the Supply Chain
-A practical research for Paré B.V.-
January 2007
RijksuniversiteitGroningen
Faculty of Management and Organization Master Thesis Operations & Supply Chains
Company supervisor: Jan van der Laan University supervisors: Gera Welker University co-assessor: Taco van der Vaart
Joost de Rooij Nieuwe Ebbingestraat 89B
9712 NH Groningen
+316-20043143
joostderooij@hotmail.com
Student number: S1504142
Preface
Here is the final version of the thesis about improving delivery speed and reliability in the supply chain of Paré B.V. From April 2006 until the end of August 2006 an in-depth research to the speed and reliability of the suppliers to Paré was performed. This thesis was written during and after a practical research of five months at Paré. This has resulted in this master thesis, which is the finishing section of the master Operations & Supply Chains within the study Business Administration of the Rijksuniversiteit Groningen.
Many students use the preface of their thesis to thank all people who supported them during their whole master thesis period or even during their whole study period. They thank their parents, girl- or boyfriend and other people that they love. I do not thank those people, however only the people that really contributed to the content of this master thesis. Hence I like to thank Gera Welker and Taco van der Vaart for their support from the RuG. I experienced the feedback sections with Gera Welker as very useful and want to thank Taco van der Vaart for taking over the tasks of Gera Welker, during the last months. Besides that I want to thank all the employees of Paré and Eurobag especially Jan van der Laan. Jan van der Laan was the company supervisor, who brought this thesis to a higher level with his critical view. Besides that I want to thank Koos Hoving (CEO of Paré) for his presence during the final conversation on the University. The last two persons that I want to thank are Sander Zwanenburg and Koen Bliekendaal for their support concerning Excel skills, during the construction of the “Sample Request Form”.
The last thing I want to say is that I wish you a pleasure to read this thesis and hopefully some advices will still be used in the future.
Management summary
Paré is a company that designs all kinds of bags (ladies bags, sports bags, backpacks, business bags and beach bags) for its home brands: Daniel Ray and Survival. Besides those collection brands Paré also designs bags on request of customers’ requests. Paré places the production orders in China at several suppliers and sells the bags all over the world from its warehouse in Tynaarlo (The Netherlands). Paré belongs to the Dara holding together with Eurobag and Dutchbag.
The management of Paré is not satisfied about the performance of their suppliers. They think that the delivery speed and reliability from the suppliers to Paré should be improved. That is the reason why the following research question was formulated;
Which factors and processes influence the delivery speed and the reliability of the 1
sttier suppliers and how can delivery speed and reliability be improved?
After a detailed diagnosis to the processes between the suppliers and Paré it can be concluded that there are many factors that can delay and disturb speed and reliability from the suppliers in China to Paré. The factors that are related are clustered together, which resulted in six main issues. The following main issues were defined during the diagnosis;
• Sourcing problems
• Unclear order method and specifications
• Slow and unreliable supply of the (2
ndtier) suppliers
• Slow approval of samples
• Production complexity
• Dependability of one forwarder and slow handling methods
Several advices can be given to reduce the former mentioned problems and optimize the
processes to improve speed and reliability. More time should be invested in sourcing activities to
realise the proposed sourcing strategy. The use of a task and responsibility division is part of this sourcing strategy. Besides that it was proposed to change the order method, update the file of order specifications and improve the communication between sales and styling regarding special orders (by usage of the Sample Request Form). The supply between the 2
ndtier and the 1
sttier suppliers can be improved by a more active role of the 1
sttier suppliers. This means that sanctions should be executed by the 1
sttier suppliers in case of (delivery) failures. The financial situation and the capacity of the 2
ndtier suppliers should be taken into account in doing business.
The 1
sttier suppliers have to control this and should be more active in the purchase process. The approval process should be improved by a quality control during the production process of samples. The control of the development samples should be performed by Paré with help of the picture and the artwork. Confirmation samples must be sent directly to Paré and not via Eurobag (except in the area of Shanghai), to save one till four days. For more complex orders more time should be calculated in the total lead time, while some activities have to be outsourced to other companies (like washing). Doing business with suppliers who can do most or all processes by themselves saves at least three days production time. The transport process can be accelerated by doing business with more than one forwarder, because more flexibility is created in the number of departure days. Concerning handling time in the harbours and warehouses at least one day can be saved by using pallets. Besides that Paré can save money in the transport process, especially in the way from China to Rotterdam as there are cheaper forwarders than the current forwarder Paré does business with.
