The Supply Chain Management Professional Designation Program

Supply Chain Canada: Module 1 - Written Case

Report Response

Fashion Unlimited
Report On Offshore Production Locations

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The Supply Chain Management Professional Designation Program

Fashion Unlimited
Written Case Report
Executive Summary

Fashion Unlimited is a Toronto based clothing company that was founded in 2001 by a

graduate of the International School of Fashion, Arts and Design, LaSalle College, in

Montreal. The company has retail location across the country and exports to the United

States through deals with several large department store chains. Most of its Canadian

and US sales are on-line based, with no further plans for domestic expansion of retail

stores. Management was pursuing expansion opportunities, on-line and brick and

mortar, in Mexico and China, where there is growing middle class and young

populations.

Since its inception, manufacturing had been located in Canada and offered the highest,

“Made in Canada” quality. However, in 2003, when Canada’s Least-Developed Tariff

program removed duties on imports from 49 countries, it became increasingly difficult to

manufacture clothing in Canada and remain competitive. As a result, many companies

moved production offshore to low labour cost countries. By 2011, the Canadian apparel

manufacturing sector consisted of only about 3,000 mostly small and medium sized

enterprises in Quebec (60 per cent), Ontario and British Columbia. Although Fashion

Unlimited had continued producing in Canada long after its competitors has moved

offshore, the brand was not able to capitalize on its identity as a Canadian company the

same way as other high-end niche retailers had. Increasing sales coupled with the lack

of domestic skilled cut and sew workers and strict labour laws regarding overtime and

wages put pressure on the executive team to move towards offshore production. The

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ongoing challenge was finding factories with the same or better quality and service at

lower total cost of ownership than domestic operations. Management was committed to

running the company in an economically, environmentally, and socially sustainable

manner. For continued growth and expansion, if not survivability, domestic production

no longer seemed feasible.

It is opportune time to change the global sourcing initiatives and revisit the sourcing

strategy. Based on all of the country information gathered, my suggestion is to move the

offshore to China to effectively address the majors concerns that are affecting Fashion

Unlimited today.

By moving Fashion Unlimited manufacturing to China, the world’s leading source for

garment manufacturing, China has the infrastructure available for high quality

manufacturing and the technological readiness. They are the leading clothing

manufacturer for Canadian Imports. China has skilled workers and together with their

lower labour costs, this will boost Fashion Unlimited profitability, and they can once

again be competitive in the ever growing, highly cutthroat fashion market.

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Fashion Unlimited
Written Case Report

Table of Contents

Executive Summary Page 3

Issue Identification Page 6

Root Cause Analysis Page 7

Alternatives and Options Page 8

Operating Environment Page 9

Recommendations Page 13

Implementation Page 14

Monitor and Control Page 15

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The Supply Chain Management Professional Designation Program

Fashion Unlimited
Written Case Report
Issue Identification:
Fashion Unlimited is no longer able to compete in the Canadian or US market while

continuing to manufacture products within Canada.

Short Term Issues:

 New CEO’s background is in fast fashion, 52 “micro-seasons” per year vs.

traditional apparel business model of two fashion seasons, Spring/Summer and

Fall/Winter. We must align our current team with this new outlook.

 The new production location needs to be strategically chosen to maintain quick

delivery times and proximity to the Canadian market

 Build and strengthen the ties between the brand and the young people working in

urban areas in the manufacturing company of choice

 Reducing the overall cost of manufacturing, while keeping lead times and

delivery times to a reasonable timeframe

 Not to be associated with countries that have weak infrastructure and inadequate

factory safety

Long Term Issues:

 Infrastructure Issues – availability to clean water, roads, ports, airports,

telecommunications, and electricity supply

 Environmental issues - climate change, sustainability, and the disposal of textile

waste/chemicals

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 Political stability – events such as armed conflict, violent demonstrations, social

unrest international tensions, terrorism or ethnic, religious or regional conflicts

 Labour Costs - It had been difficult to find reliable and comparable wage data

because rates varied across regions within countries and for different skills and

levels, and the informal employment sector was not reflected in official data

Root Cause Analysis

SWOT Analysis:

Strengths:

 Fashion Unlimited has been in business since 2001, the brand had grown in

popularity with consumers ranging in age from 15 to 35

 Company makes affordable, current fashions that range in color and sizes

 New CEO has a background in fast fashion

Weaknesses:

