Why are South African manufacturing companies not exploiting the local advantages by Dawid Janse van Rensburg. Presented during the 37th annual SAPICS conference and exhibition held at Sun City, South Africa from May 31 to June 2 2015

1. Why is South African
Manufacturing Companies not
Exploiting the Local
Advantages (better)…?
Dawid Janse van Rensburg
CargoSolutions

2. Discussion
• State of Manufacturing in SA
• Footwear Industry Overview & Feedback
• Steel Industry Overview & Feedback
• SA Government Initiatives
• A Cost Model – Local vs Imports
• Can we Compete, How?
• Conclusion

3. State of Manufacturing in
South Africa

4. SA Economy 2014

5. SA Manufacturing Production
Source: www.tradingecomics.com SA Revenue Service

6. SA Balance of Trade

7. SA Balance of Trade vs GDP
Growth Rate
Source: www.tradingecomics.com SA Revenue Service

8. SA Trade Balance vs Singapore
Source: www.tradingecomics.com SA Revenue Service

9. Manufacturing in SA
• 21% in 1983
• 14,6% in 2011
• 16% in 2013
• 13,9% in 2014
• Korea from 23.6% in 1977 to 30.6% in 2010
• Malaysia from 19% to 26.1%
• Exchange rate working against imports
• Certain industries badly affected
– Clothing & Footwear
– Steel
• SA Government Initiatives

10. Footwear Sector

11. Footwear Industry
• 21 bn pairs produced pa worldwide (2011)
• China alone 63%!
• SA
– 23/92 countries
– 51 mill pairs (2011)

12. Footwear – Local vs Imported
Source: SAFLIA Digest, Footstats 2009

13. Footwear Imports to SA
Source: http://tradestats.thedti.gov.za

14. Field Research
• Large importers of shoes (1 supplier and 1
retailer)
– Lead times
• Local: 6-12 weeks (4 on repeat)
• Imports: 16 weeks (12 on repeat)
– Price
• Currently no advantage
– Range (ladies!)
• Range and styling are driving imports

15. Steel Sector

16. Steel Industry
• 2014
– Imported 45% of local demand
– Exported 35% of local production
• Jobs:
– 413 515 (2007) to 374 959 (2014)
• AMSA running at approx 60% of capacity
(2014)
• Avrez Highveld – applied for Business
Rescue

17. Steel and Iron Imports
Source: http://tradestats.thedti.gov.za

18. Steel & Iron Imports into SA
Source: http://tradestats.thedti.gov.za

19. Field Research
Buy local
- Less hassles
- Less costs
- Support local manuf
- Shorter lead times
- Uncertainty of imports
- Quality preferred
Import
- Less expensive (esp.
bulk)
- Delivery certainty
(local LT’s variable)
Question Local only Import Only Local & Import
Where do you buy
your steel?
3 0 4

20. Government Incentives

21. DTI Funding Programmes
• Various cycles of production incentives
• Currently in 2012 cycle
– R5,75 bn over six years

22. Cost Analysis – Import vs
Local

23. Forecast Error
www.DemandPlanning.Net; Mark Chockalingam Blog. Forecast Error Benchmarking
across various industries – survey results » Average of forecast error

24. MAPE’s for Monthly Sales
Forecast

25. Typical Product Sales Profile

26. Cost Comparison between Local
and Overseas Suppliers
Now % Change
in Qty
% Change
in Price
Future
ZAR % of Sales ZAR % of Sales
Sales 100 10% 5% 115.5
Cost of Sales 44 44% 58 50% 50 (20%
GP 56 56% 57.5 50%
OE 50 50% 50 43%
NP 6 6% 25% 7.5 6%
Inventories 11 4 -47% 5.8 10
ROI 55% turns pa 137% 129% turns pa
Add cost of capital 4.356 2.871

27. Financial Leverage in Increasing
Throughput
Now Potential
BREAK-EVEN
POINT
REVENUE&COST
FIXED COSTS
TOTAL COSTS
VARIABLE COSTS
PROFIT
POTENTIAL
PROFIT
How is it possible to increase Profits
so much just by increasing
Throughput & reducing LT?
Source: Goldratt Consulting

