Abstract – Supply Chain
Supply Chain – The export-oriented readymade garment (RMG) industry has some distinctive features, which differentiate it from other businesses. Wage, Supply Chain , Time-frame, and Compliance are among the most important features of this business. Each of four features is interrelated and interdependent. Among the features, effective Supply & Chain Management (SCM) is the core. Whatever the wage level or lead time (the period from order confirmation to shipment) without proper management of supply chain business is not viable and sustainable. Supply & chain can categories into two phases – Macro level, part of global supply & chain and Micro level, the supply & chain system within the manufacturing unit. In supply & chain system, it can be materials, it can be information, and even it can be a supply of business (continuation of business). One single and very simple issue like mismatching thread count or wrong button line, incorrect or delayed information can make the whole process jeopardies. Considering the importance, present study has been carried out on supply & chain system in Bangladesh RMG industry. The study revealed the difficulties in supply & chain system and also tried to set some guidelines to improve the system for the sustainable development of the sector.
Supply Chain Management
Supply Chain Management – The export-oriented readymade garment (RMG) sector has some distinctive features, which differentiate it from other businesses. Wage, supply chain, timeframe & compliances are among the most important features of this business. Each of the four features is interrelated & interdependent. Among the features, an effective Supply Chain Management (SCM) is the core one. Whatever the wage level or lead time (the period from order confirmation to shipment) is, without proper supply chain management no business is viable. We can categories the supply chain into two phases – macro level that accounts for part of the global supply chain & the micro level that is the supply chain system within the manufacturing unit.
In the system, it can be materials, information or it can even be supply of business (volume of business). One single & very simple issue like mismatching thread count or wrong button line, a piece of incorrect or delayed information can put the whole process into jeopardy.
In RMG business, there is a very strong correlation between the business value chain & the supply chain. The supply chain is mostly controlled by the buyers who control the business. Only lowest wage cannot ensure the business. Without proper management in the supply chain, it is not possible to comply with the lead time given by a buyer. RMG manufacturing is one of the suitable examples of the SCM.
Apart from the ultimate consumer & manufacturer, there are many other parties involved in the RMG business. In many cases a work order comes to a manufacturer through four to five different h&s or phases. For example, a buyer in the USA (ultimate customer or br& owner) confirms the business with an agent of that country. That agent has another agent in Hong Kong. Now many agents have their offices in India. An agent in India has another agent in Bangladesh. It is called the ‘local agent.’ That local agent communicates with the manufacturer.
Due to multiplicity of the stakeholders or middlemen, it takes a lengthy process for any decision. Pending approval kills the lead time. In the whole supply chain, Bangladesh does the manufacturing job but does not manufacture basic raw materials. Our competitors like China & India have their own sources of materials. Countries like Vietnam & Cambodia need only one week to receive the materials from Shanghai. So, the lead time is another important issue in the RMG business.
One small material missing or delayed just puts the whole order at stake. Schedule failure for one single order delivery jeopardises the whole production plan. Unplanned & earlier importation of materials increases the inventory level. Supply of materials, when delayed in-house, creates a line gap. Both the situations have a negative impact on finance. On the other h&, if the finished goods are not shipped on time due to not getting the approval, the factory has to pay the bills of back-to-back (BTB) L/Cs (letters of credit) against its bank loan at a high interest. So the factory always tries to avoid delayed shipment, even by covering that delay with overtime work, which leads to double production cost. When this overtime work does not help, then they take the recourse to un-authorised sub-contracts. Excessive overtime work & un-authorised subcontracts both amount to violation of compliance, another inevitable feature of the sector.
The RMG sector is now passing through many difficulties it never faced before. A devastating fire at the Tazreen Fashions & the Rana Plaza collapse have raised the question about its capability in terms of compliance, fire safety & building integrity. Only minimum wage competitiveness does not guarantee any international business of this kind. Hundreds of factories are closed, thous&s of workers have lost their jobs, many factories are running under-capacity even after accepting the business at the cost price. For the first time growth in our RMG export has fallen mainly on the compliance ground. So, to ensure compliance there is no way to enforce an effective SCM.
