Supplier Process Improvement Strategies Improving Apparel Supply Chain without Major Investments

1. Supplier Process Improvement Strategies Improving Apparel Supply Chain without Major Investments Presentation for Prime Source Forum March 30, 2011 Roger Nelson Managing Director Concepts 2 Results Ltd. Hong Kong 852-9839-6987 mobile rogernelson.c2r@gmail.com

2. This session will discuss the methodologies of lean manufacturing and other process improvement strategies. Learn what is required for a successful implementation and also how to measure the impact of your improvements. Purpose

3. WHAT Does this Mean?

4. Global Trends Speed First Time Quality Accuracy in everything On-time delivery – all the time Cost effectiveness Collaborative, seamless processes Total Cycle Time™

5. Fastest Customer Responsiveness Lowest Costs Best Quality for the Money High Speed Product/Service Development High Productivity Flexible Capacity with Optimized Resources Excellent Value for all …customers, owners, employees, suppliers What determines competitive advantage?

6. Solution Improve the process from end-to-end Consider all steps Eliminate, combine, streamline Measure progress Cockpit charts

7. How do we address this? Everything is a process Processes can be mapped, measured and improved Processes are cross companies and cross functional within a company Using Total Cycle Time™ Methodology

8. Issues Competing Objectives Too long in total cycle time Rework of samples Inaccuracy in orders Incomplete and late deliveries Slow collection process Disconnected processes

9. Achieving a GOAL requires a good process Performed by the right resources … Utilizing the proper investment in People, Inventory & Equipment Executed with a set of high Value Added steps Delivered within a range of repeatable outcomes Delivered within a range of repeatable time frames What use is a good process? • Actions to Achieve Goal • Analyze • Develop plan • Try it out • Review results • Standardize / correct / repeat

10. A process improvement strategy focused on: Meeting customer requirements & Increasing satisfaction Reducing variation & Improving on-time performance Eliminating waste & Reducing cost Cleanliness, organization & Improved safety Standardization & Improved quality The goal is to achieve perfection through the total elimination of waste in the value stream Lean Management

11. 5 Principles of Lean Management 1. Specify Value 2. Identify Value Stream 3. Flow 4. Pull 5. Perfection

12. Make the process visible Process sequence descriptions Process sequence flow maps Value stream mapping (Value Added/Non-Value Added) Make the process speak with data Cycle time, first pass yields, productivity Volumes, capacity, hours available, defects Inventory levels at each process step Staffing requirements, shifts Set-up times and frequencies Lot sizes Lean ManagementIdentify the Value Stream

13. Types of Waste CORRECTION Repair or Rework. Doing it over. Not getting it right the first time WAITING Any non-work time waiting for tools, supplies, parts, paperwork, engineering, QA, E&E, etc. MOTION Any wasted motion to pick up parts or stack parts. Also wasted walking, searching. TRANSPORTATION Wasted effort to transport mat’ls, parts, or finished product into or out of storage, or between processes. OVERPRODUCTION Producing more than is needed before it is needed. Batching INVENTORY Maintaining excess inventory of raw mat’ls, WIP, or finished product. Managing WIP. OVER PROCESSING Doing more work than is necessary..

14. If any of the following questions are answered yes, Throughput will improve: 1.  Will the decision result in a better use of the worst constrained resource? 2.  Will it make full use of the worst constrained resource? 3.  Will it speed up delivery? 4.  Will it provide a product or service that is valuable? 5.  Will it improve consistency? 6.  Will it reduce scrap or rework? 7. Will it reduce rework/replacement costs? Understanding the Process Questions to ask to identify constraints:

15. What is Process Improvement Implementation? The implementation of a standard logic for the efficient layout of a production line including work stations, machines, personnel assignments, skill levels, constraints, lot sizes, etc. This also applies to any related process such as design development, product launch, supply chain steps, collection, etc.

