CHAPTER 3 ANALYSIS OF PRESENT BUSINESS PRACTICES IN LEATHER INDUSTRY IN KERALA

Transcription

1 CHAPTER 3 ANALYSIS OF PRESENT BUSINESS PRACTICES IN LEATHER INDUSTRY IN KERALA 113

2 CONTENTS 3.1 Business Practices of Trading of raw hides and skins Category of raw material Area of operation Location of market centers Number of Raw material dealers Volume of business transacted by the raw material dealers Weight of hides and skins Weight and size ranges Sources of procurement Selling price of hides and skins Break up of selling price Defects on hides and skins Time lag between procurement and disposal Place of disposal 3.2 Business Practices of tanneries - leather making Purchase of hides and skins by tanneries 114

3 Share of purchase of hides and skins by tanneries Share of tanneries in the annual quantity purchased Category and quantity of hides and skins purchased Purchase cost of hides and skins Tanning Process cost Computation of tanning process cost per piece Tanning process time Sale of semi-finished leather according to grade Selling Price of Semi-finished leather Profit earned by the tanneries By-Products Quantity and value of by-products of tannery Sources of waste generation Pollution parameters 3.3 BusinessPractices of production of leather products Market Research Production Planning Production Control 115

4 Productivity Material control Plant maintenance Market segmentation Product Mix Factors of Product Mix Pricing Promotion Personal selling Sales promotion Distribution Strength of work force Mode of employment Distribution of workers by gender Distribution of workers by cast category Distribution of workers by employment status Length of Service System of wage payment 116

5 Period of Pay Period of working Registration of firms Nature of working Type of Products Mode of production Source of funds Purpose of finance Solvency Credibility Liquidity Managing liabilities Maintaining Accounts 3.4 Business Practices of Trading of Leather Products Source of purchase Type of Product purchased Frequency of Purchases Quantity purchased 117

6 Stock turnover Ratio Purchase Discount Terms of Payment Inspection of Materials Purchase Returns Amount of materials purchased Volume of Sales Complaints from customers Settlement of complaint Percentage Profit Utilisation of profits 118

7 CHAPTER 3 ANALYSIS OF PRESENT BUSINESS PRACTICES IN LEATHER INDUSTRY IN KERALA This chapter presents and analyses the different aspects of the business practices and activities carried out by the different players of Leather industry in Kerala. Their practices range from dealing in raw materials to the trading of finished leather products. 3.1 BUSINESS PRACTICES OF TRADING OF RAW HIDES AND SKINS 3.1.1Category of raw material It is seen that there are three categories of raw materials traded by raw material dealers in the state of Kerala. Although different varieties exist, raw materials are grouped into three categories according to the expert advice of raw material dealers for the sake of convenience and further analysis. Table shows the category of raw materials dealt with by the dealers. 119

8 T16. Category of raw materials with percentage share Category of raw materials % share of total quantity handled Cattle hides and skins Buffalo hides and skins Goat skins Total 100 Category of Raw Materials with percentage share Cattle hides and skins Buffalo hides and skins Goat skins 33% 41% 26% F1:Category of raw materials with percentage share According to the table cattle hides and skins share 40.95% of total quantity of hides and skins handled by raw material dealers in the state. 120

9 While 26.44% goes to buffalo hides and skins and the remaining 32.61% is for goat skins. It is concluded that cattle hides and skins occupies the first place in trading followed by goat skins and cattle hides and skins in the 2 nd and 3 rd place respectively Area of operation The area of operation of raw material dealers mainly depends on their investment, raw material availability, extend of competition and transport facilities. Table shows the variations in the area of operations of the dealers. T17.Area of operation Radius in kilo meters Number of dealers Percentage Below 10 kilometers 7 16% kilometers and above Total

10 30 Area of Operation Number of dealers 5 0 Below 10 kilometers kilometers 51 and above F2: Area of operation The table shows that 16% of the total number of dealers has their area of operation within a radius of 10 kms, while 61% of the dealers extend their area of operation beyond 50 kms. The majority of the dealers representing 61% operate above 51 kms. This indicates that 16% prefer strictly local operations, majority of the dealers prefer a wide area which may extend to other districts while 23% prefer reasonably accessible area Location of market centers At present there are 11 market centers in the state of Kerala dealing in raw hides and skins. These market centers are identified and located in consultation with raw material dealers. The authenticity of market centers are substantiated by reference to the latest report on raw 122

11 hides and skins market prepared by CLRI, Chennai for the Ministry of Commerce and Industry, Government of India. T18.Market centres of hides and skins in the state of Kerala Name of district Kasargod Kannore Wynad Kozhikode Malappuram Palakkad Thrissure Ernakulam Idukki Kottayam Alappuzha Pathanamthitta Kollam Thiruvanandapuram Name of place of market centres Nil Valappatanam Thalassery Nil Vadagara Kozhikode Thirur Nil Thrissure Iringalakuda Chalakkudy Nil Nil Changanacherry Alappuzha Nil Kollam Nil 123