If all proposals should be implemented appropriately the average lead time could reduce from 74
days to 54 days when the time to realize the proposals is taken into account. The reliability will
increase, because data and agreements are more clear and correct.
Table of content
PREFACE ...2
MANAGEMENT SUMMARY...3
TABLE OF CONTENT ...5
1 INTRODUCTION...7
2 PARE B.V. ...8
2.1 THE COMPANY...8
2.2 THE DARA HOLDING...11
2.3 THE HISTORY...11
2.4 SUMMARY...12
3 RESEARCH DESIGN ...13
3.1 INTRODUCTION...13
3.2 INITIAL MOTIVE AND PROBLEM STATEMENT...13
3.3 TYPOLOGY AND THEORETICAL FRAMEWORK...15
3.4 CONCEPTUAL RESEARCH MODEL...17
3.5 DIAGNOSIS PHASE...18
3.6 DESIGN PHASE...19
4 THE SUPPLY CHAIN OF PARÉ ...21
4.1 INTRODUCTION...21
4.2 THEORETICAL BACKGROUND...21
4.3 A CONCEPTUAL FRAMEWORK FOR SUPPLY CHAIN MANAGEMENT...22
4.3.1 The supply chain network structure...23
4.3.1.1 The 2nd tier suppliers... 24
4.3.1.2 The 1st tier suppliers... 25
4.3.1.3 Supporting company ... 25
4.3.1.4 The focal company... 26
4.3.1.5 The 1st tier customers ... 26
4.3.1.6 The 2nd tier customers ... 26
4.3.2 Supply chain business processes...27
4.3.2.1 Design and styling ... 28
4.3.2.2 Purchasing and ordering... 29
4.3.2.3 Production and quality control ... 29
4.3.2.4 Transport... 31
4.3.2.5 Warehousing ... 31
4.3.2.6 Distribution ... 32
4.3.3 Supply chain management components ...32
4.4 SUMMARY...34
5 DIAGNOSIS OF SPEED AND RELIABILITY...36
5.1 INTRODUCTION...36
5.2 SOURCING...36
5.3 ORDERING AND ORDER SPECIFICATIONS...37
5.4 SUPPLY FROM 2ND TO 1ST TIER SUPPLIERS...40
5.5 APPROVAL OF SAMPLES...40
5.6 PRODUCTION...41
5.7 TRANSPORT...42
5.8 SUMMARY...43
6 DESIGN OF IMPROVEMENTS FOR SPEED AND RELIABILITY ...46
6.1 INTRODUCTION...46
6.2 SOURCING...46
6.2.1 Single and multiple sourcing ...46
6.2.2 Task and responsibilities ...48
6.2.3 An own factory...50
6.2.3.1 Advantages of an own factory... 50
6.2.3.2 Disadvantages of an own factory ... 51
6.3 ORDERING AND ORDER SPECIFICATIONS...52
6.3.1 The Sample Request Form ...52
6.3.2 Change the order method ...53
6.3.3 Improving the data base ...53
6.4 SUPPLY FROM 2ND TIER TO 1ST TIER SUPPLIERS...55
6.5 APPROVAL OF SAMPLES...56
6.6 PRODUCTION...58
6.7 TRANSPORT...58
6.8 SUMMARY...61
7 CONCLUSION...63
7.1 RESEARCH OBJECTIVE AND RESEARCH QUESTION...63
7.2 DISCUSSION...65
LITERATURE REFERENCES ...67
APPENDICES
APPENDIX 1: QUESTION LISTS FOR THE FIRST INTERVIEW ROUND APPENDIX 2: QUESTION LISTS FOR THE SECOND INTERVIEW ROUND APPENDIX 3: QUESTION LISTS FOR THE THIRD INTERVIEW ROUND APPENDIX 4: RESULTS FROM THE (SUPPLIERS) QUESTIONNAIRE APPENDIX 5: SAMPLE REQUEST SHEET
APPENDIX 6: PRICE LIST OF FORWARDERS
1 Introduction
This master thesis is the final part of the master Operations & Supply Chains. The thesis is about improving the delivery speed and reliability in the supply chain of Paré B.V. The focus lies on the speed and reliability of the suppliers to Paré.
