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Through The Nike, You Don'T Know The King Of The OEM.

2019/11/22 13:38:00 0


Manufacturing industry has always been considered as a high investment, low profit and heavy asset industry, and the foundry business is at the bottom of the despising chain of manufacturing industry. However, there is such a clothing foundry enterprise, gross profit margin is 31.6%, net profit margin 21.4%, compared with Tencent, China's most profitable company, 2018 gross profit margin 45%, net profit margin 26%. Profitability is directly related to Tencent. How did it do it?

  Hidden champion behind giants

I believe that many people wear Nike, Adidas, Puma or UNIQLO brand clothing. If you pay attention to the tag, you will find that the name of a company often appears: Ningbo Shenzhou Knitting Co., Ltd. This is not a small local factory. Shenzhou International is the king of the invisible apparel industry.

It is China's largest knitting export enterprise, and has established a long-term and stable cooperative relationship with many famous international clothing brands. The order volume occupies 12%/14%/30%/14% of sports brand Nike, Adidas, Puma and leisure brand UNIQLO. The average annual production exceeds 300 million garments, including the vast majority of markets in the Asia Pacific and Europe and the United States.

See here, you may think, it sounds like Foxconn in the clothing industry.

No! Although the clothing industry always gives people the impression of labor-intensive, thin profits, and "800 million shirts can not replace one plane", but in terms of profit margins, Shenzhou is more like the Tencent in the clothing industry.

In 2018, Shenzhou International had a gross profit margin of 31.6% and a net profit margin of 21.4%. Tencent, one of China's most profitable companies, had a gross profit margin of 45% in 2018 and a net profit margin of 26%.

This data is far outperforming the industry average. In 2018, the gross profit margin of Enterprises above Designated Size in China's apparel and textile industry was 15.1%, with a net profit margin of 5.89%. The reputation of the industrial rich alliance, which is Foxconn's A share listed company, has a net profit margin of only 4%.

To do foundry, you can also achieve a profit margin comparable to that of Tencent. So how did Shenzhou International achieve this?

Cost control creates profit miracle for OEM Enterprises

We know that profit = selling price - total cost. To increase profitability, either raise prices or reduce costs. Generally, companies often use Kung Fu to "raise the selling price". After all, the price increases are easy to reduce and the cost is difficult. Therefore, the enterprises simply shift the cost pressure to the downstream consumers.

Shenzhou International is hard to do. The sales price of Shenzhou in each link basically keeps pace with the market. When the cost of raw materials fluctuates, even Shenzhou also needs to negotiate with customers about the price increase of products. That is to say, the higher profitability of Shen Zhou compared with its peers (apparel OEM) is not its high price, but its excellent cost control ability.

When it comes to cost control, the first thing people think of in manufacturing is the cost control of raw materials. But for Shen Zhou, the most important raw materials are cotton and yarn. The price fluctuations of these two kinds of raw materials are very small. It is very difficult to establish absolute advantage on the cost of raw materials by negotiation.

So where does Shenzhou reduce its cost?

   Vertical integration of the whole industry chain -- maximizing the cost reduction space

Since it is to reduce costs, first of all, there should be enough room for "maneuver". This is an obvious reason, for example, the cost of yarn is 3 yuan, and the fabric can be sold for 5 yuan. In this part, it is no better than 2 yuan. If the company does not only make fabrics, but also make the following cuts and ready-made clothes, the final garment price will be 10 yuan, so that the enterprise can have 7 yuan of cost space to operate. This example explains the so-called "vertical integration of the whole industry chain".

"7 yuan" of the room for maneuver, Shenzhou next step is to dig profits from here. First, let's take a look at the manufacturing process of traditional garments.

It can be seen that the whole manufacturing process is extremely tedious. Especially when an enterprise is only responsible for one or a few links, it will have to purchase and negotiate with other suppliers, which will greatly extend the whole manufacturing cycle.

This is the practice of most of the small and medium enterprises in the apparel industry. This mode completes the core process for at least 3 months. The integration mode of Shenzhou whole industry chain under vertical integration can shorten the construction period to 1.5 months.

What does shortening the duration mean?

It is 3 months for a competitor to complete a batch of orders with the same manpower input, while my company only needs 1.5 months. In theory, my labour productivity is 2 times that of my competitors. Now, there is a new question: why can the integration mode shorten the construction period by half?

The fundamental reason is fabric research and development.

People assume that garment foundry is a labor-intensive industry, but this cognition is not entirely correct. To be precise, garment manufacturing is a labor-intensive industry, and weaving of fabrics is a technology intensive industry.

