Poor innovation activities at SMT (VN) co ,ltd

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Luong Thi My Lan POOR INNOVATION ACTIVITIES AT SMT (VN) CO., LTD MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City – Year 2018 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Lương Thị Mỹ Lan POOR INNOVATION ACTIVITIES AT SMT (VN) CO., LTD MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: Ph.D Đoàn Anh Tuấn Ho Chi Minh City – Year 2018 TABLE OF CONTENT Executive information Introduction CHAPTER 1: COMPANY INTRODUCTION 1.1 Industry overview 1.2 Company overview 1.3 Organization chart CHAPTER 2: PROBLEM IDENTIFICATION 2.1 Problem context 2.2 Company’s symptoms 2.3 Problem identification 2.3.1 Potential Problem and Validation 2.3.2 Central Problem 12 CHAPTER 3: CAUSES AND UPDATED CAUSE-EFFECT MAP 15 3.1 Causes and validation 16 3.2 Central Cause 19 CHAPTER 4: ALTERNATIVE SOLUTIONS 21 4.1 Solution 1: Finance leasing 21 4.2 Solution 2: Built up the training process and policy 24 CHAPTER 5: ACTION PLAN 26 Conclusion SUPPORTING INFORMATION REFERENCE Executive information The SMT Company is leading in textile industry about label manufacturing high quality base on the combination of high technology, customer‘s reliable and satisfaction, good management and high demand of market However, nowadays, in the completive market, SMT seem lost the top position because objective and subjective factors Base on the symptoms is profit margin drop down, the main problem of this company was revealed is the strategy company does not invest machine and technology The reasons are point out three majors: the power of financial equity and the well-trained workload, in this situation, finance and human resources are the challenge for company Finally, the conception of director also related to run the business for company’s strategy These problems must solve quickly as it is indeed threatening the survival Company suggests two positive solutions for cause problem are finance leasing and built up the training process and policy These solutions are not only support about capital resources through choose the bank with interesting attractive, professional process and more benefits but also give company the plan in human resource training by heightening labor awareness of training skill and knowledge, making training plan and plus more policy to encourage the labor with reasonable cost Based on these solutions, company conduct the action plan with people in charge such as CEO, CFO, Factory Manager … in time to improve the situation This thesis also collects the data from financial and internal reports, refers the literature by author and in-depth interview all persons with high position in charged for more details also interview other related employees to be executed fully understand the problem Additions, this thesis used formula is Gross profit margin = (Sale revenue – Cost of Goods Sold) / Sale revenue to clarify the symptom also used some kind of charts to analysis and compare the information in detail Meaning, this thesis presented the important problem and positive solutions also the action plan for main problem in positive Introduction Textile industry in general label industry in particular is the most important industry in Vietnam which not only solve about unemployment but also impulse the development of industry in Vietnam This makes textile industry essential for the Vietnamese people However, nowadays, when Vietnam joined the WTO, textile industry in Vietnam is facing more challenges such as the policies, culture and more strong competitors as Chine industry SMT Vietnam Company is a Foreign Direct Investment company that specialized in providing cloth and shoes labels for textile industry Due to the fashion grow rapidly in Vietnam; at the begin 2003 SMT Company established which focuses on label producing by chain complex machinery CHAPTER 1: COMPANY INTRODUCTION 1.1 Industry overview Vietnam plays an increasingly large role in the World’s Textile & Garment Value Chain - its garment products exported to over 180 countries and territories The country poised a bright future ahead of becoming the world’s textile production center, and major garment makers are continuing to explore expansion and production opportunities in Vietnam There are around 6000 textile and garment manufacturing firms operating in Vietnam, 84% of which privately owned, 15% FDI, and remaining 1% are state-owned This industry employs around 2.5 million people in the country on an average wage of $239 per month Garment manufacturing accounts for 70% of the total businesses in this sector in Vietnam with CMT (Cut, Make, Trim) being the main method (85%) of export The apparel exports account for 11.5% ($24.61) of the country’s total exports (2016) 1.2 Company overview SMT (VN) Co., Ltd is the Foreign Directly Investment in manufacture high quality labels In 2003, SMT was established by the main director is Thailand woman and have two working location include one head office in TanBinh district and one factory in Cu Chi district That location is useful for transport and production The main products are woven and printing labels to provide for the business of Footwear / Garment / Bags/ Accessories items, etc., SMT Vietnam has good environment working also well-trained technicians with much talented and skillful teamwork We are now major supplying our woven labels to main customers i.e Nike/ Reebok/ Timberland/Adidas/ Pierre Cardin/ Puma in Vietnam market and many brand name customers in Asia countries also enhance our customer’s brand name in worldwide market Moreover, over 15 year, SMT already has exported woven labels