JANUARY 2004 The Artisan-Owned Direct Distribution Model Rural Women’s Artisans Cooperative art camp méxico www. lumika. org AODD Taxco Development Inventory Community Export Sustainability Quality Technology Shipping/Fulfillment Cash Tecalpulco Production Marketing Publicity Reliability Service Socio-economic Internet Free / Fair Trade Original Design Fashion Jewelry Modern Digital TAXCO, MEXICO Direct Distribution Social Projects Sales/Support
T H U N D E R B I R D DIGITAL DIVIDE “I begin with two words that all men have uttered since the dawn of humanity: thank you. The word gratitude has equivalents in every language and in each tongue the range of meanings is abundant. ” (Octavio Paz – Nobel Lecture, December 8, 1990) This presentation was made in the Digital Partners Social Enterprise Laboratory (SEL). Along with the entrepreneurs, a student team from Thunderbird, The American Graduate School of International Management and a group of business industry advisors contributed to its development. Work on the presentation spans from December 2002 to April 2003. Without the assistance of Art Camp, this work would not have been realized: thank you.
table of contents ARTCAMP VISION Who are Artesanas Campesinas? What is Artcamp’s mission? What is Artcamp? Where and What is the Region’s History? 2 3 4 5 -7 ARTISAN OWNED DISTRIBUTION SYSTEM Current Problem Solution Anticipated Results Total AODD cost: $30, 000 Inventory: $10, 000 Infrastructure: $10, 000 Marketing: $10, 000 AODD Description AODD Model 8 8 8 9 -10 11 INVENTORY, INSTITUTIONAL DEVELOPMENT & TRAINING Stock Manager and Shipper Clerk Shelves, Parts bins, Packaging materials, etc Database Basic materials and components New lines and best sellers MARKETING Media Strategy Increased branding / differentiation Pricing Strategy Distribution IMPLEMENTATION TIMELINE FINANCIAL ANALYSIS Summary Budget 12 12 12 13 13 14 15 16 16 -17 18 19 20 The Artisan-Owned Direct Distribution Model 1
who are artesanas campesinas? Artesanas Campesinas (Artcamp) is a for profit enterprise with a social mission. Artcamp is a rural women artisans cooperative from the Municipality of Taxco, Guerrero, Mexico (southwest of Mexico City), specializing in handcrafted jewelry production. http: //www. lumika. org/mexico. htm The Artisan-Owned Direct Distribution Model http: //www. bizpresenter. com 2
What is artcamp’s mission & vision? Artcamp’s mission is to connect the rich handcrafts tradition of their community with the present day markets of the world. In doing so, they aim to provide a sustainable flow of income into a region that sees many of its men leaving town to find work. vision is to be a model for other low cost native craft enterprises both in Mexico and abroad. Their goal is to share their knowledge in inventory and distribution management, technical infrastructure, and marketing with other artisans so that too can become more creative, efficient, and productive. The Artisan-Owned Direct Distribution Model 3
what is artcamp? Artcamp SC de RL (Artesanas Campesinas) is legally established under Mexican law as a producer cooperative. The Constitution of our Cooperative defines the various committees participating in decision making: Admission and Exclusion of Members Committee Organization of Work Committee Education Committee Social Prevention Committee Safety and Hygiene Committee Capacitating and Training Committee Conciliation Committee Artcamp’s story goes back to the times of their mothers and grandmothers. They are country of women mostly from villages near Taxco, especially Tecalpulco. Their grandparents fashioned elaborate tin mirrors and frames. In the 1970 s and 1980 s, they created abalone jewelry in alpaca metal. The elaborate floral encrustations were well-accepted and sold around the world. At that time, the community artisans were extremely successful. Buyers came from all over the world to purchase the handcrafted jewelry of Tecalpulco. Unfortunately, their markets collapsed in 1990. Suddenly, their pieces were no longer valuable. Additionally handcrafts products were flooded into the world market from places like China, India, and Bali. Despite the downturn, they sought out new forms of production, styles, and customers. From a centrifugal casting machine (left by a small foreign-owned factory), they built the base of their cooperative effort to create employment. They focused on finding ways to be more efficient in their production that would translate into higher customer satisfaction in the quality of their products. Focusing on quality and customer design preferences is their strategy for differentiating themselves from a cheap handcraft substitute The cooperative sponsored the donation of ophthalmic medical equipment from the United States to the local Adolfo Prieto Hospital, and assisted in a project to develop abundant clean water for Tecalpulco. http: //www. lumika. org/mexico. htm The Artisan-Owned Direct Distribution Model http: //www. bizpresenter. com 4
