Cotton Plant Bulb
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Economic Integration

Improved Costings Help Boost US Yarn Capacity

Industrial Capacity

Gradually improving economics, in terms of input costs and changing consumer interests, have prompted a trio of textile manufacturers to announce plains to expand yarn spinning capacity in the US.

Parkdale Mills, the nation’s largest yarn producer, announced earlier this month plans to invest US$85 million in an expansion that will create 210 jobs. The Gastonia, North Carolina-based company is converting a 750,000-square-foot Georgia plant to produce a polyester-cotton blended yarn for high quality active wear sold in sports stores. The facility currently produces 100 percent cotton T-shirts.

Canadian and Indian yarn spinners also have announced plans to boost production capacity in the southern US.

Indian textile company Shrivallabh Pittie Group is planning to build its first US yarn manufacturing facility in Georgia.  The 115-year-old company headquartered in Mumbai, India, will invest US$70 million to build the spinning mill, which will employ 250 new workers.  The plant will manufacture a range of different counts of carded cotton yarn and will be designed to be able to shift production in order to meet market demand. 

“We are very excited about this project, which is the biggest single investment in US cotton yarn sector in decades,” said the chairman of Shrivallabh Pittie Group, Vinod Pittie, in a statement. “We believe there is a significant market opportunity for yarn manufacturing in Georgia due to a skilled local workforce, proximity to high-quality cotton fiber, the economical supply and reliability of power and world-class infrastructure to international markets.”

Meantime, Gildan Activewear Inc. of Montreal, Canada, has announced it is currently evaluating potential sites in the southern US for the construction of two additional yarn-spinning facilities, “to support its projected sales growth and further reinforce its position as a global low-cost manufacturer,” the company said in a statement. The textile manufacturer already operates open-end yarn spinning facilities in North Carolina and Georgia.

The company said it expects to invest more than US$200 million during fiscal 2014 and 2015 for the construction and opening of the new facilities. The latest investment is in addition to plans announced almost a year ago for a new ring-spun yarn manufacturing facility also in North Carolina.  The company’s total investment in US yarn-spinning capability should add more than 700 jobs to the workforce.

Although the US began losing it world share of yarn production in the mid-1990s to lower cost manufactures in Asia and the the Indian subcontinent, a synopsis of a study reported by Textile World suggests that during the first decade of the millennium US manufacturers have slowly become more cost competitive in ring and rotor spinning.  Moreover, the study indicated that US yarn spinners are now in a position to benefit from increases in international fiber prices.

“This would seem to open up the opportunity for the United States to reclaim some of its lost manufacturing capacity in the spinning area because the cost of producing yarns in the United States is lower than for most competitors,” the Textile World report said. “This advantage would also carry with it the benefits of higher quality, shorter time to market and potential for collaborative arrangements with fabric producers.”

American companies already have certain location advantages, and any cost advantage gives US customers even less reason to import textile products, said the article. Opportunity is coming to the United States because worldwide costs are rising at a faster rate. 

Textile World said the study broke down the cost of spinning in nine major countries into the cost components of raw material, interest, depreciation, auxiliary material, power, labor and waste. 

The study was conducted by Dr. Brian John Hamilton, product developer - Domestic Lifestyle at New Balance Athletic Shoe Inc., Boston, Massachusetts; and Dr. William Oxenham, Associate Dean, and Dr. Kristin Thoney, Associate Professor, at North Carolina State University's College of Textiles in Raleigh, North Carolina. 


 


TPP Trade Agreement Still Thought Possible By Year’s End

Trade Agreements

Although leaders of the 12 countries comprising in the Trans Pacific Partnership (TPP) multi-lateral trade negotiations believe they are on target for a year-end completion, there appears much to be done in the next two months for a successful conclusion.

In a joint statement issued earlier this month, leaders of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam said significant progress has been made in recent months on access to goods, services, investment, financial services, government procurement, and temporary entry markets.  The 12 account for approximately 40 percent of the world’s trade.

Among the issues yet to be resolved to the satisfaction of segments of the US textile industry and members of Congress, are the potential for currency manipulation by members of the TPP and ‘yarn forward’ rules of origin.

