SCM Final ExamAn analysis of the supply chain for any leather goods product

Will Robertson - http://www.willw.net

You are to consider yourself to be an analyst hired by India to advise them on what the entire supply chain from raw materials to consumer is for leather goods and how firms in India can capture the greatest profit possible.

Current Supply ChainThe leather industry is a significant part of India, creating $3.6 billion USD of exports as of 2009. There is a large domestic and export demand for finished leather and leather goods. The current supply chain operates well, but has inefficiencies that could be eliminated, and opportunities to increase value for the firms in India. As a consultant hired by Indian leather goods manufacturer Ansar and Co., this paper will focus on how to increase the value add and control of Ansar and Co. within the Indian supply chain. Ansar produces a wide variety of leather goods, with some expertise in safety gloves. Figure 1 - Current Supply Chain

Looking upstream, Ansar and Co. sources tanned hides and skins from a number of tanneries. These tanneries are often small to medium sized businesses, frequently family run. The tanneries employ a number of processes to turn raw hides and skins into leather that manufacturers such as Ansar and Co. can turn into finished goods. These processes are very time consuming and require a number of successive steps before the hides and skins are ready for use, leading to a long lead time on orders. Going further down the chain, the tanneries acquire a number of types of raw materials from two primary sources. These raw materials include hides of cows and buffalo and skins of goats and sheep. The primary supplier of hides and skins is nearby slaughterhouses. These slaughterhouses provide meat for consumption, and then, as a byproduct, sell the hides and skins to tanneries. The alternative source of cow hides is from hide scavengers, which seek out cows that have died naturally in the wild, remove

the hides, and sell them to tanneries. These scavengers then sell directly to the tanneries or to hide consolidators, which then sell to tanneries. Looking downstream, Ansar and Co. sells their product through two channels, to exporters or directly to brands licensing the products. Both of these channels then sell the products to retailers around the world, who ultimately sell to consumers - the end users of the products. This supply chain is very similar for the small to medium sized manufacturers, with small differences for larger manufacturers. For larger manufacturers in India, some operate their own brands and export directly to retailers or directly to consumers through their own stores. Others operate both tanneries and manufacturing facilities, integrating the two steps of the supply chain internally.

ProblemsThis supply chain is far from perfect, with many areas for improvement. Starting at the raw materials end moving downstream, problems include:

● the small operations and individuals that scavenge hides from wild animals that die naturally lead to considerable waste, with 10% of the hides completely ruining and 30% becoming deteriorated from being dragged, left out for extended amounts of time, or being transported too slowly.

● the rate of supply from scavengers and hide consolidators is very volatile, since the process and locating dead animals in the wild is hard to control.

● given the multi-step process and complicated procedures required in the tanning of hides and skins, the quality is very variable between tanneries and can impact the consistency of products.

● at the manufacturing stage, Ansar and Co. has access to a limited supply of skilled workers, meaning it is hard to maintain complex processes and supporting the manufacture of a wide variety of products can be difficult.

● selling products to a number of international brands and also to exporters provides Ansar and Co. quite a few potential customers, however they have limited visibility into the final destination of the products, as their involvement with the process ends once the product leaves their warehouse. This limited involvement after the manufacturing stage means Ansar and Co. lacks insight into the end-user’s needs and changing tastes.

● there is limited information exchanged between Ansar and Co. and their direct suppliers and customers, let alone between Ansar and Co. and the raw materials suppliers or retail and end-users. This lack of information hinders any synchronicity between operations along the supply chain.

● power in the supply chain is held by the brands and exporters that are purchasing products from the Indian manufacturers. These multinational companies have a wide range of manufacturers to choose from, and are buying a high enough volume of product that manufacturers are willing to make large concessions to attain large contracts. With the power in the supply chain downstream from Ansar and Co., the firm has limited control. With the high number of similar competitors, Ansar and Co. does not have any core competencies that make the firm stand out to brand and export buyers.

