Rogationist College

Cost Accounting
AEC22

Accounting and Finance as Part

of Company’s Supply Chain Management

In Partial Fulfillment of the Requirements in

Cost Accounting

Chenilene Magsael

BSA201

February 20, 2019

 Supply chain management (SCM) is the management of a network of
interconnected businesses involved in the provision of product and service
packages required by the end customers in a supply chain (Harland, 1996).
Supply chain management spans all movement and storage of raw
materials, work-in-process inventory, and finished goods from point of
origin to point of consumption.
Another definition is provided by the APICS Dictionary when it defines
SCM as the "design, planning, execution, control, and monitoring of supply
chain activities with the objective of creating net value, building a
competitive infrastructure, leveraging worldwide logistics, synchronizing
supply with demand and measuring performance globally."
Mentzer et al., (2001) also define supply chain management as the
systematic, strategic coordination of the traditional business functions and
the tactics across these business functions within a particular company and
across businesses within the supply chain, for the purposes of improving
the long-term performance of the individual companies and the supply
chain as a whole.
On the other hand, a customer focused definition is given by Hines
(2004) "Supply chain strategies require a total systems view of the linkages
in the chain that work together efficiently to create customer satisfaction at
the end point of delivery to the consumer. As a consequence costs must be
lowered throughout the chain by driving out unnecessary costs and
focusing attention on adding value. Throughput efficiency must be
increased, bottlenecks removed and performance measurement must
focus on total systems efficiency and equitable reward distribution to those
in the supply chain adding value. The supply chain system must be
responsive to customer requirements.
According to Manhattan Associates, PUMA, one of the world’s largest
providers of sport lifestyle footwear, apparel and accessories, is one of the
supply chain leaders. Puma has committed to a new initiative designed to
improve environmental, health and safety and social standards in its supply
chain.
There is a basic pattern to the practice of supply chain management.
It includes the production, inventory, location, transportation, and
information. In every pattern, there is a corresponding cost. Meaning cost
accounting, especially in a manufacturing business, is involved in every
stage. In cost accounting, supply chain management (SCM) is a
management tool you can use to improve your ordering, manufacturing,
and inventory processes.
Production refers to the capacity of a supply chain to make and store
products. The facilities of production are factories and warehouses. The
fundamental decision that managers face when making production
decisions is how to resolve the trade-off between responsiveness and
efficiency. If factories and warehouses are built with a lot of excess
capacity, they can be very flexible and respond quickly to wide swings in
product demand. Facilities where all or almost all capacity is being used
are not capable of responding easily to fluctuations in demand. On the
other hand, capacity costs money and excess capacity is idle capacity not
in use and not generating revenue. So the more excess capacity that
exists, the less efficient the operation becomes.
In 2015, PUMA made big strides in improving the innovation,
commerciality and attractiveness of their products, especially in regards to
PUMA’s performance offering. PUMA’s Sportstyle offering represents their
broad range of sports-inspired lifestyle collections. It provides their
consumers with day-to-day favourite footwear and apparel to meet their
demands of a sporty lifestyle and serve all needs from basics to premium.
PUMA sells and markets footwear, apparel and accessories in
categories such as Football, Running and Training, Golf, Motorsport and
Sportstyle. With a heritage of designing shoes for more than 65 years,
Footwear is and remains the foundation of PUMA’s business and its key
strategic priority, having generated 45% of net sales in 2015.
Inventory is spread throughout the supply chain and includes
everything from raw material to work in process to finished goods that are
held by the manufacturers, distributors, and retailers in a supply chain.
Again, managers must decide where they want to position themselves in
the trade-off between responsiveness and efficiency. Holding large
amounts of inventory allows a company or an entire supply chain to be very
responsive to fluctuations in customer demand. However, the creation and
storage of inventory is a cost and to achieve high levels of efficiency, the
cost of inventory should be kept as low as possible.
PUMA also focused on their design, development and planning to
increase their efficiency in the product creation process, we built what we
call “toolboxes”. Toolbox capabilities drive transparency, efficiency and
speed in managing their main product components such as materials and
graphics. These and other, more basic capabilities, are keys for the
implementation of advanced product management tools in the next
following years. Furthermore, they implemented dedicated footwear supply
chains to gain specialization benefits across PUMA’s product categories,
separating their Performance from Sportstyle and commodity products.
This led to efficiency benefits in product creation and helped us to mitigate
negative impacts from increasing labor cost.
Location refers to the geographical siting of supply chain facilities. It
also includes the decisions related to which activities should be performed
in each facility. The responsiveness versus efficiency trade-off here is the
decision whether to centralize activities in fewer locations to gain
