Successful Management Strategy For A Spinning Mill, 纺纱厂的成功经营策略, Textile Investment

中文版 - View Chinese version of my treatise

Successful Management Strategy For A Spinning Mill

I have had more than 30 years of experience in the textile industry, and in the span of the first 10 years had advanced from the most basic task of sweeping floors to becoming a plant manager. After that, I have been in the service of several companies and launched many new prosperous factories, and also witnessed failures. Some were due to obstruction by relatives of the companies’ management, some borrowed too extravagantly, and some failed to repay their loans and interests. I have observed all kinds of entrepreneurial strategies and tricks, and in view of this, would like to publish my treatise, as an advice and reminder to those who already possess spinning mills and to interested investors.

The success of a spinning mill depends on the loan, personal investment, interest rates, raw material cost, count and category of mill production, selling price, daily expenses and revenue. An efficient and dexterous command of all these factors will result in a profitable return. The below analysis is based on investing in a spinning mill in China:

v Loan Sum

· Main spinning machine, air conditioning, subsidiary machine accessories and electricity will occupy about 55% - 65%. This calculates to be:

Loan Sum x 0.65 ÷ Total Spindle = Unit Price per Spindle

If loan sum is USD 120,000,000 x 0.55 ÷ 150,000 spindle = USD 440/spindle

USD 120,000,000 x 0.65 ÷ 150,000 spindle = USD 520/spindle

USD 60,000,000 x 0.65 ÷ 75,000 spindle = USD 520/spindle

USD 60,000,000 x 0.65 ÷ 37,500 spindle = USD 520/spindle

· Buying property will utilize about 5% - 8% (around 120,000m² – 130,000m²)

· All construction, medical services, employee welfare, warehouses and hostels will cost about 12.5% - 16%

· Training, transportation, environment and road improvements, and stationery will absorb about 2.5% - 3.5%

· Raw materials for 3 months will take up about 12.5% - 15%

· And cash reserves of about 2.5%

v Personal Investment

For those with related experience, such as in knitting or textile mills, clothing factories, or as yarn distributors, or other expertise in successful enterprises, public or private investment foundations, financial banks, or even those with the wealth and aspiration to become an elite entrepreneur, may invest in spinning mill.

It’s possible to have a personal investment of 10% - 30% with a loan comprising of the other 70% - 90%, and no matter what is the percentage, both personal and bank loans must be repaid together with the interest rate.

v Interest Rate

If the loan is in US Dollars with a 5% - 7% yearly interest rate, this exposition will use a 6% interest rate in the calculations.

Because of the need to buy machines, construct the factory etc, the capital will only be repaid at the beginning of the third or fourth year, for a period of 7 to 8 years. The interest, however, will be paid from the end of the first year, for a period of 10 years.

v Price of Raw Material

Raw materials include raw cotton, chemical fibers, polyester, rayon and the following are estimates for the per unit price:

20^.S: USD 1.54/kg – 1.76/kg (USD 0.7 – 0.8/pound)

30^.S: USD 1.76/kg – 1.98/kg (USD 0.8 – 0.9/pound)

40^.S: USD 1.98/kg – 2.2 /kg (USD 0.9 – 1.0/pound)

polyester: USD 1.25/kg rayon: USD 1.6/kg

The reason for using the various counts is because each count requires different fiber length and the choice of raw material depends on the final product category. For example, mixed cotton requires the specific length and properties of chemical fiber of 38mm. The foundation of success depends on an understanding of raw material production, their peculiarities and virtues and an accurate forecast on stock required.

v Count, Production Volume and Category

In considering production volume, other factors such as material count, efficiency and speed cannot be excluded, and furthermore, count also depends on the weight. For example, 20.^S yarn is 120 yards long and weighs 50 grain (because 1.^S = 840 yard = 1 pound = 7000 grain).

Therefore 0.5.^S spins 19.5.^S and weighs 51.28 grain, hence there exists an inverse ration between count and weight.

For ring frame efficiency, 20^.S count will be at 90% - 91%, 30^.S count will be at 91% - 92%, while 40^.S count will be at 92% - 93%. The remaining percentage is mostly used for maintenance, and a small portion is for doffing and change of roving and broken ends.