Of the four important features of the sector the proper supply chain management is the key to others. All the factors are interrelated & interdependent. All of our competitors have an advantage in the lead time. They are in a better position in the area of supply chain & compliance. Our main competitiveness is the low wage. Only wage alone cannot guarantee business growth & sustainability.
At the macro level the SCM system involves parties of different companies in different countries like suppliers, manufacturers & br&s. In the global or macro-level links, relationship & commitment of different suppliers, services of banks, ports, customs along with transportation & documentation are interconnected. It is a difficult job to ensure an effective coordination among all the parties. Common interest & business relationship can make a strong bondage in the macro-level SCM. If the parties involved work jointly, then it is possible to render an effective management system. This is a team work. Non-performance by any member of the team is enough to lose the game. Among the factors, beyond the factory control, are –
1. Delayed & wrong supply of materials
2. Delayed approval
3. Style changes after confirmation or even after the start of production
4. Fabrics failing to the test requirement
5. Pilferage of goods or finding them missing during transportation or at ports, especially at airports
There are basically two types of functions at the micro level: a) at the head office where the persons deal with buyers & suppliers involved in documentation etc., & b) at the factory where production operation activities are performed. Even within the production operation there are many departments involved. The links between factories & the head office or among the departments of the factories can be classified as the micro level.
The RMG business involves a buyer-dominated supply system where garment makers have a very limited role. Unfortunately, even with a limited role in the supply chain, a factory has to face tremendous pressure to meet the lead time. In this particular business, suppliers are not static & a large number of suppliers are involved in the process of making a single shirt of a particular style. For the same buyer it is not necessary that the suppliers’ list & items will be the same. The number of suppliers varies depending on style specifications. There are almost 20 items required for a single shirt. A factory dealing with 15 buyers has to h&le at least 100 suppliers. Most of the factories run their operation in the traditional system i.e. not having any modern information system.
To cut the lead time the sector needs to improve the SCM system. A buyer wants everything ready & instantly. Instead of the traditional system, now online costing & orders are now common. In the traditional system it required 120 days in case of solid fabrics & 150 days for yarn dyed. Now a factory is having 60-75 days & 90-120 days respectively. In the case of composite knit garment, a factory keeps the fabrics ready in the grey condition. After having the style details they go for dyeing & thus they can manage to keep the lead time limited to 30-45 days for repeat orders. For any fresh order a buyer does not allow even 60-75 days, though earlier it took 90-120 days.
It is important to mention here that in the category of knit & denim fabrics, Bangladesh is almost self-reliant. It is a positive sign. The skill & productivity of our workers have increased significantly.
Evidence shows that in 70 per cent cases it is buyer’s responsibility & 30 per cent is of the manufacturers. Direct marketing & elimination of middle men can help establish an effective supply chain system. It is very difficult to make a combined & coordinated system among the interest groups involved at present. Miscommunication & misinformation at any point hamper the whole process. Moreover, the impact of political instability & workers’ unrest destabilising the SCM are another concern. Adaptation with changing technologies, undisrupted utility supplies, minimising corruption, elimination of bureaucratic tangles in customs, port management & other concerned government agencies can play a vital role in overcoming the challenges. Without combined efforts & firm commitment from all concerned, a performance-based supply chain system is not possible.
A chain is as strong as all of its rings are. Similarly, a chain is as weak as one of its rings is, i.e. one single ring is more than enough to make the whole chain dysfunctional. The RMG sector in our country has so far been witnessing very clear price competitiveness. The minimum wage in our country is still the lowest among our competitors. But our lead time is under pressure. Cheap labour does not help, if the workers are not efficient. The supply of a small quantity with many styles within a short time is not possible without a functional supply chain system. Reducing the dependence for materials on other countries & elimination of middle men are vital to make the chain strong. Without proper management of the supply chain, only wage competitiveness cannot ensure sustainable business. So, for the sake of the sector, we have no alternative but to make the SCM effective
Sustainable RMG Growth: Improving Supply Chain Management
The export-oriented readymade garment (RMG) sector has some distinctive features, which differentiate it from other businesses. Wage, supply chain, timeframe and compliances are among the most important features of this business. Each of the four features is interrelated and interdependent. Among the features, an effective Supply Chain Management (SCM) is the core one. Whatever the wage level or lead time (the period from order confirmation to shipment) is, without proper supply chain management no business is viable. We can categories the supply chain into two phases – macro level that accounts for part of the global supply chain and the micro level that is the supply chain system within the manufacturing unit.
