The Textile & Apparel Industry in India

Background

The Indian Textile industry plays a significant role in the Indian economy. It constitutes for 4% of total industrial production of the country and is the second largest employment generator after agriculture. It provides direct employment to around 35 million people and another 56 million are engaged in allied activities. The current size of the Indian Textile Industry is US$ 46 billion. It is a major contributor of foreign exchange earnings for the nation with exports of about US$ 17 billion.

The dismantling of the quota regime with effect from 1st January 2005 marks a watershed event in the history of textile trading in the world as it has provided a totally competitive environment in the international market for textiles and clothing wherein the success would be determined solely by factors like quality, prices, design, adherence to delivery schedules, marketing skills etc. Global trade in textile and clothing is currently at US$ 356 billion and is expected to grow to US$ 600 billion by 2010. The bulk of the increase is expected to be in clothing, which is rojected to grow from US$199 billion to about US$ 400 billion. Though these figures look impressive but the fact of the matter is that India accounts for just about 4% of world trade in Textile and Apparel. These observations highlight the fact that not only is the textile sector of great importance to the Indian economy but also that it has great potential to grow in the global scene and become one of the drivers of the Indian economy.

Structure

The Textile & Apparel sector, very broadly, is divided into four segments - Fiber, Yarn, Fabrics, and Madeups. Fibers are either natural or man-made. Cotton, wool, silk are natural fibers whereas polyester, nylon rayon are man-made fibers. These fibers are spun into yarn, in case of cotton and wool, or drawn into filaments, in case of manmade fibers and wool. These yarns are woven/knit into fabrics which are in turn made into apparel and home textiles. This is the highest end of the value chain.

The figure below depicts the overall textile industry value chain and the number and type of units within the industry.

The Indian Textile Industry is highly fragmented, with the possible exception of spinning, and is spread over the entire country. This fragmentation, which is the evolutionary legacy of the industry, is not all negative. Instead, it is also possibly the industry?s strength as it has made it very flexible and adaptive to changing fashions.

Spinning is the industry?s most technologically sophisticated segment and includes most of India?s vertically integrated composite production facilities that perform spinning, weaving, and processing. Cotton dominates India?s spinning segment and accounts for more than 60% of yarn production by value. The Indian Industry also accounts for more than 20% of the world?s production of cotton yarn.

Although exports constitute a large share of production, India?s domestic knitwear segment has an advantage in the middle and upper-middle price ranges as it already supplies garments to the world?s leading labels. Urban Indians are shifting from custom made tailored clothing to ready-to-wear garments due to rising incomes and greater exposure to international fashion trends. Also, because of the increasing price of cotton garments and improved comfort, durability, and longevity of blended cotton-polyester garments, blended and manmade-fiber garments are growing in popularity. In India?s rural areas, where 70 percent of the population still resides, apparel produced from manmade-fiber materials is in higher demand, as it becomes less expensive vis-?-vis all-cotton garments.

In case of readymade garments, India has been able to tap the high end, value added market across the world simply because it has traditionally enjoyed a short product run time, thus being able to adapt quickly to changing customer needs. Growing at more than 20% in the last few years, India?s apparel industry is one of the country?s largest foreign exchange grosser.

Its strength lies in the manufacture of medium-quality and high fashion ready-made apparel with value added work (like embroidery) produced in small lots for niche segments of the domestic and export markets.

India?s textile exports include the whole gamut of production ? fiber, yarn, fabrics, ready-made garments and made-up?s. Ready made garments contribute the bulk of the textile exports (approx 45%), followed by fabrics, made-up?s and yarn. EU and the US are the largest destination for the textile exports from India. US accounts for around a quarter of textile exports from India, thus making it the single largest importer of textile goods. The EU accounts for 40% of the Indian textile exports.

Elimination of the quota regime is creating challenges that may lead to some sort of consolidation in the industry. The entry barrier, especially in the upper end of the value chain, the apparel segment, is low, and competition high, not only from domestic players, but now from foreign players. The major competition for Indian companies comes from China, Bangladesh, Sri Lanka, and Romania.

Industry Analysis

Interlinked factors for India?s Competitive Advantage in Porters Diamond framework, as applied to the Textile & Apparel Industry are:

Firm Strategy, Structure and Rivalry

The world is dominated by dynamic conditions, and it is direct competition that impels firms to work for increases in productivity and innovation.

