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Creating a Globally Competitive Manufacturing Hub

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1 Creating a Globally Competitive Manufacturing Hub
2005 Summit on Indian Manufacturing Competitiveness: Setting the Agenda for Growth August 18 & 19, 2005 Creating a Globally Competitive Manufacturing Hub   N. Viswanadham Executive Director, Global Logistics & Manufacturing Strategies August

2 Competitiveness Lot of debate about competitiveness of Indian manufacturing Services Vs Manufacturing Competitiveness at various levels – at the individual corporate firms' level, at the industry level and at the national level The nation’s economic and import and export policies such as tariffs, customs regulations, free trade agreements and the logistics infrastructure highly influence the growth of the firm and the industry vertical. Competitiveness of an industry or a nation would be partly explained by the initiatives and innovations of individual firms Competitiveness of industries Export competitiveness Domestic competitiveness. 19/08/05 N.Viswanadham

3 Firm Industry and Environment
Supplier OEM Distributor Retailers Supply Chain Network Industry Industry Verticals Industry Verticals Environment 19/08/05 N.Viswanadham

4 Global Value Chains offer new opportunities ...
Information Flows Material Flows Distribution (US, EU, Asia) Manufacturing (China) Raw Materials (Australia) R&D (US) IT (India)-Finance (US, EU) Global Telecomm & Logistics networks along with WTO facilitate “Global Value Chains” Global Value Chains offer unprecedented economic opportunities to developing countries 19/08/05 N.Viswanadham

5 Our Aim here Identify Manufacturing sectors for domestic and export for Competitiveness and Employment generation Agriculture and Food processing Organized Retail Manufacturing related services Suggestions to enhance the logistics infrastructure through innovative use of IT Automating the customs and trade documentation Use of Knowledge based service providers Top it up with smart economic policies The number of free trade agreements has grown in recent years and by 2001 there were 170 regional trade agreements accounting for 40% of global trade (WTO). 19/08/05 N.Viswanadham

6 Contents Benchmarking current state of Indian Manufacturing
Why is manufacruting competitiveness important ? Global logistics Where can Indian Manufacturing go from here ? Defining a strategy for enhancing manufacturing competitiveness Conclusions 19/08/05 N.Viswanadham

7 Benchmarking the Current State of Indian Manufacturing

8 India - Economic Sectors Snapshot
GDP US $ 692 billion [PPP 3.1 Trillion] 10th largest economy and 4th in PPP terms Logistics costs are 10-20% of GDP In US it has come down from 15% - 9.8% Very high in developing countries (20% in China) 19/08/05 N.Viswanadham

9 India’s share of industry is low ...
Vision 2020 19/08/05 N.Viswanadham

10 Growth Mandate It is essential for India to increase its proportion of Global GDP through growth in all the three sectors of the economy Planned or Wild, growth is essential and important. This could be through attracting MNCs to India or through Indian companies becoming MNCs and raising funds through NASDAQ or large number of small companies raising capital from international venture sources 19/08/05 N.Viswanadham

11 Why does Indian Mfg Competitiveness matter ??
75% of India ’s working population (600m) has education middle school or below Only Labor intensive manufacturing and Organized Retailing can generate employment in adequate numbers Experience of Europe, America, Japan, the Tiger economies, and now China shows that Wealth creation is possible only through International trade oriented manufacturing In China manufacturing sector, constitutes nearly 40% of the GDP and Retailing is growing at 30% per year. 19/08/05 N.Viswanadham

12 Indian manufacturing not supporting economic development ...
Mckinsey Study 19/08/05 N.Viswanadham

13 Mfg competitiveness is partly hampered by inefficient logistics...
Accenture: Supply Chains in Asia: Challenges and Opportunities Excellent Infrastructure Sophisticated capabilities and technology Easier to attract quality labor Supply chain partners Processes and infrastructure that support collaboration Traditional channels Moderate Infrastructure Medium IT penetration With no integration Poor Facilities and Infrastructure Low IT penetration Industry partners limited Rated 54th among the 59 countries: Road : 56/59, Rail: 25/59, Seaport: 51/59, Airport: 40/59 19/08/05 N.Viswanadham

14 Resulting in increased costs and reduced competitiveness ...
80% 11.37% Japan 30%-40% 10% Europe 57% 9.9% US <10% 16-20% China, India Logistics activities performed by 3rd party /Logistics activities Logistics Cost/GDP Country Potential Savings with Improved Logistics: 10% of GDP This requires growth of 3PLs and 4PLs and use of IT 19/08/05 N.Viswanadham

