Indian business network

Rajeev (father): "I want you to marry a girl of my choice."
Son: "I will choose my own bride!!!"
Rajeev: "But the girl is Bill Gates's daughter.."
Son: "Well, in that case... ok"
Next Rajeev approaches Bill Gates.

Rajeev: "I have a husband for your daughter...."
Bill Gates: "But my daughter is too young to marry!!!!!"
Rajeev: "But this young man is a vice-president of the World Bank."
Bill Gates: "Ah, in that case... ok"
Finally Rajeev goes to see the president of the World Bank.

Rajeev: "I have a young man to be recommended as a vice-president."
President: "But I already have more vice- presidents than I need!"
Rajeev: "But this young man is Bill Gates's son-in-law."
President: "Ah, in that case... ok"

Source: E mail forwards

Six step International Purchasing Office (IPO) set up procedure

There has been a sharp increase in the number of International Purchasing Office in recent times. What remains unfolded is the process of IPO setup and operation. Based on the research so far and the discussions with industry experts – I have charted a few steps that successful companies have done in regard to the IPO setup. 

(1)   Identify the opportunities of the Indian supply market

What remains a mystery is a documented approach towards understanding the supply market for foreign companies. Most multinationals stereotype India as an exotic country of snake charmers and national highways with elephants rides. IPO’s typically need to create knowledge about the nature of the Indian supply market and its potentials. 

(2)   Identify and select suppliers to partner with 

International sourcing involves long term association with suppliers to partner with. This is the case to build a sustainable supply platform from India hence the choice of the supplier and long term sustainability is important. 

(3)   Identify the internal and external coordination processes necessary

Successful IPO operations need good adaptation and integration of both external and internal coordination processes. Internal coordination includes coordination within the same function, across different functions and business units. External coordination includes coordination with suppliers and other service providers.

(4)   Hire, train and retain talent at IPO 

Given the challenges of IPO it is important to hire the right talent of people. Even more important is to train and retain the talent for IPO. Purchasing in IPO is much more of a balance between strategic skills and operational capability.

(5)   Set internal and external performance measures 

IPO’s in particular are service centres for global operations of Multi national companies, IPO’s are savings generators rather than revenue generators. It is important and critical to set the performance measures for IPO based on internal and external issues

(6)   Develop, monitor and sustain supply base 

Rather than selecting suppliers, supplier development is more essential for companies. This helps to sustain the savings from supply base. Monitoring the supply base and also constant feedback to suppliers will help improve the supply base. 

Tier 2 supply network in India – A grey area

Supply chains across the world face common challenges of supplier rationalisation, increased outsourcing, product development and value generation from the supply network. The scenario is the same for companies in India. As far as the Indian Supply network is concerned the tier 1 suppliers are truly world class like the TVS group, Bharat forge etc.., However there seems to be substantial challenges with the tier 2 supply network.

With the growth pressure increasing for companies in the tier 1 level, there is also a pressure to increase the average scale of the tier 2 suppliers. Traditionally the subsidies and labor union laws have not increased the average scale of business operations. Government has encouraged only small scale operations and have made the supplier network structurally weak of the supplier capability of tier 2 network. But there has never been a higher need than today to increase the scale of the companies and also to increase the value generated from the tier 2 network.

India Supply Chain Evolution - A new version of old philosophies or reinventing your thinking

Industry over the past century has seen several management philosophies like Taylorism, Ford principles, Toyota way of manufacturing and most recently Supply Chain Management. Each of these principles owes its success to the evolution process and its context which gave a competitive advantage. India has enjoyed a protected environment till the early 90's and few companies had global ambitions.
Now the Indian industry has a few large companies that have evolved to are globally competitive following certain processes. Examples of them are TATA motors with the Nano and Sundaram Fasteners. It is important to understand the mix of philosophies that drive the companies to their ambitions.

Is it a mere copy cat version of management philosophies that makes these companies successful ?

I believe that the philosophies of these companies are Indianised and thats the reason for success, however the Indianisation of management philosophies remains little explored in reality.

What have the Tata’s Achieved with the Nano?

From a casual outlook - Tata Nano has succeeded in satisfying the Euro 4 emission norms, safety tests and still achieving the target of sales price of 100, 000 Indian Rupees. Often called as the one man’s dream (Ratan Tata). But from a careful analysis, Tata Nano has achieved a lot more than just that.

The evidence that it is still possible to achieve profit in making the car creates a new price benchmark for competitiveness for the automotive industry (with Renault following them and Bosch creating components and systems for Nano – the heat is definitely ON). It has created interest in public who are using two wheelers for transportation to think about a car for themselves – thus “car” is not only for the upper middle class anymore. The debate or the quest for better roads for the use of the Nano (to avoid congestion) or better public transportation (to avoid using the car) is now more driven from a common man hence the government needs to respond to this.

