Mr Nasir Shafi, Director of Crescent Textile Mills (CTM), is contemplating on the decision of expanding his weaving capacity and whether to acquire either the air jet loom or projectile loom. We have analysed this decision on the economic aspects i.e. capital investment, payback period & waste etc as well as incorporating the business strategy of CTM. As the report progresses, we build a case for the purchase of Air jet looms and its implications on our future. Capacity Expansion Decision:
The first decision is whether to expand our capacity in weaving or not. Presently CTM is producing high quality yarn and for finishing and dyeing purposes, it’s buying its grey cloth from local weaving looms. The result is that the final product is of an inferior quality due to the inferior grey cloth. “The poor finishing may also be attributed to the facts that the textile processing units are operating mostly in the unorganised sector at small scale, without modern processing facilities. Thus, the overseas buyers prefer to buy yarn or grey fabrics from Pakistan.” The exports of Cotton cloth also show a healthy trend towards continuous growth and in Exhibit 2 of the case we can see that the value of cloth and readymade garments is more than twice the value of the cotton yarn. As there are not many large-scale weaving units, CTM should be able to get the pioneers advantage by using modern shuttle less looms to setup its weaving plant. Mr Shafi will have better control over the quality of his production if he produces everything in-house i.e. from spinning yarn to weaving cloth to finished good.
In 1990, CTM had fifty second hand projectile looms and although they were in a good working condition but they needed a lot of maintenance which was very expensive. There was an expectation that the export market for cotton cloth will get better and the Pakistani government was going to encourage weaving industry through its policies. CTM was one of the few fully integrated textile mills in Pakistan i.e. it has facilities from spinning till yarn and cloth production. This means that as the production goes downstream the value added increases and its more profitable to sell fabric rather than yarn. Thus the investments in increasing our spinning capacity should be followed by investment in weaving capacity so that it will pay more dividends in the long run and diversify the risk of changing demand. CTM was a pioneer in the textile industry and was always a step ahead of its competitors in terms of quality and technology. Mr Shafi felt a need for modernisation and based on the technical merits of the weaving looms, he was going to decide on which technology to invest in. The main issue is that our decision in this regard will determine the future market for our firm as the projectile and air jet looms cater for different segments of the market. The financial investment was also huge. The vision of Mr Shafi is that CTM should focus on high quality value added products. Projectile vs. Air jet
In Exhibit 1 we have made a comparison of the projectile loom and air jet looms on a number of factors. The first and foremost difference between them is that air jet is more economically feasible when we are producing cloth which is standardised and there are not many variations in production with respect to thickness and width of the fabric. The high speed of air jet ensures that production done in longer production runs gives more productivity. There’s also a risk that due to any problem in yarn, the machine may break down and efficiency will be reduced. “For manufacture of Plain, mass production fabrics Air-Jet looms are the most appropriate technology due to lower operating cost. Second hand double width projectile looms are the next best. These looms are best suited for long set lengths. Owing to rising competition and growth in demand for the fancy...