Bi-partisan members of the US Senate and House of Representatives, in correspondence to the Obama Administration, have expressed concern that US companies will suffer, if “strong and enforceable currency manipulation disciplines” are not made a part of the final pact “to ensure these agreements meet the ‘high standards’ our country, America's companies, and America's workers deserve,” a Senate letter said to Secretary of Treasury Jack Lew and US Trade Representative Michael Froman.

“ Undervalued exchange rates allow other countries to boost exports of their products and to impede exports of ours. They also contribute to trade imbalances and market access limitations that make it difficult for US companies to compete in foreign countries,” House members said in a letter to the President.

Meantime, much of the US textile industry remains at odds with retailers and Vietnam over textile rules in the trade agreement, particularly with regard to the strict application of the ‘yarn forward’ rule of origin.  The industry insists on a yarn forward rule defined as all yarn, fabric, and assembly production stages to be in a TPP country in order for a textile or apparel product to be eligible for duty-free treatment, unless an agreed exception applies.  Vietnam and some US retailers maintain the language is too restrictive and have called for more sourcing flexibility.

The US Trade Representative, in correspondence to Congress, has said the administration is working toward a high standard rule of origin, with the yarn forward approach at its core.  He said, however, that consideration is being given to offering limited exceptions for certain categories, where there production in TPP countries falls short of demand.  Depending on the category, the exception could be short term or permanent.  


 


Concern Growing Over Impending Demographic Changes in China

A pair of reports from China indicate a rapid change in demographics, which pose an unprecedented challenge to the government and portend a fundamental change in the country’s economic metric. 

Summation of an analysis by Stratfor Forecasting, Inc., an Austin, Texas-based consulting organization that provides strategic intelligence on global business, economic, security and geopolitical affairs, suggests:

Chinese society is on the verge of a structural transformation even more profound than the long and painful project of economic rebalancing, which the Communist Party is anxiously beginning to undertake. China's population is aging more rapidly than it is getting rich, giving rise to a great demographic imbalance with important implications for the Party's efforts to transform the Chinese economy and preserve its own power in the coming decade.”

The analysis focused on a Ministry of Education report about changing demographics and an article in government-run media warning of a threat to social security, based on a projected sharp increase in population age.

The Ministry of Education reported that primary school closures exceeded 13,600 nationally in 2012, following a more than 25 percent drop in the school-age population, ranging between around six years and 12 years.

“The ministry looked to China's dramatically shifting demographic profile to explain the widespread closures, noting that between 2011 and 2012 alone the number of elementary-aged students fell from nearly 200 million to 145 million,” the Stratfor analysis said. “It also confirmed that between 2002 and 2012, the number of students enrolled in primary schools dropped by nearly 20 percent.” 

The analytical firm noted that the government report immediately preceded a warning in People's Daily, the government’s official newspaper, that China's faces a social security crisis because the retirement-age population is forecast to rise from 194 million in 2012 to 300 million by 2025.

“The Communist Party is already considering measures to counter, or at least limit the short-term impact of, demographic changes in Chinese society. On one hand, the Party continues to flirt with relaxing the one-child policy in an effort to boost fertility rates, most recently with a potential pilot program in Shanghai that would allow only-child couples to have another child. On the other hand, the government has proposed raising the national retirement age from 55 to 60 for women and from 60 to 65 for men. If implemented, this would bring China's retirement policy more in line with international norms and delay some of the financial and other social pressures created by the ballooning number of retirees dependent on government pensions and the care of their children.” said Stratfor.

However, such a drastic change to the one-child policy or the national retirement age likely would provide only a brief respite to the problem of changing demographics because there is growing doubt, for instance, that the one-child policy has any appreciable impact on population growth in China. Stratfor said that China's low fertility rate (1.4 children per mother, compared with an average of 1.7 in developed countries and 2.0 in the United States) is at least as much a reflection of urban couples' struggles to cope with the rapidly rising cost of living and education in many Chinese cities as it is of government enforcement of the policy.

