You&Me Professor Grace Canepa LXFM 720 | Global Supply Chain May 28th, 2018 By: Abbey Dahl, Sasha Noronha, Madison Ottenbacher & Komal Sandhu
Table of Contents
Executive Summary Introduction Company Overview Product Assortment Sourcing Guidelines Sourcing Strategy Placement Strategy Final Strategy Summary Conclusion Appendix 11.0 Bibliography
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Executive Summary You&Me will produce a high quality, sustainable unisex t-shirt for our 21st century consumer who believes in gender equality and wears authentic fashion. The brands unique selling point of our innovative all-gender t-shirt is focused towards the forward-thinking millennial in America. You&Me is providing the best quality in the market by blending organic cotton with recycled polyester. We now live in a market where the customer demands to know the origin of their garment and thus supply chain transparency is an industry standard. The companyâ€™s primary objective is to maintain quality over quantity and ensure our ethical practices are visible at every step within the supply chain. Our manufacturing suppliers have been carefully selected based on the analysis of our sourcing guidelines that we have segmented into three silos, which are environmental impact, community impact, and ethical standards. Our suppliers are based in Honduras, Peru,
and Pakistan, who are all in accord with the United Nations Global Compact and the Sustainable Apparel Coalition. Texas as proven to be an attractive location for our business operations as our headquarter is based in Austin and our distribution center is based in Houston. Austin has become the hub of sustainability, diversity, and progressive thinking and Houston holds home to one of the biggest port in the U.S. This makes our supply chain management effective as they utilize direct routes from our respective supplying countries (Honduras, Peru and Pakistan) to Houston. In addition, our selection of global logistics and transportation services that ensure timely flow of product from concept to consumer. With sustainability as You&Meâ€™s guiding light, our company will strive to create the best unisex t-shirt in the industry by building long-term relationships with our global suppliers.
You&Me was created on the foundation that innovative fashion and social responsibility can coexist. It is essential for us to provide our customers with a basic organic t-shirt that speaks to their classic style and resonates with their progressive thinking. In order to become a
leader in this niche market, we established a comprehensive global sourcing strategy. The following process highlights You&Meâ€™s journey from product development, country and supplier research and analysis, to our placement strategy, and logistics and warehousing.
Company Overview Name:
Our brand name signifies much more than a growing industry trend, You&Me represents a progressive way of thinking. We stand for community, sustainability and innovation. You&Me is a limited liability company (LLC). An LLC ensures that we retain tax benefits of sole proprietorship and take advantage of being a corporate firm. After intensive market research, we have decided our channel of distribution to be solely e-commerce as it was not feasible to open a brick and mortar store for our initial limited product line. E-commerce speaks to our target consumer and enables us to keep to our company value of efficient direct-to-consumer operations. In addition, this channel not only guarantees sustainability
but allows You&Me to first build a loyal customer base and then eventually expand to brick and mortar with additional product categories. You&Meâ€™s initial product line is focused on four essential t-shirt silhouettes: long sleeve henley, long sleeve baseball t-shirt, short sleeve crew neck and short sleeve V-neck with a pocket. Our design inspiration stems from breaking the gender norms and creating equality within the fashion market. A classic t-shirt is a must-have in everybodyâ€™s wardrobe that can be dressed up or down depending on the occasion or personal style. Hence we decided to launch our company with a product assortment focused on essentials. 9
Core Values Mission We aim to consistently create a fashionable, ethical and modern unisex t-shirt that embodies innovative design with a sustainable approach to business operations. You&Meâ€™s objective is to be the pioneer in responsible sourcing from concept to consumer for unisex t-shirts.
Vision You&Me strives to build a responsible global community through our high quality unisex t-shirt that speaks to the 21st century customer who believes in gender equality and wears authentic fashion.
Target Consumer You&Me’s target consumer is an educated professional living in metropolitan cities across the U.S. He and she are forward thinking millennials between the age of 25 and 35, they believe in building a unified community and this is reflected in their purchasing behaviour. Their income ranges from $50,000 to $100,000 annually and they predominantly work in fast paced work environments such
as medicine, finance, law and creative fields. Their hobbies and interests include travelling and exploring different cuisines to making time for philanthropic causes that speak to their personal values. Our consumer base also extends to the growing community of LGBTQ. By catering to a genderless market, You&Me hopes to grow its brand awareness and increase its market reach.
Name: Sage Olson Age: 32 Income: $80,000 Location: Atlanta, Georgia Education: Master’s Degree Occupation: Psychologist Interests: Loves cooking, enjoys shopping Media Usage: reads Vogue and Goop
Name: Jeph Verner Age: 28 Income: $60,000 Location: Portland, Oregon Education: Bachelor’s Degree Occupation: Wildlife DNA analyst Interests: Outdoor, food enthusiast Media Usage: Active on social media
Product Assortment agricultural chemicals such as fertilizers or pesticides. Research has proven that non-organic t-shirts contain materials that harm the surface of your skin as the chemicals can seep through the top layers of your skin. By choosing organic cotton we are supporting organic farmers as well preserving the future of humankind. In addition, we chose to blend our fabric with recycled polyester that is created from recycled plastic water bottles. This ensures less waste going to landfill and incorporates a material that helps the environment and creates a cost-effective strategy for You&Me.
You&Me will manufacture organic cotton blend recycled polyester t-shirts, in four styles with four color options per style in a size pack ranging from XS to XXL. We have designed four essential silhouettes that include a short sleeve crew neck, a short sleeve V-neck, a long sleeve henley, and a long sleeve baseball t-shirt. The target price range range from $60 for the short sleeve and $80 for the long sleeve styles. Our t-shirts are made with a blend of 80% organic cotton and 20% recycled polyester. Organic cotton is grown from nongenetically modified plants, and without the use of any synthetic
Crew Neck Short Sleeve No Pocket Retail Price $60
V Neck Short Sleeve Pocket Retail Price $60
Henley Long Sleeve No Pocket Retail Price $80
Baseball Long Sleeve No Pocket Retail Price $80
Sourcing Guidelines You&Me’s sourcing guidelines reflect the company’s mission, vision and core values. We stricting abide by our guidelines to ensure complete transparency and provide a high-quality product for our customers. In order to sustain our supply chain efficiency we will audit
all collaborating suppliers twice a year. You&Me’s sourcing guidelines reflect the United Nations Global Compact as well as the Sustainable Apparel Coalition. We have divided our sourcing guidelines into three silos:
Environmental Impact Energy efficient techniques by all manufacturers – Suppliers provide a monthly internal energy audit highlighting energy and water consumption
Carbon neutrality – Fuel efficiency by consolidating shipments – Chemical capture programs to ensure clean water
Washing instructions with engaging tags – Highlighting benefits of washing at 30°
Reduce wastage – 0% waste landfill – Collaborate with Zero Discharges of Hazardous Chemicals – Groups to reduce waste
Fair Trade cotton and recycled polyester – All suppliers to strictly incorporate Fair Trade Certified Cotton – Strictly sources recycled polyester from plastic bottles
Community Impact Ethical work conditions – No discrimination on gender, age or disability – No youth employment below 16 – Guarantee a living wage – Adhere to the 6 day work week (The Fair Labour Standards) – Take safety measures to ensure health of employees – Anonymous reporting for standard violations
Ethical work benefits – Basic health care for employee and immediate family members – Promote micro-financing facilities in collaboration with local banks – Suppliers must conduct training and provide educational opportunities _ Facilitate a platform for younger workers to engage in local schools
Strict restriction against modern slavery – SMC (Modern Slavery Policy for Partners)
Empower women – No pre-pregnancy screening – Leadership programs for women and girls, women-owned businesses and local communities
Collaborate with non-profits in the region 20
Ethical Impact Standardized supply chain dockets – Code of conduct specifying standard and transparent operations through the supply chain
Audit suppliers and provide action plans – Third party will conduct unannounced visits and send back immediate feedback to ensure ethical standards are followed
Complete transparency from concept to consumer – Interactive map to enhance communication between all parties
Reward sustainable and socially responsible initiatives – Pre-purchase commitments to suppliers
Provide a statement verifying we do not test on animals
You&Meâ€™s global sourcing strategy is the foundation to our companyâ€™s success as our core value is to provide complete transparency from concept to consumer. We have ensured to tackle each step of the strategy taking into account the cost, feasibility, benefit and risk. Our sourcing strategy management
comprises of country analysis, supplier analysis, placement and ranking of countries and suppliers, final strategy formation, and finally logistics, warehousing and distribution. The infographic illustrates the strategic mapping of our global sourcing plan.
Country Analysis The first step to building our sourcing strategy was determining which countries to conduct business with. We conducted individual research in four countries that supplied knit products. Honduras, Peru, India and Pakistan were evaluated based on their quality of sourcing fabric, manufacturing abilities and country stability. By analyzing the country overview, country stability
(PEST), the state of the apparel and textile industry, free trade agreements, cultural differences, lead times, risk and benefits, and then identified the top three suppliers for each country. The analysis was an essential step to understand the future outlook of the apparel industry in each country to make the best suited choice to create a long-term partnership with our suppliers.
Country Profile TOTAL AREA
Honduras is officially the Republic of Honduras and is a republic of Central America. It obtained independence in 1821 and is bordered by Guatemala on the west, Nicaragua on the east and El Salvador on its southern border 90% of Honduras population is Mestizo (mixed Amerindian and European). Honduras economy is growing at a sustainable rate of 4% and grow at an average of 3.61% by 2022.
