Entrepreneurial Initiatives in India- “Government and Non Government Support”
1. Delhi Technical University announced the setting up of water technology and management centre with the support of UNESCO.
2.The Entrepreneurship Development Cell (EDC) of University School of management Studies, Guru Gobind Singh Indraprastha University (GGSIPU) has launched a one month business skill development programme in association with the Ministry of Micro, Small and Medium Enterprises. Representatives from KVIC, NABARD will share their knowledge.
3.NASSCOM has signed a Memorandum of Understanding (MoU) with University Grants Commission (UGC), for
4. Faculty Development Programme (FDP)
5. Re-skilling the faculty in IT
6.Framework for co-operation to catalyze industry-academia interface
What is a Micro, Small or Medium Enterprise? The earlier concept of „Industries‟ has been changed to „Enterprises‟
• Enterprises have been classified broadly into:
(i) Enterprises engaged in the Manufacture / production of Goods pertaining to any industry; &
(ii) Enterprises engaged in providing / Rendering of services.
Manufacturing enterprises have been defined in terms of investment in plant and machinery (excluding land & buildings) and further classified into :
- Micro Enterprises - investment up to Rs.25 lakh.
- Small Enterprises - investment above Rs.25 lakh & up to Rs. 5 crore
- Medium Enterprises - investment above Rs. 5 crore & up to Rs.10 crore.
• Service enterprises have been defined in terms of their investment in equipment (excluding land & buildings) and further classified into: -
-Micro Enterprises – investment up to Rs.10 lakh.
-Small Enterprises – investment above Rs.10 lakh & up to Rs.2 crore.
- Medium Enterprises–investment above Rs. 2 crore & up to Rs. 5 crore It is not necessary to engage in manufacturing activity for self-employment. One can set up service enterprises as well .
THE ROLE OF GOVERNMENT IN SUPPORTING ENTREPRENEURSHIP
Small and Medium-sized Enterprises (SMEs) in market economies are the engine of economic development. Owing to their private ownership, entrepreneurial spirit, their flexibility and adaptability as well as their potential to react to challenges and changing environments, SMEs contribute to sustainable growth and employment generation in a significant manner. SMEs have strategic importance for each national economy due a wide range of reasons. Logically, the government shows such an interest in supporting entrepreneurship and SMEs. There is no simpler way to create new job positions, increasing GDP and rising standard of population than supporting entrepreneurship and encouraging and supporting people who dare to start their own business. Every surviving and successful business means new jobs and growth of GDP.
Therefore, designing a comprehensive, coherent and consistent approach of Council of Ministers and entity governments to entrepreneurship and SMEs in the form of government support strategy to entrepreneurship and SMEs is an absolute priority. A comprehensive government approach to entrepreneurship and SMEs would provide for a full coordination of activities of numerous governmental institutions (chambers of commerce, employment bureaus, etc.) and NGOs dealing with entrepreneurship and SMEs. With no pretension of defining the role of government in supporting entrepreneurship and SMEs, we believe that apart from designing a comprehensive entrepreneurship and SMEs strategy, the development of national SME support institutions and networks is one of key condition for success. There are no doubts that governments should create different types of support institutions: i) To provide information on regulations, standards, taxation, customs duties, marketing issues; ii) To advise on business planning, marketing and accountancy, quality control and assurance; iii) To create incubator units providing the space and infrastructure for business beginners and innovative companies, and helping them to solve technological problems, and to search for know-how and promote innovation; and iv) To help in looking for partners. In order to stimulate entrepreneurship and improve the business environment for small enterprises.
Training Basic training differs from product to product but will necessary involve sharpening of entrepreneurial skills. Need based technical training is provided by the Govt. & State Govt. technical Institutions. There are a number of Government organisations as well as NGOs who conduct EDPs and MDPs. These EDPs and MDPs and are conducted by MSME's, NIESBUD, NSIC, IIE, NISIET, Entrepreneurship Development Institutes and other state government developmental agencies. Marketing Assistance There are Governmental and non-governmental specialised agencies which provide marketing assistance. Besides promotion of MSME products through exhibitions, NSIC directly market the MSME produce in the domestic and overseas market. NSIC also manages a single point registration scheme for manufacturers for Govt. purchase. Units registered under this scheme get the benefits of free tender documents and exemption from earnest money deposit and performance guarantee.
