Global Sourcing

Global Sourcing: The Strategy Report T.K.P.

Anna Thompson Sara Kuykendall Megan Rose Phillips FASM 420 Prof Canepa

Abstract: The goal of this project was to create a global sourcing strategy for T.K.P. The goal is to develop and implement a strategy to ensure the values and mission of T.K.P. is consisted through all aspects of the company: from the initial design concept to the final product in the store. This was completed by conducting research on the top three countries for woven apparel, determining the best manufacturers in each country, developing a line plan and placement strategy and negotiating final costs. In addition, each manufacturer and country was evaluated for risks and benefits. After the evaluation, T.K.P. decided on a strategy that further reduced any risks, no matter how small. Upon completion of the assignment we ourselves with a strong placement strategy that not only meets our current needs, but will be beneficial in upcoming seasons as T.K.P. continues to grow as a company and brand.

Table of Contents

Introduction……………………………………………………………………………………………………..... 1 Strategy Development Process ……………...……………………………………………………………. 3 Country Analysis………………………………………………………………………………………………… 5 Supplier Analysis………………………………………………………………………………………………… 15 Costing……………………………………………………………………………………………………………….. 21 Strategy Development…………………………………………………………………………………………. 23 Comparison of Final Costing………………………………………………………………………………… 29 Conclusion…………………………………………………………………………………………………………... 31 Appendix………………………………………………………………………………………………………………33 Works Cited…………………………………………………………………………………………………………..35

Introduction T.K.P. is the newest up-and-coming woven bottoms brand for women’s apparel. It is the result of a mutual friendship of three students at Savannah College of Art and Design. The brand was developed for women who desire high quality products at a reasonable price, as well as an emotional connection to the clothing they purchase. The new brand focuses on a concentrated product line consisting of woven Shorts, Capris, and Pants. T.K.P. believes it is better to focus on perfecting the quality and fit of each individual product in order to gain the trust and loyalty of each customer. Once the brand gains the trust and loyalty of the customer with exquisite products, T.K.P. will expand into other woven goods and perhaps knits.

T.K.P. establishes an emotional connection with each customer by donating a portion of the cost of each product to the charity of their choice.

The T.K.P. target market is directed towards women at the age of 23-35. This woman has just entered into the real world and is looking to obtain or continue working at her dream career. This customer is very fashion conscious but also desires apparel that will stand the test of time and is created in an ethical manner. Our customer strives to give back to the less fortunate and looks for simple ways to do so in everyday tasks.

T.K.P. not only provides these women with high quality, fashionable, comfortable, and affordable merchandise that will last through thick and thin but a means to give back as well.

Introducing the typical T.K.P. customer

Name: Brianne Allen Location: Manhattan, NY Age: 24 Education: Purdue University Marital Status: Married Occupation: Graphic Designer Combined Income: $148,00+ Hobbies: Pilates, reading good literature, wine nights with close friends, and volunteering at AmeriCares.

As mentioned before, T.K.P. offers extraordinary woven bottoms to the female customer. The first products that the company will present to the public are cotton twill Shorts, Capris, and Pants.

The T.K.P. brand was developed for the woman who is able to afford a wellstructured pair of Pants at a higher price. She is willing to spend more money for products that will last and are made of the top quality components. The products are priced at these levels because of the quality, time and effort put into the creation of each individual product as well as the additional donation to charity. T.K.P. uses only the best materials and the best manufacturers, which results in a higher price. In order to create an emotional bond with our customers, whenever a T.K.P. product is purchased, a percentage of that purchase goes to a charity that the customer selects. The focus is on creating product lines featuring the high quality design, fabrics and craftsmanship as well as consistent fits and detailing that our customers expect of T.K.P. Everything that the brand is built on is catered towards the wellness of each customer, community, and environment; and in the following pages, T.K.P. will explain the process involved developing and sourcing its product to remain true to the company values.

Strategy Development Process The most important step in the development of a new company or brand is the strategy plan. This is where the company needs to stay true to its values and concerns of the product and people. If a company promises one idea, but does not deliver it, it may cause customers to lose their loyalty in the company they used to support because of the original values. When developing a strategy, much research is conducted in order to find manufacturers who share the same ideals, values, and goals. It is important to remain true to each and every value that the brand uses as a guideline for selecting others to their build a business with. The T.K.P. brand created sourcing guidelines to eliminate any other company that did not share the same values. Some guidelines include, but are not limited to decent working hours for individuals, overtime and on time salary, adequate

working facilities, and safe working conditions. (Please see appendix for full sourcing guidelines).

T.K.P. holds strongly to its values and considers them the foundation of the company. Without these values there would not be a T.K.P. brand. The values of T.K.P. are all about the quality and care that are provided by the company. They are very aware of the importance of a socially conscious company, which is why T.K.P. donates a portion of the proceeds to charity. It is not a business that is provided, but a means to give back to the world. Lifestyle merchandising is T.K.P.’s business and passion. They strive for the brands to connect with the clients and customers to create a personal bond with the company as well as an emotional bond. The passion of the clients and each individual customer are the focal point of the reason and inspiration of what T.K.P. brand creates.

Our product strategy is illustrated in the line plan below. T.K.P plans manufacture 1,000,000 units. 500,000 will be devoted to Pants, 250,000 will be Capris and the remaining 250,000 will be Shorts. Since Shorts and Capris are seasonal items, they will have a smaller volume than the Pants. The majority of each style is concentrated in their highest selling months and no Shorts or Capris will be produced between October and January.

TKP Line Plan SEASON SP/SU

SUMMER

JANUARY FEBRUARY MARCH

APRIL

MAY

JUNE

JULY

HOLIDAY

STYLE #

NAME

AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER Quantites

Quantites

Quantites

1001

Shorts

0

5000

28000

38000

50000

62000

60000

4500

2500

0

0

0

250000

2001

Capri

0

2000

55000

60000

29000

15000

10000

35000

28000

16000

0

0

250000

3001

Pants

73000

64000

23000

18000

12000

5500

5500

28000

34000

56000

88000

93000

500000

73000

71000

106000

116000

91000

82500

75500

67500

64500

72000

88000

93000

1000000

Quantites Quantites Quantites Quantites Quantites Quantites Quantites Quantites Quantites

TOTAL

TOTAL

Country Analysis Since T.K.P. is based on promising a high quality product, the company researched the top countries of the world that produce the best woven products. After extensive research, the top three countries that the company felt were appropriate to source from are Bangladesh, Sri Lanka, and Dominican Republic. While researching these countries, T.K.P. also took into consideration each country’s culture, social, political, business, geography, and other important qualities.

