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Fabric Manufacturing (Knitting & Weaving) Industry Insight

Profitability crisis of knit sector: Key factors and possible way outs

If we compare the present business situation of knit sector with one decade earlier, FOB price significantly reduced, on the other hand, direct labor cost increased 4.8 times more, utility cost and crisis increased, the huge investment required to ensure occupational health & safety, have to face huge competition i.e. business environment become volatile, uncertain, complex and ambiguous day by day.

Profitability crisis of knit sector

Factories are falling in profitability crisis for different reasons, here I want to narrate a few management failure cases which impact greatly on profitability. Sometimes, factories fall in the sinking point from where turning back to the race become more and tougher.

If leaders / CEO‘s decision was not appropriate, the amount of loses becomes huge. Surely it will impact profitability, in the long run, organizations have to pass a tough time to survive in the competition. I want to share a few case studies which will be an eye opener for others.

Expansion: Many factories did not study the feasibility and consider Return on Investment before invest further to increase production capacity. One of a renowned factory KFMA (not really name), invest in a fabric manufacturing plant to make the capacity double by sanctioning loan from the bank. CEO does not take any advice from any technical expertise. He does not believe and rely on technical persons/subordinates. He loves to take a vital decision by himself.  His dream was, by selling fabric to other RMG units, he will be able to pay the installments of bank loan. After completing the multistoried building and installed all the machinery, he found two drawbacks,

  • All the machinery cannot run with existing approved gas connection. The government does not approve any connection for the industry at that moment. Gas consumption of boiler crossed the approved limit when all the dyeing machine runs. There is a chance of disconnection from Titas if repeatedly exceed the approved limit for consecutive months. So, the CEO decided to run 50% dyeing machines. Captive electricity is not sufficient to run finishing range as well as, 50% finishing line remains Stenter runs by CNG gas even though it was not economical.
  • Managing the payment of monthly bank installment became tougher than ever. Dream broken just after installing all the machines.

So the consequence of the above bad investment, disbursement of wages and salary of the workforce can’t maintain on time, due by several months. Huge credit on the supplier’s receivable, facing liquidity problems. Can’t open L/C for yarn, dyes, chemical etc. and on time shipment became a dream. The organization is passing a tough time.

Many factories have also fallen in trouble with this type of immature investment. So, before any investment, we have to calculate the ROI.

Project implementation: I know few factories, project implementation time takes more than 3-4 estimated times. By this way, the project cost has become much higher. Most of the cases entrepreneur himself follow up the project implementation activities. And implemented events not in the sequence, a few examples are like machinery arrives in factory before completion of new building, factory is ready for production but can’t obtain environmental clearance, factory is ready but gas connection was not obtained, lift or chiller arrived in the factory before the completion of the building etc. by this type of disorganization, the cost of manufacturing become high which leads to low profit.

In case of new project implementation, Project evaluation and review technique (PERT) should follow by assigned technical persons. Who can help to implement the project on time, reduce the cost of the project & ROI will be less.

Product Diversification: FOB price of all brands going down day by day. For our clear understanding, declined trend of FOB of legging orders of one of the top retailer in the county,

buyers reduce 10% price reduce in RMG

10 % price reduce within 4 years, in some case figures are higher.

Minimum Wages of direct labor increase 51 % from 2013.

Minimum Wages of direct labor increase 51 % from 2013

Thousands of factories can produce basic products. All the buyers have alternative suppliers, due to unhealthy competition, the price of basic products are going down drastically. On the other hand, wages already increased 51%, which will be a big threat for textile industries. The organization should invest to increase the capability of doing value-added products.

We should consider our workforce as a resource. We can covert our workforce into a strength by giving proper training. Most of the industries are focusing to train their people. By this way, we will be able to produce value-added higher price product which leads to higher profit.

Own style Management: many entrepreneurs does not have enough knowledge on modern management. Successors are in the board immediately after completing the education. Entrepreneurs are thinking, their present successes indicate their previous strategy was right, they are more knowledgeable than professional employees. A renown textile industry KFMB, introduce the below strategy to increase accountability to their management staffs and workers.

Everybody should submit their targets or to do lists to the concerned team in the morning. Before leaving the workstation in the evening, everybody again submits the job completion list to the concerned team. Salary & wages will be equivalent % of achieved average productivity. Every employee spends a noticeable amount of time and papers to comply above rules. 100% Verification of the performance cannot possible. Staff’s become demotivated after getting a repeated thread of salary deduction. Skill & talented staff’s leave the organization. After a few months, scrap the above strategy and try to adopt another new formula. Due to this type of experiment of management concept, productivity and profitability become low day by day.

Many industries also practice their own management style, sometimes it gives positive results & sometimes gives negative results. We should follow the proven management philosophy like Lean/TQM/Six Sigma. Successors of entrepreneurs i.e. son/daughter should not be a board member after graduation. They should serve in the organization as a management trainee for a certain period so that he will become a mature leader.

Unstable Management team: human beings are unique in all aspect, every top executive also have a unique concept and management techniques, many entrepreneurs want quick results even within 3-4 months from top executives. If results are not as per their desire, they change the executives. Found no consistent in any good practice causes a very frequent change in top position. Sometimes vital positions also changed when top executives leave the organization. Organizational reputation also fades. Recruitment of reputed performer become tougher than before.

Failure of individuals, not for his capability, most of the causes due to systems/environments. All the transport drivers of Bangladesh will run the vehicle by maintaining 100% traffic rules in the cantonment area. Though same drivers are careless in other areas. So system and accountability is more important to ensure appropriate productivity as well as profitability.

Engr. Kawsar Alam Sikder, COO, Asrotex Group
Figure: Engr. Kawsar Alam Sikder, COO, Asrotex Group.
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