Sapph advice report bundling at the source by Tirsa Dijkstra

Sapph and Bundling at the source advice report

Nina van Eck and Tirsa Dijkstra Honours programme 2013,Amsterdam Fashion Institute

Introduction Logistics and distribution are an important part of the fashion industry. Time is crucial when it comes to the delivery of goods, so are the costs. Bundling at the source aims to reduce the amount of shippings and transports in the cities by bundling orders from different brands together. The aim of this advice report is to look at this project with an objective view for the lingerie brand Sapph in order to compare the current and new distribution process (if Sapph joins Bundling at the source). To answer the main question ‘Will Bundling at the source be a good opportunity for Sapph?’. This report presents ﬁrst general information about the Bundling at the source project and Sapphʼs current distribution process. Second, the new situation will be explained with a future scenario followed by the implementation of Bundling at the source at Sapph. The current and new situation for Sapph will be compared by introducing several advantages and disadvantages. Finally, the current and future warehousing costs will be benchmarked. The advice report will end with a concluding advice for Sapph that will answer the main question.

About this Research Report

- This report gives an insight in the Bundling at the source project; - Offers an overview of the current and new situation of the logistic fashion chain; - Gives an overview of the advantages and disadvantages of Bundling of the source; - Describes how to implement the project - Describes the shift from FOB to FCA and explains the (dis)advantages - Gives an overview of the savings in costs once it will be implemented - Concludes with an objective advice for Sapph

executive summary

This Advice Report is written for Sapph in order to give an objective answer to the question ‘Will Bundling at the source be a good opportunity for Sapph?’’

Bundling at the source

The Dutch project Bundling at the source is an initiative organized by Dinalog. They aim is to optimize the distribution process in the fashion supply chain. It involves a collaboration of six different logistic companies, all sharing the goal to create a more sustainable, cheap and fast way of the delivery of goods. By a horizontal collaboration of multiple suppliers and brands, they bundle volumes in Asia and prepare shipments of the different suppliers together in one container. All pick and pack activities will take place in the country from origin (in this case China) instead of the Netherlands. With this new system, the products can be sent directly to the retailers by truck instead of a warehouse.The most important beneﬁts to join Bundling at the source will be savings on both warehouse- as the distribution costs, you will have more transparency and grip on the suppliers and last, there will be less carbon prints because of less transport.

New distribution scenario

The idea behind the project can be visualized best by comparing the current and the new situation: In the traditional logistic fashion chain, distribution costs are high due to many different steps in transport and the warehousing costs in the Netherlands. Also, the individual orders of the brands are shipped separated, mostly in LCL (less than container load) containers. Bundling at the source will optimize this by focusing on two aspects: 1. Warehouse activities will take place in China instead of the Netherlands because of lower wages 2. Minimizing the transport rides to the Netherlands by bundling different orders as one sending Bundling at the source is still under construction: currently they are in the ﬁrst phase, this is the shift from pick and pack activities and bundling the goods of different brands in one container. The second phase, combining the goods of different brands on time- and area level, will be implemented in June. Focus will be to compose all packages on shop level.

Current situation Sapph and Implementation

Sapph’s current distribution process is outsourced to VIM, they provide all transportation for the delivery of the goods. The warehouse is based in the Netherlands, from where most of the goods 4

will be send to different locations. Goods for V&D and Wehkamp will be send directly from their own warehouse to their stores/clients but are not discussed in this advice report. If Sapph will join Bundling at the source, the following will change: - Movement of the warehouse/distribution center to China - Change of Forwarder: from Ritra to Tigers ltd. - Bundling of orders: collaboration with other lingerie brands But most important is the implementation of the project: three issues have to be taken into account: 1. A shift in Incoterms from FOB to FCA 2. An agreement with all ďŹ ve suppliers to work under FCA 3. A collaboration with Chinese forwarder Tigers ltd. From FOB to FCA means that the buyer receives cargo rights at an earlier stage than under FOB. The shift in Incoterms is needed in order to pick and pack in the Chinese based warehouse. It will mean more responsibility for Sapph but savings in transport costs and more visibility and grip on their suppliers.

Advantages and disadvantages

For Sapph, the most considerable advantages will be savings in costs, more visibility and grip on the suppliers, postpone import duties, increasing service logistics and a substantial ďŹ&#x201A;ow of the goods. But there might be some disadvantages as well: If factories do not want to cooperate with the switch in Incoterms, it can not be implemented. Others are; the lack of trust towards other companies and packing issues (like damaged goods).

Advice for Sapph

One of the most important reasons for Sapph to join Bundling at the source will be the cost aspect. Bundling at the source claims to save at least 20% of the total distribution costs, due to lower handling- and warehousing costs and by bundling the different orders. For Sapph, it will save even more in the future: comparing the current with the new situation, there can be concluded that cost savings can reach at least 21% up to almost 29%. The overall savings for an average order will be approx. 25,5%. Because the disadvantages will be outweighed by all advantages of the project, it would be a beneďŹ cial chance for the company to optimize their logistic system by joining Bundling 5 at the source.

table of contents Introduction Executive summary

1 2 3 4

bundling at the source 1.1 the project 1.2 Why Bundling at the source? 1.3 Organization

From factory to store 2.1 The traditional logistic fashion chain 2.2 The new situation: Bundling at the source 2.3 The future: the second phase of the project

8 8 9

12 16 17

Sapph: Current situation and the future 3.1 The current situation 3.2 Future scenario 3.3 V&D and Wehkamp

