Helping Femmella improve their profitability

The challenge.

The company had major challenges in managing profitability, cash, etc and the CFO Centre started its support from mid May, 2024 onwards. The major objective to start with was to put “the house in order”. This involved the following:

1. Setting up the financial structure, policies and systems.
2. Ensure all compliances
3. Create MIS
4. Create a budgeting structure
5. Manage profitability and cash flows

The approach.

CFOC Principal adopted a very hands on approach, checking at various levels, from operations to strategic. With the belief that operations derive the numbers, the Principal’s approach was to look into all operational aspects of the business from Purchase to Pay on one side and Order to Cash on the other.

The CFO Centre’s solutions.

On the Purchase to Pay side, the findings and related actions were:

1. Inconsistent procurement rates for similar products with different vendors, which was streamlined. The company looked for new suppliers who were able to give the products at cheaper prices and with better quality and credit period (Improved SM by 1 basis point, approx. Rs 3L pm))
2. Buy vs manufacture analysis to ensure volume products were outsourced resulting in cost reduction and also improving cash flow situation (Impact Rs 1L pm).
3. Unit cost analysis was done to find out the right cost of the product (cost including direct labour and overheads as well) to ensure the right pricing strategy.
4. The wastage on own production was reduced by a few basis points resulting in cloth saving (Minor impact).
5. The design team was reduced and some outsourced which also led to cost reduction (savings of approx. Rs2L pm).

On Order to Cash side, the findings and related actions were:

1. Profitability analysis for major product categories to understand which products are making higher margins and which has lower margins. The Result was focused on high margin sales to improve profitability.
2. Profitability analysis for sales for each Marketplace – result was negotiation with a few of them to lower their commission and charges, with others some price hikes and with a few (loss making) termination of the contract and sales (Major impact – Loss reduced by Rs 2.5L pm with Ajio and Neom Trading).
3. On the other hand, for own sales, more promotions were given which resulted in higher volumes and better sales margin (Positive SM impact of Rs 3L pm).
4. New Product launches also added to the increasing revenue and margin.
5. Change in terms with a few MarketPlace resulted in improved cash flow resultant savings in interest outflow.
6. Repeat orders were given a lot of focus which also resulted in improved margins.

Others

1. There were a lot of other actions taken to reduce costs and improve profitability. Some of these actions were as below:
2. Negotiated for a lower rate of interest with NBFCs for new loans.
3. Outsourcing some of the back end activities like vendor / customer reconciliations which freed up time of internal resources to lay more focus on important things.
4. All discretionary spend was reviewed and controlled.
5. Overall Fixed cost was reviewed and a reduction target of 10% was taken and were tracking towards that savings.
6. Vendor negotiations – New delivery vendor added which resulted in lower shipment cost and competition with earlier vendors to improve services and manage costs.
7. Outsourcing of warehousing activity.