Supply Chain Management in the Textile Industry of Pakistan

Textile industry has been the bulwark of Pakistans economy. Textile exports were Rs or $ 8.6 Billion in 2004-05, which are 60% of the total exports of Pakistan. It is the largest employment sector, accounting for 38% of total industrial employment. Garments are the major growing sub -sector of textiles and account for 25% in total textile exports. The sector is also the largest employer of manpower in industrial sector (Aftab A. Khan, 2010).

Importance of textile industry in Pakistan’s Economy global market. This also means that countries with inefficient technologies, poor supply chains and inability to communicate with their global supply chain partners will be at a great disadvantage. 2006-07

Until 2005, the importing countries had imposed a textile quota for countries exporting textiles garments. The removal of textile quota has created new opportunities for competing in global market. This also means that countries with inefficient technologies, poor supply chains and inability to communicate with their global supply chain partners will be at a great disadvantage.

Pakistani textile industry will have to adapt itself with the new global market challenges and create both efficient and responsive supply chains to meet the new business environment. Many of the forward looking textile companies have quickly adapted to these challenges and have installed state of the art machines, developed and acquired information technologies that can seamlessly integrate with the global customers and benefited from the change. The pace of the changes is however, far from satisfactory and it is important to evaluate the industry to identify the performance parameters that would determine the future success and ensure a significant market share for Pakistan’s textile garments.

Efficient Supply chain management in the textile sector requires availability of the basic raw materials, infrastructure to ensure cost effective supply to the industrial centers, and effective and efficient manufacturing, meeting new technology challenges to develop products to meet the requirement of highly demanding customers. The information is life blood of any supply chain. In a global market the quality of this information acquires even greater importance. Ability to create visibility of the business to potential customers, integrating with the customers to determine their requirements and meeting their demand with the minimum lead time are factors that allow the business to compete in the global market.

An investigation of textile supply chain to determine the performance parameters that will be critical to success of the supply chain will provide much needed input to the textile sector and help in removing some of the barriers to competing in the global market.

This study aims to fill this gap. The research project proposes to dimension the supply chain and determine the performance parameters that can mean success for the Pakistani textile industry.

1.2 PROBLEM STATEMENT:

The Purpose of this research is to investigate the elements of supply chain that would be critical to the success of Pakistan’s textile industry in the competitive global market. As discussed in literature review we have identified the critical parameters as quality management, technological diversity, information technology and customer service.. To test the validity of these variables we propose the following hypotheses for the research project

1.3 HYPOTHESIS:

To test the validity of the variables we propose the following hypotheses for the research project

H0:

Quality management has a significant impact on value chain performance

H1:

Technological diversity and introduction of modern technology will have positive effect on the value chain performance

H2:

Information technology is has significant impact on value chain performance

H3:

Customer service has significant impact on value chain performance

1.4 OUT LINE OF THE STUDY:

This project begins with an introduction to the problem. An intensive literature review of the elements of supply chain and the working of Pakistani industry was then carried out to identify areas for the research study.

It became clear that majority of the textile sector companies are continuing with old practices, using old technologies and machinery, many do not have access to the new supply chain information technologies such as customer relationship management and or enterprises resource planning software.

Quality play a very important part of any kind of product specially textile product. QM is an integrated management philosophy and set of practices that emphasizes, among other things, continuous improvement, meeting customers’ requirements, reducing rework, long-range thinking, increased employee involvement and teamwork, process redesign, competitive benchmarking, team-based problem-solving, constant measurement of results, and closer relation-ships with suppliers (Ross, 1993).

The quality management programs are not seriously implemented and as a result the quality of material exported often suffers and results in rejection of supplies and penalties stipulated in export contracts.

Supply chain management is an integrating philosophy to manage the total flow of a distribution channel from supplier to ultimate customer. Many companies consider investments in complaint handling as means of increasing customer commitment and building customer loyalty (Stephen S. Tax, 1998). Effective resolution of customer problems and relationship marketing are linked closely in terms of their mutual interest in customer satisfaction, trust, and commitment (Morgan, 1994).

The customer service dimensions of the industry in general also leave much to be desired. The practice of customer service is not a strong point for local industry serving local customers. In a global business customer service dimension has become one of the key drivers for supply chains and needs to be incorporated into the export strategy.

The literature review and needs for further investigation identified the hypotheses for collecting and analyzing the data. We developed a questionnaire to survey the textile manufacturers and evaluate their concerns and experience. The data collected was then analyzed statistically using appropriate research methods.

Chapter 3 describes the importance of research methods and analysis techniques and justifies the statistical technique used for our data analysis.

The data analysis and results are presented in Chapter 4. The last chapter discusses the outcome of the research projects and conclusions drawn from the study and suggests topics for future research. The supplementary data are presented in the Appendices.