Ratan Tata will put “Indians on wheels” similar to Henry Ford a hundred years ago who put “America on Wheels” and is definitely a milestone in Indian automotive history. Just as Henry Ford initiated in the aggressive use of scientific management in the automotive industry, similarly the philosophy of aggressive target pricing and managing the supply chain for that pricing will give new principles and process learning for Tata that can be applied in other areas.After T model production system, Toyota Production System It could be the 3^rd “T” hitting the industry – Tata Auto Supply Chain.

Naveen

Retailer to Supplier – Logistics based business model

Reliance the Indian business conglomerate has always built their success through implementing large scale infrastructure projects (Petrochemical venture, mobile and telephone services etc.,). Their new entry in to farming is a clear indicator of the huge potential in agriculture and food industry in India. India is the second largest producer of fruits and vegetables still less than 2% is being exported ( compared to nearly 50% in the developed countries). The competitiveness of fresh food (industrialisation) have been influenced by increased middle men affecting price levels, poor transportation (and cold chain) infrastructure and a large number of small farmers (giving the lack of scale & lack of sustainable supply).

The business model priority of Reliance have to get the transportation infrastructure installed ( which presently costs 15-25% of the food cost) and to leverage it to create efficiency for agriculture industry. The logistics infrastructure will also help reliance establish themselves as selling to customers directly and also to other traders and mom and pop stores. They are putting logistics (infrastructure) in the core of the business model to enhance profitability and change supply chain position ( from a Retailer to Supplier) and to have new customer segments. Reliance also dilutes the power position of the middle men by making middle men buy from Reliance.

Sustainability aspects of India’s economic growth?

India is celebrating the successes of economic growth. But the growth is from sectors like Information technology, Manufacturing etc.., which can employ educated labour in its workforce. This also develops the secondary level of industries in infrastructure ( like transportation, construction, power etc..,). When India is growing now it can do a better sustainable model prepared for the future. How well are aspects of sustainability addressed ????

About 300 million middle people increasing their income level - Is India environmental conscious in emissions?

A lot of new buildings are constructed recently – are the green conscious (like use of natural light, solar power, reuse of water etc..,)?

Are large infrastructure projects constructed now prepared to face the future challenges?

More and more people are moving from agriculture to take part in the industrial development. With more than a billion people in India alone – India needs to increase competiveness of farming (other than subsidies) ?

How prepared is India to face a natural disaster and still sustain the growth? ( an aspect of risk which is seldom considered when growing)

The green India or a Cloudy future

India will become the third-biggest emitter of carbon dioxide by 2015 and rapid economic growth of the country and its neighbour China will have devastating consequences for the world's energy supply unless the two Asian giants make efforts to curb demand and greenhouse gas emissions.
"India and China will account for around 45 per cent of the increase in global primary energy demand through 2030, when the world's energy needs are expected to be well over 50 per cent higher than they are today," the IEA, an energy policy adviser for its 26-member countries, including the US and 19 European countries, said in a statement.

In its 2007 World Energy Outlook, the Paris-based agency said "How China and India respond to the rising threats to their energy security will also affect the rest of the world."

According to the report, China is expected to overtake the United States as the world's biggest emitter of carbon dioxide this year.

Source:Economic times

What are the investments or actions taken by these developing countries to develop measures to protect the environment?
When the developed countries are struggling to cope up with the changes in the developed infrastructure, the developing countries are actually in a better position to develop infrastructure taking in to account the carbon emissions - are they really doing it ?
With the largest sustainable automotive market growth in China and India - what is the interest/development so far to develop good public transportation?
There is a large focus from the developed countries on developing countries to fight against carbon emissions - Is it a fought as a local phenomenon or a global phenomenon?
The reasoning for the above question is - There is so much of a talk about carbon emissions from international community, but nothing at all about water consumption and water pollution (especially in urban areas of these developing countries) - Is that the local government/economies problem or ????

Retail, trucks, transportation - Vertical integration against horizontal outsourced SC

Reliance retail and Volvo partnership

Mukesh Ambani’s Reliance Industries is in talks with Volvo, one of the biggest truck and logistic companies in the world, for a joint venture that will specifically cater to Reliance Retail’s back-end logistics requirements. According to sources, the joint venture between Volvo India and Reliance Retail is likely to include a new manufacturing facility where Volvo will assemble completely knocked down trucks specifically for the retail major. Reliance is expected to invest in the JV and the trucks made by the venture could be co-badged both Reliance and Volvo. Sources say this unique arrangement between a retail company and its logistics vendor is unprecedented globally. Reliance has already appointed Delhi-based Eicher Motor as its preferred vendor for light trucks. Eicher is also manufacturing specialised vehicles for Reliance Retail. Reliance group Mr.Ambani had also said that, “Reliance is building an over-arching pan-India transportation warehousing logistics infrastructure.”
Earlier in 2007, Volvo India included logistics, freight forwarding and transport — as well as allied areas like cargo handling and clearing, packing, warehousing and store keeping — in its roster of activities in India. The business unit, Volvo Logistics, is intended to support “internal Volvo Group customers and some external customers connected to global sourcing of our components,” company officials had said.

