Evaluatinh the performance of supply chain management and solution a case study of thái binh shoes

Recommendations with concrete solutions for related entities concerning pending problem of TBS such as the delivery on time, quality, cost and lead time are suggested to improve the supp

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HOCHIMINH CITY

MASTER OF BUSINESS ADMINISTRATION THESIS

Ho Chi Minh City, 2010

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: Dr Trần Hà Minh Quân

Ho Chi Minh City, 2010

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Aknowledgement

I would like to express my heartfelt gratitude and deepest appreciation to my research Supervisor, Dr Tran Ha Minh Quan for his precious guidance, share of experience, ceaseless encouragement and highly valuable suggestions throughout the course of my research

Besides, I would like to extend my sincere thanks to Prof Ms Ta Thi Bich Thuy, for her valuable comments and constructive suggestions on the theory foundation and the APA format from early draft of my thesis

My special gratitude is extended to all instructors and staff at Faculty of Business Administration and Postgraduate Faculty, University of Economics HoChiMinh City (UEH) for their support and the valuable knowledge during my study in UEH

I would also like to avail this opportunity to express my appreciation to Professor Nguyen Dong Phong and UEH Board of Directors for creating MBA program in English

Specially, my thanks also go to to many of my collegues from Shoes Secteur in Decathlon company, who have helped me during the collection of data as well as support

me during doing research: Ms Nguyen Thi Hoai Trinh (Supply chain production leader),

Mr Nguyen Du Thuan (Development Industrialization Production Leader), as well as Mr Nguyen Thanh Son from Board of Director, Ms Phan Thi Thu Thao, Ms Ngo Ngoc Thy,

Mr Phan Van Phuong and other staffs of Production& Planning, Costing, Purchasing…Departments in TBS Group

Many thanks to Ms Nguyen Thi Kim Anh, Mr Nguyen Thanh Trung, as well as the other classmates in MBA class, Batch 16 for their valuable and enthusiastic support for this research study

Last but not least, the deepest and most sincere gratitude go to my beloved mother,

my husband Mr Nguyen Le Thanh Vinh for their boundless support, abundant love and encouragement throughout my period of study I, therefore, dedicate this work as a gift to them all

The evaluation Supply chain management‘s performance is more important in most

of companies Author chose TBS Group – one of biggest footwear enterprises with their supply chain management (SCM) for her research study Through key indicators to measure SCM’s performance at TBS, author will generalize the statement problem which still exist in TBS’s SCM and have deeply understanding about TBS’s production planning and their organization of shoes process

Recommendations with concrete solutions for related entities concerning pending problem of TBS such as the delivery on time, quality, cost and lead time are suggested to improve the supply chain management of TBS Group

Keywords: supply chain, supply chain management, key indicator to measure,

performance; delivery on time, quality, cost and lead time, production planning

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Contents

Acknowledgement i

Abstract ii

Contents iii

List of Tables iv

List of Figures v

Abbreviations vi

CHAPTER 1: INTRODUCTION 1

1.1 Problem Statement 1

1.2 Research Objectives 2

1.3 Research question 3

1.4 Scope and limitations 3

1.5 Methodology 3

1.6 Research rationale 4

1.7 Structure of thesis 4

CHAPTER 2: LITERATURE REVIEW 5

2.1 SUPPLY CHAIN AND SUPPLY CHAIN MANAGEMENT DEFINITIONS 5

2.2 FRAMEWORK OF SCM FROM PRODUCTION SIDE 8

2.3 KEY INDICATORS OF EFFECTIVE MEASUREMENT IN SCM 10

CHAPTER 3: THAI BINH FOOTWEAR JOINT STOCK AND THEIR SUPPLY CHAIN MANAGEMENT 19

3.1 GENERAL VIEW OF LEATHER AND FOOTWEAR INDUSTRY IN VIET NAM 19

3.2 THAI BINH FOOTWEAR JOINT STOCK TBS Group)’S BACKGROUND ……… 21

3.3 SUPPLY CHAIN MANAGEMENT IN TBS GROUP 27

3.4 MEASUREMENT SCM IN TBS GROUP 33

3.4.1 Personal Interviews 33

3.4.2 Current indicators of TBS to measure the SCM’s performance 35

CHAPTER 4: CONCLUSIONS AND RECOMMENDATIONS FOR TBS GROUP’S IMPROVEMENT IN SCM 50

4.1 CONCLUDING REMARKS 50

4.2 RECOMMENDATIONS OF THE RESEARCH STUDY: 51

4.2.1 Self-contained process 51

4.2.2 Simplification of major processes 55

4.2.3 Upgrade the system or expand sub-contract supplier 55

4.2.4 Design main style of product with investment 56

4.2.5 Outsourcing the satellites factories 56

4.3 LIMITATIONS AND FURTHER RESEARCH: 56

REFERENCES 58

APPENDIX 1: Guide for Interview & Questionaires 59

List of interviewees 61

APPENDIX 2:Key Figures of TBS Groups 62

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List of Tables

Table 2.1 Framework of production planning 11

Table 3.1 Sharing percent of Vietnam’s export market……… 20

Table 3.2 Interviewees and statement concerning to SCM 34

Table 3.3 Shipment report of TBS from week21-week 25, 2010… 38

Table 3.4 Quality control of TBS from the beginning until shipment 41

Table 3.5 Top 10 models in TBS with quality high return rate 42

Table 3.6 Situation of lead time at TBS Groups before for some typical model… ….43

