Lean Management System: MANGO - Essay Example

Lean Management System: MANGO Introduction Supply chain management (SCM) has recently gained importance with emergence of globalization and of opportunities for companies in developed countries to lower value chain cost through low cost sourcing (Bruce and Daly, 2004; Christopher, 2000). Within last 20 years, necessity of business process integration among companies has increased manifold. Consideration of research works of Cudney (2009) and Gahagan (2007) reveal the fact that retailers in developed countries, like, UK, USA, Germany and other European Union nations, outsource part of the manufacturing process to low cost geographic bases like, China, Sri Lanka, India and South East Asian countries. By doing so, retailers are able to reduce cost of the value chain activities. After sourcing manufactured merchandises from low cost countries, retailers sell them through their retail outlets in different countries. While outsourcing manufacturing facilities to low cost countries, retailers lose control over value chain activities and face challenges to maintain quality of their goods over a long and complicated supply chain (Christopher and Towill, 2001). Power and Sohal (2001) and Jones (2014) pointed out that adoption of Lean Management can help companies to ensure quality of goods that are being manufactured in low cost countries. In such context, the study has selected MANGO (parent company is Punto Fa, S.L) as sample organization that outsources its clothing manufacturing to China and sell those end products through their retail outlets in British High Street. Selecting MANGO as sample retailer will help the study to understand ways in which adaptation of Lean Management can benefit all parts of the supply chain as well as assist the company to manage their business in a way that render their costs low and levels of customer satisfaction high. Justification for Selection of the Company MANGO is an international clothing design, manufacturing and retailing company. Punto Fa, S.L is the parent company; but globally, retail offering of the company is traded as MANGO (MANGO, 2014). The company is headquartered at Palau-solità i Plegamans, Spain (MANGO, 2014). MANGO has opened more than 22 stores in different cities of UK and is known for its high street offering. Product portfolio of the company includes different types of cloths and accessories like, bags, umbrellas, sunglasses and many others. MANGO mainly targets fashionable woman who have sufficient disposable income to purchase expensive apparel and accessories. In UK, MANGO is regarded as high-street brand due to its target customers, brand aesthetics, price range and selectivity of offering (Dugan, Rimella and Simpson, 2014). Morris (2013) reported that more than 42% of apparel and accessories of MANGO are manufactured in China. Initially, MANGO had started as mid-market retailers; but as the mid-market segment is plagued with fall in profit margin and market saturation, the company has upgraded its offering so as to reposition itself as a luxury apparel retailer. While setting up manufacturing base in China, MANGO needs to pay 50% less wages to labours as compared to that in developed countries. On the other hand, low cost supply of raw material in China has also reduced cost of value chain activities for the company (Morris, 2013). In order to address objectives of the study, the paper has selected clothing product range of MANGO that is manufactured in China and sold at UK high street. For the purpose of addressing study objectives more precisely, ‘Jeans’ is selected as the sub-product category in clothing range of MANGO. In the next section, in order to incorporate theoretical depth to the study, concepts of supply chain and lean management will be discussed. Theoretical Background According to Shah and Ward (2007), concept of Lean Management system is derived from just-in-time (JIT) and total quality management (TQM). Shah and Ward (2007) defined lean management as collection of continuous value streaming activities. Lean management system helps companies to meet customer requirements and continuously improve quality of product/service delivery to them (Gahagan, 2007; Taylor, 2006). Abdulmalek and Rajgopal (2007) pointed out that lean approach focuses on eliminating seven types of wastes from production process. In terms of lean management system; overproduction, inventory, transportation, waiting, processing, defects and motion are considered as wastes. As a value streaming activity, lean management emphasizes on improving material and information flow throughout the process (Sezen and Erdogan, 2009). Value stream mapping (VSM), 5S housekeeping, visual management and single minute exchange of dies (SMED) are most popular lean management techniques (Abdulmalek and Rajgopal, 2007). By reducing wastes in the process, lean management tries to improve process efficiency at each stage of production (Brown, Collins and McCombs, 2006). Before implementing lean systems, organizations need to develop a process map. In addition to that, applying lean management would improve performance at each process point. Wan and Chen (2008) analysed efficiency of lean management system on the basis of quantitative analysis of key performance indicators (KPI) in production process. In such question, Power and Sohal (2001) tried to apply lean management functions in context to supply chain activities. Researchers showed significant amount of doubt regarding