OPERATIONS AND SUPPLY CHAIN MANAGEMENT ASSIGNMENT

Submitted to: Prof. RK Padhy

Submitted by: Group 3, Section B

Name Roll Number

1. Anchal Saini MBA20087
2. Angelin Dev Priya D MBA20088
3. Anjali Verma MBA20089
4. Ankan Roy MBA20090
5. Ankur Tulsyan MBA20091

1) Project Objective

The Confederation of All India Traders (CAIT), which represents 7 crore traders, has
identified about 3000 categories of heavily imported Chinese products, which can be
replaced by Indian product.
These are the products that can be produced in India by maintaining good quality and at
minimal cost as well.
India is having good number of labour to work for the industry and they can be hired at
minimal cost.
As the project require us to Identify one such product, identify customer needs and map
its product competitiveness with respect to cost, quality, delivery and product variety in
the Competitive Product Space, we have identified Shoes (Footwear) as the product.

The objective is to look that the product is feasible to produce in India or not.

Hence, we have also shown estimated cost and the feasibility of our idea as producing
a product which we were importing is a big decision.

2) MARKET SCOPE

India lies second in the World after China in terms of footwear production and
accounts for 13% of the World’s footwear production. 95% of the produced
footwear were used to meet the demand of India itself. However, the government
has now taken various measures like allowing 100% FDI under the automatic
route which has increased the foreign investment. This has led to an increase in
the number of production units set up by foreign companies in India, thus
increasing the cost competitiveness in this sector.

Other factors of Indian market that contributes towards the growth of non-leather
footwear sector are:

1) Growth in Domestic market- India’s growth in the market is greater than

most of the developed countries of the world. Amongst this, the E-
commerce industry of India is also growing fast. The urban population is
also increasing, it is expected that it will increase from 21% of the Total
Indian population in 2011 to 40% by 2030.
 2) Development in Infrastructure- India is the16th largest maritime, has the
4th largest rail network and 2nd largest road network in the world. Around
$1.4 trillion are planned to be spent by the government to make high-class
infrastructure facilities available. This is expected to build a multiplier effect
on the economy.

3) Available Labour force- About 62% of India’s population lies in the working
age group in which there is also a high unemployment rate, which leaves a
huge scope for employing labour at a cheaper cost. This would be a good
opportunity for non-leather footwear industry to exploit as the footwear
industry being a labour-intensive industry can use it to become cost
effective.

4) Cost of Factor of production- India maintains its competitive cost in terms

of electricity, water and labour cost as shown below:

Segment-wise Market Insights

The non leather footwear industry is a 4.3 Billion dollar industry that makes up to 59% of
the total footwear market in India and it can be further fragmented based on the product
type and gender. The non leather footwear industry is currently dominated by the small
and medium size enterprises and these industries are anticipated to project a massive
growth potential with respect to sales owing to dynamic customer lifestyle and
preferences

Segmentation based on the product type

Based on the product type, the non leather footwear industry is further fragmented into
Casual, Outdoor and Sportswear. The casual footwear tops the charts and it accounts
for about 70% of the market share, followed by Sports with a 15% market share and
finally the outdoor section occupying 6% of the market share.

Segmentation based on Gender

With the males taking a predominant market share of 58% of the footwear industry, this
segment is anticipated to display a growth of 10% in the forthcoming years, the female
footwear segment though with a market share of 42%, is expected to grow at a rate of
20% CAGR.
4.Key Market Trends (Growth drivers and challenges)

Market growth Drivers

1. Burgeoning demand for Athleisure: Consumers are getting highly conscious
about fitness which is changing their lifestyles well as consumption behaviour.
Moreover brands like Nike, Adidas, Puma etc are driving the market which is
fueling the growth of athletic footwear, thereby leading to sales expansion
through innovative marketing, online d=business model, promotional strategies.
The global Athletic footwear market is projected to grow at CAGR of 2.1% for the
period 2016-2022 and will be valued at $114.8 by 2022.
.

2. Fall in leather production: Changes in preference due to widespread awareness

about animal cruelty, sustainbility and pressure from Environment & Animal
friendly agents is driving down the demand for leather footwear. Moreover,
alternatives being less expensive, people are opting out for it.
3. Transformation of Organized retail sector: This market has emerged as one of
the major drivers of Indian economy as it witnessed an exorbitant growth of $0.7
Trillion in 2019 and is expected to cross a Trillion dollar mark by 2025. Factors
contributing to the growth is its demographic dividend (more number of
independents than dependents), growing middle class (600 Mn people), upward
trend being observed for household incomes, increasing urbanization, growing
rural population and so on. With a rise in income level of Tier-1 and Tier-2 cities,
companies are eager to tap the emerging opportunities available in these areas.

