V Ashok Ram Kumar, the managing director of Asian Fabricx, has just returned from Sweden after attending IKEA’s annual supplier meet. Every year, the Swedish retailer calls its top 100 suppliers from around the world to share growth plans for the coming years. As one of the largest and oldest suppliers to IKEA, Asian Fabricx has been a regular at the meet for years now. The partnership in fact spans over three decades, growing more strategic with the passage of years.
In fact, Asian Fabricx is one of IKEA’s prioritised suppliers, a tag that doesn’t come that easy. In the textiles space, there are just four and this Karur-based company is one of them. From India, it is the only one. Asian’s story, however, is not just about the successful relationship between one of world’s largest retailers and a home textile manufacturer, but also about how you can build a world-class company from anywhere, even a small town in South India with a population of just 70,000.
Weaving a business
Asian Fabricx was started by Kumar’s father N R Venkatachalam in 1974, with 15 employees. Today, it has over 3,500 employees. “When we started in 1974, we were focused more on the domestic market. We started exports only in the 1980s and started supplying to IKEA in 1982 through an agent. When the retailer started its trading office in 1992-93, the agent was retiring, so we started dealing with them directly,” shares Kumar.
He joined the business in 1995 after completing his graduation, when the company’s revenue was around 4 crore. But even then IKEA accounted for 1-2 crore of the revenues. At that time, Asian had 50 sewing machines and outsourced activities such as weaving and dyeing. But once it started working directly with IKEA, the company was able to weave a bigger story, growing revenues to 70 crore by the end of 2000. “When we started, the demand for handloom products was very high and there were very few suppliers so the business scaled up quickly,” says Kumar.
But after the rapid growth came stagnation as more suppliers joined the fray, making the environment more competitive. In such a scenario, Asian’s revenues were flat for the next five years. It was then that the company decided to adopt technology. Between 1995 and 2000, Asian was running 6,000-7,000 handlooms, with weavers in three neighbouring villages. But with the weaving community shrinking and Asian’s need to ramp up volumes, the company bought its first shuttleless loom. “We realised that to improve volumes, we needed a more efficient manufacturing process. So, we decided to invest in shuttleless looms, which not only improve efficiency but also help scale up volumes,” explains Kumar.
In 2004, the company installed 24 shuttleless looms for about 5 crore. Now, it has about 80 shuttleless looms that produce 30,000 metres of fabric per day. Apart from this, Asian also gets 50,000-60,000 metres from weavers to whom it supplies yarn. The company has also modernised 500 sewing machines from pedal to automatic. It currently has around 1,000 sewing machines.
Moreover, the entire manufacturing cycle of winding, warping, weaving, dyeing, printing, cutting, sewing, finishing, and dispatching is now carried out from four units spread across 27 acres. And the whole process that includes cutting, printing, hemming and embroidery is automated. There is even a lab where tests are done to check for things such as water absorption and colour-fastness among other things. All these initiatives helped the company scale up its revenues from 70 crore in 2005 to 230 crore over the next five years.
R Kalaimani, managing partner, Siva Weavers, who works with Asian Fabricx, attributes the company’s rise to its MD. “Despite not having a background in textiles engineering, Ashok has always identified the key changes required to improve overall efficiency. Moreover, quick decision making and implementation has helped the company leverage growth opportunities,” he says.
Asian Fabricx invests 18-20 crore on an average every year to improve the overall efficiency of its manufacturing process and bring down the costs. For instance, in 2014, it invested in a modern dyeing and processing facility that can process 60,000 metres of fabric a day at an investment of 30 crore. The company is the only one to have a dyeing and processing unit in-house, which helps it reduce the lead time considerably.
In addition, to bring down fuel costs in the long-term and be environment friendly, Asian has also invested in solar panels and windmills. Thanks to these, it is reaping surplus power, which is supplied back to the grid. Apart from these, Asian Fabricx is also among the first textile companies to adopt lean manufacturing practices. These practices help companies systematically eliminate wastage during manufacturing with a set of tools. As the wastage reduces, the quality improves and the costs reduce. “It helps keep the manufacturing line as short as possible, thereby reducing wastage. As quality checks are done stage by stage rather than at the end, if there are defects it doesn’t go back and forth on the line,” explains Kumar. Asian’s constant efforts on these fronts has helped it ramp up revenues from 230 crore in 2010 to 400 crore in 2016.
