International supply chain context
For 20 years there has been a steady drift of manufacturing activity to the low labour cost areas of the world such as South East Asia. The main driving forces for this drift are the development of global markets, global cost forces, technological changes, as well as political and macro-economic influences. This movement has created complex global supply chains for both the distribution of finished products from South East Asia to Europe and North America, and for the inbound supply of raw materials and components into South East Asia from the west.
Over the same period there has been significant globalisation in the shoe industry led by Nike, Adidas and Reebok in thesports shoe market. Globalisation has occurred in terms of branding, marketing and manufacturing. These large brand-name companies are referred to as ‘specifiers’ because they specify design. They do not own manufacturing facilities but employ a range of sub-contractor manufacturers who may be based anywhere in the world. Because shoe manufacturing is labourintensive,the specifiers have looked to the low labour cost areas of East and South East Asia to assemble their shoes.
There are four important parameters to consider in an internationalsupply chain:physical product flow through manufacturing, warehousing, transport and distribution,information systems for planning, order-processing and scheduling, organisation and management controlstructures of the supply chain, and production and communication of the documentation necessary for international shipments and the payment transactions required.
The Texon supply chain
Peter Halliday’s task was to evaluate and improve the supply chain for products supplied from one of Texon’s UK factories to shoe manufacturers in China, Indonesia and Vietnam and thereafter shipped to a brand leader in the world sports shoe market. Texon International plc has headquarters in Leicester, the heart of Britain’s traditional shoe manufacturing region. As a leading supplier of the components required in shoe making, its products comprise linings, insoles, adhesives andfastenings. From mainmanufacturing plants in the UK, Germany and the USA, Texon’s products are supplied to shoe assemblers all over the world with an increasing proportion of them in South East Asia and China.
Texon’s current supply chain suffered from problems with inventory, variability of orders, and a long cycle time from orders placed until fulfilled. Total inventory at various places from Texon’s factory in England to the shoe assemblers amounted to 3.5 months of sales. Orders varied by a factor of six times, with major changes from week to week. A typical cycle time for processing and transport was 52 days, nearly two months.
Supply chain mapping
The starting point for the project was the establishment of a supply chain project team, comprising four Texon staff drawn fromsales, logistics, information technology and operations management. Peter Halliday, the Export Director, had ultimate responsibility for generating sales in the Asian countries. He had many years of experience at Texon. Mike Murray, the Logistics Planning Manager, was responsible for scheduling production and contracting transport and warehousing for the entire journey required. As the Information Technology Manager, Liz Newby looked after systems for scheduling and control and for producing the complex documentationrequired to permit the movement of products between various countries and obtainpayment. Finally, Daniel O’Donnell supervised production at the Texon factory in the North of England which made the plastic coils used in shoe manufacture. Advising the project team was David Taylor, a senior researcher from the Lean Enterprise Research Centre at Cardiff University.
David’s task was to train team members in the ‘Five Lean Principles’ (see Figure C4.1) set out in Lean Thinking and help them to apply the value stream management (VSM) technique to Texon’s exports. The ‘lean’ approach aims to remove waste to achieve better customer satisfaction in terms of quality, cost and delivery, and to help suppliers to respond more flexibly to rapidly changing customer needs. VSM analyses individual products to specific customers. This was the first time that VSM had been applied to a supply system which extended some 10,000 miles across the globe.
Derive the current state map
The first step in VSM, identifying all the steps and times taken and inventory held, is known as a ‘current state map’. The first draft of this map was therefore constructed in the UK from the knowledge of the team backed by telephone calls and emails topeople along the supply chain to fill in data gaps or to verify the team’sperceptions. The team chose the product ‘T26’, a coil ofshoe lining specified by Adidas in the production of various ranges of sports shoe because it was the biggest single export product. T26 was a synthetic shoe lining material manufactured in Texon’s UK Teeside factory and produced in coils one metrewide and 100 metres in length. Texon’s output was split between China taking 54% with 16 manufacturers, Indonesia 22% with 10 manufacturers, and with Vietnam and Thailand taking the balance.
The five principles which are fundamental to the elimination of waste:
Specify what does and does not create Value from the customer’s perspective and not from the perspective of individual firms, functions and departments.
Identify all the steps necessary to design, order and produce the product across the whole VALUE Streamto highlight non-value-adding waste.
Make those actions that create Value Flow without interruption, detours, backflows, Waiting Or Scrap.
Onlymake What Is Pulled by the customer just-in-time.
Strive For Perfection by continually removing successive layers of waste as they are uncovered.
Team members examined product flows first, and then information flows. The T26 product was manufactured exclusively in the UK Teeside factory. A batch production system was operated with varying batch sizes. Mapping the production processes showed a six-day production lead-time of which three hours was value-adding time, forwhich the customer would be prepared to pay.
Sea freight of T26 involved Texon contracting Cheverton Freight, a UK freight forwarder, who collected the product by truck from Teeside and moved it to their warehouse adjacent to the port of Felixstowe in southeast England. There T26 would be consolidated with other products to make up full container loads and moved through the port on to a vessel. The time from collection at the Teeside factory to the boat sailing was typically seven or eight days.
All Texon product destined for South East Asia was then shipped to Singapore, a scheduled 17-day sea passage. In Singapore, Texon sub-contracted warehouse space from Nostra, a third-party warehouse operator. Approximately three weeksof stock was kept in Singapore across the whole range of Texon products, but in regard to specific products, including T26, the amounts varied from nil to 12 weeks. Nostra were responsible for managing stocks and picking and despatching orders for South East Asia and East Asian customers. Onward transport to regional manufacturers was again by sea. The Singapore freight agent collected product from the Nostra warehouse, arranging port clearance and booking sea freight. Normally productdestined for China was shipped to Hong Kong as the port of entry and for Indonesia to Jakarta. At each port a local freight agent was employed to arrange port and customs clearance. The final leg of the journey was in most cases organised by the Texon port agents. Then local shoe manufacturers, Texon’s customers, took possession and collected their product from the port, triggering invoicing.
Shows the information system structures that Liz Newby, the Information Technology Manager, had mapped. Five echelons were involved in transmitting demand information from the ultimate customer Adidas to the Texon manufacturing plant. Adidas headquarters in Seattle generated forecasts and orders in terms of the number and type of shoes required. The 42 manufacturing companies each had their own planning and purchasing departments that would generate orders for the T26 shoe material based on Adidas demand, together with their internal production planning, inventory management and purchasing policies. Texon had a South East Asia regional sales headquarters in Taiwan which took orders from the manufacturers and placed an amalgamated order and forecast on Texon UK sales office at the Leicester headquarters. The UK sales officereviewed the situation and placed weekly orders with the UK factory in Teeside. In total, the time to transmit orders from the Asian manufacturers to the UK factory was a frightening 5–10 days because of batching of information handling processes at Texon’s Taiwan and Leicester offices.