project location GUERRERO Profile region Tecalpulco is on a high hilltop looking out over an enormous vista in all directions. The blue tile dome of the temple shines under the radiant orb of Mexico. Guerrero population 180, 645 height 1. 430 metros temperature 22º C altitude 5, 800 feet source Guerrero Mayor’s Office 2002 Legends say they came centuries ago by underground cavern. The rivalry with low-lying Taxco El Viejo goes back in time. Tales say that the Tecalpulcans won the right to their hilltop for having hung the bell in Taxco El Viejo's temple by the powers of heroic pre. Columbian magic. From the Zocalo at the center of Tecalpulco looking north, far away against the dark mountains one can see a crease of lights or white shadows: Taxco. A part of the city is visible at a distance, way above. Taxco is at 5800 feet altitude; Tecalpulco 4600. This is the southern drop off of the great central altiplano, the northern Guerrero escarpment. The Tecalpulcans are indigenous native Mexican country people, rainy seasonal farmers. Most families plant corn, beans, and squash in the wet months of summer. In the dry months of December through May, the fields are a dusty desert parched with thorny bush vegetation. The natives are adept rock masons. The builder surveys the rocks strewn on the ground, he picks up the one he sees will fit, packs it into the place where it will go and proceeds to select another. In mortarless construction, the rocks need to be expertly tied together and balanced; all this, the village stone-worker does in single vision; never does he pick up a stone, then put it down, look around for another. Hernan Cortez, the Conqueror of Mexico, opened the first silver mine in Taxco in the early 1500 s. The mines have been in production, now, for five hundred years. The Artisan-Owned Direct Distribution Model 5
history In the 1950’s the silver jewelry production of Taxco expanded dramatically as a long-term result of the intervention into Taxco of a Tulane University architecture professor by name William Spratling one more gringo who fell in love with the Mexican people he stayed to established the first modern silver shop *Las Delicias*. Today Spratling signed silver is highly collectible and reknowned for the technical quality of execution and simple power of design. This tradition has been recognized as among the highest quality fine silverwork in the world, on account of its expressive vitality and technical execution of innovative wood, stone inlay into silver. Hundreds of families in Taxco supported themselves by silversmithing. So the population of Taxco became the serendipidous beneficiary of Spratling's genius and willingness to give to others. The general acceptance of the Spratling silver jewelry product by the US and European market, also the burgeoning domestic market of the growing tourist industry made Taxco into the 'Silver City'; a city of silversmiths, with generation upon generation of hammerers, of polishers, arc saw cutters, solderers, casters, filers, and stonesetters. Taxco, with its perfect climate and picturesque aspect was in the fifties the scene of a Robert Mitchum film and for a while was something of an art crowd hangout. In the sixties, Tecalpulco's tin mirrors and frames sold through tourist stores in Taxco. Spratling combined abalone shell with rosewood and ebony in some of his great jewelry art. Abalone shell had been a prized material since the Toltecs in every Mesoamerican tradition of artifact. In the sixties, the abalone shells were huge, and saturated with iridescent blue green brilliance. The beautiful natural abalone overlaid on tin can led to combining the town tradition of tinsmithing with the abalone carving technique. In the seventies came the Abalone Shell Bracelet, with perfect delicate eight petal daisy mother of pearl flower in an iridescent blue green background of shaped and pieced together abalone. A demand for the new Tecalpulco jewelry products built up. Taxco merchants, with access to retail and wholesale customers, organized orders for production by the villagers. Buyers started flying into Mexico looking for the product. Hundreds of families in Tecalpulco, Dolores, Taxco El Viejo, Cerro Gordo, and El Ejido Paintla were self sufficient alone on handcraft jewelry production. In the eighties, Tecalpulco experienced a boom in demand for its products and all the other villages in the area started making alpaca abalone jewelry; also hundreds of shops in Taxco turned to alpaca abalone shell jewelry production. A vibrant wholesaler sector grew up in Taxco. Some wholesaler families became quite wealthy on the strength of the abalone shell jewelry boom that continued the entire decade. The beautiful shell mosaic handcraft of Tecalpulco was everywhere in the world! The Artisan-Owned Direct Distribution Model 6