Bangladesh was a top choice for the T.K.P. brand. The apparel industry in Bangladesh has had tremendous industrial growth and has captured the attention of government bodies and other private investors. Because of the availability of low wages, and competitive energy costs, textile and apparel exports have positioned Bangladesh as an important regional apparel development location in Asia. In addition, the rapid increase in labor wages and raw materials in other countries such as China, India, and Thailand, has further positioned Bangladesh as an ideal destination for international apparel for sourcing world-class fabrics and finished clothes.

Currently, the apparel industry in Bangladesh accounts for 45% of all industrial employment and contributes approximately 5% to the total national income. Because of such a large investment in exports and employment, the Bangladeshi government actively supports the country’s textile and apparel industry. The government recently bailed out 270 closed readymade garment production facilities in order to restore their productivity. By having adequately trained garment workers, it will help increase the country’s garment exports. The government also implemented a training program for 40,000 workers and officials that are conducted by the BGMEA. The Finance Minister of Bangladesh, Abul Maal Abdul Muhuth, agreed to provide small to medium sized garment

exporters with an additional 5-10% increase in cash incentives on the total value of exports.

Another consideration that T.K.P. looked into when sourcing countries for production were trade associations that each country was involved in. A bilateral investment treaty was signed in 1989 between the US and Bangladesh. The United States and Bangladesh currently have an excellent relationship. The relations were boosted in 2000, when President Clinton visited Bangladesh, the first ever visit by a sitting US President. A huge part of the bilateral relationship is a large US aid program. The US economic and food aid programs concentrate on long-term development. In total, the United States has provided more than $5.5 billion in food and development assistance to Bangladesh. Other US development assistance has a huge emphasis on family planning and health, agricultural development, and rural employment. The United States regularly receives updates from the Bangladeshi government to ensure that everything is being used to its maximum benefits. There has been trade related issues between the countries involving export-processing zones. The Bangladesh government provides several tax, foreign exchange, customs and labor incentives to investors in these zones. For example, one incentive provided was an exemption from certain labor laws, which had the effect of prohibiting trade unions from the zones. The US Generalized System of Preferences (GSP) law requires the beneficiary country to satisfy certain conditions dealing with labor rights. A bill was passed allowing limited trade unionisms in the export-processing zones. However, execution of this law in Bangladesh has been slow, and a US labor organization has filed a petition to suspend Bangladesh’s GSP privileges because of the lack of progress on the labor rights issues.

There is extensive tariff-free access to the European Union, US, and Japan under the GSP and reduced tariffs for exports to India and China. As a lesser-developed country, Bangladesh enjoys tariff and quota-free access under the GSP to the European Union market for all its products provided that they satisfy the European Union rules of origin. These demand that the manufactured products have to be adequately worked or processed in the exporting country in order to qualify as having originated there.

Bangladesh also enjoys tariff-free access to exports of manufactured products to the US and Japan under their respective GSP. Bangladeshi is a member of South Asian Free Trade Area (under the South Asian Association for Regional Cooperation). The objectives are to promote and enhance mutual trade and economic cooperation. They eliminate barriers to trade in, and facilitate the cross-border movement of goods between territories. The agreement promotes conditions of fair competition on the free trade area, and ensuring equal benefits for all countries included. Also, SAFTA establishes a framework for further regional cooperation to expand and enhance the mutual benefits of this agreement.

Bangladesh has a bilateral trade /potential free trade agreement with India. Over 15% of Bangladeshi imports come from India. Bangladesh exports to India receive tariff concessions under SAFTA. This commits India to reduce its tariffs on a wide range of products. However, they account for less than 1% of India’s total imports. Even though Bangladesh and India have a bilateral trade agreement, illegal trade between the two amounts to approximately ž of regular trade. In 2005, Bangladesh signed the AsianPacific Trade agreement, which enables the country to reduce trade gaps between itself

and other nations such as China, South Korea, and India. Another aspect of the agreement is to be given duty free access to its products.

The Dominican Republic is the second country that was chosen by T.K.P. to conduct business with. In the Dominican Republic, the textile and apparel industry represents one of the major productive sectors for the countries in the CAFTA-DR region, both in terms of generating foreign exchange and employment. Currently the industry consists of more than 500 apparel companies, 250,000 skilled jobs, 50 textile companies that offers knit and woven fabrics of cotton, man-made fibers and mixtures as well as more than 250 suppliers of services and accessories.

To move from full package to ready-to-wear or even to brand is quite a challenge.

At this moment the CAFTA-DR region is an option to be a partner in a currently successful supply chain where many U.S. brands are participating together. The value of the strategic alliances between full-package garment makers in the region and U.S. retailers gives the industry the opportunity for everyone to focus on what we are best at.

The Central American region can also produce quality apparel according to the environmental compliance and supply goods to the final stores, as well as a wide variety of accessories for the apparel industry. The CAFTA –DR is the second largest region that supplies the U.S. markets.

The CAFTA-DR is the Dominican Republic-Central America-United States Free Trade Agreement. It consists of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic and the United States. It is the first free trade agreement between the United States and a group of smaller developing economies. It represents

the third largest U.S. export market in Latin America, behind Mexico and Brazil and was signed August 2004 by President Bush.

The agreement entered into force for the United States and El Salvador, Guatemala, Honduras, and Nicaragua during 2006 and didn’t actually enter the Dominican Republic until March 1, 2007. The CAFTA-DR encourages new economic opportunities by, eliminating tariffs, opening markets and investment opportunities, reducing barriers to services, and promoting transparency. 80 percent of U.S. consumer and industrial goods exports to the CAFTA-DR countries are no longer subject to tariffs.

Woven apparel was one of the five largest import categories in 2009 with $1.4 billion.