The ring frame speed depends on the front roller diameter (FRΦ), twist per inch (TPI) and the spindle speed. If FRΦ = 1” (25.4mm), then

FRΦ x π x TPI = Spindle Speed

And TPI (twist per inch) directly influences FRS.

And = x Eff% x

The formula reveals that weight, speed, efficiency, time, count and twist per inch all have direct relationships, and investors or management should not disregard or disparage this common formula, as it contains profound and intricate implications.

Below are the count, category and production values employed in this thesis.

Table I

	30,000^SP	30,000^SP	30,000^SP		30,000^SP	30,000^SP
	carded	combed	TC	CVC	RC	PE 100%	RY 100%
20^.S	2,728 B	2,976	1,736	1,674	3,224	1,736	1,614
30^.S	1,984	2,083	1,364	1,302	2,232	1,240	1,116
40^.S	1,587	1,736	992	955	1,860	992	868

Remarks:

Ø Production values using B = Bale = 181.44kg = 400 pound. Efficiency percentage is already included and the above table adopts a standard of 30,000^SP yarn bundle/month.

Carded: Roving range of 8% - 12%, using 10% as benchmark

Combed: Roving range of 18% - 22%, using 20% as benchmark

Chemical fiber: Roving range of 2% - 2.5%, using 2% as benchmark

TC, CVC, RC percentages are smaller, changeable depending on demand

Ø Count can vary from 16^.S – 45^.S, and the above table uses 20^.S, 30^.S, 40^.S as average count, and the same calculations can be used for counts of above 40^.S.

Ø Assume 30 days for every month.

Ø Polyester and rayon utilizes 1.5^D x 38mm as gauge.

Ø Amount of doffing waste percentage depends on cotton’s short fiber percentage.

Ø Can also produce TR.

Ø And 50^.S – 100^.S needs another array of settings.

v Sale Price

The table below illustrates the selling price range of every bale, using high quality knitting yarn with high speed weaving yarn.

Table II

	carded	combed	TC	CVC	RC	PE 100%	RY 100%
20^.S	USD 500-540	590-630	540-580	560-600	580-620	400-440	440-480
30^.S	580-620	670-710	590-630	640-680	660-700	450-490	490-530
40^.S	660-700	760-800	680-720	720-760	740-780	500-540	540-580

Remark: The export price of each category can be adjusted by ±10% of the selling price, and the next table displays the unit price used in subsequent calculations.

Table III

	carded	combed	TC	CVC	RC	PE 100%	RY 100%
20^.S	USD 520	610	560	580	600	420	460
30^.S	600	690	610	660	780	470	510
40^.S	680	780	700	740	760	520	560

v Daily Expenses

· Expect factory to be running 24 hours every day, and estimate that if 150,000^SP uses non-automatic ring frame machines, more manpower will be required.

20^.Scarded 30,000^SP

20^.Scombed 30,000^SP

20^.S TC + CVC each 15,000^SPto 30,000^SP

20^.S RC 30,000^SP

20^.S PE + RY each 15,000^SP to 30,000^SP

20^.S every month produces 15,686 Bale x = 2,614 people, 30,000^SP = 523人

30^.S every month produces 11,321 Bale x = 2,264 people, 30,000^SP = 453人

40^.S every month produces 8,990 Bale x = 1,873 people, 30,000^SP = 375人

· Different production count involve different numbers of personnel, including 3 shifts (or 4 shifts), off-day rotations, technical labor and management level. Every 50,000^SP amount to 10 people for warehouse, 6 people for office, 10 people for canteen and hostels, 15 people for packaging tasks, 6 people for security, 8 people for miscellaneous duties (drivers or odd jobs) for a total of 55 people and an aggregate of 165 people for 150,000^SP.