“After taking over from his father, Ashok has taken Asian Fabricx to the next level by making the right investments at the right time. Working with IKEA calls for maintaining quality at all times even when you scale rapidly and that is not an easy thing to do,” says P Sudhakar, MD, Synthesis Home Textiles, one of the larger players in Karur, which exports to Kohl’s and Bed, Bath & Beyond in the US and Carrefour, John Lewis and HEMA in Europe.
There is no doubt that Asian and IKEA are a pretty snug fit. IKEA, which started to source bedsheets and fabrics from Asian in 1982, now sources almost the entire spectrum of home textiles including curtains, cushion covers, entire range of kitchen linen, outdoor cushions and upholstery from the Karur-based company.
“With our partners, we look for a strategic fit, someone who understands our business model and customer needs and develops products that meet our quality and compliance requirements. Asian Fabricx ticks all those boxes. They have successfully used technology and local competence to create a globally efficient supply chain,” says Sandeep Sanan, head of new business development at IKEA.
With IKEA all set to open its first store in India, in Hyderabad, during the second half of 2017, Asian Fabricx should benefit. The Swedish retailer is looking at opening 25 stores across nine cities, including Delhi-NCR, Mumbai and Bengaluru, at an investment of 10,500 crore. The mandatory requirement of sourcing 30% of their needs locally over the first five years of its investment should also work in the favour of the Karur-based company. While IKEA is seeking a relaxation on the time front, it believes local sourcing could exceed 30% over the long term as most products will be developed locally.
Sanan too says Asian will play an important role in its domestic market expansion. “We have been in India for nearly 30 years and now we are thinking of how IKEA should be positioned in India over the next 100 years. It is this kind of long-term thinking that allows our suppliers to make key investments. We are not a retailer who buys a product the first year but doesn’t come back the next year. We buy on a continuous basis. That’s our strength and that’s what Asian believes in, which is why this is a strong collaboration.”
To further its India plans, IKEA has already organised three ‘Make More in India’ campaigns to look for new suppliers in existing categories like textile and rugs and new categories like furniture, mattresses, and sustainable materials like bamboo and acacia. It is also looking to expand suppliers for categories such as metal, plastics, and lighting, where more than 100 potential suppliers participated. Apart from the domestic plans, IKEA has indicated that it is likely to double its sourcing from India from the current €315 million by 2020.
“IKEA’s business is set to grow both in the international and domestic markets in the next couple of years. In such a scenario, a company like Asian could well see a significant increase in turnover as IKEA’s plans take off. Asian will find it easy to prepare itself for the growth given its ability to scale and focus on quality. But it will need to invest in management capabilities and IT which will be critical in areas such as analytics, production forecasting and demand forecasting,” says Arvind Singhal, Chairman, Technopak.
The business part aside, Asian Fabricx is also partnering IKEA to help develop new suppliers. “Whenever we have new suppliers on board, they are sent to Asian to understand our way of working and all our requirements from product quality to social and environmental compliance. There are few suppliers globally who we partner with to develop new suppliers and Asian is one of them,” adds Sanan.
The company is also looking at expanding its capacity from 500,000 units a week to 1,000,000 units a week by 2020, be it curtains, bedsheets or placemats, which should lead to revenues doubling to 800 crore.
There is little doubt that the Swedish retailer will drive a large chunk of Asian’s future growth. The advantage of supplying to someone like IKEA is that while you will have to cater to new ranges, the retailer will also continue previous successful ranges, ensuring that volumes keep growing over the years. For instance, ‘Indira’ its iconic cotton bedsheet brand, has been sold for over 30 years even as it has transitioned from being a handwoven product to one being manufactured by shuttleless looms. The product, which has been manufactured in over 100 colours over the years, is still being sold through IKEA stores worldwide and is currently available in four colours.
But besides IKEA, Asian is looking at expanding its customer base as well. The Swedish retailer contributes 70% of Asian’s overall revenues while clients like B&Q, Castorama, Target (US) and Tchibo (Germany) make up the balance. Accordingly, the company is already in talks with other large format retailers in Europe and the US.
M Nachimuthu, who is regarded as the father of the home textiles industry in Karur and the President of the Karur’s Exporters Association, believes that no target can be too steep for the dynamic entrepreneur. “You must dream big and take risks to build a world-class company. Ashok has all these qualities,” he says. It’s not just Nachimuthu, almost everyone in Karur speak highly of Asian Fabricx and its driving force. The unassuming managing director doesn’t want to take any credit though. “I am just carrying out my father’s vision,” he sums up.