economies of scale and efficiency, or to decentralize activities in many
locations close to customers and suppliers in order for operations to be
more responsive.
When making location decisions, managers need to consider a range
of factors that relate to a given location including the cost of facilities, the
cost of labor, skills available in the workforce, infrastructure conditions,
taxes and tariffs, and proximity to suppliers and customers. Location
decisions tend to be very strategic decisions because they commit large
amounts of money to long-term plans. Location decisions have strong
impacts on the cost and performance characteristics of a supply chain.
Once the size, number, and location of facilities is determined, that also
defines the number of possible paths through which products can flow on
the way to the final customer. Location decisions reflect a company’s basic
strategy for building and delivering its products to market.
The PUMA Group owns the brands PUMA and Cobra Golf as well as
the affiliate company Dobotex, which manufactures and markets licensed
socks and body wear. As the PUMA brand accounts for the vast majority of
the group’s net sales and constitutes the core of the PUMA Group, the
outlined distribution strategy focuses predominantly on the PUMA brand.
PUMA is structured into five regions: Europe, EEMEA (Eastern
Europe, Middle East and Africa), North America, Latin America and APAC.
Due to the particularly heterogeneous nature of their Asian markets, they
dissolved the regional reporting layer in APAC in 2015 and gave the
respective areas direct access to their global organization. Each region and
area is led by a General Manager, who has full profit and loss responsibility
for all countries within the respective region or area.
 In terms of the regional sales priorities, PUMA will continue to
leverage its strengths in key growth markets in EEMEA, Asia and Latin
America like India, China and Mexico respectively to ensure stable sales
growth for the company. The focus in Europe is to enhance the service
level to their wholesale partners as well as to further simplify the
organizational structure. With this objective in mind, the two regions Europe
and EEMEA were set under joint management in 2015. The strategic
priority for North America is to build on the positive development in 2015,
continue the repositioning of PUMA as a performance brand and increase
the presence in quality wholesale distribution channels.
Transportation refers to the movement of everything from raw
material to finished goods between different facilities in a supply chain. In
transportation the trade-off between responsiveness and efficiency is
manifested in the choice of transport mode. Fast modes of transport such
as airplanes are very responsive but also more costly. Slower modes such
as ship and rail are very cost efficient but not as responsive. Since
transportation costs can be as much as a third of the operating cost of a
supply chain, decisions made here are very important.
Managers need to design routes and networks for moving products. A
route is the path through which products move and networks are composed
of the collection of the paths and facilities connected by those paths. As a
general rule, the higher the value of a product (such as electronic
components or pharmaceuticals), the more its transport network should
emphasize responsiveness and the lower the value of a product (such as
bulk commodities like grain or lumber), the more its network should
emphasize efficiency.
Information is the basis upon which to make decisions regarding the
other four supply chain drivers. It is the connection between all of the
activities and operations in a supply chain. To the extent that this
connection is a strong one, (i.e., the data is accurate, timely, and
complete), the companies in a supply chain will each be able to make good
decisions for their own operations. This will also tend to maximize the
profitability of the supply chain as a whole. That is the way that stock
markets or other free markets work and supply chains has many of the
same dynamics as markets.
Within an individual company the trade-off between responsiveness
and efficiency involves weighing the benefits that good information can
provide against the cost of acquiring that information. Abundant, accurate
information can enable very efficient operating decisions and better
forecasts but the cost of building and installing systems to deliver this
information can be very high.
Within the supply chain as a whole, the responsiveness versus
efficiency trade-off that companies make is one of deciding how much
information to share with the other companies and how much information to
keep private. The more information about product supply, customer
demand, market forecasts, and production schedules that companies share
with each other, the more responsive everyone can be. Balancing this
openness however, are the concerns that each company has about
revealing information that could be used against it by a competitor. The
potential costs associated with increased competition can hurt the
profitability of a company.
The registered offices of the PUMA Group are located in
Herzogenaurach, Germany. They trade under the name PUMA SE. Their
internal reporting activities are based according to regions (EMEA, America
and Asia/Pacific) and products (footwear, apparel and accessories.
Our revenues are derived from the sale of products from the PUMA
and COBRA Golf brands via the wholesale and retail trade, as well as from
sales directly to consumers in our own retail stores and online stores.
PUMA markets and distributes its products worldwide primarily via its own
subsidiaries. There are distribution agreements in place with independent
distributors in some countries.
As of December 31, 2015, 108 subsidiaries were controlled directly or