If 150,000^SP spins entirely 20^.S equals 2,614 + 165 = 2,779 people

If 150,000^SP spins entirely 30^.S equals 2,264 + 165 = 2,429 people

If 150,000^SP spins entirely 40^.S equals 1,873 + 165 = 2,038 people

· If monthly average wages (including canteen, hostels, transport, shift allowance, uniforms, staff welfare etc.) are USD 250/person, then every month

If 150,000^SP spins entirely 20^.S, expenses will be USD 250 x 2,779 = USD 694,750

If 150,000^SP spins entirely 30^.S, expenses will be 250 x 2,429 = USD 607,250

If 150,000^SP spins entirely 40^.S, expenses will be 250 x 2,038 = USD 509,500

In addition, tax, insurance, machine parts, electricity etc:

If 20^.S, monthly expenses of around USD 500,000

If 30^.S, monthly expenses of around USD 450,000

If 40^.S, monthly expenses of around USD 400,000

In summary, total monthly expenses

for 20^.S will be around USD 1,194,750

for 30^.S will be around USD 1,057,250

for 40^.S will be around USD 909,500

v Profit Computation

· Assuming a yearly interest rate of 6%, payable every year-end for a period of 10 years.

· Capital payable at the beginning of every year, starting from the fourth year for a period of 7 years.

· Average sale price established previously in Table III.

· Doffing percentage subjected to 10% for carded, 20% for combed and 2% for chemical fiber.

· Loan amount of USD 800 x 150,000^SP = USD 120,000,000.

(1) If spinning 20^.S

Table I

	Total Sale minus Material Price	Minus Capital and Interest Rate of 6%	Surplus
1^st Year	-	USD 7,200,000	USD 7,200,000
2^nd Year	USD 23,788,704	7,200,000	16,588,704
3^rd Year	47,577,396	7,200,000	40,377,396
4^th Year	47,577,396	23,314,285	24,263,111
5^th Year	47,577,396	22,285,714	25,291,682
6^th Year	47,577,396	21,257,142	26,320,254
7^th Year	47,577,396	20,228,571	27,348,825
8^th Year	47,577,396	19,200,000	28,337,396
9^th Year	47,577,396	18,171,428	29,405,968
10^th Year	47,577,396	17,142,857	30,434,539
Total	404,407,872	163,199,997	241,167,875
11^th Year thereafter	47,577,396	0	47,577,396

Ø Production is halved in the second year.

Ø Yearly interest rate based on capital x 6%, not using day count convention.

Ø Because there is no revenue in the first year, the loan payable of USD 7,200,000 must be prepared in advanced.

Ø If spinning 20^.S, revenue should deduct a tax of 15% and yearly expenditure growth of 3%. The yearly expenditure would be USD 1,194,750 x 12 = USD 14,337,000.

Table II

	Surplus	Minus Yearly Expenses	Minus Tax	Profit
1^st Year	USD -7,200,000	USD -7,168,500	-	USD -14,368,500
2^nd Year	16,588,704	10,752,750	USD 2,488,306	3,347,648
3^rd Year	40,377,396	14,767,110	6,056,609	19,553,677
4^th Year	24,263,111	15,210,123	3,639,749	5,413,239
5^th Year	25,291,682	15,666,427	3,793,859	5,831,396
6^th Year	26,320,254	16,136,420	3,948,149	6,235,685
7^th Year	27,348,825	16,620,513	4,162,409	6,625,903
8^th Year	28,337,396	17,119,128	4,250,759	6,967,509
9^th Year	29,405,968	17,632,702	4,417,019	7,356,247
10^th Year	30,434,539	18,161,683	4,565,309	7,707,547
Total	241,167,875	149,235,356	37,262,168	54,670,351
11^th Year thereafter	47,577,396	18,706,533	7,136,609	21,734,254

Ø Need to prepare 50% of monthly outlay in the first year to buy machines and construct the mill.

Ø Need to prepare around 75% of monthly outlay in the second year while the production is halved due to installation of machines.

Ø From the third year, yearly outlay will increase by 3% every year.

Ø Necessary to ingeniously arrange the first year expense of USD 7,168,500 and the 6% interest rate of USD 7,200,000 = USD 14,369,500.

Ø Tax of 15% is based on 15% of surplus, or can be calculated by subtracting all raw material, machine parts, and miscellaneous expenses from the surplus and then getting 15%.

Ø The local government policies can also determine that interest rate is less than 15% or even tax free for a few years and this should be recalculated according to local accounting practices.

