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TEXTILE INDUSTRY

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1.1 Textile: Meaning

The word textile mean for any artifact made by weaving or felting or knitting or crocheting natural or synthetic fibers.

The textile industry (also known in the United Kingdom and Australia as the Rag Trade) is a term used for industries primarily concerned with the design or manufacture of clothing as well as the distribution and use of textiles.

1.2 Textile industry: History of growth

New innovations in clothing production, manufacture and design came during the Industrial Revolution – these new wheels, looms, and spinning processes changed clothing manufacture forever. The ‘rag trade’, as it is referred to in the UK and Australia is the manufacture, trade and distribution of textiles.

There were various stages – from a historical perspective – where the textile industry evolved from being a domestic small-scale industry, to the status of supremacy it currently holds. The ‘cottage stage’ was the first stage in its history where textiles were produced on a domestic basis. During this period cloth was made from materials including wool, flax and cotton. The material depended on the area where the cloth was being produced, and the time they were being made.

In the later half of the medieval period a variety of processes and innovations were implemented for the purpose of making clothing during this time. These processes were dependent on the material being used, but there were three basic steps commonly employed in making clothing. These steps included preparing material fibers for the purpose of spinning, knitting and weaving.

During the Industrial Revolution, new machines such as spinning wheels and handlooms came into the picture. Making clothing material quickly became an organized industry – as compared to the domesticated activity it had been associated with before. A number of new innovations led to the industrialization of the textile industry in Great Britain. Clothing manufactured during the Industrial Revolution formed a big part of the exports made by Great Britain. They accounted for almost 25% of the total exports made at that time, doubling in the period between 1701 and 1770. The center of the cotton industry in Great Britain was Lancashire – and the amount exported from 1701 to 1770 had grown ten times. However, wool was the major export item at this point of time.

Today, modern techniques, electronics and innovation have led to a competitive, low-priced textile industry offering almost any type of cloth or design a person could desire. With its low cost labour base, China has come to dominate the global textile industry.

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1.3 Indian textile industry:

The Indian textile industry is one of the oldest and most significant industries in the country. It accounts for around 4 per cent of the gross domestic product (GDP), 14 per cent of industrial production and over 13 per cent of the country's total export earnings. In fact, it is the largest foreign exchange earning sector in the country. Moreover, it provides employment to over 35 million people.

The Indian textile industry is estimated to be around US$ 52 billion and is likely to reach US$ 115 billion by 2012. The domestic market is likely to increase from US$ 34.6 billion to US$ 60 billion by 2012. It is expected that India's share of exports to the world would also increase from the current 4 per cent to around 7 per cent during this period.

India's textile exports have shot up from US$ 19.14 billion in 2006-07 to US$ 22.13 billion in 2007-08, registering a growth of over 15 per cent.

1.4 Key facts of Indian textile:

Indian Textile Industry is second largest industry in terms of providing vast employment opportunities, employing around 35 million people in country after agriculture sector and second largest after China, in terms of spindleage, and has share of 23% of the world’s spindle capacity.

The Textile Industry plays vital role in economic development and contributes 14% to industrial production in the country, contributes around 4% of GDP, 9% of excise collections, 18% of employment in industrial sector, and has 16 % share in country’s export.

Industry has direct and strong linkage with rural and agriculture sector, therefore it is estimated that, one of every six households in country is directly or indirectly dependent on this industry. Also India is evolved as a major contributor in world’s cotton sector. Indian is the world’s third-largest producer of cotton and second-largest producer of cotton yarns and textiles.

India is the largest exporter of yarn in the international market and has a share of 25% in world cotton yarn export market.

India contributes for 12% of the world’s production of textile fibers and yarn. Including textiles and garments, 30% of India's export comes from this sector. Large and potential domestic & international market, large pool of skilled and cheap

labor, well-established industry, promising export potential etc. are few strengths of Indian Textile Industry.

Highly Fragmented, High dependence on cotton sector, Lower productivity, Unfavorable Labor Laws is few drawbacks of the industry from which it has to overcome.

After the elimination of quota restrictions and implementation of National Textile Policy 2000, it is estimated that the industry will grow with rapid rate and help to strengthen the Indian economy.

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 Exports in April-

Dec 2006-07(US$ Mn)

Exports in April-Dec 2007-08(US$ Mn)

Share in April-Dec 2006-07

(%)

Share in April-Dec 2007-08

(%)

Cotton Textiles 3092.28 3375.63 28.17 28.12

Manmade Textiles 1605.76 2075.85 14.63 17.30

Woolen Textiles 63.07 64.47 0.57 0.54

Cotton Garments 4908.63 5184.66 44.72 43.20

MMF Garments 712.89 621.02 6.49 5.17

Woolen  Garments 273.35 286.03 2.49 2.38Garments Of

Other Textiles 321.62 394.43 2.93 3.29

Total Exports  10977.60 12002.60 100.00 100.00

India's Exports of Textile Products

1.6 Government Initiatives:

In an effort to increase India's share in the world textile market, the government has introduced a number of progressive steps.

100 per cent FDI allowed through the automatic route. De-reservation of readymade garments, hosiery and knitwear from the small-scale

industries sector in end-2000. Technology Mission on Cotton was launched in February 2000 to make quality raw

material available at competitive prices. Technology Upgradation Fund Scheme (TUFS) which was launched to facilitate the

modernisation and Upgradation of the textiles industry in 1999 has been given further extension till 2011-12. A total of 18773 applications involving a project cost of US$ 24.91 billion have been sanctioned under TUFS upto March 31, 2008.

40 textile parks are being set up under the Scheme for Integrated Textile Parks (SITP) which will attract an investment of US$ 4.38 billion.

In current times of a global meltdown, the government has come out with an economic stimulus package for the textile industry. This includes:

Additional allocation of US$ 285.66 million to clear the entire backlog in TUFS, which would enhance cash flow of the exporters.

Extension of interest rate subvention of 2 per cent on pre and post shipment credit Additional fund of US$ 224.42 million for refund of terminal excise duty

1.7 Budget 2009-10: Textiles

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The textile industry was eagerly awaiting the implementation of a comprehensive Goods and Service Tax (GST), which will help in eliminating multiple taxes. This demand has been met by the budget wherein the government would accelerate the process for smooth introduction of the GST with effect from 1st April, 2010

Customs duty on cotton waste and wool waste has been reduced from 15% to 10% Excise duty exemption of 4% on pure cotton would now be restored Excise duty on man-made fiber and yarn has been increased from 4% to 8%. This

measure was against the industry demand for a complete removal of the duty List of specified raw materials and equipment imported by manufacturer exporters of textile products which are fully exempt from customs duty, subject to specified conditions, to be expanded. The inclusion of more items in this list would have a positive impact on the sector as companies would be able to enjoy more benefits on imports of a large variety of items

Extension of the existing 2% interest subvention scheme for exporters till March 2010 One handloom mega cluster each in West Bengal and Tamil Nadu and one powerloom

mega cluster in Rajasthan would be set up. New mega clusters for carpets would be set up in Srinagar (J&K) and Mirzapur (UP)

The budget has been quite disappointing for this sector as the key demands for the sector have not been met. The industry had been asking for removal of excise duties on all man-made fibers’ and scrapping of service tax. Also, there was demand for restoration of a 4% interest rate subsidy on bank loans for exporters. Though the government has announced extension of the existing 2% interest subvention scheme for exporters till March 2010, the same was not increased to 4%, as demanded by the sector. The industry had also expected increase in duty drawback and DEPB (Duty Entitlement Pass Book) rates to 5% from 3%, but the same has not been done. The impact of these government moves could negatively impact companies like Century Textiles, Alok Industries.

A file picture of a powerloom

1.8 Impact of global recession on India’s textiles exports

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India’s textiles and clothing export has observed ups and downs in recent times. It was anticipated that India with a strong supply chain linkage from fibre to garments would be a major beneficiary in the quota free regime and trends observed in Indian textiles exports during the first two years of post quota period also indicated this. However, for the Indian textiles industry which depends almost exclusively on domestic sources the strong appreciation of Indian rupee vis-à-vis the US dollar in 2007-08 landed the textiles and clothing exports in a difficult situation. This was established by the fact that India’s share in global textiles and clothing exports in 2007 declined to 4% and 2.8%, respectively from 4.3% and 3.3% in 2006.

The world is currently passing through a recessionary phase and the major markets like US, EU and Japan are facing financial crisis. In this environment, the textiles and auto sectors are the worst hit sectors, particularly as these are considered to flourish in good times. US, the single largest importer of textiles and clothing items, has observed a negative growth of 3.34% and 0.55% in its imports of textiles and clothing from the world and India, respectively during calendar year 2008. Even China which occupied about 33% market share in the US, managed to record a small growth of 0.97% during the same period. The overall US markets of textiles and clothing has shown a decline of 14.19% in the first two months of current calendar year and India has also recorded a decline of 13.77% in the same period.

In 2008 EU’s overall imports of textiles and clothing recorded a growth of 7.32%, India managed to record a growth rate of 6.42%, while China, largest exporter with a share of 38.5% in EU, recorded a growth of 20.46%. In the current calendar year, India’s growth rate has slipped and recorded a decline of over 15% in January, 2009 over January, 2008 while EU’s overall imports of T&C also recorded a decline of 9.96%.

Some of the reasons attributed to this decline are the financial sector meltdown and economic slowdown in international markets, increased cost of production due to increasing raw material costs, power and other input costs which have affected the profitability of textiles and garments units in India and their exports. The liquidity crunch is another factor that is affecting the industry.

The Government introduced two packages of duty concessions, tax and interest rebates in December, 2008 and January, 2009 to provide stimulus to the economy in general to combat the recession.

---- Source : International Trade Section Updated on 11-05-09

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1.9.1 Major Challenges in Textile:

Business Challenges:

Outperforming foreign competition Maintaining high quality standards and productivity Cost competitiveness Investment in new and efficient technologies Flexibility in labour laws Energy conservation and Environmental Protection Product innovation Cost effective supply chain management Modernization

Managerial Challenges:

Operational excellence Motivated work environment Effective strategy formulation and implementation Managerial and technical expertise Transparency in managerial practices and work systems Improving organizational performance

1.10 Indian Textile Industry and its Global Position:

The Indian Textile Industry is the second largest in the world. It has the largest cotton acreage (9 million hectares). It is the third largest cotton producer. It ranks fourth in terms of staple fibre production, and sixth in filament yarn production. India accounts for (circa) 25% of the Global trade in cotton yarn. It is the largest producer of Jute, the second largest producer of silk and the 5th largest

producer of synthetic fibre / yarn.

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COMPANY PROFILE

2.1 Introduction to vardhman:

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Vardhman is a major integrated textile producer in India. The Group was setup in 1965 at Ludhiana, Northern India. Since then, the Group has expanded manifold and is today, perhaps, the largest textile conglomerate in India. The Group portfolio includes manufacturing and marketing of Yarns, Fabrics, Sewing Threads, Fibre and Alloy Steel.