history The 1990’s: fashions changed and the curtain rung down on the handcrafts of Tecalpulco. The nineties didn't want flowers or pretty things. It wanted tatoos, virtual entertainment, and Nike. At the same time, ferocious costume jewelry competition came in from the Asia, gaining market share over the traditional export and domestic markets of the Mexican artisan. Every year the abalone jewelry was harder to sell, and the buyer would pay less for it, than the year before. Many local artisans gave up jewelry making, but many don't know how to do anything else. Gradually the young and active ones have gone North. Others, forced by the necessity of providing for their families, have surrendered to the tombs of the mine. The Artesanas Campesinas initiative was born in response to the extremely difficult and dangerous situation the artisan communities of Tecalpulco discovered themselves in after the men had mostly disappeared to the US labor market and the women and children for the most part remained to manage. As poor as we are, we are working towards a bigger dream: that of a much better world for our sons and daughters; a world of everrefreshed hope, and of new possibilities. The Artcamp rural womens artisans cooperative is a positive effort to re-connect with successful traditions of handcraft jewelry production in order to bring about a renaissance of cottage industry in our locality. 7 The Artisan-Owned Direct Distribution Model
aodd ARTISAN OWNED DISTRIBUTION SYSTEM Current Problem Zero negotiation power with distributors Solution The AODD solves this: describe the AODD Anticipated Results Artcamp is able to receive higher margins and pass savings onto retailers. Developing an Artesan Owned Direct Distribution (AODD) system is increases their profits and makes operations more stable. Total AODD cost: $30, 000 Artcamp needs $30, 000 in financing to build the AODD and create market awareness for their new capabilities. Inventory: $10, 000 A $10, 000 inventory investment will enable faster production time necessary to meet growing demand. Infrastructure: $10, 000 A $10, 000 investment in Staff & Infrastructure provides the necessary overhead to manage the AODD. Marketing: $10, 000 A $10, 000 investment Marketing raises awareness of AODD supply chain savings, increases market penetration, and improves customer service. The Artisan-Owned Direct Distribution Model 8
aodd description Goal: To generate a successful model of functional artisan-owned distribution. Looks Like: Shelves, Tables, Inventory, Shipping Materials, Computer, Data Base, Website Product Catalog, CDROM Product Catalog, Offset Print Catalogs *System calls for 20 – 30 packages to be shipped at the same time in order to optimize the ship/import cost. A weekly shipment 25 packages X $200 usd = $5000 weekly sales = $300, 000 usd/yearly sales For average under one kilo packages, cost would be about $7 usd + $4 usd Add $1 one usdollar for the handling where the master import is broken into individual shipments $12 usd is the estimated through-Customs delivered price, factory-to-door. Retailer places order from an Artcamp Catalog via FAX or email. The incoming order is checked against existing inventory of finished and semi-finished pieces are Parts of the order that are not available in stock, set into the appropriate production sequence; at this time a determination is made of whether and how many extra pieces to make for stock. Just so, the production capacity of the shop is integrated into the stock inventory position. Orders come in and are fulfilled from the shelves and/or the orders are set into production; A modern data base is applied to the over-all operation. The Artisan-Owned Direct Distribution Model 9
aodd description Our intention is to produce, now, the conditions for the establishment of a new functional commercial model; the idea of producer-ownership. Artisan-owned direct distribution when it has been proven successful, will provide a valuable tool taken into hands of 3 rd World producers. This is, indeed, an historic project, one that really will make a difference; There is NO need for so much capital to be soaked up in USA stockrooms. To a wholesaler, the cost of holding inventory is a great part of his burden; and he/she always has too much of something, and too few of some others. And the wholesaler has to think and project sales and make up purchase orders, and pay the stock girls and the accountant and the life style, fixed expenses etc. All of this burden of stock inventory