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

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY NGUYỄN PHỤNG HIẾU EVALUATING THE PERFORMANCE OF SUPPLY CHAIN MANAGEMENT AND SOLUTIONS: A CASE STUDY OF THAI BINH SHOES MASTER OF BUSINESS ADMINISTRATION THESIS Ho Chi Minh City, 2010 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY NGUYỄN PHỤNG HIẾU EVALUATING THE PERFORMANCE OF SUPPLY CHAIN MANAGEMENT AND SOLUTIONS: A CASE STUDY OF THAI BINH SHOES Major: Business Administration Major code: 60.34.05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisor: Dr Trần Hà Minh Quân Ho Chi Minh City, 2010 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 i Abstract Nowadays, the wide application of supply chain in most of business has been observed Based on this, there are many improvements in customer’s reliability and speed of order fulfillment The impacts of supply chain on business’s activities were examined in reality This experimental study will seek to discuss more detail in the Chapter 2,3,4 The function of supply chain management is to design and manage the processes, assets, and flows of material and information required to satisfy customers’ demands 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 ii Contents Acknowledgement i Abstract ii Contents iii List of Tables iv List of Figures v Abbreviations vi CHAPTER 1: INTRODUCTION 1.1 Problem Statement 1.2 Research Objectives 1.3 Research question 1.4 Scope and limitations 1.5 Methodology 1.6 Research rationale 1.7 Structure of thesis CHAPTER 2: LITERATURE REVIEW 2.1 SUPPLY CHAIN AND SUPPLY CHAIN MANAGEMENT DEFINITIONS 2.2 FRAMEWORK OF SCM FROM PRODUCTION SIDE 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 iii 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 iv List of Figures Figure 2.1 Basic flow of SCM (sited of Decathlon company) 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 v 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 vi 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 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 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 First,, Data collection is realized with case study at typical footwear factory TBS Groups It is not in common and the figure analyzing only for TBS case, it should be a limit and can not give a general comments Secondly, due to some restriction of research scale, I only concentrate on supply chain from production view, while the data from other part of supply chain such as logistics, component supplier or warehouse control were not available for this research study Thirdly, no solution is perfect in any sector also has potential risk My proposal in improvement can apply in footwear factory, but it is not at all, in some other case, maybe it is not appropriate Therefore, further research into this issue would make evaluating the performance of supply chain more comprehensive in several fields Finally, this study was designed as a case study, so future research is needed to expand and make the findings more representative 57 REFERENCES Blocher, JD, Garrett¸RW, Schmenner (1999): Throughput time reduction- taking one’s medicin Production and Management 8(4), 357-373 Dale N.: E-Procurement From Strategy to Implementation Donablue C., R., K 2002: Experimental Economics and Supply chain management Interfaces 32(5), 74-82 Handfield R.B., Nichols E.L., – Supply Chain Redesign – Transforming Supply Chains into Integrated Value Systems James W 21st Centuries Business: Managing and Working in the New Digital Economy Jonathan C and Craig M.V: Creating Breakthough Products: Innovation from Product Planning to Program Approval Kim K.Y, Osamu N., Gilbert Y.W.T, Komaran R (Published in 03/2009):Business Cases For Master of Business Administration in Viet Nam – Developing Business Cases in MBA Course of Viet Nam Schroeder R.G - University of Minnesota Carlson School of Management – Second Editon 2003: Operations Management Simchi-L.D, Phil K, Simchi-L.E, Ravi S – Third Edition 2005: Design and Managing The Supply Chain(Concepts, Strategies, and Case Studies) TBS (2008) Company’s information : TBS Joint Stock report Suzanne de Treville, Shapiro R.D., Hameri A.P (revised 2003): Journal Of Operation Management-From supply Chain to demand chain: the role of lead time reduction in improving demand chain performance Vinod R.Singhal (Copy Right 2003): Quantifying The Impact Of Supply Chain Glitches on Shareholder Vaue – The Significance of Adaptive Supply Chain Networks 58 APPENDIX Guidance for indepth-interviews & Questionaires + Populations for interviews: - People in many management department of TBS