16. Business Improvement Team/BIT BIT Order Fulfillment Process CFT Warehouse & Distribution Process CFT Selling Process CFT Barrier Removal Teams/BRT How Do We Do It? Organized Structure and Approach Cross Functional Teams/CFT BRT BRT BRT

17. Map the Process Customer Rec Goods ID Rqmt Issue PO B=4 E=3 FPY=75% B=30 E=10 Generate S.O. Sales Quote PDT Marketing B=20 E=4 FPY=80% B=8E=3 Schedule B=3E=2 Planning No Test Assemble Build Compnts Production Approve Rework B=8 E=5 FPY=70% B=3 E=2 FPY=90% B=3 E=2 FPY=90% Order Mtls B=3E=3 Yes Purchasing B=20 E=9 FPY=40% Ship Mtls Suppliers Rcv Mtls Receiving B=3E=2 Ship Shipping/ Warehouse B=15E= 6 120 Days 14% 51 Days 95% Baseline Cycle Time Baseline FPY Entitled Cycle Time Entitled FPY FPY – First Pass Yield Process Improvement Methodology

18. Measure The Process Steps Establish Baseline and Entitlement Entitlement = Where you should be Results Process Improvement Impact Barriers Baseline = Where you are today Time

19. What is a Required for Successful Process Improvement Implementation? Managers who: • are willing to learn new concepts, • are willing to accept risks, • are willing to accept failures as COL’s (Cycles of Learning), • are willing to commit the required investment in time and support, • are willing to take initiatives to see that unforeseen difficulties are quickly resolved, • will insist that good preventative maintenance and quick equipment repair is practiced, • thoroughly understand the concept and potential huge benefits, and • will work cross-functionally with other managers as a team.

20. What is a Required for Successful Process Improvement Implementation ? (continued) Workers who: • are top performers, • want maximum pay, • are team players, • understand that Improvements will make their jobs more enjoyable, • understand that experimentation and frequent changes are necessary, • understand that change is necessary for a company to survive in the present climate of intense competition, and • have a spirit of cooperation and willingness to share positive experiences with others.

21. Everyone Benefits ! • Process Improvements Do This: • Identify and minimize bottlenecks • Eliminate unnecessary steps • Simplify remaining steps • Reduce waiting • Reduce movement of people • Reduce movement of material • Cause us to produce only what is needed downstream • That Result In: • Higher pay • Better working conditions • Happier workers • Better on-time delivery • Better quality • Happier customers • Lower costs • Greater profits • More business • More worker opportunities • Which Contribute to: • Much less WIP (work-in-process) • Improved productivity • Shorter Cycle Time • High First Pass Yields • Less rework • Efficient use of material • Less scrap • Less clutter • Less confusion

22. We Know Baseline How are we progressing towards entitlement? What Drives improvement? What are the results? How do we identify stalls in improvement progress? Measure Progress

24. Supply Chain % Monthly US$ (month) % (monthly) % (YTD) Total Inventory $ Divided by Cost of Goods Sold Matrix Components TBD Percentage of Styles planned for release to production during the reporting period which were released, complete, And on time. Both Material and Non Material related support activities Inventory Turns Customer Satisfaction INT/ EXT % (Monthly US$ (month) % YTD Rework +Scrap+ICC +Cost $ Purchased + Lost Margin $+ Write Off $ + Expedite $ + Total Incoming Freight Cost divided by The Turnover $ Total $ Received Divided by Turnover $ MMMMMM Material & Non Material Schedule Adherence Hit Rate % Material Cost % Turnover Cost of Ownership % Of Turnover : CT (days) FPY (%) CT (days) FPY (%) CT (days) FPY (%) CT (days) Days from Receipt of Tech Pak to the Final Sample Approval % of Sample Styles Produced To # Converted to Volume Orders Days from Issue of the BOM Until the receipt on the Material at the Production Factory, % Received as scheduled Fabric Only Days from Order Confirmation to BOM complete Days From receipt of Goods at Factory until goods are Ready for consumption % of Goods Passing Initial Inspection CC CU Dock To Stock CT/ FPY Suppliers CT/FPY Sample C/T & FPY Hit Rate % Order Management CT

25. Implementation - Road to Entitlement CFT Selects Next Barrier BRT Dissolved Entitlement Barriers Barrier BRT Commissioned Baseline Process Improvement Management (PIM) Methodology

26. Process Improvement Do’s and Don’ts Do Involve operators and maintenance personnel Check machines, samples of thread tension at beginning and lunch break Visually manage by walking around Make needed changes immediately Recognize good performance Make daily target achievable Emphasize it is a team effort Don’t Say it cannot be done Be negative Ignore bottleneck problems Wait for someone else to solve the problems, take action

27. Process Improvement Guidelines Release XX pieces from cutting every XX minutes Walk around and look for WIP buildup or no WIP at each station Watch potential bottlenecks Add operator Move part of work to another operator Look for excessive moving of material, relocate stations if possible Monitor output and record production

28. The Model Is Changing: Zara’s Speed to Market Traditional Industry Visit To Exhibits Design Intro To Collection Manufacturing Distribution & Sales Sales Markdowns SEASON Q1 Q2 Q3 Q4 Q5 Zara 35% Design & Raw Material Sourcing 65% 40-50% External Manufacturing 55% Sales Markdowns 85% Internal Manufacturing 15% SEASON Source: Inditex

