Manish Sachar, Head – Systems & Finance, Orient Fashion Exports
Sustainability is all about ‘people’, ‘planet’ and ‘profit’, all of which are now ‘scarce’. While, industry makes effort to take steps for ‘people’, ‘planet’ and ‘profit’ is something which is shrinking by the day with no one having a clear vision how to perk up the same for sustainable existence. Limiting overheads, cost control efforts and sharp costing are already being used as tools to improve margins, but are the export houses doing enough on these fronts, is there still some scope for improvement, are some questions that need to be asked.
Naturally, answers to these hard questions will differ from company to company, and may vary even in some special conditions within a company. Experts are of the opinion that we need to improve our working methodology to use best practices in finance & cost management for effective ‘economic’ sustenance. In a recent seminar, three top export companies – Orient Craft, Orient Fashions and Neetee Apparels – shared their experience on this issue, compelling participants/ audience from various export houses to re-look at their ‘financial operations’. All these experts shared different aspects of the issue giving enough ‘food for thought’ to the industry on how they can support profit increase by reducing cost/wastage in a systematic and strategic way.
Anoop Dhanda, ED – Finance, Orient Craft
It was rightly pointed out that in our industry interest cost and embedded finance cost is not taken very seriously, as the bull’s eye is only to dispatch the shipment on time. Even the documentation department is focusing on the same, without realizing that while delay of a single day in submitting the document can prove costly, there is also a need to ensure that the same is submitted and accepted by the bank on the same day, otherwise the result is the same. Manish Sachar, Head-Systems & Finance at Orient Fashion Exports giving an example reiterated, “If there is a document of US $ 15.38 million (Rs. 100 crore), then adding other receivables like drawback duty, focus market scheme, service tax refund, etc. which on an average works out at around 8 per cent, the receipt due is of US $ 16.61 million (Rs. 108 crore). Now if I have 10 days delay and the rate of interest is 12 per cent, we are actually spending US $ 0.053 million (Rs. 35 lakhs) on it.”
Kamal Sidhu, MD, Neetee Apparel LLP
He pointed out that the delay could be for many reasons not attributed to the company directly, like receiving the document late from the forwarders; documents were held back due to negligence of the office; document received by the bank but not lodged by the bank on the same day due to lack of staff. And in some cases delays can be very long. “As a solution we engaged our forwarders and informed them that we are bearing loss due to your delay, which acted as a stimulus for them to give better service; earlier it was taking 16-17 days for the job and now it takes 10-12 days. In case of shortage of staff in banks or some other kind of delay, our staff sits in the bank and completes the task,” shares Sachar. Every buyer and receivable has a trigger point to release the payment, be it delivery date, sailing date, document uploading date, the lease of bank reconciliation certificate (BRC) and the trick is to ensure that these ‘triggers’ should not get delayed in any case.
Sachar also shared that to improve on such cost savings, Orient Fashions generates data in each department, which is like evolving yourself, reanalysing, revisiting, reinventing every point and then hitting it.
We were of the opinion that we are very good in fabric usage, despite that we were able to reduce 40 per cent of the fabric wastage just by looking at our operations in a different perspective. – Manish Sachar, Head – Systems & Finance, Orient Fashion Exports
Similarly, we improved manpower cost, which doesn’t mean reduction of workforce. All we did was to rearrange the workers, breaking down the manpower requirement into SPT (style processing time). The outcome of the exercise was that the workforce not mapped in the entire process was either surplus or planned against the future orders. We found that we had more helpers then required and that we were always having shortage of skilled manpower like checkers, pressmen, etc., so we got an analytical approach to rework the strategy with the factory management. After which they started justifying their manpower requirement. It was actually just about shuffling the resources, which eventually led to multi-tasking and multiskilling training programs, informed Sachar.
Advising exporters to be more vigilant in financing their operations, Anoop Dhanda, ED – Finance, Orient Craft shared some real life experiences. “Many overseas discounters come to us offering to pay 30 days in advance, in exchange of 1 per cent discount. Not many realize that it means we are paying 12 per cent annualized interest to the buyer and that too in dollars; ultimately it hurts profitability. Indian banks offer finance at much less the rate, why not utilize that. Things sometimes look so simple, but need to be analysed deeply,” he argues. These seemingly small details have grown in importance, as most of the other cost elements like raw materials, labour, energy, etc. are almost same for everyone and also known and calculated by the buyers, so savings have to be made in hidden areas. For this, the basic tool is balance sheet management, and how does it look like because when one goes for finance, the lender (bank/ market) wants to see the strength of the company through the balance sheet.
Dhanda went on to explain that one of the biggest reasons that leads to the downfall or prosperity of a company is how effectively one can ‘manage leverages’ in the system – how much capital you have put against how much you borrow, if your borrowing is less than your capital, you can demand much finer terms, no matter whosoever is the lender. Similarly, if you are providing enough security on your working capital it means that you are providing current assets which are more than your liability, the lender is more comfortable, as the risk of lending to you is lower. He further added, “At our company we also measure the unit cost embedded to the product and whether the product is really capable to cover the cost… So we structure our balance sheet and our needs to decide whether to expand or not to expand, depending on what resources are available, what my product can really carry with it to service the entire business or the future of the business.”
Laying stress on the need to stay within allocated budgets when executing a project Kamal Sidhu, MD, Neetee Apparel LLP said, “When planning your budget, clearly lay out the spending and whatever you are ‘actually spending’, check it first… Was it in your cost sheet or not; if it is not, then it is going to be from your pocket.”
He went on to explain that the company has a planned budget for every single day for each department and his people are trained to match expenditure with planning. “We have to look at our methodology in costing. Do we cost properly, our cost sheet should be more detailed, systemized and methodical. Do we have the entire cost of the factory, including cleaning people in that cost sheet and do we compare our cost sheet afterwards and analyse, and take necessary steps. There are plenty of ERP systems in the country, but most of them are wrong as they take the mark-up percentage on the cost rather than sale. So we build our own ERP to give a realistic picture,” concluded Sidhu.