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Qtr 2, 2014


About B&M Analysts

About the KZN CTC

Cluster facilitation services are provided by Benchmarking & Manufacturing Analysts SA (Pty) Ltd (B&M Analysts), an organisation that provides high value specialised support services to drive sustainable industrial development. Over the past 15 years, B&M Analysts has developed methodologies and skill sets that allow it to play a unique role in relation to supporting the competitiveness of value chains and the growth of industrial sectors. These services are tailored to support the industrial development goals of government organisations, private sector organisations and public-private partnerships (PPP). B&M Analysts is a verified Level 2 B-BBEE contributor under the Codes of Good Practice for Broad-Based Black Economic Empowerment (B-BBEE). For more information on B&M Analysts please visit www.bmanalysts.com.

The KZN Clothing and Textile Cluster (KZNCTC) is a not-for-profit, public-private sector partnership designed to enhance the competitiveness of apparel, textile, footwear and affiliated manufacturers in KwaZulu-Natal. The cluster has firm-level members, ranging from machine suppliers to design/logistic houses, CMT’s, clothing manufacturers, textile mills and retailers. The member firms employ approximately 11 000 employees and our database extends to over 300 individuals representing a diversity of companies and other stakeholders in the value chain. The structure of the cluster is such that it is governed by an executive committee comprising representation from local and provincial government, tertiary education institutions, clothing associations, other clusters or special purpose vehicles, manufacturers and retailers. The Cluster is funded through government grants, retailer donations and membership fees as well as manufacturer membership fees. The Cluster is a registered company with directors and is run as a “by industry for industry entity�, focusing on competitiveness enhancement and job creation/retention. The cluster runs programme content through three core programmes, namely World Class Manufacturing, Value Chain Alignment and Capacity Building. The KZNCTC is powered by B&M Analysts an organisation that provides high valued support services to advance industrial development.


Contents About B&M Analysts About the KZN CTC

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RECENT EVENTS

4

FEATURE ARTICLE: Unlocking Competitive Advantage through Supply Chain Management 5 UPCOMING EVENTS

11

INDUSTRY NEWS: Can international fashion brands compete in South Africa?

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RECENT EVENTS

DATE

EVENT

28 January 2014

CMT Launch and innovation Circle

06 February 2014

Executive Strategy Workshop & KZNCTC Board Meeting - An integral Approach to Company Strategy Development

13 March 2014

Peer review - Imraan Textiles

02 April 2014

KZNCTC AGM and Executive Workshop - Unlocking Competitive Advantage through Supply Chain Management


FEATURE ARTICLE 1 UNLOCKING COMPETITIVE ADVANTAGE THROUGH SUPPLY CHAIN MANAGEMENT


Most importers and exporters do not Gary Knight, MD of SCT Supply Chain Solu- • tions (Pty) Ltd, recently spoke at the KZN CTC have sufficient control over their entire annual general meeting on the topic of: supply chain; • The logistics industry is immature and “Unlocking Competitive Advantage creative expertise is limited; through Supply Chain Management” • I.T. platforms and data visibility is generally disjointed and unable to The following article is based on Gary’s pre- provide the necessary business sentation… intelligence to support creative and effective business decisions and In this highly competitive, globalised market- strategy. place more and more companies are finding that the efficiency of supply chains surround- There is absolutely no doubt that the manuing their products represent a significant por- facturing sector in South Africa has come untion of their competitive advantage. der enormous pressure from cheap imports from the east in the last ten or more years. Direct importers in the fashion world are Initially local manufacturers maintained comcoming up with more and more sophisticated petitiveness in terms of the quality of their supply chain models. Some new fashion en- garments, but Chinese imports have grown trants into the SA market are reducing landed in quality and can no longer be classed as cost by as much as 5 to 10% through supply “inferior”. chain innovation. For a number of reasons the local manufacturing sector is failing to There is now an added pressure faced by local harness the same savings on both their raw manufacturers in that access to quality raw material and finished goods imports. materials in South Africa has not been possible and many of these need to be sourced Some of these reasons include: from locations 25 days or more away via sea • There is a lack of supply chain focus and involving significant spend. and expertise at board/CEO level; • The focus for savings is often on Despite the above competitive pressures, the freight rates or a clearing tariff where- biggest danger facing the local manufactur as these are not the areas in which ing sector is not cheap Chinese imports, but the biggest gains are possible; rather the mind-set and focus of the local • Supply chain solutions are complex manufacturing sector. and involve many/all sections of the business; Specifically, a lack of innovativeness, flexibility and creativity in response to challenges


and market opportunities – and a lack of attention to supply chain processes.

The opportunities to create competitive advantage through supply chain management in the manufacturing sector are just as great as in the direct importing sector, albeit that the processes are more complicated.