The third country that T.K.P. was very confident with in manufacturing the brand’s product is Sri Lanka. Despite a long-running civil war, Sri Lanka has seen steady economic growth of 5% for the past 10 years. During the war the north and south were divided, making growth difficult. Since the end of the war, the reintegration of the country has fueled growth in all major areas and tourism has also spiked. As a developing country, Sri Lanka depends heavily on a strong global economy and did see a slight drop in growth during the 2009 recession. However, since the end of their civil war they have seen strong economic growth with an increase of 8% in total gross domestic product (GDP). Currently they boast a GDP of $50 billion (official exchange rate). In addition, inflation, which reached double digits during the height of the civil war, has dropped to 8.6% (as of March 2011). The Central Bank of Sri Lanka predicts that as the Sri Lanka continues to recover from the war, the GDP will continue to grow and inflation will remain in single digits.

The textile and apparel industry is both the most important contributing sector of Sri Lanka’s economy as well as one of the most stable. From 2009-2010, the textile industry saw a growth of 6.5% despite economic recessions in its largest markets. As of February 2011, Sri Lanka’s apparel industry has surpassed the US $ 4 billion mark for the first time in its export earnings and has every indication that it will continue to grow.

This proves particularly impressive in light of the fact that the European Union had recently suspended its preferential trade agreement with Sri Lanka in protest over the country’s human rights record. The textile and apparel industry has remained stable despite the temporary loss of an incentive to foreign buyers. Experts believe that foreign buyers are continuing to place orders for Sri Lankan garments due to their high quality, and timely and efficient delivery. The textile industry has also been able to maximize capacity by their appropriate use of technology, which allows for lower prices. As of now, Sri Lanka has regained some of its preferential trade agreements due to their cooperation with the United Nations and the National Peace Council. This will only help the industry to continue to grow and improve. The Joint Apparel Association Forum states that the apparel industry will continue to aggressively penetrate new markets and has focused on a number of markets outside traditional markets. The country is looking at identifying growing markets such as India, China, Japan and Brazil and as well as expanding to Turkey and Spain.

T.K.P. has invested in Sri Lanka for the trade agreements as well. The United States and Sri Lanka have several trade agreements. Like with most countries, the US has a Trade and Investment Framework Agreement (TIFA) that provides a framework and basic principles for the discussion of trade and investment opportunities between

the two countries. Under the TIFA, the countries agree to meet once a year to discuss new opportunities and any potential problems that may have occurred.

The US also has a Bilateral Investment Agreement (BIT) with Sri Lanka. The BIT has been in effect since 1993 and exists to encourage greater investment from US companies. It offers a legal framework for how businesses and investors are expected to treat and protect their investments.

Both these agreements allow open communication between the United States, Sri Lanka and those who conduct business in both countries. It also protects any investments made in Sri Lanka, which adds a level of security when placing product overseas. If any issues do come up, these agreements ensure that they will be addressed and resolved by authorities in the United States In 1977, Sri Lanka introduced a more open economy by opening its borders to allow free trade, dismantling price control, and eliminating import tariffs. Today, all of Sri Lanka’s traditional products have been superseded by the Apparel Industry. Sri Lanka's major exports consist of apparel, tea, rubber, gems and jewelry which totaled $8.3 billion. Sri Lanka has been advised to diversify its exports beyond garments and tea.

In response, they have worked to grow their information technology (IT) and business process outsourcing (BPO) sectors.

The United States is Sri Lanka's second-biggest market for garments, taking almost 40% of total garment exports. Exports to the United States, Sri Lanka's most important singlecountry market, were estimated to be around $2.1 billion for 2011. The European Union as a whole, however, remains Sri Lanka's biggest export market and largest apparel

buyer. Sri Lanka’s exports to the EU used to qualify for duty-free entry under the Generalized System of Preferences (GSP) market access program, which was granted in 2005 to help them rebuild after the 2004 tsunami. However, in August 2010, this benefit was revoked due to Sri Lanka’s poor human rights record; in particular their refusal to investigate war crimes during the end of the war. Despite this, Sri Lanka’s exports continue to see strong growth. Sri Lanka does continue to receive limited tariff preferences under the EU GSP program and it is likely that their benefits are only temporarily revoked.

Sri Lanka also received preferential access to the U.S. market under the U.S. GSP program. This program was temporarily suspended but in July 2012, the US decided to continue with (GSP) trade concession. Tensions do continue however in bilateral ties after Washington backed a resolution censuring Colombo on its human rights record.

The reinstatement of the GSP program does not include textiles and apparel but should help Sri Lanka’s economy improve overall.

In January 2006, South Asian nations, including Sri Lanka, belonging to the South Asian Association for Regional Cooperation (SAARC) established a South Asia Free Trade Area (SAFTA). SAFTA offers regionalized tariff reductions for imports from member countries. SAARC members aim to reduce duties for imports from member countries to between zero and 5% over a period of 7-10 years, under the SAFTA. The SAFTA agreement has had limited impact in trade to date.

These three countries are important to T.K.P. because they all have strived to increase their textile and apparel industries, and they continue to grow. Not only is the

apparel industry thriving in these countries, but the trade agreements that each country is involved in greatly improves business. Even if the country has no significant agreement with the United States, they have an alliance with another country that provides a greater abundance of imports and exports that helps increase trade and production of manufacturers.

Country Ranking Scale of 1 to 10 with 1 being the worst and 10 the best Bangladesh Explanation

D.R.

Explanation Rich/strong business environment

Sri Lanka

Business Climate

7

Steadily growing and becoming more stable

8

Costs

9

Very low labor costs

5

Not very competitive with South Asian countries

Government

4

Not very stable Frequent clashes between different political parties

8

Stable. No major issues

7

Location

3

Very far from US

9

5 hrs to Savannahby plane

5

Risks

6

Flooding

6

Security is stable but lots of corruption

5

5

Economy is supported by agriculture industry but overall weak infrastructure in majority of Country

8

Very Stable

6

7

Social Stability

7

8

Explanation Good for textiles , Lots of Manufacturers, Fairly Free Economy Inexpensive for the quality.

New and stable, but needs to be watched. Still recovering from recent civil war Very far from US but lots of ports Civil war ended 2009, tsunami in 2004, tropical storms. Needs to be monitered Needs to be watched. There is still unresovled conflict from the war Child labor issues, environmental violations in the past. Stricter laws have reduced violations but they may still occur.

Well developed with lots of excellent suppliers and high quality goods.