Economic Overview R E A L
P O P U L A T I O N
G O V E R N M E N T Presidential Republic
Head of State(President):
Juan Orlando Hernández (2013)
Head of Government (Prime Minister): Juan Orlando Hernández (2013)
C U R R E N C Y
( 2 0 1 7 )
U.S.$ 22.68 Billion
$ 8.34 Billion (2017)
98th Largest Importer in 92nd Largest Exporter in the World the World Top 3 Exports Top 3 Imports 1. Coffee 12% 1. Refined Petroleum 11% 2. Knit Sweaters 12% 2. Non-Retail Pure Cotton Yarn 6.2% 3. Knit T-Shirts 11% 3. Non-Retail Synthetic Staple Fibers Yarn 3.4%
Top 3 Import Destinations
Top 3 Export Destinations
Exchange Rate: $1 = 23.68 April 7, 2018
R E L I G I O N
G D P
$10 Billion (2017)
L I T E R A C Y R A T E
L A N G U A G E
Textile Imports $10 billion I N F L A T I O N
Textile Exports $3.62 billion R A T E
6.08% Roman Catholic 46%
Honduras: PEST Analysis
Protestant 41% 81.3% Roman Catholic Atheist 1% Other 12% 12.5% Evangelica 3.3 % Other
84.1% Spansish 13% Quenchu 1.7% Aymara
ensure safety of its people. As a result, over 1,000 immigrants have fled to the US border which has caused friction between the two countries. President Donald Trump has threatened negotiations over NAFTA and stopping aid to Honduras as a threat to stop them from coming in (IHS Global Inc.). The CAFTADR Free Trade Agreement is a positive contributor to sustain economic cooperation, but given the current threats to NAFTA, Honduras could possibly lose all beneficial ties to the U.S. However, Honduras is also present in the international community and is a member of the United Nations, World Trade Organization, and the Central American Integration System.
Political Honduras is one of the poorest and least developed countries in Central America. Despite the aftermath of political unrest, President Juan Hernandez overcame the public’s anger over the scandal by initiating a key movement in government by creating a new Commission Against Impunity in Honduras, modelled on the UN-led body (Honduras Country Monitor). The new governance directs the political leadership towards a stable future against corruption as no party can hold a majority stake in the 128-strong Congress party. Honduran newspaper La Prensa proved Hondurans pay approximately $390 million in annual extortion fees to organized crime groups to
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Honduras: PEST Analysis Economic Honduras is one of the poorest countries in the Western Hemisphere, with nominal GDP per capital of only 2,796 in 2017 (Figure 5) but real GDP has grown by 3.6% since 2012 (Figure 6) and will grow at an average of 3.8% by 2020(Statista, 2018). Despite the minor GDP growth, Honduras is steered towards economic prosperity as the IMF has approved a standby agreement and credit facility to help its economic prospects which will not only boost macroeconomic stability and sustain economic growth but most importantly tackle poverty and improve security. Hondurasâ€™ prospective economic growth speaks to a stronger economy by the implementation of Honduras 2020 in partnership with McKinsey. The initiative is targeted at four sectors; tourism, textiles, intermediate
manufacturing and business process outsourcing. Focusing on these key areas will generate jobs and unprecedented levels of growth and shape an important economic transformation in South America. Honduras currency is the Honduran Lempira, as of April 24th 2018, one dollar is equal 23.73 Lempira (XE live exchange rates). The strong dollar exchange rate works in favor of You&Me to conduct business in Honduras as it would require low capex to invest in orders and thus sustain the companyâ€™s bottom line. Statista report from IMF highlights Honduras inflation rate jumped to 3.98% in 2017 and is forecasted to sustain at 4% till 2022 (Appendix: Figure 8). The steady forecast is a positive outlook towards Honduras economic stability however, for the long term ideally the inflation rate should average at 2-3%.
Honduras: PEST Analysis growth and focus on building an infrastructure that is not solely dependent on agriculture but also provide opportunities to learn and develop valuable skill sets. Honduras 2020 is projected to create 350,000 jobs across various sectors and will position Honduras as one of the fastest growing countries in the next five years. Enhancing the rural production living conditions would reduce poverty levels and aide locals to stay in the country. This will not only develop its own economy but also sustain good relations with the U.S government administration.
Social The inequality in wealth distribution stems from the unemployment rate growing to 7.4% in 2018 and to the fact that one-third of the population lives on less than $2 per day (Honduras Country Monitor, 2016). According to Human Rights Watch Honduras is among the countries with the worldâ€™s highest rates of murder, violence and corruption. To add to this, Honduras has a literacy rate of 89% with its population gender ratio split 50:50 (CIA, 2016) to whom they must invest their resources to nurture their
Honduras: PEST Analysis Technological Honduras is in the middle of the American continent and its geographical position gives it a competitive advantage to have access to important interconnection points which provide internet connectivity. The technology platform that is growing abundantly that will also boost the local talent required for these services. Honduras also generates more than 50% of its electricity from thermal sources and more than a third from hydropower (Euromonitor, 2018). However, with surging power demand, it is also facing power shortages due to under-
performing hydropower plants. Honduras is participating in the Puebla-Panama project whose goal is to unify the electricity grids of all Central American countries that would reduce cost and power disruptions and entice private sector investment into new power plants (Sourcing Journal, 2018). The technological advancements will enable Hondurans to transfer the key success factors to industries like the apparel and textile industry. By suppliers becoming energy efficient they would significantly reduce their overhead costs and establish a living wage for the workers.
Honduras: Lead Time as lead times are shorter than other major manufacturing hubs such as China or Bangladesh. Nearshoring has a positive impact as the close proximity to the U.S. results in deliveries via ship within 48-72 hours and if ever an emergency, shipment can be flown in within a threehour flight. In addition, San Pedro Sula is Central America’s primary port destination due to low logistics cost, but this doesn’t only help the company to be cost-effective, but the steady infrastructure makes Honduras a reliable country to import from.
Honduras is subject to a variety of natural disasters including hurricanes, flooding, earthquakes and droughts. In addition, Honduras business operations also experience delays due to celebrations of multiple holidays (Catholic holidays, Morazan’s Week, Pan American Day etc.). You&Me would have to account for extra time within the lead-time of production because both, natural disasters and holidays would disrupt the business pipeline. However, the location of Honduras in relation to the U.S. serves as a great benefit to manufacture You&Me’s product,
Honduras: Cultural Insights The citizens of Honduras embed their cultural values in all aspects of communication, negotiation and presentation within their business operations. Hondurans in the main cities have the same approach as Americans when approaching a formal greeting, they shake oneâ€™s hand and use eye contact to show respect and attentiveness. However, in the countryside where most lower level employees work, Hondurans lower their heads as a sign of respect. There is a significance of hierarchy in Honduran business culture and decisions are only made from the top down. One important factor when greeting individuals in Honduras is the acknowledgement of their degree titles. If a business partner has a doctorate degree, it would be respectful to refer to the partner as â€œdoctorâ€?. These recommendations will aide You&Me to properly conduct business with Hondurans and avoid any bad confrontations. Honduran
build life-long relationships and establish close associations with clients, creating a reciprocal relationship. It is essential to take time to gain trust of our potential suppliers and not dive straight to the point in negotiations. Creating an initiative attitude of long term business relationships gives Hondurans the reassurance to respond positively and begin to trust You&Me as a partner. The best method to communicate with Honduran companies is via e-mail or social media as they do not answer unidentified phone numbers due to fear of extortion. A solution to this is to send a text message or email introducing yourself with your phone number and when you are planning to call. There are many differences and similarities between the American and Honduran culture, but it is important to acknowledge no one culture is superior. Building long term relationships results in a win-win situation for both parties.
Honduras: State of the Apparel & Textile Industry The Honduran apparel and textile industry is heavily reliant on the U.S. The CAFTA-DR Free Trade Agreement is a positive contributor to sustain economic cooperation and establishes a symbiotic relationship between their textile industries. The U.S is Hondurasâ€™ leading destination for trade with 58% of its exports valued at $4.87 billion and 48% of its imports valued at $4.79 billion (OEC, 2016) in trade. The trade surplus between the U.S. and Honduras was $730 million in 2016 (ustr. gov, 2016). The future growth of the manufacturing industry in Honduras is dependent on government stability, labor costs and favourable trade organizations. A key indicator of Hondurasâ€™ promising economic growth is the governments initiative to establish Honduras 2020 focused on textiles as one of the priority industries on the agenda. The Honduras 2020 plan will pave the way for Honduras to become the
leading textile exporter in the Americaâ€™s supported by strategic investments valued at over $1.5 billion (textile world, 2017). The apparel and textile industry are advancing with technological developments such as $78 million invested in a yarn plant is expected to manufacture 20,000 tons annually (Honduras2020, 2017). Honduras has two main factors giving it a competitive edge. Firstly, the minimum wage is cheaper in Honduras at $1.85 in comparison to the U.S at $21.35(trade economics, 2018). Secondly port to port freight to the U.S. takes an average of three days and the Presidential Committee for Customs Reform has reduced clearance time from twelve days to two days (Honduras 2020, 2017). The strategic geographic location and speed to market will make Honduras successful in its efforts to be the leader of exports to the U.S. The elimination of duty fee
by CAFTA-DR and favorable currency rate to the U.S. makes Honduras a front runner as a beneficial country to source You&Me organic unisex t-shirt. There are still a number of risks associated with Honduras as its political environment is influenced by corruption and current political tension of violent riots are serious concerns for new comers in the market. However, given the initiatives taken by all stakeholders to organically enhance economic growth and focus on Honduras specialization in knit manufacturing, it will definitely become the leading exporter within Central America.
Honduras: Trade Agreements Honduras is part of the Dominican Republic - Central America (CAFTA-DR) Free Trade Agreement (FTA), and it is the first trade agreement between the U.S and a group of smaller developing economics that was established in 2006 for Honduras’ participation. The CAFTA-DR Free Trade Agreement developed stronger trade, increased foreign direct investment and economic stability for the participating countries. Under the CAFTA-DR FTA, qualified textile and apparel products enter the United States, and the other member countries within the agreement, duty-free. The main eligibility factor for the participating countries supplying textiles and/or apparel is for suppliers to follow the Rule of Origin and Yarn Forward Rule of Origin guidelines. The Rule of Origin states that products main component (the textile to manufacture You&Me’s t-shirt) must come from the member
states and if required have documentation to solidify where they were obtained. The Yarn Forward Rule of Origin states that the textile and apparel products should be constructed of yarn and fabric from within the member states. However, the Rule of Origin has various leeway’s that enable suppliers in Honduras to be flexible around the Rule of Origin. The De Minimis rule stating up to 10% by weight of the fibers or yarns in apparel articles can be nonoriginating without losing its originating status. In addition, the Short Supply List states if a fabric stated is not available in the member region, it can then source from non CAFTADR countries. However, the product must be cut, sewn and assembled in the CAFTA-DR member countries. These rules are significant factors that are reviewed by customs and affect the product’s ability to enter the country.