The good news for South African producers is that the tide is beginning to turn in terms of Chinese price and productivity. Chinese wage rates are on the rise and South African Ultimately there are two fundamental founefficiency and quality is on the rise. dations required to facilitate any supply chain optimisation – two areas that, without fail, Many still lament the distance from raw ma- seem to be the overriding weaknesses stallterial sources, but we should consider that ing the unlocking of supply chain opportuniwe are the same distance away as the com- ties. petitor’s finished imported goods. Our location in the southern hemisphere also places These are: us closer to the Southern African, • Planning and forecasting and • Taking greater ownership of the Southern American and Australasian mar- supply chain. kets. The rate of exchange which is so radically effecting imported raw material costs PLANNING AND FORECASTING ultimately has a positive counter effect on export competitiveness. Many Supply Chain processes fail through divisional/departmental disunity. If one is to In light of these opportunities, the following achieve highly optimised supply chain proquestions become pertinent: cesses, it is essential that businesses develop advanced Sales and Operations Planning • How sophisticated is your approach to (S&OP) systems and processes. supply chain management – both for imported raw materials and for S&OP is an integrated business management finished goods distribution? process through which executives continually • How much has this approach focus, align and synchronise all organisation changed over the last ten years? al functions. It is off the back of a well-defined • How much focus does supply chain and measured S&OP process that planning management receive in your board and forecasting becomes a workable tool. room? • How is your supply chain strategy It enables the impact of supply chain pro aligned to your general business stra cesses and actions to be accurately mea tegy? sured across all business sectors, and for


supply chain improvements to be effectively implemented.

menting supply chain improvements in this environment is impossible.

All businesses have S&OP systems, but most are unstructured, immature and inefficient. Sales and operations planning starts with a forecast that leads to a sales plan, production plan, inventory plan, customer lead time and backlog plan, new product development, strategic plans and resultant financial plans. A mature S&OP process enables effective supply chain management because all role players can have a view of the bigger picture, are able to observe the measurable impact of decisions and target improvement opportunities.

IT development is the cornerstone of all planning and forecasting and the cornerstone of any S&OP system. Good software can provide clean, current and accurate data and lead to effective and quick decision making.

Without a mature S&OP process supply chain processes invariably become reactive and not proactive. In this kind of environment, sales people are typically incentivised on the rand value of sales and will commit to anything to get a sale in a highly competitive and pressured environment. They do this without any reference to production commitments, constraints or capacity. Thereafter, procurement teams will push to get product into the manufacturing pipeline without much consideration for raw material lead times. Production teams will focus on creating a structured production environment to maximise output, but with little consideration for changes, interruptions and the need for flexibility. Each silo feels justified in their actions, but the opportunity for identifying and imple-

Most businesses I review or with whom we partner in supply logistics services, have exceptionally poor data and access to that data - especially as it refers to supply chain metrics such as shipping volume, handover dates, shipping dates, in port dates, in warehouse dates, shipment modes (Less Container Load/ Full Container Load) etc. Meaningful Key Performance Indicators (KPI’s) and exception reporting have to be immediately available in a useable format by management if any supply chain optimisation is possible. Exception reporting off a well-structured IT framework that incorporates logistics lead time windows and deadlines means that a potential delay in the pipeline can be flagged 7 to 8 weeks before production.


TAKING OWNERSHIP AND CONTROL OF SUPPLY CHAIN / SUPPLIERS / THIRD PARTIES The second impediment to supply chain optimisation and achieving competitive advantage is manufacturers’ lack of ownership and control of overall supply chain process. It is important that: • Ultimate supply chain management needs to move into the board room and out of the hands of unqualified buying or logistics departments. Many businesses are at the mercy of clerks in shipping departments because management have no experience or expertise or fail to regularly review KPI’s or exception reporting. • Manufacturers control the entire supply chain to the greatest possible extent. You cannot control supply chain processes when the first time you have real control is on arrival at port. Concepts such as quality control at source, consolidation, just in time arrivals are impossible unless you are in control of the product from source. Many believe that one can save money through Cost and Freight (C&F) purchases, but there can be many unplanned for costs when suppliers move cargo early to improve cash flow or late as a result of production problems. • Manufacturers establish contracts and measure KPI’s with suppliers and third

parties. Without continual measurement and benchmarking of supplier and service provider performance, supply chain optimisation is unlikely to be possible. • Rate negotiations with third party partners/ service providers are controlled by the manufacturer. Suppliers that broker logistics costs as part of their revenue earnings are entitled to do so, but the manufacturer needs to take back the management of this and create a transparent environment. Some best practices include: negotiating rates vs transit time options and monthly or quarterly rates reviews. Shipping lines will always sell named account rates at a lower tariff than to a freight forwarder because they can control the “damage”. The opportunity is then to meet with shipping lines directly and negotiate rates with your freight partner – agreeing on a set mark up as their profitability.


To conclude, the efficiency of supply chains surrounding the products we manufacture represent a significant portion of a company’s competitive advantage. The local manufacturing sector has an opportunity to unlock savings on both their raw material and finished goods imports in two ways. 1. Accurate planning and forecasting, enabled through advanced S&OP systems and processes so that all role players will be able to observe the measurable impact of decisions and target improvement opportunities. 2. Taking greater ownership and control of the overall supply chain by taking supply chain decisions into the board room, controlling product from source, continual measurement and benchmarking of supplier and service provider performance and negotiating rates with your freight partner directly.