1.5 DEFINITIONS:

The definitions used in this thesis are listed and explained in appendix-A1

CHAPTER 2: LITERATURE REVIEW

Value chain performance variable used for this study is the independent variables while Quality management (I.S.O 9000), Customer service, Technological Diversity and information technology are the dependent variables. Now here all the variables are explained in detailed in the context of different author’s views.

2.1 VALUE CHAIN PERFORMANCE:

A supply chain is characterized by the flow of goods, services, money, and information both within and among business entities including suppliers, manufacturers, and customers. It also includes all types of organizations engaged in transportation, warehousing, information processing, and materials handling. Sourcing, procurement, production scheduling, manufacturing, order processing, inventory management, warehousing, and, finally, customer service are the functions performed throughout the supply chain. The ultimate goal of SCM is to meet customers’ demand more efficiently by providing the right product, in the right quantity, at the right location, on the right time, and in the right condition (Asli Koprulu1, 2007)

As Figure 1 shows, SCM aims four major goals: 1) waste reduction: 2) time compression; 3) flexible response; and 4) unit cost reduction. These goals have been articulated in several contexts associated with SCM, emphasizing the importance of both intra- and inter-firm coordination. (Brewer, 2000)

Every company’s business consists of a collection of activities undertaken in the course of designing, producing, and marketing, delivering and supporting its product or service. All of the various activities that a company performs internally combine to form a value chain.(Porter, 1985).

Supply chains are some times referred to as value chains activities a term that reflect the concept that value is added as goods and services progress through the chain. Supply or value chains are typically comprised of separate business organization, rather than just a single organization. Moreover the supply or value chain has two components for each organization: a supply component and a demand component. The supply component starts at the beginning of the chain and end with the internal operation of the organization. The demand component of the chain starts at the point where the organization output is delivered to its immediate customers and end with the final customer in the chain (stevenson, 2005-006)

In textile Supply Chain Management (SCM) is the coordinated set of techniques to plan and execute all steps in the global network used to acquire raw materials from vendors, transform them into finished goods, and deliver both goods and services to customers. It includes value chain activities just like wide information sharing, customer services include lead time and complaint handling and as well quality of the product and technological diversity play an important role. The goal of supply chain management is to link all components of the supply chain so that the market demand is met as efficiently as possible across the entire chain.

Pakistan’s textile industry ranks amongst the top in the world. Pakistan is World’s fourth largest cotton producer and the third largest consumer of the same. Cotton based textiles contribute over 60% to the total exports, accounts for 46% of the total manufacturing and provide employment to 38% manufacturing labor force. The availability of cheap labor and basic raw cotton as raw material for textile industry has played the principal role in the growth of the Cotton Textile Industry in Pakistan

The current scenario posses challenges firstly to sustain its global positioning and secondly to increase its market share by both increase in volume as well as increase in unit values. The unit value can be increased only improve primary activities in supply chain management like reduce cost which is associated with raw material parts and components and consumable items from vendors receiving storing and disseminating inputs from suppliers inspection and inventory management operations activities distribution activities sales marketing and customers services play an important role in textile value chain activities. (jica, 2006-07)

The Value Chain in Textiles

2.2 QUALITY MANAGEMENT (I.S.0 900):

Textile industry has been Premier industry in Pakistan and a major source of export earning and employment. It also helps in value addition to the manufacturing sector of the economy. As we mentioned in the introduction, although the message of quality has, in the end, been very well received and understood by companies, the message of improvement of SCM continues to be relatively sparse (Chandra, 200).

In this era of rapid technological changes and innovations, every customer has become quality conscious. Customers now a day want the assurance of quality either through product design or through image or the personality of the product. In response to this trend, marketers all over the world is either offering to the customers, products with

High quality design specifications or they are concentrating on the image marketing. Quality means both producing products to specification and meeting customer’s expectations; the need of customers becomes a key input to total quality management (Richard Reed, 1996). The ISO 9000 is the answer of every customer demand through which the organizations can assure customers of their products, high quality. Coping with this many Textile Mills in Pakistan have achieved “ISO 9002” Quality Award. It gives those Textile Mills the international recognition as the producer of High Quality Yarn and Grey Cloth. TQM is a very common approach now a day. It is very popular in Japan and USA. There are many definitions of Total Quality Management. Philosophy behind quality management which recognizes those customer need and business goals are inseparable “It is the mutual cooperation of everyone in an organization and associated business processes in order to produce products and services which meet and hopefully exceed the needs and expectations of customer”

2.3 ISO-9000 certification program

The ISO 9000 refers to a set of quality management standards. IT contains four standards. ISO 9000:2000, ISO 9001:2000, ISO 9004:2000, ISO 19011:2000 ISO 9000:2000 It describes the fundamentals of quality management systems and specifies the terminologies for quality management systems ISO 9001:2000 It specifies requirements for a quality management system where an organization needs to demonstrate its ability to provide the product that fulfills customer and applicable regulatory requirements and aims to enhance customer satisfaction. ISO 9004:2000 It provides guidelines that consider both the effectiveness and efficiency of the of quality management system. The aim of the standard is to improvement for the performance of the organization and satisfaction of customers. ISO 19011:2000 It provides guidance for the auditing of quality and environmental management system All these standards are process standards not product standards ISO certification impacts the bottom line of a firm by improving product quality, efficiency, productivity and competitiveness.