(2) The influence of spin count and category on profit

Ø If A produces 20^.S carded, 20^.S combed, 20^.S RC for each 30,000^SP

20^.S TC, 20^.S CVC, 20^.S PE and 20^.S RY for each 15,000^SP

Ø If B produces 20^.S combed, 20^.S TC, 20^.S CVC, 20^.S RC for each 30,000^SP

40^.S PE and 40^.S RY for each15,000^SP

Ø If C produces 20^.S combed, 30^.S combed, 20^.S TC, 30^.S TC for each 30,000^SP

20^.S RC and 30^.S RC for each 15,000^SP

	Total Sales minus Material Price	Minus Capital and Interest	Minus Expenses for 10 years	Minus Tax for 10 years	Profit
A	USD 404,407,872	USD 163,199,997	USD 149,235,356	USD 37,262,168	USD 54,710,351
B	421,896,786	163,199,997	149,235,356	37,262,168	72,199,265
C	438,700,468	163,199,997	149,235,356	37,262,168	89,002,947

Ø After deducting the above selling price, raw material price, operational overhead, tax etc,

A has an average yearly profit of USD 5,471,035

B has an average yearly profit of USD 7,219,926

C has an average yearly profit of USD 8,900,294

Ø If cash is used to buy material, no interest would be required but if letter of credit is used, need to calculate the interest rate and make payment within the stipulated period.

Ø If the total tax is not USD 37,262,168 as calculated in Table II, but only 50% to be USD 18,631,084, then the yearly interest rate would be USD 1,863,108 and the monthly rate would be USD 155,259.

Then average yearly profit of A would be USD 5,471,035 + 1,863,108 = USD 7,334,134.

Then average yearly profit of B would be USD 7,219,926 + 1,863,108 = USD 9,083,034.

Then average yearly profit of C would be USD 8,900,294 + 1,863,108 = USD 10,763,402.

If calculated further using a decade: A would have a profit of USD 73,341,340

B would have a profit of USD 90,830,340

C would have a profit of USD 107,634,020

C would exceed A in a decade by USD 34,292,680, and every year by USD 3,429,268.

C would exceed B in a decade by USD 16,803,680, and every year by USD 1,680,368.

B would exceed A in a decade by USD 17,489,000, and every year by USD 1,748,900.

If all factors such as production count, categories, yield, sale price, efficiency percentage and quality are appropriately managed, after deducting all expenses:

There would be a net profit of USD 91,488,917 in 8.5 years, and USD 107,634,020 in a decade. The net profit of USD 91,488,917 is 76% of the loan sum of USD 120,000,000, and the net profit in a decade is 90% of the loan sum.

Subject to a risk assessment of above USD 60,000,000 (in reality, a 150,000^SP factory can be acquired in a decade)

(3) Assuming a loan amount of USD 800 x 150,000^SP = USD 120,000,000, and with an actual personal investment of 20%, only 80% needs to be loaned. In fact, in a decade, you will have already gained back the 20% personal investment of USD 24,000,000 and the interest rate 6% (around USD 8,640,000) for a total of USD 32,640,000.

	Return on Investment of 20%	Plus Interest 6%	Total
1^st Year	-	USD 1,440,000	USD 1,440,000
2^nd Year	-	1,440,000	1,440,000
3^rd Year	-	1,440,000	1,440,000
4^th Year	USD 3,428,571	1,234,285	4,662,856
5^th Year	3,428,571	1,028,571	4,457,142
6^th Year	3,428,571	822,857	4,251,428
7^th Year	3,428,571	617,143	4,045,714
8^th Year	3,428,571	411,428	3,839,999
9^th Year	3,428,571	205,714	3,634,285
10^th Year	3,428,571	0	3,428,571
Total	24,000,000	8,639,998	32,639,998

Ø After the personal investment and interest is collected back, it can be used for other purposes in the company and is another source of funds.

v For the example of USD 120,000,000 loan amount used to open a 150,000^SP factory, should especially take note of the below points.

(1) Lack of material: After the quality of material required is established and the source settled, preventive measure should be arranged so as not to hinder production.

(2) Irregular count change: Often clients may demand a change in production count. If the average monthly count is changed, the production yield can decline and raw material pile up. Or if yield escalates too much, it will cause a lack of material. Count change should depend on sale price and revenue.