Table 3.7 Lead time flow in production of TBS Groups 44

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List of Figures Figure 2.1 Basic flow of SCM (sited of Decathlon company) 8

Figure 2.2 Basic Quality Control (From Quad tool of Decathlon Company)………….14

Figure 3.1 % Delivery on time of TBS through years for Europe Customer 36

Figure 3.2 Global lead time 2008 of TBS 44

Figure 3.3 Replenishment lead time 2008 of TBS……… 45

Figure 3.4 Derivation of basic cost elements 47

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Abbreviations

SCM: Supply chain management

DOT: Delivery on time

LT : Lead- time

TBS: Thai Binh Shoes

EU: Europe

FDI: Foreign Direct Investment

Lefaso: Vietnam Leather and Footwear Association

OEM: Original Equipment Manufacturing

R&D: Research and Development

QFD: Quality Function Development

LOP: Labor cost, Overhead and profit

EDI: Electronic Data Interchange

TMS: Transportation Management System

SQC: Statistical Quality Control

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CHAPTER 1: INTRODUCTION

1.1 PROBLEM STATEMENT:

Nowadays, Supply chains are becoming increasingly global and ever more complex

In addition, organizations also want try to support strategic management practices such as

entering new markets, controlling business activity in a good system, increasing the pace of

new product introductions, improving customer satisfaction Thus, for organizations to

work closely with their suppliers, logistics providers, distributors and retailers, their supply

chains must be streamlined and technology-enabled

However, the full understanding about supply chain management (SCM) and its

application in the real organizations are different among enterprises Assessing the

performance of SCM is necessarily indispensable in the period and Thai Binh Footwear

Joint Stock is the case at point, especially when Thai Binh is one of biggest footwear

companies of Vietnam On the other hand, Thai Binh also has a full supply chain from the

beginning of material purchase until the finished product among footwear enterprises The

results from the evaluating supply chain management of Thai Binh can be used to refer for

the application of SCM in real enterprises

Importantly, this research will outline how supply chain management is an important part in business activities, from production view, especially in footwear industry

Through working few years as supply chain leader, the real problems in applying

supply chain management in general and in Thai Binh Footwear Joint Stock- one of typical

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footwear company of Vietnam in particular can show the function and physical structure

supply chain management as well as the inner problems in key indicators to measure

SCM’s effectiveness I will go to the detail to state clearly my understanding in literature

review and analyze bottle neck in this company (Chapter 2&3)

Although TBS Group owns one strong supply chain, in their management, it still

exist some problems, especially with main key indicators that use to measure the efficiency

of their supply chain By analyzing the situation arising at SCM of TBS Groups, the author

reveals that the delivery on time (DOT) at TBS still faces some big delay Besides, Thai

Binh controls well the orders but lead time of order processing is too long Concerning to

the quality, whether TBS can produce the shoes in good quality, there are many additional

steps and they need to control more to follow the good and do the traceability when there is

any problem arising at destination For the cost, the author would like to analyze deeply the

detail of production cost and investigate why the cost of TBS is still higher than other

competitors in footwear field

By examining the concrete footwear company Thai Binh Joint Stock, the author will

show out the main purpose of this study, that is to find the solutions to improve their

production planning in order to ensure the rate of delivery on time (DOT), reduce lead time,

control quality figure, optimize the cost in supply chain management

1.2 RESEARCH OBJECTIVES:

The primary objective of this study is to present the important role of supply chain

in a footwear company, to identify key drivers to measure the performance of supply chain

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management and their inter-relationship in SCM It would be an interesting study to tackle

all inner problems at TBS Group on delivery and production planning and have a deeply

understand on lead time break down in order to improve it, manage quality and cost- all

key indicators to measure supply chain management in order to satisfy more and more

customers in footwear industry

2 What solutions can be made to improve the SCM of TBS Groups?

The study will particularly focuses on Thai Binh Joint Stock Footwear business

from production view to clarify the real application flow of SCM as well as their SCM’s

control comparing to the theory

The research takes most principles of SCM from the experiments and reality

application in footwear Company Information will be summarized to show the impact of

SCM to business activities from procurement of materials to delivery finished product to

customers Furthermore, by analyzing the case studies of a shoes company with the

implementation of SCM, the research identifies the real impact of the key indicators of

SCM on business operations and outlines the practical flow from material to finished good

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1.6 RESEARCH RATIONALE:

The study also helps us to understand the various factors of SCM as well as their

influences on supply chain Analysis from this study will improve our understanding of

measurement of SCM’ s effectiveness through the scales: Delivery on time, quality, lead

time and cost and result findings will lead us to the solution of improvement in these scales

to obtain the well control SCM in footwear company

The thesis is presented in 4 chapters:

CHAPTER 1 Introduction: give general information about the problem

CHAPTER 2 Literature review with the theoretical supply chain management, its

application, element and the framework of effectiveness measurement

CHAPTER 3 Thai Binh footwear joint stock and their supply chain management CHAPTER 4 Conclusion and Recommendations for TBS Group’s

improvement in SCM

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CHAPTER 2: LITERATURE REVIEW

DEFINITIONS:

Why do so many people spend so much time on thinking, writing and doing SCM? The answer is that it is a considerable source of competitive advantage in the global market The fierce competitions in today’s markets is led by advances in industrial technology, increased globalization, big improvement in information availability, plentiful venture capital and supply chain management (Bovet & Sheffi, 1998) In addition, we can realize that supply chain management is occupying one importance part in running, maintaining and managing the company’s primary and support activities at the most favorable conditions

It has now been two decades since SCM began to receive serious attention, with scholars arguing that purchasing, as it was then known, be regarded as a key area of academic study and practitioner focus ( Burt DNS 1985; Farmer 1972) This debate has continued to attract scholars across the range of academic disciplines, including operation management, management science, strategy, economics and organizational behavior, to name but a few The early 1980s saw the academic debate move from a logistics/operation management orientation, focused on inventory control systems, transportation, trans-shipment problem, and distribution issues, toward a focus on the strategic nature of supply itself Kraljic(1983) introduced concepts and strategies, such as category management, leveraging and relationship management, into common business parlance Frankly speaking, Supply chain management is an essential aspect of business today A company can identify its supply chain by first selecting a particular product group or product family Then it should trace the flow of material and information from the final customer backward

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through the distribution system, to the manufacturer, and then to the suppliers and to the source of raw materials This entire chain of activities and processes is known as the supply chain for that product group

A large company will have several supply chains In a multidivisional company with many product groups, there could be many different supply chains For example, large companies such as Procter & Gamble or General Electric may use 50 to 100 different supply chains to bring their products to market Some of these supply chains utilize distribution through company –owned warehouses, some use direct distribution, some use outside manufacturing, and some use in-house manufacturing sites

A number of different theoretical models have evolved to provide the frameworks for explaining and analyzing supply chain and SCM However, concepts, definitions and perceptions of these theories tend to differ among scholars It is also known that there is no single, totally accepted definition of supply chain and SCM The definitions usually reflect the needs, the interests or attitudes of different people (Wang, 2006) However, the essence of supply chain and SCM can be summarized by the following definition:

“A supply chain is the alignment of firms that brings products or services to market

“- from Lambert, Stock, and Ellram (Lambert Douglas M., Jame R Stock and Lisa M Ellram, 1998, Fundamentals of Logistics Management, Boston, MA: Irwin / McGraw-Hill, Chapter 14)

“A supply chain is a network of facilities and distribution options that performs the

functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers Supply chains exist in both service and manufacturing organizations” (from Ganeshan, Ram and Terry P Harrison,1995, “ An introduction o supply chain management”, Department of Management Sciences and Information Systems, 303 Beam Business Building, Penn State University, University Park, PA)

If this is what a supply chain is then we can define supply chain management as the thing we do to influence the behavior of the supply chain and get the result we want

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“Supply chain management (SCM) It is a broader and strategically more significant

concept, which includes the entire supply chain from the supply of raw materials, through

manufacture, assembly and distribution to the end customer (Cited from one paper written

by Venus D, 2001)

Traditionally, supply chain management (SCM) has been a melting pot of various disciplines, with influences from logistics and transportation, operations management and materials and distribution management, marketing, as well as purchasing and information technology (IT)

In my opinion, there is a different between the concept of SCM and traditional concept of logistics Logistics typically refer the activities behind production, including transportation, warehousing, and customer service Whilst SCM acknowledge all of traditional logistics and also includes other activities such as forecast, determine process of buying, new product development, production and finance, in the wider view of supply chain thinking, these additional activities are now seen as part of the work needed to fulfill customer requests

Another definition (Cited from Web Strategist and Project manager 2002), Supply

chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer Supply chain management involves coordinating and integrating these flows both within and among companies It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed)

Supply chain management flows can be divided into three main flows:

• The product flow

• The information flow

• The finances flow

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From my point of view, I totally agree with the last approach

The above flows must be coordinated well together in order to achieve the least key goals measurement of SCM: delivery on time (DOT), lead time, quality and cost

Supply chain management is among the most important processes a company must master if it to remain competitive in the current global marketplace Most analysis and discussion of SCM begins with the basic picture below:

Figure 2.1 Basic flow of SCM (Cited from sited of Decathlon company)