2.4 TECHNOLOGICAL DIVERSITY/INFORMATION TECHNOLOGY:

The application of IT in textile and garment industry can help them in improving the overall performance. In country like Pakistan it is very important that textile industry remain strong and grow continuously as it is the provider of highest jobs after agriculture.

Many big textile units have already adopted IT in their companies in various forms. They use machineries with latest technology available in the world and these machines utilize IT in many areas such as production monitoring, quality monitoring and control, etc

The textile industry generally concentrates on designing or manufacturing of clothes and also the task of distribution and use of the manufactured textile.

The textile industry has changed continuously in the last few years. It looks at carrying out their business in systematic way. For this reason ERP can be used and it plays an important role. ERP has helped in increasing the quality and efficiency of the manufacturing process.

The manufacturing processes experiences some problems quiet often because of miscommunication and lack of communication these problems will create the Bullwhip effect. Bullwhip Effect in a forecast driven supply chain is caused by variations in demand driving greater buffer stock as we move up the supply chain. The root causes stem from behavioral and operational miscues due to a lack of collaboration and information about products and processes across the supply chain. In order to eliminate the Bullwhip Effect, we need to create a Predictable Supply Network which will enable rapid communication and coordination across the supply chain .The Bullwhip Effect is a significant problem in wide variety of companies and industries (Roger D. H. Warburton, 2004).

The term “Bullwhip Effect” where a retailer’s orders to their suppliers tend to have a larger variance than the consumer demand that triggered the orders (Lee, 1997)

ERP provides a solution by enhancing coordination by keeping an eye on the supply chain, warehouse and logistic. It helps reduce operating cost because it integrates processes of the business across departments onto a single information system. The problem of low inventory or reduced operating cost is ruled out. Whenever resource is needed it is available on time because everything has already been planned

Rapid changes in economic and business conditions, along with continuing shifts in consumer preferences, have led to increased market uncertainty, resulting in E.R.P becoming a critical resource (Roy, 2000). Our research examines how E.R.P affects the value of information. That can help reduce uncertainty about future demand.

Moreover, critics argue that the textile industry has obsolete equipment E.R.P software and machinery. The inability to timely modernize the equipment and machinery has led to the decline of Pakistani textile competitiveness. Due to obsolete technology the cost of production is higher in Pakistan as compared to other countries like India, Bangladesh & china.

Components of ERP

2.5 CUSTOMER SERVICE:

The customer service for textile sector carries great importance like the customer service for other sectors carry. Especially, if it is considered that gaining new customers create four times more costs than protecting existing customers from leaving, it can be seen that the customer service plays a great role for the firms. In this study the affecting independent variables of customer service are chosen as effective complaint handling. By these independent variable, it is investigated that if any differences exist in perception of customer service according to the Pakistani textile consumers in the view of gender. In data analysis of this research the SPSS program is used.

The significance of good customer service can be shown in financial terms, as it costs at least five times as much to win a new customer as it does to keep a current one.

Many companies consider investments in complaint handling as means of increasing customer commitment and building customer loyalty. Firms are not well informed, however, on how to deal successfully with service failures or the impact of complaint handling strategies (Stephen S. Tax, 1998).

Effective complaint handling can have a dramatic impact on customer retention rates, deflect the spread of damaging word of mouth, and improve bottom-line performance (Fornell, 1992).

Effective resolution of customer problems and relationship marketing are linked closely in terms of their mutual interest in customer satisfaction, trust, and commitment (Achrol, 1991) (Morgan, 1994).

Complaint handling strategies are important particularly in managing customer relationships in Textile industry. Challenges in managing quality, combined with the important role played by customers in the production process and evidence that customer loyalty drives profitability, make complaint handling a critical “moment of truth” in maintaining and developing these relationships (Dwyer, 1987)

The higher level of customer service quality means higher level of customer satisfaction and results in better customer loyalty and high level of profitability (Ghobadian, 1993).

To transfer the quality to service means to satisfy customers’ requirements. So that the firms aspiring to adopt the customer oriented approach should determine the customer requirements and associate the customer requirements with customer service (Chow-Chua, 2002).