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1 Introduction....................................................................................................................................................3 2 The Confection Industry................................................................................................................................4 2.1 Overview................................................................................................................................................4 2.2 Market Segmentation and Purchase Criteria.........................................................................................4 2.3 End-User Analysis Fashion Apparel......................................................................................................4 2.4 The Industry Value Chain......................................................................................................................4 2.5 Distribution............................................................................................................................................7 3 Company Description....................................................................................................................................9 3.1 Corporate Configuration........................................................................................................................9 3.2 Competitive Environment....................................................................................................................11 4 E-Business Strategy.................................................................................................................................12 4.1 Verticalization of Multi-Brand Sales Outlets......................................................................................12 4.2 Service Improvement...........................................................................................................................14 4.3 Difficulties with Internet Projects........................................................................................................14 5 Project Proposals.........................................................................................................................................16 5.1 Intranet & Knowledge Management Mini-Project..............................................................................16 5.2 Data Warehouse...................................................................................................................................17 5.3 Production Tracking............................................................................................................................17 5.4 3rd Party Procurement.........................................................................................................................18 5.5 B2B Product Catalog...........................................................................................................................18 6 Bibliography................................................................................................................................................20
A communication map for a typical textile company, showing time and cost inefficiencies in the communication processes with its business partners
Fashion and non-Fashion o Fashion Apparel with low price sensitivity o Non-Fashion Apparel with price sensitivity Age group (infants, children, teenagers, adult, ) Product Type: o Female suit, coat, tailored jacket and skirt o Female lingerie, loungewear and nightwear o Female blouse and Shirt o Female dress o Male Suit, Coat and Overcoat o Male Shirt o Male underwear and nightwear o Socks and hosiery o Trouser, Slack and Jean o Accessories Occasion and Formality o Sports outfit o Casual wear o Business clothing o Formal clothing Material (wool, cotton, linen, synthetic fiber, leather, )
2.4.1
Fibers
Fibers are the main component of textile products in general. Fibers are spun into yarn, which in turn is converted into fabric. The standard fabric used in cut and sew apparel typically can be classified into three different types:
Natural fibers like cotton, wool or linen Artificial fibers like viscose, that have a natural origin but which go trough a transformation process and Synthetic fibers like nylon or polyester, which are produced by petrochemical processes.
2.4.2
Yarn Makers
The yarn making activities in Europe have declined notably since the 70. Most production has moved to 3rd world countries today. Only specialized yarn makers can be found in Europe and the United States.
2.4.3
Fabric Making
Fabric making has developed in a similar way to yarn making with shift of production towards 3rd world countries such as Pakistan and India, particularly in the area of standardized, uncolored, untreated fabrics. The remaining industry in Europe is focuses on niche markets determined by flexibility, speed or custom production, using mainly Jacquard machines.
2.4.4
Finish
-5 -1,90
The finishing process uses a variety of production processes to adapt the characteristics of the fabric to the needs of the end users, in particular to fashion trends. These processes include:
Coloring
Portugal 0,04 Italia Francia Espaa UE-15 -5 0 5 5,08 8,00 8,02 11,02
2.4.5
Manufacturers
The manufacturers in the confection industry differ in the number of integrated production steps (production depth).
In general, all manufacturer exercise a tight control on design, product development, quality control and delivery (storage, picking, packaging and transport). Many manufacturers also include part or all of the distribution chain. The integration of production phases such as cutting, confection and ironing depends on the particular company and product.
Design and Prototyping: The first step towards a product is the design phase. Here the company has to define: The materials to use, color, color patterns, textures, finish, fit and form. Usually a software program allows deriving the cutting plans and the BOM (Bill of Material). Cutting: Once the cutting plan has been derived from the design phase, the colored and finished fabric is cut using automated cutters or manual cutting forms. Sewing: The cut pieces are sewed together using an important amount of manual work. All attempts to automate this processing step have failed until now. Finish: Buttons, ornaments and zippers are added to the product. The result is ironed to give it the final form.
The figure below summarizes the industry environment for the manufacturers according to Michael Porters 5 forces framework.
2.5 Distribution
For the most part, European consumers acquire their fashion goods in specialty stores, boutiques and large department stores. The large supermarket chains attract fewer buyers of apparel products. In Europe, 60 percent of the space in shopping centers is occupied by apparel and fashion accessories boutiques. Variety and quality are the characteristics that the buyers seek in the boutiques located in the shopping centers, while higher prices are the main drawback. [3]
2.5.1
Tendencies in Distribution
Quotes de mercat actuals, 1992
There is a growing trend among manufacturers to create their own chains of distribution. Franchise has become a very common system for brand names distribution of fashion products and wearing apparel The Spanish Franchise Association states that there are over 78 Spanish brand name franchises in the fashion sector with almost 3,000 boutiques. The independent outlets are still (1992) the primary distribution channels in Spain, but they are loosing terrain mainly due to two reasons:
Disappearing: The consumers are
Altres
57%
12% 5% 10%
Canvis en la penetraci sobre vendes
16%
-14%
Grans superfcies Cadenes i franqucies
Ev i franqucies +233% olutionCadenes of the distribution channels in Spain (1985 Grans superfcies 1992), Source: Centro de Informacin Textil y +150% de la -15% Altres confeccin (CITYC)
-15 -10 -5 0 5 10 15 20 25
Grans magatzems
Grans magatzems
Detallistes independents
30
35
Evolution of the distribution channels in Spain (1985 1992), Source: Centro de Informacin Textil y de la confeccin (CITYC)
The hypermarket format has experienced an important growth due to its low cost offerings achieved by means of their strong negotiation power. Typical products include:
Standard (commodity) products in the low price segments and Products with a strong brand image.