2.2 FRAMEWORK OF SCM FROM PRODUCTION SIDE:

If your company makes a product from parts purchased from suppliers, and those products are sold to customers, then you have a supply chain Some supply chains are simple, while others are rather complicated The complexity of the supply chain will vary with the size of the business and the intricacy and numbers of items that are manufactured

(Croom et al 2001)

From definition of SCM, There are many factors to build up SCM, but I would like

to zoom out this research to SCM from production side In fact, we see Planning, organizing, producing, directing, & controlling flows of materials;

♦ Begins with raw materials

♦ Continues through internal operations

♦ Ends with distribution of finished goods

Move

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So, I will identify the elements inherent in supply chain management from production’s view:

1 Planning – This is the strategic portion of SCM You need a strategy for

managing all the resources that go toward meeting customer demand for your product or service If we don’t build up the efficient planning at the beginning, it may lead us to inefficiency, high costs, long lead time, late reception, or good delivery with less quality and value to customers

2 Source– Choose the suppliers that will deliver the goods and services you need to

create your product We develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships And we put together processes for managing the inventory of goods and services we receive from suppliers, including receiving shipments, verifying them, transferring them to our manufacturing facilities and authorizing supplier payments In case, you don’t gather in all these information in supplier’s decision, maybe you will take wrong choice, it may lead to big problem For instance, you choose one supplier to produce your product based only on good price, but you don’t care about the delivery lead time This choice is not profitable at all

3 Make – This is the manufacturing step The team of SCM needs to schedule the

activities necessary for homologation, production facilities, testing, packaging, and preparation for delivery As the most metric-intensive portion of the supply chain, we should measure quality levels, production output and worker productivity

4 Deliver (Logistics) – This is the part that many insiders refer to as logistics It can

coordinate the receipt of orders from supplier, carry out the shipment, follow up flow includes custom clearance till reception at the warehouse, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments Logistics purpose is the right product in the right place at the right time

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5 Return – The problem part of the SCM It can create a network for receiving

defective or sale withdrawn products back from customers and supporting customers who have problems with delivered products

(Cited from source of supply chain company of France 2000: Decathlon)

The metrics and measures are discussed in the context of the following supply chain activities/ processes: (1) production planning, (2) delivery/customer, (3) quality

(make/assemble), and (4) cost (Stewart, 1995; Gunasekaran et al., 2001)

• Production planning:

At its core, production planning represents the beating heart of any manufacturing process Its purpose is to minimize production time and costs, efficiently organize the use

of resources and maximize efficiency in the workplace

Production planning incorporates a multiplicity of production elements, ranging from the everyday activities of staff to the ability to realize accurate delivery times for the customer

Nothing disappoints customers more than not being able to get the goods they need, when they need them In order to do this, the most important part is how to build up the good production planning It determines the production output level and workforce for the medium term (normally one semester or a year) within the physical capacity available However, it should be create based on the reliable forecast and enough information

collected from customer‘s demand for a semester or a year The better planning is allocated

at the beginning, the more rate of delivery on time can be realized

In production planning, booking capacity is one important part Capacity planning

or capacity requirements planning are the function of establishing, measuring and adjusting limits or levels of capacity The term “capacity requirements planning” in this context is

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the process of determining how much labor and machine resource is required to accomplish the tasks of production

Table 2.1 : Framework of production planning

(Source: Cites from site allbusiness)

Finite capacity scheduling uses basically the same data as capacity requirements planning but adjusts the schedule to ensure that the capacity required never exceeds a work center’s defined capacity limits in a given time period

The above figure describes the hierarchy of capacity planning decisions that can be made within a planning and control environment These range from long-term capacity decisions down to short-term shop floor monitoring and control tasks:

• Planning resource capacities over long time horizons

• The rough-cut evaluation of capacity required by the master production schedule

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• Detailed capacity requirements of a particular production schedule

• The simulation of the use of alternate capacity plans

• Monitoring actual outputs versus plan

The source of the loading data changes as you move down this hierarchy While resource planning takes its capacity requirements from the business plan, rough-cut

capacity planning uses the master production schedule as the source of its information Capacity requirements planning and the remainder of these shorter-term planning modules take their loading data from the Material Requirements Planning output

This production plan needs to be translated into a master production schedule

(MPS) so as to schedule the items for completion promptly, according to promised

delivery dates; to avoid the overloading or under loading of the production facility; and so that production capacity is efficiently utilized and low production costs result

• Delivery:

the date requested by customer Noted that orders are not counted as delivered on time when only part of order is filled – we call partial reception or when the customer does not get the delivery on the requested date

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In production side, On-time delivery is measured as percent achievement within a window of time that brackets the customer-requested date or the business's committed date and is not improved by quoting long lead times and turning down tough business Using time as a metric allows to improve quality and decrease costs as process times are reduced

through systematic barrier removal.(Source: Operation Management: Roger 2003)

