INVENTORY MANAGEMENT INTRODUCTION: Finance is regarded as”THE LIFE BLOOD OF BUSINESS ENTERPRISE”. Finance function has become so important that it has given birth to financial management as a separate subject .So, this subject is acquiring universal applicability. Financial management is that activity which is concerned with the planning & controlling of the firm’s financial resources. As a separate activity or discipline is of recent origin, it was a branch of economics till 1890. Still today it has no unique knowledge its own, and it draws heavily on economy for its theoretical concept. The growth of any organization depends on the overall performance of production, marketing, HRM & Finance. The financial performance of the organization reflects the strengths, weakness, opportunities and threats of the organization with respect to profits earned on investment. INVENTORY management is very important in an organization in order to have a Smooth move of it. The term inventory refers to the stockpiles of the products a fire is offering for sale and the components that make up the product. In other words, inventory is composed of asset 1
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INVENTORY MANAGEMENT
INTRODUCTION:
Finance is regarded as”THE LIFE BLOOD OF BUSINESS ENTERPRISE”.
Finance function has become so important that it has given birth to financial
management as a separate subject .So, this subject is acquiring universal applicability.
Financial management is that activity which is concerned with the planning &
controlling of the firm’s financial resources. As a separate activity or discipline is of
recent origin, it was a branch of economics till 1890. Still today it has no unique
knowledge its own, and it draws heavily on economy for its theoretical concept.
The growth of any organization depends on the overall performance of
production, marketing, HRM & Finance. The financial performance of the
organization reflects the strengths, weakness, opportunities and threats of the
organization with respect to profits earned on investment.
INVENTORY management is very important in an organization in order to have a
Smooth move of it. The term inventory refers to the stockpiles of the products a fire is
offering for sale and the components that make up the product. In other words,
inventory is composed of asset that will be sold in future in the normal course of
business operations, inventory as current asset differ from other assets because only
financial managers are not involved, rather all functional areas finance, and
marketing, production and purchasing are involved. The view concerning the
appropriate level of inventory would differ among the different functional areas . The
job of the financial manager is to reconcile the conflicting view poin ts of the various
functional areas regarding the appropriate inventory level in order to fulfill the overall
objective of maximizing the owner’s wealth. Thus, inventory management should be
related to the overall objective of the firm. The basic responsibility of the financial
management of inventory should ultimately result in the maximization of owe
owner’s wealth.
1
Although our discussion of inventory management will focus on the finance
perspective it is important to understand that good inventory management is vital to
the success of virtually all firms. Inventory management activities can range from
ensuring that there is an adequate selection of different sizes of clothing available in a
retail store to stocking necessary replacement parts for commercial Aircraft.
MEANING OF INVENTORY MANAGEMENT :
“Inventory Management” means planning, procurement, holding and accounting
and distribution of these and materials. Inventories are approximately 60% of current
assets in India. In industries using agricultural raw materials the percentage is still
higher. Thus, a large part of working capital is invested in inventories. The
management of inventories is therefore necessary is therefore necessary to avoid
heavy loss due to leakage, theft and wastage because neglecting the management of
inventories may jeopardize. The long on profitability of the concern may fall
ultimately. The reduction in excessive inventories carries a favorable impact on a
company’s profitability. The financial manager actually is a kind of watchdog over
fuctional areas. Broadly speaking the inventory management problem is one of
maintaining for a given financial investment an adequate supply of something in order
to meet an accepted distribution or pattern of demand.
2
Need for the study
The inventory plays a vital role in the efficient operation of the company. Particularly, it is in
direct touch with manufacturing departments, materials department and marketing department
in its day to day activities. In all most all industries 60% of the working capital invited in the
materials. An efficient inventory management can help to achieve better utilization of this
investment with considerable degree of success.
Providing all the required raw materials, consumable stores, components etc., to the
manufacturing units at the right time and place, the lowest possible cost and adopting
inventory control measures, using good materials handling practices are the principle
objectives of stores management. In other words reducing the cost in all spares of the
manufacturing activities will help in increasing the profits of the company
The efficiency with which the inventory is managed will invariable determines the efficiency
of the production and levels of profits of the enterprises.
Scope of the study
3
The study includes systems, documentation procedures storage and compliance of statutory
regulation which are in o[operations by SREE AKKAMAMBA TEXTILES LTD TANUKU,
while giving emphasis on raw material and it also covers work in progress and finished goods.
The present study covers purchase store functions and efficiency of many acquiring materials
and utilizing them to minimize cost of materials and maximize profits
The study is also undertaken to evaluate the companies present financial performance with a
special regard to the value of inventory maintained and to know the influence of inventory
levels on the sales turnover
The scope also includes the study of various methods adopted by company in order to
maintain the quality of it’s finally to assent the various steps ads by the company to maintain
and control its inventory position.
