Case 9 Kota Fibers, Ltd.
Kota Fibers, Ltd. was founded in Kota, India in 1962. Kota produced nylon to provide synthetic fiber yarns to local textile weavers. The synthetic fiber yarns were mainly used to make traditional women’s colorful dresses in India called the saris. One sari averaged eight yards of fabric. Indian women usually purchased three saris every year. India’s female population is around 500 million, with a demand for saris accounting for more than twelve billion yards of fabric and a stable business. The demand was being supplied by domestic textile mills that fulfilled their yarn requirements from suppliers like Kota Fibers. Kota used new technology and domestic raw materials to produce their quality product. Demand for synthetic textiles was characterized by a stable year to year growth with fluctuation based on special Indian festivals and celebrations. The most important festival was the Diwali celebration in mid-autumn, which made a seasonal peak in demand for new saris. Therefore, mid-summer was the seasonal peak demand for nylon yarn from Kota. Unit industry growth was expected to be 15% per year. Consumers purchased their saris from cloth merchants located all around the country. Cloth merchants were important local figures that were well known to the area residents who granted credit in order to support their sales. The suppliers were very competitive in order to keep the merchant’s business. The suppliers were aggressive in price, service, and credit granted. Mrs. Pundir, owner and managing director of Kota Fibers, adopted policies which required a seasonal production plan, due to thin profit margins. This meant that Kota would operate at peak capacity for only two months of the year and decrease capacity the rest of the year. This caused continuous hirings and layoffs each year. Kota had two distribution warehouses to attempt prompt