 Current manufacturing occurs within Canada where cost is high and it has

become increasingly difficult to remain competitive

 Fashion Unlimited has not been able to capitalize on its identity as a Canadian

Company the way other high-end, niche retailers have

 Lack of domestic skilled cut and sew workers

 Strick laws regarding overtime and wages

Opportunities:

 By moving manufacturing offshore, this will allow Fashion Unlimited further

growth and expansion

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The Supply Chain Management Professional Designation Program

 Can increase sales/market share by implementing the fast fashion model over

the traditional apparel business model of two fashion season by honing in on the

new CEOs skills in fast fashion

Threats:

 Fashion Unlimited is in direct competition with fashion powerhouses such as

Zara, H&M and the Gap brand

 There is a lot of competition in the fashion market

 Competitors have already moved their manufacturing oversees allowing them to

be more competitive in their pricing cost models

 Quickly changing trends – you need to have the right product at the right time at

the right place

Operating Environment:

Porters 5 Forces:

Industry Competitiveness The fashion industry is cutthroat with high

competition. Competitors introduce new

styles anywhere from twice per week and

even daily

Threat of New Entrants The fashion industry is ever changing and

therefore there is a high-risk factor for

new competition

Bargaining Power of Buyers If Fashion Unlimited goes with the 52

“micro-seasons” per year approach,

because the trends change so quickly,

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items are typically sold at full price with

no discounting,

Threat of Substitute Product or Service Also high because there are a lot of

substitutes available in the market

Bargaining Power of Suppliers Suppliers have bargaining power

because there are a lot of options in the

market place.

Alternatives and Options

Decision Criteria:

1. To reduce the cost of manufacturing. Cost is the number 1 reason for moving the

manufacturing offshore.

2. Finding factories with the same of better quality and service which run their

companies in the dame economically, environmentally and social sustainable

manner as Fashion Unlimited

3. Ease of transport from the offshore manufacturing warehouse to their Canadian

warehouse

The following are scored based on the above decision criteria The highest score is the

offshore manufacturing of choice.

Alternatives Pro’s Con’s

1. Bangladesh 1. 80% of total garment exports in 2014 with 1. Poor Infrastructure

projection to triple that amount by 2020 2. Corruption

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2. Second lowest average monthly wage in Asia 3. Slow implementation of economic

reforms

4. Insufficient power supplies

5. The 2013 Rana Plaza building

collapse

2. Cambodia 1. The garment industry accounted for 55% of 1. Endemic corruption

Cambodia’s total merchandise exports 2. Limited educational opportunities

2. More then 50% of the population was under 3. Lack of productive skills

25 4. High income inequality

3. Inexpensive and technologically savvy 5. Lack of basic infrastructure

6. Criticized for labour conditions

and factory safety

11. China 1. World’s leading source of garment 1. Wage increases in coastal areas,

manufacturing made it relatively costly

2. Had production capacity, technology, 2. Inland China has high labor

sophisticated manufacturing facilities superior supplier and lower wages, but

infrastructure, proximity to component suppliers labour was less skilled and

and established logistics network produced lower quality

3. Actively trying to reduce corruption, merchandise.

containing environmental damage (air pollution,

soil erosion)

4. India 1. Had the third highest number of internet users 1. Inefficient power generation and

2. Youthful population distribution system

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3. Increasing integration into the global 2. Corruption

economy 3. Discrimination and violence

4. Had a rising middle class with disposable against females

income over $10,000 US in 2015 4. Ineffective enforcement of

intellectual property rights

5. Decades-long civilian litigation

dockets

6. Inadequate transport

7. Lacking skill workers and a

shortage of raw materials

3. Indonesia 1. Reforming social issues such as poverty, 1. Inadequate infrastructure

unemployment 2. 70% of textile machinery was

2. 260 million people outdated

3. Investment-friendly business environment 3. Experienced recurrent electricity

4. Focus in textile and garment sector shortages

4. Garment factories had not met

regulations governing worker safety

and health

10. Malaysia 1. Manufacturers in the garment sub-sector had 1. High income

shifted from producing low-end products to 2. Consumer confidence eroded

medium and high-end products

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5. Vietnam 1. Made structural reforms to modernize the 1. Small scale protests occurred

economy and produce more competitive, export- over ethnic minorities’ and groups’