The CAFTA-DR is extremely beneficial to both the potential Honduran suppliers and You&Me as tariff free trade reduces the export cost and thus overall cost of the product. In addition, the standardized commerce regulation for all the trade partners lead to You&Me also saving on legal costs, as the same rules are followed by all member countries in the multilateral FTA. The costeffective strategy is further emphasized through the benefits of nearshoring from the Honduras ports in relation
the U.S. Apart from shorter lead-times due to the close proximity to the U.S, same day communication plays a crucial role to resolve any issues in comparison to doing business with China. You&Me’s t-shirt composed of 80% organic cotton and 20% recycled polyester qualifies under the Rule of Origin and thus exempted from duty. The positively impacts the company’s bottom line and is a crucial factor when considering Honduras as a potential country to source suppliers.
Honduras: Transportation Puerto Cortes port in Honduras, is the only deep-water port in Central America and one of the region’s largest and best equipped ports. It is ranked the 36th in terms of volume of export containers with goods to the U.S. It was the first port in Central America to be included in the US Container Security Initiative (CSI). It has 24-hour service, with modern roll-on and roll-off and containerized facilities. The port’s sophisticated container handling equipment ensures
efficiency and competitive shipping costs to the US. The three shipping companies which would be best suited to ship our products directly from Puerto Cortes, Honduras to Houston, Texas would be Maersk Line, Mediterranean Shipping Company and Hapag – Lloyd. Taking into factors of port docks, transit times and cost, Maersk Line comes through as one of the best freight companies at the price of $1,500 for a container.
Honduras: Risks & Benefits Conducting business in Honduras presents both risk and benefits for You&Me. Honduras has established several initiatives to enhance its economic growth with the Honduras 2020 plan focused on becoming the America’s leading exporter of textiles and apparel. However, there are a few risks to evaluate before focusing on the benefits. Firstly, Honduras’ political and economic development is still influenced by corruption and low-level citizen security. The political unrest has caused violent riots across Honduras as a result of the reelection of President Juan Hernandez for a second term. The second risk, is the uncertainty of natural disasters that could down-tempo lead times. A key competitive advantage for Honduras is its nearshoring benefits to the U.S, however, if production is delayed due to natural disasters or by the country’s cultural norm of participating in numerous
holidays, it could lead to business moving to other potential players like Peru who also specializes in cotton. Lastly, the main risk today for conducting business in Honduras is the threats from the Trump’s administration directed at Honduras. Honduras one and only spotlight weakness, is its continued dependency on the U.S. As highlighted throughout the report 58% of exports and 48% of imports into Honduras is from trade solely with the U.S. As one aspect is that the symbiotic relationship has grown both textile industries but the political uncertainty between the two countries is a major risk as Honduras is a key player to You&Me primarily because of its low-cost sourcing strategy to the company.
You&Me, but the multilateral agreement brings in the U.S. key success factors immersed into Honduras’ economy. The lowcost labor of $1.38 in comparison to the U.S. at $21.35 is another key benefit to You&Me’s bottom line which is an essential factor for a new company as the first year in business is focused on breaking even. The country’s GDP growth is projected to sustain at 3.8% till 2022 along with inflation rate also forecasted to stabilize till 2022 highlighting steady economic conditions for You&Me to conduct business. Honduras with its costeffective favorability brings in speed to market with its close
proximity to the U.S. coast line. Nearshoring strengthened with the Port of Puerto Cortes’ recently modernized infrastructure and its initiative to work with COPRISAO to reduce custom clearance by 83%. In addition, same day communication is the biggest barrier of trade when sourcing from Asian countries which is another upper hand to Honduras as the country is three-hour flight from the U.S. The benefits outweigh the risks as we clearly see all stakeholders within Honduras working towards making it the leading exporter of textiles and apparel which is the biggest advantage to You&Me.
Honduras is a front runner to be considered as a viable sourcing country, firstly due its favorable Free Trade Agreement CAFTADR which not only reduces costs by eliminating duty fee for
Honduras: Conclusion In conclusion, Honduras should definitely be considered to become You&Meâ€™s sourcing partner. Conducting business with Honduras brings in three main competitive advantages; cost-effectiveness through CAFTA-DR and Honduras
2020, ethical supply chain partners reflecting You&Meâ€™s sourcing guidelines and vertically integrated supplier base specializing in producing the best quality knit t-shirt thus reducing risk for a new company like You&Me.
Country Profile Peru: PEST Analysis a part of the political party the Popular Force/ Peruvians for Change, which supports higher foreign investments, cuts in government subsidies, and open trade, which fairs well for textile exports.
Political Peru is a Democratic Unitary Republic led by the recently appointed Head of State, President Martin Vazcarra and Head of Government, Prime Minister Mercedes Aráoz. Both leaders are a part of the current ruling party, the Popular Force Party, which compared to American politics has right wing tendencies.
Although this was a troubling situation, Peru’s government has been otherwise stable over the past decade. Looking forward the Peruvian people still support their government and have appreciated all of the progress of creating jobs and maintaining growth in their economy. The government intends to execute this growth by diversifying their economy from predominantly commodities to investments in value added, industrial diversification, and technological advancements with their Technological Investment plan of 2022.
Unfortunately, Peru’s political climate has been unsettling for the past few months. Due to accusations of corruption and collusion with the Brazilian construction company, Odebrecht, Mr. Pedro Pablo Kuczynski resigned in late March of this year. His Vice President, Martin Vazcarra, was swiftly sworn in after the resignation, and will serve out the rest of the five-year term that will conclude in 2021. Vizcarra is
Peru: PEST Analysis Economic Peruâ€™s GDP has fluctuated over the past five years, but since 2014 has steadily increased. This growth can be attributed to foreign investment, as well as diversifying their economy away from predominantly commodities like copper, iron ore, and gold under the governmentâ€™s National Plan for the Diversification of Production. Some examples of these new diversifying industries are aquaculture, forestry products, and textiles. Peru has been able to attain more credit to invest in technologies to better their new value-added business ventures and further better their commodity infrastructure as a result of this positive growth. In 2017 the Real GDP for Peru totaled $ U.S. 267 billion, up 2.5$% from 2016. The growth in GDP reflects the increased
foreign investment, exports, infrastructure private and public projects, and formal employment opportunities for Peruvians. Peru is a part of 19 trade agreements including the Peru Free Trade Agreement with America (PTPA), Pacific Alliance (PA), and the Asia-Pacific Economic Cooperation (APEC). Peru will continue to strive to be part of bloc agreements in the future that will allow them to grow their economy and create better relations with countries near and far. This interdependence through trade agreements allows Peru to be in conversations regarding the current as well as the future global economic climate and gives them the opportunity to have a long-term perspective in business relations with the bloc countries.
Peru: PEST Analysis to partake in the UNâ€™s 2030 Agenda for Sustainable Development. Peru is one of 192 countries taking on the challenge of implementing all of the Sustainable Development Goals (SDGs) by 2030. Part of this challenge is incorporating sustainability throughout different industries. The tourism industry is said to heavily benefit Peru as eco-tourism has become a massive revenue driver because tourists enjoy traveling in Peru without compromising the environment. This influx in tourism means more jobs will be created for Peruvians, there these Sustainable Development goals benefit both industry and locals.
Social Peru is comprised of 6.3 million people, 49.9% female and 51.1% male. In terms of social class Peru is segregated into five classes A-E. Social class C is classified as the middle class and is expected to be the fasted growing class through 2030. Unfortunately, there is still evident income inequality between classes which, is one of Peruâ€™s largest issues. Informal work accounts for 60% of employment in Peru, and the government wants to tackle this issue with providing more formal employment opportunities for Peruvians. Looking to the future Peruâ€™s government has also decided
Peru: PEST Analysis Technological As of 2017 Peru only invests. 08% of its total GDP in innovation and technology. Compared to Chile, Peruâ€™s neighbor, which invests 3.7% in innovation and technology, Peru has a long way to go to be technologically advanced. Although Peru currently invests a minute percentage in technology, the country is striving to invest tenfold in innovation over the next decade. This effort is showcased through a myriad of programs that Peru has established to achieve this large goal. Some of these programs include Startup Peru, Innovate Peru, and the MIT Regional Entrepreneurship Acceleration Program. The aim of these programs is to promote the emergence of
innovative Peruvian startups and products. The biggest issue for Peru in this area is the lack of investor engagement. In order to promote foreign and local investments for innovation Peru established the Peru Venture Capital Conference. This conference offers an amazing opportunity to network with successful business people from all over the world, to learn how to build a strong business, and find potential investors. With more technological investments, especially in apparel manufacturing factories, the quality of the garments will only increase which will lead to more foreign exports, and more profits for Peru.
Peru: Lead Time in Peru, and have been known to hinder the transportation of goods. Volcanic eruptions also pose a potential threat to leadtime productions (Gov.uk, 2018). Even with these potential issues, business in Peru does seem favorable as it is a 4-hour flight from Houston, TX to Lima, Peru (the location of our factory), and lead-time for marine transportation ranges from 1248 days from Port of Houston to Port of Callao, which is located in the historic center of Lima, Peru. The benefits of nearshoring would reduce You&Me’s lead time due to the close proximity to the U.S., as well as utilize same day communication.
There are a few Peruvian holidays and common natural disasters that could affect the lead-time of production for You&Me’s products. During holidays Peru’s factories shut down to celebrate Christmas Day, New Year’s Day, Battle of Anagamos (October 8), and Peru’s Independence Day (July 28) (How to Peru, 2018). These celebrations would put a delay in our lead-time for product shipments. In terms of the natural disasters, Peru is prone to frequent tremors and earthquakes as it sits in an earthquake zone, and monsoons. From November to April flooding, landslides, and mudslides are prevalent
Peru: Cultural Insights There are ample cultural insights Americans must be aware of before pursuing a work relationship with Peru. To begin with describing the business language and greeting that is expected when working with Peru. Although many managers would be able to speak English, most business in Peru is conducted in Spanish, so Americans must have a translator with them at all times as a sign of respect (Just Landed, 2018). Next there is the greeting, which in Peru is quite informal. When the two countries begin working together a simple handshake will do for an introduction. Over time the handshake can evolve in to a hug or kiss on both cheeks at the greeting and goodbye. It is also important to note that titles are extremely respected in Peruvian culture. One must address their potential business partners using their title whether that be “Senor”, “Senora”,or “Doctora” (Just Landed, 2018). The time the meeting commences may be delayed from 15-30 minutes in Peru because in this culture the meeting time is not
set in stone. The Peruvians are known to show up late, but that does not mean the potential business partners from America are allowed to be late. In Peruvian business culture they want to build relationships, so meetings are known to be lengthy. Each meeting should begin with small talk about family, vacations, local food, or soccer to get everyone comfortable. As the meeting moves forward Peruvians appreciate eye contact when having conversations because it creates an atmosphere for trust and respect. After a lengthy meeting the Peruvians may offer to make their new business partners a Pisco Sour, the national drink of Peru as a sign of gratitude towards this newfound relationship. Building strong business relationships with Peru is certainly a time investment for the respected country, but You&Me intends to reap the benefits of this relationship by solidifying the highest quality cotton t-shirt to be used to produce our high-quality shirts.
