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Planning, Optimization and Lead time reduction by Localization of an Enterprise network [RMG sector] in Bangladesh.
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Planning, Optimization and Lead time reduction by Localization of an Enterprise network [RMG sector] in Bangladesh.



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  • 1. Planning, Optimization and Lead time reduction by Localization of an Enterprise network [RMG sector] in Bangladesh. Abstract: In this study attempts have been made to find out the ways to face the competitive business environment by the efficient management process towards lead time reduction and Localization. The main purpose of this article is to analyze the business process of the garments sector to find out its lead time minimization process. The study has been concluded by the development of a new business process model with the outcome that the other management process in the supply chain is an important factor rather than process management in the lead time minimization process. Tasmiah Binte Zilani ID: 071 649 556 -------------------------------------------------------------------------------------------------------------------- - Enterprise Network is a network that allows communication and resource-sharing among all of a company's business functions and workers. In some cases, Enterprise network also include company's suppliers, contractors and distributors. So we can say “A large internetwork typical of a large business enterprise”. An Enterprise model is a representation of the structure, activities, processes, information, resources, people, behavior, goals, and constraints of a business, government, or other enterprises. It’s an attempt to describe the interrelationships among a corporation's financial, marketing, and production activities in terms of a set of mathematical and logical relationships which are programmed into the computer. A reference model in general is a model of something that embodies the basic goal or idea of something and can then be looked at as a reference for various purposes. A business reference model is a means to describe the business operations of an organization, independent of the organizational structure that perform them A basic architecture can be shown as below- External Discretionary & Business non-discretionary architectur standard/requirements Drives Information architecture Prescribes Information systems architecture Feedback Identifies Data architecture Supported by Delivery systems architecture [h/w, s/w, comm] Fig 1 : general enterprise datagram
  • 2. Available Enterprise business networks in BD, Prospects in national revenue, Condition of present RMG sector: The People's Republic of Bangladesh is a country in South Asia. It is bordered by India on all sides except for a small border with Burma (Myanmar) to the far southeast and by the Bay of Bengal to the south. Bangladesh is the seventh most populous country and is among the most densely populated countries in the world with a high poverty rate. However, per-capita (inflation-adjusted) GDP has more than doubled since 1975, and the poverty rate has fallen by 20% since the early 1990s. The country is listed among the "Next Eleven" economies. Dhaka and other urban centers have been the driving force behind this growth. Despite continuous domestic and an international effort to improve economic and demographic prospects, Bangladesh remains a developing nation. Its per capita income in 2006 was US$1400 (adjusted by purchasing power parity) compared to the world average of $10,200. Although two-thirds of Bangladeshis are farmers, more than three quarters of Bangladesh’s export earnings come from the garment industry, which began attracting foreign investors in the 1980s due to cheap labor and low conversion cost. In 2002, the industry exported US$5 billion worth of products. The industry now employs more than 3 million workers, 90% of whom are women. Obstacles to growth include frequent cyclones and floods, inefficient state- owned enterprises, mismanaged port facilities, a growth in the labor force that has outpaced jobs, inefficient use of energy resources (such as natural gas), insufficient power supplies, slow implementation of economic reforms, political infighting and corruption. But now a day’s Bangladesh is valued as an important supplier of quality RMG in the global market. The spectacular growth of garment sector in Bangladesh in recent years has dramatically changed the landscape of export composition of the country. Once heavily dependent on exports of primary products lead by Jute, the economy of Bangladesh is now experiencing almost 79% export contribution from RMG. The sector has now occupied an important place in Bangladesh national economy. Nevertheless, all is not well in this sector. It faces numerous challenges and it is now on the crossroad with the phasing out of quota system, GSP facilities and new provisions of WTO. The main exported products from BD are- 1. Woven garments [RMG] 2. Knitwear [RMG] 3. Frozen fish 4. Leather & leather products 5. Jute products 6. Food products 7. Agricultural products 2