Promotional Schemes Government accords the highest preference to development of MSME by framing and implementing suitable policies and promotional schemes. Besides providing developed land and sheds to the entrepreneurs on actual cost basis with appropriate infrastructure, special schemes have been designed for specific purposes like quality upgradation, common facilities, entrepreneurship development and consultancy services at nominal charges. Government of India has been executing the incentive scheme for providing reimbursement of charges for acquiring ISO 9000 certification to the extent of 75% of the cost subject to a maximum of Rs. 75,000/- in each case. ISO 9000 is a mechanism to facilitate adoption of consistent management practices and production technique as decided by the entrepreneur himself. This facilitates achievement of desired level of quality while keeping check on production process and management of the enterprise.
Concession on Excise Duty MSME units with a turnover of Rs. 1 crore or less per year have been exempted from payment of Excise Duty. Moreover there is a general scheme of excise exemption for MSME brought out by the Ministry of Finance which covers most of the items. Under this, units having turnover of less than Rs. 3 crores are eligible for concessional rate of Excise Duty. Moreover, there is an exemption from Excise Duty for MSME units producing branded goods in rural areas
Credit Facility to MSME Credit to micro, small and medium scale sector has been covered under priority sector lending by banks. Small Industries Development Bank of India (SIDBI) has been established as the apex institution for financing the MSME. Specific schemes have been designed for implementation through SIDBI, SFCs, Scheduled Banks, SIDCs and NSIC etc. Loans upto Rs. 5 lakhs are made available by the banks without insisting on collaterals. Further Credit Guarantee Fund for micro, small and medium enterprises has been set up to provide guarantee for loans to MSME up to Rs. 25 lakhs extended by Commercial Banks and some Regional Rural Bank.
Policies And Schemes For Promotion Of MSME Implemented By State Governments All the State Governments provide technical and other support services to small units through their Directorates of Industries, and District Industries Centres. Although the details of the scheme vary from state to state, the following are the common areas of support.
1. Development and management of industrial estates
2. Suspension/deferment of Sales Tax
3. Power subsidies
4. Capital investment subsidies for new units set up in a particular district
5. Seed Capital/Margin Money Assistance Scheme
6. Priority in allotment of power connection, water connection.
7. Consultancy and technical support
Government of India runs a scheme for giving National Awards to micro, small and medium scale entrepreneurs providing quality products in 11 selected industry groups of consumer interest. The winners are given trophy, certificate and a cash price of Rs. 25000/- each. Government accords the highest preference to development of MSME by framing and implementing suitable policies and promotional schemes like policies and promotional schemes, providing incentives for quality up gradation, concession on excise duty and provides technical supportive services. Thus Government play supportive role in developing entrepreneurs.
STATE GOVERNMENTS INCENTIVES FOR INVESTORS Many state governments are offering incentives to attract investment in their states. Many state governments in India offer attractive incentive packages which include incentives such as:
a. Land at subsidized prices or Industrial sheds to set up small scale industrial units.
b. Tax concessions for a number of years. These may include exemption from sales tax etc for a set period of time.
c. Electric power supply at a reduced tariff.
d. Loans and subsidies at very attractive rates of interest.
INCENTIVES FOR SETTING UP BUSINESS IN BACKWARD AREAS
The Government of India as well as several State Governments provides several benefits and incentives to promote industrialization of backward areas. Both the central and state governments share the cost of some of the incentives provided. The purposes of such incentives are to develop backward areas and increase employment for local inhabitants of such areas. The bulk of new industries prefer areas with an established infrastructure and this is why incentives are offered to entice new ventures to start up in areas that need development. Incentives offered depend on the specific area chosen.
Some of the incentives offered are: Transportation subsidies to promote industries in areas that are not easily accessible, like remote hilly areas. A subsidy of 50% to 90% on transportation costs is available under this scheme.
1. A Subsidy at the rate of 15% of the investment amount in plant and machinery is given under the capital investment subsidy scheme.