Peru: State of the Apparel & Textile Industry Peru’s exports within apparel and textile industry has been slowly growing over the past few years due to their incredible reputation for homegrown Pima and Tanguis cotton, safe working conditions, and livable wages for factory employees. Peru’s apparel and textile industry ranks third amongst its top exports behind precious stones and mineral fuel bringing in $1.3 billion in 2017. Although this amount is up from $1.2 billion from 2016, Martin Reano, the leader of Peru’s Textile Committee of National Industry Association, stated that the growth was not as high as the country was expecting (Freeman, 2017). In order to increase the rate of growth Martin Reano has put in place a seven-year plan that intends to double the textile and apparel exports to $3 billion and generate 200,000 jobs by 2024 (Freeman, 2017). The government also wants to incorporate a special tax and business zones that would
highlight duty cuts and other incentives for foreign and local companies wanting to grow in Peru. The industry overall today is highly advanced because of internal as well as government investments. Manufacturing factories in Peru have implemented mercerization finishes to make the cotton even stronger and techniques to minimize shrinkage. The government intends to invest in genetic engineering for their animals, certified seeds, and special watering mechanisms in order to meet the growing demand for Pima and Tanguis cotton, and alpaca yarn (Freeman, 2017). Along with these technological investments the government also intends in preserving the traditional methods of creating yarn through the Centro de Textiles Tradicionales del Cusco (CTTC). The CTTC is a Peruvian nonprofit organization, whose 66
mission is to ensure the survival and support of indigenous Cusqueñan textile traditions (Textilescusco, 2018).
cost products to the U.S., but in regard to doing business with the You&Me in America Peru has the upper hand because they are a part of the PTPA, the bilateral free trade agreement with the United States.
The costs of manufacturing are expected to increase in Peru in order to maintain the highquality cotton production and average livable wage of $300 per month for their employees, which is 50% higher than the minimum wage in Peru. There is steep competition from countries like Vietnam and El Salvador who also export low
Peru: Trade Agreements allows for factories to import certain aspects of the product that are not readily available in either country from a third-party country.
Peru and the United States have a bilateral free-trade agreement called the Peru Trade Promotion Agreement (PTPA). This allows both parties to import and export goods between the countries duty-free. The agreement was signed in to law on February 1, 2009.
You&Me benefits from the PTPA because with the dutyfree trade the raw materials come at a lower cost. Since You&Me is producing cotton t-shirts the company would be have access to low-cost Pima and Tanguis cotton. Peru is also much closer in proximity to the U.S. than other manufacturing countries like China and India. This concept is defined as nearshoring, which for You&Me means lower transportation costs for shipments. Finally, You&Me benefits from the PTPA because as of now there is no termination date, which could ensure a long-term relationship with Peru.
In order to qualify for the PTPA You&Me must comply with the Rule of Origin, which states that the main components of the garment must be manufactured and produced in the one of the FTA participating countries. There are loopholes in the agreement, that allow for flexibility in the manufacturing process. These loopholes include De Minimus and Short Supply List. De Minimus means that up to 10% of the garment can be produced in a third-party county. The Short Supply List
Peru: Transportation There are over 100 marine ports in Peru. Of these 100 two are qualified as a medium port and a large port: Port of Iquitos and Port of Callao. The Port of Iquitos is an inland port that is situated in northeastern Peru along the Amazon river, and typically used for shipping lumber out from the Amazon forest. Although this port is of substantial size, it is not convenient for You&Me as the Iquitos port is 5 hours north of Lima. Our manufacturing factory will be closer to the capital of Lima. Therefore You&Me will utilize the Port of Callao, located in the historical center of Lima, Peru. The Port of Callao is the largest port in Peru, and is a port known for transporting a
myriad of products, including dry goods. As for the shipping company that You&Me will utilize, it came down to three shipping providers: MSC, Hapag-Lloyd, and Maersk. This decision is critical to potentially decreasing You&Meâ€™s lead-time production. Keeping this in mind MSCâ€™s delivered product in 19 days from Port Callao to Port Houston,TX, Hapag-Lloyd delivered product in 20 days, and finally Maersk delivered product in 12 days. Each shipping company used the route shown in Figure 6, so You&Me decided to go with Maersk for our shipping company provider at $1,800.
Peru: Risks & Benefits There are numerous risks and benefits to take into account when deciding on whether or not You&Me should manufacture their t-shirts in Peru. The benefits can begin with the PTPA agreement between the U.S. and Peru, which guarantees 100% duty free import and exports between the two countries, which drastically cuts prices. Another benefit is Peru’s specialization of high-quality Pima and Tanguis cotton. This type of cotton has brought luxury brands like Burberry, Lacoste, and Marc Jacobs to do their business in Peru. Since You&Me is a unisex cotton t-shirt company that produces the highest quality t-shirts, it would reinforce our mission if we used Pima cotton to produce our product. Then there is also the aspect of nearshoring. Peru is in close proximity to the U.S., and specifically Austin, TX where You&Me’s headquarters will be situated. It is only a 4-5-hour flight to Lima, and You&Me will be able to have the
advantage over competitors with same day communication with their manufacturers in Peru. The final benefit is the seven-year technological investment plan to boost the textile and apparel industry in Peru. This industry has a future in Peru, and the government is invested to make sure it succeeds in the long term. With these benefits there are also risks You&Me must recognize before finalizing on a country. In Peru the demand for Pima and Tanguis cotton is high and continues to grow. You&Me will have to invest time in creating a solid relationship with a manufacturer to make sure they will be on a list for the Pima cotton. You&Me plans to tackle this issue by advanced payments to suppliers. The final risks are natural disasters that could destroy Peru’s manufacturing infrastructure and require You&Me to find business in another country.
Peru: Conclusion From this extensive country analysis, it can be argued that Peru’s apparel and textile industry has made substantial strides over the last few years and has become a solid player in the apparel manufacturing realm. With Peru’s economy stabilizing and growing, the government will continue to invest in their textile and apparel industry. Within the industry, Peru ensures the highest quality throughout the entire supply chain. From producing coveted Pima and Tanquis cotton, providing safe working conditions and livable wages for their employees Peru is becoming a country that many global brands want to conduct
business with due to these high standards. Since You&Me’s headquarters are in Austin, Texas, Peru’s close proximity to the U.S. will play to our advantage with shorter lead times for product deliveries, same day communication, and quick flights to Lima, Peru. The PTPA with the U.S. also guarantees duty-free imports and exports, which You&Me will benefit from. Although there are risks to this business venture with Peru such as the current unsettling political climate and the potential natural disasters, the benefits surely outweigh the risks.
India: PEST Analysis
India is located in South Asia bordering the Arabian Sea, the Bay of Bengal and the Indian Ocean. It is the third largest economy in the world, and by 2030 India will overtake China as the most populous country. India’s real GDP is expected to increase 7.5% in 2018. The main driver of growth is due to its growing middle class and increase in exports. Through its “Make in India” initiative, India aims to raise its manufacturing from 17% to 25% of the GDP and create 100 million jobs within the next decade.
Economic Overview R E A L
P O P U L A T I O N
G O V E R N M E N T Federation of 28 States
Head of State(President): Ram Nath Kovind (2017)
Head of Government (Prime Minister): Narendra Modi (2014)
L I T E R A C Y R A T E
C U R R E N C Y
14th Largest Importer in the World Top 3 Imports 1. Crude Petroleum 18% 2. Gold 6.6% 3. Diamonds 5.5%
Top 3 Import Destinations
Exchange Rate: $1 = 64.91 L A N G U A G E
Top 3 Export Destinations
Textile Imports $5.91 billion I N F L A T I O N
5.8% Hindu 79.8% Muslim 14.2% Christian 2.3% Other 3.7%
$256 Billion (2017)
18th Largest Exporter in the World Top 3 Exports 1. Refined Petroleum 9.9% 2. Diamonds 9.3% 3. Packaged Medicaments 4.5%
April 8, 2018
R E L I G I O N
$344 Billion (2017)
( 2 0 1 7 )
G D P
Hindi 41% Bengali 8.1% Telugu 7.2% Other 43.7%
Textile Exports $35.4 billion R A T E
( 2 0 1 7 )
and in return, promote trade relations. Even though the U.S. and India have partnered through discussions such as the Trade Policy Forum (TPF) to accomplish like-minded goals, the change in U.S. leadership has provoked questions which could negatively impact trade relations in the future (The Economic Times, 2018).
Political In 2016, the government and central banks demonetized the INR 500 and INR 1,000 currency notes in order to get control over black money in the market and stabilize the currency system. India continues to suffer from a high level of corruption, and even though Narendra Modi has taken steps to limit it, the government lacks to implement tough policies that will enforce change (Forbes, 2017). The BJP passed a Goods and Services Tax (GST) in 2017 that unified indirect taxes and made the process simpler and standardized. The GST is expected to increase consumption as business transactions become easier and contribute to a 2 to 2.5 percent growth in India’s GDP (Euromonitor, 2018).
India’s wealth lies with its urban population, but the majority of its voting power comes from the populated rural areas. As a diverse country, India has great hopes to unite its people and create a sense of united nationalism in the coming years. By 2022, the government hopes to economically empower (in terms of infrastructure) 580 of its 640 million people who are currently unable to satisfy basic needs. This act will not only empower its people who live in poverty, but it will also give the existing party voting power in the coming election (UHY, 2018).
