Presented to the Department of Industrial Engineering

De La Salle University - Manila

Term 1, A.Y. 2023-2024

In partial fulfillment
of the course
In LBYIEED (ER1)

Case 2: Zaki Shoes - SWOT Analysis

Submitted by:
Heras, Ron Caleb

Submitted to:
Corpus, Paul David

December 9, 2023
 I. Introduction

Zaki Shoes, Inc. is a manufacturer of sports and casual shoes located in Novaliches,

Quezon City. The company was initially arranged to be an export-oriented manufacturer with the

help of some Taiwanese investors. The joint venture soon failed as the orders from overseas

never came. Due to unforeseen circumstances, Zaki Shoes opted to run its business operations on

its own and focused on selling canvas shoes to the local market instead.

The company joined the canvas shoe industry when it was very lucrative and bought the

necessary facilities and equipment while employing 87 full-time employees. However, the

company has experienced a downfall as of late and has had to compromise its operation just

enough to meet the daily demand, evident in its excess inventory stock (Inventory Turnover =

1.67) even if there was less inventory in the current year compared to last (Acid-Test Ratio

increased by 0.21). Along with this, the company decided to pay royalties and be the lone

licensed company of branded children’s shoes – Popeye and Garfield, to go with their current

canvas shoe line to counter the decrease in sales. Moreover, Zaki Shoes was also able to secure a

deal with Enchanted Kingdom to manufacture children’s shoes for them, an opportunity to build

upon the recent downward shift in sales.

With this, a system study will be performed to identify the company’s strengths,

weaknesses, opportunities, and threats, as well as determine the key success factors of the shoe

factory. Furthermore, to set a boundary, the scope of the study will be limited to the

manufacturing process of Zaki Shoes, Inc.

II. Objectives

The objective of the paper is as follows:

 ● To determine the key success factors of the shoe industry

● Identify the strengths, weaknesses, opportunities, and threats of the company

through SWOT analysis

● To prioritize each WOT and conduct an SG analysis of these concerns

III. SWOT Analysis

Illustrated in the table below is the SWOT analysis of Zaki Shoes, Inc. which identifies

the strengths, weaknesses, opportunities, and threats of the company. The analysis identified a

total of 4 strengths, 2 weaknesses, opportunities, and threats in total. Some of Zaki’s operational

performance such as a low absenteeism rate and rare machine breakdown rate are presumably

strengths, however concrete evidence or data that support these claims were not gathered.

Furthermore, the company had a low inventory turnover ratio. This was not included in the

weaknesses as the study is limited to the manufacturing and warehousing operations, while

financial ratios can involve considerations from various business functions, including marketing

that is outside the scope.

Strength Weakness

● S1. 100% injection molding machine ● W1. The finished goods inventory
uptime count deviated by an average of 55.5
● S2: No employee turnover over the from the physical count
past 2 years ● W2: 2% Assembly rework per day
● S3: 0% rework for the cutting and ● W3. The company takes a longer time
sewing section to collect receivables
● S4: 0% raw material stockout
● S5. Zaki Shoes’ gross profit margin
and net profit increased, indicating
that the company was more efficient in
producing goods

Opportunity Threats

● O1: Implementation of an automated ● T1. The company's heavy dependence

 on the inventory control system to
reduce human error
● O2. Newly found shoe school in the
country as well as the Footwear
Productivity Center provides the
industry with more skilled laborers
● O3. The increasing number of sports
meets entails the opportunity for the
company to invest in sports footwear
● O4. The company can follow the
upward trend of health and fashion
consciousness when it comes to the
design of its shoes
on imported raw materials, especially
from specific countries like Taiwan,
Hong Kong, South Korea, and China,
which poses a potential threat. The
high percentage of imports from
Greater China and Korea (91.59%)
indicates a concentration of supply
sources.
● T2. Inexpensive products from China
and Vietnam have begun to penetrate
the market
● T3. Imported rubber/plastic footwear
increased by 35.46% compared to the
preceding year along with tariff
changes
● T4. The local market prefers imported
branded items over domestic products
● T5. The tariff and Customs Code of
the Philippines is expected to decrease

Table 1. Summary of SWOT Analysis for Zaki Shoes

Strengths

S1. The company’s injection molding machine had a 100% uptime

The assembly section is primarily responsible for operating the injection-molding

machine, while employees from the cutting section are there to operate the machine when

assembly workers take their break. Displayed in Table 2 is the work schedule for the assembly

and cutting employees.