2. A subsidy for interest relief is also provided at a rate of 3% for new industrial units in some areas.
While in the past setting up an industry in India was not an easy task because of bureaucratic requirements that needed to be fulfilled. However both the central and state governments have now made efforts to improve some things. Industrial Unit Startup Information for NRIs For Non Resident Indians returning to India to start up industrial units. They will find that there is plenty of talent available in India. Hiring the right kind of person can make things quite easy to go through the maze of Indian regulations. While the government no doubt is trying to bring out reforms to make things easier for foreign investors, the attitude of some officials is difficult to change. Those who encounter problems should use the several channels available now to report clerks use delaying tactics for personal gain. Returning NRI's who can tolerate the initial adjustment setbacks in establishing themselves when they return to India will ultimately find the rewards well worth the effort. India offers investors tremendous opportunities and is presently one of the most sought locations for industrial investment. Loans available for starting Industrial venture in India
There are two main financial institutions available for loans for entrepreneurs on the (federal/ all India level).
1. Industrial Development Bank of India(IDBI)
2. Industrial Finance Corporation of India (IFCI) The Industrial Development Bank of India is the head institution in the area of long term industrial finance.
It was established under the IDBI Act 1964 as a wholly owned subsidiary of RBI and started functioning on July 01, 1964. Under Public Financial Institutions Laws (Amendment) Act 1976, it was delinked from RBI. IDBI is engaged in direct financing of the industrial activities The objectives of the Industrial development bank of India are to create a principal institution for long term finance, to coordinate the institutions working in this field for planned development of industrial sector, to provide technical and administrative support to the industries and to conduct research and development activities for the benefit of industrial sector.
On the State level finance is available loans can be availed from
1. State Financial Corporation (SFC) 2. State Industrial Development Corporation (SIDC).
Criteria for Business loans:
√ Technical assessment of project
√ Experience of the entrepreneurs
√ Financial & commercial practicality of the project
√ Conformity to environmental laws
√ Economic viability of the project
How to apply for business loans in India – Loan application procedure
a. The first step is to submit a detailed project report (business plan)to the financial institution to IDBI, IFCI or any other financial institution from where the loan sanction is sought. In case a license is a requirement for the project, the license should be provided with the project report.
b. The financial institution after scrutinizing the project report. If the financial institution requires additional information or clarifications, they usually ask for this in a few days of receipt of project report.
c. Representative from the financial institution will arrange to inspect the site etc to make certain the suitability of the project. At this stage discussions on various aspects of the project are discussed and final project costs are calculated.
d. The financial institution gives its approval if they find the project feasible.
Loans provided for business ventures can be for equipment and fixed assets as well as working capital. While there is no hard and fast rule that is revealed by financial institutions. I would say that if a project is viable and the entrepreneur has approximately 25% of his own funds. Then 75% can be financed. In addition to this loans can be availed for working capital also. In case you can provide proof of your expertise in the project there is always the possibility that your loans may be sanctioned with a lesser amount of cash investment on your part. Projects costing up to Rupees 5 crores can normally be financed on the state level. Financial institutions follow guidelines such as debt-equity ratio, entrepreneur‟s contribution to the project etc when deciding on loans. It is not uncommon for applicants to inflate their contributions in an attempt to invest the least amount of their own funds..
Project Identification
Project:
It is defined as a typically has a distinct mission that it is designed to achieve and a clear termination point, the achievement of the mission. Idea Generation
Project selection process starts with the generation of a product idea. The project ideas can be discovered from various internal and external sources. They may be
1. Knowledge of potential customer needs
2. Watching emerging trends in demand for certain products
3. Scope for producing substitute product
4. Going through certain professional magazines catering to specific interest like electronics, computers etc.,
5. Success stories of known entrepreneurs or friends or relatives.
6. A new product introduced by the competitor.
Project Selection
It starts from where project identification ends. After having some project ideas, these are analysed in the light of existing economic conditions, the government policy and so on. A tool generally used for this purpose is, what is called the managerial jargon, SWOT analysis. On the basis of this analysis, the most suitable idea is finally selected to convert it into an enterprise.
SWOT Analysis
Introduction
It has always been important for a business to know and understand how it fits in and interacts with the surrounding environment on both an internal (office/factory/shop environment) and external view (how your business operates with the outside world). Researching your environment will benefit you and/or your management team by putting you in a position to develop a strategy for both the long and short term.