Implementation 4.1 A shift from FOB to FCA 4.2 Inform al suppliers 4.3 Tigers Ltd. 4.4 Advantages and disadvantages

22 23 24

26 29 29 29 6

5 6 7

Cost: current versus new costs Figures 5.1 Costs current situation 5.2 Costs new situation 5.3 Old versus new situation 5.4 Conclusion

Last Recommendation: V&D

32 34 34 34 34

V&D

Conclusion

References

Appendixes

1 Bundling at the source 1.1 The Project

More transport movements are taking place each year. The distribution process exists of many small parts; the delivery of the goods from factory to store is a complicated and extended process that currently requires many different individual ways of transport. Dinalog has organized a more efficient solution to optimize this distribution process: the Dutch project ‘Bundling at the source’. It involves a collaboration of 6 different logistic companies, all sharing the goal to create a more sustainable, cheap and fast way of the delivery of goods. Bundling at the source is a project that aims to work together with multiple suppliers (as much as possible) of the fashion retail industry in a smarter and more effective way. By a horizontal collaboration, they bundle volumes in Asia and prepare shipments of the different suppliers together in one FCL container1. They are delivered to the shops in one go instead of an overload in shipments. The pick and pack activities of the products will take place in the country from origin instead of the Netherlands. With this new system the products can be sent directly to the clients by truck instead of a warehouse. This initiative is set up by the Dutch retail-supplier organization MODINT; they are representing 75% of the Dutch fashion and textile sector. The aim is not only to reduce the amount of transport movements but also to lower the costs as well as reduction of CO2 emissions. The project is still under construction. For the first phase Bundling at the source will mainly focus on shifting the pick and pack activities and bundling the goods of different brands in one container. Eyefreight (see 1.4) is working on a computer system that enables to combine the goods of different brands on time– and area level. This system should be ready in June 2013 in order to run the first tests.

1.2 Why Bundling at the source?

The ultimate goal is to build and establish a physical infrastructure with as much suppliers as possible; this is needed to execute the Bundling at the 8

1 FCL stands for Full container load: a full container (20ft or 40ft) is used by one company for their cargo

source project. Besides this, it is about being concentrated at one central point and thus having one central control system. In the end, MODINT aims to transfer this concept into the whole international fashion sector. It has to become widely available and compliant market rates. Bundling at the source allows it to calculate the optimum price and to increase the degree in bundling. There are important reasons to implement this project in the supply chain; these are all described as benefits. The most important benefits to join Bundling at the source are: 1. Savings on both warehousing- as well as distribution costs 2. More transparency and grip on the suppliers 3. Less carbon prints; a contribution towards a more sustainable world Expected results Bundling at the source tends to optimize the distribution process in the fashion supply chain, starting with small- and medium sized companies. By using a central platform for the coordination between logistic providers, harbours and shops, there will be less transport movements needed. To achieve this, the multiple suppliers should co-operate with each other and the institutions that are already concerned in the project. By collaboration, all of the suppliers could reduce their handling- and transport costs because these will now be divided. The expected results according to Bundling at the source in the near future are: - Reducing the amount of deliveries to shops by bundling the different volumes from multiple suppliers - Reducing the handling of goods to shops - A better insight in the flow of goods by better visibility - Reducing the transport and handling costs

1.3 Organization

The Dutch project Bundling at the source is organized and provided by Dinalog. Dinalog could be seen as the grand provider for dsitribution. The project is divided in two different parts, 6 different parties are involved. The ﬁgure on the next page shows all different parties. Their roles within the project are explained on the next page. 9

BBB (Dinalog)

creating software organization of companies

Eyefreight TU MODINT Ewals/Tigers Greenway amfi

Software development

- Eyefreight: Eyefreight develops the software that is needed for the project. The software offers a web-based solution for an effective and streamlined freight management - TU Eindhoven: The 驶Technische Universiteit始 Eindhoven has a logistics department where students are researching and developing new freightment solutions.

Bundling of the suppliers

- MODINT: Retail organization that also provides services for their members such as logistics. In the project they are the head provider of submissions from the government. The organization of logistics for Modint is done by: - Greenway: the logistic consultancy and the executor for Modint logistics. Greenway will arrange all the contacts (such as logistic providers) and advice concerning the distribution for Bundling at the source. - Ewals: They are the Dutch logistic providers and are working with their Chinese partner Tigers for bundling at the source. Tigers is able to provide a distribution centre based in China. - AMFI: The Amsterdam Fashion Institute plays an important part in the project since the fashion students are doing research for the project. They are looking for new opportunities, new clients and improvements regarding the processes. 10

2 From factory to store 2.1 The traditional logistic fashion chain

For a better understanding of the current and new situation of the distribution process, the following figure (see next page) and text below visualizes the old and new process step by step. In the traditional logistic fashion chain packages are being delivered to every shop, every day individually per company. Sometimes they even deliver goods several times each day. Because of this inefficient distribution, the transport costs can be very high. Next to that there is also more traffic in the city areas, these areas can be hard to reach and the carbon print is bad for the environment and the people. With the bundling at the source project this situation can be improved.

1 2 3 4

Traditional logistic fashion chain

Sales orders for fashion chains The different fashion companies place their sales orders at their supplier individually.

