Ladies Handbag: End-to-End Global Supply Chain Business Proposal

This report presents an end-to-end supply chain proposal for sourcing, producing, and distributing a high-end ladies' leather handbag. The proposal carefully considers each step of the process to ensure an optimal and efficient supply chain. The sourcing decision for raw materials involved a comparison between Singapore, Vietnam, and the USA, with Singapore ultimately selected for its stable government and currency, strong sustainability framework, and free trade agreement with the EU. For the manufacturing warehouse location, France, Italy, and the USA were considered, with France chosen for its stable government and currency, skilled workforce, and the brand value associated with 'Made in France.' The raw material supplier is responsible for all documentation and delivery to the import port in France. A third-party logistics partner handles the transportation of materials from the port to the warehouse and the distribution of finished goods to various locations.

Running Head: Proposal for end-to-end supply chain for a high end ladies leather handbag 1
Proposal for end-to-end supply chain for a high end ladies leather handbag

Proposal for end-to-end supply chain for a high end ladies leather handbag 2
Executive summary
In the following pages an end-to-end supply chain for the sourcing, production and
distribution of a high end ladies leather handbag has been designed. Careful considerations had
to be given to each step of the process to choose an option that is optimal and efficient. The
choice for the source of raw materials had to be made between Singapore, Vietnam and USA.
After careful consideration Singapore was selected due to its stable government and currency
regime, good sustainability framework and free trade agreement with EU. For the location of the
manufacturing warehouse the choice was between France, Italy and USA. Again France was
selected due to a stable government and currency, availability of skilled professionals, brand
value associated with the ‘Made in France’ tag, etc. For the time-being the raw material source
including its delivery to the import port in France. The supplier of the raw materials would be
required to handle all the documentation and formalities related to its delivery till the import
port. From there the material would be shifted through a third party logistics partner to the
warehouse location. Again the finished goods would be distributed to different locations by the
logistics partner.

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Introduction
Supply chain refers to a system of people, organizations, processes, information and
activities that are involved in the transfer of raw materials to finished goods from suppliers to
customers. Three significant decisions in designing the supply chain would thus involve location
of the source of raw materials, manufacturing locations and the selection of third party logistics
partner who will facilitate transportation of raw materials and finished goods. There are several
factors that need to be considered while selecting the source of raw material. For instance, the
cost of production, political stability, economy of the country, cost of labor, fair labor practices
and sustainability measures. Similarly, the same host of factors needs to be considered while
making a choice for the manufacturing location. It is also important to consider the fluctuations
in exchange rate and customs duty if the production, manufacturing and selling locations are
located in different countries. The third party logistics provider also deserves important
consideration for the fact that it serves as the link between raw material source, manufacturer and
customer. The third party logistics partner would play an important role if the company wants to
reduce overheads associated with internal expenses and personnel along with bringing in
efficiency in distribution and management of inventory. Thus, it is important for the company to
build strategic relationship with the third party logistics provider as well.
In manufacturing the leather bag, the main raw materials would be leather, cotton and
nickel. Whereas, the bag would be made of leather, cotton would be used to make lining and
nickel would be used for making zipper and buckles. In the following pages two specific
locations in the Pacific Rim are given consideration as a possible manufacturing location. For
the source of all the three items that is leather, nickel and cotton the places that are given
consideration are Vietnam and Singapore. The choice of the locations is based on several
considerations like cost of labor, trade barriers, volume production etc. The advantage of these
two countries as the source of raw material lies in the fact that these have free trade agreements
with the EU. Similarly, Italy and France are considered as possible choice for manufacturing
location due to their expertise in the manufacturing of leather bags and other goods out of
leather.
Sourcing Solutions
The primary materials that would be required for the manufacturing of premium ladies
handbag would be leather, nickel and cotton. Leather is the main material in making the bag.
Cotton would be used for making the lining and Nickel for making the buckle and zipper.
Leather
The leather bag would be made out of tanned bovine leather. For the source of the leather
two countries namely Singapore and Vietnam is considered. As of 2017, Singapore is 9th largest
leather exporter in the world with exports of $74 million which accounts for 3.6% of the world
export. Similarly, Vietnam exports $9.6 million worth of leather (World’s richest countries,
2017). Another reason for choosing these two nations is the fact that both countries have signed