UPCOMING EVENTS Date

Event

15 April 2014

CMT Innovation Circle

8,15,22 May 2014

KZNCTC Quick Response Training

27 May 2014

Management Training - Balazs: Total Quality Management

29 May 2014

Management Training - State of Logistics Workshop

03 June 2014

2nd Peer Review

July 2014

Executive Training - TBC

TO TS ISE N R E EV DIA


CAN INTERNATIONAL FASHION BRANDS COMPETE IN SOUTH AFRICA? As major retailers such as Forever 21 and H&M open shop, they are met by stalwarts who may have a competitive edge – but it’s independent designers that could lose out Guardian Professional, Rosie J Spinks - freelance journalist. Friday 14 March 2014 http://www.theguardian.com/sustainable-business/sustainable-fashion-blog/international-fashion-brands-south-africa

Fashion models backstage at Soweto Fashion Week in South Africa, 2012. Major international brands are beginning to tap the South African market. Photograph: Jerome Delay/AP


If you’re looking for a realistic picture of integration in post-Mandela South Africa, a trip to the lowprice clothing retailer Mr Price is a good place to start. There, you’ll find everyone from pre-teens from townships buying miniskirts to young professionals from upscale suburbs buying sensible basics. All under the democratising mantle of fast fashion. Gone are the days when South Africa was two years behind the northern hemisphere in terms of fashion. Today, Mr Price and the nation’s other top retailers are catering to South Africa’s mixed tastes, swiftly replicating trends from abroad and, thanks to government incentives for local manufacturers, sourcing close to a third of their wares from domestic manufacturers. Major international brands such as Zara, Topshop, Forever 21 and H&M are beginning to tap the South African market, and presumably looking towards the rest of the continent too. The question is whether they can do so at a price point that is feasible and on trend for the economically and culturally segmented South African market. Despite choosing the continent’s most robust retail market to open their first stores in sub-Saharan Africa, these global brands will still face endemic challenges. South Africa has some of the highest import duties in the world on finished textiles. Importing wares from Asia or Europe will result in a nearly 45% duty. In addition, because foreign brands don’t have a domestic supply chain, their ability to employ a quick response model is not as strong as brands like Mr Price, which can have new trends on shelves in a matter of days. Thithi Nteta is one of South Africa’s most popular fashion bloggers as well as a brand consultant and stylist who has previously worked on brand partnerships with both Mr Price and Topshop. She reasons that Mr Price’s intimate knowledge of the market’s varied taste gives them a competitive edge. “Mr Price is so good at being on trend and [knows] that the majority of South Africans are quite conservative and price conscience,” Nteta says. “A lot of the trends you see in Europe don’t ever make it to our shores because we tend to be not a very fashion conscience society.” Despite these clear hurdles, at least one of the reasons these global retailers are setting their sights on South African seems clear: it’s a nation that likes to shop and they seemingly like to do so in the style of American mega-malls rather than European high streets. Between 2002 and 2010, the nation went from having 239 shopping centres to 1,443, according to market research organisation Urban Studies.


Michael Lawrence is the executive director of the National Clothing Retail Federation of South Africa (NCRF), which represents some of the country’s top retailers including Mr Price, Truworths, and Woolworths, (NCRF members are biggest purveyors of South African-produced products). Though he can’t speak specifically on behalf of any of retailer, Lawrence says that these largescale shopping centres often serve as a starting point for international retailers. “The trend of international retailers coming into South Africa has been either to partner with an existing retailer if they want a large geographic footprint [such as the case when Walmart merged with Massmart]. Or, if they just want brand presence, they put specialist stores in a highend shopping mall.” Africa undoubtedly offers commercial potential. By 2030, the combined spending power of its top 18 cities is expected to be $1.3tn. It remains to be seen, however, if the gleaming international stores cropping up in Cape Town and Johannesburg are meant to simply add cache to brands’ identities or to serve as an entry point to the continent at large. While brands generally remain tight-lipped about their global expansion plans due to intense competition, a look at their existing trajectory can be instructive. With more than 3,000 stores in 53 markets (and plans to increase that number by 10-15% per year), H&M has a noticeable dearth of stores in Africa and South America. Nteta predicts that if global brands are looking to become the kind of lowest common denominator shopping destination, cost will be prohibitive. “Foreign brands aren’t going to replace the price point that’s feasible for most South Africans, but they can be a destination shopping location, or a novelty,” she says. “For us working in fashion, having a Zara or Topshop is quite a new and exciting thing.” Unfortunately, Nteta adds, their presence means less of a loss for major chain retailers, and more for independent South African designers. “It’s really not a choice between Mr Price and a foreign competitor. It’s a choice between Topshop and a local small-scale designer. If someone is able to spend 1,000 ZAR on a basic dress from Topshop, they are also able to spend that on a local designer.”


YOUR IDEAS If you have any ideas for improvement or would just like to get in touch, contact: Shaun Gannon – KZN CTC Project Manager 031 764 6100 (office) 084 755 8172 (mobile) shaun@bmanalysts.com


www.kznctc.org.za


Kznctc april 2014