  • 3. 8. Handicrafts 9. Bicycle 10. Tea 11. Ceramics products 12. ICT products 13. Toiletries 14. Potteries 15. Home textiles [RMG] 16. Cards & calendars Their Prospect on our national economy can be seen from the table below: Value in Million US$ Year Product Export % RMG 12347.77 79.33 Frozen Food 454.53 2.92 Tea 12.29 0.08 Raw Jute 148.17 0.95 Chemical Product 421.58 2.71 2008-09 Jute Goods 373.18 2.40 Leather 177.32 1.14 Agri. Products 122.3 0.79 Others 1508.06 9.69 Total 15565.19 100.00 Fig 2: yearly economic prospect From the above table we see that majority revenue of our national economy comes from RMG i.e. about to 80% so I have tried to work on it. Not only large revenue it also creates opportunity for both educated and less–educated people. At present about 3100 million people are attached to RMG business. So our unemployment problem has been solved to a great extent. Also Bangladesh has got a good place in the International trade market. Bangladesh is one of the "Next Eleven," along with Egypt, Indonesia, Vietnam and seven other countries. Monitoring body in Bangladesh: The BGMEA has been working to promote and protect the interests of the RMG sector. In order to enhance economic growth, the government set up several export processing 3
  • 4. zones [DEPZ, CEPZ, KEPZ etc.] to attract foreign investment. These are managed by the Bangladesh Export Processing Zone Authority. The BGMEA commenced activities in the late 1970s when the Bangladeshi readymade garments (RMG) industry was a negligible non-traditional sector with a narrow export base. Since its inception, the BGMEA has been working to promote and protect the interests of the RMG sector - it has helped boost RMG exports by 500%, allowing Bangladesh to become one of the chief RMG exporters worldwide. The BGMEA set up its regional office in Chittagong in 1985. Chittagong is a strategically important commercial port and the gateway for all RMG exports. The BGMEA in partnership with GTZ has taken timely initiative to do the capacity building in the area of productivity and quality improvement by bringing in international expertise. Remarkable improvement potential is available for all apparel manufacturers, although organizations that will benefit substantially will be the ones that embrace new thinking and take ownership of the implementation of this change. Quick acceptance and commitment to change will ensure competitive edge and assured international business for them. Technical concepts about RMG Sector: 1.1 Basic Architecture is Graphical representation of a business model, showing the networks through which authority, information, and work flows in a firm. It serves as the blueprint of a firm's business structure, and clarifies how the firm's activities and policies will affect its defined objectives. The Organizational structure of a RMG can be shown as below Chairman/ MD Finance & Logistics Factory Sales & Merchandizing Purchase Product Accounts Development Logistics & Supply Chain Production HR & Admin Maintenance Warehouse 4
  • 5. Cutting HR Production MTN Fabric Facility MTN Sewing Admin Accessories Finished Goods Washing Finishing Fig 3: Basic Organizational Architecture of a RMG Business Model: Business Model is the Description of means and methods of a firm employs to earn the revenue projected in its plans. It defines the business as a system and answers the question, "How are we going to make money to survive and grow?" Readymade garment is a labor intensive industry and relatively simple technology compared to other high-tech industries. The RMG manufacturing units are like tailor’s shop; getting order from the foreign buyers and then import raw materials specially fabrics from the foreign suppliers or sometimes buy from the local market as per order, then manufacture garments and supply those to the buyers. It can be shown as below: Foreign buyers Local raw Foreign Raw Garments Company materials suppliers Materials Suppliers (Manufacturer) Collect raw materials information flow Fig 4: Bangladeshi RMG business architecture/structure In the RMG sector, the Manufacturer - Raw materials Supplier relationship is different. In this Industry the main raw materials are fabrics (Cloths) and few accessories are like button, collar etc. About 80% of the suppliers of accessories are local and accessories suppliers are not responsible to increase lead time. The lead time is getting higher due to import of fabrics mainly from China, Indonesia and India. The total average time to import fabrics from abroad is 50-65 days and this is the main reason for long lead time (BGMEA research cell). In the process 5