Vardhman Textiles Limited manufactures and markets textile products in India. The company involves in producing various types of yarns, including cotton, manmade fibers, and blends, as well as yarn processing activities. It also produces sewing and industrial threads to use in clothes, furnishings, wallets, hand bags, suitcases, shoes, car upholstery, tents, kite-flying, and various industrial applications, as well as offers grey and processed fabric. In addition, the company provides steel ingots, steel billets, and various rolled steel products. Further, it produces fibre for various applications, such as hand knitting yarns; machine knitting yarns for jerseys and sweaters; sarees; dress materials; upholstery; furnishings; velvets; blankets; and carpets. The company was formerly known as Mahavir Spinning Mills Limited and changed its name to Vardhman Textiles Limited in September, 2006. VARDHMAN stands as a symbol of our strength, performance and reliability and we pledge to cater you the same for many years to come

Today, the Vardhman Group combines the following companies:

Listed

companies

Vardhman Textiles Ltd [VTXL] (formerly Mahavir Spinning Mills Ltd.)

Vardhman Acrylics Ltd. (VAL)

Vardhman Holdings Ltd [VHL] (formerly Vardhman Spinning & General Mills

Ltd.)

Unlisted

companies

VMT Spinning Company Ltd. (VMT)

Vardhman Threads Ltd. (VTL)

2.2 Mission:

Vardhman aims to be world class textile organization producing diverse range of products for the global textile market. Vardhman seeks to achieve customer delight through excellence in manufacturing and customer service based on creative combination of state-of-the-art technology and human resources. Vardhman is committed to be responsible corporate citizen.

2.3 Philosophy:

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Faith in bright future of Indian textiles and hence continued expansion in areas "which we

know best".

Total customer focus in all operational areas

Products to be of best available quality for premium market segments through TQM and

zero defect implementation. all functional areas.

Global orientation targeting - at least 20% production for exports.

Integrated diversification/product range expansion

World class manufacturing facilities with most modern R&D and process technology.

Faith in individual potential and respect for human values.

Encouraging innovation for constant improvements to achieve excellence in all functional

areas.

Accepting change as a way of life

Appreciating our role as a responsible corporate citizen.

2.4 History:

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The industrial city of Ludhiana, located in the fertile Malwa region of Central Punjab is otherwise known as the "Manchester of India". Within the precincts of this city is located the Corporate headquarters of the Vardhman Group, a household name in Northern India. The Vardhman Group, born in 1965, under the entrepreneurship of Late Lala Rattan Chand Oswal has today blossomed into one of the largest Textile Business houses in India.

At its inception, Vardhman had an installed capacity of 14,000 spindles, today; its capacity has increased multifold to over 5.5 lacs spindles. In 1982 the Group entered the sewing thread market in the country which was a forward integration of the business. Today Vardhman Threads is the second largest producer of sewing thread in India. In 1990, it undertook yet another diversification - this time into the weaving business. The grey fabric weaving unit at Baddi (HP), commissioned in 1990 with a capacity of 20,000 meters per day, has already made its mark as a quality producer of Grey poplin, sheeting, and shirting in the domestic as well as foreign market. This was followed by entry into fabric processing by setting up Auro Textiles at Baddi, which currently has a processing capacity of 1 lacs meters/day.

In the year 1999 the Group has added yet another feature to its cap with the setting up of Vardhman Acrylics Ltd., Bharuch (Gujarat) which is a joint venture in Acrylic Fibre production undertaken with Marubeni and Exlan of Japan. The company also has a strong presence in the markets of Japan, Hong Kong, Korea, UK and EU in addition to the domestic market. Adherence to systems and a true dedication to quality has resulted in obtaining the ISO 9002/ ISO 14002 quality award which is the first in Textile industry in India and yet another laurel to its credit.

The company emphasized in the area of productivity, quality, cost effectiveness and energy conservation.

The philosophy of Vardhman is to focus on use of all resources in achieving perfection in operational

performance, standards of productivity, work norms, cost per/kg and spindle/shift , These have been

appreciated by the various textile institutes in their comparative surveys of industries. The performance is

reflected in the balance sheet of the company in the area of energy as per unit product basis.

Apart from this we have a training center at Ludhiana where training programs are being conducted for

staff and officers. For workers a MANAV VIKAS KENDER is established since 1984 inside the mill

premises for training & development of workers. We have also adopted the concept of Quality Circle and

Total Productivity Management (TPM) in our mill. We have KAIZEN Scheme to get suggestion on

energy savings, improvement in work culture, increase in production & productivity, safety, waste

minimization and cost reduction etc.

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Companies Detail Address:

Chandigarh Road, Ludhiana

India, 141010

Phone: 91 16 1266 2543

Fax: 91 16 1266 2543

www.vardhman.com

2.5 Logo of the Vardhman Group:

The “FLAME” signifies Growth i.e. growth of the company along with the growth of each and every individual associated with it whether he/she is a worker, an employee, an employer, a shareholder or a customer.

The “STICK” symbolizes Cotton i.e. the basic raw material of the core product of Vardhman.

The “V” stands for the Vardhman group.

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Organization chart _VSGM

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2.6.1 BOARD OF DIRECTORS

Sh. Shri Paul Oswal - Chairman & Managing Director Sh. Arun Kumar Purwar - Director

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Sh. Ajay Kumar Chakraborty - Nominee Director Sh. Sachit Jain - Executive Director Smt. Suchita Jain - Executive Director Sh. D.L Sharma - Director Sh. Vinod Kumar Saxena - Nominee Director Dr. T.N Kapoor - Director Sh. Prafull Anubhai - Director Sh. S.K Bansal - Director Sh. S.K Bijlani - Director

2.6.2 CORPORATE GENERAL MANAGER

Sh. Neeraj Jain - (Chief Executive, Operations)

2.6.3 COMPANY SECRETARY

Sh. Vipin Gupta - Company Secretary

2.6.4 BANKERS

State Bank of Patiala Allahabad BankICICI Bank Ltd. Punjab National BankState Bank of India Bank of BarodaCorporation Bank Bank of AmericaUnion Bank of India Canara BankStandered Chartered Bank Banque Nationale De Paris

2.6.5 REGISTRAR & TRANSFER AGENT

Alankit Assignments Limited, New Delhi

2.7 Portfolio:

The group portfolio includes Yarn, Fabrics, Sewing Thread, Fibre and Alloy Steel.

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Yarn:

Yarn Manufacturing is the major activity of the group accounting for 65 percent of the group turnover. Vardhman is virtually a supermarket of yarns, producing the widest range of cotton, synthetics and blended, Grey and Dyed yarns and Hand Knitting Yarns, in which Vardhman is the market leader in India. Technical tie-ups with the world class leaders from Switzerland, Germany, Japan and Korea have provided state-of-the art machinery that has ensured a range of products admired across the globe for their impeccable quality and service.

The group has nine production plants with a total capacity of over 8.5 lacs spindles, spread all over the country. In many of the yarn market segments, Vardhman holds the largest market share. Vardhman is also the largest exporters of yarn from India, exporting yarns worth more than USD 90 million.

Catering to the diverse requirements of the local and global clients, Vardhman offers a wide range of specialized grey, dyed and a variety of blended yarns in cotton, polyester and acrylic. Latest technology, sourced from best available around the world, combined with dexterous hands has made Vardhman a “Super Market of High Quality Yarns”

1994 was another milestone towards its mission to supply quality products. Vardhman further improved the value addition to its existing range of tops, fibre dyed and cone dyed yarns. This was result of new phenomena that emerged on the horizons of Vardhman and also of Indian Textiles. A fully integrated dyeing plant was commissioned with technology from Nihon Sanmo Dyeing Co. Ltd., Japan, and the leader in dyeing technology in the world. It has a capacity of processing 22 tones fibre/tops and 10-tonnes of yarns per day.

Today Vardhman Group has over 50 tones of dyeing capacity per day, spread over various plants.

Products Applications

Cotton Hosiery Yarn All kinds of knitted garments for kids,

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ladies ,gents, socks, t-shirts

Woven Yarn Shirts and Trousers

Tyre Cord yarn Manufacturing of Tyres

Acrylic Yarn Sweaters and Shawls

Hand Knitting Yarn Knitting

Sewing Thread: Vardhman’s journey into sewing threads dates back to the year 1982. Vardhman Threads launched a range of sewing threads in a highly competitive market dominated by transnational. Within a short span of a decade, Vardhman Threads became the second largest brand of specialized threads in the country. The sewing thread manufacturing capacity is being expanded from present 17 tons per day to 22 tons per day in its sewing thread plants located at Hoshiarpur, Baddi and Ludhiana. Sewing threads contributes 12 percent of the group turnover. Vardhman threads are now made of 100% Azo-free dyes that are accepted the world over.

Fabrics: Vardhman ventured into the manufacture of acrylic fibre in 1999. The Joint Venture, Vardhman Acrylics Ltd., was s et up together with two leading Japanese business houses namely Japan Exlan company Ltd. and Marubeni Corporation, Japan. Varlan fibre has achieved a high order of recognition in the Indian market for its use in a wide variety of applications such as dress material, blankets, carpets, upholstery, furnishing fabrics etc. The group has created state-of-the-art fabric weaving and processing facilities in its plant at Baddi, Northern India. The group has installed 208 shuttles less looms and a fabric processing capacity of 30 million meters per annum in collaboration of Tokai Senko of Japan. Fabrics business contributes 8 percent to the group turnover. Today, Vardhman Acrylics ltd. produces consistent superior quality fibre marketed under the brand name VARLAN.

Fibre: The group has recently set up an Acrylic Staple Fibre plant at Bharuch in Gujarat in collaboration with Marubeni and Japan Exlan of Japan. The plant has annual capacity of 18000 tons per annum. Fibre contributes 8 percent to the total turnover of the group.

Steel:The Group is also present in upper-end of the steel industry. The group has manufacturing capacity of 100000 tons of special and alloy steel. The group supplies its steel products to some of the most stringent quality steel buyers like Maruti and Telco. It contributes 6 percent to the total turnover of the group.

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2.8 HOLDINGS:

Vardhman Group consists of 5 SBUs spread across 9 manufacturing locations

Spinning Business

Domestic Trade Area UnitsVardhman Spinning & General Mills Ludhiana, PunjabAuro SpinningBaddi, HPArihant Spinning Malerkotla, PunjabArisht Spinning Baddi, HPGas Mercerised Yarn Business Hoshiarpur, PunjabAuro Dyeing Baddi, HP

Export Oriented UnitsAnant Spinning Mandideep, MP

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Vardhman Spinning & General Mills Baddi, HPVMT Baddi, HP

Fabric BusinessAuro Weaving Baddi, HPMSML Textiles Division Baddi, HPAuro Textiles Baddi, HP

Sewing Thread BusinessST-I Hoshiarpur, PunjabST-II Ludhiana, PunjabST-III Perundurai, TNVardhman Threads Limited Baddi, HP

Vardhman Special Steels Ludhiana, Punjab

Vardhman Acrylics Limited Bharuch, Gujarat

2.9.1 Product Market: Year of Establishment and Market Position

Product Year of Establishment Market ShareYarn 1965 48.23%Steel 1972 13.96%Sewing Thread 1982 12.60%Fabric 1992 16.74%Fibre 1999 08.47%

I.