The scope inventory management is very wide that various techniques of inventory controls
management like EOQ model ABC analysis have been undertaken.
OBJECTIVES OF THE STUDY
4
The study the methods and Techniques of inventor)' control and management
adopted by the company.
The assess the performance of materials and inventory control section of
S.A.T.LTD.
To analyze the efficiency of inventory management S.A.T. LTD.
To have an overview of the purchase and stores department contribution to
inventory control and maintenance.
To review the theoretical frame work.
METHODOLOGY
5
The methodology designed for my project entitled "Inventory Control
Management" at S.A.T. Ltd; Tanuku was based on two sources.
1. Primary Data
2. Secondary Data
PRIMARY DATA:
Primary data has been collected by interviewing various people in production
department as well as administrative people who will generally give the details of
inventory process and also know the existing software in the company.
The primary data has been collected from the personal observation and
personal interviews with the officials of the firm.
As the main emphasis of the study is on the inventory management at M/s. SRI
AKKAMAMBA TEXTILES LTD., the primary data for the study was gathered :
discussions and experiences with some personnel the accounts department.
SECONDARY DATA:
The primary data was supplemented by the secondary data collected from published
reports of the organization and some important presented in the study with AKKAMAMBA
TEXTILES LTD., is taken from material data. And text book which has been matched
with the record obtained from the company in order to may a strategic view.
LIMITATIONS OF THE STUDY
6
Comparison of the SAT. LTD. performance with any organization is not possible since
the financial statements of other organizations are not available.
Most of the information has kept confidential and as such is not passed on, as part of the
policy of die company.
To the extent that the executives could spare their time, they gave us the
information by way of small discussions for the purpose of date collection.
The study is limited only to financial statement analysis. However, a
satisfactory exercise has been made to study financial performance of S.A.T. LTD.
by giving more important to ration analysis, which is a powerful tool of financial
analysis.
7
CHAPTER – II
PROFILE O F TEXTILE INDUSTRY
Cotton Textile Industry is one of the oldest and largest during the last 3
decades the textile industry still occupies a keep position in the economy of the
country industries in India which has made rapid strides during the century of its
excellence. At the end of the March 1992 there were 1,117 mills in the country ( 846
Spinning Mills & 271 Composite Mills ) with about 27 million spindles and 1.8 lakes
looms. There were 123 closed mills by the end of March 1993. At present the industry
provides direct employment to nearly 12 lakes workers, accounting for 18% of all
factory labor in the country. It also provides indirect employment to many millions like
the cotton growers, processors, handlooms and power loom weaves who alone are
estimated three million and innumerable cloth dealers and shopkeepers. The Industry
contributes in ever increasing measure to the central and state government by way of
taxes and duties.
Being one of the oldest industries it-has history of over 150 years. It occupies a
unique position in the world export where Indian in the second only to Japan in terms
of total quantity of export and supplies 16% of the world exports.
It has influence agriculture because of its consumption of cotton, wool & silk and
industries because of its requirements machinery, dyes, and chemicals and synthetic
fibers. Thus the Industry has an important role to play both in economic prosperity of the
country and in the supply of in essential commodity of the entire population.
The Cotton Textile Industry consists of 3 distinct categories in the
organized sectors these are
8
1. Spinning Mills.
2. Course of Medium Composite Mills.
3. Fine and super fine composite Mills.
<
Spinning mills are generally small in size. Course and medium composite mills are
not able to adjust their cost in the face of rising prices of raw materials and increase in
wages. Consequently many of them became uneconomic units and ram into difficulties.
Fine and super Fine composite mills use foreign cotton, they are not subject to stock
restriction can therefore carry on stable production programmed.
India has been a manufacturing nation and an export of the fine cotton fabrics to all
the nations of the fine cotton fabrics to all the nations of the civilized world.
The Industry faced its major post Independence crisis in the yearly sixties. Up till
then if had been more or less sellers market and most of the mills were making reasonable
profits. But a member of factors contributed to a very big depression in the market and
mills started incurring losses. The result was that in 1967 the spindle activity came
down for 88.2% to 73.1% consequently.
'Bombay mills owners Association" is the first main formed Association formed in the
indian in the year 1875 .When India became India independent 1947. There where 10
million there hundred thousand spindles and two lakes two thousand looms installed in
million mills. Then were also and estimated two and half million handloom weavers
in the country.
Indian Textile Industry
The textile industry is the largest industry of modern India. It accounts for over 20
percent of industrial production and is closely linked with the agricultural and rural
economy. It is the single largest employer in the industrial sector employing about 38
9
million people. If employment in allied sectors like ginning, agriculture, pressing,
cotton trade, jute, etc. are added then the total employment is estimated at 93 million.
The net foreign exchange earnings in this sector are one of the highest and, together
with carpet and handicrafts, account for over 37 percent of total export earnings at
over US $ 10 billion. Textiles,1 alone, account for about 25 percent of India’s total
forex earnings.