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free trade agreements with European Union in 2018 thus giving the advantage of duty free
imports of tanned leather from these countries to EU. These two countries are compared on a
host of parameters below to select one as the source of raw materials.
Cotton
Vietnam is a major exporter of cotton and exported about $2.6 billion in 2017 thus having
a share of 4.9% of the total cotton export market (Workman, 2019). North America exports
14.7% of total cotton exported and is number 2 among the cotton exporters in the world.
Singapore is found to export $33.4 million cotton or 0.1% of the total export of cotton in the
world.
Nickel
The United States exported $241.7 million worth of Nickel in 2017 thus commanding a
market share of 11.3% (Workman, 2018). Singapore exported $382.3 million worth of Nickel in
2017 (World’s richest countries, 2017a). Although size of mineral exports is going up in
Vietnam with 2 million tons exported in July 2018, the government has decided to stop
exploration till 2035. Instead the government has allocated $92 million for exploration of nickel
with an aim to generate 103,000 tons of Nickel ore between 2025 and 2035 (O'Flynn, 2018).
The three possible sourcing locations that is Vietnam, Singapore and US are
comparatively analyzed in the following paragraphs.
Cost
Vietnam
The wage levels in Vietnam vary considerably on the basis of sector or area. However,
the median wage in Vietnam has increased considerably over the past years (Das, 2018).
Figure 1 Trend of median salary in Vietnam (Trading economics, 2019)

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Singapore
Figure 2 Trend of Median gross monthly income amongst Singapore workforce (Channel news asia, 2018)
The median wage rate in Singapore has continued to grow over the last 5 years. The
employment rate was 80.3% for the age group of 25-64 which means that Singapore is in 8th
position amongst OECD countries in terms of employment rate. As compared to the previous 5
years of 2008 to 2013, the median income grew by 3.5% per year in the period 2013 to 2018.
The salaries of low wage workers grew by 4.2% (Channel news Asia, 2018). This positive shift
has taken place due to several measures like progressive wage model, wage credit scheme and
special employment credit.
United States
The median income in US is on the rise and it rose by 3.2% from $57,230 in 2015 to
reach $ 59,039 in 2017. At the same time poverty rate also declined by 1% to reach 12.7%
(Loudenback, 2017).
Profit
Vietnam
Vietnam is fairly open and allows profit to be remitted abroad. However, it is required by
the law that profits should be remitted only once in a year starting from March (Dezan shira and
associates, 2016). Additionally, as per the law dividend cannot be paid in a year in which the
company has not earned profit.
Singapore
A single tier tax system is followed in Singapore. Thus, if corporate tax has been paid by
company on profits, there are no further taxes on dividend. If the newly incorporated company
qualifies for tax exemption then the tax rate is 5.67% on first profits of S$ 300,000 (Dezan shira
and associates, 2019).

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Operational constraints
Vietnam
There is a need to have a second wave of reforms to continue on growth. There are
challenges in the form of high amount of red tape, lack of business transparency and high levels
of NPA for the banking sector. The government is having huge debt and the ratio of public debt
to GDP is approaching the ceiling of 65% set by the government (Central intelligence agency,
2019a).
Singapore
Singapore has free from corruption. The country follows as open market economy and
per capita GDP is found to higher than most developed countries (Central intelligence agency,
2019a). Unemployment is also quiet low. The country is however trying to increase productivity
and reduce dependence on foreign labor. Other challenges are slowing growth of labor force and
aging population.
United States
Some long term issues that plagues the American economy are wage stagnation for
families with low income, Rising pension and medical cost for the aging population, deficit in
current account and budget, shortage of energy.
Political
Vietnam
Vietnam is a communist state and there is a single party in the country. The country has a
communist regime where the major power is held by the communist party (BBC, 2016). The
party has a strong hold on the media. As such media outlets and journalists can be sanctioned for
broadcasting sensitive topics or criticizing the government (BBC, 2016). The country is however
politically stable.
Singapore
Singapore is a democratic country where elections have been held at regular intervals.
But, since it gained independence in 1965, only one party that is People's Action Party (PAP) has
won every single election. In none of these years, the opposition had a share of more than 10% of
the seats (Kwang, 2017). During these years Singapore as a country has experienced phenomenal
growth in several spheres and many believe the underlying reason to be political stability.