2.10 Indian market position:

Largest Spinning capacity in India - over half a million spindles.

Largest producer of Cotton, Synthetics and Blended yarns in the country.

Largest Dyeing Capacity of Fiber and Yarn.

Largest Exporter of Cotton Yarn.

Market Leader in Hand Knitting Yarns in India.

Largest range of Textile products.

Second largest producer of Sewing Thread in the country.

Collaborations with specialist worldwide.

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ERP (Enterprise Resource Planning) enabled solutions for online order tracking

2.11 Globalization:

Vardhman ventured in to the global market in 1986 with an export value of one core to reach an outstanding 440crores (92 million Dollars) in 2002.

Little wonder then, that Vardhman, today, exports 40% of its yarn production to more than 25 countries and has a strong presence in markets like the EEC, USA, Canada, China, Japan, Korea, Mexico, Brazil and Mauritius, Middle East. Vardhman has a share of more than 6% in total Yarn exports from India. Its trusted, tested and reliable workforce, coupled with the latest technology, quality consciousness, customer oriented services and strong logistics has given Vardhman an edge over its competitors and in the world’s most quality conscious and price sensitive markets. Thereby making Vardhman a truly international organisation in terms of sourcing from and catering to the world market

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Some of the companies prominent markets includes Australia, Portugal, South Africa, Iran, Tunisia, Morocco, Brazil, Turkey, Bangladesh, Russia, Belgium, Saudi Arabia, China, Singapore, Canada, Sri Lanka, Colombia, Spain, Egypt, Switzerland, Germany , Syria, Greece , Thailand, Hong-Kong, U.K., Indonesia, Ukraine, Uruguay, Italy, Venezuela, Vietnam, Lebanon, New Zealand, Malaysia, Mauritius.2.13 ABOUT THE YARN:

Yarn is a kind of thread, from which various kinds of fabrics has been made and from fabrics various end products has been made. Various types of yarns are:

2.13.1 Product range:

Yarn 100% Cotton- Carded /Combed 100% Acrylic Acrylic / Cotton Polyester / Cotton Melange Cones / Hanks Dyeing Raw white / Bleached / Dyed yarn Compact Yarn Cotton Lycra Yarn Modal/Loycel Cotton

Hand knitting yarn Fancy

Product/Process Global Partners

Fabric Dyeing and Finishing Takai, Senko, Japan

Fibre and Yarn Dyeing Nihon Sanmo Dyeing Corporation Ltd., Japan

Gassed Mercerized Yarns Kyung Bang, South Korea

Sewing Thread American & Efrid Inc., USA

Acrylic Fibre Marubeni Corporation & Japan Exlan, Japan

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Twisted

Sewing threads Cotton Polyester Nylon

Fabrics

Bottom Weight Shirting Dyed yarn Shirting

2.13.2 Vardhman Yarn Range:

Grey Yarn: Cotton Hosiery, Weaving, Open End & Tyre cord Yarn Acrylic Yarn (Bulk & Regular) Polyester Cotton Yarn Special Blended Yarns (Cotton - Wool, Cotton - Acrylic, Cotton - Viscose, Polyester - Acrylic -

Viscose, Lycra - Blended) Compact Yarn

Dyed cotton yarns: Crayons (Package Dyed Cotton) Rainbow (100% Fibre Dyed Cotton Yarn) Rangoli (100% Cotton Melange Yarn) Gassed Mercerised Cotton Yarn/Special Blended Yarn.

Dyed Blended and Synthetics yarn: Paragon (Fibre Dyed Polyester Cotton Yarn) Harmony (Fibre Dyed Polyester Cotton Melange Yarn) Marina (Superior Tow Dyed Acrylic Bulked Yarn) Daffodil (Tow Dyed Acrylic Bulked Yarn) Yarn Dyed Acrylic Hand Knitting Yarn Specialty Yarns Hank Dyed Cotton Yarn

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2.13.3 Business Wise Classifications:

YARN : Ludhiana, Delhi, Calcutta, Tripura, Bangalore

SEWING THREAD: Jaipur, Pune, Mumbai, Bangalore, Tripura, Indore, Chennai, Ernakulum, Hyderabad, Calcutta

STEEL : Faridabad, Mumbai, Chennai

FABRICS : Delhi, Mumbai, Bangalore

FIBER : Gujarat

2.14 Departments of VSGM at a glance:

UNIT 1

Spinning 1 & 2 Worsted I, II Engineering Research & development Commercial Accounts & finance Materials & stores Costing & MIS Industrial relations Personnel & administration Security & transport Internal audit department Projects department

UNIT II

Dyeing house Sales depot (hand knitting yarn)

2.14.1 Group corporate office:

Vardhman has a centrally modern air conditioned multi stored corporate building that serves as the original place from where all strategies, policies, programs, rules & regulations take

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shape, data implemented in each group company. The corporate building houses of the top bosses including chairman cum managing director, executive director, corporate general manager & vice president of the functional areas. The other facilities include meeting room, board room & conference halls etc.

2.14.2 Finance department:

The main function of finance department in vardhman is as prescribed in a typical financial management book, is to arrange funds for whole group at least cost & to utilize in such a way so as to enhance the shareholders wealth. The core activities of the department includes arranging short term funds & export negotiations & deploying short term & long term funds in the best & effective way.

2.14.3 Personnel & HRD department:

Vardhman is one of the few organizations in the northern part of the country, which has reposed its faith in professional management since early stages of growth. The philosophy of the organization has been to promote a culture conducive to professional style of decision making in business & also to ensure that young executives having the right attitude & facilities are suitably trained in the organization so that they are able to contribute to its success.

2.14.4 Raw material & commercial department:

The two main functions of this department are procurement of raw material & dealing with various government & non government agencies for smooth functioning of company. The department procures raw material, like raw cotton, synthetic material & other related things from various sources within the country & from the foreign countries. The domestic raw material is mainly divided into three parts viz northern zone, central & southern zone. The inputs are from various countries like Egypt, America, Australia, West Africa, Chile, Serbia etc. the commercial functions of this department mainly comprises of:

Formulation of export/import policies of the company. Considering benefits against imports Incentives from the government Excise & subsidies Licensing Foreign exchange & RBI related activities

2.14.5 Secretarial department:

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The corporate secretarial include the offices of the company secretaries of the Vardhman Spinning & General mills Ltd, Mahavir spinning mills. It deals with compliance of all the statutory laws under company’s act. The filling of the return, assessment of shareholders wealth as well as listing of shares in the stock exchanges is also done by the department. The annual general meeting & board meeting are also conducted.

2.14.6 MIS department:

This department is hub of all the information regarding all the unit of the group. It gathers information from various departments & units of the group & processes it & provides to the management for decision making process. This department formulates the daily profitability reports of all the units 7 send them to the CMD. The role of this department has considerably widened. Now it deals with generating reports on cost production, manpower development etc. it sets standards of the performance, gives reasons deviations if any & also suggest corrective measure.

2.14.7 Internal audit department:

Internal audit system is an independent & impartial appraisal function to examine & evaluate an organization’s activities serves as eyes ears of the management for knowing & evaluating the areas which were weak & need strengthening. As vardhman has grown in the size & complexity over the two decades, the scope of internal audit function has changed. Now the internal audit has started focusing more on such items operational appraisals, analysis of data processing system, management cost studies etc. through this department the management ensures that management control system is functioning properly, policies & procedures are being reviewed constantly & that there is systematic program of review & appraisal.

2.14.8 Projects department:

The corporate projects & purchase departments have various sections like Civil section Planning section Purchase section Insurance section Technical section

The civil section deal with all the infrastructural construction like sheds in case of mills utilizes compressor, substation, and boilers. They also go in for negotiation with the contractor and also do physical checking at the site end of the material. The palling function includes preparing reports of each project by coordination with the civil and purchase. The purchase section get offers for the machine does the comparison and call the parties that suits the requirement the most and does the necessary negotiation. The insurance section looks after the group’s insurance scheme. The technical section deals with the specification of the

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all machinery

2.18 Vardhman strategy:

Stood strategies are needed to achieve top performance.

Good strategy leads the Company to growing market.

For good management delegate tasks downward.

To do this respect for Individuals must come in each other’s mind; must have freedom

to do their work and to be enthusiastic about their work. This is an essential motivation

factor.

2.19 Vardhman value:

Continuously raising the company's value and satisfied shareholders, co-partners,

coworkers and employees are important objectives for the company's development and

future which will aim to show fast and profitable growth being favoured on the

financial market.

Values are like the nutrients content and richness of the soil, without which nothing can

thrive.

Putting the values into practice in our daily operations is an ongoing process and

everyone gets engaged in it. Who dares to express his or her opinion to develop

corporate culture, that despite external pressures, the chemistries between our people

were in excellent accord even in that situation.

Everyone in Vardhman's team remembers “Chemistries Harmonise when we hold our

values in respect" as Vardhman means “Growing with Respect".

2.20 Vardhman’s Culture & Its Aspects

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Professionalism,

System approach,

Commitment to quality culture(Quality of products and services),

Cost conscious,

Excellence with economy,

Human-resource is regarded as most valuable asset,

Emphasis on teaching & development,

Preference for human values,

Management by participation,

Open door policy in sharing ideas & suggestions,

Group strategy,

Emphasis on effective communication & coordination,

Organizational strengths & acceptance to change,

Cordial environment,

Customer focus,

Owner and reward for merit.

2.21 SWOT analysis of VSGM:

Strength:

Good brand equity having good technological base with foreign collaborations

High quality standards & High production capacity

Own research & development centre

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The Company has a pool of experienced & well qualified professionals in the field of Synthetic Fibers in general and Acrylic Fiber in specific.

Weaknesses:

Comparatively high prices, after sale services & Lesser degree of promotional activities

Mainly engaged in manufacturing of cotton & acrylic yarn, any change in consumer preference and the vagaries of nature of cotton will adversely affect the company.

Importing of Acrylonitrile exposes the Company to the volatile international market where Acrylonitrile prices fluctuate widely and also limited indigenous production and supply.

Opportunities:

Acrylic Fiber Industry market is expected to expand as disposable incomes in India increase especially of lower middle class and upper middle class both in urban and rural areas.

Price of wool is expected to remain high, making it expensive for consumers from lower to middle income groups. Acrylic Fibre is an effective substitute of wool due to its relative affordability.

Mink Blankets, rugs, bath mats, furnishings etc. made from Acrylic Fibre are light & easier to handle. Newer applications, such as, soft toys shall also result into increase in demand of Acrylic Fibre in India as has happened elsewhere in the world.

Exports of Textiles from India have high growth potential.

Threats:

Smaller players and companies from other parts of India as well as MNC’S are entering Ludhiana market.

Growing competition from yarn and fabric producing units in the unorganized sector.

Reduction in custom duty on import of AF may lead to increased competition for domestic AF manufacturers.

