SUPPLY CHAIN MANAGEMENT

 

 

ES4C9

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‘WRITTEN ASSIGNMENT’

 

 

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Contents

 

Introduction………………………………………………………………………………………….………1

 

Analysis and
Discussion…………………………………………………………………………………1

 

o  
Globalisation………………………………………………………………………………….……2

 

o  
Outsourcing…………………………………………………………………………………………4

 

Conclusions…………………………………………………………………………………….…….……….6

 

References………………………………………………………………………………………….……….…7

 

Appendices…………………………………………………………………………………….….……..…..8

 

 

 

Introduction

The aim of this
report is to conduct an analysis into some of the supply chain management
strategies that have been implemented by the company Puma, observing the
effectiveness of these strategies on the company’s performance and to recommend
possible improvements in methods that Puma could implement to improve their
position in the industry in which it trades.

Company overview

Puma is a
multinational company that designs, manufactures and sells footwear, apparel,
accessories, sportswear and sports equipment 1. The company is a subsidiary
of the Kering Group, which owns a host of other luxury brands, including Gucci,
Yves Saint Laurent and Alexander McQueen 1. Puma was founded in 19482 and the
company’s headquarters is in Herzogenaurach, Germany, in which it was founded
by Rudolf Dassler, the brother of Adolf Dassler, the creator of Adidas. Puma
trades in the ‘clothing and consumer goods manufacture’ industry, with a market
share of 3% 3. The company’s main competitors are Nike, Adidas and Reebok,
which have a market share of X, Y and Z respectively 4. Puma conducts business
in over 40 countries and directly employs over 11,000 people.

The company’s core
competencies are its innovative product designs and effective marketing
methods. All its non-core competencies, including manufacturing, material
sourcing and billing are outsourced. Puma maintains control of its processes
using a robust supply chain management strategy. Source

Puma has a
subsidiary named ‘World Cat Limited’ that manages all
aspects of product sourcing for PUMA brands in Asia. World Cat Limited manages the numerous branches situated around the
world from Hong Kong. This subsidiary optimises the supply chain with
independent suppliers within its global production network, from the purchase of
materials to production, through to product delivery 4

Analysis and
Discussions

 

The supply chain
management areas that will be analysed in this report are globalisation and
outsourcing. Globalisation is defined by the World Bank as ”the growing
integration of economies and societies around the world” 5, which allows
companies to operate on a global scale, ultimately leading to increased revenue
and business opportunities. Outsourcing refers taking something that isn’t an
organisation’s core competence and contracting that area of the business to a
specialist that will run it more efficiently 6. This is commonly utilised
when a process that is not a core competency of a business is contracted to an
external business that specialises in that process.

Globalisation

Puma is a global
company as it conducts business in more than 40 countries and operates 124
factories in Asia, Africa, America and Europe 7. Puma’s global reach is maintained
through their partnerships with sports clubs and national sports teams,
additionally through individual endorsement deals with high profile athletes
and celebrities.

The company
distributes its products utilising three main channels, Puma-owned retail stores,
e-commerce and wholesale. 2016, annual report, distribution 8.

Puma’s supply
chain is also considered to be global as the company utilises the low cost of
raw materials from various developing countries and outsources its
manufacturing processes in regions with emerging markets. Puma’s
inventories are exported from the main manufacturing regions in east Asia, to centralised
regions where products can be easily distributed to retail stores or wholesale.

Puma SE’s Inventory-to-Revenue, for the quarter that
ended in September of 2017 was 0.71 REFERENCE. This determines the ability
of company to manage its inventory levels, it calculates the percentage of
Inventories the company currently has on hand to support the current amount of
Revenue. Reduction in this ratio indicates that the business’s inventory
levels and its cash flow are effectively managed. For the same quarter,
NIKE had an Inventory-to-Revenue ratio of 0.62, indicating that there is still
room for improvement for Puma. REFERENCE

To cope with the
growing demands of operating globally, Puma has pioneered the use of artificial
intelligence in their warehouses.
The company initiated the project called TORU to create what it refers to as the “first intelligent and decision-making
warehouse in the world” 9. This project
was piloted in May of 2017 at Puma’s logistic centre in Schwaig, Germany, with
the aim of replacing human labour.  The TORU is capable of picking up individual
objects, as opposed to standardised loading units like trays or boxes. This
system has improved efficiency in the warehouses which allows Puma to deliver
products to customers much quicker.

 

As the company operates
globally, it must be flexible to the meet local preferences and tastes of the
different cultures of the regions it conducts business. To meet these local
tastes and preferences Puma adopts similar methods to its competitors, which
include having an abundance of stock keeping units (SKU’s) that allow for a
large variety of final products to be produced 10.
Additionally, a pattern of small orders during seasons, to replenish stock, is
used to ensure that the company can meet the fluctuating demand from customers
without overcrowding the inventory stores.

A method that could be employed by Puma, to mitigate
against incorrect inventory deployment or reduce
the incidence of wrong manufacturing, is the use of postponement during
their manufacturing processes. Postponement is defined as a ‘deliberate action to delay final manufacturing or
distribution of a product until receipt of a customer order 11.

