By Paneetha Ameresekere
Sri Lankan garment factories should have design and style capabilities to produce one style for multiple buyers if they are to become world class garment manufacturers, says a report compiled by Goss Gilroy Inc., a Canadian management consultancy firm who were employed by the Export Development Board (EDB) to determine the capacity of the Sri Lankan apparel industry.

The study which was funded by the Commonwealth Secretariat also revealed that the total value of garment exports made during the last five years by 239 local firms (who were subjected to this survey) exceeded US$ 3.4 billion.

‘As buyers provide the design, fabric, trimmings and accessories, Sri Lankan manufacturers are essentially subcontractors for labour,’ the study further showed. It also said that there was a general lack of marketing knowledge and marketing ‘to better assess fashion trends in North America and Europe.’ As such, pro-active marketing was required. Factory buyers/agents need to develop marketing/merchandising intelligence which reflects the current fashion environment, it said.

The consultants were also of the opinion that companies must first view buyers and suppliers as partners and not as adversaries. It further said that to become world-class manufacturers, and to have better access to materials, partnerships with suppliers were essential.

Another weakness identified in the study was the industry’s cost analysis capacity. "Factories were often unaware of the costs of the procurement process, and, even if they knew, they viewed that such costs are uncontrollable," the survey details showed. ‘The workforce is considered to be a fixed cost and there is no costing analysis to determine product profitability,’ the report said.

Therefore, it is difficult to evaluate and improve profitability. This is leading to an increase in unit prices ‘at all levels of production.’ Further, factories unknowingly invest significant resources into unprofitable product lines or activity,’ the study said.

It further said that to become world-class manufacturers, Sri Lankan factories should determine the price target in the marketplace, break it down into several costing units (direct labour and fixed costs) and find an economical method for each unit and monitor it through the production process to achieve the target and meet the estimated cost.

The report also said that on-site visits revealed that factories continued to experience difficulty in managing costs and a number of these factories had yet to implement initiatives to reduce ‘overhead and set-up,’ improve productivity outputs and shorten the lead-time.

Some of the other details revealed in this study were that nearly 90% of companies surveyed exported to the USA, 63% exported to the UK and 39% exported to Canada. The study also showed that many garment manufacturers were reliant in dealing with local buying houses and agents, rather than establishing direct links with major retailers.

As a result, this left them ‘somewhat remote’ from the marketplace, the consultants in their report said. Additionally, many foreign buyers source and supply their fabric directly, ‘this reduces the control that manufacturers have over the product,’ the survey opined.

Some of the other areas that required improvement were improving the marketing capacity and linkages with buyers, improving the knowledge of advanced production management techniques and improving the capacity in supply chain management and business to business technologies.

Meanwhile, the average number of employees in those garment factories that were surveyed were found to be 960. Many firms were limited liability companies (82%) while the rest were either family-owned (7.5%) or were sole proprietorships. 64% of the companies surveyed had gross sales exceeding $ one million, while 44% had gross sales exceeding $ three million.

53% of these firms were in business for more than 10 years. Over half of the firms possessed CAD/CAM equipment, while only 19% used automated cutting machines. Meanwhile, 99% of those surveyed companies and all prime contractors were exporters, with 93% relying on exports for more than half of their sales.

Casual wear accounted for 58% of exports from 80% of the firms who ‘participated in those markets.’ Some of the problem areas that were identified in this survey were issues pertaining to labour.

In 1998, labour costs in Sri Lanka were 45 US cents for an hour. These rates were not as competitive as those paid in other South Asian countries. ‘Labour costs were affected’ by inflexible labour laws with respect to lay-offs and firing, high turnover and lack of competent and trained managers.

‘The lack of adequate fabric manufacturing capacity to meet the demands in the apparel sector, was also identified as another problem area. Another inhibiting issue was the fact that the industry’s ‘industrial engineering capabilities were low.’

This was due to unbalanced production lines, high repair costs, lack of focus on quality and failure to adopt TQM techniques, acceptance of non-profitable orders due to their inability to pre-determine costs.

Lack of incentive schemes to motivate operators, excessive overtime and/or missed delivery deadlines due to poor production planning, low worker productivity due to the lack of work studies and the adoption of ergonomic concepts and increased production/inventory costs due to high ‘work-in-progress’ inventories.

Another problem area identified was the difficulty in adopting new technology. Manual data capturing and manual updating programmes have resulted in excessive numbers of time-consuming procedures,’ the survey details revealed.

‘Inadequate attention has been paid to training manufacturers on emerging trends such as ‘quick response,’ ‘mass customisation,’ ‘demand activated manufacturing’ and digital printing,’ the survey results showed.

‘Sri Lankan factories need to place an increasing priority in identifying new systems that can provide a competitive advantage,’ the study said. Sri Lankan factories were not benefiting from the adoption of ERP (enterprise resource planning), MRP (materials requirement planning) i&ii and shop floor control and activity-based costing systems.

‘The industry is just beginning to recognise the importance of implementing CAD/CAM and pre-determined time systems (GSD),’ the study had further revealed.

75% of the 21 factories visited had implemented CAD/CAM, while 65% had implemented resource planning systems. 45% of the companies were using marker-making software to reduce fabric wastage, while 70% were using pre-determined time systems such as GSD.

However, the majority of the 21 factories visited had focused on implementing more traditional information systems and procedures.

The consultants in their report further said that the systems adopted may not be appropriate for supply-chain needs. Supply chain integration offers potential opportunities for Sri Lankan garment factories to reduce working capital tied up in inventory and stock handling, improve efficiency, reduce procurement costs and improve profitability. Suppliers and manufacturers can benefit from opportunities through supply chain integration, ‘redefined’ business processes, EDI, scanning and ‘cross docking’ and extranet systems.

The study further said that the procurement process was traditionally characterised by a reliance on paper-based, telephone and fax transactions that contribute to high overhead, labour and processing costs.

The study also showed that nearly half the companies (49%) were running at 80% production capacity or higher. A further 31% of participating companies were running at 60% to 80% capacity, while less than a fifth (19%) of the surveyed companies were running at under 60% capacity. The study further revealed that almost all the companies surveyed (90%) were using cotton products when manufacturing garments.

Meanwhile, 83% of them were using a synthetic and cotton fabric combination, while 78% were using synthetic fabric ‘alone.’ 21% of these were using wool products in their garment manufacturing, while another 11% were using other fabrics such as fleece, linen, silk, rayon, denim and fur.