Threat of volatility in the prices of imported raw materials remain present

2.22 Group quality policy:

Quality shall be built into the company’s products not only meet customer requirements continuously but also exceed them. The company shall achieve this through an interface with the market place, access to state-of-the-art technology, R&D, process development and adoption of innovative manufacturing and marketing strategies. The quality policy shall be implemented through a network of systems and procedures understood and followed throughout the company.

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The quality policy shall be integrated with the company’s main objectives:-

To remain the market leader in quality.

Increase market share with focus on niche segments.

Improve productivity.

Cost reduction.

Reduction in percentage of seconds.

2.23 Adoption of Modern Management Practices:

Quality Circles

Quality Councils

Cross Functional Group

Human Resource Development

Staff Development Programs

Officers Workshop

Workers Development Program

2.24.1 TPM Policy of Vardhman Group:

It aims to create a corporate system that maximizes the efficiency of the production system. TPM

is based on Participation of all members, ranging from the top management to front line

employees. Maximize overall effectiveness and reliability of the plant and machinery by aiming

at “Zero Break down”, “Zero Defects”, “Zero Accident” through nurturing team work and

continuous development of all employees, following TPM road map for implementation of

“Total Preventive Maintenance” (TPM) in the company.

2.25 Vardhman belief:

The fact that change the way of life.

Absolute market orientation for quick and positive response to customer’s needs.

An uncompromising commitment to a flexible, professional and personalized service

from with a stimulating result oriented environment.

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Delivery to a constant standard and on time.

Response approach to benefits of R&D and modern technology.

Having faith in individual potential and respect for human values.

Being a responsible corporate citizen with due respect to the laws of the land and its

environment.

Product to be the best quality for premium market segment.

These underline the corporate philosophy which has shaped Vardhman of yester years

into Vardhman of today.

Encouraging innovation for constant improvement to achieve excellence in all functional

areas.

2.26 Corporate social responsibility:

Sri Aurobindo Socio-Economic and Management Research Institute is engaged in the

promotion of education, research and publications highlighting social and economic issues

facing the society.

Sprung from a keen desire to set up an educational institution in Ludhiana and inspired

by the writings of Sri Aurobindo and the Mother, the Trust has set up a college - Sri

Aurobindo College of Commerce and Management (affiliated to the Punjab University)

A Vardhman initiative to improve the yield of cotton in Punjab in 2001 when the State

had suffered a shock of crop devastation and area under cotton cultivation was dwindling, led

to the experiment to adopt villages and see whether concerted efforts in bringing knowledge

to farmers could improve the yield of cotton.

Vardhman is actively engaged in the activities of Nimbua Greenfield Punjab Limited

formed by a consortium of Industries of Punjab for developing a common facility for storage,

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treatment and disposal of hazardous wastes generated by the Industry with a Government of

India grant)

2.27 Achievement:

It's an overwhelming feeling when the efforts and hard work put in are recognized and

felicitated. The Vardhman Group became India's first textile company to be awarded ICO9002/

ISO 14002 Certification. It is the largest producer and exporter of yarns and Grey woven fabrics

from India. Vardhman is also the largest producer of tyercord yarns and the second largest

producer of sewing threads in India. The Vardhman Group vision of excellence is matched by a

dedication and sincerity to be the best and excel in every industry it has a presence.

Won Gold trophy in EOU/EPZ for export of cotton yarn, Textile Export Promotion

Council 2003-04

Won Bronze trophy in mill fabric exporter category, Textile Export Promotion Council

2003-04

Won Gold Trophy in EOU/EPZ for export of cotton yarn, Textile Export Promotion

Council 2002-03

Silver Trophy in Textile Export Promotion Council 1998-99

Bronze Trophy, Textile Export Promotion Council 1997-98

Won Silver Trophy, Textile Export Promotion Council 1996-97

Award of Merit from Govt. of India Award 1994-5, 1995-96

Bronze Trophy, Textile Export Promotion Council 1993-94 (Merchant Export Category

for Fabrics)

Won Gold Trophy, Textile Export Promotion Council 1993-94 (Merchant Export

Category for Fabrics)

Gold Trophy, Textile Export Promotion Council 1990-00

3.2 Trend analysis for profit earned by VSGM ltd.

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Year Profit

(in Cr.)

X

(in Cr.)

X2

(in Cr.)

XY

(in Cr.)

Yc trend value

(Yc = a + bX)

2004 19.61 1 1 19.61 8.39

2005 (4.00) 2 4 (16.00) 7.87

2006 12.03 3 9 108.27 7.47

2007 5.44 4 16 87.04 7.01

2008 4.23 5 25 105.75 6.55

Total 37.31 15 55 304.67

In the above figure, the values’ of “a” and “b” are identified by solving the following two equations,

∑y = Na + b∑x …………………………… eqn.1

∑xy = a∑x + b∑x2 ………………………… eqn. 2

By putting the values from the above figure, we get the value of

“a” as “8.85” and “b” as “-0.46” and then we found the trend equation [Yc = 8.85 – X * 0.46]; and the respective values of trend line.

Graph: Trends of profit earned by VSGM ltd.

3.3 Trend analysis for net profit earned by Vardhman textile ltd.

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INTRODUCTION

OF

THE PROJECT

4.1.1 Title of the project:

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Study on the inventory management system followed in VSGM ltd. with special focus on

the raw material section.

4.1.2 Objective of the study:

The following are the objectives of the study conducted on Vardhman Spinning and

General Mills ltd.

To study the inventory management system followed in VSGM ltd.

To evaluate the inventory control mechanisms of VSGM ltd and also to find out

the different levels of inventory to be maintain by the company.

To identifies cost and suggestions to reduce such cost.

To give suggestion in the material handling process of VSGM ltd.

4.1.3 Need and scope of the research:

The project will study the dynamics of different factors affecting the production and operations of VSGM ltd, Ludhiana. It is intended that these study will provide better insights of managing inventories by taking different factors into consideration in purchasing, issue, storage etc., and will be helpful to find out the optimum inventory management system into the organisation.

Inventory management has become a crucial point for any business firm, as the company need to maintain some of its inventories for smooth operation of its business or manufacturing process. It will also reduce the cost and help in earning better revenue/incomes by maintaining better flow of its business activities. VSGM ltd. which deals with manufacturing different types of Yarn and sewing thread, with large volume of production definitely need to conduct such research work for the betterment of the firm.

For the investigator’s research work the scope of the research work is restricted within the limit of the commercial department, VSGM ltd. There also exists future scope of doing the same as it will help the company to increase its manufacturing and managing its inventories effectively.

4.2 INTRODUCTION: INVENTORY MANAGEMENT

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Inventory management refers to the process of managing the stocks of finished products, semi-

finished products and raw materials by a firm. Inventory management, if done properly, can

bring down costs and increase the revenue of a firm.

How much one should invest in inventory management? The answer to this question depends on

the volume and value of inventory as a percentage of the total assets of a firm.

4.2.1 Inventory Classification:

Inventory includes the following:

Raw material: Direct materials used in manufacturing a product. The purpose of having such inventories is to ensure uninterrupted production in the event of delaying delivery. The amount of raw materials to be kept by a firm depends on various factors such as speed with which raw materials are to be ordered and procured and uncertainty in the supply of these raw materials.

Work-in-progress: it includes partly finished goods and materials held between manufacturing stages. It can also be stated that those raw material which are used in production process but are not finally converted into final product are work-in-progress.

Consumable: Consumables are those products that consumers buys recurrently, i.e., items which “get used-up” or discarded. As an example, consumable office supplies are such products as paper, pens, file folders, computer disks, etc. It has to be kept in mind that consumable does not includes goods of capital in nature like computer, fax machine and other business machines or office furniture.

Finished goods: they are those goods which are ready for sale or distribution. All goods which fall under the above will come under this class. It helps to reduce the risk associated with stoppage in output on account of strike, breakdowns, storage of materials, etc.

Stores and spares: These categories include those products, which are accessories to the main products produces for the purpose of sales. For examples, stores and spares items are bolt, nuts, clamps, screws, etc. these spares parts usually bought from outside or sometimes they are manufactured in the company also.

4.2.2 Motives behind holding inventories:

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There are three main purposes of motive for holding inventories in the organisation. These are:

Transactional motive: Every firm has to maintain some level of inventory to meet the day to day requirements of sales, production process, customer demands, etc. this motives makes the firm to keep the inventory of finished goods as well as raw materials. The inventory level will provide smoothness to the operations of the firm.

Precautionary motives: A firm should keep some inventory for unforeseen circumstances also. For example, the fresh supply of raw material may not reach the factory due to strike by the transporter or due to natural calamities in a particular area. There may be labor problem in the factory and production process may halt. So, the firm must maintain some of its inventories of raw materials as well as finished products for meeting such emergencies.

Speculative motive: The firm may be tempted to keep some inventory in order to capitalized an opportunity to make profit e.g., sufficient level of inventory may help the firm to earn extra profit in case of expected shortage in the market.

4.3 Inventory costs:

In determining an optimum inventory policy, the criterion most often is the cost function. The classical inventory analysis identifies four major cost components, which are as followed:

Purchase costs: these refer to the nominal cost of inventory. It is the purchase price for the items that are bought from outside sources, and the production cost if the items are produced within the organisation. This may be constant per unit, or it may vary as the quantity purchased/produced increase or decrease. Quite often, situations are found when it may be stipulated that for example, the unit price is Rs.20 for an order upto 100 units and Rs.19.50 if the order is more than 100 units.

Ordering or set-up cost: ordering cost is said to be incurred whenever the inventory is replenished. It also includes cost associated with the processing and chasing of the purchase order, transportation, inspection for quality, expending overdue orders and so on. It is also known as the procurement cost.

Parallel to the ordering cost when units are produced within the organisation is the set-up cost. It refers to the cost incurred in relation to developing the production schedules, the resources employed in making the production system ready and so on.

Carrying cost: Also known as the holding cost or the storage cost, carrying cost represents the cost that is associated with storing an item in inventory. It is proportional to the amount

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of inventory and the time over which it is held. The element of carrying cost includes the opportunity cost of the capital invested in stock, the cost directly associated with storing goods (like storemens’ salary, rates, heating and lighting, racking and pelletization, protective clothing, store’s transport, etc. ), the obsolescence cost (includes scrapping and possible rework), deterioration cost and cost incurred in preventing deteriorations and fire and general insurance, etc.

The carrying cost is usually expressed as rate per unit or as a percentage of the inventory value. It is taken to be fixed for each unit of a certain items of inventory held for a unit time.

Stock out cost: Stock out cost means the cost associated with not serving the customers. Stock out implies shortage. If the stock out is internal (i.e., in the production system) it would imply that some production is lost, resulting in idle time for men and machinery, or that the work is delayed which might attract some penalty. While if the stock out is external, it would result in a loss of potential sales and/or loss of customer goodwill. A shortage can evoke different reaction from customers. It would result in a backorder or lost sales. In case of backorder the sales are not lost, they are only delayed.

