Material and Pioneer Trading Company

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Harimann International was a Delhi-based manufacturer and exporter of finished textiles with sales in excess of 10 million Indian new rupees (INR). The company was launched in May 1990 by Vikram Dhawan after his graduation with a Bachelor of Arts degree. In May 1991, Dhawan added women’s blouses and skirts to his product line; however a particular embroidered cloth become very popular which has generated more sales and revenues. Harimann international was also supported by Indian government, and the government offered various rated incentives in an effort to reduce the country’s international deficit.

Vikram was motivated by these government incentives and began to export his products to foreign countries such as Canada, France, and Japan. The company developed very well. The production had averaged 1,000 garments per day and the company had recently acquired the second manufacturing facility and now employed over 100 people. At the end of January 1992, Harimann International received an order of six styles of garments from Pioneer Trading Company which was a large importer of garments products with over 20 retail outlets in Japan and sourced many of its goods from India and Hong Kong to encourage competitive pricing.

The pioneer Trading Company was one of Dhawan’s first customers and has been a regular customer ever since. This order was a very high profit margin but Mori Fuji, the founder and president of pioneer, limited Dhawan to ship on April 6. The order was provided two options for Dhawan. He perceived this deal as an important stepping point to establish the business relationship with such an important company. Dhawan prepared all materials for the production process and invested 188,400 INR for this deal.

Harimann International will get a big profit if the company could deliver the products on time, but he will lose a big amount of money because of late shipment. After analyzing all production process and required time, Dhawan dispersed time period given by the embroiderer to embroider the good. This estimate allowed the eight days for washing and packing, and tow days for cutting, eight days for sewing, eight days for washing and packing, and one day for final shipping activities. Nevertheless, Dhawan was hoping to arrange for extra time in case any unanticipated problems arose, although he was fairly confident to ship the order by April 6.

He also estimated that there was a 20 percent chance some problems would arise that caused him to miss the date, but other there was 80 percent chance for Dhanwan to ship the goods within the deadline to realize a profit of 315,238 INR. The delivered on time will make a good relationship with Pioneer Trading and may bring more order in the future. An analysis of decision tree and the calculation of the expected payoff will suggest that it was better for Dhanwan to get this order for an expected loss of 180,530 INR and maintain the relationship with Pioneer Trading Company for future business.

The chance to deliver on time was really very low and would happen only if anything unanticipated happen in the operating process. So, Mr. Dhawan would be better off if he accept the order and devote his efforts to ship the order within the delivery deadline. Analysis of Industry Harimann International was an Indian manufacturer and exporter of finished textiles. At the beginning it was concentrating its business on brokering, linen households’ goods. The firm used to busy finished linens from a supplier, labeled and packaged them according to customers’ specifications and shipped the package goods to the customers.

When the business started to grow quickly and started to export abroad, the production has averaged 1000 garments per day. The company has also acquired a second manufacturing facility and employed over 100 people within a year of its establishment. Textile manufacturing and export industry was considered to be a highly growth industry in India. Government has also provided different incentives and tax benefits to this industry in order to reduce the country’s international trade deficit. The industry is supported by providing the following benefits from the government.

– Tax-exempt status on any profits from the sales to one of several targeted countries

– A partial rebate of duties paid for imported raw materials used in manufacture of exported goods if the order resulted in payments in excess of INR 150,000 with several other attractive incentives

– Cash incentives to improve the competitiveness of Indian products in the world market

Replenishment licenses for domestic raw materials used in the production of exported goods Even though the textile manufacturing and exporting industry is a growth industry and also supported by the government incentives, it also have some serious operational limitations.

The garments are highly influenced by fashion and the customer will ignore to accept the goods if it could not supplied on time. The manufacturing company would get only 30-50% of the contract price once it could not meet the delivery time. Once the raw materials are purchased, it can be sold only 65% to 90% of its costs depending upon whether it is embroidered or not. The industry also has some limitations on the storage of the raw materials and finished products as well as the production process. Manufacturer need to buy the required raw materials long before the production process begins once they anticipate the demand of the product.

This will increase the cost of the production as well as the risk associated with sales. The vendors provide the raw material on the seasonal basis and the customers are highly fashion sensitive. The time required for the production process may also depend on the skills of the employees and is highly volatile. Many kinds of unanticipated problems arise fairly regularly in this business. Decision Problem: Dhawan received Pioneer’s request for samples of six styles of garment along with a preliminary order should the samples and price prove satisfactory at the end of January 1992.

This deal was very profitable for Harimann International Company, but the order had the limitation to meet a shipping date of April 6. Even though it gave Harimann International to make minor changes on three samples because Dhawan want to take the order and deliver the garments within deadline. He invested 188,440 INR on the raw material to make the garments. According to the production process, all products should be completed within 27 days. Until the deadline, Dhawan still had 35 days to finish it.

The situation was that the some Dhawan’s embroiderers might delay to complete the order so that schedule would be postponed. As the order seemed to be attractive, failure to meet the deadline will lead the company to a serious loss. Harimann International tried to extend the deadline of the shipment and requested Pioneer Trading Company for that. But the latter did not accept the extension. Even though Dhawan calculated that he can complete and ship the order within the end of March with considerable personal attention, there would be significant amount of loss if the order could not be met on the specified time.

There was a higher possibility that Pioneer would not accept the goods if it was not delivered on time and based on the common industry practice, it would pay only 20-50% of the contract price after the deadline. So, there was a challenges as well as the benefit associated with this order. [pic] Alternatives: Dhawan could decide whether to accept or reject this order. There were different alternatives to take the decision on the different stages of this deal. Dhawan could accept or reject the Pioneer Trading Company’s order. If Dhawan accepts the order, he will manufacture the product and try to meet on March 6.

Dhawan hoped to create a good business relationship with Pioneer Trading Company if he could deliver the goods within the deadline. He also evaluated the deal and found that the benefits significantly outweigh the shipping deadline risk associated with it. On the other hand, if he could not meet the shipping deadline, he still needed to supply the goods to Pioneer Trading Company in order to maintain the relationship for the future business. In keeping with industry practice, a buyer would pay 30 to 50 percent of the contract price for a late shipment, though in some circumstances payment had been as little as 20 percent.

In this particular case, Dhawan believed there was a 40 percent chance that Pioneer would pay 50 percent of contracted price, a 40 percent chance it would pay only 30 percent. This was risk for Dhawan to ship late for Pioneer. Furthermore, if Dhawan rejected the order at the beginning, then he would either sell the raw materials to the other party for 65% and 90% of the costs of embroidered and unembroidered materials or used them to make the good s when the order comes form the other customers in the future. He may also need to bear a significant amount of time and money to store these materials before he could get the order to utilize them.

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