applicability of lean management in context to supply chain management. For example, Power and Sohal (2001) found that agile supply chain is more desired among companies in contrast to lean supply chain. Agile supply chain works in a more customer oriented way and combines hard and soft techniques in a flexible manner so as to meet customer requirements. Christopher (2000) defined supply chain as set of activities that are used to ensure material flow from raw material supplier to companies. Different sourcing activities take place at different stages of supply chain. Difference between lean and agile supply chain is directed by customer specific responsiveness of each model. In case of agile supply chain, the focus is on meeting customer requirements in a responsive manner; whereas, in case of lean supply chain, stress is on reducing wastes through different processes (Christopher, 2000). In such context, Stratton and Warburton (2003) proposed total supply chain strategy that combines both lean and agile principles. Combination of lean and agile supply chain activities can enable companies to lower cost of value chain as well as improve quality of end product. Bruce and Daly (2004) conducted research on total supply chain strategy in case of textile and apparel industry. According to Bruce and Daly (2004), combination of lean and agile principles can create a supply chain, which is characterized with high product variety, high volatility, short product lifecycle, low predictability and higher capability to influence impulse purchases. On the other hand, Agarwal, et al. (2006) used analytic network process model for comprehending functionality of total supply chain model. It is evident from the discussion that concept of lean and agile principles have considerable amount of importance in case of designing cross-country supply chain network. Lean and agile principles should be merged for designing suitable supply chain for luxury retailers like, MANGO, that have their products manufactured in China. In the next section, the study will discuss stage by stage supply chain activities of MANGO in order to realize ways in which implementation of Lean management principles can deliver benefits to all stages of the supply chain of selected company. MANGO: Supply Chain While defining difference between lean and agile supply chain, Kerber and Dreckshage (2011) used two terms such as, “market winner” and “market qualifier”. In case of market winner, supply chain is characterized with those activities that help companies to achieve competitive advantage (Pettersen, 2009 and Shah and Ward, 2007). In case of market qualifier, supply chain is characterized by those activities that help companies to enter the competition. In case of lean supply chain, lowering cost is market winner and improving product quality is market qualifier. In case of agile supply chain, improving service level is market winner and reducing lead time is market qualifier. It has been found by Lashen (2012) and Nakhata (2008) that high street retailers like, Zara, MANGO, H&M and Topshop, select supply chain strategy in accordance with product offering requirements. The following diagram can be used in order to perceive supply chain requirements of MANGO. Figure 1: Difference between Agile and Lean Supply Chain (Source: Lashen, 2012) High street retailing in UK is characterized by low volume of products, less predictability in customer requirements and demand for high variety in offering. As a result, MANGO adopts agile supply chain model in order to address the mentioned characteristics. According to Cheng and Choi (2010) and Shapiro (2007), majority of high street retailers like, MANGO, use postponement strategy as part of agile supply chain model. Cheng and Choi (2010. p. 52) defined postponement strategy as “putting off product configuration until the exact market demand is known thus reducing risks and costs associated with carrying stock”. At the decoupling point (point between agile and lean supply chain), MANGO maintains strategic inventory level so as to balance upstream and downstream activities. For example, MANGO calculates P-time (time taken by Chinese manufacturer to produce product + time taken to transport manufactured goods to UK from China). Forecasted D-time (waiting time for customers to purchase new stock of goods manufactured in China). The intersection between P-time and D-time is the optimal decoupling point. Schematic diagram of supply chain MANGO can be depicted in the following manner. Figure 2: Supply Chain Model for MANGO (Source: Lashen, 2012) It is evident from the above diagram that supply chain management of MANGO has three main stages such as, sourcing raw material by Chinese manufacturers, manufacturing the goods (Jeans is the sub-product category) and delivering those from China to procurement centres. According to Wharton (2008), velocity, technology integration and information sharing are three important parameters for ensuring success of agile supply chain of MANGO. The supply chain of the company can be analyzed in separate stages and differentiated from each other. Stage 1- the company selects Chinese manufacturers in accordance with specialty of the geographic region for manufacturing a particular type of clothing “at a competitive price’ (Wharton, 2008). In order to avoid uniformity in merchandise offering, MANGO does not encourage franchise options; rather, the company entirely outsources manufacturing activities. In the initial stage, less