indirectly by PUMA SE. Their subsidiaries carry out various tasks at the
local level, such as sales, marketing, product development, procurement
and management.
According to Movahedi et al., (2009), there are six major movements
can be observed in the evolution of supply chain management studies:
Creation era, Integration era, Globalization era, Specialization era (phase
I), Specialization era (phase II), and, Supply chain management 2.0.
First is the Creation era, the term supply chain management was first
coined by Keith Oliver in 1982. However, the concept of a supply chain in
management was of great importance long before, in the early 20th
century, especially with the creation of the assembly line. The
characteristics of this era of supply chain management include the need for
large-scale changes, re-engineering, downsizing driven by cost reduction
programs, and widespread attention to the Japanese practice of
management.
Second is the Integration era, this era of supply chain management
studies was highlighted with the development of Electronic Data
Interchange (EDI) systems in the 1960s and developed through the 1990s
by the introduction of Enterprise Resource Planning (ERP) systems. This
era has continued to develop into the 21st century with the expansion of
internet-based collaborative systems. This era of supply chain evolution is
characterized by both increasing value-adding and cost reductions through
integration. In fact a supply chain can be classified as a Stage 1, 2 or 3
networks. In stage 1 type supply chain, various systems such as Make,
Storage, Distribution, Material control, etc. are not linked and are
independent of each other. In a stage 2 supply chain, these are integrated
under one plan and are ERP enabled. A stage 3 supply chain is one in
which vertical integration with the suppliers in upstream direction and
customers in downstream direction are achieved.
Globalization era is the third movement of supply chain management
development. The globalization era can be characterized by the attention
given to global systems of supplier relationships and the expansion of
supply chains over national boundaries and into other continents. Although
the use of global sources in the supply chain of organizations can be traced
back several decades (e.g., in the oil industry), it was not until the late
1980s that a considerable number of organizations started to integrate
global sources into their core business. This era is characterized by the
globalization of supply chain management in organizations with the goal of
increasing their competitive advantage, value-adding, and reducing costs
through global sourcing. However it was not until the late 1980s that a
considerable number of organizations started to integrate global sources
into their core business.
Fourth is the Specialization era (phase I): outsourced manufacturing
and distribution. In the 1990s, industries began to focus on “core
competencies” and adopted a specialization model. Companies abandoned
vertical integration, sold off non-core operations, and outsourced those
functions to other companies. This changed management requirements by
extending the supply chain well beyond company walls and distributing
management across specialized supply chain partnerships. This transition
also re-focused the fundamental perspectives of each respective
organization. OEMs became brand owners that needed deep visibility into
their supply base. They had to control the entire supply chain from above
instead of from within. Contract manufacturers had to manage bills of
material with different part numbering schemes from multiple OEMs and
support customer requests for work -in-process visibility and vendor-
managed inventory (VMI). The specialization model creates manufacturing
and distribution networks composed of multiple, individual supply chains
specific to products, suppliers, and customers who work together to design,
manufacture, distribute, market,
Supply chain management sell, and service a product. The set of
partners may change according to a given market, region, or channel,
resulting in a proliferation of trading partner environments, each with its
own unique characteristics and demands.
Second to the last is Specialization era (phase II): supply chain
management as a service. Specialization within the supply chain began in
the 1980s with the inception of transportation brokerages, warehouse
management, and non-asset-based carriers and has matured beyond
transportation and logistics into aspects of supply planning, collaboration,
execution and performance management. At any given moment, market
forces could demand changes from suppliers, logistics providers, locations
and customers, and from any number of these specialized participants as
components of supply chain networks. This variability has significant effects
on the supply chain infrastructure, from the foundation layers of
establishing and managing the electronic communication between the
trading partners to more complex requirements including the configuration
of the processes and work flows that are essential to the management of
the network itself. Supply chain specialization enables companies to
improve their overall competencies in the same way that outsourced
manufacturing and distribution has done; it allows them to focus on their
core competencies and assemble networks of specific, best-in-class
partners to contribute to the overall value chain itself, thereby increasing
overall performance and efficiency. The ability to quickly obtain and deploy
this domain-specific supply chain expertise without developing and
maintaining an entirely unique and complex competency in house is the
leading reason why supply chain specialization is gaining popularity.
Outsourced technology hosting for supply chain solutions debuted in the
late 1990s and has taken root primarily in transportation and collaboration