  • 6. of import of fabrics from the foreign suppliers lies the main reason for long lead time. This can be shown as: Buying House Foreign Buyers Local raw Garments Company Foreign Raw materials suppliers (Manufacturer) Materials Suppliers Problem area Order flow collect raw materials Final Product supply flow info flow Fig 5: Bangladeshi RMG business architecture/structure Lead Time in production: Today's customers around the market demand product as they want it, when they want it, and at the best possible price. In today's highly competitive global marketplace they are placing greater value on quality and delivery time. Manufacturers similarly have begun to place more value on quality and delivery time and companies are trying to gain a competitive edge and improve profitability through cutting cost, increasing quality and improving delivery. However it is safe to say that the more competitive the industry, the more shortened lead times will help. In competitive industries, short lead time will differentiate a company from its competitors, leading to increase sales. Lead time, activities from start to end of the supply chain i.e. the time lag between placing an order and receiving it: is one of the main competitive factors among companies. The ability to deliver quickly influences export, sales and thereby revenue. The definition of lead- time can vary, depending on what part of the company is focused upon. In this study lead-time is defined as the time it takes from getting order from a customer and received the delivered product by that customer. At present, the average lead time is 90-120 days. It is sometimes 100-130 days. In the lead time reduction process, identifying the beginning of the process and walking through the process is very important. In the RMG sector after order confirmation the process begins by sending information to the suppliers for raw materials (fabrics + accessories) and the process run through shipment of final product and received by the buyers. The whole of this process is comprised of the following steps – 1. Order submission 2. Scheduling and Sequencing 3. Manufacturing 4. Distribution 6
  • 7. A manufacturer may be able to reduce lead time by taking some strategic measures in all of these four stages. From the above theory it is clear that the total lead time is customer lead time. Therefore we can write: Customer lead time = [Information lead time + Order lead time] Total lead time = [Information lead time + {manufacturing lead time + shipping time for Import fabrics & Trims + Shipping time for export final product} Here I propose an effective Planning and Localization to decrease Lead time therefore improving the customer satisfaction. Note: Shipping time for import includes shipping time, unloading time and transport time from port to manufacturing point. Shipping time for export includes manufacturing time for final products and shipping time for export. The study is based absolutely on primary data. The primary data have been collected through free discussion and interviews with the key personnel of a company. Primary data have been collected from BGMEA website. Secondary data were also collected from some reports, articles. Collected literature, data and information have been analyzed in line with the objectives of the study. In this study conceptually developed some model, lead time measurement equation have been used. As a real example, business process of a sample company has been discussed with the lead time measurement equation. Qualitative research method and various statistical tools like averages, percentages, growth rate etc. have been used in this study to interpret and analyze the collected data in the descriptive way. The RMG industry of Bangladesh still plays the role of tailor in the garments business. The required fabrics and limited accessories till now come from abroad. The industry is heavily dependent on imports and had to spend about 55-75 days to import fabrics from abroad. This backdrop is the main reason for long lead time. Bangladesh garment export in volume is increasing at a rate 15-20 percent for the last 20 years, whereas Bangladesh RMG is depending only on Chittagong port. The facilities of Chittagong port have not increased at the same rate. The containers kept stuck up in the port while many containers remain jammed for 15-20 days, which is required to be released within three days. If the raw materials remain idle in the container at Chittagong port for 10-15 days, the garment industry would definitely faces a serious negative impact. According to an estimate, it takes about four days for goods to reach Chittagong from Singapore. But in a very sharp contrast, it takes about 18 to 19 days or nearly three weeks on average for the same goods to travel to the inland container depot (ICD) at Kamalapur in Dhaka. Besides the dilatory and cumbersome customs procedure and port operations also significantly delay the movement or release of 7
