My Factory Is Closed

The elderly gentleman was waiting at the gate even before the bank branch was opened on that Monday morning, forty four years ago. He was in an agitated mood and quite different from his usual self. A regular visitor to the branch and always dignified in his behaviour and dealings, he was tense that morning. He grudgingly acknowledged our greetings that day. As we entered the branch after the doors were opened, he came and sat in the customers area outside the counter. He did not come into the banking hall even when our Assistant Manager requested him to come in. His demeanour indicated that he was unhappy with something. It appeared a storm was brewing. 

Branch Manager walked in and went to his cabin. He had barely sat down in his chair when the elderly gentleman rushed into cabin. We could not see what happened in the cabin because the cabin was a separate room and not a glass covered enclosure we have nowadays. His raised voice could be heard outside the Manager's room. "Your people have joined hands with my competitor. My raw material has been delivered to him and his factory is working extra shift. My factory is closed and my workers idle. My loss is his profit. You are a party to this. I will certainly do something about this", he shouted and walked away like a comet.  

Within a few minutes I was called into the Manager's cabin. Verification of some records and little discussion helped us into getting a clear picture of what was the real issue. The elderly gentleman had indeed a genuine grievance and his anger was well justified, though the cause was not intentional. The challenge now was to sort out the issue before the matter got out of hand and resulted in a serious complaint.

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Indian exporters have to compete with their counterparts from countries in the neighbourhood like Bangladesh, Sri Lanka, Pakistan, Malaysia, Indonesia, Korea, Jordan etc. for selling their products in the international markets. This is all the more true in respect of readymade garment exports. They have three main challenges in pushing their products in the competitive market; price, quality and delivery schedules. Production costs are to be kept at the lowest, but quality cannot suffer. Delivery schedules have to be strictly met as a few days delay may result in the rejection of goods by the buyer in the fast-changing fashion market. Summer and winter wear requirements of Europe and Continental America also influence the market. Readymade garment units work on wafer thin margins and some incentives given by the government is often the saving grace for them. Managing such units is indeed a tough task. Fast turnover of labour is another problem area in running such units.

Indian garment trade contributes nearly 4% to the country's GDP. It provides 4.5 million jobs to tailors, transporters and traders. Nearly a fourth of the production is for the overseas markets. The total share in exports percentage-wise was nearly the same four decades ago.

As per the industry practice, buyers of such garments in overseas markets employ quality professionals and place them in the hub of such garment factories. These buyer's representatives decide on the quality of fabric and other material used in production. They visit cloth manufacturing units and specify the type of cloth to be used in making the garments. The export units have to buy the cloth from these factories alone for the making of garments. Ensuring continuous supply of fabric is a key component for keeping the workers engaged and meeting delivery schedules.

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The two readymade garment export units dealing with us were supplying to common buyers abroad. The materials used in production, nature and style of garments manufactured and delivery schedules were the same. Both were required to use a certain type of fabric manufactured in a factory located on the outskirts of Bombay (Mumbai). The manufacturing company insisted on payment for the material supplied through a settlement called "Documentary Credit" (popularly known as Letter of Credit or LC). Buyers bank was required to issue these LCs in favour of the supplier. Goods were being sent through "Approved Transport Operators". Such operators are not to deliver the goods at the destination unless the original MTR (Motor Transport Receipt) or popularly known as LR (Lorry Receipt) is produced at destination. Goods were loaded on the trucks at the producer's factory and sent to destination. Documents were produced by the seller to their bank in Mumbai and payment received from them. The bank would send the papers to the buyer's bank. Buyers were required to pay the amounts, receive documents and then take delivery of the goods from the transporter. This is how the work flowed and goods moved.

Though the system was supposed to work like this, there were problems for the buyers and transport operators in this system. Goods loaded on the trucks would reach the destination in 2 to 3 days. Truck operators had to unload the goods and store in their warehouses until the buyer produced the relative documents. This entailed unloading goods from the truck at destination and again loading for delivery at the buyer's factory. Valuable space was used up at warehouse as well as additional costs were incurred for loading, unloading and transport till the buyer's factory. Documents given to the bank would take about 10 days to reach the buyer through the bank's route. Postal delays were common. Couriers had not yet made their debut. At any rate holding trucks with load on them was impractical. Transporters made their money only when trucks were running on the road and not when idling at either ends of loading and delivery.

Transport operator and buyer had arrived at a simple formula for solving this issue. The truck would go directly to the buyer's factory from Mumbai. As the truck arrived, buyer would obtain the document number and come to the bank. Bank would give an authorisation to deliver the goods to the buyer in the absence of the documents that were yet to arrive from Mumbai. Both the transport operator and buyer were happy with this arrangement. Trucks got free in a few hours for their next journey and transport operator did not need to store the goods. Buyer got the goods quickly and without additional loading, unloading and transport costs. As regards bank, the risk was of payment by the buyer when the documents were received from the seller's bank. This was taken care by the buyers by placing adequate funds in their bank accounts when obtaining authorisation letters for delivery. Working was smooth and everyone was happy!

*****

On a Saturday, one of the trucks from Mumbai arrived at destination. The truck driver went to one of the factory by force of habit and goods were unloaded. The factory representative came to the bank, gave document number and took authorisation letter and disposed off the truck. The only problem was that it was a truck meant to go to the other factory. As the goods were identical, nobody observed the details of the consignment. One factory got the extra raw material while the other was starved of its rightful quota. This led to the angry visit of the elderly gentleman to the bank on Monday morning.

Rest of the story was indeed simple. The matter was dealt with between the two partners of the two firms. The younger son of the elderly gentleman, who was a partner of the firm with his father, mother and elder brother handled the issue deftly. The goods on the next truck meant for the other factory was diverted to the starved factory. As all other consignment details were the same, not much of give and take was required.

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The case of exchanged trucks taught us a very important lesson - be extra careful when the systems are short circuited. All things may appear in order and simple. Yet, there could be complications and unforeseen mishaps. It also taught another lesson - that a problem could be solved with understanding, maturity and give and take attitude.