"Constant evolution" is key, according to Epic Group CEO Ranjan Mahtani

"Constant evolution" is key, according to Epic Group CEO Ranjan Mahtani

With new facilities opening in Bangladesh and Vietnam, an investment to take automation to the next level, and an eye on Africa, Hong Kong based manufacturing giant Epic Group is also on a relentless efficiency drive. Chairman and CEO Ranjan Mahtani tells just-style why constant evolution is key.

In terms of timing, the inauguration of Epic Group's second manufacturing facility in Vietnam couldn't be better.

With all eyes on the country's apparel industry as one of the biggest beneficiaries of the recently agreed Trans-Pacific Partnership (TPP) trade pact, with its potential to eliminate duties on exports to the US and Japan, investors have been piling in to the sector.

But chairman and CEO Ranjan Mahtani plays down the link. "Obviously the TPP is at the back of our minds," especially when it comes to any future investments, he tells just-style, but "whatever we've done so far we would have done it with or without the TPP."

Indeed, the company is hardly a stranger to Vietnam, having operated one factory there for the last 15 years. But "having had a little bit of success", with its new woven bottoms facility, which is now about six months old and running at around 70% capacity, further expansion is on the cards.

While a relatively high labour cost country – "when you look to Vietnam from Bangladesh it seems expensive, but when you're looking at it from China it seems cheaper" – Vietnam brings its own advantages.

"We wanted to build Vietnam as a different haven for our better brands and customers. [It] brings a different needle to the table, quicker lead times and more versatility". Its operation is geared towards smaller volumes – 600,000 units a month compared to around 5m a month in Bangladesh – but "a lot of styles, a lot of SKUs, a lot of different brands".

Epic Group has committed around $20m in Vietnam in the space of two years, and key to setting its operation apart is an investment to take automation and lean management to "the next level", where "one guy is doing what traditionally you'd have ten people doing".

At the new facility in Xuan Loc province, around two hours' drive from Ho Chi Minh City, cutting is entirely automated, and an INA computerised hanger system equipped with RFID technology runs across the sewing lines. Not only does this ensure a better way of managing production by automatically moving garments from one station to the next without work piling up, but it also provides detailed and real-time information on who has done what. 

"We're controlling the entire movement of the garment literally through one computer in each line." This requires "very few managers" but it also "controls your quality, it controls your re-work."

Mahtani explains. "The biggest problem in a factory is that when there's a defect in the garment it goes back to a third party for re-work. With this system, because each hanger has got that RFID sensor, you are able to identify exactly where any mistakes have occurred – and send the hanger back to that operator.

"This not only controls quality but it drives efficiency because [workers] are learning through the process." And perhaps the biggest incentive is that it affects operator's ability to earn more on an incentive basis.

Epic Group has been experimenting with these lines for several years, with limited success. But Mahtani believes the technology has now developed to the point it can be used "at a more mass level".

"We've bought 17 of these assembly systems in the last six months, and by the end of this year we intend to make a decision where we will buy another 75 of them and move them into our Bangladesh units. We're trying to do it slowly and steadily and making sure we get actual, tangible results from it."

Competing with China

This also taps into Mahtani's strong belief in the need to set up units outside China that can match the best the mainland has to offer by combining speed, efficiency, technology, design and innovation – rather than rely on an abundance of cheap labour.

"Everybody thinks that Bangladesh labour is cheap, but what we're doing in Vietnam we'll have to do soon in Bangladesh, otherwise we'll also feel the pinch over there.

"It's about constant evolution. Selling prices are going down, but our costs are going up, so there has to be constant improvement to absorb that increased cost of production.

"The benefit that our customer is going to see is that we are going to be able to at least maintain, if not improve, costs despite seeing 10-15% higher cost in the form or labour or energy in our country of production.

"Normally we would be compelled to say we're getting more expensive because we are paying more, but what we're [now] telling our customers is that we'll maintain cost through our own improvement of efficiencies, which means we have to get our productivity and our efficiency to improve at least at the rate of 10-15% every year.

"And that really is the driving factor for all companies, separating the people who do it better from the people who do it slowly."

Building the business in Bangladesh

Not surprisingly Mahtani continues to believe in Bangladesh, where Epic Group has had a presence for 30 years and is one of the country's largest garment makers, with a capacity to produce 60m garments a year comprising around 12m laundered shirts and 48m bottoms. Customers include JC Penney, Kohl's, Target, Sainsbury's, Tesco, Quiksilver and Marks & Spencer.