?Sector is dominated by Small Scale unorganized players
?Highly Competitive and Fragmented
?Domestic market growing consistently
?Exports undergoing quantum increase post quota removal per MFA
?Presence of firms across the value chain
?Recent growth in vertically integrated large scale units
?in vertically integrated large scale units

Demand Conditions:

The more demanding the customers in an economy, the greater the pressure facing firms to constantly improve their competitiveness via innovative products, high quality, etc

?Favorably changing demographic profile
?Rising Income & Growing Purchasing Power
?Increase in size of the consuming class
?Increasing penetration of organized Retail
?Lower income threshold for consumption

Related Supporting Industries

This facilitates the exchange of information and promotes a continuous exchange of ideas and innovations

?Infrastructure for Design, Sourcing, Merchandising and Production is already in place
?Evolved Product Development & Design Capabilities
?Well developed Textile Machinery Industry
?Comprehensive IT solutions catering to the Textile Industry

Factor Conditions

These are of two types ? specialized (such as skilled labor, capital and infrastructure) and general (such as unskilled labor and raw materials). Unlike General factors, specialized factors are created, not inherited and therefore lead to sustained competitive advantage. Factors of production for the Indian Textile & Apparel Industry are:

? Abundant and low-cost Raw Materials
? Production flexibility due to SSI?s
? Low Cost skilled Labor
? Ability to produce both, Large as well as Small and Complex Orders
?Ability to produce high value customized Apparel
?Reduced Lead times

Government Regulations and Policies

The role of government in Porter's Diamond Model is "acting as a catalyst and challenger; it is to encourage - or even push - companies to raise their aspirations and move to higher levels of competitive performance..". They must encourage companies to raise their performance, timulate early demand for advanced products, focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations.

?Technology Up-gradation Fund (TUF) scheme: provision of 911 crores in 2007-08
?Credit Linked Capital Support of 10%
?Facilitation of Quality Certifications like ISO9001, ISO 14000 etc
?FDI limit of 24% removed: 100% investment through FIPB
?Discriminatory Excise Duty structure removed
?Multiplicity of Taxation done away with
?26 parks have been approved so far out of 30 sanctioned under the Scheme for Integrated Textiles Parks (SITP). Increase in provision for these parks from Rs.189 crore in 2006-07 to Rs.425 crore in 2007-08.

BIRLASOFT?S VALUE PROPOSITION

Our Textile Competency

Textile is a focus Industry segment at Birlasoft. Our clear understanding of textile-specific industry processes & business drivers span the entire value chain from fiber to garments. This domain knowledge has been distilled into a comprehensive Enterprise Resource Planning Template solution based on SAP Best Practices. Complete with industry specific out-of the-box reporting capabilities, the solution has a reasonable deployment time frame of 4-6 months. The core solution components include:

?Financial Accounting
?Controlling (Management Accounting)
?Production Planning & Shop Floor Control
?Quality Management
?Materials Management
?Sales & Distribution
?Plant Maintenance
?Human Capital Management
?Project Systems

The SAP ERP solution provided by Birlasoft also offers complete support for country specific statutory tax requirements as well as additional Export Import functionality. Apart from this, it also has extensive integration capabilities for interfacing with external systems such as bar-codes, time recording systems, weigh bridges etc.


Our SAP Practice

Due to its expertise and focus in the Textile Domain, Birlasoft has been appointed as an authorized Channel Partner for the Mill Products (Textile & paper) vertical by SAP. We are focused on providing unmatched value to ourcustomers:

?Our consultants possess textile industry specific domain knowledge and have honed their skills over multiple implementations in the textile domain. Not only does this ensure that they are SAP experts, but also reiterates their ability to talk to you in your language.
?Our implementation approach offers you a template based solution incorporating SAP best practices. This pre-configured solution provides standard support for all textile industry specific processes covering the entire value chain from fiber to garments.
?We invest comprehensively in training your users & effectively manage the change process to ensure rapid acceptance of the solution within your organization.
?We aim to partner with your organization to deliver tangible business benefits through a comprehensive & robust solution that meets your current & future needs.

Birlasoft?s implementation philosophy is driven by a business benefits approach model based on delivering improvements on Key Performance Indicators (KPI?s) that are benchmarked and measured against. A sample set of these are mentioned in the figure below:

Addressing Industry Challenges

Birlasoft understands that the Indian Textile and Apparel Industry is characterized by a vast array of challenges, some of which are mentioned below:

?Customers demand a diverse range of unique products over shorter delivery cycles
?Complex BOM structures due to numerous end product variants created from relatively limited raw materials
?Extensive product attributes/parameters related to Sales & Marketing, Manufacturing and Technical Quality
?Machine Sequencing & Load Balancing complexities due to varying operating cycle times
?Long replenishment lead times for procured raw materials
?Multiple production scenarios and routing possibilities
?Lot or bundle tracking requires accuracy over the entire manufacturing cycle
?Multiple master production schedules are needed for catering to the production cycle (fabric to garments)
?Unavoidable Inventory buildups due to Seasonal products often needing shipment in excess of available capacity
?Managing vast sample data and maintaining inventory of past samples
?Handling multiple units of measure for the same product
?Multiple output & customer requirements planning in a single production run
?Batch traceability throughout the various production stages

Birlasoft?s mySAP solution for Textile and Apparel Manufacturers cater to the above challenges in a comprehensive manner. A sample set of solution capabilities mapping to Industry requirements are illustrated below:

The Birlasoft Solution

As an illustration, consider the in-depth capabilities incorporated in Birlasoft?s mySAP solution for the Textile industry:

?Mapping variable weights for bales in the same lot
?Capturing number of cones & their characteristics
?Cotton procurement on either collective or seasonal basis
?Stage-wise WIP tracking (for e.g. in case of spinning - mixing, blowroom, carding, unilap, combing, roving, ring frame, winding, doubling etc. Managing usable and non usable waste (for e.g. cotton waste, blowroom droppings, card droppings etc. can be posted in stock based on either individual or clubbed production orders)
?Capability to maintain client-specific logic based Plans (for e.g. spin plans)
?Option available for either order or period based costing
?Stage-wise multiple parameter based quality inspection mapping (for e.g. incoming, carded sliver, ring frame, finished yarn inspection for parameters like count, strength etc.)
?Update of batch/lot values based on inspection results at each stage
?Yarn requirement calculation based on conversion from number of ends per unit length to unit weight
?Roll wise management in weaving
?Mapping of greige fabric technical parameters like EPI, PPI, GSM etc
?Creating production plans for automatic dyeing machine allocation based on machine capacity & lot weight
?Capacity planning, evaluation and leveling of loom sheds
?Variant configuration for the garment industry
?Stage-wise/bundle-wise WIP tracking (for e.g. in case of garmenting - cutting, sewing, washing, drying, ironing, packing etc.)
?Mapping rework of garments
?Tracking & sales of fents, rags, chindies & good-cuts
?Machine-wise and Shift-wise Efficiency
?Subcontracting with Make-to-order Scenario
?Quality Inspection & Defects recording as per 4-Point system methodology for Fabrics
?Quality Grading as A,B,C
?Quality Inspection with AQL 2.5 system with approvals (during and after production at all stages).
?Order Confirmation with Available to Promise check
?Yarn requirements are specified both in terms of weight and number of packages.

Solution Modules

Sales & Distribution

?Inquiries, Quotations & Sales Order
?Sample Management
?Delivery & Shipment processing
?Billing & Customer Payments
?Credit Limit maintenance
?Variant Configuration in orders & variant pricing
?Customer specific pricing
?Excise & Sales tax functionality
?Exports related functionality
?Sales order based costing & pricing
?On-line Order visibility across manufacturing chain
?Returns processing
?Customer complaints management

Production Planning

?Sales & Operations Planning
?Demand Management
?Material Requirements Planning
?Support for multiple production strategies (for e.g.
?Make-to-Order & Make-to-Stock and their variants)
?Shop Floor Control
?BOM & Routing Maintenance
?Multiple planning horizons
?Finite & Infinite scheduling
?Capacity Planning & Leveling

Financial Accounting

?General Ledger Accounting
?Accounts Receivable
?Accounts Payable
?Asset Accounting
?Bank Accounting
?Cash management & liquidity forecast

Management Accounting

?Product Costing by Order & period
?Cost Element Accounting
?Cost Center Accounting
?Overhead Cost Controlling
?WIP Accounting
?Profit Center Accounting
?Profitability Analysis

Materials Management

?Procurement of
?Stock materials
?Consumables
?Capital goods
?Spare parts
?Services
?Consumption based planning
?Inventory Management
?Invoice Verification
?Material Valuation

Quality Management

?Quality Inspection for raw materials
?In-process inspection
?Finished goods inspection
?Sampling
?Quality Certificates
?Quality complaints & notifications
?Test equipment calibration

Plant Maintenance

?Maintenance Planning & Execution
?Maintenance Costing
?Spare parts planning
?Integration with production planning

Project Systems

?Sample Development & Tracking
?Capital investment projects tracking e.g. power plant
?Networks & Work breakdown structure elements
?Milestone based tracking

Human Capital Management

?Employee lifecycle management
?Personnel Development
?Personnel Administration
?Payroll ? Country version

Country Localization Aspects

?Excise Accounting, Excise registers
?Sales Tax/VAT functionality
?Service Tax, Vendor TDS
?Exports and imports functionality & documentation

About SAP

Founded in 1972 as Systems Applications and Products in Data Processing, SAP is the recognized leader in
providing collaborative business solutions for all types of industries and for every major market. Serving morethan 38,000 customers worldwide, SAP is the world's largest business software company and the world's third largest independent software provider overall. Today, SAP employs more than 39,300 people in more than 50countries. mySAP solutions for the SME segment are created and delivered by qualified SAP business partners with deep expertise within your industry.

About Birlasoft

Birlasoft is a part of the Global $ 1.2 Billion CK Birla Group, with strategic equity participation by GE. A leading provider of end-to-end IT solutions and services, Birlasoft has over 4,000 technical employees that serve our global customers through offices in US, Europe, Australia, Singapore and 5 development centers in India. With world-class infrastructure, global sales and delivery network, competency in all leading technologies, proven project management methodologies supported by Six Sigma and CMMi practices, Birlasoft is uniquely positioned to create value and provide competitive value to its customers.