Analyzing the Business
The most influential way of doing this is to perform a SWOT analysis of the company. It is a common phrase used to abbreviate Strengths, Weaknesses, Opportunities and Threats. Each term is a heading for a separate analysis of the business but they can be related as seen below:
Strengths provide an insight to your business opportunities & weaknesses in your business can cause immediate threats A guideline of how to carry out the analysis is explained in the next section, but it is important to know that the SWOT analysis is only based upon information that is known by the assessors (you), and is seen as perhaps the more basic approach of analyzing a business‟ position: but SWOT is still a powerful tool when looking for immediate benefits
Performing SWOT
Recognizing the Strengths and Weaknesses before tackling the Opportunities and Threats is the best way to approach the analysis: the more Strengths and Opportunities the better they can both be seen as the bigger influences for the success of your company. You need to be aware that the most important rule is not to leave anything out no matter how small the issue may be. There is no fixed way of doing a SWOT analysis, but it should be done in a way that you feel most comfortable with, and more importantly that you understand it. The objective is to be in a position where you can determine a strategy for the future to improve your company‟s overall performance (or maintain it if you are happy with your final analysis).
Strengths
The Strengths can be considered as anything that is favourable towards the business for example:
1. Currently in a good financial position (few debts, etc)
2. Skilled workforce (little training required)
3. Company name recognized on a National/Regional/Local level
4. Latest machinery installed
5. Own premises (no additional costs for renting)
6. Excellent transport links (ease of access to/from the Company)
7. Little/non-threatening competition
Weaknesses
Recognizing the Weaknesses will require you being honest and realistic. Don‟t leave anything out as this is an important part as to realize what needs to be done to minimize this list in the future. Here are a few examples:
1. Currently in a poor financial position (large debts, etc)
2. Un-Skilled workforce (training required)
3. Company name not recognized on a National/Regional/Local level
4. Machinery not up to date (Inefficient)
5. Rented premises (Adding to costs)
6. Poor location for business needs (Lack of transport links etc)
7. Stock problems (currently holding too much/too little)
8. Too much waste
Opportunities Keeping in mind what you have listed as your Company Strengths, SWOT Analysis can now influence the Opportunities for the business. These can be seen as targets to achieve and exploit in the future for example:
1. Good financial position creating a good reputation for future bank loans and borrowings
2. Skilled workforce means that they can be moved and trained into other areas of the business
3. Competitor going bankrupt (Takeover opportunity?)
4. Broadband technology has been installed in the area (useful for Internet users)
5. Increased spending power in the Local/National economy
6. Moving a product into a new market sector
Threats
The final part of the analysis will also be seen as the most feared- the Threats. It has to be done and therefore taking into account what you have listed as your weaknesses, the threats will now all seem too clear. Examples
1. Large and increasing competition
2. Rising cost of Wages (Basic wage, etc)
3. Possible relocation costs due to poor location currently held
4. Local authority refusing plans for future building expansion
5. Increasing interest rates (increases borrowing repayments, etc)
6. End of season approaching (if you depend on hot weather, etc)
7. Existing product becoming unfashionable or unpopular
Using the Analysis
Once the SWOT analysis is complete, it will then be time to put it all together and look closely to form a strategy. This will involve how you can exploit the Opportunities and how to eliminate or deal with the Threats. This may well depend on your company‟s original objectives and goals but the whole process will certainly give an overall look at the current position of your business. You might argue that you can make a list in your head about the areas that make up your analysis and that no benefit can be derived from a SWOT exercise. Try a quick list with the four areas and identify where one area impacts on another. If you find one instance that is a current issue, you would then have cause to complete the full analysis.
Summary
As previously stated, SWOT analysis is used primarily to evaluate the current position of your business to determine a Management strategy for the future. It should also help you to look at how you may do this by looking closely at your Weaknesses and Threats that you have identified. Great care needs to be taken when planning a strategy not to disturb the balance of your Strengths as you could find that your Strengths suddenly become a Weakness if you don‟t use them. The way that SWOT has been introduced to you is the simplest way that it can be found. It can be used further to analyze your business (depending on its size) on a Local, National and Global level. This is done by splitting up the Strengths, Weaknesses, Opportunities and Threats of your business into the appropriate category (e.g. High Unemployment in the area- Local Threat because of less spending). It cannot be stressed enough that the analysis is carried out fairly and thoroughly. This will then put you in a position to forecast and prepare for the future accurately to give realistic objectives and tasks.
