PICMET 2006 Proceedings, 9-13 July, Istanbul, Turkey (c) 2006 PICMET

Study of Supply Chain Models in Vietnamese Footwear Industry

Cheng-Ter Ho', Viet-Anh Nguyen2'National Kaohsiung University ofApplied Sciences, Kaohsiung, Taiwan 807, R.O.C.

2Hanoi University of Business and Management, Hanoi, Vietnam

Abstract--The main purpose of this study is to focus on thekind of supply chain that is currently in application, in theVietnamese Footwear Industry. This research will deeply helpus understand the current supply chain model of the VietnameseFootwear Industry and its positive contribution to the footwearindustry in general. The study has resorted to a survey method,specifically a direct questionnaire method. Though the samplesize has been fixed as 280, it has been successful to get 54questionnaires completely filled-in from the managers of 54Vietnamese Footwear industry participants. The mostsignificant results of the study include: (i) the supply chainmodel that is being currently put in use in the VietnameseFootwear industry observed to be almost agile; (ii) the researchhas found that the current supply chain models in-practice areable to help the industry participants to improve productivity,save cost, manufacture efficiently, improve performance onmarketing and sales, increase customer satisfaction, build andmaintain good relationship with the suppliers.

I. INTRODUCTION

We live in the age of hi-tech technology and speed wherethe market changes are rapid. Therefore, today's companiesface a large competitive environment with fierce globalcompetition having no boundaries. How to respond to thischanging market quickly, and satisfy the customer's need,becomes the greatest challenge of each company. Theimportant factor lies in the ability to produce the customer'sneed and deliver it to the right place at the lowest cost. Onthe pursuit of connecting technology and speed, supply chainmanagement or the global logistics management would bethe new model that every company needs to implement. Thefocus of the new model would be to integrate production,purchasing, logistic supporting, product design, and theability to market well to tap the customer's demand and equipfor the rapid market changes. The other important point isthat company has to achieve better performance by lowingthe operation cost, inventory pressure and risk involved.

Two current popular paradigms in supply chainmanagement are, lean thinking and agile manufacturing.Naylor et al. [3] discuss the commonalties and differencesbetween leanness and agility within a supply chain contextfrom a generic perspective and give the following definitions:

Agility means using market knowledge and a virtualcorporation to exploit profitable opportunities in avolatile market place.

Leanness means developing a value stream to eliminateall waste, including time, and to ensure a levelschedule.

paradigm which has now changed to the manufacturerstriving to become agile [1].

The objective of this research aims at studying the supplychain model used in the Vietnamese Footwear Industry. Thisstudy will help understand the operating strategy in footwearindustry of Vietnam and further investigate the suitableoperating strategy for this industry.

II. RESEARCH DESIGN AND METHODOLOGY

The research design is basically exploratory in nature.The purpose of this study is determine which supply chainmodel is used in the Vietnamese Footwear Industry, the leansupply or the agile supply. The metric is based on 11distinguishing attributes proposed By Mason-Jones [2].Therefore, 11 questions are put forth in the questionnaire towhich four questions are added to collect the company profile.The Likert 5 point scale is used for most of the questionsexcept for the dominant cost, customer drivers, purchasingpolicy and the Forecasting mechanism. Details of thequestionnaire can be found in Appendix A.

The sampling population consists of set of all footwearindustry participants in Vietnam. Sample size is fixed as 280.The response rate is 19.3 % (54 responses).

Lean

-2 -1 0

Agile

1 2

Figure 1. The Likert 5 point scale used in the survey

III. RESULTS OF ANALYSIS

A. Typical ProductsThe typical product type in Vietnamese footwear industry

is not very fashionable and commodious. They operate in aconservative way between fashioned and commodious, butare more inclined towards the fashionable, as shown in Figure2

LeanVery Commodious Commodious

-2 -1

itMIN

AgileNeutral Fashioned Very Fashioned

oO 10.65 1

MAX

2

One of the views was to adopt the lean manufacturing Figure 2. The survey result for typical product.

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PICMET 2006 Proceedings, 9-13 July, Istanbul, Turkey (c) 2006 PICMET

B. Forecast ErrorThe forecast error is similar to typical product with

indicator at 0.44. However, the variation is spread over thefull range. This indicates that some of the companies attemptto operate, either under the complete agile or complete lean.

Lean Agile

Lean

<5%

-2 -1

MIN

Less than 10% 11-30% 31-50% 51-70% 71-100% Figure 6. The survey result for profit margin.