That is to say, there is no technical barrier to this part of the garment industry, and the technical barriers to this part of the fabric are very high.

If a foundry enterprise pursuing the vertical integration mode of the whole industry chain can not independently develop fabrics, it will be very difficult to bring into full play the advantages of integrated manufacturing.

Purchasing fabrics from third parties will greatly increase the cost, while purchasing, negotiating and waiting time will further extend the construction period.

Back to the last picture, it can be seen clearly that the shortened period of construction of Shenzhou comes from the links of fabric production, procurement and manufacturing, and it has already done the research and development of fabrics independently. In fact, Shen Zhou not only has its own fabrics developed independently, but also supplies all of its fabrics for internal use. This further compresses the survival space of enterprises without fabric research and development capability.

Shenzhou's advantages in fabric research and development are not completed overnight. From 2013 to 2016, Shenzhou only had 69 patents related to fabrics. In addition, it invested 500 million yuan to set up two world-class R & D centers, developing more than 1000 new fabrics every year.

Shen Zhou's advantages in fabric research and development have greatly promoted the cost control of enterprises. In addition, the integrated manufacturing mode has some advantages which are easily overlooked.

1. the integrated manufacturing mode often adopts the integrated manufacturing park for production. This also means that the logistics cost and transportation time between each link have been knocked down and further reduced the cost.

2. brand companies (such as Nike) often have to supervise all aspects of traditional OEM enterprises, which also improves the supply chain management cost of OEM enterprises, and at the same time delays construction time. But for Shenzhou enterprises, integrated manufacturing mode + fabric ODM (fabric independent research and development, non subcontracting) mode no longer requires brand supervision, thereby reducing the cost of the whole chain.

   Technological transformation to increase labour productivity

If we make a simple segmentation of Shenzhou's integrated manufacturing mode, we can divide it into two parts. One is fabric research and development, the two is garment manufacturing.

The former includes research and development of raw material formulation design, fabric structure and dyeing and finishing. This part is characterized by technology intensive, and does not require much manpower, mainly by machine. The latter, also known as garment manufacturing, mainly includes weaving, cutting and garment making. This part is characterized by labor intensive.

Simply speaking, we can do all kinds of garment making, and whose efficiency is high.

The meaning of efficiency is good and fast. Product qualification rate is high, use time is little, labor productivity continues to rise, this is another dimension of reducing cost. If we want to do this, we can only rely on the hands of workers. We must rely on the help of machinery and equipment.

Therefore, Shenzhou has also invested continuously in the technological transformation of the production line.

Before 2000, 90% of the company's profits were invested in technological transformation. In 2005, when the company went public, it still did not stop the pace of technological input. More than 900 million Hong Kong dollars for listing and financing are all used to upgrade equipment.

In the 10 years from 2007 to 2017, the proportion of capital expenditure per year accounted for more than 40% of the net profit of the year. In the ten years, capital expenditure was close to 9 billion 500 million. Most of the money was invested in equipment and technological transformation.

As of 2017, Shenzhou had 188 patents, of which 91 were product fabric development, 97 were technology improvement and equipment development.

What does this series of investment bring to the company? The labor productivity has been greatly improved.

From 2013 to 2017, the net profit per person increased from 32 thousand yuan to 49 thousand yuan per year. If the time is further extended, from 2006 to 2018, the per capita output of the company has doubled, from 104 thousand yuan to 230 thousand yuan per person.

Shen Zhou is quite pragmatic in terms of technical input in production line. According to Ma Jianrong, chairman of the board of directors, Shen Zhou uses three main purposes of technological innovation: efficient, comfortable and skilled.

What is "de skill"? It is to minimize the tedious operation of the production line staff, and make complex actions to the machine, not only to reduce the error rate, but also to shorten the training time. Through modular technology application, the training time of new employees has been shortened from several months to several hours. Training time is also a cost.

It is not enough to increase labor productivity alone. There are also some invisible costs that are not easy to detect, such as management costs.

Shenzhou International has more than 8 people, factories in mainland China and Southeast Asia in Vietnam, Kampuchea and other places. How can management maximize the cost of management?

We propose a way of thinking: which costs are directly related to the 80 thousand employees?

The first is the wastage rate, which is related to the cost of recruitment. The cost of recruiting a worker ranges from several hundred to several thousand. In addition, frequent recruitment will also affect the efficiency of production lines.

Secondly, as a manufacturing enterprise, the injury rate of employees will further improve the management cost, because the injury is to be absent from work and reduce labor productivity.

On these two indicators, Shenzhou International did so.