India’s textile industry since its beginning continues to be predominantly
cotton based with about 65 percent of fabric consumption in the country being
accounted for by cotton. The industry is highly localised in Ahmedabad and Bombay
in the western part of the country though other centres exist including Kanpur,
Calcutta, Indore, Coimbatore, and Sholapur.
The structure of the textile industry is extremely complex with the modern,
sophisticated and highly mechanised mill sector on the one hand and the handspinning
and handweaving (handloom) sector on the other. Between the two falls the small-
scale powerloom sector. The latter two are together known as the decentralised
sector. Over the years, the government has granted a whole range of concessions to
the non-mill sector as a result of which the share of the decentralised sector has
increased considerably in the total production. Of the two sub-sectors of the
decentralised sector, the powerloom sector has shown the faster rate of growth. In the
production of fabrics the decentralised sector accounts for roughly 94 percent while
the mill sector has a share of only 6 percent.
Being an agro-based industry the production of raw material varies from year to year
depending on weather and rainfall conditions. Accordingly the price fluctuates too.
India's trade in textiles and its share in world trade can be categorized as follows:
1
10
India’s Trade in Textiles
(1998)
Type India's Share in
World Trade
Yarn 22%
Fabrics 3.2%
Apparel 2%
Made-ups 9%
Over-all 2.8%
Global Scenario
The textile and clothing trade is governed by the Multi-Fibre Agreement (MFA)
which came into force on January 1, 1974 replacing short-term and long-term
arrangements of the 1960’s which protected US textile producers from booming
Japanese textiles exports. Later, it was extended to other developing countries like
India, Korea, Hong Kong, etc. which had acquired a comparative advantage in
textiles. Currently, India has bilateral arrangements under MFA with USA, Canada,
Australia, countries of the European Commission, etc. Under MFA, foreign trade is
subject to relatively high tariffs and export quotas restricting India’s penetration into
these markets. India was interested in the early phasing out of these quotas in the
Uruguay Round of Negotiations but this did not happen due to the reluctance of the
developed countries like the US and EC to open up their textile markets to Third
World imports because of high labour costs. With the removal of quotas, exports of
textiles have now to cope with new challenges in the form of growing non-tariff /
11
Compound Annual Growth Rate (CAGR) of different segments
Type CAGR (1993-98)
Yarn 31.79%
Fabric 9.04%
Made-ups 15.18%
Garment 6.795%
non-trade barriers such as growing regionalisation of trade between blocks of nations,
child labour, anti-dumping duties, etc.
Nevertheless, it must be realised that the picture is not all rosy. It is now being
admitted universally and even officially that the year 2005 AD is likely to present
more of a challenge than opportunity. If the industry does not pay attention to the
very vital needs of modernisation, quality control, technology upgradation, etc. it is
likely to be left behind. Already, its comparative advantage of cheap labour is being
nullified by the use of outmoded machinery.
With the dismantling of the MFA, it becomes imperative for the textile industry to
take on competitors like China, Pakistan, etc., which enjoy lower labour costs. In
fact the seriousness of the situation becomes even more apparent when it is realised
that the non-quota exports have not really risen dramatically over the past few years.
The continued dominance of yarn in exports of cotton, synthetics, and blends, is
another cause for worry while exports of fabrics is not growing. The lack of value
added products in textile exports do not augur well for India in a non-MFA world.
Textile exports alone earn almost 25 percent of foreign exchange for India yet its
share in global trade is dismal, having declined from 10.9 percent in 1955 to 3.23
percent in 1996. More significantly, the share of China in world trade in textiles, in
1994, was 13.24 percent, up from 4.36 percent in 1980. Hong Kong, too, improved
its share from 7.06 percent to 12.65 percent over the same period. Growth rate, in
US$ terms, of exports of textiles, including apparel, was over 17 percent between
1993-94 to 1995-96. It declined to 10.5 percent in 1996-97 and to 5 percent in 1997-
98. Another disconcerting aspect that reflects the declining international
competitiveness of Indian textile industry is the surge in imports in the last two years.
Imports grew by 12 percent in dollar terms in 1997-98, against an average of 5.8
percent for all imports into India. Imports from China went up by 50 percent while
those from Hong Kong jumped by 23 percent.
12
Global factors influencing textile industry
The history of the textile and clothing industry has been replete with the use of
various bilateral quotas, protectionist policies, discriminatory tariffs, etc. by the
developed world against the developing countries. The result was a highly distorted
structure, which imposed hidden costs on the export sectors of the Third World.