to USA, EU, Hong Kong, Singapore, China, and Australia annually 1.3 Organizational chart The human resource in 2017: 200 people for office and factory CEO SALE DIRECTOR Sale Customer Service FINANCE MANAGER Accountants HR MANAGER Staffs FACTORY DIRECTOR Manager Depart Worker CHAPTER 2: PROBLEM IDENTIFICATION 2.1 Problem finding process In order to identify the company’s problems, these following steps executed: Reference the data of report’s company to understand the symptoms and positive problems Review the literature related to the symptoms and accounting data of industry Interview all persons who in charged for more detail:  Mr Tran Quoc Bao - Director of factory  Mr Nguyen Luong Bang – Director of sale and customer service department  Ms Ho Loc Ly – Finance manager  Mr Ky Ngoc Minh – HR manager  Ms Wanpen – CEO  And others employee to get the full information for clear understand the problem Moreovers, information from customers and competitors also be collected to futher reference 2.2 Company’s symptoms Following the date of financial report from 2016 to 2017, the symptoms of this division had revealed as following: The formula of this ratio is Gross Profit Margin = (Sale Revenue – Cost of Goods Sold) Sale Revenue The trend’s gross profit margin had fall down 5% from 59% to 56% in 2016-2017 Specially, the end of 2017, gross profit margin rapidly decreased between 60% and 26% from August to December and was high distance with 2016 in same period More important, this was in the seasonal textile The main reasons of decreasing gross profit margin are the revenue and cost of good sold: For the operating revenue had reasonable decreased around 21% between 2016 and 2017, specially, the revenue in 2017 had trend rapidly went down from January (8,236 million) to December (6,866 million) Moreover, total SMT revenue 2017 was around 20% lower than QN Competitor Company; most important, SMT’s revenue had high distance over 35% with competitor in the fashion season (in supporting information) The reasons make revenue decreased by the fluctuated PO (Production Order) The PO had same trend as revenue (in supporting information) In particular, the negative effecting to PO and revenue is the loss of customer’s offers includes loyal and potential customers and in 2017 had lowest customer’s offers The total customer’s offers around were 2.744 and 2.121 for 2016 and 2017 More detail, in 2016, there were 1.950 PO (Production Order) from loyal customers, 764 PO from potential customers and 30 PO form others However, in 2017, there were 1.700 PO from loyal customers (down 13%), 401 PO from potentials customers (down 48%), and 20 PO from others only Furthermore, Mr Bang, Manager of sale and customer service department, also point that the product’s season and lack of reputation were a part of reason effect to customers offers decreasing On the other hand, the cost goods of sold was calculated by three factors is material cost, labor cost and manufacturing cost, but the labor cost was stable The cost of goods sold went down around 10% between 32.793 million and 29.341 million This was due to the raising material cost and manufactory cost Follow the data accounting there were dramatically increased in 56% for material cost and 4% for manufactory cost such as repair and replaced equipment for machine Moreover, finance manager stated that company could not reuse waste material woven so policy control cost ineffective for material cost This lead to the result of gross profit margin went down in years Material Cost Manufacturing Cost 2016 8,437,533,736 11,680,566,811 2017 13,200,332,658 12,129,623,444 Increase rate 56% 4% Table: The material and manufacturing cost SMT Conclusion, the symptoms showed such as decrease gross profit margin, revenue and the customer’s order Moreover, we can see the revenue decreased around 20% but COGS just fall down 10%, lower than revenue, so we can see the factor affect COGS as material and manufacturing cost was flexible changed Follow that symptoms above, this was the serious signal to urge me discover and clarify what was the main problem 2.3 Problem identification 2.3.1 Potential problem and validation Although, SMT is one of the strong competitors, follow these company’s symptoms as gross profit margin also base on the literature and in-depth interview people in charge in business to claim that company had trend went down The potential problem clarified by review the theory and in-depth interview to confirm what is the central problem Follow the theory by two studies that claimed the low quality service and product effect to customer satisfaction such as: Kandampully (1) stated that quality of service, rather than price, has become the key to a manufacturing’s ability to differentiate itself from its competitors and to gain customer loyalty and Nielsen (2) claim that companies increasingly look to quality, satisfaction, and loyalty as keys to achieving market leadership Understanding what drives these critical elements, how they linked and how they contribute to your company’s overall equity is fundamental to success By the way, as Customer service and sale admin shared that the brand value and reputation of company affected by the appreciated customers also Bontis Ms Wanpen: We have administrative meeting with key staffs such as chief accountant, sale manager and factory manager weekly In that meeting, we present the current or period problem to control and find out the solution to prevent it Did you hear any problem about product qualification? Ms Wanpen: Uhm, yes I received more feedback complain about product qualification, our product did not meet up their