A strategic plan to increase the profitability of a small
South African clothing supply house
Loic Bellet
Dissertation submitted to Damelin International College
of Postgraduate Business Sciences in partial fulfilment
of the requirements of the degree
MASTER OF BUSINESS ADMINISTRATION
Supervisor: Dr Charlene C Lew
August 2003
Acknowledgements
Even a modest research document such as this cannot be said to really belong
to its writer, being rather, a composite of the experiences and teachings of many
partners, masters and students.
To Prof. Zak Nel for taking time to branch out the budding ideas of an inquisitive
business mind.
To Dr. Charlene Lew, for taking up the challenge so unselfishly and giving much
time and guidance.
Top International Traders, for the opportunity to study real cases and
implementation efforts. Thanks in particular to Rianna Liu for the interest shown,
the partnership developed and motivation provided as well as Robin Chen for the
many distractions afforded during some trying times. Thanks to Andy Chen for
patient discussions on operational issues and Vincent Lin for the use of your
business to test the ideas.
To Sherry Chen for raising the initial finance to start this undertaking and your
belief in my abilities.
To my syndicate group for the informal input and vast knowledge generated over
some very exciting meetings. To Chris Jordan; Ronald Salis; Ian Peach and
Koos Swart, thank you for the privilege of sharing these experiences.
A very special thanks to my best friend Marc De Graeve for always being present
for support and providing a patient ear.
Appreciation to members of the family who have suffered from a loss of attention
and finances during the period 1999-2003. My mother, Nelly Bellet; sister, Perla;
brother, Giacomo.
To Lynn Parrish, and her daughter, Kimberly, for understanding and patience
neither of which can be measured in material terms.
ii
Index
Page
Clarification of key terminologies
x
Executive Summary
1
Chapter One: Problem statement and purpose
1.1
Introduction and context
4
1.2
Problem statement
6
1.3
Purpose of the study
7
1.4
Limitations and scope of the study
8
1.5
Overview of dissertation
9
Chapter Two: Literature Review
2.1
Introduction
11
2.2
Global CFTA industries
12
2.3
The South African Clothing Retail industry
13
2.4
The South African Clothing Supply industry
14
2.5
Profitability as a Worthy Objective
17
2.6
Strategic Planning as a Business Tool
18
2.7
The Competitiveness of a “Small” Business
20
2.8
Virtual Organisation and Collaboration
20
2.9
The Role Logistics has to play
22
2.10
Designing Business Processes
25
2.11
On Organisational Structure
27
2.12
The Management of information and Corporate DecisionMaking
28
2.13
Culture as a Performance Factor
30
2.14
Conclusion
32
iii
Chapter Three: Research Methodology
3.1
Introduction
36
3.2
The merits of qualitative and quantitative methodologies
36
3.3
Collecting the data
37
3.4
The questionnaire
38
3.5
Review of the interviews
39
3.6
The interventions
40
3.7
Presenting the data
41
3.8
Conclusion
41
Chapter Four: Results
4.1
Introduction
4.2
Background
42
4.2.1 Financial background
42
4.2.2 The current position of the firm in its market
44
4.2.3 Critical success factors leading to the firm’s current position
44
4.2.4 Main objectives of the firm from its inception
45
4.2.5 Description of the organisational culture
45
4.3
Current situation
4.3.1 SWOT analytical framework
46
4.3.2 Principal causes of the weaknesses
49
4.3.3 Value drivers for the customers
50
4.3.4 New operational compliance standards
50
4.4
Future prospects
4.4.1 Direction of the business in future years
51
4.4.2 Course of action required to turnaround negative factors
52
4.4.3 Specific projects to be initiated
53
4.4.4 The institution of measurements to track progress
53
4.4.5 Difficulties foreseen with implementation
53
iv
4.5
Results of final interviews
4.5.1 Projects launched
54
4.5.2 Interventions deemed successful
58
4.5.3 Difficulties encountered in implementation
59
4.5.4 Circumstantial factors needing to be considered
59
4.5.5 Comments with regards to “soft” enablers / inhibiters
60
4.5.6 The use of modelling language in designing processes
