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Spinning the Yarn at Australian Country Spinners (ACS)
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Interview with Brian van Rooyen – CEO

 
 
   
Summary
   
Within 1 year of working with TOCCA, inventory volumes had been reduced by 40%
Profit exceeded 25% ROI
ACS went from running a four-day week to running 24 x 5 and looking for more capacity
A year on year Throughput improvement of 171%
The ratio of Throughput to Operating Expense went from 1.05 to 1.53, an increase of 46%
   
 
 

Background

Australian Country Spinners is Australia’s leading spinner of hand knit and industrial yarns made from wool, wool/synthetic blends and synthetics. ACS has a 95% market share of the Australian market in hand knitted yarns – counting amongst their brands Patons, Panda and Cleckheaton and about 40% of the market in industrial yarns. ACS has a manufacturing facility in Wangaratta, Vic and a sales and distribution centre in Melbourne.

The Problem

TOCCA was invited to meet with Brian van Rooyen, the CEO of ACS, by a consultant who had been engaged by the firm to look at the way product costing was calculated at the mill. The Company was facing competition on several fronts:

 
 
   
In the hand knitted yarn, with 95% market share, it seemed that there was nowhere to go but down. Every time the idea of selling into export markets came up, the traditional costing methods showed that the products would have to be sold at a loss to be in any way competitive
In the industrial yarn market, competition was not only fierce from imported equivalents, but the size of the addressable market was shrinking as the volume of ready made garment imports increased
   
 
 

In both areas of the business, traditional standard cost accounting had driven ACS into a vicious cycle of having to charge high prices to get the right “recovery” from the mill. These high prices were insufficiently competitive to win the business, which meant that the remaining base load of product had to “absorb” more costs as volumes decreased. This absorption of fixed costs meant that the remaining product had to be sold at a higher price to “recover” the allocated overheads and the vicious cycle continued.

After outlining the TOC approach to costing, known as Throughput Accounting, the CEO was sufficiently convinced that he convened a meeting of his whole management team so that David Hodes, MD of TOCCA, could have an opportunity to explain the basic principles and secure the buy-in of the management team that is so critical to the success of any project.

The Solution

The key to unlocking the puzzle at ACS was to challenge the basic assumption of standard costing. Hodes proved to the ACS team that the assumption – that the sum of the local activities is the best that the system can do as a whole – was fatally flawed. The existence of a constraint, or limiting factor, fundamentally impacts the costs and benefits of any decision.

For example, one of the processes at ACS involved spinning, dyeing, balling and shipping. Looking at the capacity of each component and working these to maximise each department’s efficiencies provided a far less profitable solution for the whole Company, compared to maximising spinning and subordinating the rest of the plant (and indeed the rest of the business, from materials planning to sales and marketing) to that idea.

The TOCCA challenge was not to simply make the case for Throughput Accounting, but to help project manage the change from a standard cost based company to one based on a Throughput Operating Strategy. In order to execute this, TOCCA had to:

 
 
   
Demonstrate the TOC principles to the management team, followed by a roll-out throughout the organisation, ensuring that everyone bought into the change process
Develop a project plan for the work to be undertaken to transform the business
Undertake an intense period of consulting during which time TOCCA’s experts worked side by side with the people at ACS in the areas of
   
  - Production scheduling
- Product costing
- Manpower planning
- Sales and marketing
- Management accounting
   
 
 

This was followed by a period of keeping a watching brief over the changes and ensuring that they were permanently woven into the fabric of the business.

The Results

Within a short time, the results were evident:

 
 
   
Profit exceeded 25% ROI
Exports increased by 27% during the second year, despite the fact that the Australian dollar strengthened by approximately 28% over the same period.
Under a marketing strategy designed to introduce a new generation of knitters to the craft, domestic sales increased by 23% within the first year
Within a year, inventory volumes were reduced by 40%
A year on year Throughput improvement of 171%
The ratio of Throughput to Operating Expense went from 1.05 to 1.53, an increase of 46%
   
 
  Brian van Rooyen summarised the TOCCA engagement thus:
“TOCCA has enabled ACS to do what we thought was impossible: dramatically increase our production output using few extra resources. Our mill's weekly output is now almost 50% above what we had earlier considered its absolute physical constraint, and with no new machinery and no additional employees. It was not an overnight leap; rather, the approach that TOCCA brought reinvigorated our people and enabled them to look beyond our traditional functions and processes from a fresh perspective.”
 
 
 
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