categories. This has progressed from the Application Service Provider
(ASP) model from approximately 1998 through 2003 to the On-Demand
model from approximately 2003-2006 to the Software as a Service (SaaS)
model currently in focus today.
Last is the Supply chain management 2.0 (SCM 2.0). Building on
globalization and specialization, the term SCM 2.0 has been coined to
describe both the changes within the supply chain itself as well as the
evolution of the processes, methods and tools that manage it in this new
"era". Web 2.0 is defined as a trend in the use of the World Wide Web that
is meant to increase creativity, information sharing, and collaboration
among users. At its core, the common attribute that Web 2.0 brings is to
help navigate the vast amount of information available on the Web in order
to find what is being sought. It is the notion of a usable pathway. SCM 2.0
follows this notion into supply chain operations. It is the pathway to SCM
results, a combination of the processes, methodologies, tools and delivery
options to guide companies to their results quickly as the complexity and
speed of the supply chain increase due to the effects of global competition,
rapid price fluctuations, surging oil prices, short product life cycles,
expanded specialization, near-/far- and off-shoring, and talent scarcity.
SCM 2.0 leverages proven solutions designed to rapidly deliver results with
the agility to quickly manage future change for continuous flexibility, value
and success. This is delivered through competency networks composed of
best-of-breed supply chain domain expertise to understand which
elements, both operationally and organizationally, are the critical few that
deliver the results as well as through intimate understanding of how to
manage these elements to achieve desired results. Finally, the solutions
are delivered in a variety of options, such as no-touch via business process
outsourcing, mid-touch via managed services and software as a service
(SaaS), or high touch in the traditional software deployment model.
In 2015, PUMA upgraded their IT landscape to lay the foundation for
further global standardization and enhancements in the coming years. One
of the most visible impacts in 2015 was the global implementation of
Microsoft Outlook and complementary communication and collaboration
capabilities.
Supply chain management is very important and vital in an
organization. Organizations increasingly find that they must rely on
effective supply chains, or networks, to compete in the global market and
networked economy. In Peter Drucker's (1998) new management
paradigms, this concept of business relationships extends beyond
traditional enterprise boundaries and seeks to organize entire business
processes throughout a value chain of multiple companies. During the past
decades, globalization, outsourcing and information technology have
enabled many organizations, such as Dell and Hewlett Packard, to
successfully operate solid collaborative supply networks in which each
specialized business partner focuses on only a few key strategic activities
(Scott, 1993).
This inter-organizational supply network can be acknowledged as a
new form of organization. However, with the complicated interactions
among the players, the network structure fits neither "market" nor
"hierarchy" categories (Powell, 1990). It is not clear what kind of
performance impacts different supply network structures could have on
firms, and little is known about the coordination conditions and trade-offs
that may exist among the players. From a systems perspective, a complex
network structure can be decomposed into individual component firms
(Zhang and Dilts, 2004).
Traditionally, companies in a supply network concentrate on the
inputs and outputs of the processes, with little concern for the internal
management working of other individual players. Therefore, the choice of
an internal management control structure is known to impact local firm
performance (Mintzberg, 1979).
In the 21st century, changes in the business environment have
contributed to the development of supply chain networks. First, as an
outcome of globalization and the proliferation of multinational companies,
joint ventures, strategic alliances and business partnerships, significant
success factors were identified, complementing the earlier "Just-In-Time",
Lean Manufacturing and Agile manufacturing practices.
Second, technological changes, particularly the dramatic fall in
information communication costs, which are a significant component of
transaction costs, have led to changes in coordination among the members
of the supply chain network (Coase, 1998). Many researchers have
recognized these kinds of supply network structures as a new organization
form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual
Corporation", "Global Production Network", and "Next Generation
Manufacturing System".
In general, such a structure can be defined as "a group of semi-
independent organizations, each with their capabilities, which collaborate in
ever-changing constellations to serve one or more markets in order to
achieve some business goal specific to that collaboration" (Akkermans,
2001). The security management system for supply chains is described in
ISO/IEC 28000 and ISO/IEC 28001 and related standards published jointly
by ISO and IEC
Successful SCM requires a change from managing individual
functions to integrating activities into key supply chain processes. An
example scenario: the purchasing department places orders as
requirements become known. The marketing department, responding to
customer demand, communicates with several distributors and retailers as
it attempts to determine ways to satisfy this demand. Information shared
between supply chains partners can only be fully leveraged through
process integration. Supply chain business process integration involves
