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MGT613 Production and Operations Management Assignment 1 Solution 2012

Suppose Green Textile Mills (GTM) has just entered the Pakistani market and is competing with the major textile manufacturers of Pakistan. Company is facing a very tough time in Pakistani market due to high cost of raw materials used and drastic power crisis.

In this situation company management has very comprehensible idea that they have to undertake strong and immediate steps in order to attain the market share and compete with the existing industrial giants.

You as an operations manager of the GMT are required to provide a comprehensive overview of the factors that may be closely monitored by the company to compete the strong competitors in Pakistani markets efficiently and effectively.
Solution:

Due to inadequate funds for textile policy implementation, some key policy initiatives have not been launched, which is not only causing resentment among the industry, following huge pending liabilities under operationalised schemes, but will also hamper projects’ execution and their timely completion.

A total of Rs 24.75 billion has been allocated against the approved financing plan of Rs 123 billion for 2009-12 ie around 20 percent only, while projects worth more than six billion rupees are pending in Planning Commission for the last two years, the Senate Standing Committee on Textile Industry was informed, which met with Senator Mushahid Ullah Khan in the chair here on Tuesday.

Briefing the committee, the Textile Ministry said that total PSDP allocation for Ministry of Textile Industry for current year was only Rs 150 million (0.05 percent of total PSDP). The industry is facing acute problems due to non-availability of utilities including gas for production due to which it is unable to meet domestic demand, consume domestic cotton and fulfil export orders. Availability of utilities and subsidies provided by competitor governments are putting textiles exports at a disadvantage in international market.



The committee was further informed that the industry is confronted with textiles marketing and market access issues including absence of level playing field for textile sector in trade with India-non-ad valorem duty on textiles, multiple tariff structures and subsidised exports.

Textile industry currently faces massive challenges. Despite introduction of five-year
Textile Policy, implementation is yet to be seen. This implies high policy risk for the sector.
Moreover, efforts to achieve preferential access to EU market are materialized, but the
legislation has been challenged by competing EU countries. Rising cotton prices have pushed
raw material costs substantially high, making it difficult for small players in the industry to
survive.
In addition to that power loom sector is affected mainly by poor technology, scarcity of
quality yarn and lack of institutional financing, hindering its development from unorganized
sector to an organized one.
However, notwithstanding its important role, currently the Textile Industry of Pakistan is
facing multiple problems that are discussed below:

Financial Problems
For the functioning of any industry the greatest issue has always been the
one related to money. Proper financing is very important for the development an industry.
Unfortunately, our Textile Industry is facing a lot of financial problems, some of which are given
as under:
a. Domestic Issues
The State Bank of Pakistan has withdrawn export financing
on all types of yarn. Moreover, all Banking Companies offer a very high rate of mark up to all
Textile Industries. In the past, all types of lending were made at very nominal rates and a liberal
atmosphere of lending was created. In recent past we have observed a vertical shift in the
monetary policy and KIBOR rates have been increased to multiple extent.
The high cost of doing business is because of intensive increase in the rate of interest which has increased the
problems of the industry. The record increase in markup rates is one of the major cause of
defaults in servicing the loans availed by the industry, hence, the volume of non-performing
loans has reached to an alarming situation.
Most of the Banks are reluctant to finance the private corporate sector. They are more inclined
towards the public sector. In addition, Pakistan as a whole is facing an acute problem of low
foreign investment.
Common belief in Pakistan is that the sector is quite vibrant and is investing heavily.
While it is true that there have been substantial investments in the sector as a whole, bulk of the
investments are in the spinning and weaving sectors and not enough is being invested in the
value added sectors of finishing and stitching.
b. Global Recession
Global recession has badly affected the textile sector of
Pakistan. This recession caused a very high rate of inflation, which, in 2010, had increased to a
whopping 25% as compared to a 7.9% of 2008. What occurred afterwards is what we call the
domino effect. The value of the Rupee crashed from 60-1 USD to 80-1 USD in only a month, the
prices of commodities soared through the roof, the number of people living below poverty line

increased from 60 million to 77 million, and consequently, the working class layman became
virtually deprived from basic necessities like water, wheat, electricity, natural gas, and cooking
oil; add to all this, the preposterous amounts of load-shedding, and what we get is a nation in
shambles.
The above all situation of the economy badly affected the textile industry. The demand
for textile product cut down locally & internationally as well. The export order reduced due to
unpredictable conditions of Pakistan & political instability. The cut down in the production of
textile cause further unemployment level which decrease the living standard of peoples
2
.
5.2Taxtile Input Issues
Increasing trend in the cost of inputs has become common practice
in our Country due to which Industries cannot compete in the markets. Due to increase in prices
of inputs used in manufacturing process like Electricity, Sui Gas etc, our Textile Industry sells its
products at higher prices due to multiplied cost of production. Increase in the prices of cotton and
yarn is also a great problem. On the other hand imported/smuggled goods are commonly
available in the markets at much cheaper prices. Chinese Goods are one of the best examples,
which are available throughout the country at much lower prices. The lack of research &
development (R&D) in the cotton sector of Pakistan has played no less part in compounding
troubles for this sector and the result is a low quality of cotton in comparison to rest of Asia.
Available cotton seeds have a higher moisture content and the resulting crop is of lower quality.
5.3Taxation Issues
There are a huge number of problems that our Textile Industry is facing with respect to
taxation. The greatest issue is that there is almost no tax on exports that discourages the local
industry.

Energy Crises
In spite of the rates of utilities in Pakistan being higher than competing
countries, their tariffs are increased on regular basis making the industry un-competitive. The
cost of production has also risen due to instant increase in electricity tariff.

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