Moreover, it said an increase in the retirement age by five years will provide just a brief delay the inevitable, and is sure to meet strong protest from the professional ranks. In adjusting the retirement age, the government also risks aggravating an employment crisis among the rapidly growing population of unemployed college graduates in cities, many of whom are looking to filter into the employment ladder as elderly workers exit the workforce, the Stratfor analysis contends. In this context, the Communist Party must weigh policy adjustments carefully -- any change it makes in one area is likely to create new tensions elsewhere in the workforce.

“The crux of China's demographic challenge lies in the fact that unlike Japan, South Korea, the United States and Western European countries, China will grow old before the majority of its population is anywhere near middle-income status, let alone rich. This is historically unprecedented, and its implications are made all the more unpredictable by its coinciding with the Chinese economy's forced shift away from an economic model grounded in the exploitation of inexhaustibly cheap labor toward one in which young Chinese will be expected to sustain the country's economic life as workers and as consumers. A temporary reprieve from the demographic crisis will be difficult but possible with reform, but a long-term solution is far out of reach.”

Questions:  What are some of the broader economic implications of the Stratfor comments?

What is the impact on China’s labor force during the next 10 to 20 years?

Will consumer demand, in consequence, decline, or will higher wages (that already have risen in recent years) offset the impact of a smaller workforce and maintain demand?


 


US/Vietnam Divided Over Textiles In TTP Talks

Trade Agreements

Negotiators in the  most recent round of Trans Pacific Partnership (TPP) talks turned greater attention to the textile trade, particularly the rule of origin, and it is clear that broad differences remain between the US and Vietnam.  The 17th round concluded last month in Lima, Peru.

Vietnam has pushed the US during previous sessions to adopt a more liberal stance in the trade framework by granting a generous list of products considered to be in “short supply” and therefore exempt from the yarn forward rule of origin.  Apparel items made up of textile products in “short supply” would be eligible for duty-free shipment regardless of individual component’s country of origin.

Under a yarn forward rule of origin, which is the prevailing rule in virtually all US free trade agreements, an apparel product must contain yarn produced in the United States or the region, the National Cotton Council of America noted in a recent report to its membership.

“The US textile industry has established a significant export business in the Western Hemisphere based on the yarn forward rule of origin. If the TPP includes a more lenient rule, Vietnam will be able to utilize Chinese-made components in products that are granted preferential access, and those products will displace products manufactured in the United States and the Western Hemisphere using US and regional yarns,” the Council contends, insisting that the result will be a substantial reduction in cotton consumption in the United States and Western Hemisphere and job losses to Asia.

In Lima, the US team tabled a list of 170 items the US would be willing to designate in “short supply”, a number which dismayed the US textile industry and Vietnam for opposite reasons.

The National Council of Textile Organizations (NCTO), describes the 170 items as a much larger list than the industry had hoped for and noted that 81 percent of the items on the list drew objection by at least one, and often several, US textile mills when it was circulated for review. 

Moreover, “if the size of the list was an attempt to bring Vietnam over to a serious negotiating position, it did not appear to succeed,” says NCTO. “During meetings between the United States and the Vietnamese government and Vietnamese industry, the Vietnamese said they were very disappointed in the list and said it represented only 1/10th of what they were looking for.”

Indeed, Mr. Nguyen Vu Tung, deputy chief of mission at Vietnam’s Washington embassy told a panel at The Woodrow Wilson Center, a foreign policy think tank based in Washington, DC, that the US offer is too small, noting is covers only about 5 percent of Vietnam’s apparel export market.

If there is no compromise on the number of “short supply” items agreed to by the US, Mr. Tung said: “I'm really concerned about the prospect of Vietnam to conclude the successful negotiation of TPP." 

The 18th round is scheduled July 15-25 in Kuala Lumpur, Malaysia, at which time all countries will have an opportunity to add textile products to the “short supply” list, a phase NCTO has called much more serious and “one which could be very damaging to the domestic industry.”