4. Booming E-Commerce: With the fast pace of digital transformation, Indian e-

commerce has witnessed an upward trajectory. It is expected to reach a mark of
$200 Bn by 2026 and is predicted to become 2nd largest e-commerce market
globally. The key drivers are -Favourable Demographic dividend with smartphone
penetration & cheap internet. A shift from traditional mode of shopping to this
new shopping space has empowered small sellers thereby increasing the
demand for products like footwear.
 5. Increase in non leather footwear manufacturing units: With a change in
consumer preferences and lifestyle, demand for alternatives like synthetic
footwear has resulted in setting up of non leather footwear manufacturing units.

6. Automation: Automation in the footwear industry has brought down the over all
time involved in activities ranging from forecasting to delivery. Traditionally,
manufacturing footwear involved huge amounts of manual labour which would
take 18 months to get the product to the customer. Advent of technology,
automation in the production line has made the process seamless, more efficient
and effective.

Market Challenges
1. Supply Chain disruptions: Timely and efficient delivery of products is one
challenge which India needs to address and overcome.

2. Outdated Stock due to no stock rotation: Fast changing fashion industry

creates another barrier for Manufacturing units to progress. Changes in
preferences make the stock outdated which remains unsold for years and it
remains for years thereby adding up operating expenses for keeping them in
warehouses.

3. Stiff Competition from global leaders like China: China being the largest
producer (55.8% share) of footwear in the world poses a huge threat to India
whose market share comprises mere 10.7%. The reason being, China’s industry
is export oriented where approximately 70% of the production is exported.
Contrary to which, India’s is domestic driven.

4. Impact of COVID-19 on Indian footwear industry: The pandemic has

negatively impacted almost every business in the world and the footwear industry
is no exception. Lack of supply of raw materials: With a stoppage of import of
raw materials such as buckles, insoles, cellulose board, foam etc from china, it
has hampered the production. Importing raw materials from countries like Italy or
Spain will drive the cost of production significantly.

5. E-commerce related challenges: Advent of the internet has opened doors for a
plethora of opportunities but has also created a lot of challenges for Indians to
overcome. From a higher percentage of customer initiated returns, timely delivery
of products, Managing Multichannel and Offline business, Effective Utilization of
stock, Seamless management of returns and cancellations to increased cost of
Reverse Logistics.

6. Threat from Unorganized sector: Unorganised players intensifying competition

by selling at lower prices.
Manufacturing Setup Requirement Analysis

The main need for analysing the requirements is due to the fact that 95% of the
footwear produced in India is consumed locally leaving less room for exporting to other
countries. Statistics show that almost 86% of total population of the world relies on non
leather footwear and exploiting the non leather footwear industry in India would attract
huge revenues from export of non leather footwear goods.

The ultimatum is to deliver eco friendly footwear over the price range of Rs.1000 and to
devise a regional supply chain plan that encompasses identifying the right localities and
installing the plants for manufacturing. The Make in India Campaign has further steered
up the above initiatives thus setting up an offbeat path to compete with China in export
of non leather footwear goods.

The major embodiments of the Manufacturing set up Includes

-The raw materials manufacturing and procurement cost

-Labour employment and Skill development costs
-The cost to set up machinery plants
-The costs involved in packaging
-The costs incurred in widespread distribution of the products.

The raw materials manufacturing and procurement cost

Raw materials are generally imported from China, since importing from Italy or Spain is
expensive owing to the logistics and the custom duty charges. The more feasible way is
to start exploring the viability of manufacturing the raw materials within the country in a
common hub and distributing it nationwide. The major raw materials would include
insoles, laces, buckles, shanks, PVC, PU and Foam. Large scale setting up of the
plants would help us achieve economies of scale in the long run.

Type of Material Manufacturing Plant Cost Material price per unit

Insoles Rs-10 to 15 Lakhs Rs-16-30 per pair

Laces Rs-3 to 5 Lakhs Cotton: Rs-95 per pair

Poyster: Rs-5 per pair

Buckles Rs-4 to 6 Lakhs Rs-20 to 100 per pair

Foam Rs- 5 to 10 Lakhs Rs- 150 to 200 per pair

Labour employment and Skill development costs

Indian Footwear Industry is a labour intensive industry employing 2 Million workers and
by making the figure twice, the non leather footwear industry can be exploited to its
fullest potential. India has one more major advantage in terms of labour cost, despite
being labour intensive, India has the cheapest labour force when compared to other
nations. By imparting technical training to employees in collaboration with the
Government, we can easily overcome the time lag incurred due to the lack of technical
expertise on the floor level.

Furthermore the labour costs for an entry level floor employee is estimated to range
between Rs.500 to 700 per day.
For employees sound in technology, Rs.1000- 1500 per day.
For the designers, Rs. 1000-1500 per day.

