Bangladesh has to take some key decisions to remain competitive in the spinning sector.
The world economy is gradually taking a new shape due to the advent of information technology that helped the emergence of e-commerce, new opportunities, financial tools and systems, and a new economic world order. At the same time in 2018 trade war between USA and China, Brexit, North Korea, and the Middle East crisis have resulted in a slower world economic outlook. Currency devaluation has affected the competitive strength among the countries as well as in Bangladesh, especially the spinning sector.
In the domestic scenario, the minimum wage has been adjusted higher to be effective from December 2018. LNG is coming into the supply chain to assure power for the different industries and domestic use that is likely to escalate the power cost further.
In Bangladesh, the spinning sector started on a high note in 2018 as the market price of yarn was matching the cost of cotton that are all imported. Subsequently, the market price of yarn went down as the cotton price went down. But due to booking at a higher price in comparison with our competing yarn exporting countries who have their own cotton plus relatively higher devaluation of currencies of those competing yarn exporting countries, local spinning mills were forced to sell at marginal or lower cost.
After closely watching the market and cotton price, I see it is unfolding into a new dimension, which I believe would result in a scarcity of quality cotton and abundance of inferior quality cotton. Let us wait and see what actually happens in the next quarters of 2019.
Cotton consist of roughly 60-70% cost of a spinning mill. So, it is needless to say that cotton management is the key to sustainability of any spinning mill.
So, the spinning business at this moment is facing a higher cost and marginal price pressure. The question is what can be done to iron out the edges? In this article, we would like to highlight some issues that can secure the competitiveness of spinning business in Bangladesh in the future that is positively contributing to the overall economic development through ensuring shorter lead lime with the right product to the export-oriented ready-made garments industry. It is of our country’s interest that the huge investment made in the backward linkage industries by our entrepreneurs to remains viable in the long run in order to support and sustain the growth in export-oriented RMG which is likely to remain the major export earning sector in the decades to come.
- Market data: For any future investment, investors need authentic data based on which they can plan their investment. Right data would not only ensure the investment in the right area and assure profitable return but it’ll also save from excessive investment, which may lead to unhealthy competition. BTMA (Bangladesh Textile Mills Association) can assist investors with data against a nominal fee.
- Protection against dumping price of imported yarn: It is a worldwide common practice to assist local industry from undue/unfair competition from imported products. Since “Shorter Lead Time” is a paramount element in the rapidly changing fashion industry, it is important to support the local spinning mills from unfair competition, from time to time, if necessary. With this regard, BTMA can have a monitoring cell to monitor the major issues and negotiate with relevant government agencies.
- Strategic plan for each and individual mill: Spinning business in Bangladesh has reached a matured stage with an installed capacity of 12.50 million spindles and 0.26 million rotors, where to remain competitive individually each mill should have their own strategic plan and a clear action plan to attain those objectives. Each mill is unique. One mill can differ in a wider range from the other as the mission/vision, core values, objectives, recourses and technology, target market, product range, manpower and expertize, size, capital, and organizational structure, etc. are different. To make a proper strategic plan, it is necessary to have a good understanding and practical experience of the market, technology, raw material, process, quality, factory operation, people management, cost of fund and product cost and most importantly driving all those towards the common goal without breaking the harmony. Setting the right strategy and driving the team towards achieving it is the key issue that can only be done by a competent experienced person who should be at the top level in the organization. Organizations can also outsource such services from expert consultants.
- Managing cotton: Cotton consist of roughly 60-70% cost of a spinning mill. So, it is needless to say that cotton management is the key to sustainability of any spinning mill. Selection of right cotton, setting a Standard Operating Procedure, price fixation, and risk management are the key elements of cotton management. Mills should have an efficient cotton management team to deal it professionally and they can also deploy cotton consultants to train the team and advice in price fixation and risk management.
- Marketing and quality assurance: Understanding the customers’ need and transforming it into the right quality is as important as marketing yarn to the right customer with the right price. It is important to have the right people and system in place to ensure timely delivery, quality, after sales service and payment realization. An expert can assess the gap and suggest to bridge the gap for improvement.
- Process and productivity: It is important to have the right process in order to produce the right product at the optimum rate. Bangladeshi spinning mills are lagging behind in terms of productivity with the competing countries spinning mills where we have the scope for improvement. For instance, the mill, which became first in 10th SITRA (The South India Textile Research Association) Study in 1998 had a Ne 30 converted GPSS (Grams per spindle per shift) of 210 while the average GPSS of 60% of Bangladeshi spinning mills are around 170-180.It is interesting to notice that in many of those mills foreign experts are working but these foreign experts so far are not able to attain higher productivity. Increasing productivity is a gradual process and it requires proper leadership, process, material, motivation, training, and manpower. I can share my experience in one of the mills where I started with GPSS of 160 and in four years could take it to 185-188.
- Optimum financing and investment plan: Every investment must be undertaken only against the analysis of cost and benefits with a positive NPV (Net Present Value) and followed by the analysis of the actual outcome to make necessary corrections. Even a project with positive NPV can become sick if the capital structure and the weighted average cost of fund becomes high resulting from higher financial leverage. Balanced investment, fund management, and financing decisions are important decisions that contribute to cost and benefit and these are needed to be optimized. In my opinion, Finance graduates should be given their working space in the organization to contribute. Companies can assign separate job for students of Finance, Accounting, and costing.
- Training and manpower development and retention: In order to achieve continuous and sustainable improvement, training plays an important role. Return on training gives the fastest return among any other investment by an organization. In spinning mills in Bangladesh, at worker level monthly turnover varies from 5-12% whereas in the case of staff and executives it is less than 1%. However, ensuring a good working condition and job growth reduces the turnover where training plays a positive role. Separate training should be designed for workers and management throughout the year to get the best output and reduce defects/cost. Companies should invest 0.50-1.00% of the turnover for training and development in order to build a trained, motivated and efficient local manpower, which is the key to sustainable development of the sector.
Also Read: 10 ways to save energy in a spinning mill