collaborative work between buyers and suppliers, joint product
development, common systems and shared information. According to
Lambert and Cooper (2000), operating an integrated supply chain requires
a continuous information flow. However, in many companies, management
has reached the conclusion that optimizing the product flows cannot be
accomplished without implementing a process approach to the business.
The key supply chain processes stated by Lambert (2004) are:
a. Customer service management
b. Procurement
c. Product development and commercialization
d. Manufacturing flow management/support
e. Physical distribution
f. Outsourcing/partnerships
g. Performance measurement
h. Warehousing management
Customer service management process is about Customer
Relationship Management that concerns with the relationship between the
organization and its customers. Customer service is the source of customer
information. It also provides the customer with real-time information on
scheduling and product availability through interfaces with the company's
production and distribution operations. Successful organizations use the
following steps to build customer relationships: determine mutually
satisfying goals for organization and customers; establish and maintain
customer rapport; produce positive feelings in the organization and the
customers.
PUMA is “Forever Faster”. “Forever Faster” is sports with personality.
These statements are the foundation for everything they do as a brand.
“Forever Faster” means to be braver, more confident, more determined,
and above all joyful.
PUMA’s Global Operations department under the leadership of Chief
Operating Officer Lars Sørensen comprises our product development,
sourcing, trading and logistics activities as well as the group’s IT and
Business Solutions functions. The joint ambition of all of these functions is
to provide commercial products at the best price and quality and at the right
time to our customers.
Procurement process where in strategic plans are drawn up with
suppliers to support the manufacturing flow management process and the
development of new products. In firms where operations extend globally,
sourcing should be managed on a global basis. The desired outcome is a
win-win relationship where both parties benefit, and a reduction in time
required for the design cycle and product development. Also, the
purchasing function develops rapid communication systems, such as
electronic data interchange (EDI) and Internet linkage to convey possible
requirements more rapidly. Activities related to obtaining products and
materials from outside suppliers involve resource planning, supply
sourcing, negotiation, order placement, inbound transportation, storage,
handling and quality assurance, many of which include the responsibility to
coordinate with suppliers on matters of scheduling, supply continuity,
hedging, and research into new sources or programs.
PUMA established a new sourcing structure in 2015. The formation
and global introduction of PUMA International Trading GmbH (PIT) as a
global trading company reorganized the supply chain. PUMA International
Trading GmbH, which has its headquarters in Germany, makes purchases
from third-party suppliers and sells to PUMA distribution subsidiaries. It
also handles all the associated transactions. This new business model
ensures transparency within the supply chain and reduces the complexity
of the transactions. In addition, hedging was centralized at PIT.
 Product development and commercialization, wherein customers and
suppliers must be integrated into the product development process in order
to reduce time to market. As product life cycles shorten, the appropriate
products must be developed and successfully launched with ever shorter
time-schedules to remain competitive. According to Lambert and Cooper
(2000), managers of the product development and commercialization
process must coordinate with customer relationship management to identify
customer-articulated needs and they should select materials and suppliers
in conjunction with procurement. Also, they should develop production
technology in manufacturing flow to manufacture and integrate into the best
supply chain flow for the product/market combination.
PUMA is one of the world’s leading Sports Brands, developing,
selling and marketing footwear, apparel and accessories in Performance
and Sportstyle categories. In Performance, they focus on lightweight,
comfortable and dynamic product concepts, while their Sportstyle lines are
inspired by their roots in sports. Product responsibility is organized within
their global business units and regional design centers, with PUMA’s
design language for all collections defined by our creative director Torsten
Hochstetter. To improve the product engine, in 2015 they initiated key
projects to enhance the product designs, develop more innovative
technologies and increase the commerciality of our product range.
Following the introduction of their latest running innovation, IGNITE,
in New York’s Times Square by the fastest man in the world, Usain Bolt,
sales of their new running shoe technology got off to a strong start – both in
retail partners and through Puma’s own retail stores. IGNITE’s innovative
shock-absorbing technology improves energy recovery when running and,
with the best figures in this area among their competitors, the shoe
embodies their mission statement “Forever Faster”.
The manufacturing process produces and supplies products to the
distribution channels based on past forecasts. Manufacturing processes
must be flexible to respond to market changes and must accommodate
mass customization. Orders are processes operating on a just-in-time (JIT)
basis in minimum lot sizes. Also, changes in the manufacturing flow
process lead to shorter cycle times, meaning improved responsiveness and
efficiency in meeting customer demand. Activities related to planning,