In the supply chain system, it can be materials, information or it can even be supply of business (volume of business). One single and very simple issue like mismatching thread count or wrong button line, a piece of incorrect or delayed information can put the whole process into jeopardy.
In RMG business, there is a very strong correlation between the business value chain and the supply chain. The supply chain is mostly controlled by the buyers who control the business. Only lowest wage cannot ensure the business. Without proper management in the supply chain, it is not possible to comply with the lead time given by a buyer. RMG manufacturing is one of the suitable examples of the SCM.
Apart from the ultimate consumer and manufacturer, there are many other parties involved in the RMG business. In many cases a work order comes to a manufacturer through four to five different hands or phases. For example, a buyer in the USA (ultimate customer or brand owner) confirms the business with an agent of that country. That agent has another agent in Hong Kong. Now many agents have their offices in India. An agent in India has another agent in Bangladesh. It is called the ‘local agent.’ That local agent communicates with the manufacturer.
Due to multiplicity of the stakeholders or middlemen, it takes a lengthy process for any decision. Pending approval kills the lead time. In the whole supply chain, Bangladesh does the manufacturing job but does not manufacture basic raw materials. Our competitors like China and India have their own sources of materials. Countries like Vietnam and Cambodia need only one week to receive the materials from Shanghai. So, the lead time is another important issue in the RMG business.
One small material missing or delayed just puts the whole order at stake. Schedule failure for one single order delivery jeopardises the whole production plan. Unplanned and earlier importation of materials increases the inventory level. Supply of materials, when delayed in-house, creates a line gap. Both the situations have a negative impact on finance. On the other hand, if the finished goods are not shipped on time due to not getting the approval, the factory has to pay the bills of back-to-back (BTB) L/Cs (letters of credit) against its bank loan at a high interest. So the factory always tries to avoid delayed shipment, even by covering that delay with overtime work, which leads to double production cost. When this overtime work does not help, then they take the recourse to un-authorised sub-contracts. Excessive overtime work and un-authorised subcontracts both amount to violation of compliance, another inevitable feature of the sector.
The RMG sector is now passing through many difficulties it never faced before. A devastating fire at the Tazreen Fashions and the Rana Plaza collapse have raised the question about its capability in terms of compliance, fire safety and building integrity. Only minimum wage competitiveness does not guarantee any international business of this kind. Hundreds of factories are closed, thousands of workers have lost their jobs, many factories are running under-capacity even after accepting the business at the cost price. For the first time growth in our RMG export has fallen mainly on the compliance ground. So, to ensure compliance there is no way to enforce an effective SCM.
Of the four important features of the sector the proper supply chain management is the key to others. All the factors are interrelated and interdependent. All of our competitors have an advantage in the lead time. They are in a better position in the area of supply chain and compliance. Our main competitiveness is the low wage. Only wage alone cannot guarantee business growth and sustainability.
At the macro level the SCM system involves parties of different companies in different countries like suppliers, manufacturers and brands. In the global or macro-level links, relationship and commitment of different suppliers, services of banks, ports, customs along with transportation and documentation are interconnected. It is a difficult job to ensure an effective coordination among all the parties. Common interest and business relationship can make a strong bondage in the macro-level SCM. If the parties involved work jointly, then it is possible to render an effective management system. This is a team work. Non-performance by any member of the team is enough to lose the game. Among the factors, beyond the factory control, are –
1. Delayed and wrong supply of materials
2. Delayed approval
3. Style changes after confirmation or even after the start of production
4. Fabrics failing to the test requirement
5. Pilferage of goods or finding them missing during transportation or at ports, especially at airports
There are basically two types of functions at the micro level: a) at the head office where the persons deal with buyers and suppliers involved in documentation etc., and b) at the factory where production operation activities are performed. Even within the production operation there are many departments involved. The links between factories and the head office or among the departments of the factories can be classified as the micro level.