India is looking for ways to build foreign relations and grow the economy. This is shown through Narendra Modi’s “Make in India” initiative, which will grow different sectors like technology and manufacturing, 79
India: PEST Analysis Economic India has the second largest workforce in the world and is only expected to increase over the next four decades. Its middle class is not only growing in size, but also in buying power. This, along with an increase in manufacturing exports are the main drivers in India’s expected 7.5 percent real GDP growth in 2018 (appendix fig. 1) and 8.15 percent projected growth in 2022 (Statista, 2018). By 2050, India is projected to be the world’s second largest economy. The economy is rooted in its agricultural sector, which employs 50 percent of the workforce, and is the world’s second largest producer of cotton. The two other sectors that dominate the economy are the industrial and service sectors. India’s unemployment rate was 4.8 percent in 2018 and its job creation is running at 10 percent
of what is needs to be, which is part of the reason why the BJP is determined to promote growth in its service sector (Business of Fashion, 2016). Through the “Make in India” initiative, India aims to raise its manufacturing from 17 to 25 percent of the GDP (Euromonitor, 2018). India’s form of currency is called the Rupee, and as of April 22, 2018, 66.21 Indian Rupees are equal to one USD (Bloomberg, 2018). The Indian Rupee inflation rate has been on the decline since 2010. The inflation rate increased by one percent since 2017, which contributed to a 4.88 percent project inflation rate in 2018 (appendix fig. 2). These statistics provide a positive outlook for You&Me when doing business with India because the currency exchange rate has been stable, and the USD will continue to remain strong.
India: PEST Analysis exports. Although, the industry is set to create 100 million jobs through the government’s “Make in India” initiative, working conditions in factories are still a concern. India has had numerous problems like modern slavery, underage workers, low wages, fixed term contracts, unequal pay and poor working conditions that exhibit a lack of transparency within the textile industry (Business One Source Premier, 2018).
Social The trickle-down effects of India’s caste system that divided people based on their skin color, family and location are still seen in Indian society. This issue in Indian culture has created a gap between the rich and poor, where twenty-two percent of Indians live below the poverty line (Business One Source Premier, 2018). India plans to invest 4.5 trillion dollars till 2040 to develop in its physical infrastructure. This initiative will improve economic growth, make transportation easier to conduct business and increase living standards (The Economic Times, 2017). This infrastructure improvements will also positively impact urbanization. By 2050, 900 million people will live in urban communities, which will require innovative developments to sustain such large populations.
Even though India’s “Make in India” initiative will bring manufacturing jobs to millions of its citizens, the low wage nature of these jobs is cause for concern for the future. However, one industry that has promise to offer many skilled employment opportunities is automated technology. The growing field of IT is set to bring in three million jobs for India’s young influx of skilled and educated workers by 2025 (McKinsey Global Institute, 2017).
The textile industry in India employs 40 million workers and contributes to 11 percent of 82
India: Lead Time India is the seventh largest country in the world, which allows for its geography, weather and customs to vary greatly from one region to another. The country suffers from monsoon season from July to September, which can lead to considerable damage. Other natural causes include severe heat, cyclones, droughts and earthquakes (Maps of India, 2018). India’s diversity can also be shown through its festivals and holidays, which can often be region and religious based. India’s primary festivals are Diwali which is a Hindu celebration in October, Holi the festival of colors in March and Eid celebrating Ramadan,
which is observed by Muslims this May. Nationwide public holidays include Republic Day (January 26th), Independence Day (August 15th) and Mahatma Ghandi’s Birthday (October 2nd ) (USA Today, 2017). Whether by air or by sea, You&Me would need to allow time to pre-plan its transportation. The flight from Mumbai to Houston is approximately 21 hours and transferring product by boat takes between 31 and 47 days. In order for You&Me to conduct business effectively, it is important to understand the possible events that could delay lead time.
India: Cultural Insights Typically, business meetings start up to an hour late and might be interrupted several times during the duration of the meeting. It is common for Indians to engage in small talk, which could include questions about their family, before getting down to business (Today Translations & Business Services, 2017). Negotiations might also move at a slower pace in India than in the U.S.
It’s important for You&Me to be aware of the cultural norms and business practices in India in order build a respectful, effective and long-term relationship with its suppliers. Traditional business practices can vary by community and region because of how diverse India is as a country (Export.gov, 2018). However, as a whole, the Indian work week is typically Monday through Saturday from 10am to 5:30pm. Saturday workdays aren’t typically seen at the corporate level, but it is common at the lower level for factory workers (Today Translations & Business Services, 2017). Business is typically conducted in either English or Hindi, as the two are official languages in the country and widely spoken amongst communities.
Another aspect that You&Me should keep in mind is that hierarchy is the foundation for business life in India. Typically, business decisions won’t happen unless a senior member is present. When in a business meeting, it’s customary to greet the most senior person first, as it is a sign of respect. It’s crucial for You&Me to take note of these customs in order for the company to build a strong relationship with its suppliers for current and future transactions.
Indians bring a much more flexible approach to doing business than Americans do.
India: State of the Apparel & Textile Industry The textile industry dates back several centuries in India, and currently equates to 14 percent of its total exports (appendix fig. 3). The textile industry employs 45 million people and is estimated to reach $230 billion in value by 2020 (IBEF, 2018). India’s textile industry is composed of two parts: the handloom sector and the apparel and garments sector (IBEF, 2018). Although India is known for its ability to produce a wide variation of products such as silk and fibers, its specialty is in cotton. Its cotton output is expected to rise 9.3 percent in 2018 (The Economic Times, 2018). Cotton is an integral part of India’s economy because it marries their top two employment industries: agriculture and manufacturing. In terms of trade, the U.S. and India have maintained a close relationship through the years. The U.S. is India’s biggest importer of cotton textiles, and it is the second largest importer
of knit t-shirts (appendix fig. 4). India’s governing bodies and trade organizations like the Textile Ministry or the Textile Associations promote initiatives that will aid industry growth. The government’s recent initiatives like “Make in India,” are not only promoting the manufacturing of cotton textiles, but it’s ensuring that India can become a global hub for manufacturing and promote FDI within the industry (Business Source Premier, 2018). One of the aspects that makes India such an attractive country for You&Me to manufacture in, is its ability to cut costs. Labor is cheap in India, which is something to consider for any startup. India is expected to gain 1.2 million jobs if apparel prices in China keep increasing, which would lead buyers to source from cheaper markets (Forbes, 2017). The cost of labor to manufacture a knit t-shirt in India is approximately $1.08, which is actually quite a bit lower than China’s overall average labor 88
cost of $3.17 (China-briefing. com, 2017). There is an increase in the availability of labor from an influx of young workers, which could help keep labor costs competitive in the future. India specializes in two of the essential components that You&Me’s business is built upon: cotton and knit t-shirts. Its heritage and expertise in the textile industry plays to You&Me’s benefit if the company should decide to manufacture there in the future.
India: Trade Agreements up the process (USTR, 2018). Other trade forums include the India-US Strategic Dialogue and the India-U.S. CEO Forum, which has a focus on FDI and manufacturing (USTR, 2018). India benefits from FDI through increased employment opportunities and increased competition at a local level, which will lead to cheaper rates (The Economic Times, 2018). It also promotes a stable exchange rate which will come to benefit You&Me, because it is more stable and reliable to conduct business there (Money Matters, 2018).
There are no specific apparel manufacturing trade agreements between the U.S. and India. However, one policy that India and the U.S. do have in place is the U.S.-India Trade Policy Forum (TPF). It is a mutually beneficial policy forum that was established in 2005 to expand bilateral trade and investment. The U.S.-India Trade Policy Forum has focused on foreign direct expansion in each other’s economies to make it easier to conduct business. One aspect that both countries has emphasized through their discussions is the importance of having a transparent and predictable policy environment. Both countries simplified the requirements for imports and exports in order to facilitate cross border trade and implemented a “single window” clearance system during customs to speed
India is also a part of the Generalized System of Preferences (GSP). However, in terms of textiles, there aren’t any duty-free entries on textiles that would apply to You&Me.
India: Transportation You&Me chose APL to be the companyâ€™s freight provider between India and the United States because the company had the best cost and quickest lead time out of the other freight providers You&Me considered (ANL and Mediterranean Shipping Company). APL has ports in Houston, Savannah and Nhava Sheva, which plays to You&Meâ€™s benefit. If You&Me
needed to save time, it could ship from Nhava Sheva to Savannah Port Authority and place the goods on an APL truck to ship to the Port of Houston, but the option of doing a longer route and shipping directly by sea is also available if You&Me would so choose. The trip would take approximately 31 days from start to finish and cost approximately $2,900.
India: Risks & Benefits One of the major risks that You&Me noticed when assessing India as a country to source from was its tense relationship with Pakistan. The unpredictability of an international conflict poses a risk to doing business in India in the future (Gov.uk, 2018). In terms of infrastructure, India’s system especially within rural areas, is nowhere near where it needs to be and could make transportation difficult. Politically, one of the major risks for India is the upcoming 2019 election. Prime Minister Modi has lead the country since 2014, and his time in office has been characterized by his “Make in India” initiative and the GST. If another party came into power, it could undermine the decisions that benefit the textile industry the most (Reuters, 2018). Another risk is corruption within its business and government sectors. Bribery and corruption occur from the top-down, which makes
the “ease of doing business” difficult in India because of its lack of standardization and transparency. The lack of transparency within a majority of India’s manufacturers is cause for concern. In India, it is common for manufacturers to pay workers unfair wages, provide unsafe working conditions, participate in modern slavery, and exploit their workers (Business Source Premier, 2018). You&Me believes that in order to be successful in India and abide by its code of ethics and sourcing guidelines, the company needs to partner with a manufacturer who holds these standards and is regularly audited.
which can be characterized by creating jobs within the industry, dedication to making FDI easier and investing in its infrastructure (Euromonitor, 2018).
other reason to do business in India is the stable exchange rate between the Rupee and the USD. The exchange rate is quite favorable for the USD, where You&Me would receive the most value for its money. Low cost labor is one of the biggest benefits of manufacturing in India. You&Me would cut down on costs when manufacturing in the country and be able to invest it in other areas.
Raw materials could also come as an added asset when it comes to sourcing in India. India is the second largest producer of cotton and having raw materials readily available within the country will not only cut down on You&Me’s lead time, but its costs. One
One of the benefits of doing business in India is the government support within the “Make in India” initiative in the textile industry. Manufacturing was placed at the forefront of Narendra Modi’s movement,
India: Conclusion to raw materials and receive support from government initiatives to make the country a more attractive place to invest. However, the current status of India exhibits many areas like its infrastructure, compliance with U.S. trade regulations, low wage jobs and transparency that need improvement. These issues are factors that You&Me will have to consider before committing to setting up a global supply chain in India.