Project Appraisal
It means the assessment of a project. Project appraisal is made both proposed and executed projects.
Methods of Project Appraisal
1. Economic Analysis. ( requirement of raw material, level of capacity, utilization, anticipated sales, anticipated expenses and the probable profits)
2. Financial Analysis. (working capital, fixed capital, fixed asset and current asset)
3. Market Analysis.
i) Opinion Polling Method
a) Complete Enumeration Survey
b) Sample Survey
c) Sales Experience Method
d) Vicarious Method
ii) Life Cycle Segmentation Analysis
a) Introduction
b) Growth
c) Maturity
d) Saturation
e) Decline
4. Technical Feasibility
i) Availability of land and site
ii) Availability of other inputs like water, power, communication facility.
iii) Copying-with anti-pollution law
5. Managerial Competence
Pre-feasibility Studies
Pre-feasibility studies are well researched yet generic due diligence reports that facilitate potential entrepreneurs in project identification for investment The main objective of the pre-feasibility studies prepared by SMEDA is to provide information about investment opportunities to the small & medium enterprises (SME‟s). A typical pre-feasibility study provides:
1. Comprehensive information for investment opportunity in a business.
2. Specific information regarding different business areas like, marketing, technical, industrial information etc. for the existing entrepreneurs to improve their exiting setup.
3. Project investment information and financial projections to support viability of the business.
Ownership Structure
a. Proprietorship
b. Partnership firm
c. Company
d. Co-operative society
Selection of an appropriate form of ownership structure
a. Nature of business- if business require pooling of capital and skill are generally run as partnership
b. Areas of operation- local operation require proprietorship. National and international businesses require company ownership structure.
c. Degree of control – direct control over business operation is required suitable ownership may be proprietorship.
d. Capital requirement- if capital requirement is more so it is better to choose partnership firm.
e. Duration of business – if business have a definite period of time it suitable for proprietorship or partnership.
f. Government regulation- if the owner not like much more government involvement so he can choose partnership or proprietorship.
Business Plan
General Guidelines for writing plan
As much as your plan represents your dream and is very important to you, it may not be as high on the agendas of the people who read it. When you sit down to write your plan, think of who will be reading it and put yourself into their shoes as much as possible. In most cases, the people who will read your plan are going to be potential investors, bankers, and/or potential partners. Your readers have likely seen dozens, and perhaps even hundreds, of plans. These people do not often have a great deal of time, so prepare your plan accordingly. In general you should:
a. Write the plan yourself. Get help if you need it, but do not let your accountant, bookkeeper, or other professional write your plan for you. You may let them help you with the financial plan, for example, but you need to know your plan inside and out-and the best way to ensure that is to write it yourself.
b. Back up every claim you make with supporting evidence. Include surveys and detailed market research as an addendum or appendix to your plan.
c. Write clearly and to the point, keeping your prose to a minimum.
d. Avoid hyperbole: don't overstate your case. Similarly, avoid unnecessary adjectives such as "fantastic," "amazing," "astounding," "irresistible," and so on. Let the reader form his or her own opinion.
e. Ensure that your writing is error-free and edited for proper form and syntax.
f. Choose a simple, common font such as Times New Roman, and stick with it throughout the document.
g. Use professionally produced drawings, photographs, and graphs. Unless you are a professional, your own attempts at art will look amateurish. The same is true for videos, if you're using them, or a computer-based demo.
h. Bind the pages simply. Cerlox or its equivalent is likely sufficient.
i. Make sure you include your contact information right on the cover. This is one of the most common mistakes entrepreneurs make.
Section of the plan
The first two sections should appear at the beginning of your plan. It is not as critical that the others follow in the order given, but this sequence will likely work well.
Executive Summary This is by far the most important part of your plan. It should be no more than two pages in length, or less. State the idea, the opportunity, how much money you need, where you hope to get it, how it will be spent, and how you will pay it back. Readers who are interested may then go on to read the rest of your plan. Be warned, if your executive summary is more than three pages long, it will likely not be read.
Your Planned Venture
Describe your idea as clearly as possible, with diagrams, photographs or any other medium necessary to communicate it to the reader. Back up the idea with a description of the target market, tell why the opportunity exists, and why your idea will capture that market.
Market Research
Explain how you determined the product or service was appropriate to the market. Include explanations of the "four P's" (price, product, promotion, placement).