Group - Responsible people from big customer of TBS: Decathlon + Questionnaires: Section 1: The understanding about supply chain What you understand about supply chain and supply chain management in general? How supply chain management application in TBS in your Department? What are main functions of supply chain in your section? What are advantages and disadvantages as well as strong points and weak points of current supply chain management of TBS Group? How many main processes in shoes production? Section 2: The key indicators to measure SCM’s performance of TBS Group How many key indicators to measure SCM at TBS Group? How is SCM performance measured and what measures are used at TBS? 59 In each indicator, you think that whether any potential problem or risk exists? Describe performance measurement systems in your section that you have utilized What are your expectations of performance measurement in supply chain management of TBS? What is the current production planning at TBS for Europe customer in peak season? How to enlarge the current capacity at TBS to satisfy the over orders transfer from customer in their peak sale season? What are the main causes of late delivery of TBS Group in the beginning of 2010? What is main effect in long production lead time at TBS? 10 In rush time of production planning, how to control well quality in TBS? 11 In SCM of TBS, what are major reasons for component delivery problem? 12 How the lead times, delivery, cost, quality effect to SCM in TBS through the years, especially in 2010? 60 List of interviewees: No Full Name Position Organization Nguyen Thanh Son General Director TBS Vu Manh Hoach Factory Director Sole Factory Ngo Ngoc Thi Planning Executive Production & planning Le Lam Ky Ngoc Import-Export Import & Export Executie Nghiem Xuan Hiep Sole and Assembly Manager Shoes factory Ngo Ngoc Anh Development Expert R& D Phan Van Phuong Customer relay Costing and Manager Customer service Phan Thi Thu Thao Production and Production & Planning Director planning Tran Dinh Cong Technical Expert Sole factory 10 Hoang Van Minh Purchasing manager Purchasing 11 Nguyen Thi Hoai Trinh Supply Chain production leader Decathlon Customer 61 APPENDIX 2: Key figures of TBS Groups Output and export value of footwear and leather industry Vietnam 2005-2007 2005 Items Output(pair s) 1.Shoes all 472,736,000 2006 Export Values(USD) 3,039,583,000 Output(pair s) 2007 Export Output(pairs) Values(USD) 579,284,490 3,591,563,840 Export Values(USD) 502,787,703 3,993,280,816 kinds(prs) Growth rate: 18.1% 11.2% In which: Sport Shoes 272,874,000 1,789,291,000 381,645,250 2,663,041,630 391,630,780 2,701,933,690 Canvas 42,017,000 611,050,000 35,499,760 217,194,900 38,318,070 205,178,270 shoes 62 Ladies shoes 89,574,000 93,721,000 87,093,280 538,702,540 110,530,890 802,567,750 Sandals 68,270,000 545,521,000 75,046,210 202,624,780 74,195,620 284,562,410 Finished 47,000,000 51,000,000 51,700,000 50,000,000 80,000,000 Leather of all kinds(sqft) Bags 500,000,000 &handbags of all kinds(unit) Source: LEFACO Vietnam (2007) 63 55,000,000 600,000,000 Footwear export of Vietnam 2006-2008 MARKET FOR EXPORTING EU NORTH AMERICA JAPAN OTHERS 2006 Turnover(USD % million) 1,966.54 54.75 802.76 22.35 2007 Turnover(USD % million) 2,176.83 54.5 885.16 22.16 2008 Estimated Turnover(USD % million) 2,489.94 53.0 1,089.94 23.2 113.13 709.13 3.15 19.74 114.75 817.51 2.80 20.54 136.24 981.88 2.90 20.90 TOTAL 3,591.56 100.00 3,994.24 100.00 4,698.00 100.00 Source: LEFACO Vietnam (2008) Business performance 2004-2007 Currency in VND Contents 2004 2005 2006 2007 Total sales 519,552,514,491 585,615,393,583 736,690,232,225 753,428,889,993 Net sales 518,839,614,929 585,615,393,583 735,353,612,014 752,191,961,582 Cost of 472,366,711,342 523,429,367,270 651,339,300,289 662,503,792,998 goods sold Gross 46,472,903,587 62,186,026,313 84,014,311,725 89,688,168,584 margin Selling 4,251,545,031 8,710,425,058 7,531,971,810 9,706,492,550 cost Finance 7,902,988,771 15,351,785,359 24,759,976,464 47,079,686,051 cost Overhead 22,909,154,765 29,482,757,810 35,545,840,306 47,936,104,842 cost Net profit 11,433,023,161 28,742,921,976 32,287,579,493 79,096,735,949 from business Other (555,429,673)* 147,541,082 74,027,656 92,797,559 profit Total profit 10,877,593,488 28,890,463,059 32,361,607,149 79,189,533,508 before tax 10 Income 2,719,398,372 7,373,613,408 9,061,250,002 14,336,936,989 tax 11.Profit 8,158,195,116 21,516,849,651 23,300,357,147 64,852,596,519 after tax 64 Notes:* figures in brackets were negative numbers 800 700 600 500 Total sale Cost Profit after tax 400 300 200 100 2004 2005 2006 2007 