12 The table indicates that the available market centers for hides and skin are concentrated in only seven districts in the state of Kerala. This is due to the fact that the market centers for hides and skins are traditionally developed and located in these districts. It is found that no new markets are developed in the remaining districts. The raw hides and skins produced in the remaining districts are traded in the established market centers mentioned above Number of Raw material dealers The study reveals that there are 44 raw material dealers engaged in the trading of raw hides and skins in the state. The dealers also represent the size of the market in the state. Table shows the spread over of raw material dealers among the various market centers in the state. 124

13 T19. Number of Raw material dealers Market centres Size of market expressed in no. of raw material Alappuzha 4 Chalakkudy 3 Changanacherry 3 Iringalakkuda 3 Kollam 5 Kozhikode 5 Thalassery 4 Thrissure 3 Thirur 7 Vadagara 5 Valappatanam 2 Total

14 Number of Raw Material Dealers Size of market expressed in no. of raw material F3: Number of Raw material dealers The table indicates that the largest market of raw hides and skins in the state is at Thirur in the Malappuram district. While the smallest market is at Valappatanam in Kannur district. The largest size of the market has seven dealers trading in hides and skins while there are only two dealers in the smallest market. All other market centers have moderate number of raw material dealers Volume of business transacted by the raw material dealers The volume of business transacted by the raw material dealers in the state is expressed in the annual availability of number of pieces of hides and skins in various markets. Table presents the annual availability of hides and skins in the different market centers. 126

15 T20. Volume of business transacted by the raw material dealers Market center Category of raw materials Cattle hides Buffalo Goat Total % of grand total Alappuzha 21,000 3,200 12,000 36, Chalakkudy 24,000 10,000 1,000 35, Changanacherry 36,000 24,000 18,000 78, Iringalakkuda 40,000 20,000 48,000 1,08, Kollam 50,000 12,000 50,000 1,12, Kozhikode 50,000 6,000 24,000 80, Thalassery 48,000 57,000 44,000 1,49, Thrissure 86,000 69,000 30,000 1,85, Thirur 72,000 46,000 1,20,000 2,38, Vadagara 38,000 43,000 32,000 1,13, Valappatanam 31,000 30,000 16,000 77, Total 4,96,000 3,20,200 3,95,000 12,11,

16 The table shows that the largest volume of business of hides and skins during the period is in the market center of Thirur in Malappuram district. Its share is 19.65% of the total annual availability. Although Thirur is a small town, meat consumption, especially in goat meat is significantly high and animals are brought from other areas. Thirur is followed by Thrissur, 15.27% and Thalassery 12.30% of the total annual availability in the state. The three market centers of Thirur, Thrissure and Thalassery together account for % of the total volume of business of hides and skins in the state.the balance % of the business activities is spread over the remaining eight centers in the state Weight of hides and skins The primary measurement of hides and skin is the weight of each piece in kilograms. This is necessary to facilitate further trading of hides and skins. There are three ranges of weight of total pieces of hides and skin handled by the raw material dealer as shown below in the table. 128

17 T21.Weight of hides and skins Weight (in Kgs) Number of pieces Percentage Below 10 kg Above Total Weight of Hides and Skins Below 10 kg 20 Oct Above 20 5% 20% 75% F4: Weight of hides and skins It is seen from the above table that 75% of the total number of pieces of hides and skins traded carry weight above 20 kg per piece. While 20% has a weight between 10 and 20 kg per piece and remaining 129

18 5% of the total number of hides and skins carries a weight of below 10 kg per piece. It is inferred that hides and skins carrying weight above 20 kg are traded largely in the state. This is due to the fact that a very large number of buffaloes and cows are slaughtered in the state Weight and size ranges The raw hide is measured in the weight of each piece in kilograms, while that of goat skins is in inches. Table exhibits the specification of weight and size ranges of hide and skins. T22.Weight and size ranges Cattle hides and skins Buffalo hides and skins Goat skins Wt. ranges % total Wt. ranges % of total Size ranges % of total in kgs. Quantity in kgs. quantity in inches quantity Below

19 Above Less than Total 100 Total 100 Total 100 Upon analysis of information from the above table, it is seen that the dealers prefer to have six classes of weight ranges each for cattle hides and buffalo hide and skins and three classes of size ranges for goat skins. The highest share of total quantity of raw hides and skins traded comes to 32.94% in the range followed by class range which accounts for 28.02% for cattle hides and skins. In the case of buffalo hides the highest share of total quantity traded comes to % in the kgs range followed by class range which accounts for 29.49%. The class size of occupies the highest share 67.68% of total quantity of goat skins traded. The lowest 14.14% of the total business for goat skin is the class range of inches. The lowest class ranges of cattle hides and skins and buffalo hides and skins representing above 40 and below 10 accounts for 0.11% and 1.28% respectively. It shows that the availability of cattle hides and skins is largely in the moderate weight range of kgs. Which account for a total of nearly 61%. The availability of buffalo hides and skins is largely in the high weight range of kgs which account for as high as 74.36% of the 131