Despite the fact that GATT was established way back in 1947, the textile industry, till
1994, remained largely out of its liberalisation agreements. In fact, trade in this
sector, until the Uruguay Round, evolved in the opposite direction. Consequently,
since 1974 global trade in the textiles and clothing sector had been governed by the
Multi-fibre agreement, which was the sequel to an increasingly pervasive quota
regime that began with the Short-term arrangement on cotton products in 1962 and
followed by the Long-Term arrangement. After the successful conclusion of the
Uruguay Round in 1994, the MFA was replaced by the Agreement on Textiles and
Clothing (ATC), which had the same MFA framework in the context of an agreed, ten
year phasing out of all quotas by the year 2005. The section that follows takes a brief
look at the history of these protectionist regimes as also a more detailed look at the
MFA and the ATC.
13
Multi–Fibre Agreement (MFA)
On January 1st, 1974, the Arrangement Regarding the International Trade in Textiles,
otherwise known as the MFA came into force. It superseded all existing
arrangements that had been governing trade in cotton textiles since 1961. The MFA
sought to achieve the expansion of trade, the reduction of barriers to trade and the
progressive liberalisation of world trade in textile products, while at the same time
ensuring the orderly and equitable development of this trade and avoidance of
disruptive effects in individual markets and on individual lines of production in both
importing and exporting countries. Though it was supposed to be a short-term
arrangement to enable the adjustment of the industry to a free trade regime, the MFA
was extended in 1974, 1982, 1986, 1991, and 1992. Because of the quotas allotted, the
MFA resulted in a regular shift of production from quota restricted countries to less
restricted ones as soon as the quotas began to cause problems for the traders in
importing countries. The first three extensions of the MFA, instead of liberalising the
trade in textiles and clothing, further intensified restrictions on imports, specifically
affecting the developing country exporters of the textile and clothing products.
Increased usage of several MFA measures tended to further erode the trust which
developing countries had originally placed in the MFA.
The MFA set the terms and conditions for governing quantitative restrictions on
textile and clothing exports of developing countries either through negotiations or
bilateral agreements or on a unilateral basis. The bilateral agreements negotiated
between importing and exporting country’s contained provisions relating to the
products traded but they differed in the details. The restraints under the MFA were
often negotiated, or unilaterally imposed at relatively short intervals, practically
annually. The quotas could be either by function or fibre
14
Under the MFA, product coverage was extended to include textiles and clothing made
of wool and man-made fibres (MMF), as well as cotton and blends thereof. With
regard to applications of safeguard measures, import restrictions could be imposed
unilaterally in a situation of actual market disruption in the absence of a mutually
agreed situation. However, in situations involving a real risk of market disruption
only bilateral restraint agreements were possible. The Textile Surveillance Body
(TSB) was set up to monitor disputes regarding actions taken in response to market
disruptions.
The MFA permitted certain flexibility in quota restrictions for the exporters so that
they could adjust to changing market conditions, export demands and their own
capabilities. The MFA also provided for higher quotas and liberal growth for
developing countries whose exports were already restrained. The MFA asked the
participants to refrain from restraining the trade of small suppliers under normal
circumstances. In general, developed countries, under MFA, chose not to impose
restrictions on imports from other developed countries
The TSB ensured compliance by all parties to the obligations of bilateral agreements
or unilateral agreements. It called for notification of all restrictive measures. A
Textiles Committee – established as a management body consisting of all member
countries – was the final arbiter under the MFA and worked as a court of appeal for
disputes that could not be resolved under TSB.
Unsatisfactory experience with several extension protocols of the MFA, retention
clauses, such as “good will”, “exceptional cases”, and “anti-surge” and other trade
related factors led the developing countries to press for the inclusion of the textile
issue in the agenda of the GATT Ministerial meeting.
The eventual outcome of prolonged negotiations was the Agreement on Textiles and
Clothing.
15
Agreement on Textiles and Clothing (ATC)
The ATC calls for a progressive phasing out of all the MFA restrictions and other
discriminatory measures in a period of 10 years. In contrast to the MFA, the ATC is
applicable to all members of the WTO.
.