None. However, they have preferences on certain products.

Sourcing Guidelines

6

In place, but watch for violations

7

In place; however, need to be on the lookout for violations.

Textile Industry

8

Well developed for woven garments

8

ery developed

8

Trade Agreements

5

Has trade agreements but with other countries

10

One of the best due to CAFTA-DR

6

Trained Work-force

7

Employees are well trained but there is a high unemployment rate

8

Plenty

8

Plenty of well trained workers

5

Is becoming more stable but needs to be watched for political disputes

8

Steadily growing, recovering from economic slowdown in 2009. Positive growth rate

7

Needs to be watched due to recent civil war and economy is heavily dependent on foreign aid.

Socio-eco-political

Total Average

65 5.9

85 7.7

74 6.7

Supplier Analysis Once Bangladesh, Dominican Republic, and Sri Lanka were chosen as the top three countries for T.K.P. to use for manufacturing, suppliers in each country needed to be examined. When researching for potential suppliers, a strategy needs to be set into place. In order to find the best manufacturers for the product, T.K.P. referred to the sourcing guidelines that the brand created and believed in as their policies. Each manufacturer’s sourcing guidelines were the first quality that was looked at when investigating possible suppliers. If the guidelines and beliefs of that company coincided with T.K.P.’s values, then customers, quality checks, factories, and other factors of the supplier was researched.

Having well-known, prestigious customers is very important when researching manufacturers. It gives a company an excellent sense of how the quality of the products will be in the end, and shows what, and how well or poorly a manufacturer can produce the garments. Companies need to look at the abilities of that particular manufacturer to see exactly what the supplier can do, and the steps it takes to produce a product. The number of factories and capacity of a supplier is also very important. Since T.K.P. is producing one million products a year, the size and services that are offered are very critical when deciding on suppliers. T.K.P. needs a manufacturer that is large, and can complete a hole product in one location to reduce lead-time, which transitions into another important quality for the brand to look in to. Lead-time is important for T.K.P. because the brand is based on woven bottoms, for the time being. T.K.P will need a quick lead-time for anticipating a fast turnover.

T.K.P., also, wants to create a business with a supplier who has excellent management to enforce the manufacturer’s guidelines, as well as have a visionary strategic outlook. The

brand wants a company who looks to expand, and be innovative with manufacturing equipment and design.

Once an analysis was found on the initial suppliers, individual rankings were examined to compare each supplier against the other to determine what the best manufacturers would be for the T.K.P. brand. Evaluation of the suppliers was based on the same standards of the initial search for manufacturers. However, since this was for T.K.P. to find the best producer for the products, rankings were made among the suppliers to determine which supplier offered more service, quality, better costs, greater lead-time, etc for the T.K.P. brand.

The most appropriate suppliers from each country were chosen based on the rankings (See individual supplier rankings in appendix). The following names are the final suppliers: DIRD Group, Global CMT Corporation, and Hela Clothing.

The DIRD Group is located in Dhaka, Bangladesh. It started running in 1983 with its engineering company, DIRD Private Ltd. One year later, the company entered into the garment industry sector with its first woven garment unit named DIRD Garments Ltd. IT was one of the leading woven bottom manufacturing company at the time. Today, DIRD Group has diversified into different textile sub-sectors of Bangladesh. The vision of the company really corresponds with the sourcing guidelines. It strives to establish itself as a one-stop source for the global apparel market. They satisfy and meet customers’ expectation by developing and providing products and services on time, which offer value in terms of quality, price, safety and social responsibility. Also, they try to assure complete compliance with the international quality standards. With the employees, the company provides them with acceptable working conditions and standards, and

promote the developments and best use of human talent and equal opportunity employment.

DIRD Group was chosen as a final supplier for the T.K.P. brand because of what it had to offer. The group has a textile company, engineering company, and agriculture company. It is well rounded in every sector that it occupies. Under the textile sector it contains Textile Limited, DIRD Garments Limited (woven bottoms), DIPTA Garments (knit garments), a washing plant, and printing & embroidery unit. The company offers to produce products from beginning to end. DIRG Group is also able to expand into other products once T.K.P. establishes itself in the industry. When T.K.P. is ready to expand, The DIRD Group is able to. This keeps the brand from having to find a different supplier that can create products that the manufacturer may not.

Global CMT Corporation is located in Santiago, Dominican Republic. Global CMT was created in 1995, and is a sister company of Empresas T&M, which is an industry leader for over 25 years in tailored clothing. Its mission is to become a world leader in the manufacturing of clothing for men, women, and children, for world-class brands.

This is great for T.K.P. since the supplier is looking to strive forward to create only the best. T.K.P. is very concerned with quality in their products, and will only conduct a business with those manufacturers who’s outlook is to move forward and become better.

Global provides all aspects of the manufacturing process, such as product development, planning, components, assembly, and the logistics and services that T.K.P. needs in order to receive the brand’s products. By offering all the steps in the manufacturing process, Global is a valuable supplier to be associated with to help begin

the T.K.P. brand. Global’s customers are among the top with consumers from Bayer Clothing Group, Lanier Clothes, and Oxford Industries. Store clients for Global are Nordstrom, Macy’s, and Lord & Taylor. With this excellent client list, T.K.P. is able to know that the manufacturer produces fine quality, and that Global is able to produce and keep up with higher end products.

Hela Clothing was incorporated in 1992 as Hemas Garments with the first factory in Hendala, a city just north of Sri Lanka’s capital Colombo. Today the company is fully owned by The Fielding Group (TFG) and also enjoys a strategic partnership with the Eco Apparels Group, which has three fully functional factories. The fielding Group is a company that supplies clothing and accessories to many of the UK's top retailers with ventures in garment and fabric manufacturing in Bangladesh and Sri Lanka along with trading partners in over nine countries.

Originally, they manufactured high-quality children’s knit wear but have since expanded and now produce many woven items, including women’s woven bottoms.

Currently they employ over 3800 employees, have three production facilities and maintain a monthly output of 1.8 million pieces a month. Hela Clothing states that “As part of our stringent compliance procedures, we maintain the highest standards of Health & Safety for employees”. Each facility has a fully equipped first aid center, offers awareness and training programs and has optional bi-weekly visits from a doctor.

