Applying the V-Factor to Increase Profitability in a Textile Manufacturing Business

Applying the V-Factor to Increase Profitability in a Textile Manufacturing Business

Anyone managing the marketing or sales function faces the following situations at one point of time or other.

o When you try to increase sales, the debtors outstanding goes up, increasing the working capital requirement.

o When you try to tighten the credit control system, the sales goes down and stock level increases, thereby pressure on working capital goes up.

o If you try to increase profit by increasing price, the sales goes down hence stock level increases.

o If the price is lowered, the sales go up and collections improve but the bottom line is hurt, resulting in pressure on profitability.

As a result almost always the marketing department is chased by the finance department, keeping the former on their toes all the time.

During this tug of war between the marketing and finance departments, all the other departments face the pressure to cut costs, work harder to accept any kind of orders, sacrifice their sleep, happiness, motivation and finally resent their fate.

Added to the issue is the inherent seasonal and global ups and downs of the textile market, often rendering the 'working capital including stocks' blocked. Trying to liquidate slow moving stock obviously results in lowered prices.

There is no single panacea available to cope with this turbulent situation because the variables also vary from industry to industry.

The "V-Factor"

Yet, there is a vulnerable point in the whole system. That issue is often neglected by the manufacturing sector - Velocity of business, which can be called as the "V-Factor".

The approach is not complicated and often used by the non-manufacturing partners of the textile business, like wholesale distributors and retailers. A manufacturing process is more complicated and involves many segmented departments hence the V-Factor is more than often is neglected and not addressed in an integrated manner. By 'integrated manner' it means not just the actions by supply chain management but the involvement of the whole business as a unit that moves together.

The simplistic approach is understood by everyone. That is, if the business can turn its capital more number of times within a given period, the profit will be proportionately more even if the margin is not increased. Thus a 50% more turning of working capital a month will generate 50% more return on the working capital per month. This thumb rule is the main reason that majority of fabric wholesalers make a decent profit most of the time.

For a manufacturing unit, increasing the velocity of business would have a wider ramification. A manufacturing unit normally carries a high overhead. The unit cost comes down with higher turnover hence with a higher turnover in a shorter period gives not only increased profit proportionate to the increased velocity, but there is an additional profit due to the increased differential in the cost reduction along the velocity gradient upto an optimal point depending on . This opportunity is not available with non-manufacturing partners. Passing on a part of the additional saving to the non-manufacturing channel partners would increase the reputation and influence in the market.

The Areas to Attack

As I mentioned, the velocity of business should be implemented across all departments, involved from purchase through taking orders, manufacturing, billing, dispatching and collection. Some of the important strategic points can be summed us as below.

Performance at each stage should be audited in line with Kaizen principle of continuous improvement.

1. Purchase: Ask the suppliers for an on-time delivery. Like too much late delivery, making too much earlier delivery also not acceptable. Commit resources on vendor development.

2. Pre-order stage: Reply faster against enquiries, breaking down all bureaucracies; provide samples faster; make samples with high first submit approval hit rates; use first class couriers and communication culture while corresponding with customer; always call for action from customer's side instead of them reminding you; create rock solid, well rehearsed seasonal presentation system ahead of time.

3. Order taking: Build a foolproof, properly formatted order taking system (a clean order results in clean execution); get agreement of customer on all points fast.

4. Execution: Emphasize and reward RFT (Right First Time) processing at every stage; Build an efficient pre-supply sampling wherever required (particularly for export oriented orders); implement proper inspection & QC at each stage from raw material passing to final inspection, testing and passing.

5. Design and develop a good supply chain management system within and outside the premises. Outsource functions wherever possible.

6. Execute delivery of documents following customer's guideline without errors and back and forth activities.

The list can go on depending on case to case.

Ultimate result will be:

1. Reduced working capital requirement.

2. Better turnover, thus more influence on suppliers and better negotiating power with them

3. Improved trust and relationship with customers and in totality,

4. A better profitable business.

Indian Textile Industry has no shortage of talents to make this possible. If any textile manufacturing industry follows the above tips, the result will be seen within a matter of few months.

Last but not the least, the overall working environment will have a fresh look and bonus will be a team of motivated employees all around.

Any reader having any questions may contact me and I shall be glad to explain.

Arun Chattopadhyay

Specialist in Indian Textile Industry

http://indian-textile-industry-blog.com

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