20 total business of buffalo hides and skins. The availability of medium and high weight range of cattle and buffalo hides and skins indicates that a favourable influence is reflected on the quality and prices of hides and skins traded in the state Sources of procurement The raw material dealers procure raw hides and skins mainly from slaughter houses. Government regulations stipulate that legal procurement of raw hides and skins can be effected only from authorized slaughter houses. Table shows the pattern of sources of procurement of raw hides and skins. T23.Sources of procurement Source % of total quantity procured Local slaughter house 51 Nearby suburban slaughter houses 47 Fallen 2 Total

21 Sources of Procurement Local slaughter house Nearby suburban slaughter houses Fallen 2% 47% 51% F5:Sources of procurement It is understood from the table that 51% of total quantity of raw hides and skins is procured from local district slaughter house while 47% of the total quantity are collected from nearby district slaughter houses. This is due to the reason that raw material dealers are concentrated only in such district of the state of Kerala. They have to depend on own district supply as well as nearby district supply of raw material. There are also stray cases of procurement of hides and skins of fallen animals Selling price of hides and skins The selling price of hides and skins are fixed on the basis of grade, lot and quality of raw materials. Trends of demand from tanneries and also the trends in leather trade at international level are the other factors 133

22 affecting the price of hides and skins. Hides are transacted on weight basis while skins are on piece basis. Table shows the prevailing selling prices of cattle and buffalo hides and skins. T24.Selling price of hides and skins Range in Kilograms Range of selling price per piece Below Above It can be concluded from the above table that the prices of cattle and buffalo hides and skins increases with the increase in weight of the raw material and the prices decrease with the decrease in the weight of hides and skins. This is due to the reason that quality of hides and skins 134

23 increases with the corresponding increase in weight. The defects are minimized in large hides and skins having higher weight since such hides and skins are of healthy animals. T25.Selling price of goat skins Range in Inches Selling price per piece The table shows that the higher the length of goat skins, the higher will be the selling price per piece. Here also the higher length indicates higher quality and hence the higher selling price Break up of selling price Like any other products, the selling price of raw hides and skins is composed of total cost and profit. The total cost is incurred by the dealers from the point of procurement till the point of disposal. The table shows the break up of selling price of raw hides and skins. 135

24 T26. Break up of selling price Components of selling price % of selling price Material Curing charges 2.22 Labour cost 3.11 Transportation cost 2.67 Overhead 8.56 Total cost Profit Selling Price 100 Break up of Selling Price Profit 24% Material 28% Total cost 38% Curing charges 1% Transportation cost 2% Overhead 5% Labour cost 2% F6: Break up of selling price 136

25 The total cost comprises of material cost, curing charges, labour, transportation cost and overhead. The material cost is the purchase price of raw hides and skins. Curing charges are incurred to arrest the putrefaction of hides and skins. Common salt is largely used for this purpose. Labour cost is the cost incurred for salt application and handling activities. Transportation cost is incurred for procuring the raw hides and skins and also for disposing them at the destination market. Overhead charges include indirect cost such as electricity, telephone charge, office expenses, rent, water charges etc. The profit is calculated on the basis of selling price. The material cost constitute 45.33% of the selling price which is the highest while curing charges consumes 2.22 % which is the minimum cost Defects on hides and skins As it is in the case of any other natural products, hides and skins too have defects which could broadly be classified into: Natural defects Man made defects Natural defects are those which occur when the animal is alive and sometimes they are inherent. They vary from species to species, place to place and season to season. Man made defects are those which occur at 137

26 different stages of handling of hides and skins. The table shows the natural and manmade defects of hides and skins. T27.Category of defects on cattle hides (In Percentages) Man made Natural Seasons Brandingg Goad mark Flay cuts Hair slips Putrification Total Ticks & lice Scratches Others Total Rainy Winter Summer T28.Category of defects on buffalo hides (In Percentages) Man made Natural Seasons Branding Goad mark Flay cuts Hair slips Purification Total Ticks & lice Scratches Others Total Rainy Winter Summer

27 T29.Category of defects on Goat Skins (In Percentages) Seasons Man made Natural Flay Cuts Hair slips Purification Total Ticks & lice Abscesses & Sunblisters Scratches others Total Rainy Winter summer The table shows that among cattle hides more prevalent natural defects are ticks, lice, scratches and others. These defects alone account for about 50 to 59% of the total defects. The defects run high in winter season up to 59% and low in summer up to 50%. The major man made defects of cattle hides include branding, goad mark, flay cuts, hair slips and putrefaction. These defects account for 41% to 50% of the total defects. These defects at low at 41% during winter and increases to 50% in summer. It is seen from the table that buffalo hides have also the same natural and man made defects as that of cattle hides. The natural defects 139

