How to Set-Up an Enterprise

Sourcing Process, Raw Materials, Machineries and Equipments

Process Selection

Choices of process technology emerge once the product is finalised. For some complex products, process know-how has to be imported. In such cases agreements for technology transfer should be made with due care to safeguard interest. A lot of appropriate technology is being developed at CSIR and Defence Research Labs and some of these technology can now be bought. There are some intermediaries like APCTT, TBSE, which can help you to locate the relevant technologies. Besides there are some In-house R & D centres of companies which develop technologies and sell them to interested parties. Indigenously developed process know-how has intrinsic benefits such as appropriateness, relative inexpensiveness and possibility to work with technology developer.

While checking out on a process technology, the following things need to be considered with utmost care:

• Whether Process requires very high level of skilled workers or complex machines ?
• Whether Process requires large quantities of water and / or power ?
• Whether any Process or Product patent needs to be honored while utiising the selected process technology.
• Any special Pollution or Environmental regulation.
• The appropriateness to the Indian environment and conditions.

Raw Materials

Materials procurement and planning are critical to success, of a start-up SSI unit. Inventory management can lead to manageable cash flow situations, otherwise if too much is ordered too soon considerable amount of working capital gets locked up. On the other hand, non-availability may result in production hold-ups, and idle machine and manpower, hence increased cost. For essential imported raw material whose lead time are large proper planning is all the more essential. Buy raw materials from reputed dealers and agencies only, before ordering compare the prices and get quotation from at least 3-4 places and also check whether price is inclusive or exclusive of transportation cost. While receiving the delivery check the quality and quantity of the materials.

Machinery and Equipments

Choosing and ordering of right machinery is also of paramount importance. In many cases technology or process provides us with specifications which is not provided, then an extensive techno-economic survey of machinery and equipment available must be carried out. International trade fairs and engineering fairs are good places to look at available options. The entrepreneur must also consult experts, dealers / suppliers as well as users, prior to making a selection of equipment and machinery. The advice of DIC, SISI and NSIC can also be sought.

Many SSI entrepreneurs buy second hand machines and equipments. This leads to one of the major deficiencies in the small industry that of the prevalence of outdated production and management methods hindering the efficient operation of small scale units. It was also found that the most important reason for the reluctance of the small industrialists to install modern machinery and equipment was the lack of invest able funds. The main objective of National Small Industries Corporation (NSIC) is to provide machinery and equipment to small industrial units offering them long repayment period with moderate rate of interest.

NSIC Procedures For Hire Purchase Of Machinery

• The hire purchase application is to be made on the prescribed form.
• The Director of Industries of the State under whose jurisdiction the applicant falls, forwards the application to the head office of the NSIC at Delhi with his recommendation and comments.
• All applications for indigenous or imported machines are considered by acceptance committees comprising of the representatives of the Chief Controller of Imports, Development Commissioner, Small Scale Industries and other concerned departments.
• Decision of these committees are conveyed to the parties concerned with copies to the regional offices of the NSIC and the concerned Directorate of Industries.
• It is open to an applicant whose case has been rejected to get his application reviewed by a high powered committee known Performa invoice.
• Once all these formalities are completed by the hirer, instructions are sent to the suppliers to despatch the consignment (duly insured for transit risk) to the hirer and to send the R/R or C/R as the case may be, to the regional office.
• The NSIC after ensuring that all dues have been paid by the hirer, releases the R/R or C/R to him for taking delivery of the machines.
• In case of imported machines, the procedure is slightly different in as much as the shipping documents are sent to the clearing agents for clearing the consignment from the Customs and dispatching it to the hirer.

Value Of Machines That Can Be Supplied

Rs. 7.5 lakhs, F.O.R. or landed cost as the case may be.

Earnest Money

5% or 10% of the value of machinery depending on whether the equipment is imported or indigenous. In the case of furnaces and a few other items of equipment, the rate of earnest money is different. Interest 9 per cent per annum with a rebate of 2 per cent on prompt payment. This interest is calculated on the value of machines outstanding after deducting payment of earnest money.

Administrative Charge

2 per cent on the sales value of machines and its recovery by the NSIC is spread over the total installment period.

Period of Repayment

The value of the machines, after deducting the earnest money received, called the Balance Value, is payable along with interest and administrative charge in 7 years. -+

• The first installment is payable after one year and six months from the delivery of machines
• The second and subsequent installment are payable half-yearly thereafter.

Gestation Period

In case of certain type of machines which become operative immediately on installation in the service sector industries and job order establishment, a gestation period of only 6 months shall be allowed both to the new and existing units.

A rebate of 2% per annum is allowed on the interest rates, in case an installment is paid on or before the due date.

In case the payment of installment is not made within one month of its separate due date, interest @ 2% per annum over and above the normal rate is charged on the defaulted amount from the date of default to the date of actual payment. Remission in interests is allowed in case one or more than one installment is paid in advance of the due date(s).