The future of India is full of potential and promise. The country is taking leaps forward with their crackdown on corruption, standardization, trade agreements and stricter enforcement of policy. Through strategic actions like the â€œMake in Indiaâ€? initiative, India is quickly on its track to be a global manufacturing powerhouse. Manufacturing in India would allow You&Me to save on the cost of labor, access
Country Profile TOTAL AREA
796,095 sq km
REAL GDP (2017)
U.S. $304 billion
Pakistan: PEST Analysis
Pakistan lies in the north- western corner of thhe Indian Ocean. It is bounded in the south and east by India and in the north and west by Afghanistan and Iran. Pakistan will see another year of solid growth in 2018. Growth of real GDP will dip to about 5% per year by 2025. Private consuption and robust exports also provide support. Steady gains in farm output and an improved power supply are other contributor-s.
R E A L
P O P U L A T I O N
G O V E R N M E N T Type:
Federal Government- Constitution of Pakistan
Head of State(President): Mamnoon Hussain (2013)
Head of Government (Prime Minister): Shahid Abbasi (2017)
L I T E R A C Y R A T E
57.9% R E L I G I O N
C U R R E N C Y
G D P
U.S. $304 Billion
$45.9 Billion (2017)
$20.5 Billion (2017)
44th Largest Importer in the World Top 3 Imports 1. Refined Petroleum 12% 2. Crude Petroleum 4.3% 3. Palm Oil 3.7%
54th Largest Exporter in the World Top 3 Exports 1.House Linens 15% 2. Rice 8.3% 3. Non- Knit Men’s Suits 7.2%
Top 3 Import Destinations
Top 3 Export Destinations
Exchange Rate: $1 = 115.61 L A N G U A G E
Textile Imports $3.01 billion I N F L A T I O N
7.2% Muslim 96.4% Christian and Hindu 3.6%
( 2 0 1 7 )
Punjabi 48% Sindhi 12% Saraiki 10% Pashto 8%
Political Pakistan government was previously not heavily invested in the country’s development. Pakistan’s recent currency devaluation in end 2017 lead to low textile exports due to high exchange rates. Frequent political protests by factory workers and mill owners regarding extensive work hours and wage payment are a common phenomenon if their needs aren’t met. This leads to a politically and economically unstable environment. Business environment is difficult because corporate financial information is unavailable. With Pakistani banking regulations, the rules are
liberal and allow repatriation of equity, profits and dividends to foreign investors.It also provides a facilitative taxation and customs regime. This coupled with low corporate tax rates and a cost doing business which compares quite favourably to its peers in the region; make Pakistan an attractive destination for foreign investors. And this is where You&Me fits in. The government must also pay the pending sales tax refunds to the industry to ease its financial burden. Exchange rate should also be adjusted according to market conditions to avoid any uncertainty in policy measure.
Textile Exports $12.4 billion R A T E
( 2 0 1 7 )
Pakistan: PEST Analysis Economic The GDP has been constantly unstable but recently in the past 3 years, had seen consistent rise in GDP (4.1% rise in 2017). There has been a constant increase in public debt owing to constant home and foreign money borrowing by the Pakistani government to maintain its economy. High public debts put the country at a financial risk and instability. The country suffers from a low FDI rate, due to consistent security concerns and people avoiding to invest long- term. Pakistan has been trying to improve on its economic malaise which gave it a stronger infrastructural system. Constantly high inflation rates might hinder buying raw materials. China, India
and Bangladesh are providing extensive investment incentives to enhance production activities. With manufacturing shifting from countries like China and India, itâ€™s giving rise to fill loopholes for countries like Pakistan. Pakistan has its own supply of cotton and fabric, and more small and mediumsized industries. It is able to accommodate smaller volumes and shorter lead times, which suits the American market. Although textile exports heavily rely upon few products, including cotton, apparel and clothing, contributions from other textile products are currently quite dismal and needs to be enhanced to develop the export base.
Pakistan: PEST Analysis Social Firms highlighted that Pakistanâ€™s minimum wage rule was hurting exports. Minimum wage rate has increased since 2011.In 2013, the minimum rate was Rs.8,000 per month raised to Rs.13,000 by 2015. This has resulted in an increase in the unit labor cost for the garments industry, making the products less competitive in the global market. Upcoming younger generation, which is below 25 years, is competent and can be utilized in productive ways to
create a more balanced economy and a shift from concentration of terrorist activities. 40% of labor workforce is employed in agriculture and the other 40% is invested in textiles. Inexpensive and plentiful labor helps in creating economies of scale. This puts Pakistan at a competitive advantage and is beneficial for You&Meâ€™s sourcing strategy as it provides cheap and efficient labor. It also has a wide- spread informal work policy wherein most employees are formally not part of the business environment.
Pakistan: PEST Analysis Technological The lack of domestic cotton production capacity makes it difficult to operate â€œjust-intimeâ€? logistics system with Bangladesh, a system that U.S. retailers are used to.The technological industry is gravely lagging behind in infrastructure, electricity and power supplies and IT systems. The textiles industry is tremendously affected this. Manufacturers moved to alternative methods
of producing electricity like generators and inverters, ultimately leading to higher costs for production. It increased expenses and reduced profitability for exporters. Lack of power supplies lead to factories being shut and people being employed. With extensive support from the Chinese government fulfilling Pakistanâ€™s infrastructural requirements, the country is showing signs of improvement.
Pakistan: Lead Time Energy Crisis: The constant electricity and gas shutdowns causes production losses, quality deterioration and cost increase leading to operations below capacity. Bigger firms deal with this by establishing generators but smaller firms suffer with no scope of growth. Transportation: Transportation infrastructure is in the process of development and the only effective means of freight transport is via low capacity trucking on the roads. The entering and handling charges at the domestic port from shore to ship are high leading to late arrival for audits and delay in shipment. Import Duties: There are substantial import duties on most raw materials and the Duty and Tax Remission Scheme(DTRE) requiring approval before importing raw materials has increased leadtime by 35-45 days, which delays on-time delivery.
Religious Holidays: During the religious month of Ramadan, workers tend to fast as a religious belief. The productivity declines by 35-50% as a result of shorter working hours and change in behaviour during the month. This might incur losses for business people due to the postponing of decisions and processing of government transactions. Fewer and Incompetent Infrastructure: The departments of planning, marketing, storage, production,quality control and packaging are not effectively linked through computer networking(ICT) hindering faster and less expensive communication resulting in high cost of operations and late deliveries. Violence: The unpredictable violence and bombings in Pakistan due to sudden terrorism attacks could affect productivity and delay on- time delivery.
Pakistan: Cultural Insights There are a few main pointers in terms of establishing work relationships in Pakistan. Islam religion is practised by most Muslims and governs their personal, economic and legal lives. In government, formal offices and multinational companies, the normal attire for strategic level employees is western wear- this comprises of jacket, trousers and tie. The culture of sober dressing and flamboyant clothing is followed. For women, the clothing is generally business casual (salwar kameez). At higher level business environments, women typically wear discreet western covering arms. Hospitality is a strong part of the Pakistani culture. It is common for men to say hello followed by a firm handshake. Shaking hands with the other sex is discretionary for women. Abiding by religious rules, Muslims are expected to pray five times a day. During the holy month, Muslims
must fast from dawn to dusk and are only permitted to work 6 hours a day. It is best to not plan business trips around this month as with reduced office working hours in Government and private sector; it is difficult to get appointments. Most strategic meetings happen late mornings or early afternoon and are preferred to be scheduled three or four weeks in advance. Business meetings are formal and start after prolonged enquiries about health, family. Maintaining an indirect eyecontact, while speaking is considered to be polite. Theyâ€™re highly skilled negotiators and price is always a determining factor in closing the deal. Third party introductions can be very helpful as a starting point to build a trusting relationship. They prefer to work with people they know and build trust with. They to do business in person and develop a genuine relationship. Business cards are exchanged after introduction.
Pakistan: State of the Apparel & Textile Industry Textiles is a strong pillar supporting the economy of Pakistan.63% of the knit garments are exported, which supports You&Me’s decision to invest in Pakistan. It accounts for 8.5% of the GDP,employing 38% of the production labor workforce. The textile industry is facing massive challenges including a low technological base, lack of research and development, lack of trained manpower, low quality standards, concentration in low- value added products and extreme reliance on cotton.Lack of research and development has resulted in low quality of cotton in comparison to the rest of Asia and hiked up production prices. Technological improvement is another aspectthe inability to timely modernize it has resulted in decline in textile competitiveness and made it stagnant. In 2006, Pakistan made $1 billion investment per annum whereas in 2016-17 this
investment reduced to $0.56 billion. It’s facing a negative generation of funds due to unaffordable markup rates and acute shortage of energy supply and power tariff for the industry.The increased cost of production of textiles is due to increasing interest rate, double digit inflation and decreasing value of Pakistani rupee, which makes it difficult to compete in international market as exporters look for cheaper labor options. The continuity of a tight monetary policy causes an intensive increase in cost of production. Due to high interest rates, financing cost increases which causes a severe effect on production. Sales tax refunds are also not being paid by the government which is causing a financial crisis for exporters.As a consequence of load- shedding, the textile production capacity of textiles sub- sectors has been reduced by 30%. Realization and reduction of electricity 112
tariff would go a long way in removing this hurdle.Industrial gas tariff of Pakistan is 100% higher and electricity tariff is almost 50% higher as compared to other regional competitors. The government has promised to end power cuts by 2018, and said industry would be prioritised. In the past few weeks, the biggest manufacturers in Faislabad have been supplied without interruption. Pakistan’s internal issues pose a large threat. Exports have gone down as exporters cannot effectively market their products since buyers are not visiting Pakistan due to adverse travel conditions.Prices of cotton and other raw materials in textile industry fluctuate rapidly in Pakistan, which leads to increase in a higher cost of production. Due to this, the demand for exports decreases which results in downsizing of the firm. The government should take steps to
introduce international systems to standardise cotton rates to enhance quality and value of production. With joint efforts from Pakistan and China government investment, efforts are being made to clear the electricity and gas shortage issues to optimize productionexpensive but cheaper compared to others. In December 2017, Pakistan’s 4th nuclear power plant went online, built with Chinese assistance as part of Islamabad’s plans to produce 8,800 MW from atomic energy by 2030.It announced export package for the industry to help in modernisation and development.It contains new duty drawback rates on products, including processed fabric, textile and garments, yarn and grey fabric and made-up textile articles. This is expected to raise millions of jobs.