Sales orders at the Chinese factories A brand combines one sales order in two buying orders for two different factories in China. Another brand gives buying order to one factory. These factories are going to produce the goods. Transport to the Netherlands The ﬁnished goods will go to the harbour in Hong Kong by truck. A container ship will ship the boxes to the harbour in Rotterdam. Transport to the supplier The container for company A will go per truck to their warehouse, the goods for the company B will go to a different warehouse. 12

5 6

Distribution center A lot of Dutch companies do not have their own warehouse. The boxes go to a distribution centre from the logistic provider. They arrange logistics for different companies. Dividing of delivery to the shops The products will be divided per order over the different stores. Extra services can be done (for example stickering or delivering). Every package is delivered by car from a package service (DHL, PostNL, GLS, DPD). The packages are picked up at the warehouse and are delivered to the right store.

Bundling at the source

The goal of the project is to lower the transport costs in the fashion branch. The project combines two concepts: 1. Warehouse activities will take place in China instead of the Netherlands The goods will be made store ready in China, close to the factories 2. Minimalizing the transport rides to the Netherlands Packages for the same store (or area) will be bundled in China as one sending. On the next page you can ďŹ nd a picture of the traditional logistic fashion chain.

factory

warehouse sapph sapph

factory

warehouse

factory

warehouse

2.2 The new situation: Bundling at the source

Bundling at the source aims to lower distribution costs, this is done with smarter packing logistics. The new situation, once Bundling at the source is implemented, is explained here:

1 2 3 4

new logistic fashion chain

The warehouse shifts to China The logistic provider that takes care of the transport from China for all the companies focuses, on a local partner and a warehouse close to the harbour of Hong Kong. This makes a warehouse based in the Netherlands unnecessary. Warehouse partner in China All Chinese suppliers deliver the goods to this new warehouse in China.

Packages are composed on shop level The sales orders for every shop are already known several months before they wil be delivered to the stores. The Chinese warehouse employees can combine on store level so the delivery in the Netherlands will be easier. All value added services will be done in China. From the harbour to the shop When the goods arrive in the Netherlands, a package deliverer will pick up the goods from the harbour to deliver it directly to the different stores.

See page 18 for a ďŹ gure of the new logistic fashion chain process.

2.3 The future: the second phase of the project

As mentioned earlier, Bundling at the source is currently busy with developing a centralized system to optimize the process on store-level. The process of this second phase will contain the next procedures:

1 2 3 4

optimal logistic fashion chain

Composing packages on shop level The Chinese warehouse employees combine the goods on store- and area level so the delivery in the Netherlands will be easier. Combining packages into one delivery After this, packages with the same delivery address (or area code) will be combined into one delivery.

Tariff package deliverers If one deliverer can send one sending of several boxes on the same place at the same price, the price of the delivery will decrease. Deliver packages as one delivery A combined shipment arrives in the Netherlands, there will only be one deliverer per shipment. Because of this, the distributionâ&#x20AC;&#x201C; and transport costs will decrease.

Example optimal delivery

Two packages have to go to the same address; a third package has to go to their neighbours. By bundling the goods there will be only one car needed to deliver them. See page 20 for a ďŹ gure of the optimal logistic fashion chain. 17

factory

sapph sapph

factory

warehouse

factory factory

warehouse

factory

sapph sapph

warehouse

factory

warehouse

3 Sapph: Current and new situation

For this advice report, we only took the lingerie in consideration. The beachwear, produced in the Shanghai area, will not be discussed in this report.

3.1 The current situation

Sapph has all their factories for lingerie based in the Shenzhen area; there are ďŹ ve factories that produce their lingerie. The warehouse of Sapph is based in the Netherlands. Sapph is outsourcing their distribution process to the Dutch company VIM2. They are working together with the Dutch forwarder Ritra to ship all the goods to the Netherlands. All issues and processes concerning the logistic part are thus the responsibility of VIM, their logistic agency. VIM provides all transportation for the delivery of the goods. Forwarder Ritra

Direct delivery V&D

Delivery to Netherlands, Swalmen

Delivery to individual clients

Storage after deliveries

2 VIM stands for Voormaling Intres Magazijn

Direct delivery V&D webshop

Direct delivery Wehkamp

Distribution center

Delivery to Belgium

Delivery to Webshop warehouse

Distribution center

Delivery to individual clients

Current distribution process

After the goods are ďŹ nished, the different factories bring these goods to the harbour by truck. From this point, Ritra makes sure that the goods will arrive in the harbour in Rotterdam, the Netherlands. This will go by ship. In case of urgent deliveries the goods can be transported by air as well. When the goods arrive in the Netherlands, they will be divided into ďŹ ve different places; the warehouse in Swalmen, V&D, Wehkamp, Belgium and a webshop warehouse. - The goods are being stocked to the warehouse before being divided to the different individual clients by truck. The rest of the goods will be stored there for after deliveries. To deliver these goods as fast as possible, they are stored in the Netherlands. - Another part of the goods is directly sent to V&D and Wehkamp. Wehkamp has online deliveries; they will be send to their different clients. V&D divides the products to their different stores and has stock for their webshop. - The goods for Belgium will directly delivered to Belgium. From there they will be transported to the clients. If there is an after delivery for a client, the goods will be delivered from the warehouse in Swalmen. Next to that, there is an extern warehouse for the webshop.