 


USDA Says No Research/Promotion Referendum Needed

Cotton Supply & Demand

A five-year review of the 1990 amendments to the Cotton Research and Promotion Act by the US Department of Agriculture’s Agricultural Marketing Service (AMS) has concluded that the amendments continue to work successfully and as they were designed.  Consequently, Secretary of Agriculture Tom Vilsack has decided that a referendum for cotton producers and cotton-product importers, regarding the continuation of the amendments, once again will not be necessary.

The amendments made US cotton grower participation in the Cotton Research and Promotion Program mandatory and added importer representation on the Cotton Board. Four reviews have been conducted by the secretary of agriculture since enactment of the amendments, and each review has concluded that a referendum was not needed.

A statement by the Cotton Board explained that two major changes to the research and promotion program made by these amendments were the elimination of producer assessment refunds and the establishment of an assessment on imported cotton and the cotton content of imported products.   

The Cotton Board is a quasi-governmental, non-profit organization that administrates the Cotton Research & Promotion Program. The program is funded by US cotton producers and importers through a cotton check-off.  Global research and promotion activities are conducted by Cotton Incorporated, the Cotton Board’s sole contracting organization, to increase the demand for cotton and improve its market position.

In its announcement, the USDA pointed to a general consensus within the cotton industry that the Cotton Research and Promotion Program and the 1990 amendments are operating as intended. The announcement noted that written comments, economic data, and results from independent evaluations supported this conclusion.

“A self-funded research and promotion effort of this size and scope cannot be carried out by individual cotton producers and that’s the beauty and value of this program,” said Kevin Rogers, Cotton Board Chairman and Arizona cotton producer. “Overall funding for the program has increased substantially since the 1990 amendments made it mandatory and extended its application to US cotton importers. The program now delivers significant benefits directly to those producers and importers who provide funding and is widely supported by its stakeholders. Research and promotion programs are the kind of public/private partnership that works for everyone involved.”

The Cotton Board announcement said that the most recent independent economic analysis, conducted by Forecasting and Business Analytics, LLC in 2011, concluded the program generates significant positive returns for US cotton producers and importers of cotton products, as well as generating benefits for US taxpayers. Additional findings include: 

  •  US cotton farm prices averaged 5.4 cents per-pound higher; 
  •  annual world consumer demand for cotton was higher by 2 million bales per year; and
  •  US cotton production averaged 500,000 bales higher.

 "The program is clearly an asset to organizations importing finished cotton goods into the US as confirmed by the economic analysis indicating that profits of U.S. importers increased by an average of $900 million a year thanks to program activities,” said Gary Ross, Vice President Fashion and Home Supply Chain for Avon Products and Vice Chairman of the Cotton Board. “In fact, between 1992 and 2010, the program generated nearly an $11 return (after taxes) for each dollar invested by U.S. importers of cotton products.”

The Forecasting and Business Analytics, LLC economic analysis is available at http://www.cottonboard.org/Economic Effectiveness Study April 2011.pdf

The Cotton Board noted that even though the USDA found no compelling reason to conduct a referendum, the law requires the secretary of agriculture to conduct a sign-up among eligible cotton producers and importers. If the USDA receives requests from 4,622 producers or importers during the sign-up, (which represents 10 percent of the number of cotton producers and importers voting in the most recent referendum in July, 1991) with not more than 20 percent of such requests from producers in one state or importers of cotton, then the secretary is required to conduct a referendum. Additional information will be publicized prior to the beginning of the sign-up period.  In the three previous sign-ups, the statutory minimum 10 percent has not been reached.


 


China Ag Policy Under Review in US

The U.S.-China Economic and Security Review Commission met last week in Ames, Iowa, to review China’s agriculture policy and US access to the country’s domestic markets.  Individuals testifying before the commission covered a broad range of topics covering crops and livestock, bilateral trade (including barriers), intellectual property and value-added production.

Dr, Mark Lange, president and chief executive officer of the National Cotton Council of America, reviewed the current situation regarding cotton trade with China and the impact of China’s cotton policies.

The importance to US cotton of open and transparent market access was stressed, and the cotton executive noted that China stands in “stark contrast” to other cotton-importing countries by closely controlling its imports. 