61
4.5.7 Projects using “soft” vs. more constrictive approaches and their
effectiveness
61
4.5.8 On the improvement of business performance
62
4.5.9 The next constraint
62
4.5.10 Aspects of the change process that management might alter
63
4.6
64
Conclusion
Chapter Five: Findings and Recommendations
5.1
Introduction
65
5.2
Operational effectiveness
65
5.3
Attitude
67
5.4
CANI
68
5.5
The flexible approach
68
5.6
Vision
69
5.7
Managing information
70
5.8
Structure
71
5.9
Conclusion
71
Chapter Six: Linking Theory to Findings
6.1
Introduction
73
6.2
The driving force of the customer
73
6.3
The importance of customer service
74
v
6.4
Structure as a lever to profitability
75
6.5
Attitude counts
76
6.6
Suggested areas of further research
77
6.7
Conclusion
77
Index of Tables and Diagrams
Figure 2.1: Retailer demands versus local manufacturers
16
Figure 2.2: Retailer demands versus overseas manufacturers
16
References
79
Bibliography
84
Appendices
Appendix 1A: Traditional South African retailers of clothing
90
Appendix 3A: Guideline document used in initial sessions
91
Appendix 3B: Guideline document used in the evaluation
interviews
92
Appendix 4.2A: Indexed change in turnover
93
Appendix 4.2B: Assets in relation to the firm
94
Appendix 4.2C: Selective ratio analysis
95
Appendix 4.2D: Components of the income distribution
96
Appendix 4.2E: The firm’s current position
97
Appendix 4.2F: The firm’s critical success factors
98
Appendix 4.2G: Main objectives of the business
99
Appendix 4.2H: Organisational culture
100
Appendix 4.3A: Directors’ perception of the weaknesses
101
vi
Appendix 4.3B: Directors’ perception of the strengths
102
Appendix 4.3C: Directors’ perception of the opportunities
103
Appendix 4.3D: Directors’ perception of the threats
104
Appendix 4.3E: Causes of the weaknesses
105
Appendix 4.3F: Value drivers
106
Appendix 4.3G: New operational standards
107
Appendix 4.4A: The firm’s future direction
108
Appendix 4.4B: Turning the negative factors around
109
Appendix 4.4C: Specific projects needing start-up
111
Appendix 4.4D: Setting project metrics
112
Appendix 4.4E: Implementation difficulties foreseen
113
Appendix 4.5A: Stock control page example
114
Appendix 4.5B: The original structure of the business
115
Appendix 4.5C: The new organisational structure
116
Appendix 4.5D: Job description example
117
Appendix 4.5E: A reporting and relations example
119
Appendix 4.5F: Size specification sheet example
120
Appendix 4.5G: Scanned copy of an official purchase order
121
Appendix 4.5H: Manufacturing instructions example
122
Appendix 4.5I: Material usage confirmation
123
Appendix 4.5J: Accessory reconciliation form
124
Appendix 4.5K: FIT appraisal report
125
Appendix 4.5L: Pre-Production Sample
126
vii
Appendix 4.5M: Costing example
127
Appendix 4.5N: Explanation of the Management Review
128
Appendix 4.5O: Sample page from the Management Review
129
Appendix 4.5P: Example of the packing list
130
Appendix 4.5Q: Game Rules document
131
Appendix 4.5R: Fabric receipt process diagram
136
Appendix 4.5S: Mid-level view of a warehouse function
137
Appendix 4.5T: Good Received Voucher (GRV) sample
138
Appendix 4.5U: Post-implementation results
139
Appendix 4.5V: Feedback on implementation of interventions
140
Appendix 4.5W: Effect of external factors towards negative results
141
Appendix 4.5X: Effect of “soft” factors on culture
142
Appendix 4.5Y: Feedback on the use of modelling in designing
business processes
143
Appendix 4.5Z: “soft” approaches compared to structured
methodologies
144
Appendix 4.5AA: On the improvement of business performance
146
Appendix 4.5AB: The next constraint
148
Appendix 4.5AC: What changes would management make the
next time around
149
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ix
Clarification of key terminologies
Balance Sheet
An accounting statement that shows a company’s assets, liabilities and net
worth.
Business Process Engineering (Reengineering)
The fundamental rethinking and radical design of business processes to achieve
dramatic improvements in critical, contemporary measures of performance such
as cost; quality; service and speed.
