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Peace and good tidings for this new year! May we all find it to be prosperous and blessed with good friends and good cheer.
Our Cooperative is coming out of a very good Holiday sales season. We are still waiting for the final tally from the bookkeeper, but the preliminary reports are encouraging indeed. As you are probably aware, the majority of our income is produced during the final three months of the year. From this, your Board must retain adequate capital to maintain operations and produce product over the slower portions of the year. You patronage of our Cooperative throughout the year certainly helps us as we try to balance out the cash flow issues that come with operating a largely seasonal business!
The only disappointing aspect of the Holiday sales season was our inability to meet the demand for our Cooperative's Extreme Alpaca™ socks. I know that there were a number of people that expressed some dissatisfaction over these being on backorder, yet again. I even got to talk to a couple of our members about this issue. (I am always happy to speak to our members, by the way.)
During the 2005 Holiday season AFCNA shipped approximately 6000 pair of Extremes, and we had approximately 1500 pair on backorder. In 2006 we shipped approximately 8000 pair, and we ended up with approximately 2000 pair on backorder! These figures are phenomenal. We increased our production and inventory 33% over the previous year, which we thought would solve the problem of backorders. Yet, when it was all said and done, the demand for these socks increased by 66%! We clearly have not found the upper limit of demand for this product.
Our Board of Directors is already planning for how we will meet the demand in 2007, even as our staff and vendors are working toward filling the remaining backorders.
Producing North American alpaca products has proven to be a complex task that ties of significant amounts of capital for long periods of time. As members, you need to understand some of the issues our Cooperative deals with. Fiber collected in the fall of one year will often not find its way into the sales channel until a full year later. Over the course of those ten to twelve months the fiber is put through several stages of value added processes, each of which require a cash investment on the part of our Cooperative.
- Fiber is sorted by color and graded by fineness and pressed into bales
- Bales are shipped from the sorting facility to a scouring plant
- Fiber is scoured and re-baled for shipping
- Bales of scoured fiber are shipped to the spinning mill
- Fiber is spun into yarn appropriate and either skeined or coned, depending on final application
- Yarn is shipped to the manufacturer, or to the AFCNA warehouse
- Finished goods are produced by the manufacturer
- Finished goods are shipped to the AFCNA warehouse
- Finished goods are shipped to the buyer
In the case of Extremes, we are able to produce one pair about every five minutes of an eight hour work shift, which is pretty amazing indeed. However, when we do the math, the 8000 pair shipped over this past Holiday season represents nearly 4 months of production. As you can see, that is a lot of capital that is tied up in inventory. The Board of Directors needs to be very careful in balancing the cash flow of the cooperative against the expected inventory needs. Unfortunately, this past year we clearly missed the mark and ended up not having sufficient inventory on hand.
The membership needs to remain aware of the balancing act that is maintained between inventory and working capital. One of the ways that each member can help with this is to patronize AFCNA throughout the year, thus assisting us in maintaining a positive cash flow throughout the year. This will become increasingly important as we work towards bringing more North American products to market.
Elections for the Board of Directors are fast approaching, and we are looking for candidates. If you, or someone you know, has an interest in serving AFCNA in this role, please contact Christine Riley. Candidates with strong skills in business and supply chain management would be particularly helpful at this stage of our Cooperative's development, but as always a desire to serve and a cooperative spirit are the primary qualifications.
In solidarity,
John Merrell, Persident
Alpaca Fiber Cooperative of North America, Inc.
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