An Echelon Media Company
Wednesday December 8th, 2021

Suren Fernando on leveraging scale, the importance of purpose and future of cost arbitrage

Suren Fernando Group Chief Executive of MAS Group

Manufacturing businesses were impacted by the inability to operate factories at full capacity, the disruptions to the global raw material supply chains and volatility in global demand due to several lockdowns to contain the waves of the pandemic since the Covid-19 outbreak.

A year and a half since the Covid crisis began, Sri Lankan apparel producer MAS Holdings has emerged successfully from it. MAS Holdings’ Group Chief Executive Suren Fernando was only a couple of months into his new role when the pandemic struck. He says the pandemic has accelerated trends that were already impacting the business, revealed weaknesses and posed new challenges for the future.

Echelon’s Shamindra Kulamannage started an interview with Suren Fernando by asking him to reflect on how MAS, and he as its leader, performed during the pandemic. Excerpts of the interview.

Suren Fernando: I didn’t have the faintest idea, when I took over as Chief Executive in January 2020, about what I was in for. I remember it all happened very fast. In February, we learned that our supply chain was being impacted due to the virus spreading rapidly in China.

I remember coming to work on a Friday in mid-March and from the immediate Monday onwards, nobody stepped into an office for one and a half months. The speed at which the pandemic unravelled took us all by surprise.

Especially during the first wave, I recall working from home, the days filled with many meetings and making decisions, and then at the end of a long day’s work, going to bed wondering if the company will be able to pull through; wondering at what point we bottom out because nobody had any clue at that time.

I was extremely fortunate to have such a capable team working with me. Everybody rallied together to address and attack one problem, and that made a huge difference in making decisions fast and executing because it was such a volatile and dynamic situation.

I’m sure with the benefit of hindsight, you can also see several things that you got wrong, what do you think you’ve got right in this whole process?

When it’s business as usual, because we are a decentralized organisation, it sometimes takes time to make a decision because we get everyone’s buy-in and commitment, before we get into execution. That sort of thing sometimes takes time. In the situation, for instance, that Covid presented, we didn’t have the time on our hands. As a result, everybody just came together, nobody questioned each other’s capability or capacity of decision making, collectively we made the right call and when it came to execution, we handed it over to the teams on the ground and that happened very efficiently and effectively. I think the whole process of coming together for a common cause, and executing it flawlessly had a huge impact on the organisation.

Under your leadership, and perhaps from even before your time, there has been an effort to centralize operations of the MAS group. What do you think about that strategy since being hit by Covid?

When I took over the Chief Executive’s role, I said that I wanted to look at two things. One was to leverage the scale and the power of the enterprise, which we call ‘One MAS’. What are those things that we can do as an enterprise, leverage skill and capability, and the capacity we have built because again, those synergistic benefits are a huge opportunity for us.

The second thing that was important to me, was staying true to our values. MAS has been built on a foundation of strong values the founders of this company have instilled. Even as the founders take a step back to non-executive roles, it’s our responsibility to ensure the organisation retains those values which are the glue that will hold everything together.

Leveraging the scale to build ‘One MAS’ and living our values were the two focus areas. Over the last two years, we’ve progressed on both fronts. With ‘One MAS’, we’ve established a culture with greater collaboration; people now demonstrate more of that behaviour and we have visible examples of divisions and business units sacrificing some of their own goals for the greater good of the enterprise. Being able to harness and leverage the power of the enterprise is coming out quite strongly now.

What were your quantifiable aims with ‘One MAS’, in terms of cost savings, efficiencies, and the like? Were there targets? And now that you’ve implemented the changes, how is the company measuring up against those targets?

Several areas matter. One is on the customer front. Customers who work with us want to do so on multiple product categories. For example, we had structured our business around product-centric business units. However, if we can provide a single point of contact to a customer but, on the back end, offer the full scale and capability of the whole enterprise, then that’s a huge win for the customer. It also makes the whole process a lot more efficient compared to engaging the same customer at multiple points.

On manufacturing, if we can view all our manufacturing capacities as one, we can offer greater flexibility and agility to customers, because all customers go through peaks and troughs in their order placement. If we can level out the orders with our scale, then the speed and flexibility will benefit our customers. That’s on the manufacturing front.

