Question

Project Background

In a recent regular quarterly meeting in June, several members of the Board of Directors of Crystal Fashion Group (CFG) have a big concern on the future business position and outlook of the company in view of the long-term trade dispute between USA and China. Also, the rising costs of manufacturing in China are eroding off the profit margin and undercut CFG’s competitiveness in the market. Seeing that quite a number of fellow fashion/ garment manufacturers have already started to migrate outside of China as their back up plant or future satellite production base, hence one proposed direction to look into is to relocate the current production facility from Guangdong to Vietnam. Soon the Chief Executive Officer (CEO) has called in an external professional investment consulting team to undertake a feasibility study on this, and they strongly recommended to expand to an area called the Vietnam Singapore Industrial Park (VSIP) Hai Phong, which is about 150 km east of the capital city of Hanoi (towards Ha Long Bay direction). This location is still not too far away from China, and there would be very attractive incentives and shortto medium-term subsidies offered by the local Vietnamese government to foreign investors like Crystal Fashion. Hence in the September’s meeting, the company has approved to go ahead with the investment of a 100,000 square meters plant, and destined to start operation in three years, including the building’s construction time of about two years.

You, as a manager leading a team of Global Supply Chain Management (GSCM) specialists under the Strategic Management Division reporting directly to the CEO, are required to prepare a Business and Operations Plan, addressing key issues of SCM and logistics to ensure a smooth transition. Your team is required to present in the next Board meeting in December, and submit a full report showing all the details of your design, analysis, rationale, and evidence, etc.

Company Background Crystal Fashion Group (CFG) was founded in 1998 and headquartered in Hong Kong. Its factory is in Shenzhen Guangming New District with a plant site area of about 50,000 square meters. CFG is a leading global intimate wear company that innovates, designs and manufactures a wide range of intimate wear and functional sports products for global leading brands through an Innovative Design Manufacturer (IDM) business model.

IDM business model: gives the company a competitive advantage at the frontend for the industry value chain to provide customers with high value-added and integrated IDM services ranging from product concepts design, material and technological development, specification design to production, which makes us a value-creator and enables us to become a driving force for developing new products and breakthrough technologies.

CFG can generate and realize innovative ideas across multiple industries and product categories, and its strong research and development capabilities are critical to successfully building and maintaining the leading market position globally.

Major Customers: Bra and Intimate wear: Victoria’s Secret owned by L Brands; Bali and Maidenform owned by Hanes Brands; and Calvin Klein and Warner’s owned by PVH.

Functional Sports: Victoria Sport owned by L Brands; Adidas and Reebok owned by Adidas Group; Under Armour owned by Under Armour; and Champion owned by Hanes Brands.

Role and tasks :

You need to address the following Global Supply Chain Management related topics:

1. Overall migration timetable

2. Business strategy, supply chain strategy, and performance metrics

3. Global sourcing strategy and plan

4. Inventory and resources management

5. Warehousing (operations and automation applications)

6. Materials and finished products transportation network

Bear in mind that the migrating of production plant and operating systems should be completed in phases and that all the technical know-how and management capabilities come from the current plant in Guangming.

Could you help me with the big picture of what should I write? Thanks

Answer 1

CFG is a leading global intimate wear company that innovates, designs and manufactures a wide range of intimate wear and functional sports products for global leading brands through an Innovative Design Manufacturer (IDM) business model.

The concern here for CFG is the long-term trade dispute between USA and China. Becuse of which the rising costs of manufacturing in China are eroding off the profit margin and is undercuting CFG’s competitiveness in the market.

As a solution to this  the company has approved to go ahead with the investment of a 100,000 square meters plant in an area called the Vietnam Singapore Industrial Park (VSIP) Hai Phong, which is about 150 km east of the capital city of Hanoi (towards Ha Long Bay direction). This location is still not too far away from China, and there would be very attractive incentives and shortto medium-term subsidies offered by the local Vietnamese government to foreign investors like Crystal Fashion.