“Export markets represent the primary outlet for US cotton production with approximately 75 percent moving into international trade channels,” he said. “In most key importing countries, raw cotton faces little if any applied tariff and no quota restrictions. However, an important exception to the relatively open trading situation is the tightly monitored access allowed by China.”

His testimony described China’s current policies for supporting prices and building government reserves. In calendar years 2010 and 2011, world cotton prices experienced a period of extended strengthening and increased volatility. Consequently: 

“Mills in many countries became highly concerned with cotton availability,” said Dr. Lange. “India went so far as to impose a ban on cotton and cotton yarn exports. China saw their total year-end cotton stocks fall to the lowest level in 20 years, just over 10 million bales.”

In September, 2011, reacting to concerns about reserves and prices for growers, China initiated a policy of purchasing cotton and putting it into the national reserve at a level of 19,800 yuan per ton, or US$1.40 per pound at current exchange rates, he said. Moreover, China continues to operate the same reserve policy for the 2012 crop at a procurement price of 20,400 yuan per ton, a 3 percent increase from the 2011 level, and by the end of the current marketing year, the country could have more than 33 million bales in the government stockpile.

Meantime, the world cotton price, reflected by the Cotlook “A” Index, has averaged 86 cents per pound in the most recent 12-month period, Dr. Lange noted. By purchasing domestic production at prices 40 to 50 cents above world prices, China insures that internal prices are well above world prices, causing domestically-produced yarn to be uncompetitive. 

“China’s current policy, while supporting prices received by farmers, acts as a tax on textile mills and has furthered the shift to manmade fiber,” he contended.  “While China’s policy is providing short-term support to the cotton market, there is increasing evidence that the policy will provide a longer-term drag on cotton demand in China.”

Dr. Lange insisted that by supporting cotton prices at levels well above manmade fiber, China’s policies are having a detrimental effect on demand, and cotton is losing market share to polyester and other synthetic fibers. 

“The US cotton industry remains very concerned with the lack of transparency in Chinese cotton policy. What government reserve level constitutes sufficient stocks? Do Chinese officials monitor and report cotton stocks not held in the government reserves? Are Chinese mills bound to any set purchase pattern between domestic cotton and imported cotton? How are decisions on the quantity of import licenses beyond the TRQ to be made?” he asked. 

“Uncertainty with Chinese policy has the entire cotton world on edge,” he cautioned the Commission.

The U.S.-China Economic and Security Review Commission was created by the US Congress in 2000 with a legislative mandate to monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action.

Dr. Lange’s entire testimony may be found here.

Other testimony man be found here at the Commission’s website.

 

Questions:  Are China’s longer term cotton interests being best served by its current procurement policy?

What is the potential impact on other cotton producing and consuming countries?

 


Value Added for Select Apparel Imports Exceeds 70 Percent

Supply Chain

A report issued by a Seattle, Washington-based international consulting firm reveals that supply chain contributions added almost three-fourths to the value of a group of apparel categories imported by US retailers, which supports the case for expanding importation of finished goods.  

The study was commissioned by the TPP (Trans-Pacific Partnership) Apparel Coalition, which is made up of five organizations, representing US retailers, apparel brands, apparel manufacturers, and importers.

“American consumers and policymakers tend to look at clothes and finished products and put them into one of two categories, either imported or Made in America,” said Moongate Associates Managing Partner Susan Hester, Ph.D., the report’s lead author.

“This approach is outdated and inaccurate,” she contended. “The study we published indicates US workers are extremely valuable in delivering affordable clothes to American families.”

Data were gathered on five specific products: men’s and women’s cotton knit shirts, men’s and women’s woven cotton trousers (included denim and non-denim), and women’s man- made fiber outerwear (including water-resistant and non-water-resistant).  These products were then sub-divided into 20 company-product combinations.

Study participants included seven US-headquartered apparel and retail companies that employ more than 500,000 people globally and 350,000 in the United States. Combined retail sales in 2011 totaled more than $92 billion. US apparel retail sales totaled more than $270 billion in 2011.