Because they began as a major supplier of children's wear, they state that safety is very important to them. They have strict needle control policies, conduct product safety, audits regularly, and provide continuous training on product safety. This fits

perfectly with T.K.P.’s sourcing guidelines and beliefs. T.K.P. brand is based on quality, and connection to the customer through clothing and charity. T.K.P. needs to stick to their morals to keep that connection since that is what the brand has been created off.

Hela has two woven’s manufacturing facilities in Kaduwela and Palapathwala with the capacities ranging from 225,000 to 275,000 units. This information helps T.K.P. know that Hela is capable of running large amounts of product. Also, Hela obtains four knit facilities if T.K.P. was ever to expand into knitwear. Hela Clothing has a partnership with Eco Apparels Group that has an embellishment unit, and other services such as in house laboratory, logistics/warehousing, and cutting edge technology. By having this connection, T.K.P. products can be started and completed in one location as opposed to being shipped across Sri Lanka or to other manufacturers to be finished. The current customers of Hela Clothing include Levi’s, Nike, Armani, Tesco and Sainsbury’s. By knowing the customers, it helps T.K.P. be aware that the quality that Hela Clothing produces is able to withstand higher end brands. Even if product appears damaged or incorrect, Hela’s quality assurance enables T.K.P. to challenge and have their products perfectly made.

Top Three Supplier Rankings Scale of 1 to 10 with 1 being the worst and 10 the best Country: Bangladesh

Country: D.R.

Supplier B: DIRD

Reason

Supplier: Global CMT

Abilities

9

Captive power supply, Line source, Generators

9

Capacity

10

20,000/day No quotes received but costs should be acceptable based on current customers

0

Costs

0

Customer Service

8

Responsive to Contact

5

Customers

10

Walmart, Zara, H&M, Target, JC Penny

10

Flexibility

8

100% Export RMG facility

9

Lead-time

0

No Response

0

Management

9

Has many directors and managers for each facility

10

Quality

10

Have Quality Control system with hourly checks

10

10

Washing, embroidery, printing, delivery, 9 facilities for textiles, engineering, garment construction and agriculture

Services Offered

Strategic Outlook

10

Constantly looking for new customers; only remaining leading woven bottoms manufacturer No child labor, clean facilites, overtime payment, Cares for workers and the environment

0

Country C: Sri Lanka Reason Constanly updating technology and growing.

Over 3000 workers. Sister company with T&M Did not specify No quotes received but costs should be acceptable based on current customers Seem like they would have great customer service but did not respond Bayer Clothing Group, Lanier Clothes, Oxford Industries, Nordstrom, Macy's, Lord and Taylor Option of full and partial packages, Suits, pants, women's, men's and children's clothing No Response Great management team, Everyone has over 16 years of experience in the industry Guarentee quality service and quality garments and finishes based on customer's specifications

10

Central receiving warehouse, production planning department, pattern/marker making facilities and sample room, cutting room, seweing plants and modern finish/pressing rooms

8

Great enthusiasm, outlook is focused on expansion

Supplier: Hela

Reason

10

Member of Fielding Group

9

1.8 million/month No quotes received but costs should be acceptable based on current customers

0

7

Contacted quickly but no useful info

9

Levi's, Armani, Nike, Tesco

8

Can do knitwear Lots of different facilities and supplier connections

0

No response

10

Large Corporation

9

Customers

7

Member of UK based Fielding Group good contacts

10

Connections with Fielding Group Very high ethical and safety standards

10

Member of Fielding Group (UK based) and is audited throughout the year

Sourcing Guidelines

10

Total

94

80

89

Average

7.8

6.7

7.4

9

Values match TKP's

Costing In order to remain profitable, T.K.P must maintain an average margin of 68% on all products. T.K.P. currently has three products: Woven Pants, Woven Capris and Woven Shorts. They will sell at a retail price of $120, $90, and $75 respectively. As a new company, T.K.P. will sell each product at wholesale (50% off the retail price).

Pants Capris Shorts

T.K.P Wholesale Price $ 60.00 $ 45.00 $ 37.50

Retail Price $ 120.00 $ 90.00 $ 75.00

In order to achieve a margin of 68%, the cost of each product cannot exceed the following prices: Pants: $19.20 Capris: $14.40 Shorts: $12.00 After careful analysis of the risks, benefits and costs for producing each product in the Dominican Republic, Bangladesh or Sri Lanka, the projected average cost per unit was $7.77. This allowed for a profit margin of 84.6%. (Please see the Initial Margin spreadsheet below).

After receiving final quotes from the suppliers, T.K.P.’s average cost per unit became $8.01; an increase of $0.24. This increase in cost resulted in a profit margin of 84.17%; which is a decrease of 0.43% (from the original profit margin of 84.6%).

(Please see the Prelim. Margin spreadsheet below).