3.2 Future scenario

If Sapph collaborates with Bundling at the source, their distribution process will change. The next scenario will explain what will change regarding to their logistic partners, processes and organization. The implementation and other requirements to bundle at the source will be explained in chapter 5. Movement of the warehouse/distribution center to China Because pick and pack activities are much cheaper in China, both the warehouse as well as the distribution center will move to China. Change of Forwarder: From Ritra to Tigers ltd. Since Tigers ltd., a Chinese logistic company, is already working with Bundling at the source, Sapph will shift from Ritra to Tigers ltd. for the sea freightment. This will have no further consequences for the company since Bundling at the source and VIM will manage this. Bundling orders: Collaboration with other lingerie brands Instead of using LCL or FCL containers for their own deliveries, Sapph will now share these with other brands in the same branch. This means less shipments and a decrease in shipping costs. 23

3.3 V&D and Wehkamp

In this project we will only focus on the goods that are send to the different clients in Europe and not on Wehkamp and V&D. They have their own processes. Wehkamp has an own warehouse; they will send the goods to their different clients from there. For V&D Bundling at the source will be an option in the future. The goods for V&D can already be picked and packed in China so they can be directly delivered to the different stores throughout the country (see chapter 6).

V&D sapph

4 Implementation

Sapph does not have to fear for big changes in the organization or within the company structure itself as almost everything will be guided and managed by Bundling at the source. However, the following important issues have to be taken into account to succeed: - A shift in Incoterms: from FOB to FCA - An agreement with all ﬁve suppliers to work under FCA - A collaboration with Chinese forwarder Tigers ltd.

4.1 A shift from FOB to FCA

The Incoterms rules are international agreements about the international distribution of goods. The terms have to make sure that the risks, tasks and costs that are associated with the transportation and delivery of goods are communicated clearly. It determines the obligations of the buyer and the seller. Sapph is currently working under the Incoterms FOB (Free on Board) but for Bundling at the source, the shift to FCA (Free Carrier) is required. Under this FCA trade system, the buyer receives cargo rights at an earlier stage than under FOB. This switch is needed in order to do pick and pack. Though most companies see working with a FCA system as a hinder, it also brings beneﬁts. This will be explained later in this chapter.

fob

fca

FOB

Under a FOB trade system, the seller delivers the goods when the shipment is being placed at the vessel at the named port of the shipment. This means that the buyer has to bear the costs and risks of loss or damage of the goods from that point on. The seller is required to clear the goods for export. This Incoterm can only be used for sea or inland waterway transport. (Hemmings, 2005). The ﬁgure 26

below explains this process from factory to the destination (Rotterdam): the buyer is responsible for the goods once they are on the vessel. The BOL3 will be prepared by the forwarder and then will go to the carrier, who is responsible for the transport of the goods between the factory and the vessel. The documents will then be carried on to the supplier so he can ﬁnally receive his money. Until this moment, the documents are under the buyer’s risk.

sapph sapph

mainland china factory

house BOL

seller’s risk

Vessel

destination (warehouse)

bol forwarder warehouse carrier warehouse

buyer’s risk 27

8 BOL means bill of lading. This is a document used in the transport of goods by sea. It details a shipment of merchandise, gives title to the goods and requires the carrier to deliver the goods to the right party. It conﬁrms that the goods speciﬁed in the document have been loaded or taken in charge for loading on a selected vessel for transportation.

FCA

The difference with the Incoterms FOB is that the seller has to fulfil his obligations in an earlier stage: Free carrier means that the seller fulfils his obligations when the goods are leaving the factory and cleared for export into the charge of the carrier named by the buyer at the named place/point. (WCS, 2012). The difference with FOB is visualised in the figure below; the buyer’s risk already starts when the goods are finished and are ready to leave the factory. From here, there will be assigned a FCR4 document (instead of a Bill of lading). Using this document can speed up payment. This is beneficial in most cases for the buyer because it takes less time and less responsibility.

sapph sapph

mainland china factory

assigned warehouse

Vessel

destination (warehouse)

forwarder certificate of receipt forwarder cargo of receipt

seller’s risk

buyer’s risk

4 FCR = Forwarder Cargo of Receipt: Forwarders certiﬁcate of receipt. This receipt is a proof that the forwarder has accepted the goods. Using FCR can speed up a payment. They have the instructions to deliver the goods to the consignee indicated to the FCR.

Advantages FCA

- Change in documents: from BOL to a FCR FCR makes it possible to send documents by e-mail; this is less expensive and faster - The buyer has the opportunity to stretch the delivery date without any consequences for the shop arrival time. - The transportation costs are lower - More supply chain visibility and ﬂexibility - Lower overall costs What might be seen as a disadvantage for Sapph is that the company will have more responsibility: Under a FCA system the buyer has more authority over the cargo. The buyer will also be responsible for the carriage to port of export, unloading of the trucks and the loading to port of export.

4.2 Inform all suppliers

To implement the Bundling at the source project, it is necessary that all Sapph’s suppliers will agree with the shift in Incoterms (from FOB to FCA). If one supplier does not want to change its Incoterms, it is not possible to implement the project. Also, it is important to make agreements with all suppliers about the transportation of the goods from factory to the warehouse since this is now (under FOB) the suppliers’ responsibility. In most cases, logistic provider Tigers ltd. (see 4.3) will arrange this unless the factory is willing to provide the transportation themselves. (Mei Luen).