He emphasises that efforts to improve worker and building safety in the wake of the Rana Plaza and the Tazreen Fashion disasters are "reinventing the industry" there.

"Once we're finished I don't think some of the other countries will be able to compete with the things that we've done. I think it's good that there's a lot of regulation, and I don't think it should go away; it's a good railway track for all of us."

He also explains that even an industry-leader like Epic Group has had to make "many changes because of the new requirements" – including spending $3m to upgrade the flagship CIPL (Cosmopolitan Industries Pvt Ltd) facility, which was the largest stand-alone clothing production plant in Bangladesh when it opened nine years ago.

"We did it because it's the right thing to do, but imagine how much change other people are making. We started off with five different levels of industry in that country three or four years ago, and it's down to three levels now. It will go to two levels in two to three years from today."

He also dismisses fears that retailers and brands lack a long-term commitment to Bangladesh. "I have never seen that as a point of concern at all. We have about six or seven key accounts, and they have never flinched at being in Bangladesh. They have in their own way partnered and collaborated with all of us."

Mahtani's confidence in Bangladesh is also driven by the simple fact that the industry can't afford for it to fail.

"Where else is there in Asia with so much labour and a natural appetite for apparel production?" he asks. "It's not rocket science to know that China's probably going to be at $1000 pay scale in five years from today. Where are you going to replace that production?"

To this end, Epic Group's investment in the country continues unabated, "and we've got the customer support to stand that growth".

The company now operates nine units in Bangladesh employing over 20,000 people, and in the last two years alone has brought two new facilities on stream, adding close to 1m laundered shirts and cargo bottoms a month (12m units annually). This includes Green Textiles Ltd (GTL), its 1 million square foot garment manufacturing facility, which has been approved 100% compliant by the Alliance for Bangladesh Worker Safety.

Another two facilities are also being added in the short term: one starting in the next few months, and the other due to commence in the early part of 2016.

And building on the success of a denim mill set up by Epic and a local partner in Bangladesh five years ago, construction is now underway on a dyeing plant to give it another vertical edge in the country.

"We're slowly starting to get vertical now that we've had some success with denim," Mahtani explains – with the emphasis on slowly. "We're growing, but we're doing it very cautiously. It's a struggle to get the efficiency right, and we keep doing it in phases."

An eye on Africa

And it doesn't end here. "Part of our strategy is to have a third duty-free centre as part of our supply chain" – and top of the list is Africa.

"We're offering more different options to our customers; and some of our customers have told us that they'd rather go in to Africa with us than go in with somebody new."

Epic's teams are evaluating both Kenya and Ethiopia as potential bases. "I think Ethiopia will be a grind to build the efficiencies, to train the people, so it's going to be a slow start for those who are in it for the long term.

"We're also looking at Kenya to maybe start something faster, and side by side use it as a base to build Ethiopia. Ethiopia is land-locked, so we'd need an operation in Nairobi to support Ethiopia."

Assessing a potential supply based includes an evaluation of cost, efficiency and labour availability, as well as the culture of the people and logistics. "If those things make the cut then our entire senior management will go and look at what is the right product and what is the right customer, and how we can make a marriage out of it.

"We will not know until we go there and commit, but it seems promising at this point."

Strategic relationships

Mahtani has long spoken of moves by international retailers and brands to consolidate their supply chains to build stronger and more strategic relationships with a smaller number of big suppliers.

And he believes this is set to accelerate still further.

"In the last 10-15 years we've seen a lot of consolidation – and in the next 5-10 years we'll see a different level of consolidation where you're actually going to see a much higher level of partnership and strategy going into the supply chain.

"That is my personal feeling because what else is going to come out of the system which sustains the business? Everybody's done all the small things you need to do to take cost out of the system: whether [improving] the product, consolidating the vendor base. It probably needs a new level of strategy.

"We're all waiting for Africa to deliver and we're all waiting for TPP to deliver, but those are the only few game-changers."

Epic Group's focus over the next couple of years is not only on growth, but also "about how we get more lean, how we get more efficient, how we provide a better service to our customers.

"And we believe that if we do that for the next two years, with the growth that we're having, it will set up a foundation for us to be able to do much bigger and better things.

"We're not trying to reinvent ourselves," Mahtani says, "but we know that if what we're doing for the next two to three years is successful, it keeps a lot of doors open for us to do whatever we like." 

For more insight into Epic's expansion in Vietnam, click on the following link: Epic Group commits $20m to new Vietnam factories.