First some information about Paré, the company where the research is performed, is given.
Information about Paré can be found in chapter two. In chapter three the research design is discussed. The initial motive, problem statement and research methods are some of the subjects that are dealt with in that chapter. In chapter four all aspects of Paré’s supply chain are explained. After the explanation of the supply chain, a diagnosis is carried out to the processes that influence the reliability and speed, between the suppliers and Paré, in chapter five. In chapter six solutions for improvements of former issues are given. The thesis is suitably concluded by the “Conclusion” where an answer is given to the research question and the course of the research is discussed.
2 Paré B.V.
In this chapter the organization of Paré’s is explained. In section 2.1 some information is given about Paré’s products and the organizational structure. Secondly the holding, to which Paré belongs, is described (in section 2.2). In the last section information about Paré’s history is dealt with.
2.1 The company
Paré B.V. is a trading company specialised in designing, producing and selling trend-setting, ready-to-use quality bags, travel goods and wallets. The two brands that Paré sells are Daniel Ray and Survival.
All bags are designed in the Netherlands by a team of designers and stylists. Besides the home brands the stylists of Paré design bags on request and according to the specifications of the customers. Manufacturing takes place in China (for 99.5 %) and for a very small part in India (for 0.5 %), by contracted local companies. Child labour is of course prohibited in these companies, but to be sure about this Paré checks the labour conditions in the factories.
From the warehouse in Tynaarlo the collections are distributed directly to the retail outlets in the
Benelux and Germany. Additionally Paré is represented exclusively in most of the European
countries by sales partners. Before the products enter the market, they are carefully checked by a
dedicated team of quality controllers who perform production and laboratory testing of materials
and fittings. Paré sells its bags all over the world, though most of the turnover is generated by
customers in Europe. In 2005 the highest turnover was realised in Germany (about 50 % of the
total sales turnover) and in The Netherlands (about 20 %), as can be seen in figure 2.1
Figure 2.1: The distribution of the sales turnover in Europe (2005).
An overview of the turnover in 2005 per product group is displayed in table 2.1
Product group Turnover Turnover in %
Shoulder bags 6,261,233 46.3
Shoppers 2,192,779 16.2
Backpacks 2.098.443 15.5
Special orders (private label bags) 1.394.987 10.3 Sports backs + travel packs 706.257 5.2
Lady bags 375.372 2.8
Business bags 218.939 1.6
Hip bag 143.884 1.1
(Suit) cases 126.436 0.9
Others 195.879 1.4
Total turnover 13.518.330 100.0
Table 2.1: Distribution of turnover in 2005 per product group
The Organization Chart of Paré is displayed in figure 2.2. The management team of Paré consists of three men: the chief executive officer, the purchase director and the sales director. The employees of the ICT-department, the controller and the quality manager support the management team and the other departments. The purchase department and the sales department are managed directly by the management team. The logistics department is managed by a manager of its own.
Figure 2.2: The Organization Chart of Paré
In October 2006 new objectives were defined for each department. The measurement of most
objectives starts from January 2007, because then most essential modules concerning
performance measuring have been implemented. At the moment the mission of Paré (still) is the
following; Paré wants to be the best supplier, offering the best price/quality ratio and the best
service.
2.2 The Dara holding
Paré BV belongs to the “Dara holding”, together with Eurobag and Dutchbag, as can be seen in figure 2.3. The business units within the Dara Holding are responsible for their own results.
Eurobag buys and sells customised bags all over the world. Besides that Eurobag performs the quality control for the entire holding. Dutchbag designs and sells bags under the licenses of brands like Brunotti and Quick.
At the moment about 50 employees work for Paré B.V. In 2005 Paré’s turnover was about 13.7 million euros.
Dara Holding
Dutch Bag
Eurobag Ltd.
Shanghai
Eurobag Ltd.
Hong Kong
Eurobag Ltd.
Xiamen Paré BV
Figure 2.3: The Organization Chart of the Dara holding
2.3 The History
Paré started in 1972, with trading in bags. The name Paré is a composition of the names of the
founders: Mr. Pastoor and Mrs. Remidost. In 1978 Paré merged with Groli BV. After the merger
the company grew, especially in the 90’s, which resulted in excellent results.