15 Where can Indian Manufacturing go from here ??
19/08/05 N.Viswanadham

16 Manufacturing Strategy
Mass produce locally: Food, Textile, Auto, Pharma, etc Mass customize for export: Pharma, Food, Textiles Unleash the potential in Retail After sales service: domestic as well as Global Contract manufacturing 19/08/05 N.Viswanadham

17 India Sectoral Competitiveness
India should concentrate on its inherent strengths while developing select sectors... Gems Invest/Prepare for Global Competition Serve Global Markets IT Pharma Invest in Infrastructure & Global Brand Agriculture Build Scale Improve Quality Develop Domestic Market Textile India Sectoral Competitiveness Retail Industrial Mfg Invest for Domestic Market Serve Domestic Market Inter-national sectoral competition for FDI Note: Size of bubble denotes employment creation potential 19/08/05 N.Viswanadham

18 State of Indian Food Sector
Strengths 1.Vast natural resources (cultivable land, water, seasons) 2.Established farming system 3.Growing economy 4.Supporting government policies (FDI, SEZ, subsidies) 5. Vital outsourcing hub Weaknesses 1.Small scale conventional farming 2.Primitive post-harvest methods 3.Many intermediaries farmers to consumers 4. Hardly any Food processing industry 5. Inadequate Cold chain infrastructure Potential to become a leading food supplier for the whole world Opportunities for 1.Cold chain infrastructure builders 2.Processed food manufacturers 3.Food logistics providers 4.Food retailers and exporters 5.IT and data analysts 6.Packaging specialists Consequences 1.Surplus food wasted away 2.Low incomes to farmers 3.Inefficient supply chain 4.No channel master 5.Changing consumer preferences (processed hygienic food)

19 Retail: 180 Bn opportunity @ 10% annual growth rate
Food processing and retail 50Bn Not Considered an Industry 19/08/05 N.Viswanadham

20 Retail: The Indian advantage
There is a huge opportunity in this space 5 M retail outlets employing 21 M ( 7% of total work force) people 100% FDI is not allowed for foreign companies. Least saturated of global markets with small organized retail. The least competitive of all global markets studied Lower barriers of entry for global players Tremendous market size in both Urban, and Rural areas, Growth potential of 20-40% as in China When 100% FDI is allowed, retail will go turbulent with entry of international retailers 19/08/05 N.Viswanadham

21 Manufacturing Related Services
After sales is a big market much more profitable and less developed market Aircrafts, Server Farms, Medical equipment, . Service innovations and Service Science are much needed. India has an advantage Components hub R & D hub After sales hub is a step away but needs high speed logistics 19/08/05 N.Viswanadham

22 Special Economic Zones (SEZ s)
SEZ is a geographical region that has economic laws different from the country’s typical economic laws. The purpose of SEZs in a country is to boost its foreign investments. SEZs have been established in many countries – China, India, Jordan, Poland, Kazakhastan, Philippines, Russia, and, North Korea. Indian SEZs are not as effective as those in China probably because they are not as focused 19/08/05 N.Viswanadham

23 SEZs Need To be Architected Synergistically
Knowledge Creators Supply Chain Cluster Physical Assets Vertical Industry Information 19/08/05 N.Viswanadham

24 Defining a Strategy for Enhancing the competitiveness of Indian Manufacturing

25 Efficient Global Logistics is more than Brick and Mortar Infrastructure
Most developing nations have a single-minded devotion to expanding their hard infrastructure such as airports, highways, and shipping ports They Overlook other network components — such as efficient customs clearance and quality trucking services — that can have a strong impact on GDP. There is a tremendous need to understand the balance between brick-and-mortar projects and policies, regulations, and enforcement measures. Speeding up customs clearance, automating the trade documentation process and making processing times more consistent, would allow companies to reduce inventory levels Singapore saves 1 Billion dollars a year by use of Trade net 19/08/05 N.Viswanadham

26 Indirect and Direct Costs
In any economy, the logistics industry bears substantial direct and indirect costs. Direct costs such as transportation, warehousing, and handling, are more transparent. Indirect costs such as stock-outs, unnecessary high inventories, and obsolescence, are much less visible Efficient logistics can increase the cost competitiveness of nations 19/08/05 N.Viswanadham

27 Some Suggestions on Manufacturing Strategies ...
Overcome Infrastructure Barrier In short-term employ smart process & IT solutions Employ IT prowess in logistics and Trade Deploy 4PL model Electronic Trade Documentation Processing Systems 19/08/05 N.Viswanadham

28 Electronic Trade Documentation Systems ...
Seller Domestic Carrier Buyer Domestic Global Bank Bank Domestic Carrier Domestic Carrier International Carrier Exporter Customs Broker Customs Importer Forwarder 19/08/05 N.Viswanadham

