Challenges & Opportunities in the Manufacturing Supply Chain

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Arvind – Suhas Bhise

QUINTIQ WORLD TOUR 2015People. Planning. Profit.


www.arvind.com

Challenges & Opportunities in the Manufacturing Supply Chain

Speaker introduction

Suhas Bhise is the head of PPC, logistics and sourcing at Arvind Limited, a leading textile manufacturer in India. The company is the largest producer of denim in India, and fourth largest in the world. Suhas is a results-oriented professional with over 20 years’ experience in the industry. His specialties include production planning and control, logistics, warehousing, and inventory management. He holds a master’s degree in textile technology from the University of Mumbai.

Suhas BhiseHead of PPC and LogisticsArvind Limited

AGENDA

• Arvind Limited – Overview

• Major business units• Denim• Brands and retail• Wovens

• Planning at Arvind

• Key takeaways

AGENDA




• Key takeaways

About Arvind• The Lalbhai Group was founded in 1897.

• The Group operates in diversified businesses such as Textiles, Garments, Branded Apparel, Retail, Engineering, Dyes, Chemicals and Real Estate.

• Arvind Limited, a part of The Lalbhai Group, was incorporated in 1931 and is in the businesses of Textiles, Brands & Retail, Engineering and Real Estate.

• The company is listed in leading National Stock Exchanges and the Luxembourg Exchange.

• The company operates across the entire value chain – Organic Cotton, Yarn, Fabric, Apparel and Brands & Retail.

• The Lalbhai Group is a $2Bn enterprise today.

• Arvind is expecting a revenue growth of about 22-24% for the year 2015-16.

• Textiles Business may achieve growth of around 15% and the Brands & Retail business may clock growth in excess of 30%.

Our Vision

We will enable people to experience a better quality of life by providing enriching and

inspiring lifestyle solutions

“ “

Major Milestones

Laid the foundation of Arvind Mills with a share capital of Rs. 25.25 lakhs

Profits of Rs. 2.82 lakhs in 2 years

ForemostTextile Manufacturer

Sanjay Lalbhai led Reno-Vision

World’s 3rd Largest Denim Producer

Garment Exports Division

Launch of Mega Mart

Launch of The Arvind Store

Launch of E-Commerce

Business

1931

1934

1935-19801980

1997

2000

2007

2010

2014

1998

Established Santej Unit on 450 acres of land - shirting facility

2008

Launch of Advanced Material Division

Strengths of Arvind Limited

• Dedicated Design Development Centres• Partnership with raw material/chemical manufacturers

Product Product differentiationdifferentiation

• State-of-the-art technology for manufacturing processes• Quality accreditation by all global brands for finished fabric

testing

Quality Quality consistencyconsistency

• Vertically integrated supply chain from fibre to garmentOne-stop One-stop solutionsolution

• 320 MM annual capacity across 4 different product categories• 24 MM pieces annual capacity for garmenting; plans to reach

36MM pieces by 2017

Volume Volume leadershipleadership

Jeans Shirts Suits Knits Workwear

GarmentsGarments

Denim Wovens & Knits Voiles AMD

FabricsFabrics

Business (1)

Arvind Brands Megamart The Arvind

StoreArvind

Denim Lab Tresca

Brands & Retail

Anup Engineering Telecom Water

Management Real Estate

Engineering

Business (2)

Revenue

19% top line growth over the last 7 years

27453280

4090

49255621

6862

8000

NOTE: FY15 revenues would amount to $1.3 Billion (assuming an exchange rate of 60 INR/USD)

UnitINR Crores

Strong topline & bottomline growth …and shift towards more B2C portfolio

Emphasis on three imperatives: Robust growth, margin expansion and asset efficiency with strong RoCE focus

Future Growth plan

Built on two growth drivers, with a strong value creation logic

• Textiles: Build an asset-light textiles & garments play across denim, woven, knits

• Vertical garmenting with dormitories model

• Consistently growing wovens business • Stable and differentiated denim business • Profitable knits business • Differentiation and de-risked model • High asset efficiency

• Brands & Retail: Build a breakthrough growth portfolio of Power Brands &

• Specialty Retail • Build strong power brands • Clear portfolio logic of growth brands • Develop fast fashion specialty retail • High operating leverage • Strong retail discipline

Opportunity

• Pivoting domestic consumption in apparel brands & retail

• Large global opportunity in textiles & clothing world trade

Arvind Growth Model Value Creation Logic

• Portfolio of high growth and moderate growth businesses

• Expanding margins

• Capital balance, reducing leverage over a period

• High growth in asset- light B&R • Asset-balanced growth in textiles and garmenting

• Strong focus on target RoCE 20%+

AGENDA




• Key takeaways

Denim

Denim

• One of the largest producer of Denim fabric across the globe

• Leading in latest machinery in India

• Value for stakeholders – Design, Innovation and Sustainability

• The denim facility at Arvind is accredited with ISO 9001, ISO 14001, OEKOTEX 100, GOTS, and Organic exchange standard

• Our labs are certified by NABL (ISO 17025 certification)

