Efficiency of Supply Chain Management of Bangladesh Readymade Garments Industry

Efficient implementation of Supply Chain Management (SCM) is very imperative for Bangladesh RMG sector to remain competitive in the global market. Bangladesh is struggling with meeting customer lead time, quality problem and with productivity comparing with other RMG producing nations. Moreover, the industry experienced few setbacks relating to building collapse and fire incident which forced the industry into more challenging situation. The country has no alternative to implement proper SCM in order to achieve the desired export goal of US$ 50 billion set by government within year 2021. But unfortunately the level of practice and efficiency level of SCM is not satisfactory. This study measures the efficiency level of SCM in RMG sector following Supply Operations Reference Model (SCOR) and found it unsatisfactory.
The analyses suggest that all the operational dimensions are linked with one another and companies need to improve on all dimensions for improving SCM efficiency. The study provides a model for measuring SCM efficiency with eight latent factors.

The Readymade Garment (RMG) Industry of Bangladesh has turned in to the largest foreign exchange earning sector which is exporting all kinds of apparel to the USA, Europe and other developed countries of the world. The country started exporting apparel products in 1978, but the growth since the early 1980s has been simply extraordinary. Bangladesh is world’s second biggest apparel exporter country after China. The export of ready-made garments (RMG) from Bangladesh has been increasing rapidly for the last two decades. Bangladesh started exporting RMG at an annual value of about US$32 million in 1983-84 but experienced a continuous massive growth in subsequent years. Bangladesh Government now has set $37 billion export target for 2016-17 fiscal year mainly depending on appeal sector (Export Promotion Bureau, Bangladesh, 2016). The export value of RMG was 76% of total export in 2008 and 80% in 2016 (Export Promotion Bureau, Bangladesh, 2016).

RMG plays a vital role in generating employment opportunities especially for women in Bangladesh. The sector is struggling in generating more opportunities since 2010 and it further aggravated since 2013. Under this situation it has become difficult for new entrepreneur to make profitable investment thereby contribution by this sector in generating employment opportunity becoming reduced. Currently, there are more than 4,300 RMG firms in Bangladesh. More than 95 per cent of those firms are locally owned with the exception of a few foreign firms located in export processing zones (Gonzales, 2002). The sector accounts for 81% of total export earnings of the country (BGMEA, 2017). The industry is facing few challenges in present era of competitive market. Bangladesh has set a target of achieving USD 50 billion in RMG exports by 2021 and a roadmap was jointly prepared by BGMEA and RMIT University, Melbourne to outline avenues and plans to achieve the RMG Vision 2021.
After lifting of Multi fiber Agreement (MFA) & General System Privilege (GSP), the industry is facing stiff competition from countries including China, Vietnam, Cambodia, Sri-lanka etc.
Moreover, the RMG demand has also reduced globally. These all made the market truly competitive. The market has become truly global and competitive. In order to survive in this global competitive market, Efficient SCM is required to ensure its share of pie. Few researches have been conducted in Bangladesh RMG sector as such the literature is very scanty. Moreover, evaluating the efficiency of SCM is even scarce that triggered this particular research endeavor.

The objectives of the study are as follows:
To study the over view of existing SCM in RMG sector in Bangladesh.
 To measure the efficiency of SCM in RMG sector of Bangladesh using SCOR model.
 To provide some suggestions and recommendations on the basis of findings.
The overall SCM practices in Bangladesh RMG sector require more improvement. People working in this sector are not generally aware about the recouping the benefits of implementing proper SCM. Only 5-7% of the companies have separate SCM department (BGMEA, 2016).
The general elements of supply chain process in Bangladesh Garment Industry are Supplier, Garment Industries, Individuals, Raw Materials, Finished Goods, Payment etc. In addition to that following activities are conducted as part of company’s SCM are Inventory management, Transportation service procurement, Materials handling, Inbound transportation, Transportation, Operations management etc. Other elements of SCM including collaborative planning use of appropriate technology, procuring new machine to improve productivity, training company personnel, improving quality on a continuous basis are not very satisfactory in Bangladesh.
Moreover, the poor backward linkage and other infrastructural facilities including port efficiency and custom clearance made the efficient implementation of SCM in the sector more challenging.
Few of the key characteristics of the RMG industry are short life cycle, highly fluctuating end demand which is changing over time, variety of designs and styles evolving everyday worldwide, and yarn and cotton supplies from many countries is very dynamic and difficult to manage (Sen, 2008). So, RMG manufacturing companies should manage the supply chain in a way that satisfies the needs of the end consumers (Gunasekaran et al., 2008).
Bangladesh RMG manufacturers are importing most of the raw materials including woven fabrics from China, Pakistan, India, and Indonesia. So, the lead time is becoming longer which is putting a negative impact on competitiveness. Lead time reduction is possible through integrating supply chain among upstream and downstream partners for making RMG manufacturers competitive (Nuruzzaman and Haque, 2009). Through using collaborative planning between fabric suppliers and garment manufacturers in Bangladesh it is possible to produce fabrics before taking orders, Nuruzzaman et al. (2010) pointed out that along team is a barrier to become competitive in the world market. Nuruzzaman et al., (2010) mentioned that Bangladesh can create a notable position in the world’s market by managing different partners involved in supply chain for reducing lead time.