F. Average Stock out RateReferring to stock out rate, the mean value of the

indicator is 0.65. The maximum is "2" and the minimum is"-1". From the mean value, we can draw the conclusion thatthis attribute belongs to the agile mode.

Figure 3. The survey result for forecast error.

C. Product VarietyReferring to product variety, the mean value is 0.87. This

indicator value, ranging from 0 to 2, shows that almost all thecompanies are in the agile mode in product variety.

Lean variants per category

<10 10-20 21-50

Agile

51-70 >70

Lean Agile

10-2% 3%-5% 6%-10% 10%-40% >40%

-2 -1 0 1

-I.

MIN0.65

2

MAX

Figure 7. The survey result for average stock out rate

-2 -1 O 1

MIN 0.87

2

MAX

Figure 4. The survey result for product variety.

D. Product Life CycleFor product life cycle, the mean value is 0.65. This

indicator value, ranging from -1 to 2, shows that most thecompanies are in the agile mode in product life cycle.

Lean

>30 25-30

Agile

17-24 13-16 3-12

G. Information EnrichmentThe information enrichment requirement in this industry

is only slightly obligatory as shown in Figure 7. Themaximum value of 1 and average value of 0.85 indicate thatmost of the companies feel it is obligatory. Therefore, theattribute is agile according to the model proposed byMason-Jones et al [2].

Lean Agile

Highly Desirable Desirable

-2 -1

MIN

Neutral Obligatory Highly Obligatory

O 1

0.85 tMAX

2

-2 -1

MIN

IO 1

0.65

2

MAX

Figure 5. The survey result for product life cycle.

E. Profit MarginThe indicator for profit margin of the footwear industry

in Vietnam, ranging from -1 (5%-15%) to 2 (21%-50%),shows that some of the companies operate in the lean modebut most of the companies are in the agile mode. The mean

value of 0.57 indicates that the whole industry is in agilemode in general.

Figure 7. The survey result for information enrichment

H. Customer DriversTable 1 shows that cost is the highest customer driver,

which is accountable for 33.3%. The customer driversattribute belongs to the lean supply because the cost factordominates over availability factor.

TABLE 1 CUSTOMER DRIVERS IN VIETNAMESE FOOTWEARINDUSTRY

CumulativeDriver Frequency Percent Percent

Availability 10 18.5 18.5Cost 18 33.3 51.9Lead-time 5 9.3 61.1Quality 12 22.2 83.3Service level 9 16.7 100.0Total 54 100.0

(Source: this research)

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5%-15% 15%-20% 21%-50%

-1-2

MIN

Agile

>50%

2

iot0.44

0 1

°57MAX

1 2

MAX

PICMET 2006 Proceedings, 9-13 July, Istanbul, Turkey (c) 2006 PICMET

I. Dominant CostsIn Table 2, production cost, which accounts for 31.5%, is

the highest. The physical costs, which include production cost,distribution cost and storage cost, accounts to 68.6%.Whereas, marketability costs, which include obsolescencecost and stock out cost accounts to 21.4%. Therefore,dominant costs attribute belongs to the lean attribute becausephysical costs dominate over marketability costs.

TABLE 2 DOMINANT COSTS IN VIETNAMESE FOOTWEARINDUSTRY

CumulativeFactor Frequency Percent Percent

Distribution cost 11 20.4 20.4Obsolescence cost 12 22.2 42.6Production cost 17 31.5 74.1Stock out cost 5 9.3 83.3Storage cost 9 16.7 100.0Total 54 100.0

(Source: this research)

J. Purchasing PolicyReferring to purchasing policy, this question has two

alternatives, buying goods and assign capacity. Buying goodsmeans the company places orders upstream for finishedproduct then these products are stored and used gradually.Assign capacity means the company co-operates withupstream supply to assign them to produce when order arises.According to the model developed by Mason-Jones et al [2],purchasing policy attribute belongs to agile attribute becauseassign capacity dominates over buying goods.

TABLE 3 PURCHASING POLICY IN VIETNAMESE FOOTWEARINDUSTRY

CumulativeFactor Frequency Percent Percent

Assign capacity 36 66.7 66.7Buy goods 18 33.3 100.0Total 54 100.0

(Source: this research)

K. Forecasting MechanismMost of the companies, 96.3%, use consultative

mechanism to be their forecasting mechanism. Hence thisindicator clearly shows that the operating mode is agileaccording to Mason-Jones' model [2].