Four Steps over 10 Years
16
Steps Percentage of products
to be brought under
GATT (including
removal of quotas)
How fast remaining
quota should open
up, if 1994 rate was
6%
Step 1
1st Jan 1995 – 31st Dec 1997
16 percent (minimum
taking 1990 imports as
base)
6.96 percent annually
Step 2
1st Jan 1998 – 31st Dec 2002
17 percent 8.70 percent annually
Step 3
1st Jan 2002 – 31st Dec 2004
18 percent 11.05 percent
annually
Step 4
1st Jan 2005
Full integration into GATT and final
elimination of quotas , ATC
terminates
49 percent (maximum) No quotas left
17
Top 10 Exporters (Textile)
Country 1990 1997
Billion US$ % share Billion US$ % share
Hong Kong 7.99 7.68 14.6 9.42
China 7.10 6.82 13.83 8.92
South Korea 6.04 5.81 13.35 8.61
Germany 14.00 13.46 13.05 8.42
Italy 9.80 9.43 12.9 8.32
Taiwan 6.13 5.90 12.73 8.21
USA 5.03 4.83 9.19 5.93
France 7.21 4.65 5.86 5.64
Belgium-
Luxembourg 6.54 6.29 7.01 4.52
Japan 5.88 5.65 6.75 4.35
Total (Top 10) 74.36 71.5 110.62 71.37
World 104.00 100.00 155.00 100.00
18
Top 10 Exporters (Apparel)
Country 1990 1997
Billion US$ % share Billion US$ % share
China 9.41 9.14 31.8 21.06
Hong Kong 15.37 14.92 23.11 15.30
Italy 12.07 11.72 14.85 9.83
USA 2.57 2.49 8.68 5.75
Germany 7.82 7.59 7.29 4.83
Turkey 3.44 3.34 6.7 4.44
France 4.65 4.51 5.34 3.54
UK 3.08 2.99 5.28 3.50
South Korea 8.11 7.87 4.19 2.77
Thailand 2.86 2.78 3.77 2.50
Total (top 10) 69.38 67.36 111.01 73.52
World 103.00 100.00 151.00 100.00
19
EU Top Ten Suppliers of MFA Clothing: Rank Price
(AGR 1994-96)
1995
Ranks and Average Price
1996
Ranks and Average Price
Rank
Price
CAGR
1994-96
Country Rank in
Value
Rank in
Volume
Avg.
Price,
Ecu/Kg
Rank in
Value
Rank in
Volume
Avg. Price,
Ecu/Kg
China 2 1 9 1 1 8 3
Turkey 1 2 2 2 2 6 7
Hong Kong 3 3 6 3 3 5 9
Tunisia 4 7 3 4 6 3 4
Morocco 5 6 5 5 7 4 2
Poland 6 8 2 6 8 1 8
India 7 5 7 7 5 9 10
Bangladesh 8 4 10 8 4 10 5
Romania 9 10 4 9 10 2 1
20
Post-MFA / ATC Scenario
It is generally believed that quota phase-out can only be beneficial for the industry.
In 1993, a study of seven countries found that the price of cotton yarn per kilo, was
cheapest in India at US$ 2.79, compared to US$ 3.30 in Brazil, US$ 4.19 in Japan,
and US$ 3.10 in Thailand. This was because overall labour and raw material costs are
cheaper in India.
However, it should be realised that the opposite can also happen. Removal of quotas
may open new frontiers but will also close captive markets. The EU and the US will
no longer be restrained in buying as much as they want from the cheapest possible
sources. Some argue that the ending of quotas will result in cut-throat competition
between developing countries. Coupled with this is erosion in the growth of markets
in industrial countries. Apparent consumption of textile products, in real terms,
remained stagnant during the decade 1985-95. Purchases become discretionary and
fashion-driven. As a result, fashion cycles got shorter and order-cycles compressed.
Retailers order requirements on short-order cycle term and demand rapid responses to
in-season ordering. Hence, they are compelled to secure their supplies of top-up
orders from those in close vicinity.
There is, therefore, a propensity towards sourcing from low-cost countries in the
neighbourhood as also a growth of offshore processing by manufacturers in developed
countries. Regional integration reinforces this.
Further exporters in India fear that freer imports could lead to dumping of low-cost
fabrics from China and other Southeast Asian countries. Thus, the industry needs
restructuring on all fronts. Although the policy framework can be blamed partially for
its ills, internal factors are equally important.
Recent studies indicate that India is beginning to lose out to its rivals. In one survey of
US textile and apparel imports, China and Hong Kong had higher market shares than
India. In certain categories, other Asian low cost producers like Pakistan and
Indonesia had higher market shares and had emerged as close competitors to India.
Because many of these countries depend on imports, however, India can take
advantage of home
21
production.
Further, formation of NAFTA means direct competition from the Latin American
countries. The United States has farmed-out offshore processing work to enterprises
in Mexico and the Caribbean Base Initiative countries. Similar relocation has taken
place in Europe with manufacturers shifting base to Eastern Europe, which provides
similar advantages of cheap labour and proximity.
According to projections by TECS, EU imports of ready-made fabrics will double
between 1994 and 2004, as a result of the elimination of quotas. US imports are
expected to treble over the same period.
According to another prediction, apparel output could more than double (i.e. expand
by 241%) between 1995 and 2005, compared to an increase of only 114%, without the
agreement on textiles and clothing.
By increasing market access, the ATC will generate multiplier effects in the Indian
economy, eventually feeding back into the textile industry itself. The rise in demand
for exports could increase output and employment in the textile industry. This in turn
will stimulate the agricultural sector to meet the rising demand for cotton. As profits
rise, so will wages, which will act as further stimulus. The export boom in the textile
and clothing industry will also generate considerable foreign exchange.
Given India’s high quota growth rates during the phase-out period, its competitive
product niches and established links with retailers and importers in developed
countries, it should experience vigorous growth in the future. The World Bank
predicts a growth rate of 16% per annum in the coming decade.