4.4 Objectives of inventory management:

Operating objectives:

Availability of raw material

Minimizing the wastage

Promotion of manufacturing efficiency

Better service to customers

Control of production level

Optimum level of inventory

Financial objectives:

Economy in purchasing:

Optimum investment and efficient use of capital:

Reasonable price:

Minimizing cost:

4.5 Factors affecting inventory management:

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Inventory management in a organisation has an impact on the whole system. There are a number of factors which can affect the inventory decisions. These can be …

Degree of specialization and differentiation of the products at various stages

Process capability and flexibility

Production capacity and storage facility

Quality requirement

Nature of the production system

Change in size and frequencies of orders

Unpredictability of sales

Physical and economic structure of distribution pattern.

Costs associated with failure to meet demands

Accuracy, frequency and detail of demand forecasts

Breakdown

Labor relation policies

Amount of capital available for stock

Opportunity cost

Uncertain environmental factor (inflation, strike, wars, etc.)

4.6 Techniques of inventory control:

Inventory control techniques represent the operational aspect of inventory management and help in realizing the objectives of the inventory management and control system. These techniques are employed by the respective firm within the framework of one of the basic inventory models, viz., fixed order quantity system or fixed order period system.

Several techniques of inventory control are used and it depends on the convenience of the firm to adopt any of the techniques. What should be stressed is however, is the need to cover all items of inventory and all stages, i.e., from the stage of receipt from suppliers to the stage of their use.

The techniques most commonly used are the following:

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Economic order quantity (EOQ)

Re-ordering level

Always better control (ABC) classification.

High, medium and low (HML) classification.

Vital, essential and desirable (VED) classification.

Scarce, difficult and easy to obtain (SED)

Fast moving, slow moving and non-moving (FSN)

4.6.1 Economic order quantity (EOQ) model: EOQ is an important factor in controlling the inventory. It is a quantity of inventory which can reasonably be ordered economically at a time. It is also known as “standard order quantity”, “economic lot size” or “economic order quantity”. In determining this point ordering cost and carrying cost are taken into consideration. Ordering costs are basically the cost of getting an item of inventory and includes cost of placing an order. Carrying cost includes cost of storage facility, property insurance, and loss of value through physical deterioration, cost of obsolescence. Either of these two costs affects the profits of the firm adversely and management tries to balances these costs. The balancing or reconciliation point is known as Economic Order Quantity.

These can also be determined with the help of a graph. Assuming that inventory is allowed to fall to zero and then immediately replenished, the average inventory becomes EOQ/2. EOQ model can be presented in figure below

In the figure aside, it can be seen that ordering cost of an item is decreasing as the size of the order is increased. This happens because total number of orders for a particular item will decrease resulting in decrease in total order cost. As a result, carrying cost is increasing because firm keeps more items in stock. The trade-off of these two costs is attained at a level which annual cost is least. At this level, order size is designated as economic order quantity.

The quantity may be calculated with the help of the following formula:

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EOQ = √2AD/h

Where, A = Annual quantity used (in unit)

D = cost of placing an order (fixed cost)

h = cost of holding 1 unit.

Economic order quantity model work with the following assumptions

Supply of goods is satisfactory and can be purchase whenever is required.

The quantity to be purchased by the concern is certain

The prices of the goods are stable. It results to establish carrying costs.

Economic order quantity models suffer from the following:

Erratic usage

Faulty basic assumption

Costly calculation

No formula is substitute for commonsense

EOQ ordering must be tempered with judgment.

4.6.2 Re-ordering level: The concept of re-ordering point is basically related with lead-time demand. The problem is that demand can never be accurately projected over the lead-time. There are a number of methods of demand forecasting. Once we know the demand in lead-time, re-order level can be easily determined. Mathematically it can be calculated with the formula:

Re-order level = lead-time + safety stock

It is observed that supply situation for replenishment is essentially dynamic, changing at all the time. Therefore, re-order level, safety stock and re-order quantity should be regularly reviewed. The same values for any system should not be used for long period of time.

4.6.3.1 Always Better Control (ABC) analysis: It's basic assumption is that not all stock is equally valuable, therefore doesn't need the same kind of attention. So it categorise all available stock according to its cost and quantity - and create a graph with cost

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shown on Y axis and quantity shown on X. From left to right, we place this stock from highest value to lowest. Typically, we see that a small portion of stock is the most valuable, and therefore needs maximum attention and resources - that's called 'A'. The next most valuable section of stock is B, the next is C and so on.

Basically it shows which stocks need more attention and which need less. It helps in utilising resources for stock management more effectively.

As discussed above, the material is divided into a number of categories for adopting a selective approach for material control. It is generally seen that in manufacturing concern, a small percentage of items contribute a large percentage of value of consumption and a large percentage of items of material contribute a small percentage of value. In between these two limits there are some other items, which have almost equal percentage of value of materials. Here under A-B-C analysis, the material is divided into three categories viz., A, B and C. past experience has shown that almost 10% of the item contribute to 70% of the value consumption and this category is being called as “A category”. About 20% of the items contribute about 20% of the vale consumption and is categories as “B category” materials. Category C covers about 70% of the items of materials, which contribute only 10% of the value consumption. (This percentage may vary according to the industry).

A-B-C analysis helps to concentrate more efforts on category A since greatest monetary advantage will come from these items. Attention should be paid on the estimating requirement, purchasing, maintaining safety stocks and properly storing of “A” category materials. These items are kept under constant review so that a substantial material cost may be control. On the other hand, the control of “C” category items may be relaxed and these stocks may be purchased for the year. A little more attention should be given towards “B” category items and their purchase should be undertaken at quarterly or half-yearly intervals.

While doing the analysis, following point should be kept in mind

Items which are substitute of each other should be treated as one item

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More emphasis should be given to value consumption and not to the price of the unit of item

All the items consumed by an organisation should be considered together for classifying as A, B or C instead of taking them as spares, raw-materials, semi-finished and finished items and then classifying as A, B and C.

There can be more than three classes and the period of consumption need not necessarily be one year.

4.6.3.2 Application of ABC analysis:

ABC analysis can be effectively used in material management. The various stages where it can be applied are:

Information of item which require higher degree of control

To evolve useful re-ordering strategy

Stock records

Priority treatment to different items

Determination of safety stock items

Stores layout

Value analysis

4.6.4 VED analysis: In VED analysis, the items are classified on the basis of their criticality to the production process or other services. In the VED classification of materials, V stands for vital items without which the production process would come to a standstill. E in the system denotes Essential items whose stock out would adversely affect the efficiency of the production system. Although the system would not altogether stop for want of these items, yet their unavailability might cause temporary losses in, or dislocation of, production. The D items are the Desirable items which are required but do not immediately cause a loss of production. VED analysis is done mainly in respect of spare parts.

4.6.5 HML analysis: This is similar to the ABC analysis except that, in this analysis, the items are classified on the basis of unit cost rather than their usage value. The items are classified accordingly, as their cost per unit is H - high, M - medium or L - low. This type of analysis is useful for keeping control over materials consumptions at the departmental level.

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4.6.6 SDE analysis: This uses the criterion of the availability of item. In this analysis,

S stands for scarce items which are in short supply.

D refers to the difficult items- meaning the items that might be available in the indigenous market but cannot be procure easily.

E stands for easily available items, from the local market may be.

4.6.7 FSN analysis: Based on the consumption pattern of the items, the FSN classification calls for classification of items, as Fast-moving, Slow-moving and Non-moving. Some analysis classifies the item as FNSD; Fast, Normal, Slow and Dead moving items. This speeds classification helps in the arrangement of stocks in the stores and in determining the distribution and handling pattern.

4.7 Benefits of inventory management and control:

Proper management and control of inventories will result in the following benefits to an organisation

It ensures an adequate supply of material and stores minimizes stock-outs and shortage and avoid costly interruptions in operations.

It keeps down investments in inventories, inventory carrying costs and obsolescence losses to the minimum.

It facilitates purchasing economies through the measurements of requirements on the basis of recorded experiences.

It eliminates duplication in ordering or in replenishment stocks by centralizing the sources from which purchase requisition emanate.

It permits a better utilization of available stock by facilitating inter-departmental transfer within a company

It provide a checked against loss of materials through carelessness or pilferage

It facilitates cost accounting activities by providing a means for allocating material costs to products, departments or other operating accounts.

It enables the management to make cost and consumption comparison between operations and periods.

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It serves as a means for the location and disposition of inactive and obsolete items of stores.

Perpetual inventory values provide a consistent and reliable basis for preparing financial statements.

4.8 Limitation of the research study:

Some of the limitations which the investigator has faced during the survey are as follows:

Time is a constraint to the research survey, as we undergone the training for 6 weeks.

The product and store materials are too vast and it was not possible to cover each and every item for analysis in the available period.

Generally the respondents were busy in their work and due care was taken so that they don’t get disturbed.

The study was conducted within the boundaries of mentioned areas only.

The research was conducted in present prevailing conditions. There can be some fluctuations in the market which can offset and findings.

The biases of response might have crept in while conducting the survey as the company’s employees are not ready to share the confidential information with us.

The results of the survey might not be generalized and may not hold good for the whole population as they are based on the sample collected from specific areas only.

These limitations were faced as they were an integral part of the research. However, they did not affect the quality of analysis and presentation of the findings.

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Research methodology

5.1 Research: Meaning

Research in common parlance refers to searching for knowledge. It’s a scientific and systematic search for pertinent information on a specific topic. It is the pursuit of truth with the help of study, observation, comparison and experiment. The outcome of such studies reaches clinicians

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through various publications which are helpful for the management or any other parties interested in the research outcome e.g. Management, manufacturer, investor, etc. such outcome may be negative or positive, depending upon the performance of the researcher, knowledge, methods adopted, etc.

5.2 Research methodology:

“Research Methodology is the way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically.”

- Dr. C.R. Kothari.

Research methodology is a logical and scientific technique to solve a problem. It may be understood as a science of studying how research is done scientifically. In it, we study various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods but also the methodology. It is not concerned with the decision of the fact, but also building up to data knowledge and to discover the new facts involved through the process of dynamic change in the society.

A research methodology thus defines what the activity of research is, how to proceed, how to measure progress, and what constitutes success. It can be of the following nature

- Historical,- Descriptive,- Experimental,- Exploratory, etc.

In investigator study, the current chapter will give details about the Research Methodology adopted for the present study. It indicates the research design, selection of sample, respondents, collection of data, data analysis & interpretation, etc.

5.3 Research Design:

Research Design states the conceptual structure, an arrangement of the system/conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with the economy in procedure. The research problem having been formulated in clear-cut terms helps the researcher to prepare a research deign.

Under this project, research design carried out is descriptive in nature, which aims describing the nature & reasons for the problem and finding the inventory management system followed in VSGM Unit-I, Ludhiana. Formal interviews and observation process is being carried out of the employees working in the organisation in the respective position. Since the research was to be performed from employee’s point of view which would help me in finding prevailing inventory

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management system ultimately, this finding was correlated to make investigator findings crystal clear.

The following is the sampling plan adopted by the investigator in his research work:

- Research design: Design for investigator research is descriptive in nature as the research is being carried out to know the system of inventory management followed in VSGM, Unit-I Ludhiana.

