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2015 TOCICO International Conference

Transforming Businesses Track


Dawid van Rensburg
DAWID JANSE VAN RENSBURG


Implementing TOC Supply Chain Solutions to Enhance the South African Footwear Industry
September 9, 2015

Similar to most other countries in the word, the South African footwear industries have seen a dramatic decline in local manufacturing over the past two or three decades. This has obviously effected many employment opportunities.

Of an estimated annual world production figure of around 21 billion pairs of shoes (2011), approximately 87% of this is manufactured in Asia. China alone produces more than 13 billion pairs per annum, or roughly 63% of world production. The next largest producer is India with approximately 10% of the world’s production.

The World Footwear 2012 Yearbook, an initiative from APICCAPS lists South Africa, out of 92 countries in position 23 in terms of production, with around 51 million pairs, in 2011.

Looking at South Africa, the following illustration shows the decline over the past number of years, but also indicates that local production has stayed reasonably flat since 2008:

Footwear Industry Graph

Source: SAFLIA Digest, Footstats 2009

So, how does any country with the ambition to have a vibrant and growing footwear industry, compete with such enormous giants of footwear production?

CargoSolutions, a TOC Consulting Company, and implementers of the TOC enabling Symphony Software from Inherent Simplicity, has been associated with a group of footwear companies for more than 8 years now. The shareholders of this group of companies is a family. The family has recently invested in the acquisitioning of two more manufacturers, as well as an equity stake in a much larger industrial footwear group of companies.

The journey of TOC implementations started off with an implementation of the TOC supply chain solutions in an industrial safety footwear manufacturer in 2008, and was followed by the same type of implementation in a fashion shoe manufacturer in 2014.

The industrial footwear sector has been hard hit by the mass importation of less expensive "safety shoes” from especially China. In the first implementation in the industrial footwear factory, the implementation had to incorporate the changing of a traditionally make-to-order (MTO), to a make-to-availability (MTA) supply chain. The implementation was over a two year period, with periodic involvement after that for another two years. A fascinating part of this business was the implementation of the TOC supply chain solutions to a number of SMME’s (small, micro and medium sized enterprises). The forming if these companies had the objectives of empowering previously disadvantaged persons from South Africa, and assist them in getting their own companies off the ground. Improved productivity was another objective. The Strategy and Tactics Tree that was used here is the consumer goods template.

The end result of the TOC implementation was that the company has dramatically improved return on investment (ROI) for the shareholders, and has achieved profitability levels that are rare in any industry, let alone in the footwear industry.

The second implementation was in a fashion footwear design and manufacturing company, and again there was a change from MTO to MTA in the supply chain of the company on the fast runners. Some of the challenges in this implementation included the fact that approximately 7% of their SKU’s represents more than 90% of revenue, and the strategy was to build their supply chain to deliver much faster and reliably on the majority of the styles (MTO), and in doing so start expanding the revenue base beyond the few fast movers.

Again we have had to incorporate a range of the SMME’s in the supply chain.

Whilst the implementation period is now just over one year, we have seen remarkable improvement in the availability of MTA items, and a drastic improvement in due date performance. This project will still require a substantial amount of work, but at the time of the Conference in South Africa, the upside from the TOC implementation will start presenting itself. The company remains profitable, with good ROI performance.

The financial strength of the two companies where TOC was implemented, has enabled the shareholders to invest in a number of other footwear manufacturers (fashion footwear), a footwear retail chain, and a leather tannery, with a large share in an industrial shoes. The combined group will in future produce and distribute (there is a level of importation) approximately 8.5 million pairs per annum.

Most of these factories are based along the coastline of SA, and they have no warehousing presence in the Gauteng Province, which is the economic powerhouse of the country. A project is currently underway where we will establish a logistics hub in Johannesburg, for distribution in the northern part of SA, amounting to approximately 70% of the group sales. The warehouse will be run on dynamic stock buffers, ensuring fast inventory turns. This hub will deliver within 24 hours, enabling the footwear group to offer "unrefusable offers” to the retail market, as well as the footwear distributors. This is seen as a vital step in furthering a competitive advantage over importers of footwear. One of the services that will be rendered from this hub is the monitoring of vendor-managed inventory at customers, automating the ordering process from retail to manufacturer.

Another project that has recently started, is a proof-of-concept to link the vertical supply chain from leather supplier to manufacturer, to retailer. The objectives of the project obviously revolves around the reduction of lead times to very short durations, ensuring fast inventory turns for all stakeholders, as well as reduced cash-to-cash cycles. Also very important is the deployment of increased ranges from the new footwear group to the newly acquired retail operations, at fast turns, using the Johannesburg hub, and soon to follow hubs in Cape Town and Durban. Again, during the time of the Conference in South Africa, this project will have achieved results, and an overview will be provided during the proposed presentation.


DAWID JANSE VAN RENSBURG

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