Ultimately, the extent that India will benefit from trade liberalisation depends on its
current cost competitiveness, its ability to increase productivity and upgrade quality.
Implications on Indian Exports (Optimistic Scenario)Yarn
+ Garment exports of Bangladesh increase leading to increase in consumption
of Indian fabric and yarn
22
+ Exports of Far-East & ASEAN increase further
+ Rationalization in duties of MMF leading to increase in processing of fibres in
India
Fabric/Made-ups
+ Garmenting dereserved leading to entry of large textile players ensuring
efficient sourcing and increase in the margins
+ Increase in investment for processing
+ Improvement in SAPTA trade
Garments
+ Garmenting and Knitting de-reserved to allow the units to grow bigger to be
able to service large orders and large clients
+ Labor laws in India become industry friendly
+ Garment parks come up in key regions giving a boost to exports
+ Successful Quota Phase-out without exports getting restricted by QRs
Fig in US $ Mn
1994 1998 2002 2005* 2010*
Yarn 590 1780 2333 2701 3131
Made-ups 851 1498 2620 4527 11266
Fabric 1214 1716 2512 3530 7100
Garments 3713 4829 6510 10794 21711
Total 6368 9823 14035 21552 43208
* Projections
Implications on Indian Exports (Pessimistic Scenario)
23
Yarn
- Change works to the advantage for S. Korea/ASEAN/Far-East
- Demand for packages increases
- EEC other garment supply countries invest in back-end processes
Fabric/Made-ups
- Environmental Clause impacts
- Investment in processing does not happen
- Blends and synthetic fabrics dominate reducing advantage of Indian cotton
Garments
- Social clause impact leading to ban on some categories, etc.
- SSA is a reality impacting exports of garments from India to USA and EU
- FTA becomes a reality
- Other projectionist measures come up
As opposed to the optimistic scenario, the pessimistic scenario shows a shortfall of
nearly US $4000 mn of exports in year 2005 and the exports are not likely to be much
higher than the present figures. It would also lead to development of textile and
clothing industry in the other nations and India would lose out as a significant player
in the industry. This would also stifle the domestic textile industry which would be in
a very weak position to compete with imports. (These are expected to become cheaper
with import duty rationalization as per international treaties and cost competitiveness
of overseas players). Some of the subsidies currently extended by the Indian
government to promote exports which are sector specific (TUF, 80 HHC) or region
specific (EPZS, EOUS) may also need to be withdrawn.
Fig in US $ Mn
24
1994 1998 2002 2005* 2010*
Yarn 590 1780 2003 2126 2022
Made-ups 851 1498 2038 2427 3098
Fabric 1214 1716 1931 2050 2154
Garments 3713 4829 5435 5939 6885
Total 6368 9823 11408 12542 14159
* Projections
Conclusions
To effectively tackle the situation India needs to invest in research and development
to develop new products, reduce transaction costs, reduce per unit costs, and finally,
improve its raw material base. India needs to move from the lower-end markets to
middle level value-for-money markets and export high value-added products of
international standard. Thus the industry should diversify in design to ensure quality
output and technological advancement.
The weakest links in the entire chain are the powerlooms and the processing houses.
The latter especially are very important because they are responsible for the highest
value addition in the manufacturing line. A powerloom co-operative structure could
be evolved for pooling of common services and functions such as quality testing,
marketing, short-term financing, etc. Further, because of the geographical proximity
enjoyed, a cluster approach can be adopted.
The government also needs to make policy changes like dereserving the small-scale
sector so that it can achieve economies of scale and adopt a synergistic approach.
Handlooms by their very nature can adopt a strategy of "niche” marketing. In this
respect, export promotion, common credit and marketing facilities and more
significantly publicity are important areas for co-operation. Here too, a co-operative
25
structure would be useful though government agencies should be involved because of
their outreach. Newer and more innovative forms of involvement are required where
decentralisation should be a key element.
India has made little attempt to forge partnerships – in equity, technology and
distribution in overseas markets. The newer nuances of global apparel trade demand
joint control of brand positioning, distributing and quality assurance systems.
The Indian textile industry has recognised the need for a cradle-to-grave approach
when tackling environmental issues i.e. eco prescription should be applied right from
the stage of cultivation to spinning to weaving to chemical processing to packaging.
Here especially there is great scope for private -public partnerships.
A great deal of work has been done by Indian trade and industry to comply with
ecological and environmental regulations, and so Indian garments can adopt an
appropriate label signifying a distinct quality.
Efficiency and output of handloom and powerloom sectors also needs to be increased.
The clothing sector needs the support of high quality and cost-effective cloth
processing facilities. Modernisation of mills is a must.
Human resource is another area of focus. The workforce must be trained and oriented
towards high productivity.
