Survival of a company and market success is proportional to the confidence and satisfaction of the customer who has the right to demand quality. Quality is timely compliance to defined requirements.

Accordingly, the spinning mills perform the task of manufacturing yarn conforming to the quality and performance criteria of the end-user at a commercially competitive and industrially profitable output rate.

In order to manufacture yarn at competitive price, the spinning mills must control the product cost. In fact the component of the product cost over which the spinning mills exercise effective control is the conversion cost.

The details of the conversion cost of a typical spinning mill comprising of 19200 spindles are given in Annexure-1.

It should be noted that the cost of utilities, i.e. electric power is the highest at 41.17% as compared to other components. Savings in the cost of electric power can be achieved by the use of small diameter spindle wharves as calculated below:

1. Saving in Electric Power Cost

Electric Power consumed per day machines = 25×24×0.80×0.85=408 KWH

Assuming Power Tariff @ Rs 11.0 / KWH

Cost of Electric power consumed per machine per day:      408×11= Rs= 4488

Saving in Electric Power cost per LB. of yarn = Rs 1.15

Saving per 40 machines (19,200 spindles) / day:  1.15×1084.4×40 =  Rs 49,882.40

Saving in conversion cost

On account of higher spindle achieved with small diameter spindle wharve, the machine production also increases resulting in saving of the conversion cost as calculated below:

Summary

Saving in electric power cost / day = Rs 49,882.40

Saving in conversion cost / day = Rs 264,593.60

Total savings per day = Rs 314,476

Total savings per annum / 300 working day = Rs 94,342,800.

In conclusion, it may also be mentioned that the thin walls of the small diameter wharve are not a disadvantage. The manufacturers use high and adequate quality steel for maintaining durability and prevention of wear by spindle tapes.

Conversion Cost

Approximate total project cost of  a typical spinning mill comprising of 19,200 spindles is assumed at Rs 700 million.

Financial Plan at debt / Equity ration of 60/40 works out as follows:

Debt = Rs 420 million

Equity = Rs 280 million

Supplier Credit= Rs 300 million

Sponsors Contribution = Rs 140 million

LMM loan = Rs 50 million

Bridge loan = Rs 140 million

LT-TFC = Rs 70 million.