On the cost and scale efficiencies, our purchasing, sourcing and supply chain synergies are significant. All of that offered an opportunity for greater leverage as we were able to consolidate our purchasing, sourcing and supply chain initiatives. These were the three areas where we had the greatest opportunity to leverage the power of the enterprise. 

Transforming a business at scale is challenging, many things can go wrong. What do you think made the MAS centralization successful?

First, people have to buy into the idea. Being decentralized and having strong leaders who’ve run businesses almost independently was critical for our success thus far. I first had to obtain their buy-in and commitment for the greater purpose of the organisation. If we work as an enterprise, everybody wins. That’s the critically important path any transformation has to go through because you’re talking of changing behavior. We are also looking at incentive schemes that align with ‘One MAS’ thinking, where all of us will be rewarded and recognized better if we’re able to scale and leverage the enterprise.

Another important piece is trust. When you’re working with each other, you have to be able to look at this opportunity and think, ‘I might lose a little bit more but there will be another occasion when I might benefit from this.’ I think building that trust and reinforcing that message of ‘deeper collaboration helps us all achieve something better, then having an incentive scheme that supports it, are some of those basic things that you can do to build this.

Do you think it was tougher for you to give leadership to this initiative because you were also new to the role?

It was challenging because I was a business unit leader before my appointment, so I was previously on the other side of the business. When you move into corporate, you realise that although you’re in a seat of influence you don’t have much control over what happens in the business units. So, you have to influence, convince and bring people together to be effective and that requires skill, talent and capability.

Corporate life did take some adjusting to. But the great team I had and the organisational culture of being able to open a door and speak with anyone, pick up a phone and discuss issues, and even resolve conflict very openly and in an honest, transparent manner, helped me to adjust and recalibrate to the new role.

You took over the business at a tumultuous time, you had to lead a business transformation that had already commenced and deal with the risks arising out of the pandemic. When you look back at those last two years, what do you think was your biggest learning?

The first thing to mind is, how important it is to be true to yourself and true to what you believe in as an organisation. In our case, it was people, and will always be people. During the last 18 months, with everything we have been through, that became the single most critical factor. At the beginning of the pandemic, we made a statement, and it’s, lives first and then livelihood. We have stayed true to it, but it was not easy because no matter what decision you make, in an environment like this, where everybody is connected and everybody has an opinion and as there are so many stakeholders, you will be criticised, you will be questioned, you might even feature in social media. Despite all that we didn’t stray from our belief that it was always about the people.

We did have to make some tough calls during this time, but in all, the 100,000 people we have in our team today truly acknowledge and appreciate the fact that we have stayed true to that principle and taken care of people, and in turn, the company has emerged in a better state.

Can you recall a challenging or conflicting decision you had to make? When you are running a manufacturing organisation where remote working for a large part of your team was not a possibility, was that one of them?

Yes, it was. I remember, especially during that first wave, when we had shut operations almost completely for six weeks, and we didn’t know where things were going, and at what point things were going to bottom out. During this time, we spoke about people and their health, safety and well-being, but also as a company, we had to figure out how we were going to manage things and we had to make some hard calls. On the business side, it was about conserving cash, because our revenues had trickled to almost nothing for those six weeks and we didn’t know where it was going to end. As an executive team, we decided that we will all share this pain of the organisation so we all took salary cuts. It was a tough decision, but again, we had the buy-in and support, not only from the executive team but from everybody in the organization.

We had to lead with our head, but also care for people with our hearts. Our consistent behaviour and constant communication regardless of the situation were able to rally the people around us and see everyone through this difficult time.

In what ways do you think the pandemic has changed the business you’re in, for better or worse, into the future? What do you think will be the lasting impact of the pandemic on MAS Holdings?

This pandemic has been an eye-opener for everyone, and everybody has undergone some form of change. When we speak to people, our employees, and our customers, we can see several emerging trends. It was almost a coincidence, but we also started thinking about the organisation a little differently.