29 Integrated Trading Blocs
Information Network Telecommunication Gateways USA Malaysia Mexico Europe China India Trading Blocs Logistics Network Multi-modal Logistics Hubs Financial Network Banks/Financial Institutions 19/08/05 N.Viswanadham

30 Until Infrastructure catches up smart solutions will have to substitute ...
Public Infrastructure: Roads, Transport, Sea and Air Ports, Power, Water, IT connectivity and their reliability and availability impacts competitive performance. Outsourcing to China and India tells a different story. Businesses are doing well despite poor infrastructure. Businesses move out of Singapore which has excellent infrastructure Smart firms cope with poor infrastructure OEMs force suppliers to locate nearby or they locate the assembly plant near supplier parks: Maruti, Ford, Hero Honda This will enable the assembler to follow lean philosophy Two autoclusters: Chennai and Delhi Have Captive Power Plants Outsource to Third party logistics providers Substitute Information for Inventory 19/08/05 N.Viswanadham

31 Leverage IT In Logistics software Development
Indian companies can exploit this strength to develop specific capabilities in IT-enabled Logistics development and management of logistics planning and coordination systems. develop in to 4PL s for global manufacturing and service industries with logistics domain knowledge. develop automated trade systems such as Trade Net and Digital Trade Transportation Network for trade documentation and customs permit applications. Develop Real-time control & Event Management using Radio Frequency Identification Tags (RFID) and Web-Services 19/08/05 N.Viswanadham

32 Employ 4PL strategies to enhance service quality and efficiency...
Supplier 2 & 3 PLs Contract Manufacturer Execution 4PL Planning, Coordination and Overall Responsibility Customer Orders Operational Status Plans Material Flow Payment Service 19/08/05 N.Viswanadham

33 Conclusions Indian manufacturing is poised for a big take off
Emphasize local and export markets Capitalize on strengths such as food, auto, Pharma and retail Opportunity to innovate bricks and IT based strategies for trade growth There is a huge opportunity in health care, Infrastructure supply chains E-commerce is raising from the ashes and there is a huge opportunity in this area. 19/08/05 N.Viswanadham

34 Thank you EAST ASIA Indian Ocean EUROPE Suez Canal AFRICA
16,000 KM 10,000 KM NORTH AMERICA SOUTH AMERICA Panama Canal 21,000 KM 8,000 KM Pacific Ocean Atlantic Ocean Thank you 19/08/05 N.Viswanadham

35 Sectoral Case Studies Retail Agri-Supply Chains Automotive Manufacturing Pharma & Healthcare

36 Retail Agri-Supply Chains Automotive Manufacturing Pharma & Healthcare
Sectoral Case Studies Retail Agri-Supply Chains Automotive Manufacturing Pharma & Healthcare

37 Retail Supply Chain

38 No Bn$ players as in China
19/08/05 N.Viswanadham

39 Agricultural Supply Chain

40 19/08/05 N.Viswanadham

41 The Agri Supply Chain Agriculture provides 21%
of GDP and 60% of employment The chain is long and slow A supply chain study for rice would involve farmers, seed producers, fertilizer factories, financial institutions, millers, government, warehouses, fair price shops, retail shops, railways, truck transport companies, etc. Orders of magnitude gains are possible if you apply the Industry supply chain ideas here 19/08/05 N.Viswanadham

42 Food Supply Chain Cluster
Suppliers Quality Control FOOD CHAIN Manufacturers Packaging Logistics & IT Customs & Export Regulations Finance and Insurance Companies Local Distribution Government policies Retail Chains Restaurants Kirana Stores R&D Institutions Global Retailers Meat & Fisheries Fruits & Vegetables Dairy Domain Knowledge for post harvest treatment of Fruits, Vegetables, Meat, Marine products, etc. Knowledge about customer traits and preferences Regulatory standards for export and traceability Friendly Government regulations Infrastructure for material and information handling. End to End view of the chain and the standards and processes for storage and handling. Collaborative infrastructure for communication between Supply chain partners. 19/08/05 N.Viswanadham

43 Problems with the Agribusiness
No Supply Chain View Fragmented capacities at every level Large information gaps: poor farmer processor linkage Limited contract farming Limited private interest Regulatory obstacles: Land holding, Agrimarketing, Retail sector, Price controls Underdeveloped markets: distribution bottlenecks and limited reach Unclear security for traditional banking Missing infrastructure Limited irrigation reach Storage and transport underdeveloped 19/08/05 N.Viswanadham