Very few articles have been found regarding the evaluation of the efficiency of SCM practices in Bangladesh RMG sector. The term “Supply Chain” received numerous definitions over the past years because it gained much popularity. Most definition describes it as a network of diverse entities (and its processes) interacting together to make materials and information flow (Lummus and Vokurka, 1999). Vokurka et al., (2002) opined that companies will no longer compete against companies, but supply chains will compete against supply chains. SCM lacks a universal definition, mainly due to its multidisciplinary origin and evolution (Croom et al., 2000). A literature review by (Stock et al. 2010) revealed as many as 166 unique definitions of SCM.
SCM is all about moving right things to right customers at right time with lowest possible cost by most efficient means. It encompasses planning with forecasting, procurement, manufacturing, logistics management, inventory control, distribution and retailing. SCM practices involve a set of activities undertaken in an organization to promote effective management of its SC (Koh et.al., 2007). On the other hand SC efficiency is the measure of how well the resources expended are utilized and also how well the resources in the SC are utilized, Beamon (1994). A summary of categories/dimensions of SC performance indicators along with sources and framework has been appended below:

Organizational efficiency can be defined as an internal standard of performance (Pfeffer and Salancik, 1978) and is approximately a construct “for doing the things right”. From resource dependence perspective efficiency is an independent measure for evaluating organizational productivity. However, making evaluations of activity systems, as SC, rather than organizations is more complex as boundaries is flux (Hoek, 1998).
Hoque (2013) analyzed and modeled SC performance in the Bangladeshi readymade garments industry. He analyzed the interrelationships of variables affecting performance in the industry using systems dynamics. The study also analyzed how the industry would be shaped up and how it could be managed by concerned authorities.. Haque et. al.,(n.d.) conducted a case study on the performance of the apparel and textile SC network of Bangladesh. The study identified SCM as a common tool for success of business organizations. They also argued that measurement of SC performance was required to understand just how successfully SCM had been implemented in a firm. Asgari and Hoque (2013) presented a system dynamics approach to supply chain performance analysis of the readymade-garments industry in Bangladesh. A system dynamics approach was used in the study to identify the dominant variables of supply chain performance in the RMG sector.

There are different performance evaluation model available in the literatures including Performance Prism Model, Balanced Score Card Model, Supply Chain Operations Reference (SCOR) Model etc. This study uses SCOR Model for evaluating the efficiency of SCM for the RMG sector of Bangladesh. SCOR model was designed by the Supply Chain Council in 1996.
Five Key Performance Indicators (KPIs) under four functional domains have been identified for the evaluation.

