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New York, USA
Yesterday, I sat in a tannery meeting listening to the Board answering questions. One venerable shareholder asked a question highlighting the big difference between making high volumes of leather for big brands and much smaller bespoke quantities for the premium luxury sector. The question was well answered although I am not sure it was really pertinent in this case.
What it did was remind me of the belief systems that were engrained in tannery management just a few decades ago. You did not mix hides and skins in the same tannery, volumes above 250,000 sq ft a week were about the maximum you could control, and never try and manage a tannery with more than 250 workers.
Then, someone invented the jumbo jet in the 1960s and we got to fly to America and see what other tanners did, only to be shocked by the high volumes being produced that dwarfed what we were used to. What is more, there was enormous output per man hour as well. Part of the difference was scale, in particular, the size of the orders side leather tanneries in the U.S. received from major U.S. customers. This meant that they had much simplified product ranges with big volumes of the few products they did make. We were much more used to smaller orders, and if you are based in Europe you will have noticed them even getting a bit smaller over the years.
Nowadays, modern production management knows how to handle this. Factory layouts are established according to whether we have flow or batch production. Machinery linkups, conveyors and other robotic equipment are added as required for the type of production going through, with the whole concept of production engineering and materials handling no longer a hobby activity for a well intentioned tanner but handed to real experts.
Other things that we were used to have gone too. Piece work and the large piles of leather that stood by each machine to ensure that they never ran short of work. Drums with lattice doors and water feeds where volumes were guessed. Reworks at various stages, that often added up to 20% of the total production, and outright rejects of 2% to be sold off fast before they filled the shelves in the warehouse. Had we stayed like this, we would be out of business since, whether raw prices are high or low, tannery margins always end up too narrow to leave any room for such things.
Based on this transformation, for a large proportion of tanneries in the world, we need not be panicked by the discussion on further removing work in progress and stocks as a part of managing the "at once" society that demands instant gratification for everything. Indeed, given the huge strides we have made this next step feels like a small one.
18th May 2016
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