44 Food Manufacturing The Government of India allows 100% FDI in this sector. There are incentives for setting up processing plants either in Agri –Export Zones or outside of them. Sourcing of raw materials (fruits or vegetables or flowers or meat) is easier with an AEZ since the participants have industry standards knowledge. The Opportunity to create Halal hub (Export to South-East Asia, Middle East, ..) Vegetarian hub (20% of Indian population + overseas) Organic food hub (Europe and USA) Sea food hub Negatives on Food manufacturing in India Food Packaging is expensive, High import duties on Processing and Packaging machinery, High sales tax on packaged foods. 19/08/05 N.Viswanadham

45 Automotive Supply Chain

46 Auto Logistics and Supply Chain
Components Improve Supply chain efficiency using IT and AI After sales 19/08/05 N.Viswanadham

47 Indian Automotive Industry
US$ 8 billion (1% of Global Automotive industry) Almost 50% (US$ 4 billion) as Aftermarket, one of largest proportion in the world Contributes substantial 5% of India’s exports Employs nearly 300,000 people (directly & indirectly) 8 volume passenger car manufacturers - 5 CV manufacturers, producing 0.3 million passenger cars and 200,000 CVs per year, on a steadily rising trend Component sector has 600 first/second tier and almost 10,000 3rd tier manufacturers, employs 150,000 people and is worth 3.5 billion World's top 20 first-tier suppliers present through collaborations Aftermarket Logistics is a big opportunity 19/08/05 N.Viswanadham

48 Integrated manufacturing service networks
Manufacturing Cost Manufacturing Design Cost Logistics Cost Equipment Cost Inventory Cost Obsolete Service Trained Personnel Spare Parts Inventory Testing Equipment Wide Service network CUSTOMERS Sales forecast Service/Spare Parts/ forecast Feedback about product’s performance, design improvements from service point, customer’s needs Information about servicing the product, service and spare parts requirement forecast Some other costs on the manufacturing side would be: technical services like packaging, marketing, pricing Customization, installation 19/08/05 N.Viswanadham

49 Pharm & Healthcare

50 Indian Pharmaceutical Industry
Size of industry (2002) US$ 4.5 billion with over 20,000 registered manufacturers Provides employment to 2.9 million people Meets almost 95% of the country’s pharma needs McKinsey projects US$ 25 billion by 2010 Recent advances in biotech and IT not exploited Efficient distribution systems not in place (Logistics) Industry Consolidation expected through M & A Comprises two basic segments; bulk drugs and formulations Over 400 bulk drugs and 60,000 formulations are manufactured in India 60% of the bulk drugs are exported and the balance sold locally More than 85% of the formulations is sold in domestic market 19/08/05 N.Viswanadham

51 Pharma Supply Chain Cluster
PHARMA HUB Manufacturers Packaging Clinical Trial Logistics FDA Finance and Insurance Companies Distribution Government policies Suppliers Quality Control Track & Trace Retail Chains Medical Stores Hospitals Export Drug Discovery Trade Management 19/08/05 N.Viswanadham

52 These interactions and processes are logistics-based.
Health Care Logistics Healthcare services involve coordination between multiple parties of doctors, hospitals, pharmacists, medical equipment manufacturers, etc. These interactions and processes are logistics-based. For example, In clinical trials, drugs and patient samples are exchanged between multiple patients and research institutes. 19/08/05 N.Viswanadham

53 Coordinate Disease Management
Networking and Coordination of different players Multi-lingual Call Centers Counseling Information Diagnosis and Monitoring of Patients RFID tags, Internet IT support Clinical Trials Patients Hospitals Pharmaceutical Companies Research Institutes Government Agencies Voluntary Organizations World Health Organization Philanthropists like Microsoft Where are the Logistics Players ? AIDS Management 19/08/05 N.Viswanadham

54 Service Chains Provide Immense Opportunities
Arise in different contexts Health Care Construction Finance Defense Manufacturing Returns handling Spare parts and MRO Reverse Logistics Transportation Containers Window of Opportunity 19/08/05 N.Viswanadham

55 Logistics for Large Infrastructure and Engineering Projects
India is focusing on infrastructure a wave of projects such as the construction of airports, seaports, industrial parks and national highways. These can be completed in time and budget through proper logistics management and coordination of various activities. Business strategy to develop infrastructure and Industry simultaneously 19/08/05 N.Viswanadham

56 Construction SCM Headlines
In the case studies we observed… Intel Cuts Fab Construction from 36 to 18 months Conservative approach indicates $30MM inventory savings Mapping Helps Uncover SC Inefficiencies Mapping across organizational boundaries for pipe supports, contractor discovers 96% of elapsed time is wait time, only 4% is value add time Supply Chain Efforts Cut Lead Time 70% Owner enters long-lead supply chain, holds inventory 19/08/05 N.Viswanadham

