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Yarn Market

Short, Quick Runs Dominate Production

Jim Phillips, Contributing Editor

A s the close of the third quarter draws near, spinners are beginning to ask themselves one oh-so-important question: Where are the holiday orders?

"Normally, we would have seen at least some begin to trickle in by now," said one Georgia specialty spinner. "But I expect it will be just like everything else this year - at the last minute, with very tight turnaround and delivery. Retailers still seem to be waiting until they just can't wait any longer to place orders."

Another spinner agreed: "In a typical year, we would already have some idea of what to expect. This year, who knows? We'll get what we get when we get it. Hopefully, it will be enough to keep us going.

"It's the same story most of the industry has been telling for the past six months. Orders are good for ring spinning, just short. "We're running flat out," one spinner noted, "but our pipeline is four to six weeks. It makes planning difficult. Two months from now, we may still be running flat out, or we may be idle. Fifteen years ago, I might have been running with a year's worth of orders in the pipeline. This time last year, the backlog could be measured at least a quarter out. Now we are down to just a few weeks, four or five at the most. The good thing is that these short orders keep coming in."

Another spinner said he also is running a full schedule, but with lots of small orders. "There are some days when we think things are going to turn around and we get a number of orders, and other days when the phone doesn't ring at all. There is just no long-term business out there right now. In normal times, 10,000 to 20,000 cases would be a good-sized order for us. Today, it's more like 5,000."

As is often the case, shorter orders are accompanied by very tight delivery schedules. "Our customers don't want much, and what they do want, they want yesterday," said one spinner. "We consider ourselves to be very good at customer service and quick turnaround, but we've had to turn down some orders based on what the customer wanted and when. It was high-volume work, but we just couldn't get it done quickly enough. It's painful in today's climate to turn down business."

Additionally, he said, small orders, combined with quick turns and fierce competition, have placed a burden on margins. "We had to cut some prices earlier in the year to get the business, and we haven't been able to get those prices back up. That's the standard today: customers want it cheap, and they want it quick."

Payment Cycle Issues

Placing additional burden on already razor-thin margins is the tendency of many customers to use a delayed payment cycle. "To me, it seems that many companies in Central America pay late, often 120 days or more out. We are carrying a lot of receivables, which creates a potentially difficult situation for us. Their problem is that they are waiting on the retailers to pay, and they have been slow as well. It's just a Catch 22."

Hope for improvement before the end of 2009 is waning, driven by continued reluctance of many consumers to resume their pre-recession spending habits. "Right now, we hope to see some movement in the first quarter of 2010. From what I hear, that's where everyone is looking for some possible relief,"said one spinner.

Business Investment Remains Crucial

In times of economic difficulty, a competitive advantage becomes more important than ever. That's why several spinners say they continue to invest in new equipment, even when orders are not materializing in the desired quantity and quality.

"It is tremendously important to take advantage of the productivity and quality improvements of newer machinery," said one North Carolina spinner. "We're currently doing that at [one of our plants]. We're taking older equipment out and replacing it with spinning frames that provide better quality and speed. And we're overhauling older stuff, such as roving frames, where you can't really buy productivity gains with newer equipment. We continue to reinvest money we've earned back into equipment because that's the only way we are going to survive. We have got to have the absolute best quality available. The demands put on yarns today are immeasurable compared to what they were just a few years ago."

Even many smaller companies are following suit. "We can't do it on a large scale, but we are constantly updating our equipment here and there. Our situation dictates that we pay for what we get out of earnings, not financing. But we can't afford to be without the latest improvements in quality and productivity."

September/October 2009

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