and sales projection and $US dollar expenses could be better retained by the producers who would invest in upgrading capability. Is it not logical that it were always cheaper to ship direct to the final customer rather than to a foreign warehouse, *then* ship again to the final customer? ? ? Obviously, it were always actually less costly to ship factory-to-the-final-door. All the costs of handling the merchandise, counting it, organizing it, counting it again when it goes out, maintaining all kinds of papers. . When the Artcamp women count and pick, making up the packing list, whether it is small or large, we will make sure that it is done perfectly. By making the shipping list and invoice in a perfect manner, Artcamp obviates the heavy fixed expense of the wholesalers in handling, shipping and invoicing. This model is the key to a revolutionary tool and real advantage for the producer; and for the consumer as well as the product can be delivered at a very good value. As the model has proven successful, the idea is to make it available to other groups; Producers all over the world can ship their crafts direct to the retailers, like Artcamp. The founders and promoters of this project ought to be proud, to play their part; it is a gift of god globalism; how rare that the campesino would be a beneficiary! marketing operations The primary avenue for the financing of the Artisan-Owned Direct Distribution Plan is to be the old fashioned way; earning it, by proving the products in the marketplace. Fortunately, Artcamp has come a long way and has valid beautiful product to present. The Artcamp website catalog , the CDROM catalog, and one page color print brochure. Turquoise and Onyx and Amber Bracelets, Rings, Earrings, in Fine Pewter and. 925 Silver. Candleholdres, Astrology & Runes, Abalone Shell Mosaic, Mother of Pearl, River Shells. Even though it is far from optimum efficiency shipping single packages to the customers, it is a practical means to get the project underway, in a healthy manner that pays as it goes. It is our intention to establish a marketing department to manage the flow of communications with prospects and customers, and that is another subject that is still to be addressed in detail. The Artisan-Owned Direct Distribution Model 10
aodd model Traditional Model 1 2 Artisan sells product to the distributor 3 4 5 Local distributor sells the item to an international distributor International distributor sells the product to the shop Shop sells the item to the final consumer Consumer buys the product New Model E-Clients Designers Shops / “Virtual Shops” Artisan Final Customer The Artisan-Owned Direct Distribution Model 11
inventory, institutional development & training Software Database: Developing an accounting and inventory tracking system in-house carries a high cost. It is difficult and time consuming to develop and could delay the establishment of the AODD. Also, maintenance will need to be done on the system throughout its lifetime in order to trouble shoot programming errors as well as maintain the integrity of the system. Peachtree Accounting Software, an off the shelf product, can be purchased for only $200. Its setup is quick and easy and tutorials are offered as well. This will ensure that the AODD is established in a quick timeframe. Through the use of Peachtree, Artcamp will be able to track their current inventory levels as well as past sales information by customer. Peachtree will aid them in establishing best seller and seasonal items. With this information they will be able to establish restocking points by item and plan in advance to build inventory levels for seasonal items. They will be able to better manage their inventory so that best seller items are on hand when ordered by customers. This software will also enable Artcamp to track inventory work in process levels so that the delivery date of any backorders can be estimated. The Artisan-Owned Direct Distribution Model 12
inventory, institutional development & training Basic materials and components used by Artcamp are Pewter, Silver, Stone, Shell, Bark, Paint, Coconut. The average cost for each item is. 40 USD, representing approximately 20% of the cost to produce each piece. (50% Direct Labor, 30% Overhead). These basic components tend to stay same across Artcamp’s products. Thus it will be easy to maintain the needed level of raw materials to generate finished goods. The initial $10, 000 will be used to obtain the needed level of raw material to build up inventory levels to meet demand. It is expected that Artcamp will want to maintain 300 kilos of Pewter, 10 kilos of Silver, a stock of Stone, Shell, and other basic materials. and best sellers Under the AODD plan Artcamp is expanding their end customers from Tourist Trading Posts into the Retailers throughout the United States. It is believed that best seller items in this new market will be different from popular items sold in the existing market. Artcamp has 24 items planned to be sold through AODD. Upon receiving the influx of capital, Artcamp will build up inventory levels in these lines to have ready to quickly deliver to distributors, retailers, and customers. The Artisan-Owned Direct Distribution Model New lines 13