- Universe: All those business firms manufacturing or dealing with the textile related products.

- Population: All individuals carrying out textile related business activities in Ludhiana.

- Sampling Unit: A single unit of the whole population. For investigator study sampling unit is restricted upto VSGM ltd., Unit-I Ludhiana.

- Sampling Technique: Convenience & judgmental technique with respect to customer of organised retail outlets of Ludhiana is being used as sample was taken as per investigator easy access and convenience.

- Sample Size: For the investigator study, the scope is being restricted with to the commercial department of the VSGM ltd., Unit-I, Ludhiana, which is dealing with the management of inventory (including raw material, stores and spares, finished goods)

5.4 Data Collection:

For the purpose of investigator study data are collected by both Primary and Secondary sources.

- Primary Data: Investigator adopted primary data collection techniques during the course of doing research as an experimental research. The investigator have visited and interviewed every employee in the department dealing with the inventories.

- Secondary Data: Secondary data means data that are already available i.e., they refer to the data which have already been collected and analyzed by someone else. In investigator research, secondary data were collected from the past records (annual reports of the company, company’s library material, etc.), magazines, journals, internets, etc. which definitely help me in solving out the problem of investigator research.

5.5 Sampling procedure:

The respondents were approached and briefed on the objective of the survey and then the questioning session is followed (formal questioning which is strictly focused on the scope of the research work). The questioning was done in a very comfortable environment so that the

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respondents can give their maximum inputs. Anticipating the requirements of an efficient data processing, customers were motivated to respond through greater introspection and plumbing of memory.

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INVENTORY MANAGEMENT IN VSGM

6.1 Inventory at VSGM ltd:

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In textile industry inventories play a pivotal role. There is a need of proper management of

inventory. If the inventories are not properly managed it will affect the production as well as the

sales of the company.

Here at VSGML the concentration is mainly on following inventories:

Raw Materials

Finished Goods

Stores and Spares

Managing these inventories is the work of the commercial department of VSGM ltd. The

functions of the commercial department include the following:

It shall be the responsibility of the Commercial department to ensure that all type of raw

material i.e. Cotton, Synthetic Fibre, and Filaments are made available to the production

department to ensure smooth production.

Ensuring that all dispatch advice received from CMY and branches for dispatch of

finished goods are dispatched on the same day through proper documentation and

transport arrangements.

Ensuring compliance of all applicable laws, rules related to Central Excise. Filing all

statuary returns in time and maintenance of all records as per requirements of central

excise.

Preparation of tallies by 02 of the month so that the profit and loss statements is prepared

by accounts department in time.

Dispatch of waste regular basis in coordination with corporate raw material department.

Ensure that there is no accumulation of waste at the waste section.

Regularly appraise CMY and branches regarding non-moving and slow-moving stocks.

Ensuring that short capacity for Carding, Seydel is processed through outside side job

work so that production target is met.

Timely filing of all benefit related schemes related to Excise and Customs i.e. Rebate

Claim, Duty Drawback, installation certificates. Ensuring that cheques are received in

time from the excise department.

To manage these inventories in effective and efficient way, there are two departments. They are:

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Raw material department, and

Material department

Both of the departments are controlled by the commercial department. There is detailed

discussion on both of the departments.

6.2.1 The Objective of Raw Material deptt:

Raw Material planning

Storage of Raw Material

Availability of Raw Material

Proper receipt and issue of Raw Material

6.3.1 Raw material:

Vardhman takes two types of major inputs as a raw material

Raw cotton

Synthetic fibre

Raw cotton includes different qualities like

Type of raw cotton quality Imported from

J-34 Punjab, Haryana, Rajasthan

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Shankar-6 (S-6) Gujarat

AHH South

NHH South

LRA South

A maximum portion of raw material contributing about a total of 90% of the total material of the

company is purchased from its holding i.e., Vardhman Acrylics Limited located at Bharuch,

Gujarat. Sometime cotton is purchase from local trader from Panipat, Baddi, etc. VSGM ltd. also

sourced its raw material from Australia, USA, Egypt, Brazil, West African Countries, Greece,

Zimbabwe and others. Cotton also imported from Greek, U.S.A. Before buying cotton from these

states raw cotton is tested in R&D Department. If they pass this then dispatching is done.

6.3.3 Suppliers of raw cotton:

We provide mainly includes cotton bales and raw cotton. Besides this, we are also engaged in

providing yarn and surgical absorbent cotton. Our cotton is widely used in the spinning and

denim mill for various purposes.

Manufactured under the stringent quality checks, our cotton is contamination free. Cotton

provided by us is in accordance to the requirements of the market and industry. Highly valued in

the quality cautious market, our cotton is in compliance with national and international quality

standards. We deliver cotton at very competitive prices and that too within the stipulated time

frame.

J-34

Khen Chand Bhadur Hand

Mahavir Swami Arketing

Gopi Chand

Tilak Industries

Amit Agro Traders

Radha Madhav Investment

Arichand Cotton Processor

Rakesh Shashi Processor

Ashok Enterprises

Shankar-6:

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This kind of cotton is generally sown in the month of June and July and can be harvested in the

period from November to February. Shankar -6 is commonly cultivated in a vast area of about

4.4 4million acres mainly in the state of Gujarat.

Fibre Properties:

2.5% Span Length: 27.5 to 29.5 mm

Micronaire: 3.5 to 4.9

1/8 gauge- g/tex: 21 to 23(ICC)

Bundle Strength: 1000 lbs./sq.inch:85 to

96

Dawinder Pukhraj

Shah Poonnam Chand Dev Chand

Cotton Corp. Of India Ltd

Amrit Cotton Co.

Synthetic: Synthetic fibre includes Acrylic, Polyester, Nylon, Viscose, Wool, Polyester

Filament, Nylon Filament, and Viscos.

Acrylic

Punjab

Pashupati Acrylon Ltd (Moradabad)

Vardhman Acrylic Ltd.

Dralon Fibre Co. (German)

Marobini Corp. (Japan)

Nylon

Tenpow Co. (Taiwan)

Viscose

Grasim Birla Group (Nagda, M.P)

Polyester

Reliance

Indo Rama (Nagpur, Maharashtra)

Swadeshi Polytex (U.P)

Bombay Dyeing

South Indian Organic

6.4 Production units (raw materials/finished goods)

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The need for issuing Raw material arises mainly from Production Units. There are total 5 Production Units in Vardhman Spinning & General Mills, Ludhiana. The Units are differentiated in three sectors as below

Cotton sector

Unit Inputs (Raw-Material) Output (Finished goods)Spinning I Raw Cotton 100% Cotton Yarn

Acrylic Fibre Acrylic/Cotton Blended YarnPolyester Fibre Polyester/Cotton Blended Yarn* Cotton, Acrylic Cotton, Slub yarn and export material is prepared.

Spinning II Polyester Fibre Polyester/Cotton Blended YarnRaw Cotton 100% Cotton Yarn

!00% Polyester Yarn* Cotton, Polyester, Acrylic Cotton, Acrylic Cotton is prepared

Worsted sector

Unit Inputs (Raw-Material) Output (Finished goods)Worsted I Acrylic Fibre 100% Acrylic Yarn

Polyester Fibre Acrylic/ Polyester Blended YarnPolyester /Nylon Blended Yarn

* Production of Fancy and Acrylic Yarn is done.Worsted II Acrylic Fibre 100% Acrylic Yarn

* Acrylic, Dyed Daffodil and Export material is prepared.

Hand-knitting sector

Unit Inputs (Raw-Material) Output (Finished goods)H.K.S Acrylic Fibre 100% Acrylic Yarn

Nylon Fibre Acrylic/ Polyester Blended YarnPolyester Filament Acrylic / Nylon Blended Yarn* Grey hand knitted yarn is prepared.

6.5 Testing of cotton:

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From a lot of Raw Cotton comprising 55 bales for J 34 (or 100 bales of S-6), 06 samples are

taken from that particular lot. 06 samples of each lot are then put in the polythenes and a slip

which mentions following information regarding alot is inserted in each polythene? 

I)       Lot No.   ii)      Quality    iii)      Station

The 06 samples from each lot are then handed over to the R & D Deptt within 3 days on

receipt of the cotton consignments. R & D Deptt tests the cotton samples and forward written

report regarding quality of the Cotton received.  The report is forwarded to corporate raw

Material deptt, Production Deptt and Commercial deptt. 

Based on the testing report the mixing is then decided and accordingly 'cotton bales' are issued to

the production deptt. 

6.6 CHANNEL OF DISTRIBUTION:

Customers

Brokers

Dealers

Manufacturer (VSGM)

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6.7.1 Procedure for receipt of raw material:

At the time of receipt of raw material at gate, the transporter shall hand over the following papers to the weigh bridge incharge at Weigh Bridge of the unit.  

Invoice Copy

Copy of GR 

The weigh bridge incharge shall ensure that all papers like Invoice, GR, are in the name

of the unit. After verifying the documents the weighbridge incharge allots exclusive gate

entry number to the invoice. He shall also endorse stamp on the invoice which shall be

duly signed by him.  

He shall then carry out weighment of the loaded vehicle at the computerized

weighbridge. The weighbridge incharge enters particulars like Vehicle No, Supplier

name, Invoice No, Invoice date, Date of receipt, gate entry number and Quantity in his

'Raw Material Inward Register' 

The loaded vehicle after weighment is then guided to the commercial department for

unloading the material. 

The receipt incharge then verifies the documents and ensures that gate entry number has

been endorsed on the invoice.  He then guides the vehicle to the concerned destination for

unloading the raw material. 

The cotton bales are stored at outside godowns located at 'Mundian Kalan while Acrylic

fibre is stored inside the mills premises.   For vehicle related to cotton the receipt

incharge after receiving the vehicle, issues the challan in favour of Vardhman godowns

located outside at Mundian Kalan.  

The challan is given to the driver of the loaded vehicle of cotton who then takes the

vehicle from unit Vardhman godowns located at Mundian Kalan.   For cotton

the unloading is then finally done at godowns located outside by the contracted labour.

In case of Cotton the complete lot of 55 bales for J 34 cotton and 100 bales for S û6

respectively is stacked at 01 place.   The face of the cotton bale showing the delivery

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station and alot no. is kept outside for easy viewing and identification. This helps in easy

retrieval and issue of the bales. 

The Acrylic fibre is unloaded at the godowns located inside the mills premises. 

After unloading of the vehicle, the empty vehicle then moves to the weighbridge for measuring gross weight.   Weighbridge incharge provides computerized slip which gives following weights 

Gross weight  (loaded vehicle)

Tare weight    (empty vehicle)

Net Weight (After deducting weight of empty vehicle from loaded

vehicle)

The driver takes the computerized weighment slip to the receipt incharge

The receipt incharge then tallies the 'Gross Weight' mentioned in the invoice/ challan

with the 'Net Weight' mentioned in the weighment slip.

Any shortage of raw material received shall be deducted from transportation cost or

debited to party as the case may be, as per policy framed by the management from time to

time. 