driven industries land-use issues, limited political

2. Political expression was controlled space and lack of equitable ways of

3. Inexpensive and technologically savvy resolving disputes

4. Textile and garment industry was one of 2. Lacked highly trained workers

Vietnam’s largest economic sectors

6. Mexico 1. Infrastructure advantages were technology, 1. Growth remained below potential

transportation and ports due to failing oil production, weak oil

2. Fast telecommunication lines, computer prices, and structural issues

technology at US standards, high-speed including low productivity, high

broadband accessibility and educated and inequality, a large formal sector,

experienced IT support weak rule of law, corruption and

3. New highway systems throughout the country violent related to drug-trafficking

Education, energy, financial, fiscal and

telecommunications reforms had passed

4. Competitive minimum wage

5. Ease of transportation

7. Bulgaria 1. One of Canada’s largest merchandise trade 1. Low salaries

partners in Southeast Europe 2. Violations in age arrears and

2. 100,000 people worked in the garment delays, arbitrary quality and

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industry in registered employment disciplinary deductions from wages,

frequent violations of the law

concerning working hours, breaks

and holidays, locking in workers until

quotas were fulfilled

9. Romania 1. Low cost of labour 1. Non-governmental organizations

2. Skilled workers claimed companies ignored the law

3. Proximity to western markets on salary payments, working hours,

4. EU membership and compliance with EU overtime and rest, and

standards and regulations paid poverty-level wages for long

hours under arduous conditions.

8. Turkey Offered the world’s lowest MOQ rates Wages where the highest out of all

Product Capacity the potential offshore locations

Short lead times High current account deficit

Environmental standards and unified financial Increasing domestic political and

policies social uncertainty

Regional turmoil

Recommendations

Based off all the information provided, my recommendation is to implement Fashion

Unlimited new offshore manufacturing plant in China.

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The Supply Chain Management Professional Designation Program

China is the worlds leading source for garment manufacturing. They are also the

leading source of clothing manufacturing for Canadian imports year over year starting in

2011. They already have production capacity, technology, sophisticated manufacturing

facilities and superior infrastructure. Although wages in the coastal areas are higher

than those located in inland China, they are still lower then manufacturing in Canada

and come with the equivalent skilled cut and sew workers. The Chinese government

continues to enforce labour regulations which is inline with our core values. By moving

our manufacturing offshore to China, we will be able to maximize our profits and

minimize our risks as well as allowing for short lead times.

Implementation Plan

1. Find an offshore manufacturing plant for Fashion Unlimited – These needs to be

done by the executive team as a whole, while looking at factors such as price,

quality, lead times and delivery. Timeline – 6 weeks

2. In conjunction with the above, we need to find a manufacturing plant in China

that also provide sufficient infrastructure and factory safety. This is assigned to

DeWayne Washington, VP of Operations. Timeline – 6 weeks.

3. Pursue a proximity production strategy. This tactic will allow marketing to target

potential consumers with advertising content based on their current location –

China. This will open an entirely new revenue stream for the company. One that

we would be unable to tap into otherwise. This is assigned to Robert Hansen, VP

of Marketing. Timeline – 3 weeks

Stakeholders buy-in:

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We need to start engaging our stakeholders as soon as possible and provide them with

a clear rationale for moving our manufacturing from Canada to China. We are currently

on the boarder of not being profitable. We need to move our manufacturing offshore to

allow profitability and to be able to compete in the fashion industry with the likes of Zara,

H&M and the Gap. With every change, there comes risk. We will be measuring success

through the below outlined KPIs.

Monitor and Control

KPIs:

Manufacturing Costs: We need to see a decrease in manufacturing costs during the

next 12 months of business while our revenue continues to increase

Factory Efficiency: How efficient is our new manufacturer and their workers? Are we

turning the same amount of product and same quality for lest cost?

Working hours: How many hours do each of the operators work and how many sets are

garments are they able to product in a day? Is this number greater than manufacturing

in Canada?

Production: How many pieces are produced total per day?

On Time Delivery: Are shipments reaching their target delivery dates? Why/why not?

In order to assess if the implementation plan is working and we are achieving our main

gaol of lowering costs we need to monitor the above KPIs over the next twelve months.

If our implantation plans fail, the contingency plan is to reevaluate our strategy. Have we

not been able to lower the manufacturing costs while producing a higher profit as this is

our main goal. If this is the case, we will look for a different manufacturer that may be

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more suited for our needs and start the implementation process again. Then we

benchmark to confirm validity of the options.

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