Archive for September, 2011
I am writing this from my experience in textiles, feel it will be of interest even to those from other industries as I am quite sure that production management in other fields will be only as difficult as it is in textiles if not lesser. Production management is a difficult field and the difficulties are only increasing with time. In this series of articles, I will draw on personal experiences and anecdotes from the field to elaborate on the six areas that I have come to believe are critical.
- Inventory Management
- Efficiency (Cost Control)
- Quality Control
- Supply Chain Management
- People Management
- Regulatory Issues
A lot can be written about each of them so will cover only one topic in this post and the remaining in follow-up posts.
“I see the amount of yarn bottoms (RM) and Finished Goods inventory left behind year-on-year and wonder whether I am making any money at all. All my earned money seems to be in this stock.” This is a standard complaint by most textile manufacturers.
A leading consulting company was hired by a government organization to determine why the textiles business was not as successful in India as it was in China. The company came out with a series of recommendations, a large number of which revolved around inventory management.
- Yarn (Raw Material (RM)) should have an expiry date and
- One should have exact stock and data on the same
I talked to one of the owners of a sister concern who met with these consultants. He said, “What do I do with the yarn (RM) which has accumulated over time? Burn it ?!. I am trying to sell Fabric (Finished products) basis my RM but I can’t have an expiry date for it. Inventory is a necessary evil. If I don’t have it, I can’t respond to orders on time. If I have it, some of it always stays behind and over time it just keeps on increasing, eats my working capital, space and I end up paying heavy interest costs for it.”
I said, “You are obviously trying to sell Fresh fabric basis the yarn you have. What do you when your space gets full?” And he replied, “I sell dead stock (yarn with little relevance to running and possible future orders) to lower end production units with lower production costs due to slower older machinery, who in turn make fabric and sell it to dealers across the country. But this sale of RM to these units is at a lower price and hence my realization is lower on very old RM.”
I asked him if we could figure out whom these units sell to and if we can opt for job work at any of these units and sell the fabric directly to the dealers. It has been 6 months since this incident. He has started trading lower end variants by doing job work in low cost production units and has been able to bring down his inventory to a reasonable extent. While he does not realize the purchase price of the yarn, he is able to achieve what he says is a satisfactory realization for his RM.
The sad truth about inventory is one can’t avoid it. Standard textbook techniques would suggest standardization, minimization of product variants and hence raw material needed, stronger demand forecasting techniques to minimize inventory.
But once all that is done, then what? What does one do even after all the techniques are applied, yet they still lead to inventory accumulation albeit to a lesser extent? Which techniques should one pursue to dispose “dead” stock and minimize loss?
Most markets always have lower cost variants which are outlets for Finished Goods and RM inventory. A classic example of a market of this kind is a factory outlet of brands. Factory outlets not only have quality rejected material but also material which is excess from season sale. One might choose to develop a market for oneself of these lower cost variants or sell to someone with an access to this market. The latter generally leads to a loss. On a case-to-case basis, one can evaluate the cost-benefit of accessing the lower variant market oneself.
A “dead” stock disposer (yarn purchaser – bhangaari) approached me for my finished stock. I told him I have quite a bit but I want hard cash against what I give him. He replied “Sir, don’t worry about cash. We lot purchasers have enough cash to purchase your factory.”
This was actually not an exaggeration, as I later realized after enquiring from the market. His purchase price from me and sale price had higher hidden margins than fresh stock in some cases. It was actually easy to get a one-stage process done via job work and sell the finished product generated. It was a process which we adopted from then on.
Evaluate and get rid of dead stock as soon as possible. This will free you of space and working capital, both of which can be put to better use.
Also, over-insure your inventory. There is always some stock which is unaccounted for in units which have been operational for years while drawing estimates of “sum insured”. On 25th March, 2010, I witnessed a large fire to my unit. All stock was burnt. This spawned off a long drawn engagement with the insurers. One of the biggest things I realized in this engagement was that any underinsurance undervalues burnt stock and enhances loss. “Black Swan” events such as fire happen to the best of units and one should guard against such events.
To be continued…..
In response to our last 2 posts (click here and here), readers sent in their views on this topic, often as comments on Facebook. We thought of sharing them here, so all our blog readers can go through them.
Whether chocolates/ modern sweetmeats have replaced mithai:
- Healthy food items replacing modern sweetmeats? Potentially yes. But am not too sure the modern sweetmeat is replacing traditional mithai. To me it appears though a segment preference was identified and is being catered to, rather than the whole market being pulled away from its existing preference. Unless there is market-wide evidence that the traditional mithai is finding lesser acceptance, the advent of newer sweetmeats would not necessarily mean a shift. I believe there is place for all in the Indian market, whichever palate/segment one chooses to target.
- Yes…definitely changing in favour of chocolates…specially with so many options of them in market. You dont know what is getting mixed in mithai – all colors, chemicals, etc.
- Packaging plays a part in this change too. Traditional peda and barfi packaging is just not cool enough to make a baby announcement or take to your brother’s for Rakhi. Foreign- looking fancy packaging is way cooler.
- Apart from people’s tastes influencing their choices – these items are also easier to transport, have a longer shelf life, and are easy to re-gift. Those things might also play an important role in changing consumer behavior. Also, ‘seemingly healthier’ foods are all the rage since people have become more conscious about the correlation between their eating habits and potential health problems.