scheduling and supporting manufacturing operations, such as work-in-
process storage, handling, transportation, and time phasing of components,
inventory at manufacturing sites and maximum flexibility in the coordination
of geographic and final assemblies postponement of physical distribution
operations.
Physical distribution is about the movement of a finished
product/service to customers. In physical distribution, the customer is the
final destination of a marketing channel, and the availability of the
product/service is a vital part of each channel participant's marketing effort.
It is also through the physical distribution process that the time and space
of customer service become an integral part of marketing, thus it links a
marketing channel with its customers (e.g., links manufacturers,
wholesalers, retailers).
PUMA distributes its products via three different distribution channels:
wholesale, PUMA’s owned and operated retail and eCommerce stores.
Wholesale accounted for 79% of net sales in 2015 and remains the biggest
sales channel for the PUMA Group. With regard to the channels, PUMA
has the highest growth rate expectations for eCommerce. PUMA’s focus in
the wholesale business is to continue to build joint product and marketing
programs together with key accounts. These measures shall increase the
business share of the most important accounts of PUMA’s total wholesale
net sales and thereby increase the net sales quality. In Retail, PUMA has
introduced a completely new store design in 2015. The new design has
been rolled out to 20 owned and operated stores worldwide, including Hong
Kong, Istanbul, Veracruz and our headquarters in Herzogenaurach. The
new and refurbished stores allow us to better tell our product stories, reveal
the technologies behind them and strengthen PUMA’s positioning as a
sports brand. PUMA will continue to open new stores in strategic growth
cities and focus on driving traffic into and improving the sales productivity of
its existing owned and operated stores. The growth of eCommerce has
been and will be further supported by the completion of the rollout of the
unified website Puma.com as well as further enhancements for the
consumer experience.
Outsourcing or partnership is not just outsourcing the procurement of
materials and components, but also outsourcing of services that
traditionally have been provided in-house. The logic of this trend is that the
company will increasingly focus on those activities in the value chain where
it has a distinctive advantage, and outsource everything else. This
movement has been particularly evident in logistics where the provision of
transport, warehousing and inventory control is increasingly subcontracted
to specialists or logistics partners. Also, managing and controlling this
network of partners and suppliers requires a blend of both central and local
involvement. Hence, strategic decisions need to be taken centrally, with the
monitoring and control of supplier performance and day-to-day liaison with
logistics partners being best managed at a local level.
Sourcing refers to the central management of the purchasing of
products for PUMA and the Group’s own brand, COBRA. The necessary
sourcing tasks are carried out centrally by the Group company World Cat
Ltd. in Hong Kong.
World Cat Ltd. manages the various branches located around the
world from Hong Kong. In addition to the registered offices, the various
locations in China, Vietnam, Bangladesh, India, Turkey, South Africa, Brazil
and El Salvador manage the collaboration with suppliers and also monitor
the production processes on site.
Processes are continuously improved in line with the six core
principles of partnership, transparency, flexibility and speed, simplicity and
effectiveness, thus satisfying the aim of offering service at a high level for
all PUMA brands and creating a sustainable production and supply chain.
In order to further strengthen the link between customer demands, product
design and production, product knowledge is moved closer to production,
thus ensuring any developments in the market can be adapted to more
quickly. World Cat Ltd. optimizes the supply chain with independent
suppliers within its global production network, from the purchase of
materials to production, right through to the delivery of products. The aim is
to offer an optimum service to the various PUMA brands in order to meet
and continue to improve global requirements for quality and safety, along
with environmental and social aspects in production. At the same time,
continuous improvements are being made in its role as purchasing agent
with respect to costs, flexibility and delivery reliability.
Performance measurement states that experts found a strong
relationship from the largest arcs of supplier and customer integration to
market share and profitability. Taking advantage of supplier capabilities and
emphasizing a long-term supply chain perspective in customer
relationships can both be correlated with firm performance. As logistics
competency becomes a more critical factor in creating and maintaining
competitive advantage, logistics measurement becomes increasingly
important because the difference between profitable and unprofitable
operations becomes narrower. A.T. Kearney Consultants (1985) noted that
firms engaging in comprehensive performance measurement realized
improvements in overall productivity.
Warehousing management is carrying the valuable role against
operations, as a case of reducing company cost & expenses. In case of
perfect storing & office with all convenient facilities in company level,
reducing manpower cost, dispatching authority with on time delivery,
loading & unloading facilities with proper area, area for service station,
stock management system etc.
Logistics and supply chain management are terms that are often
used interchangeably, but they actually refer to two aspects of the process.