The Cost to set up Manufacturing Plants

The primary costs involved would be in purchasing a machinery that is semi/automatic

and produces more than at least 200 units per day.

Cost a Typical Shoe Manufacturing plant- Rs.18,00,000

The costs involved in Packaging

The total cost of packing and labelling a pair of shoes would range anywhere from Rs.
10 to Rs. 50 based on the material used for the packing box.
An alternative is to procure the cardboard making machine which would range between
Rs-20 to 25 lakhs. The machine below has the capacity to produce up to 80 pieces of
boxes per minute. The raw material is corrugated paper and it varies between 17 to 25
Rs per kg.
The costs incurred in widespread distribution of the products

India has the second largest road network extending to 6 million kms, of which National
Highways comprises 1.2 lakh kms. Its railroad is the busiest and 4th largest Rail
Network in the world covering upto 70,000 kms.

It is estimated that the logistics charges range from 15-20% of the product cost in India.
Proposed setup structure and cost analysis

Cost Analysis (Approximately)

Variable Costs

Raw Material (Laces, foam, buckles, insole) Rs 200 Per unit

Labour and Skill development Cost (Rs. Rs 2.5 Per unit

500/day)

Packaging Cost Rs 20 Per unit

Distribution Cost (15% of Cost) Rs. 40 Per unit

Fixed Costs

Cost of Setup (Rs 1800000 and life of plant is Rs. 2.46 per unit
10 years and 200 unit per day)

Cost Per Shoes Rs. 264.96 (approx)

We can see that one can produce shoes at Rs 265 (approx) in India. The cost of
ordering shoes from China will be around this only but the point to be noted is that
setting up a plant will give huge employment opportunities to the people of India and it
will be supporting Make in India initiative.

In this analysis, the costs are taken for medium quality shoes. But again, there are more
customers to buy shoes of this quality. Further, we can also see that the government is
encouraging the people for this and they are providing various help such as business
loans, skill development courses etc.

Hiring employees and laborers are quite easy because it doesn’t require difficult skills
and these can be hired locally.

Also, the demand for footwear is increasing day by day as the population of the country
is increasing, so it can be a huge profit earning industry in India.

The cost of setting up a Footwear plant is not so high, so many small or micro
enterprises can set up this plant and sell at local level and can earn huge profits.
Feasibility assessment

India, despite being the 2nd largest manufacturer of footwear worldwide, has failed to
change the general perception and market itself as a manufacturing destination. Most of
the global companies still rely heavily in importing products from foreign nations and
even the local brands rely on some imported resources. India has to improve its game
in the quality aspect and invest considerably in building an ecosystem for innovation
and development. With upskilling of the workers in the industry and more interventions
from the government to ensure quality assurance through regulations, the non-leather
footwear industry can benefit a lot. Also, the perception needs to be changed, so it is
essential to invest in “go to market” strategies by promoting India made footwear in the
global markets and have a respectable place in the global market.

India has a robust infrastructure already in place and even then, multiple initiatives are
being undertaken to make India a global hub for manufacturing. Adding to that, India
has a huge workforce in place, ready to help in this labour-intensive industry. The
government of India in order to boost this sector had approved a special package called
IFLADP and also increased the custom duty on footwear to 35% to encourage the local
MSMEs. First of all, India has to become self-reliant in terms of raw materials and
reduce the import dependence in order to keep the manufacturing costs low. India has
to create a sustainable ecosystem for innovation, complete with manufacturing hubs,
research centers, and efficient supply chains in order to indigenously flourish and be a
market leader. The government has to collaborate more with the industry and help in
creating a mechanism to keep a tab on the quality of products and assessing the
productivity of the workers. The government can also look to create more hubs so that
the smaller companies can come under one roof and enjoy quality infrastructure and
look for reaping the benefits due to economies of scale. With proper government
directions and the right intent of the industry it is very much possible that the non-leather
footwear industry in India can be self-reliant in the true sense of the term.

Conclusion

India has a huge potential in terms of labour and infrastructure to be a market leader in
the non-leather footwear sector. But, the industry is dominated by small players and are
clustered in some parts of the country. All the enterprises need to be grouped together
and the industry needs to be given a proper structure. The sector needs to focus more
on producing and using indigenous raw materials, thus aiming to produce quality goods
at a competitive price on a large scale. The government too has to play an active role in
the mission to make India self-reliant in manufacturing the non-leather products. By
implementing a favourable ecosystem and an effective taxation system to improve the
ease of doing business, the industry can grow more. It is through the collective efforts of
the government and the industry and its stakeholders that the non-leather footwear
industry can truly become “self-reliant”.