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United States
The government in United States is a constitutional federal republic. The country follows
a two party system the Democrats and the Republic and these two together have been in power
since 1852. It is argued that the country is both democratic and republic and has been termed as
representative democracy (Volokh, 2015).
Economic
Vietnam
Vietnam has undergone an economic transition since 1986. From being a primarily
agrarian economy, the country has now become a market based economy. There has been a
substantial increase in income. In 2017 the country has a GDP growth of 6.8% (Central
intelligence agency, 2019). The country has a stable currency, gets good FDI inflows and has a
strong manufacturing base. Till 2018, Vietnam has signed 17 free trade agreements out of which
10 have become effective (Vietnamnet, 2018). Most importantly, the country has free trade
agreement with EU. Amongst the ASEAN countries, Vietnam has become the second most
important trading partner for EU (European commission, 2018).
Figure 3 Trade of Goods between EU and Vietnam (European commission, 2018)
Singapore
Singapore has a nominal GDP of EUR 300 billion and is 41st largest economy in the
world (Altradius, 2018). Singapore has done 20 free trade agreements over the period of past 22
years. Singapore follows an open economy and its growth is based on global trade (Jeyaretnam,
2018). The country has low export and import barriers to trade (Liang, 2015). For EU, Singapore
has been the largest trading partner in ASEAN (MTI, 2019). The EU and Singapore also signed
EU-Singapore Free Trade Agreement (EUSFTA) (Jeyaretnam, 2018). The pact would come into
force in 2019. When it comes into force, 84% of exported goods in 1st year and 90% in 3rd year
would be exempted from paying customs duty as they enter EU (MTI, 2019).

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Figure 4 Trade of goods and services between EU and Singapore (MTI, 2019)
Figure 5 Trade in goods between EU and Singapore (European commission. 2018a)
United States
The United States economy is most technologically powerful in the world and per capita
GDP is $59,500. After being the largest economy for more than a century in terms of GDP
measured at PPP the country is now second behind China (Central intelligence agency, 2019b).
During 2016, goods trade between US and EU was $686 billion. A total of $270 billion goods
were exported to EU and $416 billion goods were imported from EU (Office of the United States
Trade Representative, 2017).
Labor
Vietnam
Figure 6 Population pyramid of Vietnam (Central intelligence agency, 2019)

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The population of Vietnam is 92 million. The life expectancy for an average man is 73
years, and for an average woman is 81 years (BBC, 2016). Additionally as seen from the above
figure most of the population is within the age group of 54 years and median age is 30.9 years.
The literacy rate is quiet high at 94.5% and unemployment rate is 7.2% (Central intelligence
agency, 2019). Thus, availability of labor wouldn’t be an issue in Vietnam.
Singapore
The total population of Singapore is 5,995,991. Due to advancements in medical
practices in the country, the infant mortality rate is quiet low. The life expectancy for an average
male is 82.8 years and for an average female is 88.3 years (Central intelligence agency, 2019a).
The literacy rate is quiet high at 97% and unemployment rate is 9.1%. Most of the labor forces is
engaged in industry and service sectors with only 0.7% involved in agriculture (Central
intelligence agency, 2019a). The population pyramid is given below and the median age is 39.4
years.
Figure 7 Population pyramid of Singapore (Central intelligence agency, 2019a)
United States
As per estimates of 2018, total population was 329,256,465. The median age is 38.2 years
and the population growth rate is 0.8%. Infant mortality rate is 5.7 per 1000 and life expectancy
is 80.1 years (Central intelligence agency, 2019b).
Figure 8 Population pyramid of United States of America (Central intelligence agency, 2019b)