$

$

Cost/Unit

Margin $

$ $

$

Avg Wholesale Avg Purchase

Avg Margins

42.85

7.77

84.64%

900,000

5,625,000

84%

31.50

6.00

37.50

150,000

$

$

$

$

$

-

-

83%

37.33

7.67

45.00

0

$

$

$

$

$

1,356,000

9,000,000

85%

50.96

9.04

60.00

150,000

Style 3: Pants

206,400

1,200,000

83%

49.68

10.32

60.00

1,279,250

7,875,000

2,524,500

8.01

84.17%

8.01 42.61

Avg Cost/Unit $

Avg Margins %

Avg Margins

50.63

$ $

$ 17,226,000 $ 6,559,000 1,528,500 $ $ 4,016,000 2,900,000 $ $ 4,568,400

3,150,000

$

$ 42,610,400

Total Margins

$

$ 2,574,000 $ 1,316,000 346,500 $

Avg Wholesale Avg Purchase

$ 19,800,000 $ 7,875,000 1,875,000 $ 784,000 $ 2,662,500

$

$ 4,800,000 712,500 850,000 $

$

$ 3,375,000 3,750,000 $ 831,600

-

$

600,000

$

$ 8,014,600

$

$ 5,400,000

-

$

3,750,000

$

$ 50,625,000

87% 83% 82%

Total Purchase

84% 79% 77%

Total Wholesale

85%

81%

$ $ $ $ $ $

$

$

$

Margin $ 84%

7.80 52.20

$ 7.52 37.48

$ 6.93 30.57

$ 9.80 50.20

$ 9.50 35.50

$ 8.50 29.00

$

9.24 50.76

$

8.67 36.33

$

6.00 31.50

$

Cost/Unit

Margin %

60.00 $ 45.00 $ 37.50 $ 60.00 $ 45.00 $

330,000

37.50

175,000

Style 2: Capris Style 3: Pants

$

$

50,000

87%

52.35

7.65

60.00

$ 19,800,000

$

$

$

60.00

80,000

Style 2: Capris Style 3: Pants Style 1: Shorts 75,000

- $

84%

37.69

7.31

45.00

330,000

Style 3: Pants

$

100,000

$

$

$

- $

82%

30.88

6.62

37.50

Country 3: Sri Lanka Supplier: Hela

$

$

$

$

$

175,000

45.00

90,000

$

$

$

$

$

0

Supplier: Hela Style 2: Capris

$

0

698,250

3,375,000

79%

35.69

9.31

45.00

20,000

Country 3: Sri Lanka Style 1: Shorts

37.50

100,000

$

$

$

$

$

75,000

Country 2: D.R. Supplier: GLOBAL CMT

810,000

3,750,000

78%

29.40

8.10

37.50

Style 2: Capris Style 3: Pants Style 1: Shorts

$

$

$

$

$

100,000

Style 3: Pants

Supplier: Global CMT Style 2: Capris

$

1,000,000

Country 2: D.R. Style 1: Shorts

Wholesale

Total Units

Style 1: Shorts

Country 1: Bangaladesh Supplier: DIRD

PRELIM PLACEMENT & MARGIN CALCULATION

Avg Cost/Unit $

Avg Margins %

$

$ 7,774,400

Total Purchase

50.63 7.77

$

Total Wholesale $ 50,625,000

Margin %

$

1,000,000

Supplier: DIRD Style 2: Capris

Country 1: Bangladesh

Style 1: Shorts

Wholesale

Total Units

INITIAL MARGINS

Strategy Development Our company is based on comfortable, affordable, classic pieces that will last our clients a lifetime and not just a season. We are focused on perfecting the base line for our woven bottoms line, which is why we chose such classic pieces to engage in first. Our product line all consists of extremely well tailored fits that flatter all of our client’s figures. We decided on woven bottoms because we believe that it is the base of any outfit. We wanted Shorts so that our customers could be comfortable in the hotter weather, Capris for mild days, and Pants they could wear year round.

We chose the volumes that we did because of the different products we are offering. The Shorts are the most seasonal and will not be carried throughout the whole year, mainly February through September, numbers depending on the climate. The Capris are seasonal as well and will be carried from February through October. Lastly the Pants will be carried year round with less in the summertime as it heats up.

As for the components we wanted a nicer fabric for the best quality we could offer but still affordable enough for our clients. The colors we choose are very classic, to be worn day to night and at the office or on the weekends. We also wanted a hint of color, so we went with the mint green for a more trendy color.

We selected the top 3 countries that best produce woven bottoms. We chose Bangladesh because it has a competitive garment manufacturing service due to low cost and a hard-working workforce. We chose Sri Lanka because their textile and apparel industry is both the most important contributing sector of Sri Lanka’s economy as well as one of the most stable. We lastly chose the Dominican Republic one, they are the most

important trading partner in the US, and two, they are much closer than our other two countries, giving us good variety.

Sources Bangladesh: DIRD Group DIRD GROUP started running in 1983 with its engineering company named DIRD PRIVATE LIMITED. In 1984 DIRD GROUP stepped into the garments sector with its first woven garments unit named DIRD GARMENTS LIMITED, which was one of the leading woven bottom manufacturing company at that point of time. DIRD GROUP has today diversified into different textile sub-sectors of the country. Their factory is a sister concern of Dird Group which is located at Nagarchar, Rajfulbaria, Savar, Dhaka near the River Bangshi, west from the Dhaka Aricha main road. It has covered the floor space of total 44,629.75 sq. ft. Dird Group is one of the leading manufacturer and exporters of readymade garments in Bangladesh. Since its inception in 1984, the group has been able to create distinctive image amongst European Garment Buyers as makers of high quality garments. They specialize in heavier weights and bottom line garments such as Pants, Shorts, bermudas and skirts etc. They also make Overalls, Shorts, and western type Jackets. Their top importers are, chain stores, and mail order houses. Their customers include but are not limited to Target, H&M, and ZARA. Their vision is to establish their selves as a one-stop course for the global apparel market. They satisfy and meet their customer’s expectations by developing and providing products and services on time, which offer value in terms of quality, price, safety and social responsibility. They want to attain the highest level of competence through continuous development of the professional management system.

DIRD Group is fully aware of our responsibility to protect our environment & to create eco-friendly atmosphere for our work areas. They give highest priority to preserve the nature. They set Biochemical Treatment technology in the effluent treatment plant for waste management. The treated effluent is discharged in an oxidation lagoon before final disposal.

Sri Lanka Source: Hela Clothing Hela Clothing was incorporated in 1992 as Hemas Garments with the first factory in Hendala, a city just north of Sri Lanka’s capital Colombo. Today the company is fully owned by The Fielding Group (TFG) and also enjoys a strategic partnership with the Eco Apparels Group, which has three fully functional factories. The fielding Group is a company that supplies clothing and accessories to many of the UK's top retailers with ventures in garment and fabric manufacturing in Bangladesh and Sri Lanka along with trading partners in over nine countries. Originally, they manufactured high-quality children’s knit wear but have since expanded and now produce many woven items, including women’s woven bottoms. Currently they employ over 3800 employees, have three production facilities and maintain a monthly output of 1.8 million pieces a month.

Hela Clothing states “As part of our stringent compliance procedures, we maintain the highest standards of Health & Safety for employees”. Each facility has a fully equipped first aid center, offers awareness and training programs and has optional bi-weekly visits from a doctor. Because they began as a major supplier of children's wear, they state that safety is very important to them. They have strict needle control policies, conduct product safety audits regularly and provide continuous training on product safety.

Hela is also committed to ethical sourcing. They are a member of the Fielding Group, a team headed by a UK trained Compliance Manager that visits the factories frequently to audit, educate, and ensure consistency of standards. Hela has also been certified by ETI, WRAP-Platinum, GWG & Fairtrade. Current customers of Hela Clothing include Levi’s, Nike, Armani, Tesco and Sainsbury’s.