• Capacity of 9 million metres per month

• Indian Clients: Levi’s India, Pepe Jeans, VF India, Spykar Jeans, Mufti, Future Grp, ITC

• International Clients: GAP Inc, VF Inc, Levi’s, H & M, Best Seller, TCP, M & S, Inditex

Arvind Brands

Unmatched Portfolio of Owned and Licensed Brands and Retail formats

Product Brands (Licensed) Retail Brands

Product Brands (Owned)

JV Brands

Strategy to create many ‘Power Brands’, with strong topline growth and healthy bottom line

Note: Tommy Hilfiger numbers reflect 100% of top line of the JV company

• Among the top Indian apparel brands

• Very strong growth over a sustained period

• Operating at double digit store contributions

• Strong growth in Like-to-Like (LTL) store sales, new stores viable in a short span

• Significant sourcing leverage and channel bargaining power

B R

A N

D S

& R

E T

A I

L

AND

Woven & Knits

Woven & Knits

Woven:

• Division started in 2001 to service the garment export requirements

• 11 Million Meters/Month capacity

• YOY growth of 16.20%

• FY2014-15 projected growth of 8.9%

• 6 manufacturing units

• Producing Woven tops for men & women for Domestic as well as global brands and retailers

• Our product range is certified by Oekotex, our processes are certified by GOTS for producing Organic products

• We are certified producers of Lycra and Teflon based varieties, while our laboratory is accredited by Marks and Spencer’s, Next, Gap Inc., Levi’s, DuPont and INVISTA

Knits:

• Ultra Modern vertically integrated Facility - Designed on the Principle of Straight Line Material Flow

• Knits Capacity: Solid Dyed Fabrics- 650 Tons Per Month | Yarn Dyed / Mélange Fabrics- 150 Tons Per Month

• Knits Products : Stretch/Single Jersey, Rib Fabrics, Interlocks Fabrics

• 50% of the production is Exports

Woven & Knits

AGENDA




• Key takeaways

Textiles Manufacturing Supply Chain

Chemical industry

Man-made fibers (eg.

nylon)

Natural fibers (eg. Cotton)

Farming

Spinning Yarn

Dyeing Knitting/Weaving

Greige fabric Finishing

Knitting/Weaving

Greige fabric

Dyeing +Finishing

Garmenting

Garments

xxxxxx Process Intermediate product

Focus

Final Fabric

Evolution of the planning process

Frequency Monthly Weekly Daily

Business modelMake-to-stock; only utilization considered for planning

Make-to-order; capacity availability considered for planning

Make-to-order; capacity and material availability checked for planning

Markets served Domestic Domestic + Exports Domestic + Exports

Customer commitment

Weekly volume commitment

Date commitment for important customers

Date commitment for all customer orders

Business goals Planned vs Actual Volume delivery to customers

On Time In Full (OTIF) metric only for Important customers

On Time In Full (OTIF) metric for all customer orders

Manual planning on paper Excel based planning ERP-assisted excel

planning

Quantum of Challenges has increased over a period of timeChallenges Earlier Now

Changes in Fashion industry

• Buying decisions were bi-annual (summer/winter)

• Volume purchase per customer order ranged from 20k – 30k metres

• Buying decisions are made every quarter/month • Volume purchase per customer product ranges

from 5k – 15k metres

Customer tolerance•Inventory•Quantity

• Flexible on carrying inventory at their end to meet surprise requirements

• Tolerance was +/- 10%

• Reduced inventory at their end; rush requirements passed on to fabric supplier

• Tolerance is +/- 3-5%

Changes in customer service level•Response time•OTIF•Lead time

• 2-3 day tolerance on response time• Not all customers were sensitive to OTIF;

tolerance was up to 7 days• 45-60 days

• Customers insist on instant response within 24 hours

• Every customer asks for OTIF performance; tolerance is ZERO days now

• 30-45 days

Threat from regional textile manufacturers No immediate threat from regional textile manufacturers

Chinese textile manufacturers perform better on all critical performance parameters like response time, OTIF, lead time and cost

Regulation No perceived impact on business costs

• Exports: International trade agreements like TPA (Vietnam duty free exports to US), Bangladesh/Pakistan duty free exports to EU

• Domestic: GST

ADDITIONALLY, THERE ARE INTERNAL CHALLENGES TO REDUCE WORKING CAPITAL, SURPLUS, WASTE AND INCREASE RESOURCE UTILIZATION

Multiple Trade-offs and increasing Product Complexity is resulting in lot of planning challenges

OTIF

Machine Utilization

Inventory(Raw mtl,

WIP and FG)

Production surplus

Production surplus

• 1000 + Raw Material Types

• 2000 + Finished Products

• 3000 + Dyes / Chemicals

• 1000 + Designs

• 500 + Finishes

Lead time

a

d b

c

Realistic commitment

Prio

ritiza

tion

mat

rix

Optimize bottleneckcapacities

Dynamic m

onitoring and feedback

OTIF monitoring • Manual to system-based• Monthly to Daily

New KRAs for production heads• % of lots taking more time than

committed lead time

Identify the bottleneck and optimize bottleneck capacities within OTIF constraints