The key element to improving on-time delivery is the standardization of the criteria

by which each supply chain segment is measured against Problems arise when different segments define on-time delivery differently and in ways that are not tied to the

commitment date to the customer By aligning all internal lines to a common standard it is easier to drive different parties towards what they need to achieve

In my point of view, it is key indicator to measure the efficiency of supply chain management, and should be followed every week

• Lead time:

In today’s global economy, cost and quality is no longer “King.” It seems that

everyone is on a level playing field Today’s battles are being won by those companies that

can effectively add the third dimension: rapid response to customer needs The operation

function in many companies is dramatically reducing lead time to make shorten product available for customer’s use It was done by radical steps of production and development planning as well as the material management by several methods It should be mentioned in detail in next chapters

The concept of supply chain management in lead time is to overlook and manage the time of transition of raw goods into finished products, something that has become necessary over the years as more corporations have become increasingly flexible and

dependent on outsourcing the production of their goods to other corporations, who are able

to do the job at a more affordable rate

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• Quality:

Quality is no more a marketing argument so far, it is included as a due To help improve customer satisfaction, greater emphasis is given to the aspect of quality in the supply chain The articles on this page helped you understand some of the quality issues and methodologies that are relevant in current supply chain management

A direct measure of quality is customer satisfaction, which can be measured in several ways It can be measured relative to what the customer expected Thus, there are several model of quality control, the core conditions in quality is:

- Having set up an internal quality organization => CONSTANT QUALITY LEVEL for components & for production assembly

- Constant analyze & concrete actions to Non Quality Causes at each production

steps

(non quality = human waste + component waste + lead-time waste= cost!)

We can see below the flow for basic Quality control:

Figure 2.2 Basic Quality Control

(Source: From Quad tool of Decathlon Company)

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A list of special quality checks follows The control points list mentioned isn’t exhaustive; its purpose is to highlight specific points to control closely in order to ensure the product quality

The supplier guarantee the quality level agreed on the confirm sample

The statistical control method is also presented in the following pages Of course, for maximum quality, many controls have to be done on 100% of products

* Every step impacts the Quality of finished goods:

The Quality Control contains six major components (Explanation of Quality Function Deployment of Akao and Mizuno (1965) Contributed by: G Prasanna Kumar)

1 Customer requirements (HOWS) A structured list of requirements derived from customer statements

2 Technical requirement (WHATS): A structured set of relevant and

measurable product characteristics

3 Planning matrix: Illustrates customer perceptions observed in market surveys Includes relative importance of customer requirements, company and

competitor performance in meeting these requirements

4 Interrelationship matrix: Illustrates the Quality Function Development (QFD) team’s perception of interrelationships between technical and customer requirements

5 Technical correlation (Roof) matrix: Used to identify where technical

requirements support or impede each other in the product design Can highlight innovation opportunities

6 Technical priorities, benchmarks and targets: Used to record:

The final output of the matrix is a set of target values for each technical

requirement to be met by the new design, which are linked back to the demands of the customer

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• Cost:

“Price competitiveness is fundamental in a stronger competition world with other suppliers and countries”

In SCM from production side, there are many kinds of cost:

- Production cost (supplier cost, material cost, mould cost, Overhead cost, labour

cost…)

- Finance cost (building, finance charge, inventory duty cost )

- Logistics costs ( service, warehouse, custom clearance, shipment)

- IT cost, Quality cost, etc…

A good SCM is to make the product in good quality but at lower cost It should be in parallel It is the task to work with supplier and other part by understanding that we don’t attack its margin and by its good collaborative spirit to work on its cost decrease

Besides, for the cost in production side, we refers the optimization of consumption, better purchase for components, waste rate decrease, maximization of productivity …)

Many companies believe that the costs of the introduction of SCM are far greater than the benefits it will produce However, research across a number of industries has

costs involved in doing nothing, i.e the direct and indirect costs of quality problems,

finance, are far greater than the costs of implementing SCM (By Martin Murray,

About.com)

SCM costs are associated with the design, implementation and maintenance

of the SCM system They are planned and incurred before actual operation, and can include:

• Product Requirements – The setting specifications for incoming materials, processes, finished products/services

• Planning – Creation of plans for quality, reliability, operational, production and

inspections

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Quality cost is one big part of SCM We emphasized the detail in total quality

control Firstly, appraisal costs are associated with the vendors and customers evaluation of purchased materials and services to ensure they are within specification They can include:

• Quality Verification – Inspection of incoming material against agreed upon

specifications

• Audits – Check that the quality system is functioning correctly

• Vendor Evaluation – Assessment and approval of vendors

• Rework – Correction of defective material or errors

After viewing some important theory that links to SCM, I would like to make

conclusion with conceptual framework of this thesis

A supply chain encompasses all activities in fulfilling customer requests These activities are associated with the flow and transformation of goods from the material stage, through to the end user Supply chain management is a set of synchronized decisions and activities utilized to efficiently integrate suppliers, manufacturers, warehouse, transporters, retailers, and customers so that the right product or service is distributed at the right

quantities, to the right location and at the right time, in order to minimize system-wide

costs while satisfying customer service level requirements (according to Ben(2003))