Background and History
Tell who you are, what experience and skills you bring to this venture, and whether or not you've run your own businesses in the past. Describe and explain their successes or failures. Include your own, short, biography here.
Management Team
Provide the names, and short bios, of the people you will use to fill the key positions in the business. Start-up Plan
Tell when and where you plan to start the business and why you chose this time frame and location.
Operational Plan
Describe, in detail, how your business will operate. Include diagrams of production or service areas if appropriate. Marketing Plan Describe, in detail, how you will attract customers or clients and how you will deliver your product or service to them.
Financial Plan
Provide a detailed financial plan, including a cash-flow projection, that accounts for the money you will need (borrow) and the repayment plan and return on investment to investors.
Appendix
Include your own and your team's detailed biographies here as well as additional market research and any other information that is too detailed to be included in the body of the plan. Most entrepreneurs have to come up with their own start-up money – either from their own savings or from relatives who know and trust them. But there are other sources of capital out there that you might tap into. Nothing is easy or straightforward about raising start-up capital for your venture. Here are some typical potential sources of start-up money
MARKETING MANAGEMENT
Before any production/ service is offered for sale to market, several decision need to taken in regarding marketing. Ex: price of product has to determined, the methods of marketing has been identified and the channels of distribution have to be worked out.
Marketing
Market : it is a place where the sellers and buyers assemble to exchange their products for money and vice versa.Concept has been change time to time.
Traditional concepts: Early days, „marketing‟ includes activities involved in the flow of goods and services from production to consumption.
Modern Concepts: Due to changes of customers, behaviour concepts are also changed customers started to buy the goods or services that were more beneficial to them in terms of quality, price, satisfaction, durability, look and so on. The benefits to the consumers may be tangible and intangible. The new approach relies on to produce the goods or offer services that satisfy the customers‟ demands.
Traditional approach focus on the needs of the sellers (Buyers Beware).
Modern approach focus on the needs of the buyers. (sellers beware).
Problems of Marketing of small industries:
1. Competition with modern section
2. Lack of sales promotion
3. Weak in bargaining power
Market Assessment:
Demand forecasting
Demand refers to willingness and ability of customers to buy products or services. When we consider this definition for all the potential customers having both willingness and ability to buy a product it is termed as “total Market” There are number of techniques available for forecasting demand.
1. Survey Method
2.Statistical method
3. Leading indicator method
Market Segmentation:
Market segmentation is the sub- dividing of a market into homogeneous subsets of customers, where any subset may conceivable be selected on a market target to be reached with a distinct marketing mix.
Basic of Market segmentation
1. Geographic variable
2.Demographic variable
3.Education variable
4.Income variable
Marketing Mix:
Marketing mix classified the four factor under 4 P‟s vie Product, Price, Promotion, Place. “Marketing mix is the tailoring the product its price, its promotion and distribution to reach the target customers”.
Brand
A brand is a name, term, sign, symbol or design or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. Brand mark is a symbol or mark used fr the purpose of identification of the product.
Packaging
Packaging is an art science and technology of preparing goods for transport and sales.
Pricing Policy
Price is the money that customers must pay for a product or services. Pricing the product is something different from its price. Salient features: Pricing cover all marketing aspect like the item- goods and service. Mode of payment, methods of distribution, currency used etc. pricing may carry with it certain benefits to the customers like free delivery, guarantee, installation from after sales servicing. Pricing refers to different prices of a product for different customers and different prices for the same customers at different times.
Factors affecting prices:
Economic and non- economic
1. Product characteristics
2. Product cost
3. Objectives of the firm
4. Competitive situation
5. Demand for the product
6. Customers behaviour
7. Government regulation
Pricing methods / policies
Cost plus method
Total cost + profit = selling price. Total cost includes fixed cost + variable cost. Profit refers to margin.
Skimming Pricing:
It suitable for a product introduced is innovative and innovative and it used mainly by sophisticated group of customers. High price is usually promoted by heavy promotion. Recover the cost with in a shorter period of time.
Penetration Pricing:
It is Contrary to skimming to attract more customers are very particular for price and which product is an items of mass consumption. Under this policy, the price of the product is set at lower level of penetrate into the market.