The business environment of the future will be intensely competitive. Countries will
want their own interests to be safeguarded. As tariffs tumble, non-tariff barriers will
be adopted. New consumer demands and expectations coupled with new techniques
in the market will add a new dimension. E-commerce will unleash new possibilities.
This will demand a new mindset to eliminate wastes, delays, and avoidable
transaction costs. Effective entrepreneur-friendly institutional support will need to be
extended by the Government, business and umbrella organisations.
Areas where German development co-operation can help are enumerated below.
26
Input Areas
Policy framework is complex with inputs from many ministries. The following
chart is not meant to be exhaustive but only to indicate areas where German
development co-operation can have an impact.
Areas of Co-operation
Provision of co-operative structures for quality testing, marketing, brand-building
Technological upgradation (egs. Effluent treatment plants, energy saving devices, and
other machinery related directly to the production process like spreading, cutting,
finishing, etc.)
Adoption of environment-friendly technology to pre-empt the adverse impact of non-
tariff barriers. This includes environmental monitoring / testing equipment and services,
combating air pollution (package scrubber, special air pollutant treatment for H2S, CS2),
solid waste removal, wastewater disposal
Development of textile-specific software for India, Computer-Aided Textile Designing,
aiding IT integration
Working out alternative techniques / frame conditions such that sanitary and phyto-
sanitary measures are not a problem
Managerial training to encourage adoption of techniques like JIT, Quick Response
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Systems
Usage of EPS (Electronic Point of Sale) software
Promoting labels like RUGMARK (carpets) in textiles so that consumers are satisfied
that child labour has not been employed, to counter negative publicity generated by the
"Clean Clothes" movement, etc.
Promoting hand-made articles by improving quality of raw materials and introducing
machinery where possible in the process so as to maintain standards of quality and
design
Development of new products
Adoption and adaptation of state-of-the-art information technology in enterprise resource
planning so as to pre-empt non-tariff barriers which curtail markets for the Indian textile
industry
Helping firms build close relationships with customers
Training centres
Short-term credit
Improvement of synthetic fibre-base to reap economies of scale, use of genetic
engineering, bio-technology, and cellular biology in both natural and synthetic fibre-base
THE TEXTILE COMMISIONER ORGANISATION
28
The function of the Organization are many and diverse to advise the
Government and planning commission on the targets of production for the varies Five
Year plans, to scrutinize proposals form mills few expansion recommended new
installations for licensing to exe4rcise control over the pattern of production, to ensure
adequate supplies of Raw materials to the industry and to make recommendations to
Government in this regard to collect and publish all relevant statistical data relating to
production, stocks, imports, exports etc., in the Administrative authority for
implementation of Government polices with regard to all Textile Industry.
Cotton Textile Industry being the largest Industry in India. Has spread
practically are all parts of the country, it is mostly localized in the states of
Maharashtra and Gujarat. In recent years, Cotton Textile Industry has also spread to a
number of other states like Madhya Pradesh, Bihar, Kerala , Andhra Pradesh, Uttar Pradesh
and
II. PROGRESS DURING FIVE YEAR PLAN.
In the Five year Plan period the Planning Commissioner fixed a target of about 745
million Kgs of yarn and about 4,230 million meters of cloth for the mill sector. The actual
production amounted to 760 million Kgs of yam and about 4,775 million meters of cloth.
In the Third fiver-year Plan period the target was fixed at 1,020 million kgs. Of
yarn and 5,220 million meters of cloth. The actual production was lower than that in the
Second Five Year Plan period.
The Fourth five-year Plan target was 81 lack bales. The fifty year plan target had
been of the order of 84 lakes bales. The target for the sixth plan has been 92 lakes bales. The
Government, to ensure proper import of cotton, had set up one agency called Cotton
Corporation in 1970. Its authorized capital 5 corers and the paid up capital 50 lakhs.
Through the corporation is intended to undertake only import trade purchase cotton by way
of price support. The corporation also purchases cotton required for mills which are
functioning under the national textile Corporation.
The Industry however has no resources for the huge task of replacement and
29
modernization. The government and public sector financial institutions will have to
provide the necessary funds for this purpose. At one time nearly third of mills were closed
down, throwing thousands of workers out of employment.The Government established
in 1986, Textile Corporation (NTC) a restricted framework having the following 3
dimensions the industiy shall be viewed in terms of stages of its manufacturing process
spinning, weaving and processing. The Industry shall be provided with fuller
flexibility in the use of various fibers and the Industry shall be subjected to more
programmatic polices regarding creation or contraction of capacities by units in order
to increase competition and promote health} growth in Industry.
The new textiles policy has made an elaborate statement on take over and
revival of sick units. The new textiles policy in the same breathes categorically status.
Take over by the Government or nationalization of such units does not provide
solution to the problem of sickness and the Government would not as a rule in intervene
in such case.