In 1994 Paré took over the German company Wickert. Later this company changed its name into
“Online Lederwaren GmbH”. Online was specialised in the sales and distribution to the supermarkets of non-food franchisers. At the moment Online has been integrated and is known as the “Paré SB division”. In 1994 Paré received the “Export price of Drenthe”, by the Commerce Organization Chamber of Commerce and in 1995 Paré even received a nomination for “Enterprise of the year 1995”.
In the year 1993 “Eurobag-Five Stars Collection Ltd.' was founded in Hong Kong. The company was founded as a control office, but it has grown into a sales office. The displacement of some production locations to Shanghai and the need to responding faster to the requirements of customers were motives to open a new (Eurobag) office on that location, in the year 2000.
In 2004 the company Dutchbag was founded, as a business unit of the Dara Holding. Within this company only bags of a specific brand will be developed and sold under license, for instance Brunotti and Quick.
2.4 Summary
Paré is a company that designs all kinds of bags (ladies bags, sports bags, backpacks, business bags and beach bags) for its home brands: Daniel Ray and Survival. Besides those brands Paré also designs bags on request of the specifications for customers (private label).
Paré places the production orders in China at several suppliers and sells the bags all over the world from its warehouse in Tynaarlo. Germany (50 % of the total turnover) and The Netherlands (20 %) are the most important countries regarding the sales turnover.
Together with Eurobag and Dutchbag Paré belongs to the Dara Holding. The Dara holding only
has a financial role; the three companies operate independently. Eurobag carries out the quality
control and keeps an eye on the lead times for the entire holding. Dutchbag designs and sells
bags under the licenses of brands like Brunotti and Quick.
3 Research design
3.1 Introduction
First of all the initial motive for this research is explained. This initial motive resulted in a problem statement, which is also presented in section 3.2. In section 3.3 the theoretical framework and typology of the research are described. The conceptual research model is explained in section 3.4. The two research phases (diagnosis and design) are discussed in detail in section 3.5 and 3.6. In these two sections also the research methods and the research sub questions that were used during those two phases are dealt with.
3.2 Initial motive and problem statement
Paré trades in the dynamic world of fashion, which means that the supply chain changes continuously. The turnover of Paré’s products has been decreasing over the last few years, as can be seen in figure 3.1.
Turnover of Paré
- 5.000.000 10.000.000 15.000.000 20.000.000 25.000.000
2001 2002 2003 2004 2005
Year
Turnover in Euro
Figure 3.1: The currency of Paré’s turnover over last five years.
The management of Paré wants to get more control over their supply chain, deliver faster and
more reliable to be able to increase sales (turnover). That is the main reason why the
management team of Paré wanted someone to investigate the supply chain. The main supply
chain issues which Paré is struggling with are long lead times and bad delivery reliability from
the suppliers to Paré. That is why the focus of this research is on the delivery speed and delivery reliability, concerning the performance of the suppliers. The delivery reliability rate is not measured by the management of Paré. The CEO and the purchase manager estimate that the reliability rate lies between 80 and 90 percent. In this research the measurement of the reliability rate will not be taken into account, because from January 2007 the delivery reliability will be measured by the quality manager. This will be easy with the help of the possibilities in the (new) ERP-system Axcapta, which implementation has started in October 2006. The management of Paré wants to know which factors influence the delivery performance, from the suppliers to Paré, and which improvements can be realised in the supply chain. That is the reason why the following problem statement was defined. The problem statement consists of the research objective and research question, according to the theory of de Leeuw (2001);
Research objective
Determine the factors and processes that influence the delivery speed and the reliability of the suppliers to Paré. Improvements should be proposed, concerning the delivery speed and reliability of the 1
sttier suppliers.
Research question
Which factors and processes influence the delivery speed and the reliability of the 1
sttier suppliers and how can delivery speed and reliability be improved?
From the initial motive it can be derived that the main purpose is to define the factors that
influence speed and reliability between the suppliers and Paré. That is the reason why this
research focuses on the delivery performance, from the manufacturers in China to Paré. Slack
(2002) divided delivery performance in two performance objectives: speed and reliability. Speed
indicates the time between the beginning of an operation process and its end (Slack, 2002). This
operation process can also include the order process. The term reliability means keeping delivery
promises, honouring the delivery time given to the customer (Slack, 2002). These definitions
about speed and reliability were used in this research.