Market rate policy
This policy adopts the prevailing market rates for determining the price of the product. Unusually this policy used for unbranded products like oils, couriers, tailoring, repairing.
Variable price policy:
The price of the same product varies from customers to customers depending upon the situation prevailing in the market.
Resale price Maintenance
The manufacturer of the product fixes prices of the whole seller and retailer. The retailer price of the product like drugs and detergents are printed on the package. Retail price is fixed somewhat higher to meet of the cost of inefficiency retailers not selling the goods timely.
DISTRIBUTION CHANNELS / METHODS OF MARKETING:
A channel of distribution or marketing channels is the structure of intra-company organisation units and extra-company agents and dealers, wholesale and retails through which a commodity, product or service is marketed.
In view of number of intermediaries of the product channels it can be classified into three.
1. Zero level Channel--producer to consumer
2. One level Channel - Producer - retailer -consumer
3.Two level Channel --producer-- whole seller -- retailer -- consumer.
Working Capital Management
• Working capital management is concerned with making sure we have exactly the right amount of money and lines of credit available to the business at all times
• Working Capital is the money used to make goods and attract sales
• The less Working Capital used to attract sales, the higher is likely to be the return on investment
• Working Capital = Current Assets − Current Liabilities
Working Capital Management
• Cash Management
• Receivables Management
• Inventory Management
Cash Management
• Identify the cash balance which allows for the business to meet day to day expenses reduces cash holding costs
Receivables Management
• Money which is owed to a company by a customer for products and services provided on credit
• Identify the appropriate credit policy
• Inventory Management
• Identify the level of inventory which allows for uninterrupted production
• Reduces the investment in raw materials, minimizes reordering costs and hence increases cash flow
Inventory Management
A company's merchandise, raw materials, and finished and unfinished products which have not yet been sold. These are considered liquid assets, since they can be converted into cash quite easily.
Policies, procedures, and techniques employed in maintaining the optimum number or amount of each inventory item. The objective of inventory management is to provide uninterrupted production, sales, and/or customer-service levels at the minimum cost.
Techniques: -
• ABC
• JIT
• FSN
• VED
• BILLS OF MATERIAL
• BIN CARDS
• EOQ-ECONOMIC RE-ORDER QUANTITY
• INVENTORY/TURNOVER
Inventory Management
Importance:-
– TRANSCATIONS MOTIVE:
It emphasizes the need to maintain inventories to facilitate smooth production and sales operations
– PRECAUTIONARY MOTIVE: -
It necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors
– SPECULATIVE MOTIVE: -
It influences the decision to increase or reduce inventory levels to take the advantage of price level fluctuations
Conflicting needs : -
– To maintain a large size of inventories of raw materials and WIP for efficient and smooth production and of finished goods for uninterrupted sales operations
– To maintain a minimum investment in inventories to maximize profitability
Objective: -
– determine and maintain optimum level of inventory investment
– to maintain sufficient inventory for the smooth production and sales operations
– to avoid excessive and inadequate levels of inventories
– Making adequate inventories available for production & sales when required.
Benefits of holding inventories:
1.Avoiding losses of sales
2.Avoid non-supply of goods at times demands by understands. Reducing ordering costs
3.cost associated with individual order such as typing approving mailing can be reduced. Achieving efficient production run
4.Supply of sufficient inventories protects against shortage of raw materials that may interrupt production operation.
Cost of holding inventories:-
Ordering cost
1. cost which are associated with placing of orders to purchase raw materials & components. Salary, rent. “More the order the more will be ordering costs vice verse”. Carrying costs
2. cost involved in holding or carrying inventories like insurance. Charger for covering risk, thefts. It includes opportunity cost. Money blocked in inventories been invested. It would earn a certain return. Loss of such return may be considered opportunity cost.
Models of inventory management:-
Several models & methods have been developed in recent past for determining the optimum level of inventories.
Classified into two types:-
Deterministic models:-
There is no uncertainty associated with demand supply of inventory.
Probabilistic models:-
It always some degree of uncertainty associated with demand pattern & lead times of inventories. Unusually deterministic models associated:
a. Economic ordering quantity.(EOQ)
b. ABC analysis.
c. Inventory return over ratio.
EOQ:
Important decision to be taken by a firm in inventory mgt is how much to buy at a time. This is called EOQ. EOQ give solution to other problem like: How frequently to buy? When to buy? What should be the reserve stock?
