Guna Fibres, Ltd

Airlangga Prima Satria

Fajar Prananda
Siti Amirah
 • Guna Fibres, Ltd. Was founded in 1972 to produce nylon fiber.

• 1 plant in Guna, India 500 kilometers south of New Delhi.

• They used new technology and domestic raw materials.

Company • Has steady franchise among dozens of small and local textile
weavers.
Background
• Supplied synthetic fiber yarns used to weave colorful cloths for
making saris, the traditional women’s dress of India.

• Ms. Surabhi Kumar-managing director and principal owner.

• Mr. Malik-bookkeeper.
 • Kumar discovered a problem in January 2012 that trucks were stopped from
delivering by the tax inspector because the excise tax hadn’t been payed.

• This caused customers to be unhappy.

• Tax inspector required a cash payment.

The Problem • Malik discovered the company had overdrawn its bank account again, the third
time in recent weeks.

• All-India Bank and Trust Company wanted to meet before it would loan money.

• Kumar told Malik “we are a very profitable enterprise, yet we seem to have to
depend increasingly on the bank.”

• Kumar wants to know why?

 On average sari required 8 yards of cloth

An Indian woman typically would buy 3 saris a year

Business & India’s female population was around 500 million

Demand
Demand for saris accounted for more than 12 billion yards
of fabric
Demand was supplied by domestic textile mills which filled
their yarn requirement from suppliers such as Guna Fibres
Syntetic-Textile Market

• DEMAND FOR SYNTHETIC • UNIT DEMAND WAS • INDIA’S MANY FESTIVALS • SEASONAL DEMAND FOR • UNIT GROWTH WAS
TEXTILES WAS STABLE WITH AFFECTED BY POPULATION HAD SIGNIFICANT AFFECT NYLON PEAKED IN MID- EXPECTED TO BE 15% PER
PREDICTABLE SEASONAL AND NATIONAL INCOME. ON DEMAND. SUMMER. YEAR.
FLUCTUATIONS.
 • Competition among suppliers which included many small textile-
weaving mills, was affected by price, service and credit mills could grant.

• Mills produced to order and built inventories shortly in advance of

peak selling season.

• They kept only maintenance stocks at other times of the year.

Competition • Yarn manufacturers competed for the business of mills through

responsive service and credit.

• Suppliers to the yarn manufacturers provided little to no trade credit.

• Yarn manufacturers essentially banked the downstream activities of

the industry.
 • Kumar had a policy of against
overproduction and overstocking due to
thin profit margins.

• This required them to carry inventories

Production & through slack selling season.

Distribution
System • She adopted seasonal production plan-
plant would operate at full capacity for two
months and modest levels for rest of year.

• Policy caused annual hirings and layoffs.

Company Performance
Reassessment & Memos
Major Concern
 Aspect that cause the Problem

Account
Huge inventory High dividend
Receivables on
(60 days) payouts
liberal credit terms
SWOT
Strength Weakness Opportunity Threat
• The first plant • There are problem in • Saris required 8 yards • Competitor are
• Use new Technology & tax payment for each cloth developing rapidly
domestic raw material • The company had • Indian woman buy 3 • Fluctuations in
• Steady franchise overdrawn its bank saris a year demand, peak at
among dozen local account third time in • India’s female midsummer
textile recent weeks. population ± 500 mio • Demand was affected
• Funding depend on • Demand for more by population and
bank than 12 bio yards of national income
fabric
Financial Ratio

2010 2012
Current ratio (2010) = Total current Current ratio for forecast 2012 =
assets/current liabilities 8.891/4.660 = 1,9 (<2, not acceptable)

• = 6.259/541 = 11,56

Current ratio (2011) = 6.885/1.530 = 4,5

2011
Financial Ratio

2010 2012
Quick Ratio(2010) = (Current Quick ratio for forecast 2012 =
Asset-Inventory) / liabilities (8.891-4.427)/4.660 = 0,95 (<2,
not acceptable)
• = (6.259 – 2974) /541 = 6.072

Quick ratio (2011) = (6.885 – 3.450)/1.530 = 2,24

2011
Cash Conversion Cycle (from forecast 2012)

• Inventory convertion period = Inventory/COGS per day

= 4.427/(66.993/365)
= 24 days
• Payables deferral period = Receivable/COGS per day
= (4.852)/2 / (66.993/365)
= 3.893 / 183
= 26 days
• Average collection period = 48 days
CCC = 24 + 48 -21 = 46 days
CCC from forecast 2012 vs CCC new forecast
Option 1 –
Memo from
Transportation
Manager (New
Inventory Policy)
 Current ratio went up from 1,9 to 4,3
Option 1 –
Memo from
Transportation
Quick ratio went up from 1 to 3
Manager (New
Inventory
Policy) Reducing inventory gives the company
more room thus having less of a
payment on the loan mothly
Option 2 –
Memo from
Production
Manager (Level
Production)
Option 2 – Memo from Production
Manager (Level Production)

• Current ratio went down from 1,9 to 1,5

• Quick ratio went down from 1 to 0,3
• Eliminate seasonal hirings and layoff & Lower manufacturing risk
• Reduced forecasted of direct labour
Conclusion & Recommendation

Option from memo 1 (New

No alternative can clear the Inventory Policy) might be
loan down to 0 in Des 2012 gave a better result for a
new 2012 forecast