1. use automation equipment as far as possible, reduce the tedious degree of workers' work, and reduce excessive dependence on manpower. This reduces the impact of brain drain on production efficiency.

2. in Shenzhou's domestic factory, the company promised to work for 10 years to award employees' property rights to employees. This helps employees stay in the company for a long time.

3. in Kampuchea, provide staff with working meals. Although providing meals at home is not new, Shenzhou is the first Chinese company to provide working meals in Kampuchea. In addition, Shenzhou is the only Chinese enterprise that provides air-conditioning plants in Vietnam. These measures greatly reduce the turnover rate of employees.

While reducing staff wastage, fine management training and new equipment are also used to keep the injury rate at a very low level. To make a comparison, in 2016, the injury rate of Adidas's own factory, one of Shenzhou's main customers, was 1.5%, compared with 0.11% in Shenzhou.

   Low cost is "provincial".

The meticulous production and management of Shenzhou has penetrated into many details.

In the manufacturing industry, water, electricity, gas and other energy consumption is enormous. These costs will be included in different cost items according to the place of occurrence. For example, the energy consumption of the workshop is classified into the manufacturing cost, and the office energy consumption is classified into the management cost.

Many enterprises regard energy conservation and emission reduction as the burden of enterprises. In fact, if energy conservation is done well, they can save a lot of money for enterprises.

In 2006-2017 years, we can see that the energy consumption of Shenzhou's 10000 yuan output value is also declining.

And every time the coal consumption is reduced, it will be reflected in the company's net profit margin.

In 2018, the heat recovery system of Shenzhou boiler produced 33 thousand tons of steam for production and use, which saved 755 thousand and 700 US dollars.

In 2018, the total consumption of biomass and coal was reduced by 17% because of the use of more efficient and cleaner natural gas boilers. Not only is heat recovery, printing and dyeing water recycling, and other resources that can be recycled, Shenzhou is not wasted.

Shen Zhou even hired two academicians, set up academician workstations, and strive to achieve the "2025 zero emissions" plan.

Summary and inspiration

As a typical manufacturing company, and in the manufacturing industry's disadvantage position - the foundry industry, Shenzhou International has gone out of a different way - through the fine cost management, let the enterprise have the Tencent's profitability.

In retrospect, it mainly adopts the following methods:

1. vertical integration of the whole industry chain to expand the space of cost diversion

2. firmly grasp the core link -- fabric research and development

3. lean production management and continuously improve employee productivity.

4., pursue "zero" waste, recycle and reuse, and reuse.

Putting these points together is a concept: lean production.

When it comes to lean production, it always reminds people of the "TOYOTA model". In fact, lean production is the simplification and summary of the TOYOTA model.

In any form, the purpose is similar. They are all through the system structure, personnel organization, operation mode and other aspects of change, to minimize the production process of all useless and unnecessary things, to pursue the best production efficiency.

If it is literal to lean production, it does not sound sexy. For example, the pursuit of seven "zero": "zero" conversion labor hours waste, "zero" inventory, "zero" waste, "zero" bad, "zero" failure, "zero" stagnation, "zero" disaster.

These requirements are not new. Why do domestic enterprises learn for decades? Some enterprises have learned, such as Shenzhou International and Fuyao Glass, most enterprises still fail to learn. What is the underlying reason behind this?

In an interview with CCTV reporter, Ma Jianrong said: "I am a fool, so I only do one thing from a cotton thread to a piece of clothing, but I believe that with our team of more than 80 thousand people in Shenzhou, we will be able to do well the dress and textile business."

Cao Dewang of Fuyao Glass also said that before he was advised to do finance and real estate, he refused to do everything. He had to concentrate on making a piece of glass.

What kind of philosophical thinking is this?

It is said that Zeng Guofan fought in six words: hard walled villages, fighting wars. "Hard Walled Village" means digging trenches, building high walls, stabilizing camp and sticking to it. When the enemy strikes, I repel it, and then go to the stockade without coming out and actively defend. "Fight a war" means not to attack, but to keep the enemy trapped. Although the Taiping army of the late Qing Dynasty fought bravery and bravery, there was no way to encounter this kind of tactics.

In fact, through the observation and study of lean production and Shenzhou International and Fuyao Glass, you will find that there is Zeng Guofan style philosophy behind them. It is simple to say that if you want to achieve great success, you have to do some stupid work.

In recent years, the financial industry has overcapacity, struggling in the throes of deleveraging, and real estate has gone through the golden age. For enterprises, the most terrible thing is not omission, but to play smart and deliberately give oneself a kind of illusion.

Source: Chaos University Author: Michael Liu

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