Pakistan: Trade Agreements Trade and Investment Framework provides a strategic framework and principles for dialogs on trade and investment issues between the U.S. and the TIFA parties(countries and regional trade groups). Currently, it has 48 agreements in 92 countries. It is generally considered an important step towards signing a Free Trade Agreement (FTA) between the two parties. It includes resolving issues between parties such as market access, labor and environment issues, protection and enforcement of intellectual property rights. U.S. and Pakistan signed a TIFA in 2003 and hold TIFA meetings annually. There has been a 50% growth in U.S.- Pak bilateral trade from 2013 to 2016. The 2015 Joint Action Plan highlighted the benefits to both parties involved. The focus was to further promote bilateral trade and
economic relations by providing Reconstruction Opportunity Zones (ROZ) in Pakistan to create legitimate and productive jobs in areas vulnerable to the influence of violent extremism while offering additional tariff benefits. With this, both U.S. and Pakistan strengthen businessto-business ties It helps U.S. provide a wider platform to access more suppliers and invest in Pakistan infrastructure for future growth plans. By creating more productive jobs, the new and younger generation benefits by less influence from terrorism. Pakistan offers various business opportunities to the U.S. investors as they believe in long term constructive partnerships. You&Me benefits by paying reduced tariff rates on the goods exported and the possibility of becoming long- term trade partners.
Pakistan: Transportation Pakistan is a major exporter and boasts of six major shipping ports. Out of these, three of them are major and oldest shipping ports and best suit You&Meâ€™s purpose. Taking into consideration the proximity of the supplier to the port, the export charges and the time duration for lead time, three ports were researched. Port Muhammad Bin Kasim is one of the oldest sea ports for trading and its close proximity to prime delivery locations was crucial. Karachi Port is the hub of Pakistanâ€™s trading and 98% of
the trade is conducted through this port. The Gwadar sea port is relatively new but is the deepest sea port and a trans- cargo port for the area. With a transit time of 36 days and a charge of $3,810, we decided to proceed with the Karachi port and its excellence to handle international trades. This port selection is very convenient for You&Me as provides the goods with minimum lead times and a negotiable cost.
Pakistan: Risks & Benefits There are numerous risks and benefits that need to be taken into consideration while deciding You&Meâ€™s decision to manufacture t-shirts in Pakistan. Some major benefits of doing trade with Pakistan would be the fact that Pakistan is one of the best knit exporters worldwide. This puts them in a skilled section, as some major companies export to international industry giants, reinstating their established quality. With TIFA, the benefits extends to reduced tariff rate for some products.Establishing a long- term relationship with the U.S. government and companies would benefit Pakistan in gaining their support and increasing FDI. A large sector of unemployed youth would benefit from being involved in productive activities. For the U.S. doing business in Pakistan would provide them a large consumer market to explore and expand into. The cheap cost of labor helps U.S. with maintaining economies of scale
and providing products at a competitive rate. The major risks of conducting business with Pakistan ranges from unstable political scenario, lack in infrastructure and obsolete machinery and unstable currency against the dollar rate. These factors put Pakistan in an unfair light and make it difficult for retailers to produce or manufacture. Although, despite these drawbacks, Pakistan has been a longstanding player in the industry. It boasts of conducting business with international retailers on a long- standing basis. Over a period of time, it has developed well-developed export systems and expertise in terms of their industries where, through right medium, a high- quality product can be achieved with shorter lead- time. Thus, companies benefit by establishing that long- standing trust and gaining higher quality of products.
Pakistan: Conclusion Through this extensive country analysis, we can safely conclude that despite its drawbacks, Pakistan is an ideal country to engage in international trade with. Through major improvements, Pakistan can gain an upper hand in re- building its export culture. Pakistan is a safe zone to fall back on for You&Me, as the suppliers offer complete and transparent trust in conducting business and adopting fair- trade practices. With new policies and schemes issued by the government, technological and infrastructure
development by China, Pakistan is might gain its power back by being one of the international players and competing with neighbouring countries. From a long- term perspective, seeing Pakistan evolve into one of the major players, provides You&Me with the best option to rely on suppliers and their production requirements. To conclude, Pakistan, despite its drawbacks, proves to be an efficient supplier to meet the knit t- shirt manufacturing for You&Me.
Product Classification You&Meâ€™s harmonized tariff schedule (HTS) code for knit t-shirts is 6109.10.00. This specific HTS highlights of cotton t-shirts, singlets, tank tops, and similar garments, knitted or crocheted. There is generally a 16.5% duty tariff on these types of garments, but since Peru has the PTPA with the United States that duty
tariff is eliminated. You&Me will be producing four types of cotton blend t-shirts under the 6109.10.00 HTS code (Figure 5, Appendix). The products include a long-sleeve Henley, a long-sleeve baseball tee, shortsleeve V-neck with a pocket, and then a short-sleeve crew neck t-shirt with a back stitch.
Country Selection After the country ranking analysis of the four countries, Peru and Honduras were the best contenders for You&Me’s sourcing strategy. Their respective free trade agreements with the U.S. eliminate tariff costs of 16.5% that would need to be paid if imported from Pakistan or India. The next winning factor is the nearshoring advantage which enables shipments to the U.S. within three days from Honduras and five days from Peru. This mitigates risk and gives You&Me a competitive edge to service the customer during high demand. In addition, same day communication gives Peru and Honduras the upper hand over its growing global competitor, Asia. This allows them to react to unforeseen manufacturing mishaps at a faster pace and thus reduce gaps within their supply chain. The CAFTA-DR and PTPA sourcing guidelines within the trade agreement speak to You&Me’s three silos of
environmental, community, and ethical standards. Honduras 2020 plays a significant role to its growth plans, as the country aims to be the largest exporter of textiles and apparel in the Americas. Peru is the only country whose trade agreement with the U.S. that instills environmental and working benefits for workers. With this we see Peru’s manufactures providing day care for children with mothers who work in their factories. Even though Pakistan and India, are successful with their growth in revenues and annual production, the lack of transparency, unfair labor wage, poor working conditions and modern slavery do not abide by You&Me’s strict sourcing guidelines. However, Pakistan does cater to key U.S customers which highlights an opportunity for us to foster their factories by creating training programs that will lead to building long-term relationships for them to reach our benchmark.
You&Me’s primary objective is to be a cost effective and reinvest the monetary savings towards technology to produce a higher quality t-shirt. India and Pakistan’s labor cost are the cheapest averaging at $0.14 / unit. Honduras produces at $1.85 which is cheaper than Peru at $2.08. Honduras ranks the highest in cost as it produces at an ideal price that meets all of our sourcing standards. As Peru ranks second, we will need to manage our production lines between the two countries strategically to ensure our overall margin is balanced. Although Pakistan has a rocky
socio-economical-political status, they are still highly regarded for their quality in cotton manufacturing. You&Me will manage the risk by placing majority of its production in Peru and Honduras but steadily build on Pakistan as its attains its responsible certifications. Overall, Peru is the most beneficial choice of the four countries, followed by Honduras as a close contender. Pakistan and India have a lower rank but are being considered due to their future initiatives.
Supplier Selection Once completing our extensive country analysis we delved into researching three potential manufactures in each country. Of the three manufactures researched one was identified as the most ideal. By comparing the top manufacturer of each country based on essential factors such as lead time, sourcing guidelines, services offered, and strategic outlook that would help You&Me obtain its five and ten year plan. The supplier ranking aided to identify the top three choices that will maximize opportunities and minimize risk. The leading supplier that ranked highest in all categories was Elcatex based in Honduras. This vertically integrated supplier solely specializes in knitwear across all product categories and produces 280,000/day. In terms of innovation and sustainability they have implemented ample technology across their supply chain which includes Dyeclean.
Most importantly Honduras’s government supports their manufactures initiatives and motivates them to obtain all objectives for Honduras 2020. Ranking second was the Hialpesa manufacturer in Peru. Even though they only product 18,000 units/day they focus on quality over quantity as they are known for organic Pima and Tanguis cotton. Their sourcing guidelines speak to You&Me’s ethical standards as they provide onsite daycare for the children of working mothers as well as provide scholarships to their employees. Hialpesa focuses on women empowerment and You&Me as a company is truly impressed by the factory being predominantly run by women. Their services focus on shrinkage control, and are constantly updating technological advancements inline with Peru’s government 2022. Masood Textile Mills from
Pakistan and Arvind Mills from India ranked third and fourth respectively. As highlighted in the country analysis Pakistan’s economy is unstable, however we see their textile industry success coming from their strong manufacturing infrastructure built from the likes of Masood. Within this manufacture they have training school, the only textile mill in Pakistan with the latest computerized barcode system, which assures quality in every stage of production from spinning to packaging. Lastly, India ranked fourth for suppliers because their production
capabilities are so vast and so spread across the country we did not feel the focus of specialization that we specified in our sourcing guidelines. The supply base in India is advanced as they produce organic and BCI cotton. Even though there are advancements in the quality the future outlook of India’s suppliers are yet to have strict regulations that eliminate child labor, unfair wages, and unsanitary working conditions. In conclusion this next step has directed You&Me’s sourcing strategy towards Peru, Honduras, and Pakistan.
7.0 Placement Strategy The final placement plan aims to minimize risk and maximize opportunities. The country and supplier ranking analysis helped us to build a solid foundation to decide where to product You&Meâ€™s unisex t-shirts. The margin analysis further reiterated that Peru and Honduras have performed well consistently throughout each step to get to our final decision. As these two countries
governments are focused to growing their respective textile industries which speak to our core value of quality. In order to determine the third country in the mix the third analysis ranked Pakistan higher than India as they both have low labor costs but Pakistanâ€™s future outlook within their manufacturing infrastructure is working towards mirroring You&Meâ€™s sourcing guidelines.