3.3 Typology and theoretical framework
De Leeuw (1996) distinguishes two main types of research: scientific research and practical research. This classification is based on the final product of the research. Both types are scientifically justified, but differ in knowledge objective. Scientific research aims at contributing to the universal knowledge base. Practical research aims at offering data, insights, and methods, concepts that are useful in solving problems. The research at Paré can be classified as a practical research.
The theoretical approach that was used to support this practical research is known as the DDC- model. This model has been chosen, because it is a clear and structural method to approach problems and the model was recommended by the university supervisor. The DDC-model is designed by De Leeuw (2000). Originally this model consists of three phases: Diagnosis, Design and Change. However in this research the “Change phase” was not used. The reason for this is that the management of Paré thinks the most important issue is that the researcher gives advices instead of the implementation of these advices. The DDC-model, in figure 3.2, was used as a structural framework for this thesis, not as a research model. These two phases and the empirical model will be dealt with, in detail, in paragraphs 3.4 and 3.5.
Figure 3.2: DDC-model
Before a diagnosis of speed and reliability was performed, the supply chain was described extensively to understand the businesses processes of Paré and the relations with other companies. Two sub questions were formulated to describe the supply chain;
1. What companies are parts of the supply chain?
2. What responsibilities does Paré have within the supply chain?
The first sub question was formulated to be able to give an overview of all companies that participate in the supply chain (see figure 3.2). The second question was defined to understand the role (and power) of Paré, in the supply chain.
The research into the supply chain started with some desk research (information from the website and reports). This was done to get acquainted with Paré and the supply chain. The information that resulted from the desk research and De Leeuw (2001) was used for the research design.
The second step in the research consists of interviews that were carried out with the management team and employees of different departments. These interviews were carried out with the following persons;
• The three members of the board (CEO, Purchase manager, Sales manager)
• One employee of the styling department
• Three employees of the purchase department
• The manager and one employee of the logistics department
• One employee of the sales department
The interview questions aimed at finding out what processes are performed by what departments and how the responsibilities are divided among the different departments. The interview questions were formulated to answer (the earlier mentioned) sub questions 1 and 2. The question lists that were used during this first interview round can be found in appendix 1. An example of one question is: “The factories of the suppliers stand in different areas in China. Why did you choose for these factories/suppliers?”
The book “Strategic Logistics Management” by J.R. Stock and D.M. Lambert (2001) was used to describe the supply chain of Paré. Especially the model “Supply Chain Framework” of Lambert
& Stock (2000) was useful to give an overview of Paré’s supply chain.
The next steps in the research are the diagnosis phase and the design phase. These two phases are
described in the following sections (3.4 and 3.5).
3.4 Conceptual research model
In the beginning of the research a conceptual research model was designed. This research model was defined, after a literature study of factors that influence (delivery) speed and reliability and after finishing the first interview round (see 3.3). The conceptual model is used as a red line during the research and can be seen in figure 3.3.
Figure 3.3: Conceptual research model
Figure 3.3 is called a fish bone diagram (Ishii, 1996), which is used to describe the causal relation between several factors. That is the reason why it is also called a cause and effect diagram. In this case the figure shows a couple of factors that can influence speed and reliability.
These factors are in most cases processes between the suppliers and Paré. These processes are
discussed in detail during the diagnosis phase (see 3.5 and chapter 5). The influence of the
factors and processes is described concisely in chapter 4 and 5. After a detailed analysis of these
processes there are given recommendations about these processes in chapter 6 to be able to improve delivery speed and reliability.
3.5 Diagnosis phase
In the diagnosis phase an in-depth research to the processes between Paré and its suppliers was executed, in order to attain a clearer overview of the problems Paré is dealing with, regarding speed and reliability. No data concerning the delivery reliability rate were colleted, as Paré does not have a good system to collect these data. From January 2007 the quality manager will start with collecting information about the delivery reliability and speed. That is the reason why no
“hard” data were collected with regard to reliability and speed, within this research. During this research phase an answer was found on the following sub question;
3. What problems occur with respect to speed and reliability within the relation of Paré and their suppliers?
A second interview round was performed to collect information about problems concerning the supply processes. The purpose of this round was to define the problems regarding reliability and speed, and to detect causes. Also some information about Eurobag and the suppliers was collected, during these interviews with the employees that have working experience in the Far East. That information was necessary for the three weeks research in China. The interview lists that were used during the second interview round are included in appendix 2. One example of a question that was used is: “What problems do you experience during the order process?”
