Kota Fibres Ltd.

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INTRODUCTION: Kota Fibres, Ltd. is one of India textile fiber manufactures that supply nylon fiber to domestic textile mills which make saris, the traditional women 's dress. Facing demand of India 's female population of 500 million, the saris industry consumes 12 billion yards of fabric, and the market keeps a steady 15% annual growth. Kota Fibres has been run as a family business by Ms. Pundir and her family since 1962. In the year of 2000, Kota Fibres outperform market average by growing sales revenue of 18% and achieved INR 2.6 million in net profit. Despite healthy growth of Kota Fibres ' revenue, Pundir found out that the company was facing a serious cash flow issue. The company was virtually stopped operation due to another…show more content…
Negociate with suppliers to ask for credit terms of 60 days, instead of current 30 days. We did a thorough study on each of the approaches. APPROACH1: GET NEW ORDER FROM PONDICHERRY TEXTILES Although it may become one of the company 's largest accounts, the biggest issue is that Pondicherry wanted to extend the credit term from 45 days to 80 days. If Pondicherry will purchase our yarn across the year in about the same pattern as other customers, we estimate the bank note will be even worse: Month Jan June Dec Bank Notes 1,202,510 36,054,488 3,844,456 It is very obvious that we would have at lease 3 months account receivables that could not be collected by the end of the year. Thus this is not a good choice unless Pondicherry agrees to shorten the payment term. APPRAOCH2: IMPROVE PRODUCTION EFFICIENCY BY ADOPTION OF LEVEL ANNUAL PRODUCTION It sounds very good to improve the gross margin by 2 or 3 percent. But if the company adopts the level production scheme, we
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