Dominican Republic: Global CMT Corp Global CMT is a sister company of Empresas T&M, which is an industry leader for over 25 years in tailored clothing. Both are located in Santiago, Dominican Republic.

Global was conceived to provide T&M’s client base with the option of full and partial packages. They are very valuable as they provide all aspects of the manufacturing process, such as product development, planning, components, assembly and the logistics and services that we would need as we are in the pursuit for increased sales. They offer excellent products of superb appearance and value.

They say that quality, punctuality, and value define the essence of their philosophy and help them to achieve maximum customer satisfaction, which goes hand in hand with what TKP is all about. They have over 300,000 sq. ft. of production space, employing close to 3000 workers with diverse, efficient and flexible product capabilities.

They have the advantage and upper hand against others because of their modern facilities, quality system, trained workers, state of the art equipment and administrative systems. They are constantly updating their technology, equipment, methods, facilities, and systems. They have made major advances to their central reviving warehouse, production planning department, pattern/marker making facilities and sample room, as well as their cutting room, sewing plants, and modern finish pressing rooms.

The minimum experience of their executive staff is 16 years in the industry. They specialize in the production of tailored clothing for men, women and children, as well as uniforms and tuxedos. They have clients such as Bayer Clothing Group, Lanier Clothes and Oxford Industries. Stores such as Nordstrom, Macy’s and Lord and Taylor carry their products. The excellent finish and quality they provide make Global CMT our number one pick in the Dominican Republic.

Preliminary costs vs. initial quotes and product qualities The preliminary costs are within our margins.

Risk vs. benefits, distance & lead-time, quality & flexibility, capacities, value added services & raw material requirements

Bangladesh: In Bangladesh flooding and drought are some risk factors and their political parties always seem to be feuding. A plane ride to Bangladesh is about 30 hours from our home office. We negotiated a lead-time FOB Savannah of 8 weeks, a letter of credit and a recede of goods net 20. We also negotiated a clause in our contract for quality.

Sri Lanka: The risks in Sri Lanka are very low, there is some risk in the complication of weather, they did have a tsunami but other than that it is a great place to manufacture in.

Sri Lanka is a 29-hour plane ride from our home office. We negotiated a lead-time, FOB

Charleston of 6 weeks and will be able to renegotiate in 3 months. They will also include a factoring service. We also negotiated a clause in our contract for quality.

Dominican Republic: The Dominican Republic is considered a secure country in proceeding business with. There is a low threat from terrorism in the Dominican Republic. The security situation in the Dominican Republic is stable. The global economic crisis, and in particular the U.S. recession, started to impact the Dominican economy in 2008. But since then their economy grew at a healthy pace and is stable. The Dominican is just about a 3-hour plane ride from our home office. We negotiated a lead-time, FOB Savannah of 7 weeks and will be able to renegotiate in 3 months to 4 and ½ weeks. We also decided on a letter of credit and a recede of goods Net 15. We also negotiated a clause in our contract for quality.

All of our manufactures are able to accommodate manufacturing all of our units in the time specified, and all have adequate sources and suppliers.

Future requirements In the future the TKP brand will strive to remain to its true values and morals and will continue to work with the suppliers and manufactures that establish their sourcing guidelines. We want to perfect each of our product lines so that we will only have the best. As we further our business we will venture out into other lines of clothing and

remain our classic minimalist style of clothing, well structured quality and always maintain the best of quality with any products that we make.

Value added services At TKP we have great customer satisfaction. There is no limit to making our clients have the best experience possible and gain an emotional relationship with them through our clothing. We also build an emotional relationship with them through giving back to charities of our client’s choice.

Maximized margins Our target margin was 68%. We had an increase of 16.1 % from our target profit margin which translates to a maximum margin of 84.17%.

Comparison of Final Costing Due to the time constraints, T.K.P was unable to obtain preliminary costs from each manufacturer. Therefore, the preliminary costs, the final costs and their respective margins are the same.

T.K.P. had an initial target margin of 68%. The final margin percentage is 84.17%, which is an increase of 16.17%. Although a greater margin could have been achieved, T.K.P. divided the manufacturing between the Dominican Republic, Bangladesh and Sri Lanka in order to reduce risk. Although the Dominican Republic has the highest overall cost, it also has the shortest lead times. For this reason, T.K.P decided to utilize it for replenishment purposes as this may ultimately lead to higher sales and/or profit margins.

