Innerwear, outerwear and hosiery maker Hanesbrands Inc is to sell three of its yarn manufacturing operations to Parkdale, and shutter a fourth facility, after deciding there is no strategic advantage to be gained from producing its own yarn.

The plans will lead to the loss of around 175 jobs, the Winston-Salem, North Carolina based company said yesterday (17 September).

But it also expects to generate $100m from a combination of the sale proceeds, reduced raw material requirements and reduced inventory.

Hanesbrands will instead source all of its yarn needs from large-scale yarn suppliers - including privately-owned Parkdale which will supply a "substantial amount" of the apparel maker's western hemisphere yarn needs.

"Producing our own yarn, when more than adequate large-scale supplies exist, serves no strategic purpose," explained chairman and CEO Richard A Noll.

He added: "We are focused on optimising the investments we have made in our supply chain that give us a competitive advantage."

Under the deal, Parkdale will take over operations of Hanesbrands' yarn plants in Rabun Gap in Georgia, Mountain City in Tennessee, and Galax in Virginia, which have a combined workforce of 780 employees.

Parkdale will supply Hanesbrands from these facilities and other existing Parkdale US production plants.

Hanesbrands, meanwhile, will cease new production immediately at its remaining yarn plant in Sanford, North Carolina, which has 150 employees; and will close its cotton and yarn warehouses, also in North Carolina, which have 25 workers between them.

INSIGHT

Outsourcing its yarn supply is a logical evolutionary step for Hanesbrands to drive value and improve the use of its assets.

The company also believes the move will create a competitive long-term supply of western hemisphere yarn at no material change in cost, yet will eliminate an area of its business that was not cost effective to continue.

But the search for a balance between lower production costs, economies of scale and speed of delivery doesn't come without a price.

The measures are just the latest in a long line of job losses and cost cuts at the Winston-Salem, NC-based company, which has around 45,000 employees worldwide and owns brands such as Hanes, Champion, Wonderbra and Playtex.

Much of the three-year restructuring of its supply chain has been part of a long-term move to create more efficient production clusters that use fewer, larger facilities and to balance its production capability between the western hemisphere and Asia.

But the company has also taken a second - and unexpected hit - after shoppers started to cut back on spending and retail customers have either gone out of business (like Mervyn's) or tightened their inventories in the economic downturn.

Along the way, it has also reached a number of unwelcome milestones including the end of its knit-fabric textile production in the US and, yesterday, the end of its yarn operations.

But it is not just the US that falls foul of its cost-cutting moves; some plants in Central America have been shuttered too. The beneficiaries are its new Asian facilities in Thailand and Vietnam where the workforce will be increased by one-third to 6,000.

In fact, according to just-style's calculations, since spinning off from Sara Lee Corp in September 2006, Hanesbrands has brought the axe down on at least 28 plants worldwide employing around 16,300 workers.

The company now says that with its global flows coming on line, it is focused on optimising its supply chain to further enhance efficiency, improve working capital and asset turns, and reduce costs.

"We are leveraging our assets in areas where we can differentiate ourselves and use our scale and expertise for better returns," said Gerald Evans, Hanesbrands' president of international business and global supply chain.

"We are keenly focused on optimising the working capital needs of our supply chain through several initiatives, such as supplier-managed inventory for raw materials, sourced goods ownership relationships and other efforts."

Some of the pressures the business faces are due to the fact that it sells basic apparel items such as T-shirts, socks and underwear, which are among the most price-sensitive and low profit margin product categories around.

These items are also up against stiff competition from lower cost brands and cheaper private-label merchandise sourced in Asia or other low-cost areas.

And here the 'If you can't beat them, join them' adage applies.

By centralising its manufacturing operations in areas with the lowest labour costs, and aligning its sewing operations with a strong local fabric supply (Hanesbrands is also building a textile fabric plant in Nanjing, China), the company hopes to reduce overheads, offset rises in global commodity prices and shipping and logistics costs, and increase its operating margins.

And it needs all the help it can get.

Last month it posted a 46% in second quarter profit as sales fell 8% to $986.0m, but noted the rate of sales decline was lower than in previous months, margins are better, and retailers are finally showing signs of more robust ordering.