Principal Findings:

-- Today’s global value chains utilized by US apparel brands, manufacturers, and retailers include a full range of activities that firms and workers contribute to bring a product from its conception to the consumer. The study found that the US value-added, as a percentage of the final retail price for a variety of product categories – from shirts to pants in a variety of price points– averaged 70.3 percent, meaning 70.3 percent of the retail value of a garment is directly related to business activities executed by US workers.

-- US value-added specifically is from both blue collar and white collar workers in product design, research and development, transportation, logistics, distribution, product safety compliance, customs compliance, quality assurance, social compliance, environmental monitoring, labor compliance, legal support, marketing, merchandising, and sales.

-- An analysis of publicly available data for the respondent companies revealed single digit profit margins for all companies and a group average of four percent in 2011. 

-- US-based activities related to selling products supported 2.6 million US workers in 2011 and total US apparel employment from the beginning of the value chain through sales to the consumer totaled 2.9 million US workers during the same year.

General Conclusions:

-- The positive ratio of US-value-added to foreign-value-added translates directly into US jobs. These jobs are primarily medium- to high-skilled positions, and many are professional and managerial. 

-- Removing tariffs under trade agreements would lower prices to consumers, increase demand, and create jobs and profits all along the apparel global value chain, especially in the United States.

-- Efforts to support these global strategies by American apparel companies will contribute to their success and growth, and these will in turn lead to a more competitive marketplace that will not only benefit the US labor force, but also create new high-quality jobs for workers throughout the global value chain.

The entire report may be found here.


 


USTR Urged to Hold Firm on Yarn Rule, Japan to Join Talks

Trade Agreements

With the latest round of Trans Pacific Partnership (TPP) trade negotiations scheduled to begin on May 15 in Lima, Peru, the National Cotton Council (NCC) and the National Council of Textile Organizations are pressing members of the US House of Representatives to cosign a letter to Acting US Trade Representative Demetrios Marantis that provides specific guidance to US negotiators on key provisions the two groups say must be included in any TPP agreement sent to Congress for approval.

The House letter to the acting US trade representative details reservations about the Vietnamese government’s position regarding the textile negotiations and the impact it could have on the US textile industry’s suppliers and its export partners, and puts textiles and apparel among the three most difficult negotiating chapters in the TPP deliberations.

“After 16 rounds of negotiations, Vietnam is seeking to replace long standing textile rules that have been included in previous free trade agreements with a new rule that would allow Vietnam to source textiles from China and export garments and finished goods to the United States duty free,” says the letter.  “A recent study concluded that if adopted as part of the TPP, this rule would cost more than 500,000 US textile and related jobs and put more than 1.5 million jobs in the textile and apparel supply chains in the Western Hemisphere and Africa in jeopardy.

“We strongly urge the United States Trade Representative (USTR) to maintain its current position for strong textile rules which include the “yarn forward” rule-of-origin,” which would require all the materials in an item to originate and be assembled in a TPP country in order to receive the preferential treatment. 

“From NAFTA to the recently implemented Korean free trade pact, the yarn-forward rule has been an essential component of every US free trade agreement over the past 25 years. This rule has a proven track record of job creation in the US and our free trade areas, and it is responsible for hundreds of thousands of US manufacturing workers and millions of direct and indirect jobs in countries south of our border and in Africa. Specifically, the yarn-forward rule is responsible for $25 billion of United States two-way trade with Mexico, Haiti, the CAFTA-DR countries and the Andean region.”

The letter to the USTR, along with one to House colleagues enlisting their support, may be found on the NCC’s website at www.cotton.org/issues/2013/nctotpp.cfm

Meantime, Japan is the 12th country set to join in the talks.  Governments of the other 11, the United States, Canada, Mexico, Peru, Chile, Vietnam, Malaysia, Singapore, Brunei, Australia and New Zealand, have finished bilateral discussions with Japan, and once various domestic measures have been satisfied in each member country, Japan will take a seat in the negotiations.

