The Modern Approach to Garment Manufacturing: A Case Study of a UK Shirt Maker

Published on August 31, 2016

In today’s globalized economy, garment manufacturing is a complex and highly coordinated process, involving multiple countries, currencies, and financial instruments. For a UK-based shirt maker, this process seamlessly integrates production, logistics, and finance, ensuring timely deliveries to prestigious outlets while maintaining cost efficiency.

Global Sourcing and Manufacturing

The journey begins with sourcing agents in Hong Kong, who are responsible for identifying suitable factories in Hong Kong, China, and Europe. These factories handle the cutting, manufacturing, and trimming (CMT) of garments. The manufacturing process is closely monitored to ensure quality and consistency, with buyers visiting the company’s UK headquarters near Savile Row to review samples and place seasonal orders.

Financial Management and Hedging

Given the international nature of the business, financial management is crucial. The UK shirt maker uses the Hong Kong Dollar, pegged to the US Dollar, for most transactions. To mitigate currency risk, the company employs forward rate agreements, ensuring predictable costs. Payments to suppliers are made using Letters of Credit (LCs), which provide a secure method for international transactions.

The financial strategy is carefully planned, with quarterly forecasts based on initial orders and estimates. The CFO and CEO present financial statements to the bank to secure necessary funding, including overdraft facilities to cover the 90-day lead time. Expected expenses, converted into local currency, guide the negotiation of overdraft levels and short-term funding fees. The bank often requires a mix of collateral, including owner assets, guarantees, goods, and sometimes the debtors' ledger. Invoice discounting is occasionally used to manage working capital when clients delay payments.

Operations and Logistics

A dedicated operations and logistics team ensures the smooth transition from sample design to final delivery. Once garments are manufactured, they are shipped to UK warehouses where they are stored before being picked, packed, and delivered to high-end locations such as Regent Street, Knightsbridge, Dublin, and Paris.

The company uses a custom-built finance system to manage accounting processes. This includes the batch processing of source documents like LCs, purchase invoices, stock records, sales invoices, and bank statements. Upon receipt of goods, LCs are used to accrue for purchase invoices, which are matched once they arrive. Payments are typically made in Hong Kong Dollars or US Dollars and converted to Sterling for input into the purchasing system. Goods Received Notes (GRNs) trigger the generation of sales invoices after customer deliveries, and credit control ensures timely payment from customers.

Financial Reporting and Stock Management

Daily monitoring of bank statements and automated payments based on LCs contribute to accurate financial forecasting. Payroll is processed monthly, and VAT returns are filed quarterly. The financial year starts with the creation of an annual budget, followed by monthly management accounts and detailed variance analysis, which are presented in a board pack. This pack includes budget comparisons, actual accounts, and projections based on current sales orders and LCs.

Annually, the company undergoes an audit, with stock valuation being a significant aspect of the balance sheet. Given the nature of fast fashion, provisions are made for slow-moving or returned stock. The stock primarily consists of samples, work-in-progress, and undelivered finished goods, with no speculative stock held—if it wasn’t ordered, it wasn’t made. Samples are sold at cost, often to staff, and occasionally featured in fashion shows to attract new buyers.

Conclusion

This UK shirt maker exemplifies the modern approach to garment manufacturing, where global sourcing, precise financial management, and efficient logistics come together to create a streamlined operation. The integration of advanced financial tools and meticulous planning ensures that the company remains competitive in a fast-paced, high-stakes industry.

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