RESOURCE ALLOCATION marketing 4 things: 1. 2. 3. 4. Organize Product Offering Product Positioning & Brand Development Pricing System Distribution 1. Organize Product Offering: Considering Art. Camp’s immense product offering, it is necessary to group the products according to product groups to allow customers and resellers to be able to navigate the product offering more easily. Also, different resellers will be interested in different groups of products. An example of this would be Surf Shop (jewelry for young people – rings, toe rings, bracelets, earings, etc. ) versus an import store (table-top items, pill boxes, etc. ). Based on the products listed on the www. artcamp. com website, the following is the two main product groupings: By separating products into groups, it will be easier to design distribution channels around various customer segments. handcrafted jewelry . 925 silver jewelry The Artisan-Owned Direct Distribution Model 14
marketing 2. Product Positioning & Brand Image Development: The primary elements of value for the customer when buying Art. Camp products are: 1. 2. 3. 4. 5. Handcrafted jewelry – this means high quality Unique designs – created by artisans High quality and exotic materials – high-grade silver, abalone Producers are the proud community of Tecalpulco – good cause Reasonable price – we want this one to become the least important! By communicating these elements of value more clearly to customers, Art. Camp will develop a very distinct and valuable brand. The following will develop their brand equity: Jewelry tags –a small piece of paper tied to each piece (or set) of jewelry with the name of the person who made it and their picture (easily done with a digital camera) and with a little message. This communicates to the customer both that the jewelry has been handcrafted and that the artisan has personally designed and made this piece of jewelry. Product Sizing Charts/Information – one of the difficulties of selling products (especially jewelry and clothing) to customers via the internet is the fact that the customers can’t actually see the products and may have some apprehension about whether or not the product is available in the right size. A simple sizing chart should be developed so that customers have less fear that the product will be too small or too large for them. Product Display for Retailers – this could be a small rack, designed by Art. Camp for sale to retailers and wholesalers that would allow them to display the jewelry more easily for their customers. This is a way for Art. Camp to control the presentation of their products to the final customer. It also denotes that Art. Camp products are of high quality. A high profit margin on this product display would not be necessary. E-brochure about the materials and designs of the products – Art. Camp’s products can be further differentiated by explaining more clearly to customers about the grade of silver or precious stone, and where the unique designs come from. This can be done by developing an e-brochure that could be e-mailed to customers and included on the web-site as a downloadable file. The Artisan-Owned Direct Distribution Model 15
marketing 3. Pricing System: Since there is difficulty in maintaining prices when dealing with different customers (wholesale distributor versus direct sales to retailer), a pricing system should be developed. The main considerations for this system are shipping costs, order quantities, and customer type. The pricing is developed using the following steps: 1. Establish a catalog price that includes all costs of material, labor costs (based on the amount of time it takes to make each piece), overhead charge (this is warehouse cost + generic shipping cost) and big profit margin for Art. Camp. This profit margin will then decrease depending on who the customer is and the size of the order. Also, from the customer’s perspective, the price reflects the quality of the jewelry. 2. Design a discount structure for different types of customers. This can be done by relating discounts to order quantities or by assigning special discounts depending on the customer. This second method is more difficult to manage when the customer is located far from Tecalpulco. 