Through the TPP, the United States and other Asia-Pacific countries are working to negotiate a comprehensive regional trade agreement.  With Japan, the world's third-largest economy, the final TPP pact would cover nearly 40 percent of global economic output and one-third of all world trade.  

Trade ministers have set an ambitious goal of reaching a final agreement by the end of the year, but a number of issues remain outstanding, including intellectual property, competition/State-owned enterprises, and environment, as well as on the market access packages for goods, services/investment, and government procurement, according to the US Trade Representative’s office.


 


China’s Textile Mills See Continued Long-term Difficulties

Internal raw cotton price supports, along with the inability for small and medium size spinners to access annual import quotas for foreign cotton, continue to put the financial squeeze on Chinese textile mills.  Profit margins further narrowed last year, and outright losses have risen sharply.

Indeed, comment persists from observers in the global textile market that Chinese cotton consumption has peaked because of rising labor and energy costs and is destined to continue to fall over the longer term.

A report by the World Textile Information Network details monetary losses during the first 10 months of 2012, revealed in a survey by Henan provence’s statistical bureau, which also disclosed that the rate of loss accelerated.

“Similar reports have been forthcoming from a number of provinces in eastern China and cotton consumption has fallen from over 10.8 million tonnes during the 2009/10 international season (according to USDA figures), to a predicted level below 8.0 million tonnes during the current season,” said the WTIN report. “Many local cotton textile companies are understood to be shifting into alternative fibres such as polyester or moving their production bases overseas, attracted by unfettered access to raw cotton and lower labour costs.”

The entire report may be found here.

Questions:  What are the chances China may realistically experience a turnaround in the annual level of cotton consumption?

Other than domestic price support levels, labor and energy expenses, what other factors are adversely impacting the spinning sector?


 


Supply Management Tools Getting New Look

Supply Chain

Dramatic weather events, such as Hurricane Katrina hitting the south and the more-recent Hurricane Sandy striking the northeastern seaboard, coupled with volatile petroleum prices and other unforeseen events, have prompted supply chain managers across a wide range of industries to reexamine their strategies for ensuring a ready supply of production inputs, as well as the finished product.

Consequently, an old-line supply management technique, known as ‘just in case’, has begun to receive more attention.  Investopedia.com provides the following definition of just in case (JIC):

“An inventory strategy in which companies keep large inventories on hand. This type of inventory management strategy aims to minimize the probability that a product will sell out of stock. A company practicing this strategy essentially incurs higher inventory holding costs in return for a reduction in the number of sales lost due to sold out inventory.”

Investopedia says the JIC inventory strategy “is much different than the newer 'just in time' (JIT) strategy where companies try to minimize inventory costs by producing the goods after the orders have come in.  The older 'just in case' strategy is used by companies that have trouble forecasting demand. With this strategy, the companies have enough production material on hand to meet unexpected spikes in demand. Higher storage costs are the main disadvantage of this strategy.”

An inventory management blog post from Symbiant Technologies, a provider of enterprise resource planning and inventory management software and services to US distribution businesses, has noted that companies have begun to add additional distribution points to their supply chain strategy to afford themselves a better chance to handle distruptions.

The post points to a February New York Times article, which makes the point that although just in time inventory management is more cost efficient, it is vulnerable to supply chain disruptions.  Consequently, companies are trying to strike a balance between the two strategies in order to limit costs but still have enough inventory on hand to meet demand.

“With just-in-case distribution, the major change is that distributors have more distribution points, as opposed to just a single location,” the Symbiant blog post said. “It’s not so much about holding excess inventory, although they have more inventory on hand because it’s spread across multiple warehouses. They’re more diversified with that inventory so that if there’s a chaotic situation — say, gas prices go astronomically up or there’s a major power loss in a specific city — they can at least potentially rely on other sites to get the product out. In the older model, when one site went down, the whole product went down with it. Businesses are applying these disaster recovery principles not just toward computers and software, but also distribution concepts.”

Questions:  Where along the cotton/textile supply chain could a combination of JIC and JIT be helpful?

What factors, if any, along the chain would preclude the incorporation of both techniques?

Are there areas of the chain where one or the other tools simply better than the other?


 


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