There are various
opportunities and threats that accompany running global operations. The
advantages include an expanded customer base and lower total cost to produce
and trade goods. The disadvantages however include additional inventories,
which require more investment to manage and long lead times. Other major problems
faced by companies operating globally are social and labour problems. Puma has
implemented a few initiatives to combat these potential threats.

Additionally, since 2008, there has been over 5000 factory personnel
that have participated in women empowerment and human rights capacity building
projects organised by Puma in Turkey, Georgia and Egypt. Puma is currently
working on numerous projects in partnership with different local NGOs to
support female employees in their supplier’s factories 13.  Puma has also made a pledge to eradicate all
emissions of toxic waste across its supply chain network by 2020. This pledge
came shortly after a report pointed to commercial links between the leading
clothing brands and suppliers responsible for releasing toxic and hormone
disrupting chemical waste into Chinese waters. 14

 

Outsourcing

Puma
outsources majority of its manufacturing to East Asia. Of the 124 factories, 117 are in Asia, 4 in Europe and 3 are
in America 15. Asia remains the strongest sourcing region overall with China
and Vietnam as the company’s main sourcing countries. 

World Cat Limited, a subsidiary of Puma, carries out the company’s necessary sourcing tasks. World Cat Limited
manages the many branches located around the world from Hong Kong. In addition
to the registered offices, the various locations in China, Vietnam, Bangladesh,
India, Turkey, South Africa, Brazil and El Salvador manage the collaboration
with suppliers and monitor the production processes on site 17 REWORD. There
are six sourcing countries that account for just under 90% of the total volume and
they are all located in Asia. These countries include Vietnam (29%), China
(26%), Cambodia (12%), Bangladesh (9%), Indonesia (7%) and India (4%) 18.

Increasing labour costs and political unrest negatively
impacted the sourcing markets in 2015, which resulted i to an increase in the need
to consider the risks these factors present when allocating production. This is
a crucial component of Puma’s
sourcing strategy to guarantee the
secure and competitive sourcing of products.  REWORD PLEASE

Other non-core
competency processes that are outsourced by Puma include the billing process.

The main advantages
of outsourcing include reduction in manufacturing costs, which allows for
reinvestment in other areas of the business and focus on core competencies, and
economies of scale. The limitations of outsourcing are predominantly related to
the violation of human rights during the product manufacturing stages. With various
human rights violation scandals having negatively affected companies in the clothing
and consumer goods industry, Puma has taken initiative and invested large sums
to ensure that its manufacturing processes are well managed.

 

One of the
main drawbacks of outsourcing is the lack of adequate experience with a
client’s products, which can lead to reduction in quality during manufacturing.
Other disadvantages include cultural incompatibility, which can hinder
opportunities for global growth, and additionally a loss of control.

Another key concern
with outsourcing for Puma was the increase in cultural dissimilarities. To
minimise these cultural problems, Puma opened a number of local offices within
the main production regions, e.g. Turkey and Hong Kong had to work with local
vendors. Puma had to create all the production agreements with the outsourced
factories. 16 REWORD

PUMA and the International Finance Corporation (IFC), a member
of the World Bank Group, have made a partnership to provide financing to Puma’s
suppliers in emerging markets. This program is the first time that the IFC has
partnered with a European brand and provides a financial incentive for Puma’s suppliers
to drastically improve health and safety, environmental and social standards. 12.  

Puma could
improve its outsourcing decisions by utilising the outsourcing decision matrix,
see figure 3. This matrix takes into consideration the potential value to the
organisation and the level of expertise that an organisation has in that area.

Figure 3: Outsourcing decision matrix

 

 

Conclusions

In conclusion,
it is evident to see the potential that Puma possesses to develop and allow
them to compete with the market leaders in the clothing and consumer goods
industry.

As a global
company, there are many advantages and limitations that are associated with
Puma’s global operations. The company’s operations are forecasted to be more
global within the next 10 years, as the company’s market share is increasing
within the industry, suggesting that Puma is investing more into their business
to increase its global reach. STATS

Puma outsources
majority of their manufacturing, with 117 out of 124 of their factories in
Asia, as it is the strongest sourcing region overall
with China and Vietnam as the company’s main sourcing countries. As this is a
crucial stage in their supply chain that affects their public image, Puma has
invested heavily in initiatives that ensure that human rights are not violated
in their factories. They achieve this through Auditing and building local
offices within the main production regions. Puma had to create all the
production agreements with the outsourced factories. Additionally, they
partnered with IFC to create the women in work initiative to further combat the
potential threats that come with running global operations.

Methods to
improve the company’s outsourcing decisions would be to consider outsourcing
more in South-American countries, to replace the factories in main land
America, which would reduce the manufacturing costs.

References

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Figures

Figure 1 – online – available at:
– accessed 27/12/2017

Figure 2 – Puma (2015), PUMA
training 2015 Annual report, ”Sourcing”,
online – available at: http://report.puma-annual-report.com/en/group-management-report/puma-group-essential-information/sourcing/
– accessed 01/01/2018

Figure 3 – online – available at:
– accessed 27/12/2017

 

 

 

 

Appendices

Appendix 1: PUMA, 2016. Supply Chain, ‘Relevant environmental KPI’s’, online –
available at: http://about.puma.com/en/sustainability/supply-chain/key-performance-indicators
– accessed 15/01/2018