"My Inventory is not controlled." - Almost Every RMG manufacturer
This problem is a regular business pain which every garments factory faces due to the complexity of the industry nature. Almost every garments factory must work both on MTO (Make to order) and MTS (Make to stock) method because of how they get orders from their buyers. This leads garments manufacturers into a complicated and troublesome condition with their inventory level. So often they can’t determine how to manage the inventory level which will satisfy the continuous need of the production floor and will not create extra inventory burden.
Different cases with the inventory are shown at the flow chart in the right side that can happen with the garments inventory. To get the maximum business benefit, we must maintain an optimize level of inventory.
So what happens if any of these six cases happen? Lets go by one by one.
Knock on effect if High Inventory level occurs in –
1. Raw Material- Capital Investment gets blocked in inventory which is costing bank interest and manufacturers are not earning anything from it. Most businesses keep High inventory if they have their own brand/retail, or to be able to quick response to buyer’s shorter lead time, to provide Vendor Management Inventory (VMI) service to buyers, or to satisfy long term running production all over the season (Like M&S production system). But keeping high inventory as a safety net will not work in the near future because of following business trend changes.
· Reduction of lead time from the buyers
· Buyers will issue purchase order, size/color breakdown closer to the final garments delivery dates so purchase team can’t order in advance, thus can’t maintain the inventory buffer.
2. WIP- Many garments factories are not comfortable to keep a lower WIP (Work in process) inventory because they fear it will tend to cause the production lines to get idle. They have a mindset that higher WIP is essential for good productivity and efficiency.
Also, if there are any subcontract operation (such as printing, embroidery), the level of WIP increases due to the transportation and buffer keeping due to the delivery uncertainty of the subcontract factories. As manufacturing units don’t have any sophisticated tool to prioritize and schedule the operation processes, they play it safe and keep a high WIP.
But due to this, lots of garments must be handled and tracked in between different manufacturing processes (Cutting, printing, inventory, sewing, finishing, packing etc.). The quality of the garments (Dirty spots, oil marks etc.) also get into the risk zone because of laying in production floor for longer period, so much more floor space is also needed.
3. Finished Goods- A larger finished goods inventory means more space and maintenance is needed to keep the excess finished goods, thus the inventory cost increases. This also have certain risks like damaging, moisture gains, theft, fire accidents etc.
Knock on effect if low Inventory level occurs in-
1. Raw Material- The production house faces greater risk of getting idle because safety net of carrying high inventory is gone. If the production efficiency outperforms the plan, the risk of getting line idle becomes higher. Idle line due to not having raw material leads to changing plans/styles which directly affects line efficiency. increases quality risk, dissatisfaction among workers for not getting their incentives (as they can’t achieve peak efficiency) and added firefighting and workload among the supervisors and the management staffs. Also, not having buffer inventory might prevent sales team to take quick response orders.
To maintain a low inventory, purchase team needs to order more and taking advantages from economies of scale** are not possible. More ordering means more ordering costs, more follow ups to in-house and more quality checks to ensure product quality.
**Economies of scale are the cost advantage from business expansion. As some firms grow in size, their unit costs begin to fall because large businesses often receive a discount because they are buying in bulk.
2. WIP- If any business is not maintaining enough WIP, their production lines will eventually go idle because of not having proper feed. Line idling forces production people to change plan/style, which ultimately leads to production inefficiency, firefighting, quality issues. Keeping low WIP often restricts workers to reach their peak efficiency, so if they are working on incentive system, they won’t be able have their production bonus. As a result, they will be demotivated and regular migration might happen.
3. Finished Goods- Low finished good can results into short shipments. Often garment factories only ship 94-97% of the goods that were cut where with most of the buyers they have a chance to ship extra 3-5% garments. In this way, they are losing the chance to ship about 6-11% of more garments.
Inaccurate planning by not considering Size ratio, Color Ratio, Country wise packing ratio, Production end date are not at the same time for different color prevents production house to finish goods on-time as per priority. This also causes inefficiency throughout the whole supply chain, not utilizing the capacity/Under-booking to play safe. Also Production process bottlenecks etc. stops us not only to restrain from over-shipping also to short-shipping than buyer’s actual contract quantity.
All of these six different cases described above, we can easily determine each scenario creates both operational and financial pains for the garments factories. None of these scenarios are ideal and expected. To satisfy the volatile nature of the garments industry, we must find a sophisticated system to optimize the inventory level, so that it neither creates risks of falling short nor the burden of over purchased/produced. A lot of factors are responsible for any inventory situation, which I tend to discuss further in my next article. But for now what i can say, its critical for us to do proper forecast of Inventory Demand and match it continuously with our Supply. Otherwise with the fast changing business trend, Unstructured inventory management will hit us very hard financially, and we will have very little space to recover.
Ayan Barua is currently working with Coats Digital as Business Development Manager for Bangladesh . He has worked in Four H Group, Fakir Fashion and Epyllion Group in IE and Supply Chain Department. He is an Industrial Engineer Graduate From Shahjalal University Of Science and Technology.
Linkedin: https://www.linkedin.com/in/ayan-barua
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