A Microcosm of Real Management in Manufacturing Industry
During many business trips, I met a shoe factory owner who hit it off. During a dinner time, the boss told me about his bitter road to starting a business. The following are the original words of the shoe factory owner:
I have seen too many factories and I think a serious factory owner is an ordinary person who has made the greatest contribution to society. I emphasize that ordinary people are relative to those scientists who are at the forefront. In contrast, real estate bosses and internet bosses are just the acquirements of social wealth and they are the opposite of contributors. There is a saying in our industry that if you want to harm a person, let him open a factory. Among my friends in trade, e-commerce and even cross-border e-commerce, due to the poor cooperation of factories, some of them finally took the road of no return.
Manufacturing Industry:Shoe Factory Management
I have opened three factories, two shoe factories and one garment factory. Let me talk about the hard-working shoe factory first. Such a detailed analysis is definitely good example. Although it is a bit boring, you can’t know anything else.
My shoe factory was opened at the end of 2007. With the support of the boss of a foreign trade company, Several newly graduated boys cooperated with each other. However, due to lack of experience, it almost closed down after half a year, so the story here will not be told. In a word, the difficulties encountered by novices on the road are 100 times as much as originally imagined. Later, because raw materials plummeted and magically survived, today I will focus on dismantling the costs and profits after the factory is on the right track.
At the initial stage after getting on the right track, we only made a few big clients, with a large order quantity and few styles, which can basically standardize production. Our annual output is 1.2 million pairs. Basically, we can settle accounts like this: the factory price is almost the same as a pair of shoes in 40 RMB. Materials (fabrics, soles, insoles, shoelaces, etc.) shall not exceed 20 RMB, packaging accessories (shoe boxes, tags, copy paper, cartons, tapes) shall not exceed 5 RMB, water and electricity 1 RMB, wages (including management personnel) 6 RMB, rent 0.5 RMB, freight to Shanghai or Ningbo port 0.5 RMB, VAT 1.5 RMB. All cost is calculated, the average pair of shoes can earn at least 5 RMB, and 1.2 million pairs are 6 million! Oh, I’m going to get rich.But why do I say bitterness?
Manufacturing Industry:Cost Calculation of Each Link
In fact, most people settle accounts in this way, only visible accounts, not invisible accounts. In fact, the most terrible thing is the cost that you can’t think of:
Defective rate
Because the qualified rate of products depends on raw materials, workers’ operation, equipment stability and managers’ sense of responsibility, one carelessness in these places is a huge loss. We usually calculate the defective rate at 2%, but in practice, because of problems in one or the other link, it is often as high as 20% or more.
Changes in raw materials
Every year, there will be about 10-20% changes in raw materials (especially crazy in 2020, which is counted separately). The price increase of raw materials will lead the decrease of profits. Many people will say here, don’t you make money when raw materials fall? In fact, clients in traditional industries are very smart. When raw materials fall, they will ask you to lower prices at the first time, otherwise they will give orders to your competitors. While raw materials are rising, it is very difficult for you to raise prices for big clients. This is called client bullying.
Factory audit, inspection and testing
Large clients have to inspect the factory every year, and there are many hard and fast rules. In addition to consulting fees of more than 10,000RMB each time, there are also a lot of costs for lab tests, which are at least several hundred thousand a year.
All kinds of accidents, production accidents, work-related injuries and emotional problems of managers, etc
It reminds me that we must buy insurance for every employee. I have written many lessons about work-related injuries in our factory. Although there are no major accidents, I am upset enough. The production accidents are mainly caused by improper operation, so every employee must be trained in production safety. As for the emotional problems of managers, I don’t know what other factories are like. There are many emotional problems among the core staff here. Many quarrels between husband and wife, infidelity and running away from home have caused the production to stop.Stopping for one day is a loss of more than 10,000RMB. We still have a funny story here. Two couples, a production director, worked in the factory, but it was discovered five or six years later that they were “fake couples”. The real wife of a man has been kept in the dark in his hometown!
Account period
When a new factory is opened, of course, it is to ask clients for orders and they will generally agree to the account period. Some old clients will delay part of the payment for goods for a long time and they will take it for granted that they owe hundreds of thousands or millions of dollars every year.Besides,you have to come to visit,give gifts and ask for something carefully. Here, we should pay attention to people who don’t keep their promises. If we do it for a long time, we will definitely meet such people to run away. I’ve been lucky for more than ten years and haven’t encountered many bad debts, but there are still more than two million bad debts.
Compensation problems
There are many reasons for this, such as quality problems, mistakes, delivery problems, or clients making a mountain out of a molehill and making malicious claims. There are hundreds of thousands of losses here every year.
Marketing cost
This is shared equally by factories and foreign trade companies, including various exhibitions, Ali International Station and customer hospitality. There are hundreds of thousands in a year.
Equipment renewal and maintenance
This is not a small amount of money. The annual maintenance cost is over 100,000 RMB and the equipment must be continuously updated. When I do original research and development later, I have to spend millions more every year to develop new mold lasts.
Some hard indicators
Environmental protection and fire protection standards have been improving and I have been fined many times. The factory is equipped with all kinds of equipment according to the standard, but on the whole, it is OK here in Zhejiang, tens of thousands to hundreds of thousands a year. Besides, the relationship should be made.
The last time was after I finished the latest environmental protection requirements in 2017, I was told that I needed to move the factory due to the upgrading of the park. I moved my factory to a park a few kilometers away, but as a result, environmental protection had to be redone. However, as we belong to Class B enterprises, we are not allowed to do environmental impact assessment (EIA), but let us produce. I will be fined once if I am caught. In the end, I can’t stand it and have to transfer the shoe factory. Although it is painful to give up my factory with more than ten years, it is also a relief. And I just transferred it before the epidemic, my peers laughed at me at first, later praised me for “ingenuity”.
I have to say that after listening to my boss’s story, I have increased my confidence in China’s manufacturing industry. Maybe you have doubts when you see it: Are you confused? On the contrary, most of the bosses who can open factories have a clear understanding of the manufacturing market. For example, although the shoe factory owner mentioned above did not engage in manufacturing at last, his mindset will always be clear no matter what industry he will do in the future.
The surviving bosses in the manufacturing industry have mastered the rules of international trade. After all, an honest person will always have big orders to patronize! Importers should be reminded that when sourcing new factories,you need to communicate with factory owners to understand their values. From a macro point of view, you can see his vision and then judge whether there is the possibility of cooperation.
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