29. Case Study Apparel Manufacturing Global garment manufacturer of Women’s Fashion, Outerwear and Casual Pants Headquartered in Hong Kong with 17 factories in Hong Kong, China, Philippines, Thailand, Laos, Viet Nam, and Taiwan Challenges Improve Sample Process Improve Inventory Management Improve First Time Quality Results Reduced Sample Cycle Time – 20% Improved Sample First-Time Quality – 317% Improved Sample On-Time Delivery – 136% Reduced Fulfillment Total Cycle Time – 30% Improved Production On-Time Delivery – 154% Reduced WIP Inventory – 40% “The consultants teamwork, communications, and coaching lead to strong trust among our people and helped us develop a new way of doing business across all segments of our business” Country Manager, Philippines

30. Case Study Global Supply Chain Supply Chain Management Company headquartered in Hong Kong Coordinates the manufacture and distribution of goods through offices located in 40 countries Challenges Execution of the Global Business Strategy in chaos Administrative costs too high Sales generation activities too slow and expensive Inefficient sales order process Results Reduced Administrative costs – 30% Reduced Sales Order process – 33% Reduced A/R collection time – 20% Developed Structure and Global Sales Processes Returning Operations to Profitability The Consultants introduced world-class methodology that resulted in transforming a national business into a highly responsive, customer focused distribution organization providing unparalleled service to principal clients.” CEO, Country Logistics Subsidiary

31. Gate 2 Gate 4 Gate 3 -4 wks -7 wks Concept to Rack Phases(Overlaid with Retail Promotions Phases) Concept Rack Concept to Rack RETAIL EXECUTION Concept Development Country Allocations Garment Production Logistics DC/Store -- 6 -- 3 2 4 1 Cut - Sew Finish 5 13 Weeks 13 Weeks 16 Weeks 6 Weeks 4 Wks 8 (E) Weeks 9 (E) Weeks ? (E) Weeks 8 (E) Weeks ? (E) Weeks 52 Weeks 4 Wks 5 Wks 4 Wks 4 Wks Retail Promotions Planning Advance Planning Forecast Validation Planning Ad Finalization DC/Store Implementation Gate 1 -15 wks -11 wks

32. Typical Example of CT Reduction 139 109 79 72 37 30 Greige Weaving Fabric Dyeing 30 In-Factory to Cut 30 Cut to X Factory 7 X Factory to X Country 35 7 X Country to In-W/H 30

33. 50% Commitment on greige Greige Forecast 139 109 79 72 37 30 125 95 Days saved Greige Weaving 30 Greige Weaving 7 Dyeing 30 Fabric Dyeing 2 In-Factory to cut 23 5 Production 30 In-Factory to Cut 44 5 95 days CT Cut to X Factory 7 30 X Factory to X Country 35 7 X Country to In-W/H 30

34. Textile/Apparel Supplier Improvement Potentials • MeasurePotential • Customer Response Time improve by over 10% • Fill rate (completed orders) improve at zero cost • On time delivery to customers improve by over 10% • Supplier on time delivery improve to over 10% • Supplier Lead time reduction 10 to 20%+ • Inventory reduction//cost improvements 10 to 20%+ • Cost Reduction 5% • Rework reduction/Improved Quality 10 to 20%+ • Productivity Improvements 10% • These improvements are based on each Factory implementing this approach without outside process improvement expert support.

35. Textile/Apparel Supplier Improvement Potentials • MeasurePotential • Customer Response Time improve by over 30% • Fill rate (completed orders) improve at zero cost • On time delivery to customers improve by over 40% • Supplier on time delivery improve to over 40% • Supplier Lead time reduction to over 50%+ • Inventory reduction//cost improvements 10 to 20%+ • Cost Reduction 5% • Rework reduction/Improved Quality 40 to 50%+ • Productivity Improvements 20%+ • These improvements are based on each Factory implementing this approach • USING • outside process improvement expert support.

36. Go For it !!!!

37. Results—dramatically impact cash creation Process Focus—radical increases in speed and reliability Methodology—top-down focus drives and manages change People—20+ years of management, industry experience Clients—operate in diverse, global markets Who We Are Years of success in fundamentally changing corporations’ management processes and dramatically improving their bottom-line results

38. Presentation for Prime Source Forum March 30, 2011 Supplier Process Improvement Approach