  • 8. goods. In Chittagong port it takes about 6 days to unload goods from a ship whereas for the same goods it takes just few hours in Singapore. About port management Mr. Anisul Haque, former president of BGMEA stated, “Unfortunately we are spending 15-20 days to receive our fabrics from sea port to our factory and it is playing the main role to increase lead time”. Again to find out the probable causes of long lead time and for the empirical analysis 50 firms including 5 leading garments units have been chosen to collect primary data. They mentioned many causes behind this problem when interviews were taken but in the interview 100% i.e. of the 36 number respondents (Though 50 firms were chosen but 36 firms were interviewed successfully) put their comment on : • 100% i.e. 36 respondents on import dependency as a most important cause • Then 91.66% on CBW, • 75% i.e. 27 respondents on inefficient port management • 69.44% i.e. 25 respondents on poor infrastructure • 41.66% i.e. 15 respondents on communication system respectively out of 50 personnel’s. The same causes were identified in our analysis based on secondary data. This fact enhances the credibility of our findings. The following figure shows flow diagram of our garment section: P Q R S RAW materials Suppliers Sea Port Manufactures Buyers Fig 6: Basic Supply chain of Bangladeshi RMG Industries First stage, from P-Q (Fabrics suppliers – Sea port) the approximate lead time for the first stage is 40-55 days including the manufacturing time of fabrics, then from Q-R (Sea port - manufacturer) the approximate lead time for the second stage is 15-20 days and at last from RMG (Manufacturer - Buyer) the approximate lead time for the last stage is 35-45 days. The present estimated time from point Q to point R is unnecessary. Here the main task is Unloading the container and carry it to the manufacturing point. The total procedure can be done by only 2 or 3 days through efficient management in port and good transportation system. But due to inefficiency of port management and poor transportation system it takes 15 to 20. From the above observation it is clear to us that, just for import of raw materials Bangladeshi manufacturers are forced to spend 55-75 days more. So import dependency for fabrics is the main reason of longer lead time. 8
  • 9. In the present analysis mainly the “Order lead times i.e., the time it takes to produce and ship the item” will be considered and will be shown how we can reduce that time by an appropriate supply chain management. Some manufacturers pointed out two main points responsible to increase lead time i.e. shipping time and unloading procedure at port. Some other manufacturers pointed out the poor infrastructure in railway and road transport to move their materials from port to manufacturers' factory. They all believe that order lead-time can be reduced if government authorities take proper steps to increase the efficiency of the port and develop the rail and road transport. It seems that the respondents have different but almost same opinions on this issue. So To reduce lead-time effectively we have to reduce import dependency as soon as possible. Immediately we can reduce 30-40% lead time only by proper and efficient management in the supply chain. Lead time is generally 90-120 days for the woven garments. But immediately we can reduce 30% of lead time through proper management in supply chain during import of fabrics and 15% would be possible by only developing port facilities. If we develop our textile sector and procure fabrics from the local market we can reduce 60% of total lead time. For the knitwear garments we procure all raw materials from the local market so there is no lead time problem in the Knitwear garments sector. From the above discussion, it appears that the manufacturers of RMG sector mainly face "Order Lead time" problem and this problem occurred in the supply chain due to inefficient management. Time consumed in the first four steps in the supply chain is the basic reasons for increasing lead time. It is possible to reduce a major portion of order lead time by improving the other three areas namely, communication, port management and transport management in the supply chain. We can get a clear idea about lead time in the supply chain by considering the equation of lead time and put average estimated time collected from the interviews for each step. We know that; Total lead time = [{Information lead time} + {(Order lead time)}] Or, = [{Information lead time} + {(time to manufacturing fabrics) + (time to shipment of fabrics) + (time to unloading fabrics and customs formalities at port) + (time to take fabrics from port to manufacturing point) + (time to sample approval and production of final product) + Time to shipment or export of final products)}] Or, 120 = [{7} + {(15) + (25) + (14) + (6) + (23)+(30)}] From the above equation, we can say that through the first four stages a manufacturer received fabrics from the suppliers after 60 days on average. Out of this the shipping time of 25 days is constant. There is no chance to reduce this shipping time but we can reduce the rest 35 days. There are two parties and various activities involved between suppliers and manufacturers 9