The research has been carried out mainly through qualitative and quantitative research method.On the other hand, the research has been designed as an applied research; as it seeks to resolve the very practical issues of measuring supply chain management efficiency of Bangladeshi RMG sector. The respondents were executives and managers working in the supply chain area in different sample garment companies. Moreover, data were also collected from factory managers, owners to make the report more plausible. Basically garments companies located in four different geographical locations have been selected for the respondents in order to collect data and these are Savar, Gazipur, Narayanganj and Banani. The sample for respondents has been determined adopting following formula:

This section discusses the findings and analysis of the research study. 7.5% respondents replied that they have a separate SC Department in their company which is very insignificant. Actually, these figures suggest that the level of practice of SCM in Bangladesh RMG sector is not praise worthy and very encouraging. 43% of the companies those have separate SC Department, the age of the department is only 0 – 1 year; 30% and 27% of the companies’ age of their SC Department is in between 1-2 years and 3-5 years respectively. The descriptive analysis was carried out for the responses received on different operational domains under SCOR model which has been given in the following table:

 The descriptive statistics ‘grand mean’ has been found as 2.96. The test result suggests that the grand mean 2.96 is statistically significantly below than 3.5 (Hypothesized Mean) that rejects the null hypothesis. Apart from the descriptive analysis, correlation analysis was also carried out for the operational domains and correlation was found significant at .01 levels. The analysis has been appended below:

  The findings suggest that the practice of supply chain is not an independent matter; they are positively correlated to each other. Moreover, a reliability test of the data set has been conducted where the Cronbach’s Alpha value is 0.687. It needs reduction of dimensions/factors through Factor Analysis. Before actually conducting the Factor Analysis a sufficiency test has been conducted. The test result suggests that with KMO measure of Sampling Adequacy of 0.807.First factor comprises of six observed variables which are listed in the table. The test result suggests that this is the priority 1 factor that influences or affects the efficiency of SCM performance. The last but not the least factor is High Quality Inward Material which is also comprised of two practices including High Quality Inward Material and Low Transit Time. The latent factors along with dimensions are appended in the table below:
As it is very difficult to measure the exact level of efficiency of SC practice in the organizations by means of observe variables because there are numerous factors visibly and invisibly associate with this level of efficiency. But to see the effect of the indicators on the overall practice of SC we needed a measure of the efficiency of SC. The regression analysis confirms the findings of the Factor Analysis. The results also suggest that other than the last factor, the relationship of all other factors to the dependent variable is statistically significant.

A chain is as strong as its weakest link is. It simply means that one single link is enough to make the whole chain dysfunctional. The Bangladesh RMG sector has been enjoying price competiveness since long as the minimum wage of Bangladesh is still the lowest amongst all garments manufacturing countries. The lead time now Bangladesh can offer is not very competitive. RMG business is a time sensitive one; delivering products after scheduled time is of no use. The ability of supplying small lot size of different styles within short possible time is considered to be competitive advantage for RMG companies. Reducing the dependency on imported raw materials and removing middlemen are very vital in making the RMG SC stronger.
Without proper implementation of SCM in the sector, it will be very difficult for the sector to be become competitive in the global market. The leaders in the RMG sector should align the SC strategy, use appropriate technology and software, integrate all SC partners, and share required information with all strategic partners, follow best practices through benchmarking, adapt ever changing technologies, reduce lead time and improving port and customs efficiency would make this sector more sustainable and competitive.

The SCM process of Bangladesh RMG sector is not efficient enough comparing to global standard. In order to improve efficiency, Bangladesh RMG sector needs to do the followings:

 The instable political situation and workers’ unrest put challenge on efficient SCM for Bangladesh RMG sector. Undisrupted power supplies, coping with new technologies, removing inefficiencies in port and customs clearance process can play an important role in promoting efficiency of SCM in RMG sector of Bangladesh.
 There is acute shortage of man power who understand the complex SCM of RMG sector as such man power need to be trained on SCM.
 Buyers now are emphasizing on total cost of ownership (TCO) in purchasing RMG products instead of price alone. TCO can be minimized through efficient implementation of SCM in this sector by linking all parties involved in the chain.
 Vertical and horizontal integration of all the parties involved in the extended SC can ensure desired lead time by the customers.
 Companies should align their SC strategies with all processes of business to improve the overall efficiency.
 Port authority should improve their SCM efficiency and Government need to improve all infrastructural facilities for improving efficiency of SCM of Bangladesh RMG sector.

Article  by: AHM Yeaseen Chowdhury1
Dr Mamun Habib2
Md Zahedul Alam3

1Associate Professor
Faculty of Business Studies
Bangladesh University of Professionals
2 Associate Professor
BRAC University
3 Associate Professor
Faculty of Business Studies
Bangladesh University of Professionals

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