28 of buffalo hides account for 43% to 47% while that man made defects it ranges from 53% to 57%. The natural defects are high during the rainy season while it is low in winter and summer season. Man made defects increase in winter and summer season while they are low in rainy season. The major natural defects of goat skin are ticks, lice, pox, abscess, sun blisters, scratches and others. They account for 64% to 74% of the total defects. These defects increase in rainy season and decrease in summer. The man made defects of goat skins are flay cuts, hair slips and putrefaction. They account for 26% to 36% of total defects. These defects decrease in rainy season and increases in summer season Time lag between procurement and disposal There is a time lag between procurement and disposal of hides and skins in the state. The time lag usually varies from market to market. There are also variations of time lag during rainy, winter and summer seasons. Table shows the time lag between procurement and disposal of hides and skins during different seasons and in different market. 140

29 T30. Time lag between Procurement and Disposal Mark et centers Actual number of days Rainy winter Summer Alappuzha Chalakkudy Changanacherry Iringalakuda Kollam Kozhikode Thalassery Thrissure Thirur Vadagara Valappatanam

30 Time lag between Procurement and Disposal Rainy Winter Summer F7: Time lag between Procurement and Disposal It is seen from the table that the average time lag between procurement and disposal is high in rainy in all market centers. While average time lag is lower in summer season. There are delays in handling and transportation in rainy season and hence the higher time lags. In summer season it becomes necessary to dispose the hides and skins as quickly as possible or lese the hides and skin deteriorate in quality due to a number of reasons. It is also observed that the hides and skins are retained for more number of days in winter. In urban market centers like Kollam, Kozhikode, Thrissur time lag depends mainly on the market conditions. With better holding capacity of urban dealer they retain the material till they get reasonable prices. 142

31 Place of disposal The hides and skins collected by raw material dealers are supplied to the tanneries in Kerala, Tamil Nadu, West Bengal. The raw material dealers directly supply the hides and skins to tanneries without the help of any middle men. The place of disposal with the percentage of quantity supplied is given below in the table. T31. Place of disposal Mark et centers % of total quantity supplied Tamil Nadu Kerala West Bengal Alappuzha Chalakkudy Changanachery Iringalakuda Kollam Kozhikode

32 Thalassery Thrissur Thirur Vadagara Valappatanam It is seen from the table that all the market centers supply hides and skins to the tanneries in Tamil Nadu with no exception. 7 out of 11 market centers supply hides and skins to the two tanneries in Kerala. Only two market centers supply the raw material to west Bengal. Thus it can be concluded that the major market for the dealers of raw hides and skin is Tamil Nadu which has a large number of tanneries. 3.2 BUSINESS PRACTICES OF TANNERIES -LEATHER MAKI NG In Kerala complete processing of raw hides and skins does not take place. However, the processes beginning from trimming and soaking and ending with tanning do take place in the state. The raw hides and skins are converted into wet Blue stage in tanneries. There are 144

33 only two tanneries in the state of Kerala. These two tanneries are located in the industrial belt of Ernakulam District. The first tannery in the state established in 1970 in Kuttippuram in Malappuram district was closed down due to a variety of reasons. The leather making process consists of a number of important processes. The detailed analysis of the leather making in the state together with a description of each of these processes is presented Purchase of hides and skins by tanneries Hides and skins are purchased by the tanneries from different sources within the state.the details of hides and skins purchased from different sources by the tanneries are presented in the following table: T32. Purchase of hides and skins by tanneries Centers Quantity( Kg ) Tannery A Percentage Quantity ( Kg ) Tannery B Percentage Chalakkudy Changanacherry Iringalakkuda

34 Kollam Kozhikode Thalassery Thrissure Vadagara Total Tannery A 25% 22% 5% 4% 7% 10% 13% 14% Chalakkudy Changanacherry Iringalakkuda Kollam Kozhikode Thalassery Thrissure Vadagara F8: Purchase of hides and skins by tannerya 146

35 Tannery B 22% 22% 7% 5% 7% 10% 14% 13% Chalakkudy Changanacherry Iringalakkuda Kollam Kozhikode Thalassery Thrissure Vadagara F9: Purchase of hides and skins by tanneryb It is seen from the table that both the tanneries A and B purchase a maximum of out of the total purchase from Thrissur. The lowest quantity purchased by the both the tanneries is from Chalakkudy Share of purchase of hides and skins by tanneries Tanneries make purchase of hides and skins from the available eight sources in the state. It is essential to ascertain how much purchase is made by each tannery from each of the sources. 147

36 T33. Share of purchases by tanneries A B Total Sources QuantityK G Percen -tage QuantityK G Percen -tage QuantityK G Percen -tage Chalakkudi Changanacherr y Iringalakkuda Kollam Kozhikode Thalassery Trissure Vadagara The table shows that Changanacherry and Trissur are the largest sources of raw material which are 70% each for Tannery A, while the smallest source is Vadagara which is 60% similarly, the largest source for tannery B is Vadagara which is 40% and the smallest sources are Changanacherry and Trissure which are 30%. Thus, Changanacherry, Trissure and Vadagara are the largest sources of hides and skins for the two tanneries. 148