4.3 Tigers ltd.

As already explained, Sapph will work together with the Chinese forwarder Tigers ltd. Tigers has several distribution centres based in China. For Sapph, the best option will be to make use of their distribution center based in Shenzhen, Yantian, since it is close to all ﬁve suppliers. Tigers will take care of all shipping of goods to the Netherlands and other logistics as well as the pick and packing in their own distribution centre. Because the company already works with Bundling at the source, they can guide Sapph and the factories step by step.

4.4 Advantages and Disadvantages

Bundling at the source contains a lot of advantages for small- and medium sized fashion brands. The ﬁrst phase is mainly beneﬁcial with respect to warehousing costs. But the project also includes disadvantages. For Sapph, the most considerable advantages and disadvantages will be the following: 29

1 2 3 4 5

Advantages

Savings in costs The handling and warehousing costs will decrease because the pick and pack activities and value added services would shift to low-labour cost country China. Shipping costs will be less because orders will be bundled with other brands to ﬁll one container, so these costs will be divided. More visibility and grip on the suppliers Working under FCA means more transparency and control regarding to your suppliers. It means more responsibility for Sapph, but it will also mean Sapph will now be in control of the tasks and risks of their own goods; resulting in a more controllable system. Postpone import duties Since the order can be stored for a longer period (at the factories) you can postpone your import duties. This means you are able to pay tariff duties in a later stadium; this is positive for your cash ﬂow.

Service logistic Because all deliveries will be made ‘shop ready’ at one central place, the logistic services will increase. Substantial ﬂow of goods The ﬂow of goods will be optimized because you can send more deliveries in several times without having more expenses. You will pay for the weight and mass of your goods, not for the full container. This will save costs while sending small orders.

Besides all positive results once working with Bundling at the source, there might be some disadvantages for Sapph as well.

1 2 3

Disadvantages

Factories do not want to cooperate If a company wants to join the Bundling at the source project of MODINT they have to change their Incoterms from FOB to FCA. If a company or factory does not want to work under FCA terms it is not possible to work together. Lack of trust towards other companies The goods will be combined with other brands/companies. It is important for companies to trust in the fact that they have their documents ďŹ nished on time and that the factory ďŹ nished their goods on the agreed time. Bundling at the source will only combine your goods if it is possible within the time schedule. Your goods will never be later than the promised date. Packing issues The products are currently checked and sometimes repacked in the Netherlands before they will transported to the stores; damage due to shipping will thus always be solved. In the new situation, the goods will directly be delivered to the store. You might deliver wrong or damaged goods to your client. The warehouse in China can check this, and make pictures of the boxes and the containers to proof the goods are delivered carefully but there is still a change on damaged goods. Therefor, agreements about bearing the risk and the responsibility have to be clear.

5 Costs: Current versus new situation One of the most important reasons for Sapph to implement Bundling at the source will be the cost aspect. Therefor, the costs in both the current as well as in the new situation are compared in the ﬁgures below to get a better picture of the actual savings in costs. Figure 5.1

Tops (20 pieces per box)

Old situation

1. Receipt of the goods 2. Push 3. Value added services 4. Total

Price per box €1,15 €6,00 €8,00 €15,15

new situation

Price per piece €0,06 €0,30 €0,40 €0,76

1. Receipt of the goods 2. Push 3. Value added services 4. Total Figure 5.2 For these numbers we calculated the prices per box and per order from the delivery of April 2013 for Belgium and the Netherlands. In total it will save €997,80 for the order of shipment April 2013. This is almost 1/3 of the current total costs.

Price per piece €0,00 €0,24 €0,36 €0,60

new situation

bottoms (150 pieces per box) Old situation Price per box €1,15 €45,00 €60,00 €106,15

Price per box €0,00 €4,80 €6,40 €11,20

Price per piece €0,01 €0,30 €0,40 €0,71

Price per box €0,00 €36,00 €48,00 €84,00

Price per piece €0,00 €0,24 €0,36 €0,60

shipment april 2013 belgium + the netherlands Tops Bottoms

153 boxes 15 boxes

3060 pieces 2250 pieces

price

per box

per order

Old tops Old bottoms Total

€15,15 €106,15 €121,30

€2317,95 €1592,25 €3910,20

New tops New bottoms Total

€11,20 €84,00 €95,20

€1652,40 32 €1260,00 €2912,40

Figure 5.3

price difference

Price difference per top per piece Price difference per bottom Price difference per piece average

€0,76 - €0,56 = €0,71 - €0,56 = €0,15 + €0,20 / 2 =

€0,20 €0,15 €0,18

Price difference per box tops Price difference per box bottoms Price difference per box average

€15,15 - €11,20 = €106,14 - €84,00 = €3,95 + €22,15 / 2 =

€3,95 €22,15 €13,05

Price difference per order tops Price difference per order bottoms Price difference per order total

€2317,95 - €1652,40 = €1592,25 - €1260,00 = €664,60 + 332,25 =

€664,60 €332,25 €996,85

Figure 5.4 The percentages are calculated by: new - old/100 x100%. The total savings in percentages of the old costs compared with the new costs are high (25,5%). For this calculation we used the order for 2013 April as an example.