Time Cutting and Sewing Assembly

7:00 AM - 11:30 AM Work Hours

Work Hours
11:30 AM - 12:00 PM Lunch Break

12:00 PM - 1:00 PM Lunch Break

Work Hours
1:00 PM - 3:00 PM
Work Hours
3:00 PM - 4:00 PM Overtime
 Table 2. Work Schedule of Zaki Shoes’ Cutting, Sewing, and Assembly Section Employees

During the lunch break, there is a shift of workers assigned to fit the shoes and prepare

them for injection at the injection-molding machine, while the workers assigned to the machine

have their break. This is to keep the injection-molding machine running and minimize the setup

time.

S2. No employee turnover over the past 2 years

Zaki Shoes, inc. reduced the number of employees from 87 to 42 because of the

diminishing sales. This number is just enough to handle daily demands. One of the strategies

Zaki Shoes implemented to operate with fewer workers was to administer a working pattern

wherein workers are required to be multi-skilled to man multiple stations. Along with this, Zaki

Shoes has strict hiring policies, making their “time-to-fill” rate low. In addition, the need for

employing TESDA to set up workshops to enhance worker skills is reduced if not eliminated.

Employees stay in the company for 6 to 7 years on average.

S3. No rework for the cutting and sewing sections

The production operations of the company are divided into three main sections – cutting,

sewing, and assembly. The cutters are responsible for cutting raw materials needed to produce

the uppers of the canvas shoes. The sewing section is responsible for sewing different

components of the upper, while the assembly section’s role is to assemble the components of the

shoe with the injection molding machine. Each of these sections has at least one quality control

inspection. For the years 2001 and 2002, there was a 0% rework from the cutting and sewing

sections.
 S4. No raw material stockout

For every raw item housed in the warehouse, a stock card is maintained. The stock cards'

stated quantity wouldn't be verified until the designated raw material is utilized. During the

2001–2002 study period, there hasn't been any stock from recorded raw elements.

Weaknesses

W1. The finished goods inventory count deviated by an average of 55.5 from the physical
count

The company was not able to accurately keep track of their finished goods. The company

was not proactive when it came to ensuring inventory record accuracy throughout the period.

Presented in Table 3 are the instances where the general manager asked the warehouse inventory

to the a physical count of their inventory.

Date Stock No. Physical Count Inventory Record Deviation

June 2001 547 0 68 -68

October 2001 640 0 29 -29

July 2002 656 0 84 -84

December 2002 531 0 41 -41

Total 0 222 -222

Average 55.5
Table 3. Finished Goods Inventory Count (Actual vs. Record)

W2: The assembly section has a 2% rework rate

Unlike the sewing and cutting sections of the production department, the assembly

section emits an average of 2% of PVC used after the shoes are removed from the
injection-molding machine. These plastics are trimmed off shoes after assessing the output of the

injection-molding machine.

W3. The company takes a longer time to collect receivables

Receivables that are collected on time guarantee a consistent flow of funds, which

enables the business to pay short-term debt, make investments in expansion plans, and pay

operating costs. Moreover, good receivables management increases liquidity, reduces the chance

of bad debt, and strengthens the company's position when negotiating advantageous terms with

suppliers.

Opportunities

O1. Implementation of an automated inventory control system to reduce human error

This opportunity stems from the inventory accuracy mentioned in W2. As mentioned, the

manual computation (usually deduction) of the inventory count from customer orders has

resulted in inaccurate records. With the implementation of an automated inventory control

system, order remittance, as well as order cancellations, can be streamlined and connected to not

only the inventory count of finished goods but also the raw materials (through the bill of

materials).