Logistics refers to what happens within one company, including the

purchase and delivery of raw materials, packaging, shipment, and
transportation of goods to distributors, for example. While supply chain
management refers to a larger network of outside organizations that work
together to deliver products to customers, including vendors, transportation
providers, call centers, warehouse providers, and others.

Although many small businesses focus on the design and production

of their products and services to best meet customer needs, if those
products cannot reach customers, the business will fail. That’s the major
role that logistics plays. But logistics also impacts other aspects of the
business, too.

The more efficiently raw materials can be purchased, transported,

and stored until used, the more profitable the business can be.
Coordinating resources to allow for timely delivery and use of materials can
make or break a company. And on the customer side, if products cannot be
produced and shipped in a timely manner, customer satisfaction can
decline, also negatively impacting a company’s profitability and long-term
viability.

Supply chain sustainability is a business issue affecting an

organization’s supply chain or logistics network and is frequently quantified
by comparison with SECH ratings. SECH ratings are defined as social,
ethical, cultural and health footprints.
 Consumers have become more aware of the environmental impact of
their purchases and companies’ SECH ratings and, along with non-
governmental organizations (NGOs), are setting the agenda for transitions
to organically-grown foods, anti-sweatshop labor codes and locally-
produced goods that support independent and small businesses. Because
supply chains frequently account for over 75% of a company’s carbon
footprint many organizations are exploring how they can reduce this and
thus improve their SECH rating.

For example, in July, 2009 the U.S. based Wal-Mart corporation

announced its intentions to create a global sustainability index that would
rate products according to the environmental and social impact made while
the products were manufactured and distributed. The sustainability rating
index is intended to create environmental accountability in Wal-Mart's
supply chain, and provide the motivation and infrastructure for other retail
industry companies to do the same (Marts, 2009).

More recently, the US Dodd-Frank Wall Street Reform and Consumer

Protection Act signed into law by President Obama in July 2010, contained
a supply chain sustainability provision in the form of the Conflict Minerals
law. This law requires SEC-regulated companies to conduct third party
audits of the company supply chains, determine whether any tin, tantalum,
tungsten or gold (together referred to as conflict minerals) is made of ore
mined/sourced from the Democratic Republic of the Congo (DRC), and
create a report (available to the general public and SEC) detailing the
supply chain due diligence efforts undertaken and the results of the audit.
Of course, the chain of suppliers/vendors to these reporting companies will
be expected to provide appropriate supporting information.

PUMA’s Sustainability Strategy is based on more than 20 years of

Code of Conduct monitoring experience at with manufacturing partners as
well as regular stakeholder communication, industry collaboration and
expert feedback – both on a corporate and increasingly on a regional level.

Their latest full scale Materiality Analysis to identify our most relevant
issues was conducted in 2013. The results are still valid. 2015 was a year
for them to focus on the UN Guiding Principles for Human Rights and
Business. Therefore, they assigned the expert organization Shift to perform
a human rights gap analysis for their global operations including supply
chain. The validity of our Materiality Analysis was also discussed and re-
confirmed during their Annual Stakeholder Meeting Talks at Banz.

On the environmental side, they learned from the 2013 and 2014
results of the Environmental Profit and Loss account (E P&L), carried out
by PUMA’s majority shareholder Kering, where they have to place the
focus of our efforts to improve our global environmental footprint.

In addition, PUMA sponsored the UN Conference on Climate Change

(COP21) in Paris with clothing for the stewards and stewardesses who
assisted visitors to find the conference. French Handball World Champion
Luc Abalo helped to communicate this small but symbolic step in support of
the climate conference.

As part of the Commit to Action Campaign on the Road to Paris,

PUMA formally committed to developing a science-based target for climate
change within the next two years. We also publicly committed to continue
reporting on our carbon footprint and climate change program as part of
mainstream financial reporting and to a responsible corporate engagement
in climate policy.
 Also, to supplement the environmental auditing, PUMA has initiated
waste water testing for their 33 largest wet processing facilities, again in co-
operation with other brands of their sector.

The year 2015 saw the start of a shift in the context of social
sustainability. As a member of the Fair Labor Association, PUMA has made
a commitment to regularly audit 100% of its factories on Tier 1 level with
regard to social as well as health and safety and basic environmental
standards – for more than 10 years already. In the past years, they carried
out these audits regardless of order volume, risk status of the country or
processes covered at the Tier 1 supplier.

For health and safety issues, two years after the Rana Plaza disaster,
the work of the Bangladesh Accord on Fire and Building Safety has shown
first substantial results. All seven PUMA suppliers in Bangladesh had their
buildings assessed for structural building and fire safety and 650 corrective
measures were suggested. In the meantime, over 300 corrective measures
were implemented, while we follow up on the remaining actions.

