Prof. Harkirat SinghProf. Harkirat Singh

Professor & ConsultantProfessor & ConsultantIIFT, New DelhiIIFT, New Delhi

FINANCIAL LAYERING IN EXPORT CHAIN & SUSTAINABILITY

– LIVE CASE LEARNING

BASIS FOR CALCULATING MONEY BASIS FOR CALCULATING MONEY LAYERING IN EXISTING EXPORT CHAINLAYERING IN EXISTING EXPORT CHAIN

Raw material requirement per month 10,000,000

Percentage of manufacturing cost in term of raw material consumed

20%

Percentage of packing charges in term of raw material consumed

5%

Percentage of profit in term of raw material consumed

10%

Interest charged by bank on rupee pre & post shipment finance

7.5% P.A.

Interest charged by banks for USD pre & post shipment finance foreign currency loan facility (6LIBOR +2%)

2.5% P.A.

Average size of export order per shipment USD 100,000(Approx.)

STUDY OF EXISTING EXPORT CHAIN OF STUDY OF EXISTING EXPORT CHAIN OF THE COMPANYTHE COMPANY

Cash Raw Material

Stock in Process (Semi finished goods)

Export bill receivable

Furnished goods and export consignment in transit, warehouse and

custom clearance

3 months 21 days

Bucket 1 Bucket 2 Bucket 3

Bucket 4Bucket 5

3 months usance

Upper Portion Money Layered Horizontal Line

Lower Portion

EXISTING EXPORT CHAIN

(FUNDS ) (FUNDS ) (FUNDS )

(FUNDS )(FUNDS )

FINANCIAL STRUCTURE OF EXISTING FINANCIAL STRUCTURE OF EXISTING EXPORT CHAIN OF THE COMPANYEXPORT CHAIN OF THE COMPANY

Bucket Average period of Stock in the Bucket

Money Layered in Bucket Cost of Money layered @ 7.5%

p.a.

Raw material 3 months RM = 30,00,000 5,6250

Stock in (process semi finished goods)

21 days RM = 6,99,999.99

20%ME = 1,39,999.99

8,39,999.98

3,624.65

Finished Goods & Consignment in Transit and warehousing)

3 months RM = 30,00,000

20%ME= 6,00,000

5%PC= 1,50,000

TC = 1,00,000

38,50,000

72,187.50

Export Receivables 90 Days +20 NTP = 110 days Interest Rate

@ 7.5% p.a.

45,00,000 1,01,712.33

Total 1,21,89,999.98 2,33,774.48

CALCULATION OF MONEY LAYERED & COST CALCULATION OF MONEY LAYERED & COST OF IMPROVED EXPORT CHAINOF IMPROVED EXPORT CHAIN

Bucket Average period of stock

Money layered Money released as

compared to existing chain

Cost of money layered

@7.5% p.a.

Raw material 1 month RM = 10,00,000 20,00,000 6,250

Stock process (semi finished goods)

15 days RM = 5,00,000

ME = 1,00,000

6,00,000

2,39,999.98 1,849.32

Finished goods & consignment in transit and warehousing

45 days RM = 15,00,000

ME = 3,00,000

5% PC = 75,000

TC = 1,00,000

19,75,000

18,75,000 18,261.99

Export receivables 60 days interest @ 7.5% USD 100,000

1 USD = 45 INR

45,00,000 NIL 55,479.45

Total 80,75,000 44,14,999.98 82,200.76

INNOVATIVE EXPORT CHAIN USING USD INNOVATIVE EXPORT CHAIN USING USD FINANCINGFINANCING

Cash Raw Material

Stock in Process

Export bill receivable

Furnished goods

1 months 15 days

Bucket 1

(Funds in USD)

Bucket 2

(Funds in USD)

Bucket 3

(Funds in USD)

Bucket 4

(Funds in USD)

60 days Bucket 5

(Funds in USD)

INNOVATIVE EXPORT CHAIN

45 days

CALCULATION OF MONEY LAYERED & COST CALCULATION OF MONEY LAYERED & COST OF INNOVATIVE EXPORT CHAINOF INNOVATIVE EXPORT CHAIN

Bucket Average taken to period stock same as in previous chain

Money layered in USD Money released in rupees as compared to

improved chain

Cost of money layered

@7.5% p.a. in USD

Raw material 1 month RM = 10,00,000

or $ 22,222.22

Advance 20% of order

= $20,000.00

Balance = $2,222.22

20% of advance order 9,00,000

$4.63

Stock in process (semi finished goods)

15 days cost as per improved chain

Cost of = 6,00,000

Stock in process or

$13,333.33

$13.70

Finished goods stock in transit & warehousing

45 days cost as per improved chain

Cost of finished 19,75,000

Stock in transit or

warehousing $43,888.89

$135.27

Bill receivables 60 days from bill of lading as per new

arrangements

Export Bill $ 100,000 $410.96

Total $159,444.24

Or 71,74,990.80

9,00,000 $564.56

Or 25,405.20

COMPARATIVE FINANCIAL EFFICIENCY OF COMPARATIVE FINANCIAL EFFICIENCY OF EXPORT CHAINSEXPORT CHAINS

Export Chain Total Money Layered

Money Unlayered

Interest Cost of Money Layering

Interest Cost Saving from

previous chain

Existing Export Chain

1,21,89,999.99 NIL 2,33,774.48 NIL

Improved Export Chain

80,75,000 41,14,999.99 82,200.76 1,51,574.48

Innovative Export Chain

71,74,990.80 900,000 25,405.20 56,794.80