As a company, we had a very clear vision, a clear mission, we had strategies, and we had great values underlying all this and all articulated. But we went a little above that and started questioning, why do we exist as an organisation? What is the purpose of the organisation? What do we want to achieve? We worked on this for a couple of months, we got some external support as well, and a few months ago we were able to put all our thoughts into a purpose statement, “We are changemakers, enabling dreams and enriching the fabric of life on our planet.” This is a MAS Holdings purpose statement and our journey from now is to see how this corporate purpose statement applies to the individual, from me down to a team member on the shop floor, how can we enable her or him to achieve their dreams and what role can we play to enrich the fabric of life on our planet?

What are your customers telling you, are they telling you anything different than they did before?

Our customers’ experiences during the pandemic are certainly impacting post-pandemic behaviour and thinking. One trend we’re seeing is the increased move to digitalization and e-commerce that has accelerated through the pandemic. Our ways of working too have changed. Whereas earlier, we did a lot of things physically, today, it’s about virtual product shows, virtual prototyping, 3D sampling, virtual fitting and so on. We’ve moved away from making physical samples to the virtual world. I think those changes will continue to accelerate.

On our business side, we are driving towards a data and analytics-driven decision making culture. With that comes new tools like machine learning, artificial intelligence and so on. The digital technology journey has accelerated, and I think it will continue to accelerate.

From a cultural perspective, we can see working from home is here to stay. It’s something that we promoted even before the pandemic, but during the pandemic, there was no choice but to adapt to new work practices and I think that will continue to stay with us.

Supply chains have historically been organised and structured for cost efficiencies and speed, but through this pandemic, we have realised having a very fragmented supply chain means that you are vulnerable to whatever happens in different parts of the world. I think building resilient supply chains and organisations have also become critical. For example, for us, what does that mean?

For us, having a global manufacturing footprint with multi-product capability, in the event there is an issue in a particular country or region, we are still able, to some extent, to service our customers because we’ve got that ecosystem built in another part of the world as well. I think these are some risks that are apparent now due to the pandemic.

The industry has been exploring what it calls on-shoring and near-shoring for several years. Due to the fragmented nature of certain supply chains exposed by the pandemic, do you think this trend will accelerate?

I think it will. Customers look at near-shoring and even on-shoring primarily for a few reasons; speed, cost and the ability to better manage risk. I think all these three factors will continue to play a role. When we speak to our customers, we’re also looking at macroeconomic factors like for instance how we can leverage preferential duty rates. So, I think, that’ll also have a part to play. I think near-shoring and on-shoring will also be looked at very differently as we pivot to a new normal.

The human impact on the environment seems to be something that some businesses are taking seriously. For a business like yours, how do you make sure when you deal with these issues, that you’re doing stuff that adds up to something?

It’s definitely top of mind for us and that’s why even in our purpose statement, we speak about enriching the fabric of life on our planet. That’s not only for MAS but for the industry as well. As you know, our industry is the second largest polluter in the world, so we certainly have a part to play.

There is some greenwashing that goes on in the industry but we are fully and sincerely committed to this cause. During the pandemic, we launched our new sustainability strategy which we call “a plan for change”, where we are looking at people, the planet and the product, and how we can impact all these three areas in everything we do. In our case, we have to work closely with our supply chain, because a higher degree of pollution takes place in our supply chain, in fabrics and accessory manufacturing and whatever else that goes into assembling the garment. We are also looking at how we manage our waste as well and ways in which we can convert some of our waste into energy.

If you think you can realistically make a change in one or two big areas towards sustainability what do you think those would be for MAS?

One would be the materials we use to make the product, that would be one big area. We are working closely with supply chain partners to ensure that there are no toxic chemicals used in the manufacture of the product, and we are also working on how products can be reused or recycled. Maybe we will even have biodegradable products in the future.

The other piece would be our commitment to reducing the carbon footprint in our manufacturing facilities, by reducing emission, water usage, and other resources related to manufacturing. We are also talking to some of our customers to see how we could partner with them in driving some circularity by bringing used garments back as raw material closing that loop. Product and the process will be two areas that we will look at quite closely.

As CEO you will be thinking about how MAS will continue to maintain an edge in the market. What you have today may not be enough five years from now. And it’s your job to have a vision for five to ten years into the future. What do you think will be different about the industry in five to ten years?