than 20% of the actual order is given to the Chinese manufacturer so as to verify whether or not the manufacturer is able to meet quality standards of MANGO. However, in case of retailing, the company uses franchise owned shops. Logistics support centre is established in Shanghai in order to help Chinese manufacturers transport their manufactured goods easily. Chinese manufacturers are given deadlines for completion of manufacturing and shipment of finished output. The Spanish high street retailer has rented warehouses in Shanghai and Hong Kong (China). After completion of manufacturing, finished garments are stored in warehouses. Stage 2- stored manufactured jeans are transported to global distribution centre of the company (Donaire, Casi and Carbonell, 2011). Total logistics lead time= total time for manufacturing garment+ total time taken for supplying the finished goods to global distribution channel. Enterprise Resource Planning (ERP) is used by MANGO for the purpose of tracking movement of finished goods (Jeans) from China to global distribution centre. Stage 3- Ghemawat and Nueno (2002) and Hines and Bruce (2007) found that fashion retailers adopt demand specific distribution modes in order to maintain optimal inventory level. MANGO also follows similar kind of distribution model while transporting clothes from global distribution centre to British high street retail stores. Demand for a particular good (Jeans) is estimated through ERP system and based on demand estimation, strategic inventory level at decoupling point is maintained. MANGO branded jeans is transported from global distribution centre to high street retail stores in UK. As part of operation management, transported goods are checked by their batch numbers through radio frequency identification (RFID) system (Jones and Robinson, 2012). Applying Concept of Lean Management Lashen (2012) has identified two problems in the existing supply chain of MANGO. Problem 1- 42% of manufacturing of MANGO is done in China. The company depends completely on Chinese manufacturers, in context of apparel designing and incorporation of latest fashion trend in the same. As a result of outsourcing, MANGO loses control over activities of Chinese manufacturers. Due to lack of control over long and complicated supply chain, MANGO faces difficulty in maintaining quality of products (Jeans) manufactured. Due to lack of integration of information technology, it becomes tough for Chinese manufacturer to assess dynamics of changes in fashion trend in UK. Therefore, Chinese manufacturers often fail to deliver garments as per requirements of British customers (Donaire, Casi and Carbonell, 2011). Problem 2- cross-geographic supply chain of MANGO is plagued with five types of wastes that are identified in lean management system such as, overproduction; poor inventory management, increasing transportation cost, long waiting time for customers and defects in manufactured clothes. In order to address abovementioned problems in the long and complicated supply chain of MANGO, concepts of lean management can be applied by the company. Stage 1- in order to control activities of Chinese manufacturers, quick response (QR) mechanism needs to be incorporated. QR technology will develop virtuous circle between Chinese manufacturer and local procurement centre of MANGO. Integration of supply network will allow Chinese manufacturers to interpret exact demand and fashion trend in UK (Agarwal, et al., 2006). As part of lean mechanism, quality of output will be improved by controlling of manufacturing process through online enterprise solution. Cost of overproduction can be reduced by maintaining optimal strategic inventory level. Lean Six sigma workshop for Chinese manufacturers should be handled by managers of MANGO. Stage 2- wastes in the transportation process for manufactured goods will be removed in order to cut down cost of operation. For example, reduction in distance between procurement centres and warehouses will lessen travel time and cost. Stage 3- as part of lean management system, statistical techniques will be employed to calculate actual demand of a good (Jeans) in MANGO stores. Based on accurate forecasting, volume of distribution to British high street retail stores will be decided by global distribution centre of MANGO. Using lean quality checking will help MANGO to reject products with defects during screening of shipped goods in global distribution centre. Rejected goods will be sent to Chinese satellite procurement centre for further repairing. It is expected that deployment of lean mechanism will bring down cost of value chain and minimize defects in manufactured goods by 30% for MANGO (Lashen, 2012). Conclusion It is evident from the above discussion that agile supply chain of MANGO might not be able to control all activities of Chinese manufacturers or enhance quality of manufactured clothes. In such context, the company should try to deploy lean supply chain framework in order to deliver value to target customers in a low cost manner. MANGO needs to identify magnitudes of wastes in the supply chain and based on identification, lean principles should be incorporated so as to remove wastes from long and complicated supply chain. In order to address existing problems in a responsive manner, the high street retailer needs to adjust lean supply chain principles as per situational requirements. Reference List Abdulmalek, F. A. and Rajgopal, J., 2007. 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