As a manager leading a team of Global Supply Chain Management (GSCM) specialists under the Strategic Management Division reporting directly to the CEO i would like to address the following Global Supply Chain Management related topics:

1.) Overall Migration Table:

Construction to start at new location in August.(CONSTRUCTION PHASE)

It would take 2 years to construct the building and Bring in machineries.(ESTABLISHMENT PHASE)

In the third year we would start working on assembly lines, making sure all the machineries are in position and we don't have to compromise on quality.(TESTING PHASE)

During this phase itself we would finalize the workforce for the new location as well, selecting from old employees who are ready to relocate and new employees who wish to join the company.(WORKFORCE MANAGEMENT PHASE)

After this third year time period, the complete operations would be carried out from the new location serving all our clients from 1 single location, which would be cost effective for us.(OPERATIONS PHASE).

We would streamline our assembly lines and work on more innovative solutions to speed up processes and bring down costs(CONTINUAL DEVELOPMENT PHASE)

2.) Business strategy, supply chain strategy, and performance metrics:

To make sure transition is smoothly carried out, the TESTING PHASE is the most important, as for that period we would have work on actual orders for a smaller number of clients from the new location, to make sure we can achieve the same or better quality of products to customers as we have been doing for years.

We also have to make sure that if the workforce and employees at new location are facing any challenges and issues like travelling issues or wage issues or not.

Once we are sure that everything is in place, and we have atleast successfully replicated a business model that we are already operating in one location to another location, than we are ready to migrate completely.

The other way to decide when to migrate completely would depend on the performance metrics.

At the new location if we are successful in attaining the below mentioned metrics for one client than we can start operations for other clients as well at the new location:

Performance metrics:

* Making sure the vendors are delivering raw materials to this new location in time or not.

* The warehouses are able to store all the inventory and in good condition or not.

* The delivery team is facing any challenge picking up products from this new location or not.

* The employees working at this new location are happy working here or not.

These metrics need to to be positive for us, so that we can go ahead with the complete transition.

4. Global sourcing strategy and plan:

As this new location is twice the size of our current location and the taxes implicated by the goverment would also be less, this is a perfect time for the company to expand.

* Aiming to bring in more clients as we can now hold more inventory and also work on more projects with increased space.

* As we would be saving a lot of money on taxes we can invest more on innovation and superceede our own reputation in the market as leaders in the industry. This would mean more Business and long term clients.

* The increased space and reduction in expenditure would also allow us to work on new product lines and have dedicated Reseaech and Development teams who could help us win new clients through the innovation and strategic plans.

4. Inventory and resources management:

Storing the inventory would not be an issue as per space but making sure that all the vendors are delivering raw materials at the new location in time is important.

* So we would be tracking the shipments made by each vendor and also look out if we need any new vendors or not.

* Another important aspect we would work on is making sure the workforce is happily relocated to the new location and is not facing any issues.

* Increased space means more people needed to manage operations, so new employees would come in.

* The induction and training of the new employees would also be an important phase making sure they can match the standards set by company in its past working history.

5 & 6. Warehousing (operations and automation applications):

Materials and finished products transportation network:

This is also a part of TESTING PHASE for the new location wherein we would work on having new employees to manage the incresed number of warehouses, and also working on the list of old and new vendors both for delivering raw materials and also taking the finished products back to the clients and stores as required.

* Due to this change in location there would be change in pricing as well for both delivering the raw materials to us by vendors and also picking up finished product from our inventory. We have to make sure this change in cost is in our favour and not making us spend more than our previous location.

* If this demands new transportation network to be setup, than we will work on keeping everything in Budget.

* Innovation demands automation, and thus automating the various phases in operations and in warehouse to make sure high standards are maintained at new location both in terms of machines and human, a lot of AI applications would be introduced iin the company which will have a separate budget setup.

I hope i am able to give a Bigger picture of the Transition phase and what things to consider while the company is going through a transition phase. All these things can be discussed in detail individually, however bottom line is that keeping all the numbers in place for the above mentioned points of discussion is important for a company to make sure they don't lose their competitive edge in the market.