Honduras has proven to be an ideal country for You&Me and hence we have placed 42% of our production with Elcatex. The low labor costs, close proximity, and CAFTA-DR freetrade agreement in line with their Honduras 2020 Plan has given us a 360 degree positive outlook to ensure we produce the best quality and the best price. Peru is producing 33% of the mix. Although Hialpesa’s, Peru’s supplier, labor costs are the highest of the four countries, the close proximity, government tech 2022 plan, their reputation for producing high quality Pima cotton. Peru’s PTPA trade agreement also instills sustainable standards that are unique to this agreement with the U.S., and thus following all of You&Me’s sourcing guidelines. Lastly Masood Textiles in Pakistan proved to be a solid choice in spite of the social, economic, and political instability that the country working to stabilize. You&Me has allotted 25% of the production mix to Masood as their infrastructure is steadily improving and we believe working closely with this factory
we can take advantage of their high quality cotton and they can learn from our programs instilled within the manufacture like cross-training, healthy working conditions, and fair wage pay. After analyzing ample scenarios choosing Honduras to produce 42%, Peru 33%, and Pakistan 25% this gives You&Me an overall margin of 91.86%. We are going to manage the risk in Pakistan by ensuring they only produce our replenishment quantity so we can an eye on production and at the same time ensure production is coming on-time from Peru and Honduras. The nearshoring advantage from the Latin American countries allow us to work closely with them. This will give You&Me the opportunity to not only take advantage of the non tariff cost benefits as well as ensure same day communication can help us develop programs involving healthcare benefits and further cross training that will only enhance our quality.
Warehousing, Logistics, & Distribution Warehousing, Logistics, and Distribution is the last leg fo the sourcing strategy that will help ensure You&Meâ€™s bottom line is cost effective and focusing on the priority of servicing the customer at the right place at the right time. You&Meâ€™s channel of distribution as of now is only e-commerce for which our frequency of distribution is at peak during three times a year: April-May, July-August, and November-December. To manage the predicted flow of product as well as to react to constant dynamic changes in the market we have to choose a logistics supplier that can fully support us from the point of origin to the point of purchase. The supplier we choose must be strong in receipt of goods,
identification, inspection, verification, delivery, and lastly customer returns while most importantly ensuring quality of product is not tampered with. The biggest requirement is focus on vender-inventory management. As being an e-commerce business and You&Me producting in three countries we need to go with a company with a strong infrastructure and vast placed distribution centers in the U.S. The standards of distribution companies investing in advanced technology like RFID and OCR capabilities are a norm, so whoever has a sustainable approach, high inventory automation, and mobile transparency would suit You&Me.
DHL DHL is a global logistics, distribution, and warehouse company. Although DHL is headquartered in Germany, they have an extensive presence in the U.S., which benefits You&Me immensely. Since the company is global, it allows You&Me to think about potential growth if the company deems to be successful in the future. In regards to inventory management DHL is a leader in the logistic inventory with cross docking, warehouse automation, keeping perpetual inventory . and real time shipment tracking. They also are investing heavily in AR/VR technology for their employees, in order to remain a global leader. DHLâ€™s daily turnover of shipments is 117,000 per day and growing. You&Me would benefit from DHL logistics because this company also incorporates a large sustainable component in every aspect of their business. With this factor coupled with their 19 distribution centers strategically placed around the U.S., 24 hour shipping, and even same day emergency shipping it covers all the bases You&Me needs in order to meet their customer demands.
XPO Logistics Inc. XPO Logistics, Inc. is one of the worldâ€™s ten largest providers of transportation and logistics services, headquartered in Greenwich, Connecticut. They are an international logistics, warehousing and distribution company currently in 1466 locations in 32 countries. XPO is an ideal company proving a 360-degree service to meet all client needs. They offer complete inventory management, crossdocking, order management, D2D e-fulfilment, omni-channel optimization, reverse logistics, pick and pack, ticketing and labelling. Most importantly they have 24-hour visibility of product movement on an online service which would ensure even a newly established company like You&Me will be looked after with the focus and service needed. XPO have a wide variety of range of services to fit specific requirements such as storage, handling, flows, brokerage, safety and security. They success speaks to their turnover of 160,000 shipments and over seven billion of inventory units handled each day.
UPS UPS is a one of the biggest global supply chain solutions provider. They provide transportation and freight services along with contract logistics, customs brokerage and consulting. Itâ€™s headquartered in Atlanta, Georgia in the United States, and has an international presence with a footprint in 120 countries and 1,000 locations. With a strong presence within the United States they provide 2,300 operating facilities. UPS boasts of three ground distribution centers- placed strategically in each coastal area. Along with that, they own Worldhub airline hub and sorting facility located in Louisville, Kentucky. This helps them to strategically position the product close to their customers, which helps with speed transit and lower overall transportation costs to ensure right amount of product to the right places at the right time to meet demand. They also boast ofFor inventory management, they provide bestin-class technology to improve
inventory warehousing accuracy, centralized control across multiple facilities, perpetual inventory and replenishment schedules and multi- channel distributions, e-fulfillment and direct-to-consumer services. Additionally, they offer value added services like EDI, price ticketing and product labeling among a few others. These factors tie in with You&Meâ€™s requirements by providing VMI model, cross- docking, inspections, return- handling and streamlining stock. With future expansion plans, UPS is a good choice for You&Me as they provide site analysis and selection, supply chain modeling and network optimization, comprehensive logistics and distribution services. Theyâ€™re a strong, established supply chain provider with a success rate of $19.1 million daily global delivery volume, with same day delivery option and customers like Destination XL group and Endo International..
Supply Chain Provider Selection Our final supplier selection was on the basis of quality over cost as we did not receive any official quotes from the chosen suppliers. Due to this, You&Me’s first choice is DHL for our warehousing and distribution needs. DHL offers a full range of transport, logistics, and inventory flow management, and also have value added services that would benefit us in the future like store opening logistics and garments on hanger flows. In addition the strategic placement of their distribution centers in Houston, Kentucky, Seattle, and New York would ensure we service our t-shirts to our target customer on both coasts of the U.S. to their doorstep in the quickest time. In order to manage risk our second supplier is XPO logistics. Their services mirror DHL’s global inventory management, cross docking, reverse logistics, and timely pick and pack. XPO’s
USP is their 24 hour visibility on product movement that benefits a newly established company like You&Me to assure we are not treated like a small fish in a big pond. The distribution centers for XPO are predominantly in the distribution hubs of the U.S., like Kansas City, MO, Raleigh, NC, and Los Angeles, CA. E-commerce fulfillment can only be a successful strategy for You&Me if we fully utilize DHL or XPO’s cross docking infrastructure. With You&Me’s headquarters based in Austin, TX this gives us good visibility for R&D and constantly work towards servicing the target customer. However, to make sure our product reaches our dispersed target customers who are based in the East and West coast we will work closely with the chosen supplier to make sure we utilize their distribution centers strategically.
8.0 Final Strategy Summary
Although many apparel brands today are implementing aspects of sustainability into their company, You&Me is unique in that we are embedding a sustainable supply chain management system from concept to consumer. We have chosen a supply chain strategy that represents not only our mission and core values, but meets every stringent aspect of our sourcing guidelines, so we can cater a high-quality tshirt to our customer. Our strategy stems from product development as our t-shirts are basic in design, but the fabric quality blending organic cotton and recyclable polyester is not only environmentally conscious but cost effective as well. You&Me is committed to only sourcing ethical and responsible partners, so after extensive country and supplier
research and analysis we have chosen to work in countries whose governments support their textile industry and that they have ethical practices within their manufactures’. Each supplier is compliant with the United Nations Global Compact and the Sustainable Apparel Coalition. Finally, You&Me’s strategy focuses to partner with global logistics and distribution companies who best meet our company’s objectives and thus act as a catalyst for us to excel at e-commerce. You&Me believes that our customer should not have to sacrifice style for sustainability. Therefore, our supply chain sourcing strategy encompasses a responsible approach from every stakeholder, but still assures You&Me’s triple bottom line to be a cost effective operation.
9.0 Conclusion You&Me has incorporated every stage of design, sourcing, manufacturing, transportation, and distribution to develop a strong, responsible supply chain strategy. We conducted extensive research and analysis to understand the importance of each step of the supply chain. Research began at choosing the raw material to produce our unisex t-shirt. Organic cotton as rare is an important component to factor in to better our environment and was the fundamental base to build on our sourcing guidelines. In order to be cost effective, yet innovative we decided to blend organic cotton with recycled polyester. This not only reduces the waste sent to landfills, but also repurposed plastic bottles that we typically throw away. We analyzed four countries, Honduras, Peru, Pakistan, and India, who were all strong contenders. After examining various aspects such as the business climate, cost of manufacturing and labor,location in proximity to the U.S., sourcing guidelines, overall status of the apparel and textile industry, trade agreements, and the socio-eco-political environment. The final countries selected were Honduras, Peru, and
Pakistan. Within each country we analyzed the strongest suppliers and out of the 12 we narrowed it down to the best manufacturer in Honduras, Peru, and Pakistan. The suppliers we chose were based on their abilities, production capacity, short lead-time, quality, globally acclaimed customers, certifications, compliance with our sourcing guidelines, and positive strategic outlook. Taking this all into the account the final suppliers selected were Hialpesa in Peru, Elcatex in Honduras, and Masood Textiles in Pakistan. To minimize risk and maximize opportunities we have given Honduras and Peru majority of the production and Pakistan a smaller piece of the pie so we can work with them and utilize Masood Textiles as a replenishment source. All the suppliers have built strong infrastructures within their manufacturing and we believe will produce a high quality product. You&Meâ€™s unisex t-shirts will be packaged in military style and then boxed in 24*24*12in cartons to be loaded onto a 40-foot high cube containers that will be shipped to the U.S. We have decided to use the
assistance of DHL as our logistics and supply chain solutions provider. DHL has warehouses and distribution centers all across the U.S., which simplifies the flow of product to our target customers based across the country. DHLâ€™s Kentucky based distribution center will be a key hub to ensure our e-commerce channel of distribution will reach the customer within 1-2 business days. Today the fashion industry is riddled with fast-fashion brands, and we aim
to begin a paradigm shift towards providing a high-quality garment that our target consumer will not feel guilty wearing. We believe that You&Meâ€™s business practices will not only mitigate harmful environment impacts, but our sourcing guidelines will ensure to raise working standards for garment workers and fair livable wages. You&Me is looking forward to disrupting the apparel market with an ethically produced, high-quality unisex t-shirt.
Placement Elimination 1
Placement Elimination 2
Placement Elimination 3
You&Me Line Plan
Honduras Supplier Ranking
Peru Supplier Ranking
India Supplier Ranking
Pakistan Supplier Ranking
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