57 19/08/05 N.Viswanadham

58 The Three Circles Shares of World GDP, 2004
Asia Pacific 28.9% (PPP 34.7%) North America 31.2% (PPP 26.5%) Western Europe 28.7% (PPP 21.9%) 19/08/05 N.Viswanadham

59 Local Distribution center
Reverse Supply Chain Manufacturer Wholesaler Local Distribution center Retailer Customers Reverse Hub Accumulate Sort Process Controlled Destruction Refurbished Recycled/ Recondition/ Reclaim Headquarter Auctions/ Exchanges Barter Agents 19/08/05 N.Viswanadham

60 Repair Center: Resource management
We assume a four stage repair process Repair Equipment & Mechanics Spare Parts Diagnostic Equipment & Mechanics Incoming Jobs Repair Diagnosis Testing Final touchup Delivery to customer Testers Final touchup crew 19/08/05 N.Viswanadham

61 The Indian Logistics Infrastructure
19/08/05 N.Viswanadham

62 The State of Indian International Logistics
19/08/05 N.Viswanadham

63 Standardization, Integration of Trade Flows
Trade flows are facilitated by harmonization of information, material & financial flows. Need to define standards for each of these flows to ensure hand-off from one country to another Trading Blocs achieve this harmonization enhancing intra-Bloc trade Forrester says that countries e-ready countries will benefit from enhanced trading activity between themselves. 19/08/05 N.Viswanadham

64 International Trade International logistics flows are substantially more complex, with as many as hands-off points within a complex global move. Lead times are substantially longer (measured in weeks, unless expensive air freight is used) – total transit times of days from Asia are common. There is substantially more documentation required (commercial invoices, customs paperwork, etc.). There are as many as 7 times the number of cost elements to consider, including duties, tariffs, freight forwarding costs, etc. Security issues in the global sourcing process require a new level of intelligent logistics software capable or higher levels of tracking and notification, 19/08/05 N.Viswanadham

65 Customs plays a key role in International Trade.
The liberalization and globalization of trade in the 21st Century, has brought about a paradigm shift, where the conventional and traditional role of customs as a regulatory and revenue collecting agency, has been complemented with that of trade facilitation. The Every international trade transaction involves at least two Customs intervention; one at the import level and the other is at the export level. Customs has substantial impact on the movement of goods across international borders Trade document automation is common in south east asean countries and Singapore saves 1bn USD a year on use of Trade net 19/08/05 N.Viswanadham

66 Future Trends in Manufacturing Industry
Indian component manufacturers will move up the value chain as contract manufacturers Frost & Sullivan has estimated that the revenue of the logistics industry from the manufacturing sector alone was $13.46 billion in 2003, and the market is likely to grow at a rate of 6.2% during the next five years Strategic location of industries and B2B connectivity to marketplaces The increasing online sales will force e-companies to forge strategic alliance with logistics service providers India can expect a shift in the retail logistics, B2B procurement practices and the way the distributions are handled Adoption of new technologies such as GPS and RFID will take place rapidly 19/08/05 N.Viswanadham

67 Frequently mentioned advantages: India
One quarter of the world’s youth live in India 54% of the Indian population is less than 25 yrs of age 2nd Largest English speaking workforce Second largest pool of technically qualified knowledge workers IPR laws in place Cheap labor force and a preferred BPO destination R&D centres: General Electric, Microsoft, IBM, Cisco, Intel, General Motors, Astra Zeneca, Motorola , Texas Instruments Biotechnology is a new hot spot. 19/08/05 N.Viswanadham

68 The Real Advantage India
52% cultivable land as against 11% in the world. Existence of 15 major climates : snow bound Himalayas to hot humid southern peninsula; Thar Desert to heavy rain areas Nearly 46 out of 60 soil types. Sunshine hours and day length are ideally suited for round the year cultivation Centre for biodiversity in plants, animals, insects, micro-organism and accounts for 17% animal, 12% plants and 10% fish genetic resources of the globe. In the live stock sector, India has 16% of cattle, 57% of buffalo, 17% of goats and 5 % of sheep population of the world. Fragmented unorganized retail worth 200 bn Rising percentage of cash rich young people 19/08/05 N.Viswanadham

69 A majority of the sectors need to overcome the Infrastructure Barrier...
Gems Agriculture Current Sector Competitiveness in Global Markets Industrial Mfg Current Infrastructure Competitiveness Note: Size of bubble denotes employment creation potential 19/08/05 N.Viswanadham


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