However, theory is theory; the real application in each company has its own supply chain to adapt to their own operations, especially in production field The aims of the research were to develop an integrated framework, and to provide a methodology for

planning of many components in the supply chain such as production planning, key

indicators which apply in practical to measure the SCM’s performance And the author chose Thai Binh– one of biggest footwear company in the Vietnam shoes industry– which has applied supply chain in practical for long time-is the case to analyze

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In general, the author learned from the literature on supply chain and SCM to obtain the fundamental approaches to evaluate and discover the problem in real application at TBS Group in some main indicators: Delivery, Lead time, Quality, Cost

And the analytical framework of this research study is built based on these main indicators The author focused on the supply chain and SCM from production view and these main indicators, not all parts of SCM to reduce the scope of research The framework

is described along with illustrated numerical figures and situations applied of SCM in the manufacturing at TBS Groups The framework and approach developed in this research are not new in the area of supply chain management, but it is useful to provide a picture of application of SCM in fact and solutions for planning, delivery, lead time reduction, quality and cost control in supply chain at TBS Groups can apply in various industries

EU is the largest consumption market of Vietnamese footwear industry accounts for 52% of total export turnover of Vietnamese footwear industry After, it is US market, Vietnam is the fourth largest supplier after China, Brazil, and Indonesia In 2008, exports

to the U.S account for 22% of total export value of Vietnam footwear industry The UK, Germany and the Netherlands are also core markets for Vietnam footwear Although the leather footwear industry of Vietnam has a fast-growing rate and brings a large amount of foreign currency for the country, but Vietnam leather and footwear industry is mainly on the processing of foreign firms 90% productivity gain for export, but profits from leather and footwear sector reaches only 25% of value

Target 2010, Vietnam is expected to export US$4.4 billion worth of footwear, up 10% from 2009

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The EU will continue to be the key market of footwear exports despite the extended anti-dumping duty of 10% for 15 coming months which just took

effects on Jan 3, 2009, (according to Lefaso Chairman Nguyen Duc Thuan)

The EU market is expected to account for up to 50% of the sector total export turnover, followed by the U.S with 30%, Thuan said (Source: Youth,GSO)

Vietnam now is one of ten leading footwear producers and exporters in the world Among 40 Vietnam export markets in leather and footwear products, there are 3 key

markets: EU, the United States and Japan, with share in 2000 as follow:

Table 3.1 Sharing percent of Vietnam’s export market in footwear industry:

Vietnam has a large number of leather and footwear companies, such as; Thai Binh, Bitis, Freetrend, Pouyuen, SamHo…most are located in Ho chi Minh City and

surroundings All these big companies also have the business corporation with many

“giant” in footwear producers including Nike, Adidas, Sketcher, Lafuma, Decathlon…

Aside from all successes, Vietnam’s leather and footwear industry also confronts its own basic difficulties We suffer a high anti-dumping tariff, moreover, the removal of GSP for Vietnam is said to cause difficulty and negative impacts on domestic leather and

footwear enterprises as their products win have to compete harsher with items from other exporting countries Besides, the labor force come mainly from rural areas, most of

workers are unskilled, mainly trained on job On the other hand, there is big move in

workforce after working few years, it causes the big difficult to maintain a stable workers

in recent years

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The footwear industry will also be under tremendous pressure because Vietnam was removed from a list of countries given preferential treatment by the EU on January 1, 2008 Exports of Vietnamese leather shoes to the EU will also be subject to a 10 percent anti-dumping tariff for an extra 12 to 15 months

Currently, Vietnamese enterprises are mainly outsourcing for foreign partners and suffer from lack of design capacity and high technical staff

In next 15 years, Vietnam’s leather and footwear sector will be still mainly outsourcing However, enterprises should focus on building brand and direct distribution channels to consumers At a seminar, many delegates said that leather and footwear sector should divide the task of enterprises into export firms and firms to serve the domestic market

3.2 THAI BINH FOOTWEAR JOINT STOCK (TBS Group)’S

BACKGROUND

TBS Group was founded in 1989 by a group of Vietnamese shareholders, as one of the very first footwear company in the era of modern Vietnam Initially it produced lady fashion shoes and canvas vulcanized shoes, but then specialized in sport, casual, hiking

shoes and sport sandals Since 1992, the group also known as THAI BINH SHOES has

developed spectacularly and it is listed in top 10 footwear producers in the country Till

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now, under the leadership of Chairman Nguyen Duc Thuan and his leader teams have established a strong, dynamic and developed TBS Groups The export turnover increased sharply from a mere 1.5 million US Dollars in 1992 to 61 million US Dollars in 2006 and