If it goes through, Volvo’s possible tie-up with Reliance Retail will offer the company a captive consumer that will help it move to the next level of volumes. Volvo currently produces around 2,600 trucks a year and sells 1,600 domestically.


Source:The Economic times

There are various questions to ask here with the cited example of Reliance and Volvo partnership.

1. Why is a retailing company interested in acquiring and building transportation services? A possible answer is the poor existence of transportation infrastructure in the country and the non availability of service providers with infrastructure (transportation,warehousing) capability. Though there are service providers like DHL, UPS etc.., they do not own the transportation network. They own the service packages. On the other hand Indian transportation companies lack the service capabilities and need beefing of information systems and other facilities. So owing their own transportation for Reliance not only helps their retail operation but also helps to unleash an industry potential in TPL which is fragmented and will need structural reformation very soon.
2. When developed countries are talking about outsourcing - Reliance is doing vertical integration?
3. What are the other things on the agenda for Reliance group as a whole to move in to the trucking industry? What are the synergies in this ?
   

Where is the global sourcing optimum - Automotive companies in India

Hyundai
Hyundai Motors is interested in increasing their global sourcing from the existint level to a higher level. Sourcing for Hyundai takes place across global plants in China, Turkey, South Korea and the USA. Hyundai has also chosen India for manufacturing their small cars for global sales operations.

Mr Lheem said that Hyundai was sharing manufacturing facilities with its plants in China, Turkey, South Korea and the US with regard to import of certain components from these countries and exports of some of them from its production facility here.

“We are importing some components from these countries and exporting components like body panel to Turkey and engine components and assembly units to Korea and we would like to increase this,” he said, refusing to divulge details on the size of export opportunity that the company intends to give to its Indian suppliers.

He said that the company planned to source components from the local vendors for exports, but cited concerns regarding quality and price as against competition from some of the other countries.

“We are not concerned about the quality of the tier-I suppliers but across the industry. They have to match the superior quality standards for the kind of products required in the European nations. We are not complaining at the moment so much about price competitiveness of India vis-À-vis other countries,” said Mr Lheem.

Hyundai Motors India, which exported about 1.15 lakh cars last year, expects the number to increase to about 1.50 lakh this year.

Source: The Hindu

• The Supply chain is getting dispersed from a local perspective to a global network - Large companies are taking actions to have global foot print. Today it could be China and India who are becoming the factories of the world.......The pursuit will continue !!!!!!!!!!
• The question that remains to be answered is that what the point of balance between global sourcing and local sourcing ?
• Factors like environmental concerns, responsivess to market seem to be the powerful factors that will determine the balance but how are the companies taking this in to account in their decision making?

Indian auto firms race to develop greener vehicles

MUMBAI: Indian vehicle makers are joining the global race to make less-polluting greener vehicles, teaming up with international firms and pouring money into research that could result in commercially viable technologies quickly.

Petrol and diesel are used overwhelmingly in passenger and commercial vehicles in India, with cleaner-burning compressed natural gas (CNG) and liquefied petroleum gas (LPG) gaining in popularity but curtailed by their limited availability.

India is encouraging use of biofuels like ethanol, made from renewable resources, for greater energy security and emission reduction, but it is dragging its feet on legislation.

Still, firms from top vehicle maker Tata Motors Ltd. to tiny electric car maker Reva are testing options from biodiesel to hybrids, encouraged by growing demand.

"Our growth is a combination of greater consumer interest and stricter government regulations overseas," said Chetan Maini, deputy chairman at Reva Electric Car Co., which recently received $20 million in venture capital funding and is doubling output this year to 6,000 units, of which half will be exported.

Tata Motors is working with foreign firms on biodiesel and electric traction technology and with France's Motteur Development International on using compressed air as fuel.
Top utility vehicle maker Mahindra & Mahindra has a concept three-wheeler that uses compressed gaseous hydrogen, and is studying the feasibility of hydrogen internal combustion engines and fuel cells with Shell.

Indian energy firms, like their global peers Shell, BP and ExxonMobil, are speeding the move to biofuels. Indian Oil Corp. is partnering some auto makers, while Reliance Industries Ltd. is growing jatropha for biodiesel.

Jatropha, a tough shrub, can be grown on semi-arid land and is expected to play a major role in biofuel production in countries like India where most arable land is already being used to grow food.