2.5.2
However, the most important change has occurred with associated boutiques, franchising and multifranchising outlets. This type of outlets allows for a higher profitability due to standardization and economies of change. Traditional independent sales outlets buy their products from a number of brand-owning providers. The outlet owners decide for the product mix, the shop location and its design. In contrast, franchised outlets give up the design and product mix responsibilities to the chain, where more sophisticated personnel can leverage the distribution brand and deal with these marketing and product mix issues more efficiently.
ESQUEMA TRADICIONAL
MARCA DE CANAL
FABRICANTE
DETALLISTA
Fabricante
Marca canal
Puntos de venta
Fabricacin Distribucin
Gestin informacin Diseo Gestin inmobiliaria Publicidad Venta al cliente Diseo Puesta en tienda prctica Seleccin polticas de gama Definicin polticas
Distribution of the company departments by country These entrants have been possible @ToDo: change the slide by using the vertical distribution format, consisting of tightly controlled franchising outlets as compared to the companys traditional customer base of independent sales outlets. These new players have entered from neighbor markets, leveraging their already existing distribution brands. This situation, together with the general economic downturn since 2000 has lead to decrease in sales, pressure on the gross margins and a financial situation that requires active measures.
Company Short Facts
Worldwide sales with focus on Europe. Brand portfolio covering all major segments in its market, both fashion and non-fashion. Ca. 500 employees worldwide Produces about x million textile items per year Serving more then x customers in Europe and the rest of the world.
and
3.1.3
Distribution
Distribution is organized according to the type of clients as described chapter 3.5. There are three main outlet formats:
Hypermarkets Department Store Individual outlets: Traditional shops, typically located within residential neighborhoods or within city shopping areas. This channel is differentiated in computer-savvy outlets and outlets that are not able nor willing to use the Internet for order management. Franchised outlets: Same structure as the individual outlets, but limited to the company brands and owned by company. Other: This includes channels for scrap, returned or outfashioned products.
3.1.4
IT-Infrastructure
The information systems at Xxxx are organized around the idea that ERP systems are too brittle to adapt to the specific and fast changing needs of the textile sector. Examples of such needs are:
The color-size matrix structure that is used for all ordering and production processes in the textile industry. The outsourced production structure without a typical production floor but with the necessity of production tracking across organizational, country and time zone Company configuration to be covered by boundaries. ToDo: Change the slides The frequently changing organizational structure due to market changes The relatively low technical sophistication of the information system users.
IT systems
In addition, there are negative reports about ERP installations at several other textile companies, talking about huge cost overruns and little productivity gains. These reports are difficult to verify, so that there is a lively discussion about the pros and cons of an ERP introduction. Instead of an ERP, COMPANY has developed an IT-Infrastructure based on several AS400-based applications with convenience applications being written in Visual Basic:
The operational processes are supported by AS/400 finance, order management and warehouse control applications Product data are processed using a production management system in Clipper technology
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This infrastructure has been working more or less satisfactory during several years. However, it is plagued by a set of problems typical to in-house developments:
Disparate data: Data are held by several isolated systems, making it difficult to integrate processes and to generate company-wide reports A high number of in-house employees is necessary to maintain the infrastructure. The usual difficulties with the in-house development such as cost overruns and unreliable timing.
3.1.5
COMPANY enjoys relatively high margins of X% on average on its products. However, sales is currently declining due to a series of strategic and operational efficiency issues. Strategic Issues:
New Entrants: Several distribution chains have entered the market segments of low-cost and fashion oriented products, coming from neighbor markets. The new entrants have been possible because of a vertical distribution structure explained in chapter 3.5.2. Service Level: The service level of COMPANY has fallen back to industry average, while its superior service used to be a main factor for growth in the past.
Business priorities set by the general management have directed the e-Business strategy towards two pressing issues (explained in chapter 3.1.5):
Verticalization: The creation of a vertical distribution channel that can compete in terms of operational efficiencies with the new competitors and Service: Improvement of the service towards the traditional sales outlet to gain market share.
The necessary change processes to achieve the strategic reorientation are also initiated and executed by the general management. This includes in particular the conversion of traditional outlet stores to franchised outlets as member of the newly founded X chain as well as the policy changes in sales, product delivery and replenishment.
Infrastructure
Applications
Market Country specific offerings Control client credit risk Call-center based order entry process Order Control the sales Sales force Man.
