to categorize the waste in different type of material used And regarding to specific material, there are action plans to improve the efficiency According to the data collection, the average waste of leather in 2014

is 41% in 2014, compared to 37.67% in 2015 Whereas, the waste of synthetic in 2014 is 32.33%, in comparison to 29.67% Lastly, that figure waste of textile in 2014 is 31.58% which

is a higher than 29.17% in 2015 The company had done improvement activities to decrease the inefficiency from 2014 to 2015, but the waste figure is still high and need to lower down to make the cutting process more efficient

Table 2: Raw data of efficiency rate of 2 nd process in 2014 and 2015

Figure 8: Bar chart of embroidery efficiency rate in 2014 and 2015

Figure 9: Bar chart of embossing efficiency rate in 2014 and 2015

There are two main processes in supporting process (2nd process) which are embroidery and embossing These processes are run by machines with the control of operators Normally, the machine is designed to run with 100% efficiency and capacity, however, due to several reasons, the machines do not run as well as expected And the table and charts above show the efficiency rate of those processes in 2014 and 2015 And based on the data, there will be action plans to boost the efficiency