Assumptions:-
EOQ is based on certain assumption.
1.The firm knows how much items of particular inventories will be used or demanded.
2.Use of inventories/sales made by the firm remains constant, or unchanged. The moment inventories reach the zero level, the order of inventory is placed without delay. These assumptions are also called limitations of EOQ.
Determination of EOQ:-
Ordering cost:
Cost concerned with the placing of an order to acquire inventories. Yes it way from time to time depending upon the no of items orders places & no of items ordered in each order.
Carrying cost:
Cost related to carrying or keeping inventories in a firm. Ex: interest on investment, obsolescence, losses, insurance, premium. Volume of inventory & carrying cost. EOQ can be determined by an approach.
The order-formula approach:-
There are number of mathematical formula to calculate EOQ. The most frequently used formula is
Q= 2Ux P / S Q = EOQ. U = Quantity purchased in a year/month. P = Cost of placing an order. (ordering cost) S = Annual/ monthly cost of storage of one unit known (carrying cost)
Trial & Error Approach:-
Carrying & ordering cost should be studied “order formula approach”.
Graphic Approach:
EOQ can found by drawing a graph.
ABC Analysis:-
A – Items with highest value.
B – Items with relatively low value.
C – Items with least valuable.
A – items maintain bare minimum necessary level of inventories.
B – items will be kept under reasonable control.
C – items would be under simple control.
FSN – Fast moving, Slow moving, Non-moving.
Fast moving in order of have smooth production. High demand – adequate inventory of these items maintained Slow moving items:-Slowly moving indicated by a low turnover ratio needed to maintain at minimum level. Dormant/obsolete items have no demand these should be disposed of a early as possible to curb further losses caused by them.
Inventory turnover Ratio: Cost of goods consumed or sold during year = ------------X 100 Average inventory during the year
Production and Operation Management
Investment Analysis
Both launching new product first time or diversified the product line involve investment. Basic objective of every investment is to maximise the profit. Hence the scarce capital should be invested in those opportunities which could give the maximum return on capital employed (profit).
Tools for investment analysis:
NPV, IRR, Payback Period, ARR, Benefit cost Ratio. Technique of ratio analysis and capital budgeting have been used as most important tool of investment analysis. Investment analysis deals with the interpretation of the data incorporated in the Performa financial statement of a project and presentation of data in the form in which it can be utilised for comparative appraisal of the projects
Ratio Analysis:
Ratio analysis established arthimetical relationship between two relavant figures.normally it is expressed in percentage.
Return on proprietor’s fund( Equity)
Net Profit after tax and interest X100 Proprietors fundObjectives of investment is to earn maximum profit whether investment to be worth making in terms of return compared to risk.
Return on Capital Employed
Net profit before interest and tax X100 Capital Employed
Equity Capital = 5 lakhs, Loan = 3 lakhs, Rs. 80,000 net profit before tax and interest.
80,000 X100 = 10% (compare with other industry) 8,00,000
Return on Total Investment
Net Profit after interest and tax X100 = Overall profitability of business. Total Asset
Capital Budgeting
Involves investment decision balancing the sources and uses of funds for acquiring fixed assets like plant and machinery. Investment in fixed asset implies the choice of a particular project. The project selection is made on certain techniques.
Techniques of Capital Budgeting.
Pay Back or Payout Period
How long he / she to wait before the invested capital is recovered. Cash flow start coming and accumulate after certain period of time, the accumulated amount equal to the original investment made.
Average rate of return
Accounting rate of return is a reverse of payback period method. Pay back based on cash flow. Average rate of return based upon principles of accounting. It does not consider the time period. The average rate of return is calculated by dividing the average net income after taxes by the average investment over the life of the project.
ARR = Average net income after tax X 100 Average investment over the life of the project. It ignore time value of money.
Product Layout
During the course of technical arrangement of various facilities such as machinery, equipment etc., it is very necessary to give considerable emphasis on a proper plant layout to achieving their optimum utilization. Some important aspects while deciding the plant layout. There are
1. Production technology and production mix.
2. Efficiency, economic and uninterrupted flow of men and material
3. Adequate space for maintenance work
4. Scope for future expansion and diversification of the project
5. Health conducive layout of the plant
6. Proper lighting and ventilation.