For all receipt of cotton procured with in Punjab, the raw material Asstt. shall prepare

daily bargain wise and supplier wise receipt of material and shall send the same to the

Centralized Accounting Cell. 

6.7.2 Raw material receipt chart:

Gate entry

Raw material Department

Inspection (Quality & Weight)

Raw material consignment at

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6.8 Issue of Raw Material:

The Production Department gives Issue Slip to Raw Material Department. The issue slip is to be

filled in duplicate, one for Raw Material Department and the other for the record of Production

Department. An authorized person (as designated by unit head) shall sign the issue slip, for this

purpose. The specimen of Issue slip is attached at Annexure.

The Production Department shall mention following details on the issue slips 

Type of raw Material (i.e. Cotton, Acrylic Fibre, Polyester, Filaments, Nylon)

Lot No/ Merge No

No of bales 

The raw material assistant shall check and verify the issue slips. He will identify the material at

the godown and shall instruct the Raw Material Contractor  to issue the same material to

production deptt. The no of bales issued are filled up in the issue slip and signatures of the

recipient shall be obtained. The Raw Materials assistant shall punch the issue slip in the ERP

system and shall mention invariably the movement number generated in the ERP on the issue

slip.  At the month end, Raw material consumption report shall be generated in ERP warehouse -

wise and shall sent to Accounts Department for booking of same in financial books. After

monthly closing of ledger by EDP deptt, the print out of the ledger is taken for reconciliation

with accounts department.  

6.9 Storage / godowns for raw materials:

Material in store

Unloading

Permission to reach particular

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Here all raw materials from the outside sources are received. After receiving, the quality &

quantity of the material are checked. This Department receives as well as issues the raw material

to the production units. To maintain the continuous flow of production process without delay or

breakdown, different types of godowns/stores are maintained. For the best flow of materials

godowns/ stores are located near production units. It ensures the easy receipts, storage and

disbursement of the raw material.

There are separate godowns/storage for synthetic fibre and raw cotton in VSGM. These are:

Godown Total capacity

Synthetic fiber

Godown No. 105 A 420 TONS

Godown No. 114 952 TONS

Godown No. 105 420 TONS

Raw cotton

Godown No. ST-I 4200 BALES

Godown No. ST-II 4300 BALES

Godown No. ST-III 4300 BALES

Godown No. ST-IV 1350 BALES

Godown No. VTEX 1 14000 BALES

6.11.1 Material Department:

Material department of VSGM are responsible for maintaining inventories related to the stores

and spares. These department deals with managing the following items

Stationary and General items (item code begins with later “A”)

Bearings (item code “B”)

Belts (item code “C”)

Electrical and mechanical items (item code “E”)

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Oil and lubricant (item code “L”)

Packing materials (item code “P”)

Machinery spares and ring traveler cots aprons. (item code “Y”)

With these codes, the material is being maintained in the stores. Taking these codes, the material

details are entered in the ERP system. It also performed its task in three different sections. These

are as Purchase Section, Receipt Section and Issue Section. Accordingly the task is performed.

6.11.2 Material Department chart:

6.12.1 Purchase section:

Ensure availability of material in time and as per desired specifications.

Follow up with Corporate Purchase department for making of Purchase Orders in time

Follow up with suppliers for timely delivery of material

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Ensure procurement of quality material in time and at most competitive prices for items to be procured at unit level.

Ensure timely clearance of Bills/MRNs and forward the same to Accounts Department.

Ensure timely payment to the suppliers as per the purchase order terms.

To raise indent of Store running items and ensure maintenance of minimum stock level for these items.

6.12.2 Procedure of purchasing materials:

The need for material to be purchased originates from the user department who raises the indent containing information like TIM code of the item, Item description, Quantity required, Buyer Code, Department Code and Delivery date. An exclusive Indent number is generated by the ERP system which is the basis of all future follow up by the user department.

The indent raised by the user is forwarded through the ERP system to the HOD of the concerned department for approval.

After approval from the HOD the indent is then automatically forwarded to the respective buyer as per the item requirement. Each indent has its own serial number generated automatically by the ERP system.

For procuring the required material selection of source from which the item is to be purchased, quotations and making comparison on comparison chart are being done.

After meeting the specifications as mentioned in the indent final negotiations are done with the supplier with various terms & conditions for the purchased to be made.

While making the Purchase following information is mandatory to be fed in the purchase order

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Supplier name & address

Item Description & specifications

Price, Quantity & UOM

Taxes & Duties

Payment terms

Price Basis (Ex works/FOR Mills etc.)

Cenvat applicable or not

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There are 3 copies of purchase orders, original copy for the supplier, send directly by the corporate purchase department; second copy for the unit and the corporate projects department retains the third copy. All other documents relating to the purchase order like Quotation, Price List, and Comparison etc. are retained by the corporate purchase department. The purchase orders which are made at unit level shall be jointly signed by Sr. Manager (Commercial), Vice President (Commercial) and Chief Executive. The unit Material department after receiving a copy of purchase order follows up with the supplier till the material is received in the unit.

6.14.1 Procedure for receipt of material:

All the material shall be received in the receipt section of the Material Department.

The store Asstt. Receipt Section shall receive the material, inspect and tally the actual quantity received with the quantity as per the invoice/bill of the supplier in the presence of the representative of the supplier.

Store Asstt. will further ensure that each invoice shall have exclusive Gate Entry number/date, which is duly stamped and signed by the security person at the weighbridge and gives the acknowledgement in the duplicate copy of invoice to the supplier and makes the entry in the Material Receipt Register.

All overhead charges paid to the supplier like Freight, Octroi, Loading/Unloading shall be recorded in the receipt register. Apart from above information the receipt register shall contain all information like Invoice no., Gate Entry No., Name of supplier, Invoice Value, Quantity received, charges paid like Freight, octroi and Loading/unloading.

The Cash Voucher along with Receipt Register shall be verified and signed by the Sr. Manager (commercial) for making the necessary payment to the supplier on the basis of Bill/ Invoice Material Receipt Note (MRN) shall be prepared in the ERP system and the Receipt In charge shall sign the same.

Intimation shall be sent to the indentor about receipt of material on the same day either through phone or email.

Store Asst. Receipt Section shall be responsible for storage and upkeep of the material till the same is handed over to the user department or sent to the issue section. All fragile and delicate items shall be kept under Lock and key till the user department does approval of the same.

6.14.2 Receipt of material through transport against GR:

If the material is dispatched by the transporter a copy of GR is send to the unit intimating the Description of Item, quantity dispatched, Name of the transporter, GR number, Date of Dispatch etc. After receipt of the GR the store Asstt. Receipt section takes the copy of GR and collects the material from the Transporter’s Godown. The Material is then brought to the unit and payment is made to the transporter.

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6.15.1 Issue section:

Responsible for issue of material from the issue section to the users

Responsible for proper preservation of the inventory held at the issue section

Responsible for punching of all the issue slips in the ERP system

Responsible for maintenance of minimum stock level of all running items and raising indents for the same

6.15.2 Procedure of issuing materials:

From receipt section all material related to running items and material kept in stores is sent to the issue section. While issuing material from the store the following procedure is maintained

The material issue slips, duly signed by an authorized person from the user department are checked with respect to correctness of TIM code, Item description, Cost Center, Department Code, Quantity issued etc.

The store Asst. in issue section shall once again tally the material physically against the invoice and take the material in custody.

All issue of stores shall be made during the regular working hours, except in case of Emergency hours with prior approval of Materials Manager.

The issue slip is then punched in the ERP system for accounting. A monthly consumption report is taken from the ERP system, which is forwarded, to accounts department. For the material issued at the receipt section all issue slips along with invoices and MRNs shall be sent to the issue for punching the same in ERP system.

6.20 Layout of VSGM ltd:

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6.21.1 Computerised inventory management system of VSGM:

ERP stands for Enterprise Resource Planning. ERP is a way to integrate the data and processes of an organization into one single system. Usually ERP systems will have many components including hardware and software, in order to achieve integration, most ERP systems use a unified database to store data for various functions found throughout the organization. The term ERP originally referred to how a large organization planned to use organizational wide resources.

Today's ERP systems can cover a wide range of functions and integrate them into one unified database. For instance, functions such as Human Resources, Supply Chain Management, Customer Relations Management, Financials, Manufacturing functions and Warehouse Management functions were all once stand alone software applications, usually housed with their own database and network, today, they can all fit under one umbrella - the ERP system.

6.21.2 Integration as a Key to ERP:

Integration is an extremely important part to ERP's. ERP's main goal is to integrate data and processes from all areas of an organization and unify it for easy access and work flow. ERP's

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usually accomplish integration by creating one single database that employs multiple software modules providing different areas of an organization with various business functions.

6.21.3 The Ideal ERP System:

An ideal ERP system is when a single database is utilized and contains all data for various software modules. These software modules can include:

Manufacturing: Some of the functions include; engineering, capacity, workflow management, quality control, bills of material, manufacturing process, etc.

Financials: Accounts payable, accounts receivable, fixed assets, general ledger and cash management, etc.

Human Resources: Benefits, training, payroll, time and attendance, etc

Supply Chain Management: Inventory, supply chain planning, supplier scheduling, claim processing, order entry, purchasing, etc.

Projects: Costing, billing, activity management, time and expense, etc.

Customer Relationship Management: sales and marketing, service, commissions, customer contact, calls center support, etc.

Data Warehouse: Usually this is a module that can be accessed by an organizations customers, suppliers and employees.

6.21.4 ERP Improves Productivity:

Before ERP systems, each department in an organization would most likely have their own computer system, data and database. Unfortunately, many of these systems would not be able to communicate with one another or need to store or rewrite data to make it possible for cross computer system communication. For instance, the financials of a company were on a separate computer system than the HR system, making it more intensive and complicated to process certain functions.

Once an ERP system is in place, usually all aspects of an organization can work in harmony instead of every single system needing to be compatible with each other. For large organizations, increased productivity and less types of software are a result.

6.21.5 ERP System in VSGM:

Implementing an ERP system is not an easy task to achieve, in fact it takes lots of planning, consulting and in most cases 3 months to 1 year +. ERP systems are extraordinary wide in scope and for many larger organizations can be extremely complex. Implementing an ERP system will

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ultimately require significant changes on staff and work practices. While it may seem reasonable for an in house IT staff to head the project, it is widely advised that ERP implementation consultants be used, due to the fact that consultants are usually more cost effective and are specifically trained in implementing these types of systems.

One of the most important traits that an organization should have when implementing an ERP system is ownership of the project. Because so many changes take place and its broad effect on almost every individual in the organization, it is important to make sure that everyone is on board and will help make the project and using the new ERP system a success.

Usually organizations use ERP vendors or consulting companies to implement their customized ERP system. There are three types of professional services that are provided when implementing an ERP system, they are Consulting, Customization and Support.

Consulting Services - usually consulting services are responsible for the initial stages of ERP implementation, they help an organization go live with their new system, with product training, workflow, improve ERP's use in the specific organization, etc.

Customization Services - Customization services work by extending the use of the new ERP system or changing its use by creating customized interfaces and/or underlying application code. While ERP systems are made for many core routines, there are still some needs that need to be built or customized for an organization.