(3) Price change: Often happens while dealing with clients or desiring to clear surplus stock in the warehouse, or due to fraudulent behavior and corruption.

(4) Nepotism: Because they don’t have the necessary experience or training, yet often hold high positions, causing unbalanced mind-sets in those with actual ability, and influencing company growth.

(5) Exceeding loan: Reporting higher than actual prices for machines etc, and pocketing the difference or allowing the company to undertake the risk. This will result in net loss after a few years, and the company will be unable to pay back the interest, much less the capital and can only resell the factory.

(6) Unable to redeem client revenue: Client payments should usually be received within 1-3 months. If unmindful of client trustworthiness, can frequently be unable to retrieve revenue, especially without a letter of credit. Moreover, should routinely maintain contacts with various clients and industry sources, in order to obtain the latest trade information.

(7) Recycling: All doffing, waste, bale cloth, damaged machine parts etc, can be sold to supplement canteen supplies, medical and welfare services, and not thrown away as trash. Expenditures for employees, power source, machine components, packaging, transport, oil price, stationery, computer supplies etc should be controlled by specialized personnel and regularly checked by management.

(8) Delay capital and interest repayment: Because the loan period, repayment, and interest rates had all been mapped out and agreed upon with a loaning institution, they should be honored and settled timely. Even though the yearly capital repayment can be smaller with a longer loan period, the interest amount increases therefore it is wiser to finish the repayments quickly in order to develop other enterprises.

(9) Employee quality: Healthy personnel are essential, and with a probation period of 3 months, human resources can conduct background and personality checks. If not noticed, a production unit, especially with intricate light industry such as yarn spinning, can easily disrupt assembly and damage machines, even cause fires and ruin.

(10) Equipment maintenance: Equipment depend on electric power and cables, and need to be regularly maintained. Persistent power disruption can interfere with production and even cause fires.

(11) Unable to correctly amend yarn quality: When clients feedback on product flaws and employees or management lack the experience, they may experiment with various settings and in the process, waste material and time, and may not even be able to make the appropriate modifications. It is important to equip the right personnel with the right skill sets.

(12) If details such as employee hostels, canteens, transportation etc are not taken care of, staff will complain and be unable to concentrate, lowering the efficiency and production rate.

(13) Corrupt accounting department: Accounting clerks often act as the director’s personal teller, frequently carrying checks or cash, and if corrupt, are susceptible to moving company resources without returning them. It is imperative to implement a moral and scrupulous accounting system, with clear evidence of every debit and credit.

(14) Oblivious to stock placement in warehouse: All kinds of material should be categorized and placed correctly, and not too high. There should be walkways wide enough for loaders, bales or product containers. The challenge is to increase security while also allowing for easy access, and reduce time wasted or excessive product handling.

(15) Negligent quality testing: The older generation of machine test results is not as sensitive or fast as the newer generation. Therefore international testing standards and machines, for example USTER%, are preferred to examine half-finished and finished products, to inspire customer confidence and improve production speed. If testing is ignored, blemishes will be common and waste time to resolve, increasing the amount of defects in the final product.

(16) Indeterminate classification of yarn counts and categories: Simple, clear methods should be used to label products. For example: carded cotton can be marked as 20^.S CA, combed as 20^.S SCA (semi combed grade A) or 20^.S FCA (full combed grade A), and mixed yarn will have other modes of identification.

(17) Management should take note of unethical tactics such as making false reports to banks, distorting the material price, transferring revenue or letter of credit to an overseas account, while the evidence and money will slowly disappear. Care must be taken to set up strict audit controls to prevent such behavior.

(18) Misuse of loan: If the loan is divided up as below, there would be an cash reserve of 12.5% - USD 15,000,000, which can be used to make the first interest payment of 6%, and this reserve should not evaporate and affect the whole operation.

Ø Procuring machines take up about 55%, around USD 66,000,000.

Ø Acquiring property take up about 5%, around USD 6,000,000.

Ø All construction take up about 12.5%, around USD 15,000,000.

Ø Training, transportation, environment and road improvements, and stationery take up 2.5%, around USD 3,000,000.

Ø Purchase of raw material take up about 12.5%, around USD 15,000,000.