Employees that were interviewed during the second interview round were:
• Purchase manager
• One employee of the styling department
• Two employees of the purchase department
The third interview round was performed in Hong Kong, Shanghai and the south of China.
Several interviews with employees of Eurobag and visits to suppliers were made to collect more
information about the processes, causes for problems, the relationship between the suppliers and
Paré and the role of Eurobag. During these interviews the first information from the supply site was collected. Appendix 3 shows the questions list of the third round. One question of this question list is for instance: “Eurobag is responsible for the quality control, in the factories.
Where and when do the Quality Controllers (QC’s) carry out the quality checks?”
The interviews were carried out in Hong Kong with;
• The board of Eurobag (CEO, Office manager and QC-manager)
• The manager of the shipping department
• Two employees of the merchandise department (responsible for purchasing and sales);
In Shanghai with;
• The management of Eurobag Shanghai
• Two suppliers
Questionnaires were sent to eight suppliers to obtain more information about the causes for delays. The results from the questionnaires can be found in appendix 4. An example of a question is: “How often do you search for new suppliers?”
3.6 Design phase
In the diagnosis phase the possible discrepancy between the actual situation and the desired situation was detected. After the diagnosis phase solutions were generated in the design phase, regarding the processes that influence the speed and reliability between the suppliers and Paré.
All wishes of different stakeholders were taken into account, to create solutions that were supported by every employee. In this case this means that the wishes of suppliers are also taken into account to improve the processes between the suppliers and Paré, from both sides. During the design phase answers to sub question 4 were found;
4. What are possible measures to improve speed and reliability from the suppliers to Paré?
In this stadium the field research in China was the most important source of information. Several
interviews and visits within the offices of Eurobag were carried out as was already described in
section 3.4. In the design phase the most important information sources were the visits to
Eurobag’s sample room and to the factory of Paré’s most important supplier Soogie Bags. An extended interview with the factory manager of Soogie Bags was done with the help of a Chinese Eurobag colleague who translated the questions from English into Chinese and translated the Chinese answers into English. One of the questions within that interview was: “It can happen that the order specifications are not clear to you. Can you give/ send me some examples of that?
In those cases we can look for a structural solution to improve this (from our side).”
The theory of Berger & Zeng (2006) about single versus multiple sourcing was used to find
recommendations for sourcing within the situation of Paré.
4 The supply chain of Paré
4.1 Introduction
In this chapter an overview of Paré’s supply chain is given. By describing the core processes of Paré will be come clear what information and product flows can be distinquished between Paré and its supplliers and what responsibilities Paré has within the supply chain.
First of all some theoretical background information (section 4.2) about supply chain (management) will be given before the conceptual framework of Paré’s supply chain is described (section 4.3). The focus of the description will be on the (internal) processes of Paré and the (external) processes between Paré and the suppliers, because that is the main part of the supply chain where this research is dedicated to. This chapter ends with section 4.4, which contains a summary.
4.2 Theoretical background
A supply chain is a network of facilities and distribution options that performs material procurement, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers (Ganeshan & Harrison, 1995). Handfield &
Nichols (2002) defined another definition: the supply chain encompasses all organizations and activities with the flow and transformation of goods from the raw materials stage, through to the end user, as well as the associated information flows. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and from firm to firm.
Traditionally marketing, distribution, planning, manufacturing and purchasing organizations
along the supply chain operated independently. These organizations had their own objectives and
these often conflicted with each other. Purchasing contracts often contain very little information
beyond historical buying patterns. The result of these factors is that there is not a single
integrated plan for the organization. Clearly there was a need for a mechanism through which
these different factors can be integrated together. Supply chain management (SCM) is a strategy
through which such integration can be achieved. According to the Global Supply Chain Forum (GSCF) supply chain management is the integration of key businesses processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders. Christopher (2005) defined SCM as the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less costs to the supply chain as a whole. Both definitions include the integration of the processes between suppliers and customers.