In the table on the left the difference between the old and the new situation is calculated.

percentages general Tops Box Piece

Old

New

Percentage

€15,15 €0,76

€11,20 €0,56

26,10% 26,32%

Bottoms Box Piece

€106,15 €0,71

€84,00 €0,56

20,90% 21,13%

percentages shipment april 2013 Old

New

Percentage

€15,15 €2317,95

€11,20 €1652,40

26,10% 28,71%

Bottoms Box Order

€106,15 €1592,25

€84,00 €1260,00

20,87% 20,87%

Total order

€3910,20

€2912,40

25,5%

Tops Box Order

5.1 Costs Current situation

Sapphs’ current costs are divided into several processes; The warehouse costs, the distribution costs and other expenses. The focus will be on the costs regarding to the warehousing. In the future the savings can increase since there is still some improvement possible. Warehousing costs can be divided in 9 steps but for the cost calculations, only three steps are applicable when comparing the current costs with the costs once working with Bundling at the source. For more detailed information, see appendixes 5.1.

5.2 Costs New situation

When Sapph will implement the new logistic methods recording to the Bundling at the source project, the costs will decrease. For now, the focus is on the warehousing and all the costs that are related to this process. Steps will not differ from that of the current process, but there are going to be some small changes. The differences are all projected in ﬁgures 5.1 - 5.4. For more detailed information, see appendixes 5.2. The costs that are calculated are only related to the ‘normal’ orders, so both Wehkamp and V&D orders are disregarded.

5.3 Old versus New situation

In ﬁgure 5.1, the current and new costs are calculated based on the steps explained earlier. All costs are rounded to two decimals place. Figure 5.1 shows the difference in Euro’s per piece and per box for both tops and bottoms in the current and new situation. Figure 5.2 represents the order for Belgium and the Netherlands, 2013. Here, the price differences are on box- and order level. Figure 5.3 describes all price differences in the old and new situation. In ﬁgure 5.4, all savings are displayed in percentages of both pieces, boxes and the 2013 order.

5.4 Conclusion

Based upon the results in the previous figures and the comparison of the current and the new situation, there can be concluded that Bundling at the source will be beneficial for Sapph’s current logistic system. Figures 5.1-5.4 all showing savings in warehouse costs between the current and the new situation. In figure 5.4, this is most visible when comparing both scenarios with the 2013 order for Belgium and the Netherlands. It is obvious that Sapph will save costs in the new situation. Cost savings can reach at least 21% up to almost 29%, depending on tops/bottoms and in which content. Most important, the overall savings for an average order will be approx. 25,5%. 34

Savings per piece

The savings per piece will be: - For bottoms: € 0,20 - For tops: € 0,15 For the bottoms, Sapph will save 21,13% on warehousing costs with Bundling at the source and for the tops, savings will be 26,32%.

Savings per box

The savings per box will be: - For bottoms: € 22,15 - For tops: € 3,95 For bottoms, Sapph will save 20,90% on warehousing costs, for tops they will save 26,10% with Bundling at the source.

Savings per order

The savings per order will be: - For bottoms: € 664,60 - For tops: € 332,25 For bottoms, Sapph will save 20,87% on warehousing costs with Bundling at the source. For tops, Sapph will save 28,71%. Savings for one order of 168 boxes in total will be 25,5%. Regarding to these ﬁndings, we can conclude that Bundling at the source will be very advantageous for the company. It is a good opportunity for Sapph to decrease their logistic costs. Together with the earlier mentioned advantages, Bundling at the source will be a cost saving and beneﬁcial project for the company Sapph.

6 Last recommendation: V&D 6.1 V&D

This advice report does not specify the results for the Wehkamp nor the V&D orders but in the case of V&D, a short recommendation is appropriated as well. V&D has currently central deliveries that are divided over their stores and their webshop in the Netherlands. All these deliveries are transported to a central warehouse. All value added services are thus in the warehouse, based in the Netherlands. It would be a cheaper option to combine V&D orders with Sapphâ&#x20AC;&#x2122;s other orders. This will save warehousing costs since all activities will move to the China based warehouse then also. According to Bundling at the source, cost savings will be at least 20%. This makes it a great opportunity for V&D as well.

7 Conclusion With the aim to optimize the distribution process by bundling orders from different brands, Bundling at the source could be a great opportunity for fashion brands. For Sapph, it is most important to look at the issue ‘Will Bundling at the source be a good opportunity for Sapph?ʼ, where the focus should be on the savings in costs particularly. This advice report evidenced both advantages as well as disadvantages for Sapph, if they will join Bundling at the source. Sapph’s distribution process is currently performed and provided by VIM and Ritra; they make use of a warehouse based in the Netherlands. The current situation could be described as inefﬁcient because different shippings and deliveries and the expensive warehousing costs. Bundling at the source would therefor be a proﬁtable way to optimize this. Important though, is that all suppliers should change and agree with the needed shift from FOB to FCA. This requires some attention from both parties.

Advice to Sapph

Mentioned disadvantages such as packing issues and the lack of trust towards other suppliers are there to be solved and will be outweighed by the many advantages of joining this project. Most important advantages for the company will be a decrease with average savings of in transportation costs, more transparency, more grip on the suppliers and the postponing of import duties. For Sapph, the 25,5% in costs, these will most important reason to join Bundling at the source will be the decrease appreciable. This savings in warehousing costs: with average savings of 25,5%, saves a lot of costs in the these will decrease appreciable. This saves a lot of costs in the future. Bundling at the source would be a beneficial chance for the future. company to optimize their logistic system. It will not only save costs, as it will influence the whole distribution process in a positive way. Joining Bundling at the source could therefor be considered as the perfect opportunity in these difficult times. The only thing Sapph has to take into account is the project costs; these will be single costs that come with a change in their software system.