Global offering Provide the products that the outlets need Internet based online catalog and order tracking Provide reporting functionality for the call-center to improve incident resolution Provide business intelligence to the sales consultants. IBM AS400 mainframe Sun Solaris Internet servers Internal network with no access from outside Intranet infrastructure with managed access from the company outside the company RPG based software development TCL based software development System administration and software Administration and development handled by an external development handled mostly by an internal company with a fallback option to internal handling team
4.1.1
The need for new applications is driven mainly from the new ordering and replenishment processes. In the past, order entry operation has been performed by a call center. Now order entry is done using an Internet application that also provides the updated product catalog, order tracking and delivery tracking. Please see chapter 5.3.8 for the details on this application. A positive side effect on the service level can be achieved by the order tracking part of the application, as all information on the delivery status can be made available online. This allows the client to better estimate arrival time of items and allows for the cancellation of goods that would be delivered too late. A second positive side effect is the global availability of the order management application and the possible regional extension of the markets.
4.1.2
The necessity to deliver a complete product mix to the sales outlet requires the management of a number or new 3rd party supliers. This is the domain of a buyer-side marketplace that COMPANY may feasibly operate due to the volume of goods to be bought.
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4.1.3
Infrastructure
A standard Internet infrastructure is required for the operation of the order management and 3rd party sourcing applications, because both applications have to be globally available over the Internet (chapter 5.3.9). This in turn requires the setup of an Internet maintenance and development team, either composed of internal employees or by means of outsourcing.
4.2.1
Production Tracking
Until today, the process of tracking of the production in the outsourced sewing plants has been performed manually by sending back and forth faxes. The lack of digitalization of this process leads to deviations in the production and thus to delivery delays in the outlet stores. A production tracking application improves this process substantially, allowing the remote sewing plants to maintain the status of all production orders over the Internet. The application works on the base of the product kit barcodes that are scanned in and sent to the central production control application over the Internet. The simple and robust Internet infrastructure is of primordial to this application because the majority of the production plants of COMPANY are located in 3rd world countries. Please see the Production Tracking project in chapter 5.3 for details.
4.2.2
Business Intelligence
A second factor that contributes to the poor service level is the lack of information about the process. This situation is caused by the existence of several disperse systems with non-integrated data. As a solution we suggest to integrate all data into a single Data Warehouse (chapter 5.2). We expect that the availability of more precise business information will help to identify of the causes of poor service and to take the appropriate action.
In the case of COMPANY, all three issues have been resolved by subcontracting an external consulting company.
Implementation
Setup an Intranet server and define how different departments can publish data Train the users in creating contents for the Intranet Start the first phase with the IT-Department, involving about 3 editors (=content providers) and 15 active users Start a company-wide rollout, possibly starting with the HR department to gain acceptance with the employees. A final stage (IT, HR, Production, Sales) could involve about 20 editors and 150 active users.
Risks
Low involvement from department members, no involvement from senior management, generally low readiness for change. The corporate culture is very informal, knowledge is frequently held informally The corporate employees are relatively unsophisticated in terms of IT usage.
The second phase is calculated accordingly with 20 editors, 150 users and 60min/month saved time per user. Project Intranet & KM Phase 1: IT-Department (3 editors, 15 users) Phase 2: Company wide (5 editors, 100 users) Investment Benefit / month 23.025 3.400 3.775 650 19.250 2.750 ROI 6,8 5,8 7,0
Implementation
Phase 1 consists of a Data Mart for sales, consolidating data existing systems into a single database. Also, external data sources have to be integrated such as demographics and competitor information. Further phases include the setup of specific Data Marts for each department, customized to the specific department needs. Reports are extracted from the Data Warehouse in the first phases using Crystal Reports. More advance (and expensive) reporting tools may be introduced later if there is a business case or a business need for it. Please refer to Appendix 2 for a preliminary implementation plan.
Project Data Warehouse 1 Phase 1: Sales Data Mart Phase 2: Financial Data Integration Phase 3: Production Integration
Investment
Benefit / month
NPV
75.300 1.288.795 39.300 13.100 442.361 18.000 10.000 349.681 18.000 14.000 496.753
As explained in chapter 3.1.2, COMPANY is contracting several sewing plants in Africa and Asia for the work intensive processes of the production chain. The tracking of this production process
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Implementation
Investment
Benefit / NPV month 91.300 54.300 1.258.386 -84.814 64.000 -900 27.300 55.200 1.343.200
This module is thought to extend an ERP negotiation module by negotiation capabilities over the Internet (request for quotation, request for proposal and reverse auction). Costs and ROI
No formal calculation has been made yet, because it is not clear yet whether such a module would be preferable to a classical ERP solution.
Dependencies
Description The B2B Product Catalog consists of a classical Internet-Shop application plus custom functionality to allow for the tracking of orders and deliveries. Cost and ROI
The costs are based on a particular project proposal. The benefits are calculated based on the savings in the call center as a function of the number of connected sales outlet. Benefits from market growth and service improvement are not includes.