O2. Newly found shoe schools in the country as well as the Footwear Productivity Center

provide the industry with more skilled laborers

 Over the years, the company has relied on TESDA to provide training and support to

enhance the skill level of their workforce. With the newfound shoe school and the partnership of

CITC with the Philippine Footwear Federation, Zaki Shoes can be assured that the shoe industry

labor force will continue to produce skilled workers that can improve the company’s operational

efficiency, adaptation to multiple production process types in case the company wanted to shift

its operations, and product design.

O3. The increasing number of sports meets entails the opportunity for the company to

invest in sports footwear

After the canvas shoe market experienced a recent decline, Zaki Shoes has invested in

several children’s shoes to diversify its products and serve more customer groups. Another a

subsection of the shoe industry, sports footwear, is currently benefiting from the increase of

sports meets. This can be another venture that the company can take advantage of.

O4. The company can follow the upward trend of health and fashion consciousness when
it comes to the design of its shoes

Similar to the emergence of sports footwear, Zaki Shoes can also be proactive and take

into account the preference of the local market when it comes to shoe design.

Threats

T1. A heavy dependence on imported raw materials, especially from specific countries

like Taiwan, Hong Kong, South Korea, and China, which poses a potential threat. The high

percentage of imports from Greater China and Korea (91.59%) indicates a concentration of

supply sources.
 China and Korea supply 91.59% of the total imported raw materials in the shoe industry.

This causes a threat of supply chain disruptions and these countries can use their leverage to

increase raw material prices and set conditions.

T2. Inexpensive products from China and Vietnam have begun to penetrate the market

The amount of inexpensive footwear from both China and Vietnam has penetrated the

market. The amount of increase from 2000 to 2002 for both of these countries in terms of the

quantity of shoes imports is 70,013 to 568,404 and from 1,228,748 to 5,299,030 for Vietnam and

China respectively. Although, product design is part of the reason why these products are being

valued, the largest reason why these shoes became more popular is its cheaper cost. Shoes from

these countries are able to achieve an inexpensive shoe because of the government rules and not

their method of manufacturing these shoes.Average daily labor costs for them is around 5 U.S.

dollars, on the other hand, minimum wage for companies like Zaki Shoes who are located in

NCR, are required to pay 20 U.S. dollars as minimum wage.

T5. The tariff and Customs Code of the Philippines is expected to decrease

Zaki Shoes shifted its focus on serving the local market when Taiwanese investors failed

to remit international orders. As mentioned earlier, imported finished goods have penetrated the

market because of the low labor costs that these companies are required to pay its employees.

Along with this, Tariff and Customs currently have a duty 0f 10% but this will reduce to 7% in

2003 and only 5% in 2004. This means that imported finished products can e taxed the same

amount as imported raw materials. The same tax for both items means that Zaki Shoes need to

find more local suppliers since there is no more advantage in locally manufacturing the products

over just sending the products to the Philippines.

IV. Problem Prioritization

 a. WOT-SUG Analysis

The process used to determine which problems or concerns should be prioritized is called

the Seriousness-Urgency-Growth analysis, or SUG analysis. This uses a rubric to provide a

comparable value to the seriousness, urgency, and growth. The issue that receives the greatest

overall score will be given priority.

The WOTs of the company were assessed whether the production strategies and operation

management of the company has adequate control in influencing problems. Opportunities and

threats in particular are out of the control of the management. An ‘x’ beside each WOT indicates

that either the specific weakness, opportunity, or threat can be influenced for the betterment of

the company.

Weakness Opportunity Threat

1 X 1 X 1

2 X 2 X 2

3 3 3

4 4

5 X
Table 4. WOT Shortlisting
b. Scoring Rubric

Seriousness refers to the monetary amount of costs that are incurred because of the

problem. Table 5 illustrates the score for each monetary range.

Seriousness (40%)

Score Condition

1 No Seriousness; Total costs incurred by the company amount to less than Php
 2 Minimal Seriousness; Total costs incurred by the company amount to Php 0 -
Php 100,000

3 Moderate Seriousness; Total costs incurred by the company amount to Php 0

- Php 100,000

4 High Seriousness; Total costs incurred by the company amount to Php 0 -

Php 100,000

5 Maximum Seriousness; Total costs incurred by the company amount to more

than Php
Table 5. WOT-SUG Seriousness Scoring Rubric

The urgency in SUG analysi refers to fast a company mus act on the problem for it to

avoid opportunity costs. Table 6 illustrates the corresponding score to each urgency level.