• Minimize # of change-overs through better clubbing of orders

Product-wise lead time signed offwith production team

• Order commitment and section-wise OT monitoring linked to the signed-off lead times

List to priority orders given to shop floor on a daily basis

delay

Customer importance

High priority

OTIF: We took four initiatives to improve % OTIF during last year

Load Synchronizer: To forecast section-wise load to give realistic commitment date

Input Load synchronizer Output

Estimated capacity

Order details/ Product

attributes

Commitment/ greige issue date

Forecasted load in each section

Arrive at right commitment date iteratively

Target days in each section

Machine

a

Commitment is provided based on realistic lead time signed off with production team

Draft—for discussion only

Section-wise product-wise lead time signed off

Lead time dynamically linked to product attributes

Signed-off lead time becomes the base for all planning

processes

7

6

5

5

4

4

4

3

0 2 4 6 8

Lead time (# of days)

Lycra - Peach - LA

Product attribute

Normal - Peach - LA

Lycra - LA

Lycra - Peach

Normal - LA

Normal - Peach

Lycra

Normal

Illustration - Bleaching

Similarly lead time linked to product attributes signed off for all sections

• PPC commits delivery based on the signed-off lead time and buffer

• Load scenario forecasted based on the lead time at the time of greige issue

• Aged WIP defined as any lot that has spent more than target lead time

• Section-wise OT not achieved when an order spends more than target lead time

Delivery commi-tment

Load synchr-onizing

WIP monito-ring

Measuring section-wise OT

a

Section heads to target to achieve 100% OT at the signed-off lead times (excl.

delays due to technical issues)

A simple customer prioritization matrix aligned across functions implemented

Customer priority

Current delay

• Customer priority – Defined by marketing department based on business importance of the customer

• Current delay – Defined as the prorated target date by which the order line should have exited the existing section – actual date (indicated probability of OT miss for the order)

High priority

Low priority

• Stringent commitment times signed-off

• High overall buffers planned• Production team expected to

rush these orders through system

• Commitment times are more relaxed

• Buffers are relatively less• Production team expected to

hold these orders in case of clash with high priority orders

Have become integral part of daily planning by section-

heads

• Section-heads provided with 2 separate lists of WIP

– High priority– Others

• WIP aging and OTIF captured separately for priority customers

b

More frequent review cadence set-up and new KRAs introduced to instill OTIF culture

Manual OTIF reporting involving upto 2 man-days of effort from PPC team

Monthly OTIF reporting with 10-15 days lag; very difficult to act on the same

Final OTIF is the key KRA for both planning/ production team

Before initiative After initiative

Manual

Monthly

Final OTIF

System generated OTIF report with <1 man-hour effort

Daily OTIF reporting; more dynamic monitoring and feedback

New KRAs like section-wise OT for section-heads; instilling accountability down the line

Excel generated

Daily

Section-wise OT

Drives accountability down the line Results in dynamic monitoring & feedback

Illustrative mail snap shot

Illustrative mail snap shot

Mail from production head requesting daily analysis of process OT losses

Mail from PPC team citing high WIP aging in bleaching section

d

What do we expect from SCP&O Based Planning Process ?• Improved Planning OTIF %

• Currently we don’t measure planning OTIF .• This will enable us to match customer’s required dates as close as possible considering all constraints.

• Production OTIF %• Accurate planning will result into reduction in queue at various work centers • Better scheduling will result into lesser set up times , improved efficiency.

• Ability to Commit• Improved response time lines to customer queries on lead time.• Correct & feasible date commitment possible based on actual dynamic situation on the shop floor• In case of delays , right prediction of revised dates

• Improved Resource utilization & Improved loading factor

• Reduction in WIP• Reduction in queueing will help to reduce WIP • Improved lead times

Action steps to overcome planning challengesCURRENT STEPS• External partnerships

• Partnership with Consulting firm (EY, PwC, BCG) to identify areas of improvement particularly in planning, cost reduction, manpower and processes

• IT-based planning tool• Partnership with TLF/Quintiq for implementing Quintiq SCP&O at Denim and Wovens business units• Additional business goals defined to improve visibility in supply chain and customer service

NEXT STEPS• Expand horizon of IT-based planning tool to include other business units• Integrate developments into bulk planning tool to improve visibility on future orders• Develop Online Business Intelligence tool so that

• Customers punch order enquiry into online portal and get possible delivery date• They can interact real time with production progress• Suppliers get real-time information of expected supplies (raw materials/chemicals) and improve their

planning based on our demand

AGENDA




• Key takeaways

Key takeaways

• Scenario Building Capacity• Planning process should have capability of generating multiple scenarios

that help make trade-off decisions

• End-to-end visibility• End-to-end visibility is critical to understand impact of changes of any

parameter through the entire supply-chain

• Awareness of external market threats• Awareness of regional/global competitors and trade agreements is

important to identify improvements areas/KPIs in planning

• Customer interaction• Planning process should quickly respond to changing customer

requirements

THANK YOU!

QUESTIONS?


Thank you

QUINTIQ WORLD TOUR 2015People. Planning. Profit.


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Challenges & Opportunities in the Manufacturing Supply Chain