37 3.2.3 Share of tanneries in the annual quantity purchased The total number of pieces of raw hides and skins purchased in the state by two tanneries are given below. T34. Share of tanneries in the annual quantity purchased Tanneries No. of Pieces Annual purchase Percentage A 2,04, B 1,19, Total 3,24, The table shows that tannery A consumes 60% of the total number of pieces handled while tannery B consumes only 40%. Hence tannery A is bigger than tannery B. the two tanneries have thus reasonably good business activities in the state Category and quantity of hides and skins purchased The tanneries in Kerala purchase the raw hides and skins usually in two different categories viz. cattle and buffalo hides and skins. The goat skins are not handled by the tanneries because of the inferior quality 149

38 and low profitability. The annual quantities of different categories of hides and skins purchased by the two tanneries are shown in the following table. T35. Category and quantity of hides and skins purchased Category No. of pieces purchased % of total quantity A B A B Cattle hides 1,14,307 73, Buffalo hides 89,813 46, Total 2,04,120 1,19, The table shows that cattle hides and skins are purchased by the two tanneries in bigger quantities than that of buffalo hides and skins. This is due to the more availability of cattle hides and skins than buffalo hides Purchase cost of hides and skins The purchase cost of hides and skins purchased by the tanneries is calculated on the basis of sq.ft. of hides and skins purchased. The 150

39 number of pieces of cattle and buffalo hides and skins are purchased in different ranges of weight in kilograms and ultimately converted into sq.ft. The purchase cost is then fixed on the basis of the rate per sq.ft. This is the routine and usual procedure followed by two tanneries in determining the purchase cost of hides and skins. The procedures for determining the purchase cost adopted by the two tanneries are presented in the following consecutive tables. Distribution of no. of pieces among different ranges of weight in Kgs. Firstly, the number of pieces of hides and skins purchased by the two tanneries are categorized in different ranges of weight expressed in kgs. T36. Distribution ofno. of pieces among different ranges of weight in Kgs. Range in kilograms A B Cattle Buffalo Cattle Buffalo Below

40 Above Total Conversion of range in average kgms into sq.ft. Secondly, the weight expressed in different ranges of kgs is arranged so as to make the calculation feasible and easy. Then, the conventional rate of conversion of average kgs into sq.ft.applied. The two tanneries adopt the rate of conversion separately for cattle hides and skins and buffalo hides and skins. The rate is thus: 1 kg of cattle hides and skins is equal to 2.5 sq.ft. and 1 kg of buffalo hides and skins is equal to 1.5 sq.ft. The sq. ft per piece thus arrived at is shown in the following table. 152

41 T37. Conversion of range in average kgms into sq.ft Range in Kg. Average Kg. Square feet per piece Cattle (2.5) Buffalo (1.5) Below Conversion of total number of pieces into total sq.ft.of hides and skins purchased Thirdly, the total number of pieces purchased by the two tanneries is converted into total quantity of sq.ft. of cattle and buffalo hides and skins. 153

42 T38. Conversion of total number of pieces into total sq.ft.of hides and skinspurchasedby Tannery A A Range in average Kilogram Cattle Buffalo No.of pcs Sq.Ft/pc Total No.of Pcs. Sq.Ft/pc Total

43 T39. Conversion of total number of pieces into total sq.ft.of hides and skins purchasedby Tannery B B Range in average Kg. No. of Pcs Cattle Sq.Ft./Pc. Total No. of. Pcs. Buffalo Sq.Ft./Pc. Total Total Total Calculation of purchase cost The purchase cost of cattle and buffalo hides and skins incurred by the two tanneries are finally calculated in the table following. 155

44 T40.Calculation of purchase cost Cattle Buffalo Tanner ies Total sq.ft. Rate/ Sq.ft Rs. Total cost Rs. Total Sq.Ft. Rate/ Sq.Ft. Rs. Total Cost Rs. A B Total Total T41.Grand total of purchase cost( in Rupees) Tanneries Cattle Buffalo Grand total A B The above tables show the detailed procedure of computing the cost of purchase of raw hides and skins by the two tanneries in Kerala. As far as tannery A is concerned, 63.44% of its total investment in the 156

45 purchase accounted for cattle hides and skins while 36.56% accounted for buffalo hides and skins. This shows that cattle hides and skins assumes a major proportion of the total dealings of raw hides and skins by tannery A. For tannery B, 68.27% of its total investment in the purchase accounted for cattle hides and skins while 31.73% accounted for buffalo hides and skins. This indicates that tannery B also deals largely in cattle hides and skins. Of the total investment in rupees in hides and skins by the two tanneries in the state, tannery A holds a major share of investment to the extend to 61.96% while tannery B invests only 38.04%. This reveals that tannery A is bigger in terms of investment in raw hides and skins than tannery B and tannery A dominantly controls the business of raw hides and skins processing in the state Tanning Process cost Tanning process involves a number of processes in a cumulative fashion which help to convert the raw hides and skins purchased into the semi finished stage. Thus tanning makes the raw leather into a first point saleable condition. The cost of tanning is the total cost of production as far as the tanneries are concerned. It consists of the following elements of cost. 157