$

Margin $

$ 42,610,400

50.63

8.01 42.61

$

$ $

Total Margins

Avg Wholesale Avg Purchase

8.01

$

$ 3,150,000

600,000

3,750,000

84%

31.50

6.00

37.50

100,000

$

$

$

$

$

$ -

-

-

Style 2: Capris

-

-

-

0

831,600

$ 4,568,400

$

784,000

$ 4,016,000

$

$ 4,800,000

1,528,500

346,500

1,875,000

83%

37.48

7.52

45.00

$ 6,559,000

$ 1,316,000

$ 7,875,000

$

$

$

8.01

84.17%

8.01 42.61

Avg Cost/Unit $

Avg Margins %

Avg Margins

50.63

$ $

$ 17,226,000 $ 6,559,000 1,528,500 $ $ 4,016,000 2,900,000 $ $ 4,568,400

3,150,000

$

$ 42,610,400

Total Margins

$

$ 2,574,000 $ 1,316,000 346,500 $

Avg Wholesale Avg Purchase

$ 19,800,000 $ 7,875,000 1,875,000 $ 784,000 $ 2,662,500

$

$ 4,800,000 712,500 850,000 $

$

$ 3,375,000 3,750,000 $ 831,600

-

$

600,000

$

$ 8,014,600

$

$ 5,400,000

-

$

3,750,000

$

$ 50,625,000

87% 83% 82%

Total Purchase

84% 79% 77%

Total Wholesale

85%

81%

$ 37.48 $ 30.57 $ 50.20 $ 35.50 $ 29.00 $

50.76

$

36.33

$

31.50

$

Margin $ 84%

7.80 52.20

$ 7.52 $ 6.93 $ 9.80 $ 9.50 $ 8.50 $

9.24

$

8.67

Margin %

60.00 $ 45.00 $ 37.50 $ 60.00 $ 45.00 $ 37.50

$

60.00

$

45.00

330,000

$

175,000

Style 2: Capris Style 3: Pants

$ 17,226,000

$ 2,574,000

$

50,000

87%

52.20

7.80

60.00

$ 19,800,000

$

$

$

6.00

80,000

Style 2: Capris Style 3: Pants Style 1: Shorts 75,000

82%

30.57

6.93

37.50

Country 3: Sri Lanka Supplier: Hela

$

$

$

$

$

$

330,000

37.50

100,000

84%

50.20

9.80

60.00

175,000

Style 2: Capris Style 3: Pants

$

90,000

Style 2: Capris Style 3: Pants Style 1: Shorts 0

712,500

$ 2,662,500

$

$

$

$

50,000

$

100,000

79%

35.50

9.50

45.00

$ 3,375,000

$

$

$

80,000

Cost/Unit

1,000,000

2,900,000

850,000

3,750,000

77%

29.00

8.50

37.50

75,000

Country 2: D.R. Supplier: GLOBAL CMT

$

$

$

$

$

$

100,000

Wholesale

Total Units

Style 1: Shorts

Country 1: Bangaladesh Supplier: DIRD

85%

50.76

9.24

60.00

$ 5,400,000

$

$

$

90,000

Country 3: Sri Lanka Supplier: Hela

Style 2: Capris Style 3: Pants Style 1: Shorts

Country 2: D.R. Supplier: Global CMT Style 3: Pants Style 1: Shorts

PRELIM PLACEMENT & MARGIN CALCULATION

Avg Cost/Unit $

Avg Margins %

84.17%

$ 8,014,600

Total Purchase

Avg Margins

$ 50,625,000

Total Wholesale

$

$

Margin %

$

Cost/Unit

1,000,000

Wholesale

Total Units

Style 1: Shorts

Country 1: Bangaladesh Supplier: DIRD

FINAL PLACEMENT & MARGINS

Conclusion Bangladesh, the Dominican Republic and Sri Lanka are important to T.K.P. because they all have strived to increase their textile and apparel industries, and they continue to grow. Not only is the apparel industry thriving in these countries, but the trade agreements that each country is involved in greatly improves business.

We chose Bangladesh because it has a competitive garment manufacturing service due to low cost and a hard-working workforce. We chose Sri Lanka because their textile and apparel industry is both the most important contributing sector of Sri Lanka’s economy as well as one of the most stable. We lastly chose the Dominican Republic because one, they are the most important trading partner in the US, and two, they are much closer than our other two countries, which allows for flexibility in regards to lead times and automatic replenishment.

Within these countries, manufacturers were carefully evaluated and were selected based on their costs, sourcing guidelines and services offered. Although each country and manufacturer does not have any major risks that would prevent T.K.P. from conducting business with them, T.K.P. understands that sometimes problems arise from nowhere.

In order to further reduce the risk of any unforeseen problems, T.K.P. divided production among the three countries. The majority of each product is placed in the country and with the manufacturer who offered the lowest overall cost. In order to reduce risk, the remaining product was placed in another country as well. Because of the proximity to the United States, Global CMT in the Dominican Republic will produce a portion of each style. This will allow for fast replenishment of goods that either sell better than expected or are unable to be produced with their original manufacturer for any reason.

This strategy allows T.K.P. to capitalize on the benefits of global sourcing by maximizing its profit margins, minimize its lead times, inventories costs and risks. By working with three manufacturers, T.K.P. will establish working business relationships with companies that can assist them with further production opportunities. In addition, each manufacturer has the capability to produce products that T.K.P. may add once it has been established.

Above all else, this strategy allows T.K.P. to proudly inform its customers, investors and shareholders where they produce their products.

Appendix T.K.P. Sourcing Guidelines: - Maximum work hours per week: 58 - No child labor: minimum age 16 - Overtime compensation - Timely proper wages (depending on country $/hr) o Paid weekly and without hold - Workers must have a minimum of 15 minute break at least every 4 hours - Safe work environment o No open wires o Adequate space, lighting, air conditioning, heat, ventilation o Training Facility - No harsh Treatment on Worker - Maternity Leave Benefit - Total Compliance with Safety Requirement - Hygienic Sanitary Facility - Proper disposal of trash in dumpster. o Dumpster must be emptied when full to local landfill.

- Prohibition of Discrimination including, but not limited to: o Race o Gender o Country of Origin o Sexual Orientation - Environmental Guidelines o Recycle materials in proper bins

Works Cited http://www.kwintessential.co.uk/resources/global-etiquette/bangladesh.html https://www.cia.gov/library/publications/the-world-factbook/geos/bg.html http://globaledge.msu.edu/countries/Bangladesh http://www.dirdgroup.org/about.php http://www.pmfashionsltd.com/ http://pioneergroupbd.com/ http://www.state.gov/r/pa/ei/bgn/3452.htm http://www.bangladesh.gov.bd/ http://www.onlinenewspapers.com/banglade.htm http://www.mof.gov.bd/en/ http://www.bbc.co.uk/news/world-south-asia-12650940 http://travel.state.gov/travel/cis_pa_tw/cis/cis_1011.html http://travel.state.gov http://www.bbc.co.uk/news/world-south-asia http://www.state.gov/ http://www.supremecourt.lk/ http://www.tourslanka.com/index.htm http://globaledge.msu.edu/Countries/Sri-Lanka http://www.amcham.lk/ http://www.investsrilanka.com/ http://www.doc.gov.lk http://www.ustr.gov/ http://www.paho.org/english/sha/prfldor.htm

http://www.drlawyer.com/fr/publications/dominican-labor-law.html http://www.nathaninc.com/resources/dominican-republic-textile-and-apparel-exportcompetitiveness http://www.apparelcentralamericadr.com/cecatec-dr/index.php? option=com_content&view=article&id=3&Itemid=3 http://www.kwintessential.co.uk/resources/global-etiquette/dominican-republiccountry-profile.html http://www.state.gov/r/pa/ei/bgn/35639.html http://dev.prenhall.com/divisions/hss/worldreference/DO/introduction.html http://globaledge.msu.edu/countries/Dominican-Republic