CARANA
CORPORATION
Transport & Logistics Challenges in Bulgarias Apparel Industry
Nimish Jhaveri
June 7, 2005
CARANA
CORPORATION
Project Overview
Improve knowledge/understanding of transport & logistics efficiency in Bulgarias apparel industry Identify possible directions for business practices, investment priority & regulatory changes Bulgaria is part of a multi-country analysis under the USAID Trade Enhancement for the Services Sector (TESS) Project
While the study focused on Bulgaria and the Textile and Apparel, the issues are relevant throughout the SEE region and multiple export sectors.
CARANA
CORPORATION
Apparel represents an important export sector for Bulgaria
2004 Exports: Euro 1845 Mil. ~ 23% of exports ~ Top Product Category
Raw Materials (various) 41 % Other consumer goods 1 3% Capital Equipment 1 3% Energy 1 0% Textile, Clothing, Footwear 23%
Companies: SME Companies: Employment: Production: Foreign Investment:
4,000+ total; 2,500 very active (2003) 95% (2000) 165,000 -170,000; 6% of workforce (2003) Euro 2170 Mil. (2004) USD 210 Mil. (1998-2003)
CARANA
CORPORATION
New challenge for Apparel producers
Buyers
Price Competition Quality & Reliability Product Differentiation Inventory Risk Quick Response
Competitors
Volume Orders High Efficiency
Exporters
Higher Value Goods Reduced Time to Delivery
Labor/Capital Costs Local Supply, Distant Markets Established Relationships
Regional Supply & Demand
Reduced Transportation Costs Increased Supply Reliability
CARANA
CORPORATION
Transportation and logistics is essential to improved competitiveness in globalized economy
Takes advantage of proximity to suppliers and buyers to
reduce manufacturing cost disadvantage
Improves Time, Cost, Reliability, Quality of Service
CARANA
CORPORATION
Findings: Transport & Logistics Costs
Transport and Logistics
20-40% of the value of the delivered product
International: 60-80% Regional/Domestic: 15-30% Pre-Shipment: 5-20%
* *
20-40% costs are Regional/Domestic/Pre-Shipment
CARANA
CORPORATION
Operational challenges
Border crossing delays
Uneven traffic flows drive capacity bottlenecks Border agency coordination is weak Adds up to 35% of cost to certain European destinations
Land transport regulations
EU limits carrier licenses destination and class Arbitrary and changing haulage regulations Wide-ranging visa, tariff, drive-time requirements Shortest routes are not most popular
Size of fleet limits availability and long term scheduling Trans-shipment of ocean containers adds cost, time
CARANA
CORPORATION
Operational Challenges - Highly Complex Process
<Process Name>
Order Import of Inputs Pre-Shipment International Move
If by Sea:
Buyer and Producer Maker Deal Preparation of documentation Ocean Transit Domestic Inland Transit Producer Manufactures goods Inland Transport to International Gateway
Export of Finished Goods Domestic Move Pre-shipment Domestic Move International Move
If by Land, or Land/Sea via Regional Port International Inland Transit
If LCL:
Buyer, Buyers Agent of Producer order inputs Preparation of documentation for inland move Goods Deconsolidated and consolidated at warehouse
If FCL
Equipment repositioned
Procurement/ Scheduling of T&L Services
If Sea via Bulg. Port, or Air Customs clearance/ inspection
Border Stop #1 (Bulg./Regional)
Preparation of documentation
Supplier produces inputs (fabric, components)
Container/Truck/ Van Stuffed
Customs/ Inspection at port
Border Stop #2 (Regional/EU) If Land/Sea via Reg. Port
Preparation of documentation for domestic inland move
Equipment repositioned Container/ Truck/Van Stuffed Containers Loaded unto ship or airplane
Customs clearance/ inspection Containers Loaded unto ship International Air or Ocean Transit Preparation of documentation Arrival at Destination Customs clearance/ inspection Container Unloaded at Destination
Container Unloaded Procurement/ Scheduling of T&L Services Inland Transport to International Gateway Customs/ Inspection If by Land, or Land/Sea via Regional Port Inland Transit to Producers Regional Customs Office
If LCL:
Inland Transit to Warehouse Goods Deconsolidated and consolidated at warehouse
Containers Loaded unto ship