Supply chain management is typically viewed to lie between fully vertically integrated firms, where the entire material flow is owned by a single firm and those where each channel member operates independently (Ganeshan & Harrison, 1995). Therefore, coordination between the various players in the chain is a key in its effective management. Lambert & Cooper (2000) confirm this conclusion and state that one of the most significant paradigm shifts of modern businesses no longer compete as solely autonomous entities, but rather as supply chains. In the emerging competitive environment the ultimate success of the single business will depend on management’s ability to integrate the company’s intricate network of business relationships (Drucker, 1998 & Christopher, 1998) & Bowersox, 1997). In the next section (4.3) former supply chain issues will be discussed in the perspective of Paré.
4.3 A conceptual framework for supply chain management
Lambert & Stock (2000) defined a conceptual framework to emphasize the interrelated nature of supply chain management and the need to proceed through several steps to design and successfully manage a supply chain. This model was used, because it gives immediately a clear overview of the (relations within the) supply chain. A second reason to use this model is that Lambert wrote many (scientific) articles in the field of supply chain management. The supply chain framework consists of three closely interrelated elements: the supply chain network structure, the supply chain business processes and the supply chain management components (figure 4.1) Jespersen & Skjøtt-Larsen (2005) also used that framework to describe the concept of supply chain management in their book “Supply Chain Management, in Theory and Practice”.
In this thesis the framework will be used to analyse the supply chain of Paré.
Figure 4.1: Supply Chain Framework (Lambert & Stock, 2000)
4.3.1 The supply chain network structure
The supply chain network structure consists of the supply chain members, the structural dimensions of the network and the different types of process links across the supply chain (Stock
& Lambert, 2001). The first two parts of the supply chain network structure are integrated and described in the following paragraphs. In the paragraph about the supply chain business processes more attention is given to the different process links.
The members of a supply chain include all companies with whom the focal company interacts from point-of-origin to point-of-consumption. The horizontal structure (which refer to the number of tiers across the supply chain, (Stock & Lambert 2001) of Paré’s supply chain (see figure 4.2), consists of;
• 2
ndtier suppliers
• 1
sttier suppliers
• Supporting company
• Focal company
• 1
sttier customers
• 2
ndtier customers
All the different chains of the horizontal structure, except Eurobag, has the function of primary members of the supply chain. This implicates that those companies are autonomous companies or strategic business units that actually perform operational and/ or managerial activities in the business processes designed to produce a specific output for a particular customer or market. The focus of this research is on the processes between the suppliers and Paré. Nevertheless, the other companies of the supply chain are also dealt with in order to understand the processes within the entire supply chain, better.
1st tier suppliers Factories 2nd tier suppliers
Raw material suppliers
Focal company Paré BV
1st tier customers Sales agents Importers/
Distributors Chain stores Other customers
2nd tier customers End consumers Eurobag
Hong Kong Shanghai Xiamen
Figure 4.2: The network structure of Paré
4.3.1.1 The 2nd tier suppliers
The 2
ndtier suppliers are a hundred suppliers that deliver to the factories that produce the bags,
trolleys, suitcases and wallets in China and India. These 2
ndtier suppliers deliver the raw
materials, like nylon, PU, leather, straw and paint to the factories. Paré does not have any contact
with these 2
ndtier suppliers, because the 1
sttier suppliers order the raw materials that they need,
by themselves. Sometimes it happens that Paré makes an order with a trader who buys the
products from the suppliers. In that case the OEM supplier is a 3
rdtier supplier. However this is
not often the case.
4.3.1.2 The 1st tier suppliers
The 1
sttier suppliers are the manufacturing companies in China and India that produce the bags, trolleys and wallets for Paré. The suppliers in India and their supply processes will not be discussed here, because the products from India only represent 0.5 % of the total orders. In China the factories are spread over five different regions: Quang Dong/Hong Kong, Fuijan/Xiamen, Ningbo, Shanghai and Qingdao. Table 4.1 gives an overview about what products are produced in what area, based on the data of 2005. The areas are displayed in geographical order: from north to south. The bags of straw are produced by one plant in Qingdao. One manufacturer in Ningbo and twelve manufacturers in Shanghai produce the nylon bags. The suitcases are also produced in the neighbourhood of Shanghai. The nylon bags of a higher quality are manufactured in the region Fuijan, by six factories, in the neighbourhood of the city Xiamen.