Ø Cash reserves of about 12.5%, around USD 15,000,000.

(19) The unit price of each bale of yarn should not be obscured and should be correctly calculated using the few methods below:

Ø Based on how many spindles are needed to produce each bale of yarn.

Ø Based on the unit price of each kilogram of raw material and the doffing percentage.

Ø Based on daily expenses plus the daily production expense of each machine.

Because the count and categories produced by a 150,000SP factory are diverse, the per bale price should take into account the spindle speed, doffing percentage, efficiency and material price, along with the loan criteria and interest rate. If the mill is already loan-free, then the price can be self-determined or maintained, but A+ grade products should have a higher price in relation to the quality.

(20) Misguided perception of capital: Usually raw material is bought with a preference for lower prices, with the impression that this equals lower cost. What is not realized is that because of the differences in the percentage of short fibers, luster depth, micronair (fineness) and uniformity, the end product is often of poor quality, with recurrent broken ends. This leads to client complaints and difficulty in maintaining the sale price, much less increasing it. A lot of companies mistakenly think to save cost by using substandard quality material, because they know material cost is the next highest after machine cost. But in reality, they trapped themselves in a vicious cycle of perpetually buying inferior material to generate inferior cloth and forever unable to increase their sale price, until they have no choice in the end but to declare bankruptcy.

Ø If you already possess a spinning mill and has yet to see any profits, please investigate the reason, as summarized in the following:

a) Is there any problem with the count and machine used?

b) Is funding or interest a problem for the company?

c) Are the various products of poor quality and thus incapable of raising sale prices?

d) Are the employees mediocre, unable to increase efficiency or control product quality?

e) Are expenses too high while production is too low, causing unsatisfactory resource circulation?

f) Are the clients too far and thus consuming too much transportation cost?

If you encounter any of the above problems, the answers can be found in my composition.

Ø Various elements of spinning mill management, such as fund allotment, machine choice, production process, material testing, workforce expertise and balanced expense disbursement is a fundamental subject at spinning and weaving universities. And learning to identify the right clients is another aspect of successful management.

Ø Effective use of material can cut cost, and the following should be taken note of:

a) The percentage of short fibers, because during production, they will end up as doffing waste.

b) The accumulation of reclaimed cotton or half-finished products resulting in diminishing yield, and surge in broken ends, abnormal slivers, or persistent adjustments.

c) Increased percentage of dross in material, reducing the useful amounts of material.

By competently controlling the amount of stock used, 1-2kg of raw material and 0.5kg of chemical fiber can be conserved for every bale.

For a 150,000^SP that produces 20^.S, a tremendous quantity of resources can be spared, increasing profit.

Conclusion I

(1) The flowchart of various material and machines.

(2) Producing 100% carded, combed, polyester, rayon, mixed blend, TC, CVC, TC, TR.

Conclusion II

The loan amount, interest rate, yearly settlements, total spindles, average daily expenses, production count and load, efficiency, cost and quota of raw material, and profit all influence the final retail price, and consequently revenue. For example, for 20^.S combed cotton, the unit price of each bale should be USD 610, proved by the below theorem.

Hypothesis:

(1) Loan of USD 120,000,000 with a 6% interest rate, for a total returnable of USD 163,200,000.

(2) Number of factories is 5, for a total of 150,000^SP.

(3) Average monthly expense of USD 1,194,750 (including tax).

(4) If 150,000^SPuses 20^.S combed, 90% spindle produces 0.6kg

181.44 X 1/0.6 = 302.4 spindle produces 1 bale.

(5) Combed cotton uses material with 20% doffing

USD 1.54/kg x 181.44 x 1.2 = USD 335.3/Bale

USD 1.76/kg x 181.44 x 1.2 = USD 383.2/Bale

(6) Each bale’s net profit is 10%, with a transportation cost of 1.5%

Calculates as (unified formula invented by yours truly):

= estimate USD 610/Bale (as written above)

When the price of material is USD 1.76/kg, the amount need is USD 383.2/Bale.