As building safety concerns within our supply chain are not limited to
Bangladesh, we expanded our activities related to this topic into China,
Vietnam and Cambodia. As of today, ten suppliers in China, six suppliers in
Cambodia and 18 suppliers in Vietnam have been assessed as a part of
our PUMA building safety initiative. For the year 2016, we aim to expand
the initiative into at least one additional country.

Looking back at PUMA’s sustainability targets from 2010 to 2015,

they have certainly achieved progress in some areas, whilst realizing that
the road to a sustainable development is long. They have merely walked
the first steps on this journey.

In order to accelerate their pace in line with the company slogan

“Forever Faster,” they defined ten target areas for the period ahead of us
until 2020 (“10FOR20”), which are comprised of a broad range of topics
including human rights, corporate governance and health and safety
matters.

They assigned relevant Key Performance Indicators (KPIs) to each of

the identified target areas in order to go beyond counting audits and
failures, instead focusing on tracking and managing performance
improvements.
 The year 2015 also saw some significant changes in PUMA’s
sustainability organization, namely a reorganization of the sustainability
department from social and environmental teams into a supply chain and a
corporate sustainability arm.

With more than 15 years of sustainability related work, sustainability

has become an important value in our strategy and an integrated part of
PUMA’s business. Our sustainability department, which is responsible for
the execution of PUMA’s sustainability strategy, reports to Lars Sørensen,
PUMA’s Chief Operating Officer 3.

With the continuous effort of PUMA to stabilize their supply chain

management and operations they receive a good outcome in 2015.

In the outlook in the 2014 Annual Report, PUMA forecasted a slight

increase in gross profit margin for 2015 based on the assumption of fewer
discounts and a favorable profit mix. PUMA forecasted a slight increase
over 2014 in both operating income (EBIT) and net earnings.

Due to the continued negative currency effects, the forecast had to be

revised downwards in May 2015, as the countermeasures taken were not
able to fully offset the negative exchange rate effects. While the sales
forecast was maintained, PUMA expected a decline in the gross profit
margin within a range of 100 to 150 basis points from the previous year
(2014: 46.6%). Currency-adjusted operating income (EBIT) was expected
to be between € 80 million and € 100 million (previous year: € 128.0
million). Expectations for net income were corrected in line with the
adjustment to operating income. The adjusted forecasts were confirmed
during the year and were fully met for the full year 2015.

In the financial year 2015, gross profit increased by 11.2% from €1,385.4
million to €1,540.2 million.

The gross profit margin declined by 110 basis points from 46.6% to
45.5%, due mainly to unfavorable exchange rate effects. In addition to the
strong US dollar, the development of other key currencies also had a
negative effect.

The decline in the margin was reflected in all product segments. The
gross profit margin the Footwear segment fell from 42.6 % in the previous
year to 41.2%. In Apparel, a decline from 49.5% to 49.3% was recorded.
The gross profit margin for Accessories was 48.0%, compared with 50.0%
in 2014.

The financial result changed from €-6.2 million to €-11.2 million.

Expenses for currency conversion differences had a negative impact,
resulting in increased financial expenses. Borrowing also increased interest
expenses, which totaled €14.4 million (previous year: €9.8 million). Income
from the associated company Wilderness Holdings Ltd, which is also
included in the financial result, totaled €1.0 million in financial year 2015
(previous year: €1.3 million).
Group earnings in 2015 stood at € 37.1 million and were thus in line
with the expectations of the adjusted forecast. The decline was due mainly
to the continued unfavorable developments in exchange rates and their
negative impact on the gross profit margin. As a consequence, both
earnings per share and diluted earnings per share fell to € 2.48 (previous
year: € 4.29).
Supply chain is the heart of a company’s operations. A supply chain
is composed of all the companies involved in the design, production, and
delivery of a product to market. Supply chain management is the
coordination of production, inventory, location, and transportation among
the participants in a supply chain to achieve the best mix of responsiveness
and efficiency for the market being served. The goal of supply chain
management is to increase sales of goods and services to the final, end
use customer while at the same time reducing both inventory and operating
expenses.
Each company now focuses on its core competencies and partners
with other companies that have complementary capabilities for the design
and delivery of products to market. Companies must focus on
improvements in their core competencies in order to keep up with the fast
pace of market and technological change in today’s economy
To succeed in the competitive markets that make up today’s
economy; companies must learn to align their supply chains with the
demands of the markets they serve. Supply chain performance is now a
distinct competitive advantage for companies who excel in this area.