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Nancy Tu, 2012. Trade Terms.[online] Available at: <http:// wenku.baidu.com> [Accessed 12 May 2012 ]. Pierobon, 2011.FCA responsibilities.[online] Available at: < http://www.pierobon.org/export/ch11/fcar.htm> [Accessed 12 April 2013] Ritra Cargo Holland B.V., 2011. Zeevracht.[online] Available at: < http://www.ritra.nl/zeevracht_nl.html> [Accessed 3 April 2013] Sapph homepage, 2013. Sapph - The Story.[online] Available at: <http://www.sapph.com/nl/about> [Accessed 2 April 2013] Simple studies, 2009. What ae FOB shipping terms?. [online] Available at: < http://simplestudies.com/what-are-fob-shipping-terms.html > [Accessed 18 April 2013] Tigers Homepage, 2013. [online] Available at: < http://www.go2tigers.com > [Accessed 12 April 2013] VIM de supply chain regisseur, 2013. Diensten.[online] Available at: <http://www.vimdscr.nl/diensten/> [Accessed 5 April 2013] Worldwide baggage & packages, 2012. Seafreight all you need to know.[online] Available at: <http://www.baggage.nl/en/pages/calc/what_is_seafreight.php> [Accessed 10 April 2013] World Class Shipping, 2012. EXW-Ex Works.[online] Available at: <http://www.worldclassshipping.com/incoterm_exw.html> [Accessed 12 April 2013] 42

Books Jonas, M., n.d. Incoterms 2010 and the mode of transport: how to choose the right term, Belgium: Ghent University. Lysons, K. & Brian, F., 2006. What are Incoterms?. In: Purchasing and Supply Chain Management. Essex: Pearson Education Limited, p. 521. Ramberg, J., 1999. ICC Guide to Incoterms 2000. In: Paris: ICC Publication, p. 588. Vanheusden, K., 2005. Leveringsvoorwaarden in internationale overeenkomsten. Van Trade Terms en Incoterms. In: Antwerpen‐ Apeldoorn: Maklu, p. 260. Interviews Beijer, J., Drost, W.J., (2013) Interviewed by Nina van Eck and Tirsa Dijkstra, ‘Bundling at the Source’, Text, 7 May Fan, A. (2013) Interviewed by Nina van Eck and Tirsa Dijkstra, ‘Cargo Far East’, Text, 3 April Fu, Y. (2013) Interviewed by Nina van Eck and Tirsa Dijkstra, ‘Eyefreight and Bundling at the source’, text, 26 April Heilbron, R. (2012) Interviewed by Merlijn Ensing, Rob Heilbron: ‘Ik lijd pijn’, E-journal, De Ondernemer, 6 November Laat, E. (2013) Interviewed by Nina van Eck and Tirsa Dijkstra, ‘ Bundling at the source project; future?’, Text,17 April Li, V. (2013) Interviewed by Nina van Eck and Tirsa Dijkstra, ‘Mei Luen; Sapph’s supplier’, Text, 22 April Velu, R. (2013) Interviewed by Nina van Eck and Tirsa Dijkstra, ‘Bundling at source research stuy with HvA students’, Text, 5 April Wu, J. (2013) Interviewed by Nina van Eck and Tirsa Dijkstra, ‘Quality Control’, text, 16 April 43

Research and reports Bruijn, M., Kuijf, D., Zanten, J., (2012) Bundling at the source: Research from FOB to FCA. Unpublished AMFI Research. Amsterdam Fashion Institute. Bruijn, M., Kuijf, D., Zanten, J., (2012) Supplier Manual 2012. Unpublished AMFI Report. Amsterdam Fashion Institute.

Appendixes appendix 1: Current costs versus new costs Explanation ﬁgure 5.1 - 5.4

5.1 Current costs

1. Receipt of the goods The handling process starts here: the goods are being received. These costs are related to unloading the containers in the warehouse, moving all boxes to the distribution/picking area and accounting the orders. For Sapph, goods have to process completely within 48 hours. Push and pull products are distinguished from each other because the steps in the warehouse are a bit different and the costs for pull products are higher. In the calculations for Bundling at the source and Sapph, we assumed all products are push. This to come up with a proper estimation for the costs since it would be too complicated to take both categories in consideration. 2. Push The customer order will be collected and be merged to a shipping unit. Then all boxes will be labeled and the delivery note (or bill of lading) will be generated. Pull The ﬁrst steps for pull products do not differ from push products but the costs per piece are higher (€0,33 instead of €0,30 per piece): The customer order will be collected and be merged to a shipping unit. After that, all boxes will be labeled and the delivery note (or bill of lading) will be generated. When required, this step can contain special assumptions or conditions because of the pull products. Pull - Remaining stock Only when there is a remaining stock in case of the pull products, this step is followed. The order will be collected and be merged to a shipping unit. All boxes will be labeled and the delivery note (or bill of lading) will be generated. Also here, special assumptions or conditions when needed. Costs for the remaining stock are €1,25 per box. 3. Value Added Services Costs regarding to the value added services are different for speciﬁc orders of that from

Wehkamp and V&D: On all boxes for Wehkamp, stickers will be placed. Costs are per box. On all boxes for V&D, there will be placed A4 labels with information about the products and the volumes. All other orders will be labeled per piece and this can be done in three ways: - Labeled on the product itself - On the polybag - On both Prices will depend on the method that is used.