Therefore, [USD 210.85/Bale + USD 383.2] x 1.10 x 1.015

= USD 594.05 x 1.10 x 1.015

= USD 602.96 x 1.10

= USD 663.26/Bale

Explanation:

a) USD 23,415,285 is the highest sum payable among the 7 years of returning the capital and interest, and includes the average capital and interest returnable from the previous 3 years to 10 years. And if it is less than USD 23,415,285, the profit will be even higher.

b) USD 3,137,607 is used for monthly payments of capital, interest and daily expenses.

c) USD 0.7/sp is the operating cost per day per spindle.

d) USD 210.85/Bale is the spindle expenditure for 20^.S.

e) USD 554.34/Bale is the cost after adding 1.5% transportation tariffs.

f) USD 609.78 is after adding profit of 10%.

Ø The above formula can be used for reference by the leaders, management and accounting department, and can be extrapolated and executed proficiently.

g) When 20^.S combed cotton is produced from USD 1.76/kg material, unless the client agrees to pay with a high price of USD 663.26/Bale, it should not be sold with a profit of less than 5% - USD 602.96 x 1.05 = USD 633.11/Bale. And this price is the lowest that 20^.S combed produced from USD 1.76/kg material should go. However, if there is a large shipment, then there would be other considerations.

h) When material for 20.S combed is at USD 1.54/kg and take up 55% of the sale price USD 610, then capital, interest and transportation will take up 35%. Profit per bale would be USD 609.78 – 554.34 = USD 55.44/Bale, with a net profit of USD 55.44/Bale x 2,976 Bale/month/30,000^SP x 12 months x 8.5 years x 5 factories = USD 84,144,614.

If sold as USD 610/Bale, transportation cost will be USD 8.19 – 8.41/Bale.

If sold below USD 554.34/Bale, will incur loss.

i) If the factory has been managed for many years, and yet has shown no improvement, please adjust the production structure. If the current situation is stubbornly persevered, cash reserves will steadily disappear and factory production will gradually decrease. There will be no funds to buy material, or not enough funds to buy good material and this feeble existence will be maintained till the factory goes bankrupt.

j) The below points can also be seen from the calculations and can be used to increase revenue:

Ø If the loan capital is not that much, and interest rate is less than 6%, even the decimals below 6% must be fought for, and interest rate is based on number of working days (deduct public holidays) and is below the yearly calculation.

Ø Controlling monthly expense to be less than USD 1,194,750.

Ø Increase efficiency and productivity, and reduce spindles per bale.

Ø Material cost is less than USD 1.54/kg, but able to use effectively, reducing cost.

Ø Because of the above factors, if cost is below USD 554.34/Bale, and yet retail price is nurtured at USD 610/Bale, profit will increase and this hinges on the ingenuity of the company’s professionals.

o If the average working days is not 30 days and is below 30 days, then the per unit retail price must be marked up and recalculated.

o Understanding how the formula works is easy, but expertise, supervision, control, analysis and an acute understanding of the industry can only come from training and experience.

o It is not impossible to have a profit of more than 10%.

Conclusion III

How much is the loan? How much is your personal investment? How much is the interest rate? Is it possible to turn a profit? How long will it take? Will profit gradually increase? These questions all depend on the analysis and cooperation among the factors of experience, expertise and investment. In reality, the spinning industry is not a twilight industry but a rising enterprise.
If (1) you have a desire to establish a new factory or,

(2) you wish to improve on the efficiency and quality of an old mill or

(3) there are opportunities for me to impart my knowledge on the management of spinning mills,

please contact me via email.

Conclusion IV

If you follow the above investment and the production values, types, quality and pricing remain unchanged, you can increase the spindle quantity from above 150,000 spindles. Did you know that for every increase in 10,000 spindles, what would be the increase in profit for every month and year? And how much can the loan repayment time be shortened? Once spindle count has reached 200,000 (with a 50,000 spindle increase), production will increase by a third, and with 225,000 spindles, production will increase by half, therefore both profit and loan period can increase and decrease accordingly. This is also the secret in my treatise above, the nimble adjustment of the various variables: market price versus sale price, sale price versus quality, quality versus quantity, infrastructure versus expertise. Just waiting to create with a benefactor a new profit opportunity.

©P.L. Chiang

chiangPL@singnet.com.sg

中文版 - View Chinese version of my treatise