Below is an article I send to MAAS group (https://www.linkedin.com/in/maas-vietnamese-assignment-services-682926171/) on researching in 4 points including
1. The Size and Structure of the Cotton On
2. The Coordination of Operations and Integration of Cotton On’s supply chain
3. The potential coordination and integration challenges
4. How Cotton On can tackle such challenges.
Unfortunately, their Turnitin check that my report is not unique, even whenIwrite this by myself and another Plagiarism scan software statistics agrees with me. Therefore, I public my report here, hoping some feedback from you, the viewers.
Figure1.1. Cotton On Stores
SUMMARY
Cotton on is a worldwide brand of retailers with various suppliers and stores. Cotton On is well-known for the street styles fashion which adaptive to seasons of each market while maintaining the international price. The brand operates the retail activity both online and offline combining franchising stores, Cotton On’s own stores and online stores.
The Brand maintains the yearly growth of around 20% since 2009 and is extending massively except for this year 2020 with Covid-19 the company slows down to some extent. The key success of the Cotton on comes from the 4 points, namely: partnership with suppliers, follow closely with customer’s behaviors, strong understanding of economic situation and successful financial performance. The important factor contribute to the Cotton On’s success is the integration and co-operation through the supply chain.
Key strategy of Cotton On’s supply chain focuses on maintaining partnership with network of suppliers. This is to keep the price reasonable, increase the capacity of production, and decrease the lead time replenishing the goods in the stores. With wide range of suppliers, Cotton On categorizes to maintain relationship in partner, or key account, or a market research challenger. This based on auditing activities if the supplier can meet the standard of ethics or social responsibility. This help Cotton On to leverage the risk, manage the sourcing and supply activities while maintaining its social image.
Another key strategy of Cotton On’s supply chain is gradually extending the partnership with upstream supplier to take more control of material supply. A wide range of finish good suppliers is not enough to ensure a stable and sustainable supply chain. And the project developing cotton plantation and manufacturing supplier at Kenya is one example.
The report takes a more details view on size and structure of Cotton On Group, coordination of operations and integration in the supply chain, potential challenges and recommendation for the future.
1. The Size and Structure of the Cotton On
Structure: Cotton on is one of Australia ‘s largest retailers with 7 brands, 19 countries, more than 1400 stores, 10 distribution centers and more than 450 Supplier globally (OUR STORE FOOTPRINT - Cotton on Group, 2020).
The supply chain structure of the Cotton on as bellows:
Cotton On has a wide range of supplier network globally from Bangladesh, China, Hong Kong, India, Korea, Malaysia, Taiwan, Thailand and Vietnam. Cotton On applied the strategy sourcing suppliers who are in charge of production, finish good products is shipped to the 10 distribution centers over the globe before presenting at the stores.
The supply chain operates as below process. Firstly, the demand is generated and calculated based on marketing data, market research, level of stock in the stores the stock level at regional warehouse and the stock at the DC. The demand information will be allocated all over the network of suppliers based on the location, capacity and strength …to produce.
Figure 1.2. The supply chain structure of Cotton On (Wang and Chan 2010)
2. The Coordination of Operations and Integration of Cotton On’s supply chain
The company follows the strategy of adaptive to seasons of different countries while maintaining the price across the international market and execute the business. Hence, with the structure of the supply chain, the company can benefit from saving the cost of production, shorten the lead time, and establish the network to reach out a massive number of customers.
Firstly, sourcing supplier in other country enables reducing the price according to the comparison advantages. Among totally 348 suppliers globally, 307 suppliers base in China including most of the production line except for Sunglasses. Bangladesh stands at second place with 18 suppliers focusing on Apparel exclusively followed by India with 9 suppliers dedicated for Apparel.
Table 2.1. Number of Cotton On’s suppliers by nations and product types.
(WHERE WE SOURCE FROM - Cotton on Group, 2020)
Top 14 cheapest minimum wages for clothing production includes China, Bangladesh, Malaysia, South Africa and Viet Nam (McCarthy, 2019).
The main cost of textile is includes component price (Fabric and Accessory), labor cost, tax and transportation cost. To optimize cost, not only labor cost is considered but also the tax, Bangladesh for example, in the context 2020, Bangladesh has zero tax on export Textile (CDP, 2016) as the Least Developed Country. Sourcing from preferable tariff countries allows Cotton On minimize the cost of goods sold and enhance its image in creating employment and improving low-income country.
Secondly, apart from price advantages, another crucial factor in sourcing strategy includes full-supply chain sourcing (Agrigo, 2020). Cotton On are working towards tracing where and how products are made, right through to raw materials, with ultimate goal end-to-end mapping of all suppliers. With this strategy, Cotton On takes full control of the price in the chain, more importantly, advances in risk management of shortage, price fluctuation, social responsibility violation (WHERE WE SOURCE FROM - Cotton on Group, 2020).
Developing a full chain of cotton, yarn, greige and dyed fabric with full transparency enables Cotton On accumulating market intelligent and control the lead time. Lead time is crucial for fast fashion retailers. Mapping all the component suppliers, finished goods suppliers plays a significant role in integrating and operating the chain smoothly in terms of optimizing the lead time.