Fourteen factories in the region of Hong Kong (Guang Dong) make the bags of PU. PU is a material that looks like leather. All regions lie at the coast, which implicates that the distances to the harbours are relatively short. All factories that manufacture the products for Paré are chosen, because of low (production) prices and their expertise about specific materials or models that they can make. The most important manufacturer is Soogie Bag Ltd., which counts for about 40
% of Paré’s purchase value.
Location Material Products Number of Suppliers
Qingdao Straw Beach bags 1
Shanghai Nylon Bags, trolleys and suitcases 12
Ningbo Nylon Bags and trolleys 1
Fuijan/Xiamen Nylon Bags and trolleys 6 Quang Dong/ Hong Kong PU Bags and trolleys 14
Table 4.1: Classification of Paré´s products and suppliers in each area (in 2005)
4.3.1.3 Supporting company
Paré belongs to the Dara Holding, together with two other companies: Eurobag and Dutchbag.
Eurobag is an independently operating purchase and sales company. They also have clients all
over the world. Eurobag performs the quality control before, during and after the production process to guarantee the quality that Paré and its customers wish. They also keep an eye on the continuity of the manufacturing process and on the working conditions in the plants. Eurobag has its own sample room which is used to make samples for Paré. About 30 % of samples of Paré are made in the sample room of Eurobag, South-China. Hence Eurobag supports Paré and the processes between Paré and its suppliers. That is the reason why the chain “supporting company”
is added to the framework that was defined by Lambert, Cooper & Pagh (1998). Eurobag is displayed between the 1
sttier suppliers and the focal company Paré as can be seen in figure 4.2.
4.3.1.4 The focal company
Paré is the focal company in the supply chain, which means that Paré is the company whose management is mapping the supply chain (Stock & Lambert, 2001). Paré’s horizontal position in the supply chain is right in the middle, as can be seen in figure 4.2.
Paré’s styling department designs the products, in Tynaarlo. Afterwards the purchase managers approve the design and a sample order is placed with the supplier or the sample room of Eurobag, in China. After the sample has been it is approved by the purchase department. Then the order for production (of the style) is sent to the supplier. After the production has finished the goods are sent to the warehouse in Tynaarlo (The Netherlands). From the warehouse in Tynaarlo the products are sold to 1
sttier customers. More detailed information about the processes of Paré will be dealt with in the paragraph about the supply chain business processes.
4.3.1.5 The 1
sttier customers
The 1
sttier customers are sales agents, distributors, importers, store chains and trading companies. The 1
sttier customers are situated all over the world, though they are concentrated in Germany and The Benelux. Most of the 1
sttier customers order bags from the collection (about 70 %) and some customers make a request for a special/ customised design (about 30 %).
4.3.1.6 The 2
ndtier customers
The 2
ndtier customers are the customers of Paré’s customers, who are the end consumers. These
are the customers that buy the bags in the stores or on consumer markets. Paré does not deliver
bags directly to 2
ndtier customers and follows the principle of the functional spin-off theory (Stern, El-Ansary & Coughlan, 1996). This functional spin-off theory means that Paré transfers the servicing of the small customers to distributors, thus moving the small customers further down the supply chain.
4.3.2 Supply chain business processes
In this paragraph the business processes within Paré’s supply chain will be covered in detail. An overview of the business processes can be seen in figure 4.3. Figure 4.3 consists of five parts;
• Styling
• Purchasing
• Processes of suppliers (production)
• Transport
• Warehousing & distribution
These parts were separated by four dotted lines. Each part is a stage in the supply chain and
consists of one or more processes. Altogether these stages represent the whole order cycle (from
design until delivery of the end product), which takes about 74 days for an average order. These
business processes will be discussed in the next sub sections.
Place order for sample (1 d) Design of artwork
(1-2 d) *
Approvement of design:
correct? (1-2 d)
Purchase of sample materials + production
(10 d)
Approvement of sample:
correct? (1-5 d)
Place an order for production
(1d)
Purchase of materials (15 d)
Production (8000 pcs) (10 d)
Transport + handling to and in the ports of
China (2 d)
Transport to Rotterdam (19 – 30 d)
Handling + Transport to Tynaarlo (1d)
Storage in warehouse (1 d)
Delivery to customers (1-2 d) Yes
No
Styling
Purchasing
Processes of suppliers (production)
Transport
Warehousing + distribution
Total lead time: 74 days (average) Yes
No
* 1-2 d means that this process takes between 1 or 2 days time
