The Indian manufacturing industry has one more chance to make inroads outside India. Like Y2K, the trade tussle between the USA and China leading to tariffs last year and Corona Virus now provides this opportunity. Global companies are seeing disruptions due to concentrated exports from one region. This may have to change now as the USA China Phase-II agreement may not materialize until China needs to have IP laws for its own technology. This may happen only after a few years down the line. According to us, the opportunity for India and some other countries is real and not short-lived.
This year, we have a very exciting time working for a large global retail chain for shifting some of the supply chain to India. The game was looking very tough with a target to beat China’s price and quality and also find sources that can handle large supplies. We succeeded in making a possible shift of 8-10 M USD goods to India. We also could identify products, for which the supply chain can be shifted to India. When implemented for other retailers and products, this work, we think is useful for shifting supplies of 100-200 M USD. This is only from one of the assignments.
Some learning from this work, which is useful for handling similar work in future assignments and reduce the time taken to implement all the components of developing the supply chain from India. Following are the learnings:
1. TOP DRIVEN – Most people confuse between supply chain and procurement decisions. The presumption that just talks to some suppliers and that changes the supply chain is a big mistake. Supply chain decisions require much more than a procurement decision. It needs an understanding of the factory capacity, additional investments needed, owner’s/Top management commitments, meeting certification requirements and willingness to succeed at the company level. This is possible only when the consulting company has the ability to engage the top management of the target company for supplies.
2. ENTIRE SUPPLY CHAIN NEEDS SHAKE UP:-Whole Factory inward supply chain needs to be engaged. This is needed to make sure that value is generated at each level of the factory supply chain for increased volumes and there is a meaningful reduction in the cost of products. With the involvement of the management we could enforce the cost benefits of the scale in the entire value chain. The savings on this is about 5-15% on different components.
3. CONFIDENCE – The above two points can not be implemented unless all parties on the table have confidence that there is a reasonably predictable outcome of this assignment. Since this is a long drawn process, the time allotted for this should be 8-12 weeks and not less than that. Simplification like cost collection at the first stage is sure to kill the baby in the womb itself, and then be happy with the wrongly justified failure.
4. RESEARCH: Research where the local process and industry have competitiveness is essential to identify, what is doable. In case of India, some such industries are steel fabrication, machining, forging, auto components, textiles, organic chemicals, etc and many more, which can be shared by us on demand. This knowledge is useful to install confidence in all the players who will go through the decision-making process, which can some times be very painful and demanding.
5. EACH GOOD DECISION FOLLOWS THE RIGHT STRATEGY- For the sourcing company, procurement is transaction-oriented. A clear strategy may not evolve from them. The strategy has to evolve from the local knowledge and the company spearheading the work. In most cases, bundling of similar products helped in generating volumes for companies to be competitive. Surprisingly, in some cases, we found a good sense to bring the competitors together and convince them for doing a part where they have an advantage.
6. ENGAGE ONLY MANUFACTURERS – This is like separating man from boys. Traders and assemblers should be identified and given marching orders from the negotiations. There is no possibility of third party labels becoming competitive in this game. The margins are 4-5% for the manufacturers and any addition to these by anyone else will make supply chain decisions uncompetitive. Even in cases where the “ Rule of Origin” clause is not to be proved this is certainly not workable.
7. Need to Ensure CERTIFICATIONS & meeting WARRANTY & local REGULATIONS – This should be on the table from day one. This helps in seeding out non-serious negotiators and also companies have limited resources to undertake such operations.
We found some of the start-ups with excellent manufacturing capabilities but this needs help for funding and documentation. They are capable of handling the issues on their own but need some basic information on handling these issues.
8. Developing Logistics Supply Chain- This component is also important and needs a kind of network planning. The quantity of the supplies and bundling of products requires advanced planning at both ends. This activity can save 3-4% cost if done efficiently and is pre-planned.
9. Policy Advocacy: Government and state are one of the very important players for large scale shift of regional supply chain. The policymakers need to integrate the local needs and export needs for the quality and certification if not more. The following steps in India will help in the long term sustainability of supplies from India.
a. Adopt international standards for most of the good. The new regulations from advanced countries should be adopted with whatever minor changes are required. This may make Indian products expensive by 3-5%, but this is worth doing it. Indian consumers also need better quality products. In the long run, this will allow Indian industry to provide products off the shelf rather than developing these, and going through certifications before export.
b. With the start of microgrid development, we should also start promoting the usage of DC and also 110V products.
c. We still are exporting a lot of local taxes. This needs to be streamlined. It is always not possible to have 100% export-oriented units for new export orders. Some of the input taxes remain in the ex-factory prices and the same should be refunded based on the volume and nature of the exports till we find a suitable solution for this problem.
d. Export promotion Councils should have more local chapters and integrate the same with Commercial attaches in the Government of India Missions abroad.
The Author is MD of EWNM and we would be very happy to replicate our experience for more international companies. The views expressed here are of his own and personal.