With the domestic consumption growing higher and all indicators seem to show an even higher and sustainable growth in the future. With the growing need, increasing environmental awareness India definitely needs to focus on Greener vehicles. However the questions that remain are

• How can government and other regulatory boards aid to faster development of green vehicles?
• Starting way later than the global leaders like Toyota, DaimlerChrysler, Honda, General Motors - how can Indian companies still be competitive on development?
• With the other race lead by TATA cars where there is a heavy push to develop a car for Rs 100,000 ( approx 2500 USD), thats where the volumes of future cars of India lie. Unless Indian companies develop cost effective green cars through high speed innovative engineering it is a huge challenge to enable the mass of the Indian car consumer to buy the "green car"?
• 
  

Source: Economic times

India needs comprehensive infrastructure index

Vision, it is said, is the art of seeing things invisible. Consider, for instance, public policy design to boost production, manufacture and exports. The fact is that increased participation in the global economy has now been established as a necessary condition for sustained growth and development.

The globalisation of production does offer tremendous possibilities for industrialisation, income generation and better living standards. In tandem, what is of vital import is “appropriate domestic institutions and policies”, for greater integration with the world economy.

A recent research paper at the Rochester Center for Economic Research in the US finds striking relationship between the growth in manufactured exports and country-specific “service links” such as power and transport. The study, carried out at the University of Rochester, which publishes high-impact academic journals like the Journal of Financial Economics and the Journal of Monetary Economics, emphasises “the crucial importance of the cost of service links’’ for stepped-up export of manufactures.

Relatively low-cost and reliable trade-related infrastructure services have been shown to have strong correlation with export performance. No doubt, the setting up of service links such as roads, ports and electricity supply entail substantial fixed-costs, involving both “sunk” start-up costs and maintenance costs. But infrastructure constructions are largely one-time costs and it is the availability of competitively priced service links that revs up manufacturing exports, says the paper.

The study uses international data on such service links as communication and transport costs in “production blocks” worldwide. The idea is to have an overall index of the costs of various service link activities to figure out how they affect export realisation.

The key insight that the research offers is that the quality of an economy’s service links is “decisive” on export growth. So, if policymakers here are keen on boosting exports, particularly those of manufactures, the way ahead is to get cracking to improve and revamp service links pan-India.

The paper measures the quality of a country’s service links “through a synthetic measure of infrastructure”. The index was built using 12 international data sets to number crunch three sub-indices for telecom, transport and electricity. Once the sub-indices were calculated, they were each given a weight of one-third and used to figure out the overall composite service link index.

The measure for telecom was based on four variables: main-line subscribers per capita; cell-phone subscribers per capita; average cost of a call to the US; average delay in getting a phone line connected. Next, the transport service link measure was on the basis of four parameters: percentage of roads paved; railway track per square km; number of air transports per capita and average time to import.

Economic times

India: retail giants set to develop own logistics

Bucking international trends, India’s retail giants like Reliance Retail, Bharti-Wal-Mart and AV Birla Retail are developing their own logistics. With demand for end-to-end logistics solutions far outstripping supply, the logistics market for organised retail is pegged at $50 million and is growing at 16%. It is expected to reach $120-$130 million by 2010. Organised retail on the other hand is growing at 400% and is expected to reach around $30 billion by 2010.

Not that the current players are inactive. Even before the US retailer Wal-Mart signs up with its Indian partner Bharti, its fully-owned logistics arm Gazeley has confirmed its India foray Reliance Logistics Ltd part of Reliance Industries Ltd, currently handles Reliance Retail’s logistics services. Similarly, Bharti Enterprises is directly negotiating with the rail authorities instead of negotiating with a logistics provider.

Globally the logistics cost component of the total retail price is 4%-5%, while in India it is as high as 7-10%. The higher cost for an industry, which operates on wafer thin margins of 2-3% globally, makes it imperative for retailers to internalise most operations and cut costs.

Says Anand Rangachari, managing director, Frost and Sullivan, “Unlike the mature western markets, retail growth in India is expected to be dominated by large retailers owning the logistics rather than outsourcing it to third and fourth party logistic providers, in near future simply due to the highly fragmented nature and lack of national as well as international logistics providers in the country.”

Source:Financial times

• Logistics has been the hart of many business models like the retail Giants like Walmart - Is it the same happening in India too?
• Is it a lack of transportation infrastructure (like trucks and fleets) from the advanced Third Part Logistic companies that makes retail giants go for their own set logistics set up?
• What will be the logistics business models that the retail companies will come up with ? How does that add to the value chain of the companies?
• Or are the Retailing companies eyeying more on the international market rather than the domestic market, given the fact that less that 2% of the food items produced in India are packaged?