How manufacturers manage
Suppliers often receive ‘good news’ from business administrators to say that outstanding debts will be paid – but often this equates to just pennies on the dollar, sometimes if companies are owed substantial sums. Wealthy companies holding onto suppliers’ money doesn’t pass the sniff test – directors of struggling companies holding onto suppliers’ money to keep paying their own wages absolutely reeks.
Although the textile industry has evolved into this late-payment culture that we may never fully rectify, there are things that manufacturing facilities can do in a relatively static business climate to liberate cash for eco-investment.
Reducing WIP is as close to free money that you can get
We’ve touched on no-cost improvements in previous articles and there is still untapped potential here. Simple modifications in production processes can often be implemented that result in reduced water and energy bills and planning to consolidate production into blocks such that energy intensive machines can be switched of when not operational can have the same effect.
Some improvements in right first-time processing can be achieved by know-how alone – although investment in good kit and control systems is essential.
Super-quick payback investments in wet processing such as new mangle rollers (that can typically reduce drying costs by 25–30%) and replacement of direct drive motors with AC units can also be cash-positive in a short period of time but … big changes in eco-efficiency generally need new utilities or production machines – and they’re expensive.
Unless you’ve worked in a textile factory, you’ve probably not heard the term ‘WIP’. Managing WIP is good for safety, avoidance of mistakes, on-time delivery and cash flow – this abbreviation means work in progress and is, in layperson’s terms, the amount of product that’s in a pre-production warehouse, the factory itself, and the finished product warehouse.
Every kilogram of fibre, yarn, fabric or garment on-site or within the wider company is WIP and should have a value assigned – as can dyes, chemicals and fuel inventories. Reducing WIP is as close to free money that you can get and, in big textile mills, this can amount to millions of pounds/dollars.
Two questions that I often ask a textile factory manager is firstly: what would you invest in if I gave you a million pounds? And secondly, what’s your WIP? Sometimes it’s the first time the two have been connected.
WIP is often measured in time units – such as ‘we hold four weeks’ worth of greige’ or ‘we have three days of WIP in the finishing department’ and this can readily be converted to monetary values.
Sometimes WIP has slowly increased because it’s not measured and managed, sometimes it’s a deliberate decision because it has been known for factories with super-low WIP to experience breaks in production due to lack of fibres, yarns or fabric supply. So there is a balance to be struck – but it has to be more widely understood that WIP = tied up cash.
When looking at WIP in a textile factory there is live work in progress whereas some is also old, redundant stock. The old stock may be nearly worthless, but it should be moved out to allow clear, safe, efficient factory working.
With any eco-efficiency investment, manufacturing facilities will consider cost and payback and if they can free up cash in the industry, then the maths and the mentality also change. Quite simply, when you factor in the interest payments on loans for investments into payback calculations, the fiscally responsible answer can often be ‘don’t proceed’ whereas cash-buyers may take years off the payback of big-ticket items such as manufacturing equipment.
Textile manufacturers can therefore do a lot to help themselves, but they could do an awful lot more if they could access their own money that’s tied up elsewhere in the supply chain.
Quite rightly, there’s a lot of talk about greenwashing and business-as-usual but there is very little scrutiny of payment-as-usual and how that holds back progress on innovation investments and business security.
My message to companies that have high profile sustainability targets, who know those targets can only be met by the actions of their suppliers, whilst holding suppliers’ money hostage via payment system delays and 60-120 day payment terms, is to consider those suppliers and put their money where your mouth is.
