With technology disruptions taking place in the Indian supply chain, the one-size-fits-all strategy needs a relook | By N Viswanadham |
Supply chain networks are an inter-organisational network consisting of a number of independent manufacturing and service organisations, each concentrating on its core businesses, forming an alliance towards a specific goal of designing, manufacturing and delivering products to the consumers. The products may visit several countries, ports, customs and the facilities of the stake holders. There are six different stake holders in a supply chain. They include suppliers of raw materials and components, contract manufacturers, assemblers, B2B and B2C logistics providers including warehousing, distributors and retailers. These actors in the supply chain network are globally distributed and linked through a variety of relationships such as subcontracting, licensing, common technical standards and marketing contracts.
There were several best practices that were developed and followed over the years in traditional supply chains. These included modularisation (design of products as standard subassemblies produced using standardised processes), supply hubs (facilities to store inventory for the suppliers nearer the manufacturer site), cross docks (trans shipment facilities where goods from manufacturers are sorted and loaded onto retailer trucks), postponement (final assembly after receiving the customer order) merge-intransit (final assembly is done during the transit to the customer). The above best practices can be implemented in a supply chain network that integrates three different flows: the material flow, information flow and financial flow.
There are several disruptive changes happening in supply chain because of it being a highly technology intensive field. There are four important business processes in a supply chain including procurement, manufacturing, distribution and retail and finally repair and maintenance. In some verticals such as apparel, food, etc. all the first three processes are well integrated and orchestrated as farm to fork or farm to fashion chains. Factory gate pricing is common. In some other verticals the B2B procurement process is undergoing disruptive changes. These include moving away from strong ties with trusted suppliers to order configured SCNs where the OEM selects all players in the chain back to farms. One should also move away from buying through multi-tier purchasing platform i.e. supplier factory gate pricing than payment on delivery. The focus should be on the entire supplier ecosystem not just its product price and quality and develop strong connections with the stakeholders and governments.
In a similar manner, the manufacturing business process is also changing its face from owning assets to orchestrating without owning any assets and concentrating on connections and governance. Finally the retail process is changing due to innovations in Internet search and advances in machine learning and data mining. Retailers have gained an understanding of how shoppers move around their stores – where they go, in what order, their duration, when they come to the store, and how all of these questions map to actual sales. Retailers are developing predictive models for price discounting, advertising, and couponing. An intelligent aircraft will tell maintenance crews the status of the aircraft subsystems thus helping aircraft operators predict which parts need replacement and when. It is a shift from the current maintenance schedules based on the number of flights to those based on actual need. Talent deficit in design automation, smart factories manufacturing, management and corresponding R&D is the need of the hour. Governance, coordination and control are of particular importance in the changing world and refer to how the lead firm or the orchestrator determine and coordinate the activities of the actors in the supply chain.
Indian manufacturing sector involves public sector undertakings, family businesses, multinationals and millions of small and medium businesses. The verticals include apparel, chemicals, coal and steel, auto, pharma jewellery to name a few. SMEs significantly contribute to economy, poverty alleviation, employment, and availability of products and services at affordable costs. In India, the sector accounts for 45% of the manufacturing output and 40% of the total export (in terms of value). Further, due to lower manufacturing productivity the sector employs 59.7 million personnel across 26.1 million enterprises. The Indian manufacturing output is for local consumption. The upstream supply chain could be global since items such as fabric are imported. There are many reasons for lower manufacturing productivity.
They include low technological depth, low labour productivity, poor infrastructure, low returns on capital investment due to high interest rates among others. Dominating SMEs are inefficient and are not globally connected. This is because: as mentioned above, supply chains are driven by technological change in process and product improvements in the factory, production planning, and supply chain management. Also, Indian manufacturers do not have the technological depth resulting in inefficient supply chains. Large numbers of SMEs suffer several disadvantages such as limited capital, finances, IT resources, and technical manpower for R&D and exposure to regulations, import-export policies and finally lack of strategic relationships with the global players. The labour productivity of Indian workers is lower compared to other nations like Thailand and China. The transaction costs too are very high in India. Transaction costs include observable costs such as transport, labour, import duties and formal trade barriers such as customs tariffs. The soft costs include making and monitoring contracts, information costs, costs due to cultural differences and miscommunication, unwritten laws, trust building, networking, risk costs, costs due to safety regulations and provisions, etc.
The poor hard infrastructure and lack of attention to soft infrastructure such as trade facilitation, warehouse and transport management software lead to high logistics cost in India.
Most services that support manufacturing such as power, water, and transportation suffer from shortages and low quality in India.Some of these utility networks were built several decades ago. The new designs such as smart building, smart grid, smart water networks using IT and sensor networks should be used. R&D in this area would be highly remunerative. Existing training institutes hardly cater to 2% of the requirement and employment exchanges in India are thus dysfunctional.
There is a tremendous need for skill based training with high technology depth in the country. The supply chains are affected by government policies and social pressures. Several special economic zones and infrastructure projects in India are delayed or abandoned due to social pressures. Nowadays, government oversight and compliances of various regulations such as green have become the norm. The government introduced SEZs and the cold chain initiatives but they did not prove very effective. Predictable and transparent tax environment is also essential.
In totality, Indian manufacturing can become globally competitive by using the bottoms up approach of developing research capabilities for design, smart manufacture, distribution and control. Several collaborative research initiatives between the industry, academia and R&D laboratories will be a needed first step for a globally competitive Indian manufacturing industry.