28. Companies Bucking the
Trend

29. Breakthrough Results!
• Lead times: 70% reduction
• Due-Date-performance: 44% up
• Inventory levels: 49% reduction
• Revenue: 63% increase
Figures represent the mean improvements of over eighty international companies documented in an independent study,
The World of Theory of Constraints, Mabin & Balderstone, St. Lucie Press, 2000

30. Case Studies
• Footwear
– Bagshaw Shoes
– Watson Shoes
– Aerosud
– etc

31. Improvement
Methodologies

32. Theory of Constraints
• Brainchild of the late Dr Eli Goldratt
• Maintains that all systems are inherently
simplistic
• Most often one constraint that limits flow
• Focus on the constraint will improve flow
• Consists of thinking processes, supply chain
solutions, etc
• Fully enabled by TOC enabling software

33. TOC Solution for Operations
2. What to Change?2. What to Change?
Conflict: Use Efficiencies vs Don’t use Efficiencies
Assumption: “An idle resource is a major waste”
Old Policy: Plan & Execute in ways to ensure all resources are
utilized to maximum efficiency
3. What to Change to?3. What to Change to?
Insight: All non-bottleneck resources must be idle
from time-to-time to utilize Bottleneck 100%
New Policy: Drum Buffer Rope + Buffer
Management
5. How to create POOGI?5. How to create POOGI?
Use buffer management statistics on
causes of “Red Zone” penetration to
focus Process Improvements
4. How to cause the change?4. How to cause the change?
a) Identify the Bottleneck
b) Define the DRUM
c) Size the (Time) BUFFERS
d) Tie the ROPE (to choke Raw Material Release)
e) Implement “Road-runner Ethic” & Quality 1st time
f) Implement Buffer Management to determine day-to-day
priorities & capture red zone reasons
1. Why Change?1. Why Change?
GAPS: Throughput lower than Available Capacity, Due Date is
poor, Lead Times Long, High Variation in Throughput, Lead
Time and Quality etc.
UDES: Sometimes Material & Resources not available, Long
Set-ups, Priorities change, Forecast not accurate, High
expediting & overtime costs etc.
Source: Goldratt Group

34. TOC Solution for Distribution
2. What to Change?2. What to Change?
Conflict: Hold less inventory vs Hold more inventory
Assumptions: Long Replenishment time, Inaccurate
Forecasts and Unreliable suppliers are all out of our
control
Old Policy: Make-to-Order and PUSH based on Forecast
3. What to Change to?3. What to Change to?
Insight: Increasing order frequency will reduce Repl Time,
improve Forecast and improve Supplier Reliability
New Policy: Distribution the TOC way - PULL
Replenishment based on actual consumption + Buffer
Management
5. How to create POOGI?5. How to create POOGI?
Use buffer management statistics on causes of
“Red Zone” penetration to focus Process
Improvements
4. How to cause the change?
For each product establish the inventory target according to the
4. How to cause the change?
a) Establish the plant (Central) warehouse
b) For each product establish the inventory target according to the
formula
c) Move to ‘Order daily – Replenish periodically’
d) Monitor the inventory targets according to the zones
e) Re-examine policies of make to stock – make to order
f) Educate sub-systems to monitor execution using Dollar days
1. Why Change?1. Why Change?
GAPS: Poor DDP, High Surpluses & Shortages, Long LT,
Low Inventory Turns & High Costs
UDE’s: Priorities change, Forecast inaccurate, Unreliable
Supply, Too many SKU’s, Too many emergencies etc.
Source: Goldratt Group

35. Strategy & Tactics
Source: Goldratt Consulting & www.harmonytoc.com

36. Summary

37. Summary
• Do not have to wait for more Government Incentives!
• Do not bargain on macro economic adjustments
• As manufacturers, embrace the challenge to become
world class…!
• As buyers, analyse the full cost perspective
carefully…! (of local vs imports)
• Embrace proven supply chain optimisation
methodologies (recipes) such as TOC to achieve
dramatic improvements, rapidly, and with limited risk