requirement and similar with the sample we make before In addition, I heard from chief accountant announced that the manufacturing expenses is increasing in material and repair machine cost What you think what is the reason to affect that problem and you have any solution? Ms Wanpen: Overview, I know almost it came from our machine You can see, our machine old fashion, its take long time in manufacturing and usually put the wrong yarn in label or weave the label unsmooth We are finding the solution to upgrade and innovated machine and technology but now we still have some limitation to conduct that plan Can you tell more about the status of our main chain machine in factory at the present? Ms Wanpen: In main chain machine, we have 26 power-loom machine included buy 20 pcs in 2003 with degraded 75%, productivity only 45% and pcs in 2010 with degraded 15%, productivity only 85% Before, machine was imported from different country such as 45% Thailand, 30% China, 20% other Asia country so the homogeneity is weak Because less homogeneity and degrade machine, company face with difficult in buying replace accessories, low productivity, waste the material, production norm is old and improper but did not change Do you think the limited innovation machines and technologies is the most important affection to Business Company? Ms Wanpen: yes, our kind of business is manufacturing industry, so we depend on too much about running machine and technology The innovation machine and technology huge effect to our business such as: We will increase the productivity include quality and quantity With the modern main chain machine and technology, company will saved the material cost for each unit product and less the material wastes Moreover, the manual workers decrease and impact to expenses about worker’s salary will decreased That help company can get the lower cost of goods sold so company can easy sell with the reasonable price, access the more markets Therefore, revenue and profit will increase Beside the saving the cost, the quantity and quality of product will be went up, that can meet up the hard requirement of market about sample, branch The status low price but high quality is so meaningful and strong power in current competition Do you have any innovation machine plans currently and when we will start the process? Ms Wanpen: we lack of some important factors such as finance, workload, to conduct the innovation plan However, we will finger out and start the innovation plan as soon as possible Thanks for your sharing and I wish you have nice day! THE INTERNAL DATAS TO ANALYSIS Table 1: The Production Order (PO) per month for year Month 10 11 12 Year 2016 283 72 190 239 222 171 255 280 313 278 209 232 Year 2017 229 229 306 214 206 169 141 131 157 147 98 94 10 Table 2: The Cost of Goods Sold per month for year COGS Year 2016 Year 2017 10 11 12 3,110.16 1,085.52 2,192.91 2,363.45 2,502.73 1,945.69 2,832.69 3,358.08 4,171.28 3,797.47 2,547.98 2,885.56 3,480.45 2,853.42 3,631.45 2,993.14 2,598.04 1,887.58 1,606.52 1,559.55 2,363.11 2,360.28 1,905.21 2,102.96 Table 3: The revenue of SMT and Quang Nhat competitor in 2017 REVENUE Year 2017 QN Competitor 6,839.2 8,207.1 6,833.3 7,516.7 9,126.0 9,217.3 6,376.1 7,141.3 6,125.5 7,350.6 5,022.5 6,529.2 4,145.9 8,335.3 3,899.9 9,407.1 4,674.8 10,526.8 10 4,373.8 9,988.3 11 2,926.6 7,313.6 12 2,833.3 7,004.0 11 Table 4: The formula of payment interest of finance leasing a : the payment each semester Vo : Total amount of asset I : The interest rate N : The number of perid 12 REFERENCE Kandampully J, Suhartanto D Customer loyalty in the hotel industry: the role of customer satisfaction and image International journal of contemporary hospitality management 2000 Nov 1;12(6):346-51 Johnson MD, Gustafsson A, Andreassen TW, Lervik L, Cha J The evolution and future of national customer satisfaction index models Journal of economic Psychology 2001 Apr 1;22(2):217-45 Bontis N, Booker LD, Serenko A The mediating effect of organizational reputation on customer loyalty and service recommendation in the banking industry Management decision 2007 Oct 23;45(9):1426-45 Bontis N, Booker LD, Serenko A The mediating effect of organizational reputation on customer loyalty and service recommendation in the banking industry Management decision 2007 Oct 23;45(9):1426-45 Payne A Relationship marketing–making the customer count Managing Service Quality: An International Journal 1994 Dec 1;4(6):29-31 Fawcett SE, Magnan GM, McCarter MW Benefits, barriers, and bridges to effective supply chain management Supply Chain Management: An International Journal 2008 Jan 25;13(1):35-48 Hébert RF, Link AN In search of the meaning of entrepreneurship Small business economics 1989 Mar 1;1(1):39-49 Lee SC, Barker S, Kandampully J Technology, service quality, and customer loyalty in hotels: Australian managerial perspectives Managing Service Quality: An International Journal 2003 Oct 1;13(5):423-32 Mert G, Waltemode S, Aurich JC Quality assessment of technical product-service systems in the machine tool industry Procedia CIRP 2014 Jan 1;16:253-8 11 Feldman MP, Florida R The geographic sources of innovation: technological infrastructure and product innovation in the United States Annals of the association of American Geographers 1994 Jun;84(2):210-29 13 12 Aghion P, Veugelers R, Serre C Cold start for the green innovation machine Bruegel policy contribution; 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Accountant, Director factory of SMT company and base on theory also data collected, the central problem is company’s innovation behavior was poor In the strategy business, they had no plan to concern