80 million US Dollars in 2009 TBS continuously expands the production capacity with new factories in both South and North Vietnam to reach the output target 25-30 million pairs annually TBS is a place where Vietnamese traditional culture accordingly meets modern technology models We offer customers our real sense of commitment to long-term

business (Source: Thai Binh Production Planning data 2008-2009)

Mr Nguyen Thanh Son- General Director of TBS group commented that “our target

is to become one of the top ten footwear producers in Vietnam and we are strong confident that this target is coming truth very soon TBS’s strategy was to satisfy customer, especially the hard customers with high standard requirement as EU We are open-minded

to support customers in market needs’ big increase with qualified products, competitive price, flexible capacity and of course, delivery on time

All of their products are OEM (Original Equipment Manufacturing) products for

export although the designs either come from our customers or done by our R&D centre The group becomes the trustworthy footwear producer for brands and stores as Reebok, Decathlon, Sketcher, Stilman, Dcshoescousa, Quik-Silver… in the US, EU, Japan markets

For an excellent service, TBS builds up full integrated supportive manufacturing resources starting from the footwear design to the moulds, lasts, outsoles, EVA-phylon, embroidery, printing, embossing and end-production facilities In 2007 they have 09

factories of which 04 footwear factories, 01 outsole factory, 01 mold shop, 01 printing and 02 upper stitching firm

embroidery-23

Those provide comparative advantages with great

capacity, efficient productivity, flexibility and

advance management TBS is a place where

Vietnamese traditional culture accordingly meets

modern technology models We offer customers

our real sense of commitment to long-term

business (Source: R&D Department of TBS

Group-2009)

Production capacity: 14 million pairs/ year

Production line: 22 lines

THE R&D CENTER IN THE HEADQUARTERS

There are 300 employees working in our R&D center

CAD/CAM technology applied to the footwear industry has made a

great change With the support of modern CAD/ CAM techniques,

the R&D center can deal with over 200 new designs and patterns

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monthly LAST MAKER, DELCAM, CRISPIN 2D-3D software linked with C&C devices

such as last milling unit, 3D printer and automatic pattern cutter will create the Prototypes (RP) for any new sole, last or upper pattern within a few hours

Rapid-It also operates the recruitment & Training center which plays the most important

role in developing the human-resource and providing the group with competent staffs Professional teams with modern equipments in the R&D center design and produce sample

shoes for each customer or for the whole group Our management & logistic therefore are more efficient and comprehensive

In context of disadvantage in the leather and footwear industry during recent years,

manufacturing and export shoes to EU and US confronted with many commercial barriers such as anti-dumping tax with Vietnamese leather shoes, GSP removal…In the face of such situation, several footwear enterprises go downhill in difficulties, they can not raise

the sense of initiative in production, mainly doing outwork or sub-contracting for Italy, German, US…However, TBS Shoes with their own powerful internal force and important

role of Party Organization has stable development with increasing growth rate year on year

Up to 2009, total quantities (production and export) reach nearly 10,4 million pairs

Forecast in 2010, this can be over 15 million pairs Along with increasing quantities,

TBS Group’s export is self – control When exporting to foreign markets, Thai Binh’s products always carry Vietnamese’s brand name It is the pride of Vietnam leather and footwear on international business world

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* Figure and objectives of TBS’ Groups:

1 Vision: Top 10 footwear producers in Vietnam

2 Objective: S atisfy all interest parties

3 Market plan: USA: 40%, EU: 40%, Others: 20%

4 Customer orientation: Chain Stores and Brands

5 Product orientation: Sport, sandal, casual, hiking shoes

6 Capacity plan: 40-50 production lines with total capacity 20-25 million pairs annually

important part in Turnover of TBS through years (chart 2001-2005) The export situation

of TBS becomes better in recent years and they want to expand their office to Asia area to look for more customer

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3.3 SUPPLY CHAIN MANAGEMENT IN TBS GROUP:

In fact, the application SCM of production planning is quite different from our theory about the production planning in SCM In shoes industry, it includes many processes For well understanding, normally, a pair of shoes consists of 2 parts: upper and

bottom For uppers, TBS used many kinds of material: leather, EVA, synthetics, PU Vivid,

as well natural material such as silk, textile macrofile, cotton, canvas or both natural

adhesive for example rubber latex, fiberboards…About the bottom, it includes 2 other parts: insole & outsole Outsole normally is made mainly by rubber while insole is created from many components: PU, Phylon, sometimes in leather A good shoe should respect 2 conditions: good design in upper with selected and the level of steady and comfort in sole

According to one technical expert of TBS (Mr Tran Dinh Cong) , he said that: “a shoes is made by some main processes: sole pressing (insole & out sole), prepare material (material dye cut), upper stitching (printing, embroidery or emboss), and assembly lasting

In each process, supply chain department of TBS has to control in different conditions”

• SCM in 1 st process (sole pressing):