Urgency (30%)

Score Condition

1 No Urgency; Problem can be addressed in 1 year or more

2 Minimal Urgency; Problem must be addressed within 9 months

3 Moderate Urgency; Problem must be addressed within 6 months

4 High Urgency; Problem must be addressed within 3 months

5 Maximum Urgency; Problem must be addressed within a month

Table 6.WOT-SUG Urgency Scoring Rubric

Seen in Table 7 is the growth scoring rubric. Growth refers to either a positive or negative

slope in the trendline of a problem over a given period.

Growth (30%)

Score Condition

1 No Growth; Problem has highly declining growth

2 Minimal Growth; Problem has decreasing growth

 3 Moderate Growth; Problem has no growth

4 High Growth; Problem has increasing growth

5 Maximum Growth; Problem has highly increasing growth

Table 7. WOT-SG Growth Scoring Rubric

W1. The finished goods inventory count deviated by an average of 55.5 from the physical count

According to the manager, negative deviation, meaning that the physical count is less

than the inventory record, makes up 0.4% of total costs that were incurred from order

cancellation during the past two years. A total of 508 out of 1696 orders were canceled during

the period. In terms of shoe cancellation count, 43.32% of the shoes that were ordered were

canceled, resulting in an opportunity cost of Php 2,445,002.48. The total cost of the first

weakness is as follows:

Total Cost Incurred from W1:

Inventory Deviation Contribution x Total Amount Loss from Canceled Orders

(.004) x (2,445,002.48) = Php 9,780.01

Although contributing to less than 1 percent of canceled orders, this is one that the

company controls. Orders are being cancelled because the customers are unwilling to wait for

over a week. The delay in finished goods can be attributed to the deviation in the inventory

records as Zaki Shoes only accepts orders when they have enough inventory to supply the

customer. As seen in Table 2, during these 4 instances, Zaki thought they had enough inventory

to supply the customers even if in reality, they have no stocks resulting in delaying the order and

eventually to order cancelation. If not prioritized, this will increase order cancelations and lead to

the company acquiring a reputation of not being able to deliver goods on time.
W2: The assembly section has a 2% rework rate

Zaki Shoes sets a maximum inventory level for their raw materials due to warehouse

capacity constraints. Polyvinyl chloride (PVC) pellets have a maximum inventory capacity of 20

kg per day. With that said, the rejected PVC plastic was not thrown away instead there is a

machine allocated to grind the plastic for it to be used again. This doesn’t set the production

process in regards to cycle time as of now since the inventory level is sufficient to carry out the

operation without waiting for regrinding. However this weakness should be monitored since if

the rework percentage should increase, it could reach a point where the cycle time of the daily

demand is affected and the company has to start giving overtime costs to reach the daily demand.

Problem Seriousness Urgency Growth Weighted Score

W1. The finished goods inventory

count deviated by an average of 55.5 2 5 5 3.8
from the physical count

W2: The assembly section has a 2%

1 4 3 2.5
rework rate

O1: Implementation of an automated

inventory control system to reduce 5 2 4 3.8
human error

O2. Newly found shoe school in the

country as well as the Footwear
4 1 1 2.2
Productivity Center provides the
industry with more skilled laborers

T5. The tariff and Customs Code of

the Philippines is expected to 1 5 5 3.4
decrease
Table 8. WOT-SUG Analysis Summary of Weighted Score

V. Conclusion
 Based on the study, it could be concluded that the key success factors in the shoe

manufacturing industry are (1) technological integration, (2) a strong brand image and

recognition, (3) sustainable manufacturing practices, and (4) global marketing focus to take

advantage of changing tax reforms. In conclusion, after identifying the key success factors of the

shoe industry, conducting a SWOT analysis and testing each WOT based on their respective

seriousness and growth. This study concluded that:

The finished goods inventory count accuracy deviated by an average of 55.5 counts from the

target of 100% finished goods inventory accuracy. I was determined that this cost an annual cost

of Php 9,780.01 while also diminishing the company’s reputation.