  • 10. in the supply chain. It can be seen in the fig.-4 broadly. The activities and time consumption area have been illustrated here through four boxes (A-D) or stages. A B C D time Suppliers Manufacturing Uploading fabric Manufacturers (receive order of fabrics & at sea port plant/warehouse fabrics) shipment Manufacturing shipping uploading & Time time transportation time Fig 7: Lead-time and fabrics importing process After final contract with the buyers, manufacturers first place order to the foreign fabrics supplier (A). Then the supplier manufactures fabrics (B) and sends fabrics by shipment. After a certain Time the ship reaches at the port (C). Here after unloading and completing some custom formalities fabrics are sent through train or road transport to the manufacturers production-plant/ warehouse (D). For this total process from A-D manufacturers need 55-75 days. At the time of import a proper management in the supply chain can reduce 30-35 days. The rest of the time of 25-35 days is needed only for shipment. Also most of the buyers have no regional offices in Dhaka. These are either in Bangkok or Singapore. The regional offices and the buyer’s resident in Dhaka can build a stock of the required quality of fabrics in advance before making final contract with the manufacturers. It will definitely reduce the manufacturing time. Again the proper and efficient management at port and good transportation system can reduce time to receive raw materials from port to manufacturing plants. But if we avoid fabric import altogether then we can reduce 55-75 days from the total lead time and we will be able to assure export of RMG products by 45-60 days regularly. Therefore in conclusion we can say that by efficient supply chain management we can reduce 29% of total lead time. But to survive in the competition we have to reduce lead time by minimum 50% and we can reduce 55-60% of total lead time by avoiding import and abolishing import dependency attitude. While integrating all the findings from the survey and the case study we can draw a conclusion that in the current RMG business manufacturers are facing lead time problem due to import dependency i.e. import of fabrics from foreign market. This problem is exacerbated due to inefficiency in the supply chain management. Lead time could be further reduced by taking some appropriate measures in manufacturing, unloading and transportation system but it does not help the manufacturer to be more competitive. If the manufacturers could find some alternative source of supply in the local market and collect fabrics locally. That will be more logical, appropriate and helpful in the direction of lead time reduction. Considering all the above analyses a new model of RMG business process has been proposed in fig.-8, which can be helpful in reducing lead time. Local Market 10
  • 11. Garments Company Backward Buyers Own [Manufacturer] Linkage Textile Mills Industries Buying house / Buyers Foreign Buyers Agent Fig 8: Proposed business process for RMG Industries in Bangladesh Localization: Localization (sometimes shortened to "l10n") is the process of adapting a product or service to a particular language, culture, and desired local "look-and-feel." Ideally, a product or service is developed so that localization is relatively easy to achieve. In localizing a product, details as time zones, money, national holidays, local color sensitivities, product or service names, gender roles, and geographic examples must all be considered. A successfully localized service or product is one that appears to have been developed within the local culture. Bangladesh is one of the "Next Eleven," along with Egypt, Indonesia, Vietnam and seven other countries. The China and the Vietnam has improved their economy rapidly with localization. They are doing their business with their own produced products for all sectors as well as the garments section. If we consider the RMG sector then in China the Lead time is 30days whereas it’s in Vietnam 60 days. So International buyers get interested due to their less and comparatively fast Lead time though it costs them higher price. What are our limitations? According to my study; Main Obstacles that our country Bangladesh faces on the way of developing and be uniformed in the international market of RMG sector are as below- • Political instability- Our Political field is always instable and All of our business policies & plans changes according to present government i.e. whatever laws & plans are made by the past government are often modified by the present government. That causes business mans to change their plans too; which is really problematic for the global market. Also damages caused by hartals or workers riot are also of huge amount. 11
  • 12. • Lack of natural resources- We are facing lack of natural resources for a long time, though they are huge in our country but no proper plan is taken to save, utilize and provide them for better usage. And this is also blocking our preference in the international market. • Inefficient power sector- this is a major problem of our country at present. While absence of Power providing in the industrial area is also a one. Though most of the industries have their own power plant but improving the power grid has become necessity for our national life. • Lengthy Government procedures & Paper works- this is also great problem in our working area. Government processes are so long and slow then the private sector that is why private sector has become 1st priority in many cases as well as in the RMG sector too. Import & export related works become so lengthy that hampers our business image. • Lack of local Backward linkage – Much time of a order is passed in