The RMG business involves a buyer-dominated supply system where garment makers have a very limited role. Unfortunately, even with a limited role in the supply chain, a factory has to face tremendous pressure to meet the lead time. In this particular business, suppliers are not static and a large number of suppliers are involved in the process of making a single shirt of a particular style. For the same buyer it is not necessary that the suppliers’ list and items will be the same. The number of suppliers varies depending on style specifications. There are almost 20 items required for a single shirt. A factory dealing with 15 buyers has to handle at least 100 suppliers. Most of the factories run their operation in the traditional system i.e. not having any modern information system.
To cut the lead time the sector needs to improve the SCM system. A buyer wants everything ready and instantly. Instead of the traditional system, now online costing and orders are now common. In the traditional system it required 120 days in case of solid fabrics and 150 days for yarn dyed. Now a factory is having 60-75 days and 90-120 days respectively. In the case of composite knit garment, a factory keeps the fabrics ready in the grey condition. After having the style details they go for dyeing and thus they can manage to keep the lead time limited to 30-45 days for repeat orders. For any fresh order a buyer does not allow even 60-75 days, though earlier it took 90-120 days.
It is important to mention here that in the category of knit and denim fabrics, Bangladesh is almost self-reliant. It is a positive sign. The skill and productivity of our workers have increased significantly.
Evidence shows that in 70 per cent cases it is buyer’s responsibility and 30 per cent is of the manufacturers. Direct marketing and elimination of middle men can help establish an effective supply chain system. It is very difficult to make a combined and coordinated system among the interest groups involved at present. Miscommunication and misinformation at any point hamper the whole process. Moreover, the impact of political instability and workers’ unrest destabilising the SCM are another concern. Adaptation with changing technologies, undisrupted utility supplies, minimising corruption, elimination of bureaucratic tangles in customs, port management and other concerned government agencies can play a vital role in overcoming the challenges. Without combined efforts and firm commitment from all concerned, a performance-based supply chain system is not possible.
A chain is as strong as all of its rings are. Similarly, a chain is as weak as one of its rings is, i.e. one single ring is more than enough to make the whole chain dysfunctional. The RMG sector in our country has so far been witnessing very clear price competitiveness. The minimum wage in our country is still the lowest among our competitors. But our lead time is under pressure. Cheap labour does not help, if the workers are not efficient. The supply of a small quantity with many styles within a short time is not possible without a functional supply chain system. Reducing the dependence for materials on other countries and elimination of middle men are vital to make the chain strong. Without proper management of the supply chain, only wage competitiveness cannot ensure sustainable business. So, for the sake of the sector, we have no alternative but to make the SCM effective.
Keywords
Supply Chain Management, RMG, FOB, sustainable development, Least Developed Country, Free of Charge, Bangladesh
References
Koprulu, A. & Albayrakoglu, M.M. (2007). Supply & Chain Management in the Textile Industry: A Supplier Selection Model with the Analytical Hierarchy Process, ISAHP, Viña Del Mar, Chile.
Nadeem, K., & Siddiqui, D. (2017). The Effect of Strategic Orientation on Green Supply Chain Practices and Performance: A Case of Manufacturing Companies in Pakistan. Asian Business Review, 7(2), 59-70.
Tanvir, S.I. & Muqaddim, N. (2013). “Supply Chain Management”- Offering the New Paradigm for Bangladesh Garment Industry, Journal of Economics and Sustainable Development, 4(20), 158-167.
RMG in Bangladesh- A Study on Social Compliance
Titus, S., Mburu, T., Koror, J., & Muathe, S. (2012). Environmental Factors that influence Supply & Chain Management Implementation in the Manufacturing Industries in Kenya: A Case of Manufacturing Industries in Nairobi, Kenya. ABC Journal of Advanced Research, 1(2), 42 – 49.