Support Services- Support services include both support and maintenance of ERP systems. For instance, trouble shooting and assistance with ERP issues.

6.21.6 Advantages of ERP Systems:

There are many advantages of implementing an EPR system; here are a few of them:

A totally integrated system The ability to streamline different processes and workflows The ability to easily share data across various departments in an organization Improved efficiency and productivity levels Better tracking and forecasting Lower costs Improved customer service

6.21.7 Disadvantages of ERP Systems:

While advantages usually outweigh disadvantages for most organizations implementing an ERP system, here are some of the most common obstacles experienced:

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Usually many obstacles can be prevented if adequate investment is made and adequate training is involved, however, success does depend on skills and the experience of the workforce to quickly adapt to the new system.

Customization in many situations is limited The need to reengineer business processes ERP systems can be cost prohibitive to install and run Technical support can be shoddy ERP's may be too rigid for specific organizations that are either new or want to move in a

new direction in the near future.

6.22.1 Codification:

Coding is a technique of assigning brief name to the items stocked in the store room. Generally alphabets, numerical or a combination of the two is used for codification of items. In material management terminology, it is known as “codification”

The objective of codification is to provide a common language for identification of every single ‘input’ item in the inventory for all transactions within the organisation i.e., within its constituent units. All input material, irrespective of the source of procurement, whether from external source or manufactured by the organisation itself, are to be codified.

6.22.2 Methods of codification:

Mnemonic method: in this method, alphabets closely related/associated with the name of the items are used. E.g., MT for metallic items, PT for plastic items, etc. this method is useful when a few type of item are to be stored.

Random method: under this method, the numerical and alphabets are used on random basis. It is flexible as it is possible to add the new number or letter in sequence in case of addition of new items. But this method is rather arbitrary.

Scientific method: under this method, the total stock of item is divided into number of groups or classes and a symbol is assigned to each group. Each groups, may be further divided until the individual item is identified.

6.22.3 Principle of codification:

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The following principle should be observed while establishing an effective codification system:

There must be a consistency in the point of view so that, the basis of classification should remain unchanged for all items.

The system of classification must be cover the entire range of item for which, it is devised and at the same time, allow reasonable scope of extension. The principle is that of comprehensiveness.

The third principle is that of mutual exclusiveness which means, that there must be only one code number possible for any item.

The system developed should be simple enough to understand and easily adopted by the non-specialist personnel. This also means that the codification basis when one understood the code numbers should be self-explanatory to a certain possible extent.

6.22.4 Codification method followed in VSGM:

Scientific method of codification is being followed in VSGM ltd. Codification is specially designed by taking the whole details of the products components. It can be explain with the help of the below giving examples,

Reading the product code: Taking the product AA_115WE, it can be read as follows

e.g. AA_115WE

AA 1 15 W E

AA_115WE

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This process is being followed for all the products while designing a product codes.

7. ABC analysis of inventories:

Investigator has performed ABC analysis on inventories of Vardhman Spinning and General Mill ltd. for analyzing the inventories control mechanism. The lists of items on which the investigator have performed its analysis are given below:

STORE ITEM Unit consumed Cost Value (Rs.)STATIONARY & GENERAL ITEMS (A)Pencil cell 714 6 4284

Ply

Count Worsted (Production unit)

ExportAcrylic (Raw

material used)

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Palm Broom 1048 15 15720Bottle Brush 1821 7 12747BEARING (B)      Ball Bearing 1210 ETN9 10 591.26 5912.6Ball Bearing 3304 3 762.75 2288.25BELTS (C )      V Belt A37 5 52.36 261.8Spindle Tape 2341 * 11HS5 3300 15.58 51414ELECTRONIC & MECHANICAL (E)      Port land cement 1700 185 314500Oxygen Gas 249 150 37350OIL & LUBRICANT (L)      Petrol 2676 49.26 131819.76Grease AP-3/AP-2 975 99.98 97480.5Kerosene Oil 1456 42 61152PACKING MATERIAL (P)      Bopp Tape 2.5" 6352 43 273136HM Sheet 40*40G 895 87.81 78589.95Paper Cone 420 Plain Low CS 6352 1.5 9528MACHINERY SPARES AND RING TRAVELLER COTS APRON  Weaver Scissor 1700 16 27200

 RAM-MATERIALS      Cotton 6381560.95 57.98 370002904Long Stable fibre 2516931.23 60.9 153281112Acrylics 3345001.4 128.82 430903080Polyester 1208346.15 67.9 82046703.6Other Raw materials 286883.53 193.74 55580815.1Total 13767979.26 2633.84 1092937999

Table showing percentage of unit consumed and value of inventory respectively.

ITEMUnit

consumed%age

Consumed Cost Value (Rs.)

%age of

ValueRanking (value)

Pencil cell 714.00 0.01 6.00 4,284.00 0.00 19

Palm Broom 1,048.00 0.01 15.00 15,720.00 0.00 15

Bottle Brush 1,821.00 0.01 7.00 12,747.00 0.00 16Ball Bearing 1210 ETN9 10.00 0.00 591.26 5,912.60 0.00 18

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Ball Bearing 3304 3.00 0.00 762.75 2,288.25 0.00 20

V Belt A37 5.00 0.00 52.36 261.80 0.00 21Spindle Tape 2341 * 11HS5 3,300.00 0.02 15.58 51,414.00 0.00 12

Port land cement 1,700.00 0.01 185.00 314,500.00 0.03 6

Oxygen Gas 249.00 0.00 150.00 37,350.00 0.00 13

Petrol 2,676.00 0.02 49.26 131,819.76 0.01 8

Grease AP-3/AP-2 975.00 0.01 99.98 97,480.50 0.01 9

Kerosene Oil 1,456.00 0.01 42.00 61,152.00 0.01 11

Bopp Tape 2.5" 6,352.00 0.05 43.00 273,136.00 0.02 7

HM Sheet 40*40G 895.00 0.01 87.81 78,589.95 0.01 10Paper Cone 420 Plain Low CS 6,352.00 0.05 1.50 9,528.00 0.00 17

Weaver Scissor 1,700.00 0.01 16.00 27,200.00 0.00 14

Cotton 6,381,560.95 46.35 57.98 370,002,903.88 33.85 2

Long Stable fibre 2,516,931.23 18.28 60.90 153,281,111.91 14.02 3

Acrylics 3,345,001.40 24.30 128.82 430,903,080.35 39.43 1

Polyester 1,208,346.15 8.78 67.90 82,046,703.59 7.51 4

Other Raw materials 286,883.53 2.08 193.74 55,580,815.10 5.09 5

Table showing the cumulative values and classification of inventory

ITEM%age

ConsumedCumulative value

(% consumed)%age of

ValueCumulative value (% Value) Classification

Acrylics 24.30 24.30 39.43 39.43 ACotton 46.35 70.65 33.85 73.28 ALong Stable fibre 18.28 88.93 14.02 87.31 BPolyester 8.78 97.71 7.51 94.82 BOther Raw materials 2.08 99.79 5.09 99.90 CPort land cement 0.01 99.80 0.03 99.93 CBopp Tape 2.5" 0.05 99.85 0.02 99.95 C

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Petrol 0.02 99.87 0.01 99.97 CGrease AP-3/AP-2 0.01 99.88 0.01 99.98 CHM Sheet 40*40G 0.01 99.88 0.01 99.98 CKerosene Oil 0.01 99.89 0.01 99.99 CSpindle Tape 2341 * 11HS5 0.02 99.92 0.00 99.99 COxygen Gas 0.00 99.92 0.00 100.00 CWeaver Scissor 0.01 99.93 0.00 100.00 CPalm Broom 0.01 99.94 0.00 100.00 CBottle Brush 0.01 99.95 0.00 100.00 CPaper Cone 420 Plain Low CS 0.05 100.00 0.00 100.00 CBall Bearing 1210 ETN9 0.00 100.00 0.00 100.00 CPencil cell 0.01 100.00 0.00 100.00 CBall Bearing 3304 0.00 100.00 0.00 100.00 CV Belt A37 0.00 100.00 0.00 100.00 C

Interpretation:

From the above analysis we came to know that the company should be more focus on the control procedure of the Acrylic and Cotton i.e., raw material. It can be seen in the above table that the composition of this raw-material is contribute to a total of near about 75% of the total value but constitute a minimum portion of the total inventory consumed as compared to the other materials. Thus, the company should give more focus on controlling it as it will affect the production process. More focus should be given on estimating the requirement of the raw-material, purchase and maintaining stocks of such goods so as to control cost incurred in such items.

Long Stable fibre and Polyester items comes under B category, which falls under 75% to 90% of the total value. A moderate control system should be maintained for such item in purchasing, storing, etc.

Other items like other raw-materials, store materials fall under “C” category of product which has less value contribution in the total expenditure. A minimum level of stocks of such gods should be maintained so that it does not affect the manufacturing and operational activities of the company.

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FINDINGS AND SUGGESTION

Findings:

From the investigators study the following details regarding inventory management is being found in VSGM, Ludhiana:

Godowns are well maintained in the company

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Proper procedure for purchase, receipt and issue of raw material and store items are followed.

Computerised inventory material system is being followed through ERP system which maintained information for all transaction relating to raw material or store items

As most of the raw materials are acquired from its holding companies and local dealers, the procurement cost of raw material is quite lower than the other firm.

Proper stocks of raw material such as cotton, fibre and store materials are maintained by the company. As most of these raw materials are of seasonal, company maintain a stock for cotton of 6 months and for fibre, 2 months in advance. Any shortage is adjusted from local or nearby dealer.

Systematic method for codification is being followed and thus helps in easy maintenance of the same in the ERP system or so.

Product prices are fixed by taking the cost involved in manufacturing the product or the market price of the item or its substitute presently available in the market whichever is profitable to the company. But if the market price of the product is less then company fixed its price on that so as to meet the market competitions.

Waste material of the company is either recycle or resale in the market at a price which is prevailing in the market.

Suggestions:

Computerised Inventory maintenance is itself disadvantage for the company as the employee can easily manipulate the working of the data available in the system.

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Though there is enough warehousing facility, the methods followed in the issue and receipts of Material (raw material, finished goods) are not so satisfactory. It has been seen that finished goods are placed in those godowns where there is space for the same. Proper procedure is not followed here which should be done with due care.

Inventory control techniques are not well adopted in the companies. EOQ, Levels of stock and other measure for effective management of inventories should be practice.

Proper records for inventories should be maintained.

Inventories are generally maintained for 2/6 months which increase the storage cost of the concerned. The same can be reducing by studying the market conditions, availability, term and requirements of the same.

BIBLOGRAPHY:

http://en.wihttp://www.economywatch.com/businessandeconomy/textileindustry.htmlkipedia.org/wiki/Textile_industry

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http://www.bseindia.com/xmldata/corpfiling/announcement/Vardhman_Textiles_Ltd_280109_Rst.pdf

http://www.vardhman.com/profile.pdf www.vardhmanthreads.com/ http://vardhman.in/