Demand, production capacity and export 2005-2009 Year 2005 2006 2007 2008 2009 Demand(pairs) * 9,767,745 11,554,287 12,585,791 14,010,287 15,278,456 Capacity (pairs) 9,000,000 10,000,000 11,000,000 12,000,000 13,000,000 Export (pairs) 7,399,746 9,399,767 10,334,135 11,273,601 12,490,341 (*) Demand based on the number of orders of customers at the beginning of the year or on forecast of customers given for TBS group 65 Demand,production capacity and export(prs) 18,000,000 16,000,000 Demand(pairs) * Capacity (pairs) 14,000,000 12,000,000 Export (pairs) 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 2005 2006 2007 2008 2009 Production planning in 2009 Month 10 11 12 Total Working days(days/month) Planned Real 27 17 27 26 27 27 29 27 25 28 27 28 26 17 26 26 26 27 27 26 23 27 25 26 Demand(pairs/month) Planned Real 990,600 670,420 1070,400 1,240,578 1,890,072 1,732,000 1,732,000 1,290,549 1090,810 1,213,500 1,224,560 1,132,967 15,278,456 900,174 489,969 954,753 986,790 1,289,435 1,290,780 1,279,540 1,202,011 832,786 1,085,765 1,050,843 1,127,495 12,490,341 66 Planned average output per day(prs) 36,689.00 39,436.00 39,644.00 47,715.00 70,003.00 64,148.00 59,724.00 47,798.00 43,632.00 43,339.00 45,354.00 40,463.00 Real average output per day(prs) 34,623.00 28,822.00 36,721.00 37,953.00 49,594.00 47,807.00 47,390.00 46,231.00 36,208.00 40,214.00 42,034.00 43,365.00 The cost information for producing sport shoes Currency in VND Expense Index Regular time cost (VND/pair) Over time cost (VND/pair) Subcontract cost Inventory cost ((VND/pair/month) Training cost (VND/pair) Lay off cost (VND/pair) 43,350 65,025 51,000 2,700 17,850 15,300 Management System Model of Thai Binh Shoes 2005-2009 SHAREHOLDERS MEETING TBS GROUP BOARD OF MANAGEMENT LEADERSHIPS BOARD OF CONTROLLERS & CAPITAL MGNT,INVT STATISTICS, ANALYSIS & LEGAL DOCUMENTS FINANCIAL BLOCK BLOCK OF HUMAN RESOURCE DEVELOPMENT FINANCIAL MGNT INVEST & ASSETS’ MGNT HR& IT ACCOUNTING 67 LABOR FORCE SALARY &PRODUC TIVITY MGNT RECT & TRAI NING SECURITY & SAFETY TRADE UNION & BENEFI TS Main products of TBS Group Production performance from 2005-2008 Criteria Turn over (million VND) Production volume (million prs) 2005 852,524 2006 971,162 2007 1,138,596 2008 1,354,603 8,078 9,403 10,789 1,240 Demand,production capacity and export(prs) 12,407 2008 1,354,603 10,789 2007 1,138,596 9,403 2006 971,162 8,078 2005 852,524 200,000 400,000 600,000 800,000 Turn over (million VND) 1,000,000 1,200,000 1,400,000 Production volume (million prs) 68 1,600,000 Production Process with cold cement technology for sport shoes Batching compound (Rubber cutting machine) Rolling-Laminating (Laminating roller) Cutting (Hydraulic cutting machine) Printing-pressing logo (High frequency embossing machine) Dispersion Kneading (Dispersion kneader) Embroidering logo (Computer embroidery machine) Stitching pieces (Stitching machine) Batching EVA (EVA cutting machine) Dispersion Kneading (Dispersion kneader) Mixing (Mixing roller) Mixing (Mixing roller) Sheeting (Sheeting machine) Sheeting (Sheeting machine) Upper moulding (Upper moulding machine) Cutting pieces EVA pressing (Cutting machine) (EVA pressing machine) Lasting (Lasting machine) (Hydraulic outsole pressing machine) Outsole pressing Attaching (Sole attaching machine) Buffing-Attaching EVA Phylon EVA Skiving (Skiving machine) Trimming EVA cutting (Trimming-machine) (Cutting machine) (Buffing machine) Removing form,cleaning& Pakaging 69 Phylon pressing (Phylon pressing machine Production organization of a sole factory and shoes factories of TBS Shoes Factory Sole factory EVAPhylon shop MixingPresssing shop Stockfiting shop Lamina ting shop 70 Cutting shop Printing shop Embroide ry shop Stitchin g shop Lasting shop Production flows at TBS Group Collecting Information Step NO Planning Step NO Step Considering alternatives (b) Adjusting & feedback (a) YES Step Step Implementing production Plan Step Supervising Implementation Step Coordinating & handling problems occurred Step Synthesizing production performance Step Reporting Step 10 Analyzing, evaluating periodical production performance Step 11 Having preventive measurements Step 12 Continuous improving 71 YES ... what a supply chain is then we can define supply chain management as the thing we to influence the behavior of the supply chain and get the result we want ? ?Supply chain management (SCM) It is a. .. 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. .. supply chain in practical for long time-is the case to analyze 17 In general, the author learned from the literature on supply chain and SCM to obtain the fundamental approaches to evaluate and