OpportunitiesTo shift the power in the supply chain to Ansar and Co. and optimize the current supply chain to derive greater profits for India, there is one main goal the firm needs to achieve:

● Develop a core competency around the manufacture of high quality safety gloves If Ansar and Co. can achieve the necessary changes to develop this core competency, the new strategy will give the firm a competitive advantage over other firms, while eliminating inefficiencies in the supply chain and creating greater value for those firms that work with Ansar and Co. A major change in the relationship between Ansar and it’s buyers is required for it to shift the locus of control to Ansar. Specialization in a particular product category will be the way Ansar can achieve this. Major changes internally with regard to production and externally in the relationships the firm has with its suppliers and buyers will be required:

● establish a long-term partnership upstream with both a tannery and slaughterhouse, ensuring that the tannery is sourcing from one reliable high quality slaughterhouse - to ensure Ansar’s inputs are consistently high quality

● establish long-term partnerships downstream with international brands in the safety glove business to become their exclusive supplier of high-end safety gloves. Use the guarantee of high quality product and reliable production and delivery as a basis for this partnership. Work with these brands to better understand end-user requirements and taste, to gain a better understanding of market trends and style preferences.

● Cease production of all products, other than safety gloves, so that Ansar can devote all resources to the perfection of high quality safety gloves. With limited skilled labour, the employees can receive focused training on a single product, developing their skills quicker. Reducing the number of product SKUs will make the storage, transportation, sales, and management of the products easier and less costly. Processes can be optimized around the single product type, rather than designed to handle vastly different products.

End-to-end integration all the way from the raw materials suppliers to the end-users will enable Ansar to deliver high quality products that are meeting the consumer demand and requirements. This communication and coordination can be enabled through the adoption of information systems designed for the management of a firm’s internal and external supply chain, such as an ERP system capable of integrating with partners through e-commerce integrations. This investment in technology will be a major investment, but the benefits from collaboration with partners will provide a good return on investment and part of the technology cost can be subsidized by government programs designed to help India’s firms to adopt new technology. Ansar’s partner relationships will need to transition from basic transactional relationships to strategic alliances. These relationships will be based on mutual benefits for all firms involved, and benefit from joint planning, open communication, and shared resources. The focus on high quality safety glove production as a core competencymakes sense for Ansar,

given the firm’s excellence in the product category already. With few firms in India focusing on this product type, Ansar has the ability to develop an expertise that will be hard for others to imitate. Figure 2 - Redesigned Supply Chain

Performance MeasurementA number of performance metrics will be employed to gauge whether this strategy adjustment is performing as expected. Close attention will be paid to quality and consistency of product. A lower defect rate will suggest the focused production operations and procurement partnerships have led to better products. The customer satisfaction at all levels; brands, retail, and end-users will provide an indication of whether the increases in product quality have translated to happier customers and better relationships with downstream partners. Financial performance for the firm overall will give a good indication of whether the strategy is leading to an improved bottom line.

ConclusionTo establish Ansar and Co. as a leader in India’s leather industry, and to move the locus of from buyers and exporters to Ansar as a manufacturer, it is essential that the firm change its strategy and supply chain operations. Ansar needs to establish a core competency around the production of high quality safety gloves. To do this, the firm must transition its relationships with upstream suppliers of raw materials and downstream buyers of safety gloves from transactional relationships to strategic alliances. Using ERP technology with e-commerce integration between firms, end-to-end integration between the entire supply chain will create mutual benefits for the firms through open communication and shared planning. A reduction of SKUs and the shift to production focused on just one product type will decrease supply chain management costs and enable gains from specialization. Ansar and Co. will be able to take the power position in the industry for leather safety gloves, and go from being one of the many generic leather product manufacturers in India, to becoming a unique and sought after producer of high quality safety gloves. International brands will be

willing to make concessions to have access to the products that Ansar is capable of producing due to consistent high quality inputs and expertise in the product category. Creating a situation where the foreign companies are willing to pay more for high quality goods from India will bring great profit to Ansar, as well as the upstream partners that Ansar has developed strategic alliances with. This strategy can be expanded by other firms into additional product categories, further helping India’s leather industry.