Industry perspective: “Cotton disaster” triggered by the “tail effect”

Wu Faxin General Manager of Hong Kong JKN International Group and Hong Kong Love Yarn Import & Export Trading Co., Ltd. Greater China. She used to be the overseas commodity ** and financial derivatives market analyst and overseas market director of Shenzhen Finance and Economics Corporation, and the fabrics manager of Hong Kong Qihan Trading Co., Ltd. (a large-scale foreign-funded export company), China Cotton Industry Group (Hong Kong) Co., Ltd. ( Textile Raw Material Importer) Executive Director, China Director.

Almost any industry has an "oxtail effect" and the textile industry is no exception. Measures to reduce the occurrence of this phenomenon are more effective: companies need to increase the accuracy of demand forecasting, and to achieve sales information sharing, it is necessary to establish a strategic alliance of cooperative enterprises.

There is always a striking resemblance to history. Let's start with a case:

During the epidemic of SARS, people purchased masks in large quantities, snapped up by individuals, and snapped up units. This sudden demand is reflected in the retailer. For a long period of time, retailers purchased a large number of import hoods from wholesalers, and wholesalers increased their orders to give orders to raw manufacturers. This kind of information from the terminal needs to be transmitted along the supply chain to the upper end and enlarged by companies at each link. The mask manufacturer also purchases masks and raw materials such as cotton yarn and fabrics, buys new machines, and recruits workers to expand production capacity. Eventually, as the country controlled the outbreak in time, it quickly ended the spread of the SARS epidemic. However, when the SARS epidemic neared its end, the demand was not so great, or it suddenly disappeared. However, the mask factory is still producing in large quantities, and a large number of cotton yarns and masks fabrics and finished product inventories are accumulated in the factories, resulting in the failure of the factory's financial circulation and the breaking of the capital chain and bankruptcy.

The cotton yarn cotton market from 2010 to 2011 is similar to this case.

The actual demand for a certain commodity in the terminal market often undergoes subtle changes. This subtle fluctuation will follow the supply chain from retailers, wholesalers, distributors and manufacturers to the upstream and expand gradually, due to the various nodes in the chain. The asymmetry of information between enterprises and the maximization of individual interests for each business owner in pursuit of their own interests, when reaching the ultimate supplier of the source, the demand information obtained by the business owner and the customer demand information in the actual consumer market are greatly deviated. Severely distorted or distorted. This phenomenon is similar to the phenomenon in which we swing our whip slightly while our wrists are slightly swaying. Therefore, this phenomenon is called "Bullwhip Effect" in management.

This phenomenon cannot be eliminated forever because it is a manifestation of the lack of security in human nature.

Almost any industry has an "oxtail effect." The textile industry is no exception. There is also an "tail effect" in the supply chain.

For example, when cotton prices just started to rise in the second half of 2010, the author’s company’s company, Zhejiang’s famous textile printing and dyeing conglomerate, originally planned to use 1,000 tons of cotton each month, due to the high raw material prices at the time and the good sales of finished products. The factory is optimistically estimating the future. At the same time, in order to ensure that quality raw materials continue to be shipped, the owner of the printing and dyeing plant increases purchases to 1200 tons per month. Grates and spinning mills also make more purchasing decisions than ever before. When the information is passed to the cotton ginning plant and passed on to the cotton farmers, the purchase volume of each link increases by 20%, 1.2 × 1.2 × 1.2 × 1.2 = "2.07, then the surface order of cotton may be 2,000 tons or more. However, actual downstream orders have grown by less than 10%, cotton demand has not exceeded 1,100 tons, and printing and dyeing plants have only increased 200 tons of purchases, but there are more than 800 tons of stocks in the entire industry chain, and “tail effect”. It also happened.

The existence of the “tail effect” has serious consequences for cotton, spinning, and weaving companies: Due to blind optimism, or buying raw materials, it is necessary to maintain inventory that is much larger than actual demand, leading to increased business risk and rising inventory costs. The decline in profits, product backlog, and the use of funds have weakened the competitiveness of enterprises. At the same time, it also led to the decline in the efficiency of the entire supply chain of a textile printing and dyeing consortium mentioned above.

Another example is the introduction of the macro tightening policy to control inflation in the country, the slump in the international textile market, the sharp decline in export orders, and the reciprocal of factors such as the appreciation of renminbi in 2011, resulting in a drastic reduction in demand in the downstream market. What is even more serious is that farmers have accumulated a large amount of cotton for nearly a year. In October, it was the traditional season for the listing of new cotton. Old cotton was not produced and new cotton arrived again. So, in the case of the 2011 cotton and cotton yarn market, the “cotton disaster” that everyone sees today will end.

How do the majority of spinning mills, weaving factories, and printing and dyeing plants reduce the frequency of this phenomenon? Or how to try to minimize the negative effects of this phenomenon? Companies that are more successful in this regard are international buyers represented by Wal-Mart. The Hong Kong companies I used to serve in the past have been supplying Wal-Mart and other international buyers all the year round. Many of their practices are worth learning from the vast majority of textile printing and dyeing companies.

For many years, supply chain management experts such as Wal-Mart and other international buyers have been committed to avoiding the occurrence of the “tail effect” phenomenon. It is recommended that entrepreneurs in the textile industry can adopt the following measures to eliminate the negative effects of the “tail effect” on the company. effect:

First, improve the accuracy of demand forecasting. The clerk should have extensive contact with the customer's purchasing manager, regard the customer company as the place where he works, understand the execution of the customer order in detail, and even participate in the new product development process of the customer, according to the situation of the downstream terminal customer placing orders, Variety selection is accurate, sales price is reasonable, and inventory quantity is moderate.

Second, share sales information. Assume that during the SARS epidemic, when a retailer sells a mask, the information on the POSE machine is transmitted to the wholesaler and manufacturer's computer system. The information obtained by the upstream company is real information, rather than the supplier's own closed-door building estimate. The data. The clerk who sells the yarn in the spinning mill should always know how many 10,000 meters of cloth the customer's company sells, and how much cotton material is stocked. The clerk has to know the data well. Or ask the clerk to first try to enter the customer's raw material warehouse to see and then enter the customer's office to talk, do it one, two, three negotiations.

Third, establish a strategic alliance with corporate alliances. International buyers such as Wal-Mart have a very scientific VENDOR management system. All price and delivery information can be shared. It is recommended that the owners of the spinning mills often go to cotton production areas, even to neighboring countries such as Pakistan and India to understand first-hand information and establish a strategic partnership-type supply system.

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