Supply Chain - Growers tap ‘demand-pull’
Smarter marketing, allowing growers to connect directly with end users, has lifted profits for a southern NSW grower group
A southern NSW woolgrower group has improved its returns by up to 25 per cent by taking its clip straight to the customer, in this case a leading Australian sock manufacturer. During the past four years Boorowa-based WoolConnect Inc. has built a successful relationship with branded manufacturers, topmakers and spinners, lifting margins for those of its 66 members who have supplied wool.
WoolConnect chairman and Boorowa wool producer John McGrath says the group has proved growers can successfully market their fibre directly to end users.
According to WoolConnect director and Cowra wool producer Michael Flannery, Mr McGrath is the ‘guru’ behind the development of the marketing group, which evolved in response to the wool price slump of 2002.
“We were sick of being at the mercy of the spot market so were keen to lock in a percentage of our clip to take the risk out of our marketing,” Mr Flannery says. “A lot of the blending that takes place undoes all the work done on and off-farm to describe the product.”
Mr McGrath says wool is classed on the sheep’s back, subjectively measured at shearing and objectively tested again by the Australian Wool Testing Authority (AWTA) before warehousing.
“So by the time it hits the market, wool is a highly described product, placed into a commodity environment,” he says. “Under the auction system, we provide all these benefits into the supply chain and are not rewarded. We wanted to capture some of this value.”
WoolConnect director and Reid’s Flat commercial wool producer Pattianne Gay describes the marketing approach as a “demand-chain network” because customer orders drive the system.
“We wanted to convert our selling from a supply-push to a demand-pull,” she says. “By connecting to the customer to find out what they want, and by informing topmakers and spinners, we’ve created a demand-pull situation that provides a negotiated price and sustainable returns. We are now selling a package: a service deal for branded manufacturers.”
To create demand for their wool, the group targeted branded manufacturers such as Humphrey Law, a Melbourne-based, high-quality sock manufacturer.
“We went to branded manufacturers because it was at this level in the supply chain where we stood the greatest chance of creating efficiencies, minimising costs and improving returns for all supply-chain partners, and creating significant quality improvements for the customer’s product,” Mr McGrath says.
“Many manufacturers see a lot of variability in yarn between batches, but what they get from us is consistency so they don’t need to change their machine settings.
“Our customers say: ‘This is the first time somebody has asked me what I want.’ I just say: ‘It’s in our interest to help your product sell.’?”
Rob Law from Humphrey Law agrees, saying that for the first time in Humphrey Law’s 59 years of sock-making, the product quality is no longer controlled by topmakers’ standard commodity top.
“WoolConnect allows us to order the premium-quality product,” he says. “We can now do the obvious and talk to the only people who really care and the only people who have no conflict of interest in a genuine quality guarantee – the growers.”
According to Mr McGrath, topmakers and spinners, who work on a commission basis, are relieved of quality risk, the necessity of carrying inventory and the need to trade product because the batches are tailored to the customer’s quantity and quality specifications.
“They are receiving a consistent product which is creating greater efficiencies in their production line,” he says.
While the relationship is a shining example of what grower groups can achieve, this particular ‘demand-pull marketing’ was not achieved overnight.
It started five years ago when the Boorowa Merino Breeders Association sought assistance from Agri-Chain Solutions, a subsidiary of Supermarket to Asia Ltd, which canvassed local growers for their interest in forming a producer-initiated marketing group.
After 66 woolgrowers paid $500 to be involved and Agri-Chain Solutions matched the funds, WoolConnect Inc was formed.
Everything changed when retailer Humphrey Law approached the group to source yarn for its fine-wool socks. After extensive negotiations a price was agreed and the group sourced a topmaker and spinner to process yarn to meet Humphrey Law’s specifications – 19.5 micron fleece wool with a minimum comfort factor of 98. When Humphrey Law places an order, John McGrath emails members to source wool. But not every producer checks their email every day, and this is where AWI has helped.
WoolConnect was a commercial partner in an AWI-funded project conducted by Graeme Forsythe and Associates (GFA) to construct a web-based supply-chain platform. Now the project has been successfully completed, the system will underpin the management, logistics, product and funds-flow up and down the production chain, linking all partners and service providers.
With further tailoring of the platform to meet WoolConnect’s needs, Mr McGrath believes GFA’s work will enhance communication at all levels of the supply chain, and facilitate linking the horizontal producer base with the vertical processing and manufacturing chain to achieve high-quality outcomes.
“Successful tailoring of the system will allow us to access our members’ information directly from the AWTA’s wool-testing data and give us a greater window of opportunity to select and sell product to manufacturers,” he says.
“Unless we make the system more interactive, we are basically left in the dark when it comes to knowing what our suppliers can deliver,” Mrs Gay says.
It has not all been smooth sailing for the grower-based marketing group. Two years ago the group was ready to expand its customer base and was hit with the news that Riverina Wool Combers would reduce its topmaking and superwash capacity. “We had no other option to produce the yarn in Australia so the logical step was China,” Mr McGrath says.
WoolConnect directors visited China to investigate three potential business partners and returned with a recommended topmaker and spinner. All of WoolConnect’s processing is now done in China, with Reward of Ningbo topmaking and superwashing and Yangtse Spinning Company (Sudewolle) of Zhangjiagang producing its yarn.
After trial batches were processed to build manufacturers’ confidence in WoolConnect’s overseas topmaker and spinner, Humphrey Law was more than happy with the WoolConnect’s yarn quality.
Mr McGrath says the implementation of the web-based supply chain platform will allow the organisation to consolidate and expand its customer base, and provide an alternative marketing technique in the supply of product through to customers.
More information: John McGrath, 02 6227 2810, 0429 853 247, john@woolconnect.com, www.woolco