46 T42. Tanning Process cost Items of cost A AmountRs. Percentage AmountRs. Percentage B Materials 24,37,70, ,96,58, Chemicals 84,00, ,50, Labour 12,70, ,50, Overheads 60,85, ,03, Total 25,95,25, ,94,62, It can be seen from the table that material cost occupies above 93% of the total cost while labour charges have the least cost which comes to %. Overhead charges also assume a reasonable share of the total cost which comes to %. The cost of chemicals also has % share in the total cost Computation of tanning process cost per piece The unit cost of tanning process per piece of semi-finished leather is calculated as follows. 158

47 T43. Computation of tanning process cost per piece Pieces tanned per year A B Total costrs. Per unitrs. Total cost Rs. Per unitrs. Material cost 24,37,70, ,96,58, Chemicals 84,00, ,50, Labor cost 12,70, ,50,000 6 Overhead charges 60,85, ,03, Total 25,95,25, ,94,62, It is seen that the unit cost is arrived at on the basis ofthe total number of leather pieces tanned during a year and the total of individual element of cost incurred for the same period for the tanning process. The unit cost is higher in Tannery B than in A simply because of the fact that the larger tannery A enjoys the economies of large scale business operations. 159

48 Tanning process time It is the time in hours required to complete each of the tanning process. Time affects the cost of tanning. The following table gives the average time required to process 100 pieces of skins at each stage of tanning. T44.Tanning process time Process Time (in Hours) Trimming 1.5 Hours Soaking 8-10 Hours Liming 16 Hours Fleshing 1 Hour Deliming 1.5 Hour Bating 1.5 Hour Pickling 10 Hours Tanning 3 Hours 160

49 It shows that soaking process takes much longer time while fleshing process involves only very less time. Pickling also requires nearly longer time like the soaking process Sale of semi-finished leather according to grade The semi-finished leather is sold after tanning process to different customers. The selling price is fixed on the basis of different grades of hides and skins. There are seven grades of wet blue leather in the market. Of these 1 st and 2 nd are not available in Kerala. Only the wet blue leather from 3 rd grade to 7 th grade is sold by two tanneries. The proportion of different grades of semi finished leather in the two tanneries is given below. T45.Sale of semi-finished leather according to grade A B Grade Percentage Sq.ft in each grade Grade Percentage Sq.ft in each grade 3 5 2,23, , ,94, ,58,

50 ,18, ,17, ,18, ,22, ,18, ,22,050 Total ,74,185 Total ,92,502 It is seen from the table that in Tannery A5 th, 6 th, and 7 th Grades of leather are sold in major proportions as compared to other grades. 75% of the total sales are made of these grades of semi-finished leather. In tannery B 5 th grade leather is the largest item of leather which is sold followed by 6 th and 7 th grades. These grades together constitute 80% of the total sales. Thus the conclusion is that 5 th, 6th and 7 th grades of semifinished leather are the major items of sales in the two tanneries Selling Price of Semi-finished leather The selling price of each grade of semi-finished leather and the total amount of sales of two tanneries are given below. 162

51 T46. Selling price of semi-finished leather according to grade A B Grade Sq.ft.so ld Selling price/s q.ft Rs. Total Rs. Grade Sq.ft.s old Selling price /sq.ft Rs. Total Rs. 3 2,23, ,09,61, , ,76, ,94, ,48,98, ,58, ,39,96, ,18, ,91,49, ,17, ,51,21, ,18, ,57,93, ,22, ,99,05, ,18, ,24,37, ,22, ,80,39,508 It is observed that grade 3 fetches the highest selling price per Square Feet of semi-leather leather sold in the market. 5 th grade gives the highest total sale proceeds forboth the Tanneries followed by 6 th and 7 th grades of leather. 4 th grade has the second highest unit selling price. Howeverthe highest priced grades of leathercannot earn the highest single total sale proceeds. Thus 5 th grade leather brings the highest sale proceeds for both the tanneries. 163

52 Profit earned by the tanneries The profit earned by the two tanneries is presented in the following table. T47.Profit earned by the tanneries A B Total sales Total cost Profit Percentage profit on cost 21.81% 12.26% Tannery A earns profit at a rate of 21.81% on cost while Tannery B earns profit only at 12.26%. It indicates that tannery A is in an advantageous position mainly due to its ability to do its business at a comparatively larger scale. Tannery A can reduce cost and push up sales owing to its economies of larger scale of production. 164

53 By-Products The tanning process gives rise to a number of useful by-products. These by-products are the tannery waste resulting from the tanning process. The by-product include fleshing, trimming, tanned shavings, lime sludge, buffing dust, vegetable tannin. Usage pattern of by-product The tannery waste is used for a number of purposes. These are required for other industries. The usage pattern of the various byproducts of the tanning process is presented in the following pages: T48. Usage pattern of fleshings Nature of use Quantity in tons Percentage of use A B A B Biogas Fat Glue Poultry foods Total

