OMGT 2221: MEXICO Apparels Limited a fashion products manufacturing company in Central Asia started its operation in 1990: Introduction to Logistics and Supply Chain Management Case Study, RMIT, Singapore

MEXICO Apparels Limited a fashion products manufacturing company in Central Asia started its operation in 1990 and since then has evolved into a rapidly growing multi-dimensional conglomerate. MEXICO considers itself an end-to-end apparel solution provider, starting from sourcing the cotton and going all the way to providing logistical services to its clients. It employs over 200 Management staff and over 12000 workers. With a vertically integrated setup, the incorporation of advanced technology, and a proficient management team, MEXCO is emerging strongly as one of the most regarded organizations in Central Asia.

Like other companies in the fashion industry, MEXCO is dealing with products that are characterized by short product life cycles, volatile and unpredictable demand, tremendous product variety, long and inflexible supply processes, and a complex supply chain. In the MEXCO supply chain demand uncertainty, lack of historical data and seasonal trends usually coexist. MEXICO receives orders from Western buyers such as H&M, Zara, Target, PUMA, Mark, and Spencer to name a few.

They experience the variation in demand for the products they produce. For example, some products are in high demand during winter like Jackets, hoodies, and basic t-shirts in summer. They also have noticed a significantly increased demand for some of the products in their portfolio in the last 10 years. The reason for the increased demand is because of the increased popularity of new styles among the young population group in the Western market.

MEXICO has some historical data based on which different functional departments develop their own plan however quite often they experience conflicts among the departments. In 2021 summer, MEXICO received an order of 200,000 pieces of tank-tops from one of the leading buyers. When they receive the order, they didn’t have enough capacity to produce this huge quantity to produce within the deadline.

The product was in the development stage and in negotiation with the marketing and product development department however marketing department could not anticipate any quantity. As a result, the production department could not prepare extra capacity for the order. The suppliers were not able to provide the right quantity of fabric, trims, and accessories in time. The distribution and logistics facilities were overloaded and eventually, the shipment was delayed. This resulted in a loss of profit because they had to ship by airfreight which is costly, and customers were also dissatisfied.

MEXICO purchases a lot of items to support company operations and has a large supplier base for each item. They purchase items from both local and overseas markets. They have a cotton supplier from Turkey, India, and China which is the major item for their production. Other items such as buttons, zippers, and interlining, gasoline for cars in the pool, paper for the employee newsletter, and delivery service to the nearby seaport.

They need a huge quantity of sewing threads and many suppliers are available in the market. However, high-density print is sometimes asked for by their important customer but only a few suppliers can do that, so the production line sometimes needs to wait in a long queue in the supply line. They have a limited number of suppliers for embellishments such as high-quality print and embroidery but as this contributes a lot to their profit, they always look for new suppliers who can provide them with economies of scale.

As mentioned before, MEXCO has several product lines. Due to the increasing demand for the products, the company is struggling to manage inventory. Therefore, the company president, Mr. Xavier Tong, has decided to analyze the company’s inventory requirements utilizing the ABC analysis of the existing product lines, as shown in Table 1. Accordingly, Mr. Ishan Bhatia has asked Mr. Chris Cheng, the inventory manager, to perform the ABC analysis based on the previous year’s sales data, as presented in Table 1, and formulate inventory management strategies for each category.

One of the key components that MEXICO requires for manufacturing is Yarn. The yarn comes from a spinning mill of their sister’s concern. However, they are separate entities and need to place formal orders and logistics management systems. The monthly demand for Yarn is 1,000 pallets and each pallet has 75 units. Currently, there is no order management system as such, but the MEXICO fabric management team create order when they need them and organize a letter of credit and other financial documents.

The price per unit of Yarn is $20. The cost to place an order with the supplier is 300. The capital cost related to inventory carrying is 5 percent per unit price of the materials (such as Yarn). The cost of storage space of the materials is 10 percent of the per unit material price. Both insurance and other inventory carrying costs related to weight loss, damage, and obsolescence is 5 percent of the per unit material price. MEXICO doesn’t want to stock yarns as it takes up space however, they are also concerned about stock out they are experiencing quite often these days. This hampers their production line badly.

As mentioned above, MEXCO has a vast supply base to keep its production system up and running. The main raw material is cotton for which supply comes from India, Turkey, and China. They often problem face supplies as long distance and are impacted by many factors along the travel like government policy, disruptions, logistics costs, etc.

However, they have very limited options as not many suppliers can produce the variety of cotton that requires meeting the customer demands. Historically, MEXICO purchases cotton from its suppliers when they need to use short-term contracts. As cotton is a prime supply material for MEXICO, they often struggle with a smooth flow of cotton in the supply chain. MEXICO is really in need of a supplier who is capable of high volume and at the same time produces a variety of cotton for them. At the same time, MEXICO also purchases a lot of chemicals from Germany and other European buyers for their dyeing and coloring plant.

There is an environmentally friendly chemical which is a buyer requirement that only two suppliers can provide, one is in Germany other is in Turkey. There are a lot of companies that can supply accessories like Zipper, buttons, and sewing thread. MEXICO decided to build partnerships by investing in them and building long-term relationships with them.

The company needs to deliver the products to the nearest port where the buyer’s vessel waits for the shipment. At the moment, MEXICO uses Maersk Logistics as a 3PL service provider to deliver the products to the port. They have recently decided to create their own logistics network and facilities as demand has increased.

Sustainability is relatively a new agenda in global business. The fashion industry is one of the most criticized sectors for unsustainable practices along the supply chain, MEXCO is also facing intense pressure from buyers to eradicate any child labor, provide safe working conditions for their workers, minimum wages, and source environmentally friendly chemicals and materials in production.

They are also currently setting up a source for organic cotton from Indonesia. Recently, a recent buyer from the USA asked to join their blockchain system. Some European buyers like H&M are asking for circular economy practices like the use of recycled fabric as high as 50% from end-of-life fashion products they collected from their customers. They are still facing a variety of environmental and social sustainability requirements from many different buyers. That is creating complexity in their supply chain.

Going forward, the Manager for sustainability initiatives at MEXCO currently working on strategic directions the company should go for and going to present a report to the top management. It is expected that the new strategic direction will help companies to cater to most of the customer sustainability requirements. He is using the McKinsey report (shown in figure-1) for understanding the future industry-wide sustainability disruption and wants to ensure his company remains competitive in the future market.

1. Critically examine MEXICO demand management strategy. What sort of demand management strategy (e.g., CPFR) could be implemented to improve demand management at MEXCO, and how? In your opinion how can MEXICO influence customers’ orders?
2. Applying the Kraljic Matrix ( the quadrant technique) categorizes the importance of the items that MEXICO purchases. Describe the rationale you used to ascertain each categorization.
3. Based on the information provided please do an ABC analysis and justify how MEXICO could be benefited by categorizing the inventory items as ABC.
4. Using the information related to the demand for cotton and by applying the concept of economic order quantity, determine how many orders should be placed each year. Moreover, determine the units per order and cost of EOQ. If needed, what changes do you recommend?
5. Critically analyze supplier relationship management strategy in MEXICO. What are the pros and cons you can identify in the current strategy? Justify any changes in the relationship management strategy that you recommend.
6. Critically evaluate the current sustainability practices of MEXICO. Considering Figure 1, critically analyze the future sustainability practices that will dominate the fashion supply chain. Also, suggest what aspects of sustainability MEXICO should focus on to stay competitive in the future.