5.2 New costs

1. Receipt of the goods When bundling at the source, these costs could be considered as not applicable. 2. Push These costs will decrease with 20% because the warehouse will move from the Netherlands to China, where the costs will be lower. 3. Value added services Because all pick & pack activities and extra services will be done in China, these costs will be less than the current costs. Since China is a low-wage country, labor-intensive activities such as stickering and labeling of the goods will decrease once Sapph will work with Bundling at the source.

Appendix 2: Interview Jurriaan Beijer and Willem-Jan Drost We had a meeting with our two coaches from Bundling at the source at our ofﬁce to discuss the last remaining questions and missing facts. the main focus of the meeting was to ﬁnd out the advantages concerning the costs when joining Bundling at the source for Sapph. Advantages in costs perspective Jurriaan and Willem-Jan explained the decrease in handling costs through a simple model: ʻIf we only look to the most common case for Sapph, we can make the following cost calculation for their old and new situation:

What?

Quantity

Per box Per pre-pack/box

€ 1,15 € 0,60/€ 1,00

Push Pull Value added services

Per top/bottom Per top / bottom Per box or piece

€ 0,30 € 0,33 € 1,20/€0,35/ €0,20/0,40/0,50

Storage of goods Blockade of goods Returns of goods

Per piece Per box Per piece

€ 0,005 € 0,25 € 0,33 + 0,15

Receipt of the goods X-docking

Old

New

No costs (Not Applicable) If there are pre-packs; 20% lower € 0,24 (Not Applicable) There can be a decrease in costs of 20% (Not Applicable) (Not Applicable) (Not Applicable)

Because not every step in the process is inﬂuenced when working with Bundling at the source, not everything is applicable: Pull: Bundling at the source is only focusing on the Push products; the decrease in these costs will be the main focus. So there will be a separation of push and pull products; the costs of pull products will not change and are thus not applicable in this table. Value added services: When the value added services will move to China, these costs will also decrease. The decrease in costs regarding to these services will be around 20% because of the low labor costs in China. 48

Blockade and return of goods: Not applicable for the lower costs with Bundling at the source because these costs will not change when bundling at the source.ʼʼ In the near future: lower distribution costs They told us also about the lower costs in distribution once companies are joining the project. Willem-Jan: ʻOnce the goods arrived in Rotterdam, the distribution process starts. We will divide this into two parts: 1. The container transport In the ʻoldʼ situation, the containers will be transported from the dock to the company’s distribution center/warehouse; for Sapph this is Swalmen. This way of transportation is very expensive, around €300-€400. In the new situation, we will arrange, together with big transport companyʼs such as DHL, that the container will go directly to their centre instead of all the way to Swalmen. This will save costs. Savings will be €0.50 per box; so 0,025 per piece (depending on tops/bottoms) 2. The deliveries of the goods to the retail stores Brands in similar branches, such as Livera, can adjust when it comes to the deliveries to the retail stores. This will save costs and will have other advantages as for example less trafﬁc in the cities and less deliveries at different times for the stores.ʼʼ The old situation is not that efﬁcient according to Jurriaan and Willem-Jan: ʻThe goods are now, once arrived in Rotterdam, transported separately with big transport companies. This is expensive since there will be many small deliveries while, once companies will cooperate, the goods from different brands can be combined also on the trucks to the stores. This will save thus distribution costs. What is very important in this process is the alignment with the deliveries from the participating brands. There have to be agreements about delivery times between the buyers so everything will be at the same time in the same area. To coordinate this process, Eyefreight is still working on two different algorithms that will calculate a perfect combination of time, location and costs. We hope to start this last part of Bundling at the Source when these algorithms are developed and tested. We already can make an estimation about the saving in these costs; it will save at least 10% of the distribution costs.ʼ So, in short, there are three different processes where Bundling at the source can decrease the logistic costs: 1. Handling costs: Pick and pack; move distribution centre from the Netherlands to China 2. Shipping costs: Combining goods from different brands in one container 3. Distribution costs: Container transport in the Netherlands to the retail stores 49

All advantages when working with Bundling at the source The project aims not only to optimize the logistics costs but is also focusing on other advantages. Jurriaan and Willem-Jan explained to us that there were six different main categories that will be beneﬁcial for fashion companies, once joining this project:

6 advantages:

1. Handling costs Already explained, see text above 2. Shipping costs Already explained, see text above 3. Value added services Every extra service that will be done in China will save costs because of the lower labor costs. Especially value added services like stickering and other simple labor-intensive jobs, will be much cheaper in China compared to the Netherlands. Moving your value added services to China will save at least 20% in costs. 4. Distribution Costs: Container transport and transport to retail stores. 5. More transparency and grip on the suppliers Once the company has changed in Incoterms from FOB to FCA, there will be more transparency and control regarding to its suppliers. FCA will mean more responsibility for the buyer, but this will also mean you are now in control of the tasks and risks of your own goods; resulting in a more controllable system. 6. Postponing the paying of the tariff duties: Because the orders can be in more delivery-times, they can be stored physically in the China based warehouse. This means you are able to pay the tariff duties in a later stadium since not everything have to be shipped at once. This is positive for your cash ﬂow. Recommendations for V&D V&D is a big client of Sapph in the Netherlands, just like Wehkamp. For Wehkamp, Bundling at the source is not very interesting but Jurriaan and Willem-Jan agreed that the project could mean something for V&D: ʻ We think that Bundling at the source will also be a good idea for Sapphʼs order to V&D. V&D can move their value added services (stickering, labeling etc) to China, so these costs will decrease with 20%.ʼ 50