54 Usage Pattern of Fleshings In tonnes Biogas Fat Glue Poultry foods B A F10: Usage pattern of fleshings It is seen from the above table that major share of fleshing is used in biogas plants which is installed in the respective tanneries. 45% of biogas is used for glue making and for the production of poultry foods. A small quantity is also used for fat production. Thus it can be concluded the tannery waste of fleshing is used for very important purposes. 166

55 T49. Usage pattern of trimmings Nature of use Quantity in tons Percentage of use A B A B Biogas Glue Bio fertilizer Poultry foods Cosmetics Total Usage Pattern of Trimmings In Tonnes Biogas Glue Bio Poultry Cosmetics fertilizer foods B A F11: Usage pattern of trimmings 167

56 The above table reveals that the trimming waste is mainly used for the production of poultry food, which is followed by bio-gas 45%;bio fertilizer 29%; glue 28% and cosmetics 13%. Thus, it can be concluded that the trimming waste can be used for a variety of purposes as shown above. T50. Usage pattern of buffing dust Nature of use Sound roofing materials Quantity in tons Percentage of use A B A B Artificial suede Light weight bricks Total Usage Pattern of Buffing Dust In Tonnes Sound roofing Artificial materials suede B Light weight bricks A F12: Usage pattern of buffing dust 168

57 The above table shows that major quantity of buffing dust is used to make light weight bricks. Only a negligible quantity is used for making sound roofing materials and artificial suede. T51. Usage of Tail waste Nature of use Quantity in tons Percentage of use A B A B Biogas Brush Total Usage of Tail waste In Tonnes A B Brush Biogas F13: Usage of Tail waste 169

58 85% of the total tail waste occurring in the tanneries is used by brush making industry and the balance for generating bio-gas. T52. Usage of vegetable tannin spent Nature of use Quantity in tons Percentage of use A B A B Mud thinner Briquetted fuel Total Usage of Vegetable Tannin Spent 49 Briquetted fuel Mud thinner A B F14: Usage of vegetable tannin spent 170

59 Table shows the usage of vegetable tannin spent waste at 70% for making ignition briquetted fuel and the balance for thinning the drilling mud Quantity and value of by-products of tannery The by-products of tanning industry are used for various purposes. The economic importance of the by-products is assessed with a view to bring its significance in the tanning industry. T53. Quantity and value of by-products of tannery Items Quantity produced % Rate/Kg Value % Fleshing Trimming Buffing dust Waste tail Vegetable tannin Waste salt Total

60 Quantity and Value of By products of Tannery Fleshing Trimming Buffing dust Waste tail Vegetable tannin Waste salt % of Quantity produced % of Value F15: Quantity and value of by-products of tannery The table above reveals that of the various by-products of the tannery, fleshing turns out to be a major share and fetches more value ie % in terms of quantity and 39.21% in terms of value. Vegetable tannin produces 7.80% of the total quantity of by-products and constitutes 4.61% of the total value. Thus, it can be concluded that sale of various by-products brings comparatively a commendable return to the tannery. Hence, nothing of the hides and skins goes waste and valueless. 172

61 Sources of waste generation There are a number of different types of waste generated from the tanning process. The effluents and emissions generated from the process require special care while analyzing the problems of tanning. T54. Sources of waste generation Operations Waste generated Nature Percentage Trimming & soaking Waste water having high TDS and organic load from washings w 15 Liming and unhairing Spills from the liming pit, residual paste containing lime and sulphides W 8 Hair and organic matter S 7 Fleshing Waste water having high organic load W 6 Fleshings (semi solid) S 9 Deliming and Bating Waste water having high alkalinity W 9 Spent bating liquor W 11 Pickling Spent pickling liquor with high acidity and TDS W 10 Tanning Spent tanning liquor w 6 Suspended organic matter W 5 173

62 Waste water from washing W 4 Waste water with high chromium content W 7 Spills and leaks from drums W 3 The table above shows that the tanning generates the highest quantity of waste which forms 25% of the total waste in the whole tanning process. The waste from pickling is 10% which is the least of all process. Thus, it can be concluded that the tanning process generates various types of wastes in the form of water and solid Pollution parameters Since tanning process affects the environment adversely certain pollution parameters are suggested by the prescribed authority. It is necessary for tanneries to comply with the requirements of Pollution Control Board of the State. The table below shows the average pollution load in tannery effluent per ton of hides and skins. 174

63 T55. The average pollution load in tannery effluent(perton) Pollution parameter Pollution load in kgs. B.O.S C 70 C.O.D. 180 Chlorides 270 Dissolved solids 600 Suspended solids 100 Sulphides 4 Total chromium 30 The two tanneries in the state of Kerala strictly comply with the requirements as to the pollution load in the effluent of the tanning process. Precautionary measures are regularly taken by them and inspection by the Pollution Control Board is done at frequent intervals. The tolerance limits as prescribed by the Bureuo of Indian Standards for the Tannery effluents are given below: 175