I think technology would impact us almost at every touchpoint of our business, whether it’s the work we do, interacting with our customers, the way we process our orders to manufacturing and so on. We will have to invest to ensure that we stay ahead of the game. If I am to pick another area, I would pick sustainability, sustainability from an environmental and social point of view. The other piece I would add to sustainability strategy is governance. Increasingly consumers and customers are keen to understand how the product is made, where it’s made and by whom it’s being made.

When I say governance, it’s not just compliance but at a higher level; having transparency and also being able to offer traceability to customers to assure them that products are manufactured ethically. Therefore, the whole sustainability piece from an ESG (environmental, social and governance) point of view and impact of technology are two areas that we should be very mindful of and build into strategy because this is how we can differentiate and stay ahead of the competition. It’s not only for MAS but as a country we should leverage on that.

Technology is twofold, one is the digital technology the other is about embedding tech in your products, the apparel. How does one acquire technology on the scale that you need to when your specialisation is cutting, sewing and supply chain?

A few years ago, we embarked on a diversification strategy. Diversification is not about moving into a new industry but moving several degrees from our core business which is apparel and textile. These areas we call our adjacencies. We have two adjacencies we are currently building business pillars around. One is the feminine hygiene technology space, which we call Femtech, where we can offer women functional clothing solutions as she goes through her journey in womanhood. The other is what we previously called “wearable technology” and “modern craft”. Now it’s rebranded as “soft matter”. That’s basically integrating technology into apparel. We make soft goods function better and improve the hand feel and the use of it. Integrating technology into apparel is one branch of that pillar.

We have done a lot of work in the past but, to be honest, not everything has gained traction at the rate we thought it would. However, several brands have incorporated wearable tech into clothing to measure heart rate during exercise and also other indicators, but nothing has taken off yet. We firmly believe there is plenty of potential in that space so we continue to invest and build that pillar.

Clothing for the future will be smart. If you consider it, clothing is one piece that covers most of our bodies, so it’s touching our body and if you look at some of the clothes we are making, whether it’s intimate wear or sportswear, we can incorporate technology that can interpret things happening inside our body. I think that has a lot of potential and opportunity. That innovation journey began about eight years ago and it has been a slow journey because the adoption of wearable tech has its challenges. For example, things like being able to wash clothes regularly.

You talked about several forces changing the industry, from on-shoring and near-shoring to technology in the manufacturing process and also wearable tech. What do you think will be the impact of these forces on the future of manufacturing in Sri Lanka, on the ability of this industry to remain and continue to employ people in Sri Lanka?

I think there is plenty of potential for this industry to grow in Sri Lanka and there are several reasons for it. One is, the people we employ are educated and able to easily adapt to using technology whether it’s digital technology or automation. If we can make that transition and re-skill or re-tool, we can have team members who are at a different level from the rest of the world. If we make that leap, we will be a lot more competitive rather than competing purely on labour.

Apparel manufacturing has shifted from country to country based on cost arbitrage. You are not suggesting that this is likely to fundamentally change?

Cost arbitrage will continue. But to the point I made earlier; through this pandemic, we realised that supply chains, organised to maximize cost efficiency, turned out to be too fragmented and disjointed. Because it has been organised for cost efficiency when there is a challenge you cannot pull everything together as easily, and deliver the goods on time.

There has to be some recalibration. Brands are moving away from looking at things purely from cost arbitrage to looking at the total cost, what does it cost them to not have the goods on the shelf? Near-shoring and on-shoring in manufacturing might be more expensive but they will confer certain other advantages, like being able to get goods delivered on time. I think those dynamics will continue to play, the cost will be important but other factors too will weigh.

You were talking about labour, on-shoring, nearshoring and wearable tech. And of course, about the future of manufacturing in Sri Lanka?

From a labour point of view, due to the average high level of education and skill in Sri Lanka, we can develop more knowledge workers. What’s going to be critical for Sri Lanka would be to develop the ecosystem, and what I mean by the ecosystem is to have supply chain verticality. Again, to the point I made earlier, if you can source your material in the country, and if you can put the garment together and ship it, I think that will give us a huge advantage.

Another way we can play this game better is through product innovation and technology innovation. Again, Sri Lanka has a lot of potential and opportunities. If we can introduce cutting edge products and if we can build the whole ecosystem here, whether it’s research or development, and also collaborate with the best in the world, I think we can differentiate ourselves and not compete purely on price. We can elevate our product and continue to win.