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Environmental
Vietnam
Before starting a business in Vietnam there are number of licenses required including
clearance from Land Use Right Registration office which is under Department of Nature
resources and environment of Ho Chi Minh City. Additionally the businesses are required to pay
an environment tax of VND 40,000 per ton (World Bank group, 2019). The primary authority
looking after environmental matters is Ministry of Natural Resources and Environment (Ernst &
Young, 2013).
Singapore
Singapore government is bring in a revision to Energy Conservation Act through which
energy in the industrial sector is regulated so as to reach the targets set by the Climate Action
Plan of 2016 (Koh, 2017). It is required that international standards should be used for the
measurement and reporting of the amount of green house gas being emitted. Additionally the
new industrial facilities along with the already existing ones are required to review the rate of
energy efficiency as per the new regulations.
United States
In US a survey found that 16% of the total companies have adequate climate policy in
place. The agency dealing with sustainability practices in United States is Environmental
Protection Agency or EPA. In the 2018 budget there has been a cut of 31% for EPA. Under
Trump administration, the USA has withdrawn from Paris accord of climate change and has
increased the use of fossil fuel for continuation of growth (Thomas, 2012).
Sustainability considerations
Vietnam
The stock exchange in Vietnam has introduced sustainability reporting in the annual
reports by the companies operating in Vietnam (Ngoc, 2013). Although, there are companies that
still flout sustainability practices, things are changing in the country.
Singapore
A consumer survey has revealed that Singapore consumers are highly conscious about
environment sustainability. About 56% of the consumers want that the companies should ensure
that their supply chain should not cause harm to environment.

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Figure 9 Result of survey findings (Koh, 2018)
United States
Since, Trump has become the president of the United States; the sustainability in terms of
environmental impact has taken a backseat. However, according to a recent survey, 75% of
customers consider Corporate Sustainability Report before making a purchase (McCormic,
2016).
Manufacturing locations
Europe accounts for a third of the world exports of leather. In Europe France and Italy are
the main producers and account for half of the total produce. In terms of exports Italy has a
market share of 12% which ranks it in second position behind China which has a market share of
36%. France on the other hand has a market share of 4% and commands the 4th position in world
in terms of leather export (Conseil National Du Cuir, 2018). In certain areas like leather goods
France holds the third position in terms of global exports. There is a strong demand of leather
handbags made in France and 10% of the leather goods sold across the world are made in France.
Below is a comparison between France and Italy as the manufacturing location for leather
handbag.
Operational constraints
Italy
There is lack of basic infrastructure in the country. In many parts broadband is unreliable.
Additionally since 2000, productivity per unit of labor has fallen (Sanderson, 2011). There is an
environment of political instability and huge amount of debt. The companies do not get good
support from the government of the country. There is great amount of bureaucracy, strong labor
union, endemic tax evasion and high rates of organized crime. As per rankings of ease of doing
business, Italy ranks in 80th place (Sanderson, 2011).
France
Major challenges are related to supporting business and giving assistance to new
entrepreneurs. It is also important to maintain the excellence and reputation associated with the
industry and thus train and teach unique skills to leather professionals. The industry employed
over 70,000 people in 2015. It is also important to maintain value of the goods manufactured as
counterfeits can eat a significant portion of value (Conseil National Du Cuir, 2018).

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Political
Italy
The government in Italy is a parliamentary republic. Elections in the country are held
every 5 years.
France
The type of government in France is semi-presidential republic. In terms of electoral
process, political participation and civil liberties, etc. France ranks high amongst democratic
countries. However, as compared to other democracies where legislature is the supreme decision
making authority, it is weakest amongst other European nations in France. In France President
holds sweeping powers (Baptist, 2014).
Economic
Italy
Although, Italy’s economy is third largest in Euro zone, it is characterized by high
amount of public debt and other parameters that create structural impediments to growth. The
northern part of the country is industrial and developed whereas the southern part is agrarian and
underdeveloped.
France
The real GDP of diversified France economy grew by 1.9% in 2017. Since assuming
presidency Emmanuel MACRON has taken several steps to increase competitiveness and boost
economic growth in the country. The budget deficit of the country has been brought down and is
currently at 2.8% of GDP. Macron has introduced cuts in public spending and taxes to increase
purchasing power and private spending. The government is planning to lower corporate tax rate
from 33.3% to 25% in 2022.
Labor
Italy
The country has a total population of 62,246,674 which is growing at the rate of 0.16%.
Median age is 45.8 years which means the population is aging. However, an exceptional degree
of passion, fierce competitiveness and raw creativity are demonstrated by entrepreneurs in the
country. It is the business acumen and creativity of Italian entrepreneurs that helps in building
the premium imagery of “Made in Italy” (Sanderson, 2011).