Table 2.2. Lead time of garment manufacturing in Bangladesh
The Table 2.2 indicates in the condition that Bangladesh builds its own fabric manufacturer, the lead time reduction is 28 days. This explains why China and India can deliver the products within 50-60 days respectively whereas Bangladeshi exporters can deliver within 90-120 days on the average. The respondents opined that China and India have their own textile factories to produce woven fabrics, enabling them to deliver within a shorter lead-time. Bangladesh textile mills, as the domestic source of woven fabrics, can only supply 40 percent of the total demand and the other 60% are mostly imported from China, India, Pakistan, Indonesia, Indonesia and Turkey. Contrary to the woven fabrics, Bangladeshi textiles can supply 90 % knit fabrics of the total domestic consumption per year (Asgari, 2017).
With cotton or yarn source near the production site, the lead time also can be decreased by 30 to 45 days. This explains why Cotton On is sourcing 80% of its orders from China to benefit from its full chain from cotton to finished goods. Cotton On also develops Kenya Cotton in Kwale County (Ratcliffe, 2016)
Below Map show the network of cotton source (tree icon), Factory (Factory icon) and Distribution Center. The cotton source developed in Kenya supply for production in South Africa while China and India cotton source fulfills the Asia production demand. The lead time reduction decreases by 25 days (international transport lead time from China/ India to South Africa).
Figure 2.2. Map of Cotton On suppliers, cotton sources, distribution centers and stores
3. The potential coordination and integration challenges
Several advantages has been mentioned, however, in the fast changing world, the company may face challenges
The price of cotton and tax cost can exceed in the future. Bangladesh will be excluded from LCD by 2024 due to the improvement in average incomes. By that time, the import tax from Bangladesh will be applied. Bangladesh would lose access to duty free quota free (DFQF) arrangements for LDCs and to simplified rules of origin reserved for LDCs, with especially important impacts on the garments in.
In its main market, the European Union (EU), Bangladesh would remain eligible for duty-free quota free market access under the Everything But Arms (EBA) scheme for a period of three years after graduation, given the scheme’s “smooth transition” provision. After that, the terms under which it would have access to the EU market would depend on the new Generalized System of Preferences (GSP) regulation, as the current regulation will expire at the end of 2023 (before Bangladesh’s expected graduation date). Under current rules, Bangladesh would in principle have access to the standard GSP, whereby it would face higher, but still preferential tariffs. Approximately 83 per cent of Bangladesh’s exports are garments, most of which would face tariffs of 9.6 per cent in the EU under the GSP (The World Bank In Bangladesh, 2020).
The uncertainty affects the global supply chain when replying significantly on China production. Covid19 is the alarm striking the global supply chain which requires more risk leverage and management. Relying 80% quantity on China can be reconsidered in this context. Besides, the China - US Trade War is on rising and progress complicatedly with several retaliation rounds
Brick and mortar Business model can be vulnerable in the context of the Pandemic, this fact require the agile supply chain network and integration
4. How Cotton On can tackle such challenges
To tackle above challenges, Cotton On can continue to develop the full supply chain from cotton to finish good product. This enables the company to apply GSP tax system when the origin of the product comes from local. This is the next step to anticipate the fact that low income countries are predicted to gain more incomes and less tariff preference. And with this strategy, the company can leverage the risk of depending significantly on China manufacturing. The new material land such as Africa is a great start as well as India, Bangladesh or Viet Nam. China labor cost nowadays increases gradually and soon, the production will move to other countries as the ultimate trend.
REFERENCE
1. Arigo, E., 2020. Global Sourcing in Fast Fashion Retailers: Sourcing Locations and Sustainability Considerations. MDPI, pp.5,6,7.
2. Asgari, B., 2017. Use of Collaborative Plan in Supply Chain Management: A Case Study on Bangladesh Readymade Garments Industry. International Supply Chain Technology Journal, 03(12).
3. CDP, 2016. Trade Preferences For Least Developed Countries. Are They Effective? Preliminary Econometric Evidence. CDP, pp.1,11.
4. Cotton on Group. 2020. OUR STORE FOOTPRINT - Cotton On Group. [online] Available at: <https://cottonongroup.com.au/our-store-footprint/> [Accessed 14 August 2020].
5. Cotton on Group. 2020. WHERE WE SOURCE FROM - Cotton On Group. [online] Available at: <https://cottonongroup.com.au/sustainability/our-suppliers/where-we-source-from/> [Accessed 14 August 2020].
6. McCarthy, N., 2019. Infographic: Where Pay Is Lowest For Cheap Clothing Production. [online] Statista Infographics. Available at: <https://www.statista.com/chart/17903/monthly-minimum-wage-in-the-global-garment-industry/> [Accessed 14 August 2020].
7. Ratcliffe, A., 2016. Cotton On Puts Focus On Supplier Relations. [online] CIPS. Available at: <https://www.cips.org/supply-management/news/2016/march/cotton-on-puts-focus-on-supplier-relations/> [Accessed 14 August 2020].
8. Wang, W. and Chan, H., 2010. Virtual organization for supply chain integration: Two cases in the textile and fashion retailing industry. International Journal of Production Economics, 127(2), pp.333-342.
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