TABLE 4 FORECASTING MECHANISM IN VIETNAMESEFOOTWEAR INDUSTRY

CumulativeFactor Frequency Percent Percent

Algorithmic 2 3.7 3.7Consultative 52 96.3 100.0Total 54 100.0

(Source: this research)

IV. CONCLUDING REMARKS

After investigation of 280 footwear companies, thesummaries of analysis results from the previous chapters areas follows. Nine out of eleven attributes belong to agilesupply. They include the typical product, marketplacedemand, product variety, product life cycle, contributionmargin, stock out rate, information enrichment, purchasingpolicy and forecasting mechanism. The remaining twoattributes namely the customer drivers and dominant costsbelong to lean supply. Therefore, Vietnamese FootwearIndustry seems to be having a tendency to be more towardsthe agile supply.

The common experience for supply chain is from lean tothe agile. The major competitive weapon for the Footwearindustry in Vietnam, as a developing country, is the price.Therefore, the supply chain should be lean. However therehas been no evidence so far on the lean stage of VietnameseFootwear Industry. This study finds the supply chainoperating model is mostly agile with the VietnameseFootwear Industry.

We expect the emerging industry to jump directly ontothe agile operating model due to the market forces.

REFERENCES

[1.] Booth, R., "Agile Manufacturing," Engineering Management, vol. 6,pp. 105-112, 1996.

[2.] Mason-Jones, R., Naylor, B., Towill, D.R., "Engineering the leagilesupply chain". International Journal of Agile Management Systems,vol. 2, No.1, pp.54-61, 2000.

[3.] Naylor, J. B., M. M. Naim, and D. Berry, "Leagility: Integrating thelean and agile manufacturing paradigms in the total supply chain," Int.J. Production Economics vol. 62, pp. 107-118, 1999.

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PICMET 2006 Proceedings, 9-13 July, Istanbul, Turkey (c) 2006 PICMET

Appendix A:Questionnaire of this study

The purpose of questionnaire survey

This questionnaire survey is designed to study which supply chain is used in the Footwear Industry, Lean orAgile.

I. Company profile

In these questions, I am interested in studying something about your company profile such as the number of staffs, company'shistory, and sector. So firstly, please let me know about your position:

Question AnswerWhat is your position in your X X Head of Planning X X Xcompany? Sales Department Assistances Owner CEO

And then, could you please choose one of these following answers which is the most suitable for your company:

II. Questionnaire about Distinguishing Attributes of lean and agile

This part includes 11 questions. These questions will help researcher to determine which supply chain is used by the variouscompanies now.

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Question Answer

1. Regarding to typical ElVery |Commodious |Neutral |Fashioned E]Veryproducts, what level does Commodious Fashionedyou company engage?

2. Regarding to Marketable C Less than E11-30% C31-50% C51-70% E71-100%demand, what is the average 10%0margin of forecast error?

3. How is the product variety EVery Low ELow (10 to 20 ENeutral EHigh (51 to 70 EVeryin your company? (Less than 10 Variants per (21 to 50 variants per High( more than

variants per category) variants per category) 70 variants percategory) category) category)

4. How is your product life C 3 months to C13 months to C17 C 25 months to C More than 30cycle? 12 months 16months months to 30 months months

24 months5. What are the customer Cost EAvailability C Quality C Lead-time EService Level

drivers to your company?6. What is the margin C Less than C 5% to 20% 21% to C26% to 60% EMore than

contribution of product in 5% 25% 60%your company?

PICMET 2006 Proceedings, 9-13 July, Istanbul, Turkey (c) 2006 PICMET

Further explanation:

Stock out is run out of inventory (source: http://www.trading-glossary.com/sO484.asp)Buy goods means the company places orders upstream for finished product then these products are store and used gradually.Assign capacity means the company cooperates with upstream supply to assign them to produce.

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7. What are the dominant costs C Production C Distribution C Storage C Obsolescence C Stock outof the products in your costs costs costs costs costscompany? ( Regarding tothis question, you can selectmore than one option)

8. What is the average stock C 1% to 2% C 3% to 5% C 6% oto lI%o 40% C More thanout rate in your company? 10% 40%

9. What is the purchasing E]Buy goods EAssign capacitypolicy in your company?

10. What is the level of EHighly EDesirable ENeutral EObligatory EHighlyinformation enrichment in Desirable Obligatoryyour company?

11. What is the Forecasting E]Algorithmic E]Consultativemechanism in yourcompany?