64 T56. Tolerance limits for tannery effluents as per B.I.S. Characteristics Tolerance limits for Into inland Industrial effluents Into public Discharged On land for surface water servers irrigation Colour and odour Absent _ Absent PH Suspended solids B.O.D. 5 20% 100 mg./ltr. 600 mg./ltr. 200 mg/ltr. 30 mg./ltr. 350 mg./ltr. 100 mg/ltr. C.O.D. 250 mg./ltr. Total dissolved solids 2100 mg./ltr mg./ltr mg./ltr. Chlorides 1000 mg./ltr mg./ltr. 600 mg./ltr. Total chromium Heravalent Chromium 2 mg./ltr. 2 mg./ltr. 2 mg./ltr. 0.1 mg./ltr. 0.1 mg./ltr. 0.1 mg./ltr. Sulphide 2 mg./ltr. 2 mg./ltr. 2 mg./ltr. Sodium _ 60% 60% Boson 2 mg./ltr. 2 mg./ltr. 2 mg./ltr. Oil & Grease 10 mg./ltr. 20 mg./ltr. 10 mg./ltr. 176

65 It is observed that the two tanneries in Keralaare within the tolerance limits as prescribed by the BIS for the country as a whole. Since the tanneries in the State produce only semi-finished leather and complete tanning process is not undertaken, those tolerance limits which are applicable to them are only complied with strictly. 3.3 BUSINESS PRACTICES OF PRODUCTION OF LEATHER PRODUCTS Leather products are produced by small and medium sized organizations. Individual and group of individuals are also engaged in the production of leather products. A number of variables are considered in the production and distribution of leather products Market Research It is necessary to conduct a market research to evaluate the economic viability keeping in view the market segment to capture the region to dominate and the customer level to serve. 177

66 T57.Market Research Nature of Market research Number of producers Percentage Usually Often 7 23 Sometimes 4 13 Almost never 9 30 Total Market Research Almost never Sometimes Often Usually Number of producers F16: Market Research 178

67 It can be inferred from the table that only 12% of the producers conduct market research as a routine activity by making enquiries with retailers, while 45% do it only occasionally, 21% quite often and 22% of the producers never attempted market research Production Planning Production planning consists mainly of the evaluation and determination of production inputs such as labour, machinery and equipment, materials and utilization to achieve the desired goals. T58. Production Planning Whether production planning carried out No. of units Percentage Yes 12 40% No Total

68 Production Planning Yes 40% No 60% F17: Production Planning 40% of the production units carry out production planning on a regular basis, while 60% do not have any planning activity with respect to production. Those units which undertake production planning process are found to be more effective and efficient in their production performance Production Control Production control is the updating and revising procedure where according to the requirements of the implementation, the labour assignment, the machine allocations, the job priorities, the rates of line flows, the schedule routes etc, may be critically examined and changed. 180

69 T59. Production control Whether production control carried out No. of units Percentage Yes 8 27 No Total Production control No Yes No. of units F18: Production control It is found that only 27% of the producers carry out production control for achieving efficiency while the majority of the producers, 73%, do not have any production control programme. Absence of production control is greatly felt by the majority of the producers who are ready to accept the programme if they are given proper help and direction. 181

70 Productivity Productivity is the efficiency of converting the inputs into tangible outputs. T60. Productivity Whether productivity is measured No. of units Percentage Yes 9 30% No 21 70% Total Productivity Yes No 30% 70% F19: Productivity 182

71 30% of the producers measure productivity to ascertain the efficiency of production while 70% are not aware and do not measure productivity. Low productivity leads to low profit which in turn results in slow growth of the business Material control Material control implies taking care of materials and their cost from the stage of procurement to the stage of their ultimate consumption. Finished leather is the raw material used to produce leather products. T61. Material control Whether material control adopted No. of units Percentage Yes 21 70% No 9 30 Total

72 Material Control No Yes No. of units F20: Material control 70% of the production units follow material control procedures while 30% do not have any control practices over the raw materials. Since raw material is very dear in this industry the producers are very eager to know more about the material control programs available to them. 184

73 Plant maintenance Plant maintenance is a very special aspect of production. Plant includes machines and equipments. Breakdown can be brought down at the minimum level by proper plant maintenance. T62. Plant Maintenance Plant maintenance done No. of Units Percentage Yes 24 80% No 6 20% Total

74 Plant Maintenance No. of Units 24 6 Yes No F21: Plant Maintenance It is inferred from the table that 80% of the sample producers do systematic plant maintenance to bring down breakdowns while 20% do not follow any systematic pattern of plant maintenance. The producers do not have complex type of machinery and hence they can carry out plant maintenance in time 186

75 Market segmentation Market segmentation is the act of dividing the market into distinctive and homogenous groups of customers. T63.Market segmentation Whether segmented Number of producers Percentage Segmented 3 10 Not segmented Total Market Segmentation Number of producers Segmented Not segmented F22: Market segmentation 187

76 90% of the producers are not aware of a proper market segmentation process, while 10% are aware and they are able to locate their target market. Thus, majority of producers are not aware of the benefits of market segmentation Product Mix Product mix is a set of all the products offered by a firm for sale. T64. Product mix Mix Number of producers Percentage Single Product 5 17% Two Products 17 57% More than two Products 8 26% Total