Modernization in the spinning, weaving and processing sections shall be under
taken on the basis of carefully identified needs of each unit as to installation of
equipment, renovation of equipment, renovation of existing machinery, replacement
and technology up gradation, there was a mixed relation to the new textile policy,
specially the reduction of Piscal lives on man a made fibers and yarn, the liberal
import of machinery which was not indigenously manufactured and the permission to
close down nonviable units.
The Cotton textiles fund committee was established by an ordinance in 1944. The
objectives of the Committee were to provide funds the textiles research, to under
taken implications of all textiles for export and to conduct research into the
consumption of textiles.
GENERAL:
30
In spite of adverse trading conditions that prevailed during the year, it is heartening
to note that nine mills-seven full and two associated enrolled as members. SITRA has, in all
424 members comprising of 516 units which include 420 spinning mills, 72 composite
mills, 13 machinery manufactures and 11 fiber manufacturing and process house. It is
significant that over 20% of the members are from outside SITRA Zone inclusive of 16
from overseas. In addition SURA'S services are availed by 56 small spinning mills who
are registered as technical service card holders. SITRA ALSO DOES EFFECTIVE
TRANSFER OF technology to the power looms units and the knitting industry in the
southern region through its PLSC AND AEPC.
COMPANY PROFILE
31
Sree Akkamamba Textiles limited (SATL), a part of Andhra Sugar: si In concern
was promoted in 18 April 1954 Sri Mullapudi Harischandral'iu «KI Associates. The
promoters got equity support from Financial Institutions like II 'III. IIBI, ICICCI, Andhra
Bank, State Bank of India, State Bank of Hyderabad and Pul-lii Deposits.
The company Sree Akkamamba Textiles Limited is a broad managed company
11 Directors on the Board. Sri. Mulapudi Harischandra Prasad is ||u-Chairman and
Managing Director and Sri. M.S.R.V.K.Ranga Rao is the Director. The other members of
the board include representatives of the VHILHIS financial institutions and organizations
that have equity stake in the company nl have provided loan assistance to the
company.
The company is a manufacturer of hank yarn and cone yarn. Production is carried
out in the plant situated in Venkatarayapuram, Tanuku, West Goda MM District in
Andhra Pradesh. The plan operated with sophisticated talin-il collaboration of
machinery by using it high-speed spinning and textile weaving process. The plant has dual
feed facility with the help of which production can be carried out either like cotton or
polyester or viscose as one of he major raw malci I; With recent expansion, the capacity has
been increased substantially.
The expansion was completed in 1988, the plant function with 3 spinning in 11, having
installed capacity of 9009 spindles.
The Company Directors Director are assisted by qualified and experien s I
professionals in various fields of production, research and development expi its finance
marketing, secretarial and legal functions. The total manpower, ul IK company
including managerial, personnel, executive staff, trainees and workmen amount to 750.
SAT Ltd. Has its corporate of at Venktarayapuram Tanuku
The company has been operation the plant constantly since inception <ii nil capacity
and has made a mark wit it quality product and its after sales service;!, i lie company has an
impressive record in terms of increasing turnover (including expi lis) and its profits, as
revealed by the financial statements. The company presently i; tol playing dividends the
shareholders.
With a growing market of polyester fabrics, the company foresees i f-tiily large
gap in demand and supply of its products. Presently, the firm is incurring as it is less that
5 years old and faces competition from the likes of Satyanarayana Spinning Ltd.,
Venkatarayan Spinning Ltd, Rambhadra Spinners Ltd, ami timet Andhra Pradesh
32
Textiles industries etc.,
The company being a progressive one carries out research and Developmt ill in
specific areas like reducing raw material consumption and reducing waste 1 hi company
plant to manufacture value added polyester products as well.With an already impressive
track record, State safety Award from Andhra Pradesh Government for environmental
safe.
MARKET SCENARIO
The cotton yarn, viscose cotton yarn and polyester yarn market has Ifei
expanding, opening venues in both domestic and international circuit for marketing
The major buyers of the company's products are wavers, texruristers and povyei
looms.
The customer's are mainly concentrated in the western region of the amnio
This also making a mark in the Southern Market. Exports have increased ovi r ||.
years. The company has tapped markets in Bangladesh, Srilankha and otliei Ire: I
areas like Mumbai, Ahmedabad, Chennai, Calcutta and East and West GiHh'aii
surrounding weavers' areas and etc.
The product cotton yarn is manufactured and marketed over a product i uu-
The product range includes yarn of different levels.
Sl.No. Item code No.
(1TC code )
Product Descnpi inn
1 520515.01 Cotton Yam
2 550953.00 Polyester Cotton Vain
3. 551030.09 Viscose Cotton Y';im
33
The Company has vibrant demand for each yarn h modifies its product is as
an when required. This flexibility enables He Company to maintain, if share and
retain its customer base.
The company is functioning in a competitive oligopolistic market, wherein thee
are few but big players. Its present competitors are Satyanaryana Spinning Ltd.