3. If shipping cost is included in the price of the product, then Art. Camp should design this into the pricing system. This will make one-piece orders very expensive for the customer. Another alternative is to remove the shipping cost from the price of the product and charge the customer separately for it. In this case, there should be more than one method of shipping offered to the customer (DHL, or regular mail). 4. (Since we do not have specific pricing information for the products, we are not recommending a specific pricing scheme. We do recommend, however, that Art. Camp not be afraid to establish a pricing scheme that allows them to make a profit on any order regardless of the size and who the customer is. ) The goal in developing a pricing system is to remove as much “negotiation” as possible when dealing with any type of customer, wholesale distributor or direct to retailer. 4. Distribution: A strategy for each distribution channel must be developed to make sure Art. Camp can support and develop each customer group among the three types of channels it wishes to use (wholesale / distributor, direct-to-retail, direct to customer). A target percent for each channel must be defined. These targets are direct to retail to 40%, direct to customer to 10%, while decrease the proportion of the wholesale/Distributor channel to 50%. The Artisan-Owned Direct Distribution Model 16
marketing Artcamp needs to implement the distribution strategy below to achieve this target. a. Wholesale/Distributor Considering the difficulty to negotiate with wholesalers and distributors, Artcamp should decrease the channel but they might not be eliminated soon. By providing them displays for the products, Artcamp can control the brand image, though it is still difficult to control the retail price through this channel. b. Direct-to-Retail By using the existing address list of the 3000 retailers, Artcamp can send e-brochures and promote products periodically. So far Artcamp does not store the contact records with retailers, but they need to store the data and keep stronger relationship with retailers. To inform retailers of the Artcamp’s high quality products is the most urgent task to realize AODD. When they inform, Artcamp should emphasize the merit for retailers when they directly purchase products. c. Direct-to-Customer (via the Internet) Because of the shipping cost, to sell directly to customers does not yield high profit. But currently customers buy the double priced products at retail shops, which purchase the products from wholesalers. Considering this fact, to purchase products directly through the Art. Camp’s website gives customers a big advantage regarding the price. To increase this channel, Art. Camp can advertise on popular websites. The Artisan-Owned Direct Distribution Model 17
timeline The Artisan-Owned Direct Distribution Model 18
resource allocation summary Projected # of Beneficiaries / Participants Male Total adult 10 200 210 youth 50 50 100 adult 5 5 10 youth 5 10 15 adult 10 200 210 youth Community Beneficiaries those community members who will be directly affected by Female 50 50 100 this activity) Community Group Participants those active in planning and implementation) People Trained (expected number of community group participants or others to be trained in first six months after receiving the grant or after the IT equipment is installed and operational, etc. ) Summary of Community Contributions and Funding Sources (Proposal – 2 years) Equipment Cash Labor Supplies & Materials Transport of equipment Housing of equipment Total (USD) Grant from Previous Page - 34, 500. 00* - - 34, 500. 00* Community Organization Contribution (Art Camp) - - 3, 000. 00 2, 500. 00 - 6, 000. 00* Community-at-large Contribution - - - - Third Party Contribution name: - - - - Source TOTAL ACTIVITY BUDGET 40, 500. 00 * Three cash disbursements The Artisan-Owned Direct Distribution Model 19
resource RESOURCE ALLOCATION allocation budget: 2004 Line Items Amount (USD) PHASE I (Institutional Development & Training) Estimated cost of construction (materials, labor, etc. ) 3, 500. 00 Estimated cost of enterprise management software (database system software and staff training ) 1, 500. 00 Estimated cost of staffing 5, 000. 00 TOTAL 10, 000. 00 PHASE II (Inventory) Estimated cost of raw materials (20%) 8, 000. 00 Estimated cost of labor (50%) 1, 000. 00 Estimated cost of overhead (30%) 1, 000. 00 TOTAL 10, 000. 00 PHASE III (Marketing) Estimated cost of Product positioning and Brand development 4, 000. 00 Estimated cost of marketing literature (Manuals, Workshops, E-brochure, etc. ) 4, 000. 00 Estimated cost of digital camera and printer 2, 000. 00 TOTAL 10, 000. 00 Contingency costs 15% 4, 500. 00 TOTAL Estimated AODD Grant: 34, 500. 00 The Artisan-Owned Direct Distribution Model 20
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