importing raw materials, LC clearing, paper works etc, which shows our lagging in Local linkage. • Inter Communication problem: Jams both in inter-city and inter-districts, shortage of subways, inefficient vehicles all are time killing & problem causing. • Lack of Education: Manpower is a great asset of our country but a big percentage of it is deprived form higher & production education that’s also a barrier. Inexperienced peoples are hired for works who takes a long time to gain knowledge & efficiency in the field. How to overcome: • Political stability: Government is to be strict about business plans & rules. Frequent changes are to be stopped. After deciding a profitable plan is to be created & that must be followed by all the industries. • Developing power sector & manage natural resources: Power Sector is to be developed with the help of foreign help. And also steps should be taken to stop misuse of natural resources & utilize them for long time. • Transparent Government procedures & faster Paper works: Government works should be more transparent & fast to make the industrial field competitive. • Improve local backward linkage: Backward linkage problem is to be solved. • Communication improvement: proper steps & future plans are to be taken to reduce the jam/ road problems both inter-city & inter-district. 12
  • 13. • Educate & train manpower: we are to educate our peoples and train them properly for our benefit for all industrial sectors. Our Opportunities: We have a great opportunity for all type of industrialization both national & international due to: • Low cost labor: in comparison to other countries our labor cost is very cheap and available, that often attracts foreign investors. It can be shown from the below chart: Value in $US Country Amount Bangladesh 50-70 China 160-200 Srilanka 140-170 Vietnam 120-150 Fig 9: comparison of labor costs with other countries • Tropical Climate: Our climate is very flexible for industrial purposes rather than other countries. What is government’s and BGMEA role? Government has to take new plans and make issues with other countries for a rapid and positive change in the RMG sector. And the only association to monitor & manage RMG sector BGMEA is to co-operate with the industries and also maintain direct communication with government to receive and provide all industrial facilities. Also they are to evaluate the workers benefits & performance. Conclusion The RMG sector of Bangladesh has entered in the quota free market after 2005. From that time this sector is in a very disadvantageous situation due to long lead time which has negative impact on export growth. Import dependency is the major bottleneck and it is the main factor for greater lead time. Just due to import of fabrics manufacturers are to count shipment 13
  • 14. time, unloading time, customs clearance time and transportation time from port to ICD( Inland container depot ) at Kamalapur, Dhaka. Import dependency arises out of the absence of sufficient backward linkage industry. As a result this sector is facing long lead time which is 90 to 130 days on the average. From the analysis it is clear that the impact of information lead time is very negligible on total lead time. In conclusion considering the above analysis it has been found that import dependency is contributing 50% or more in the problem of long lead time and it is the main factor for the problem of long lead time in the RMG sector. Reduction of lead time is possible when the RMG sector ensure the availability of fabrics from the local market by developing backward linkage industry especially in the oven sector and by establishing textile mills by the buyer for their own consumption. Key words: RMG- Ready Made Garments Lead Time- The amount of time between the initiation of some process and its completion, e.g. the time required to manufacture or procure a product; the time required before something can be provided or delivered. 14
  • 15. Management process-total working procedure Supply Chain- A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer GSP- Generalized System of Preference WTO- World Trade Organization References: Websites: [1]. [2]. [3]. [4]. [5]. Journals: [1]. Lead Time Management in the Garment Sector of Bangladesh: An Avenues for Survival and Growth [European Journal of Scientific Research]-- Nuruzzaman Department of Marketing, University of Rajshahi, Bangladesh Ahasanul Haque Department of business Administration, International Islamic University Malaysia [2] A Study on the Development Strategy of China’s Clothing Industry at the After-Quota Age [International Business Research] by Jing Fu; Tianjin Polytechnic University, China. Papers: [1]. Localization Strategies of Transnational Retailers in China by Wang Yue supervised by Prof. Yang Zuxian. [2]. Rapid Economic Growth in China: Implications for the World Economy- by Warwick J. McKibbin & Yiping Huang. Research School of Pacific and Asian Studies Australian National University. [3]. The Global Economic Impacts of Trade and Financial Reform in China by Warwick J. McKibbin and KK Tang; [4]. Garment producers trying to raise localization ratio 15