In this part, it linked directly to production planning and also to forecast piloting The calculation compound to make the sole is very important The content of several kinds

of chemical must be respected; they will mix them in conjunction with additives by a specialized machine The rate of chemical, rubber and additives will determine the quality

of the sole and so does the color The time of pressing sole is depended on the complexity

of sole or the color of sole The 1 color sole need less time than multi-colors sole It is one

of the cores on productivity of the sole pressing

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From basic technology of sole pressing, TBS Group has to set up 1 mold shop inside

TBS factory to ensure the efficiency and sole productivity This mold shop have ability to make many kinds of sole: sole injection, compression, EVA sole dye-cut, PU sole, phylon for most customers’ requirement And mold planning’s role is very important To do that, they must do some steps:

- Based on the forecast from customer which sent each month, TBS will consolidate

the need for each size range

- The needs have to focus on the number of existing mold in warehouse This is the

most important factor in making sole The number of molds must fix and adapt with the needs with productivity per day with 3 shifts For normal sole, TBS can press 100prs/mold/shift In some peak season of sale, the needs from customers are exceed the

existing molds, and it is not rare case In those case, TBS group has to recalculate the real productivity, considers the working over time to catch customer needs in standard rule of governments, ask some actions from doing outwork in others companies in same level such

as Bitis, Pouyuen…and last solution is a urgent request for more mold investment from customer

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It is requested the sharp mind from planning department to take quick action in

these situations

• SCM in 2 nd process (prepare material):

It is another important point in SCM of TBS Group Key point on this step is how to

work efficiently on forecast to have material ready for production As Ms Ngo Ngoc Thi who works directly on forecast and stock checking every month: “According to Decathlon customer (biggest EU customer in TBS which occupied 65-70% TBS’ turn over and capacity), TBS must work on both methods: “make to stock” and “make to order” With Decathlon, 40% quantities should work on firm “make to order” on the beginning of season” Because in this period (May, June & November, December), the capacity is too

tight, the average demand exceeded the capacity of the company by 30-50% For safety delivery, Decathlon agreed to create 40% firm orders with security shipment date It means

that TBS should finish orders in advance 2 or 3 weeks before the deadline (the final date must delivery the goods)

For the rest one of 60% quantities, TBS should apply “make to stock” It means TB will

follow forecast piloting each month from Decathlon customer, buy material with commitment and stock in advance around 2-3 month After the period of sale, Decathlon

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will create automatics orders weekly and use the component which bought in advance

before Each month, supply chain leader of Decathlon will work with supply chain department of TBS on forecast to adjust the stock and capacity allocated to ensure material

ready for next automatic orders However, in production in some sensitive peak sale period

of customer, Decathlon demands TBS Group not only make to stock component, but also

the finished good produced in advance Ms Nguyen Thi Hoai Trinh (one of supply chain leader of Decathlon customer), she said: “For some strategic model, Decathlon can create

1 or 2 securities orders A with big quantities which is covered 10 weeks of peak sale for TBS’s production in advance around 1 or 2 month, TBS will finished as Decathlon’s deadline and stock in warehouse In peak sale period, Decathlon will create daughter orders (splitting orders) weekly and deduct from securities order A which stocked before This request TBS should have stable capacity, sufficient warehouse to stock and good potential finance to delay the cash flow 2 or 3 month later”

This is a totally new point in SCM, but TBS applied more flexible in this step to satisfy the request of customer more and more, not only Decathlon, but also for other

customers as Nike, Addidas or Sketcher…

More than 60% of materials used by TBS Group were imported from foreign countries including China, Korean, Taiwan, especially some kinds of leather from Europe

with different lead-time The issue for controlling material lead-time is crucial task of production planning and management Department of TBS group They have to follow

main material from several countries in term of lead-time and quality The cases of shortage material or material un-qualified or late component delivery are not rare and they cause big effect on production planning or domino-delay on orders delivery SCM of TBS

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Group is specified that certain staff members are responsible for supervising each stage on

component flow In some urgent cases, air shipment of component is necessary to avoid the delay in finished good shoes

• SCM in 3 rd process (upper stitching):

This process is a technology part which comprises about some stages such as rolling and laminating, cutting, printing, embroidery or emboss and stitching In the 1st stage of

rolling and laminating, different materials are laminated with adhesives by laminating machine After that, materials will be cut to many layers and create many pieces and they will proceed the printing and emboss the logo in second stage Then, these pieces which

were embossed will move to a computer embroidery machine to do the finish logo The final stage is upper stitching During this stage, pieces are sewed together to create finished upper

However, each customer has different specification, models, sizes range, pattern colors On the other hand, there were more than thousands models of shoes produced annually The role of SCM here is defined right production machinery need to be reset And SCM requires the synchronous cooperation between the production planning and development department (and R&D center) The R&D center can deal with over 200 new designs and patterns monthly mean while the designs from customer change very often If R& D are not careful on the pattern copy changes, they passed wrong one to production planning Department, it will cause big problem on mass production For this reason, the information transfer between these department must be exact, enough and on time to assure efficient SCM