Capital
The money invested in a firm.
Chain Store
One of several stores owned and managed by the same firm.
Continuous improvement
Commitments to constantly make things better one step at a time.
Contract manufacturing
Turning over production to others while retaining the marketing process.
Cost of sales
Total value (at cost) of the sales during the period
x
Culture
The whole set of beliefs, attitudes, and ways of doing things of a reasonably
homogeneous set of people.
Derived demand
Demand for business products derives from the demand for final consumer
products.
Distribution centre
A special kind of warehouse designed to speed the flow of goods and avoid
unnecessary storage costs.
Division of labour
The use of individuals with specialised skills to perform specialised tasks.
Dumping
Pricing a product sold in a foreign market below the cost of producing it or at a
price lower than in its domestic market.
Economies of scale
As a company produces larger numbers of a particular product, the cost for each
of these products goes down.
Expenses
All the remaining costs that are subtracted from the gross margin to get the net
profit.
xi
Efficiency
The measure of actual output from a process versus that processes’ designed
capacity.
Fashion
Currently accepted or popular style.
Focus
A corporate strategy involving serving the special needs of a narrow group of
buyers.
Implementation
Putting organisational plans into operation.
Inventory
The amount of goods being stored.
Job description
A written statement of what a person is expected to do in an organisation.
Just-in-time delivery
Reliably getting products to a point of process immediately before the customer
needs it.
Logistics
The transporting and storing of goods so as to match customers’ needs with a
firm’s marketing mix – both within individual firms and along a channel of
distribution.
xii
Markdown
A retail price reduction that is required because customers won’t buy some item
at the originally marked-up price.
Market
A group of potential customers with similar needs who are willing to exchange
something of value with sellers offering various goods and/or services – that is,
ways of satisfying those needs.
Market segment
A relatively homogeneous group of customers who will respond to a marketing
mix in a similar way.
Marketing mix
The controllable variables that the company puts together to satisfy a target
group.
Mass customisation
Tailoring the principles of mass production to meet the needs of individual
customers.
Net profit
The sum derived from the subtraction of all expenses; interest payable and
taxation from the turnover generated out of trading activities.
Operational decisions
Short-run decisions to help implement strategies.
xiii
Outsourcing
Opting to have specific functions performed by external parties who derive a
profit from the provision of their services and are motivated to perform in the
pursuit of their own objectives. The result is deemed to be positive if the firm
providing the product or service can provide it more cost-effectively than if
management had to provide for this using internal resources.
Perceptions
How people gather and interpret information form the world around them.
Primary data
Information specifically collected to solve a current problem.
Production
Actually making goods or performing services.
Quality
A products’ ability to satisfy a customers’ needs or requirements
Raw materials
Unprocessed expense items such as fabric or threads that are moved to the next
production process to manufacture goods of a higher combined value.
Retailing
All of the activities involved in the sale of products to final consumers.
xiv
Secondary data
The results of other researchers’ primary data-collection reported in a wide
variety of formats including but not limited to financial reports; trade publications
technical manuals and books.
Shrinkage
The change in length and width after washing and drying.
Strategic plan
A plan describing goals and objectives through timings and responsibilities for
the firm over a period of two to five years.
Specs
(Specification sheet) is a technical rendering of the a garment with the
measurements and tolerance levels identified for each step.
Small SA clothing supply house
A South African company comprising between ten to twenty people engaged in
the business of supplying retail businesses with knitted and woven garments.
The firm would be small in staff count but with relatively high turnover figures. A
small supply house for this exercise will be deemed to be a firm engaged in
industrial marketing efforts with little emphasis on mass promotion efforts to the
consumer market.
Tolerance
Tolerance measurements are given to indicate how much of a variance from the
specification will be tolerated.
xv
Trigger dates
Due dates agreed upon by all partners in a deal whereby the client is able to wait
until the last possible moment to make a decision. The rationale being that the
latest a decision is made the more closely matched it will be to its intended
purpose.
Virtual Organisation
A virtual organisation is characterized as “…edgeless, with permeable and
continuously changing interfaces between company, supplier and customers”
(Davidow and Malone 1992).
xvi