- Long shelf life, attractive packaging, hygiene, ease of storage, association of chocolates with gifting, western influence, experience brought in by the the Krafts and the Nestles from other markets are some reasons I can think of, for the ‘chocolate gifting’ segment to evolve. The market for healthy packaged food (for gifting) is only a sub-segment of this segment, in my opinion.
Interesting questions raised:
- Whether this is a result of a genuine change in tastes or whether it’s just aspirational (some might say “wannabe”). Is mithai uncool? Is it commoditized? Does good quality traditional western patisserie have a novelty factor that mithai now lacks? Can mithai ever be completely replaced?
Thanks Sonal, Rahul, Sagar and Sanjib for your contribution…
Escape Velocity Team
So what did you get from or give to your brother/ sister this Raksha bandhan? And what do you plan to give this Diwali to your friends and family?
Ok, let me tell you what I did. I gave a food hamper, a box of brownies, dark chocolates, a cookie tin to my brothers, while my husband got hampers with Quaker Oats, Britannia NutriChoice biscuits, protein shakes, Special K cereal and Nature valley granola bars, Pringles and Oreo cookies along with chocolates and cupcakes, this Raksha bandhan.
Let’s look at the older generation – my mother gave her brothers, food hampers of whole wheat pasta and condiments to go with it while my father got a plate of sugar-free sandesh, variety of muesli flavors, multigrain khakras. Notice, in this long list of things – there was only one mithai! Only one! Rest all the gifts are foods, but none of the traditional variety….
Even in the rakhi thalis – I carried Patchi chocolates, my husband’s sisters fed him cupcakes, my mother took another variety of chocolate coated almonds.
My uncle’s company has already started planning for its Diwali gifts and guess what that is – it’s another food hamper! With dry fruits (not the unhealthy, roasted and salted variety), box of chocolates, green tea bags, granola bars, range of multigrain cookies and crackers, salad dressings and juice cartons.
The birth announcement of my niece was a box of animal-shaped chocolates, not the traditional ladoos, pedhas and rasgullas. A friend recently had a baby and her birth announcement was a box of assorted brownies from Theobroma; while another sent a jar of hazelnut and chocolate spread from Leonidas along with Moshe biscotti.
When was the last time you took a box of mithai when you visited a friend or family member? What did you take instead? Bottle of wine, gourmet chocolates, fancy desserts, delectable cakes, hand-made ice-creams or frozen yogurt?
Have you hosted a dinner recently and instead of (or maybe in addition to) serving mithai with dinner, you’ve opted to serve a dessert post dinner?
Think about it.
So, have the traditional mithais finally been replaced with chocolates, and other sweetmeats? And perhaps even with other foods? Not only in personal gifts but also corporate ones?
Is this switch across consumers or is it restricted to a particular consumer segment?
Does this explain the emergence of chocolatiers and bakers in every other household? Can this explain the cropping up of so many bakeries and patisseries across neighborhoods? – I think it does, at least to some extent.
Also do tell us about what you did this Raksha bandhan or plan to do in the upcoming festive season.
Update 1: Product Placement
Few months ago, we ran a series of posts on product placement (read here, here and here) – and have been receiving several hits on the topic. We recently came across this article in the Mint about the race of advertisers towards product placement and co-promotions with Bollywood films in the upcoming festive season, and thought it would make an interesting read for our readers, so here’s the link.
Update 2: Flash Sales
The latest entrant in the global flash sales space is the chain of upscale department stores, Saks Fifth Avenue. Their flash sales site is called Saks Fashion Fix. The first department store of the type to enter the category was Nordstrom with its purchase of HauteLook.com early this year.
The difference here is that Saks is hosting the flash sales website on its current website itself, hoping to lure in consumers to its regular items as well. Also, given its long standing relationships with vendors, it should be able to avoid the pitfall of having a shortage of merchandise to sustain its flash sales initiative.
But, given that this space is dominated by leaders like Gilt, HauteLook, Rue La La, Ideeli, etc., will Saks Fashion Fix be just another flash sales website or will it have something different and exciting to offer?
To read our previous series of posts on flash sales, click here.
Escape Velocity Team.
As we’ve discussed in the last few posts, the shopping experience for premium brands in various categories is often less than satisfactory. This post takes a quick look at some of the reasons why this is so. While we started out thinking that low investment in training might be one of the reasons, conversations with a few industry folk told us otherwise.
Part of the reason is a huge shortage of manpower and widespread attrition. People often switch jobs in less than a year – some more than once a year (!); many brands are constantly losing their best, well-trained sales staff, and constantly investing in training to bring others up-to-speed.
To make matters worse, the job is not seen as aspirational by many of the staff, it is merely a stepping-stone, a temporary stint till something better comes along. Somehow, something about having to serve other people makes the job less attractive, more so in the Indian context.
Of course, there are a few other factors at play too, we’ve mentioned these in earlier posts on the topic. In trying to live up to international standards of service and maintain their image, some brands lean too much towards being non-intrusive and end up alienating the Indian consumer who expects more service. There are also a few instances (of a very successful brand) where the sales staff was overconfident and felt that the pull of a powerful brand was enough and they did not need to sell it at all.
Overall though, shortage of appropriate manpower – in terms of attitude, aptitude and skill – seems to be the overarching reason for the mismatch between the brand promise and the shopping experience.
The Escape Velocity Team