International Inland Transit
Border Stop #1 (EU/Regional) Customs/ Inspection at regional customs office
Preparation of documentation
Border Stop #2 (Regional/Bulg)
Delivery to Producers Factory
Customs clearance/ inspection
IF FCL
Inland distribution to buyers warehouse or retail outlet
CARANA
CORPORATION
Operational challenges (continued)
Complex customs requirements for re-export Weak coordination of supply chain partners
Reduces planning horizon for all parties Increases delays, rescheduling costs
Low visibility to total costs
Utilization efficiency before service commitments Few long term contracts Reduces investments
Supply chain management technologies not generally utilized
Planning, execution, documentation, workflow management
CARANA
CORPORATION
Evolving production model
Increasing Importance of Logistics
BRAND MANAGEMENT Subcontractors Domestic suppliers International suppliers Distribution centers International retailers QC, Packaging Consolidation Warehousing Customs Distribution
SUBCONTRACT DOMESTIC TRANSPORT INTERNATIONAL TRANSPORT SERVICES None
CUT MAKE TRIM Subcontractors
FULL PACKAGE
Subcontractors Domestic suppliers Buyer International supplier
None
Buyer
QC, Packaging
QC, Packaging Consolidation Customs
QC, Packaging Consolidation Warehousing Customs
CARANA
CORPORATION
Most exporters can add greater value through better logistics
CARANA
CORPORATION
Changing the production model
Costs as a Percentage of Total International: 60-80% Regional/Domestic: 15-30% Pre-Shipment: 5-20%
FCL Shipments
100% 80% 60% 40% 20% 0% 2a 2b Preshipment 3a 3b 8 International 9
100% 80% 60% 40% 20% 0% 1 4 Preshipment 5 Domestic 6 7
45-95% 5-40% 0-20%
LCL Shipments
Domestic
International
CARANA
CORPORATION
Changing the business model through better logistics
SC CMT FP BM ?? New services development
Store Direct distribution Outsourced production Small lot manufacturing: couriers and air freight Marketing, collaborative product development Quick response production Supply chain management Trade and customs management Transportation and Logistics Applications of new technology
New competency development
CARANA
CORPORATION
Closing Thoughts
Moving goods efficiently is critical for the region to be globally competitive
Exporters pay for transportation and logistics inefficiencies SMEs can gain efficiencies
Economies of volume: eg., LCL shipments
Shared equipment, facilities New competencies and skills Use new and appropriate technology Emergence of logistics service industry offers opportunities for increased competitiveness
CARANA
CORPORATION
Contact
CARANA
CORPORATION
Appendix
CARANA
CORPORATION
Project Participants
Private Sector
Producers (10) Logistics Service Firms (7) Business Associations (5)
Public Sector (3) Field Visits
Rousse Varna Border Crossings (2)
International Organizations (5)
CARANA
CORPORATION
Case Studies
Looked at sample of companies in Apparel Sector in Sofia and Rousse
2 Large (200 employees or more) 4 Medium-sized (50 100 Employees) 2 Small-Sized (10 50 Employees) 1 Buyers Agent (German-owned)
Identified transport and logistics models by CMT, FP and BM production Using case studies to identify supply chain management issues
CARANA
CORPORATION
Logistics Process Costs
Prepare Goods for International Transit
Inland Transportation & Customs Documentation
Load Truck Inland transport to International Port Cargo Inspection Insurance for Inland truck Customs Clearance Phyto or Zoo-sanitary Certificate Export License & Processing Health Testing Photocopy documents Corrections to Documentation Broker's Fee Documentation Expediting Charges Enter Port (Gating) Store & Retrieve Container @ Yard
International Transportation
Package export Store in Producer Warehouse Transport to Exporter Warehouse Producer Shipments Consolidate Producer Shipments Book Cargo & Prepare Documents
Load Cargo on Ship at Origin Transport Cargo to Destination Freight Charge Bunker Surcharge Chassis usage Theft Surcharge Security Charge Discharge Handling Charge Port Dues charges Container cleaning Insurance Air-Handling fees Air - Terminal Fees Air - Security Fee Air - Collection Fee (if prepaid) Taxes Unload Cargo at Destination