What This Recession Means To Globalization And Supply Chain.

The world after couple of years of recession has become a very different place, the growth engine of the world has shifted to places like China and India from US and Europe. While US are working on a firm plan to come out of recession as quickly as it can, Europe is still in grip of recession as evident by the fiasco in Greece. But what this new world order will mean to the globalization and how will it affect supply chain?

The last decade saw a wave of outsourcing and globalisation taking place at each and every level of an organisation. The term globalization moved from books of high flying consultants from McKenzie’s n Accenture to the real world. Big outsourcing deals were taking place from places like China, India, and Brazil which were in part was powering growth in these markets. All big companies have bigger targets to outsource from India or China. Big offices were being setup by companies like GM, Chrysler, Volvo, Ford to make suppliers in India and China competitive enough in terms of process and quality while cost was never a problem due to low input and labour costs. But suddenly the markets in the US and European regions fell due to recession and so was the demands of goods and automobile while the markets in countries like China and India kept on growing at a pace which was making every European and US observer envy.


This all leads to a whole new paradigm in globalization:
1. Reduction in demand means the outsourcing deals were not either put on hold or the volume required reduced significantly and thus the whole benefit of outsourcing was negated.
2. The high unemployment rate in US and European regions meant labour becomes easily available at cheaper rate.
3. The requirement surged in developing countries like India or China making the domestic suppliers stretched to the maximum. This leaves them very little room to leave their capacities to foreign players. It is always logical to go with the rising star and when the rising star is near your home then why go for a fading star far away.

These changes affect a lot of supply chain professional directly. In 2008 nobody could have predicted a strong growth in 2009 thus every supplier was reluctant to put additional capacities. Now after a strong growth in 2009 and even stronger growth projected n 2010, the pressures on capacities have increased dramatically. The local markets are eating into the capacities of all suppliers and there are not many capacities left for suppliers in India and China to outsource to western countries. And if some suppliers do go for lucrative European markets then there will be shortages in already stretched markets in these developing countries. This will make the current year a very challenging one as capacities will be stretched to the maximum due to strong local demand and yet the lure of dollar will make every organization to go for outsourcing. The scarce resources will have to be managed well by every supply chain professional.

Exciting Phase for Supply Chain Professional in Indian Automotive Market

Three latest entrants in India’s small car market have set the fire in industry in terms of pricing. First Maruti Suzuki, the biggest carmaker in India reshaped its flagging model Versa into Eeco at mouth watering Rs 2.50 lacs and then Old American war horses, GM and Ford bringing out there new products i.e. Beat and Figo respectively at Rs 3.49 lacs (ex showroom price). This is seems to be a beginning of a price war in India which will reshape the industry as all major global players are now getting ready to take their part of Indian Automotive Industry Pie.


Well lower prices like these are not reached through one day of innovation by the marketing and finance guys in these organisations. It is the continuous hard work of the supply chain of these companies and shows the strength of our low cost automotive component supplier base.

The latest price wars will only put a lot of pressure on the buyers in these organisations to purchase at the lowest possible prices. The overall scenario looks very competitive as not only hard negotiation will be there to reduce cost but there will be smart new ideas that will be generated to make the cost of producing these components cheaper without effecting quality. This will be in turn enhances the overall capabilities of Indian part manufacturer to compete globally.

Already GM, Ford, Chrysler, Volvo and many other companies were aggressively scouting for Indian component suppliers for their global requirements and with expansion of Domestic Indian automotive market the chances that the Indian component supply base will become more stronger and technically capable to achieve this goal.
The whole game plan (of low cost Indian component supply base emerging stronger) becomes dynamic with the arrival of bigger and technologically advanced component suppliers in India in order to tap growing Indian market. These new players like American Axles and Magneti Marelli are technologically advance and will be more adaptable to changes happening in Indian market.

In the midst of all these development it will be exciting for every Automotive Supply Chain Professional in India to manage right product at a right time but at the cheapest possible price.

Expanding Indian Automobile Industry – Challenges for Buyer

Indian Auto Industry is booming, Sales rose 25% from 1.5 million units to 1.9 million units in the fiscal year ended 31 March as new model launches improved consumer sentiment and increased financing resulted in buyers flocking to showrooms.

Also SIAM has predicted a continuous growth of 10% to 14% in the Fiscal year 2010~ 11. This is now bringing a new paradigm shift in the industry as a whole and being in the middle of this industry making a buyer job as an exciting venture.
With the arrival of global players in the Indian market has done a world of good for all parts manufacturer. They have more customers and different avenues of growth but this is also a very tricky times from a buyer prospective.

The major points where a buyer needs to look now are:

1. The capacities which were installed by parts manufacturers for one OEM is being shared with other OEMs also. This could lead to serious issues when the capacities are not well planned at the suppliers end.

2. Earlier the leverage of providing the business is being used as a very handsome tool in negotiation but now suppliers are getting new avenues of growth and they are free to do cheery picking rather then working for one OEM at its terms and condition.

3. The availability of raw material is also major cause of worry. As the production numbers are increasing and market is again showing high signs of volatility things could turn bad to worse in terms of supply.

These points have now started affecting the production at various plants in India and are making the job of a buyer more challenging and exciting. At one level there is a need to increase capacities at parts manufacturer end (to match its capacities with the increasing market and also OEMs capacities) and on the other the part manufacturer needs to update themselves both in terms of technology as well as advance process and know how.

Managing Supply Chain After Recession

Year 2008 was a distress year for most of the industry with widespread closure and downsizing by everybody and anybody, however 2009 brought much needed hope of revival and finally numbers are started to look good in 2010. But so much fluctuation in demand has led to very serious issues in supply chain of every organization.

While buyers were answering issues relating to overcapacity and cost going haywire due to poor numbers off take and adjusting amortization costs in 2008 and 2009, now some interesting questions are being asked by same buyers to their respective suppliers regarding capacity augmentation. The production numbers are coming back with exponential growth and frankly not every supplier is ready to invest back in capacity increase after having downsizing only last year.

There are many issues which is now becoming problem for every supply chain executive after recession:

1. Meeting the increased demand with current capacities.

The most immediate need of the hour for any supply chain executive is to make sure that manufacturing line doesn’t stop. Production numbers fluctuation only add to problem and the problem become severe when the capacity at your supplier end is low w.r.t requirement and developing new sources is long and difficult process.

The answer to the situation is to start proactively analysing the installed capacity at supplier end and closely monitoring the inventory level at supplier end.

Installed capacity can be assessed based on many factors which include installed infrastructure, installed technology and overall takt time of the process. Once the study is done of the installed infrastructure and technology, ways need to be found out to decrease takt time of the process.

Also another solution to manage the issue is to build up the inventory levels at supplier end. The inventory level could range from couple of days to week depending upon the size of the part and space availability at the supplier end. The inventory planning also includes sufficient inventory of raw material and bought of parts.

2. Complex expansion projects

Capacity augmentation was on high list for everybody till 2007. However the complete lists of expansion projects were thrown in 2008. Often the projects with long lead time and complex technology requirement were also put on hold or were scrapped. Now to kick start same projects in order to meet the current demand is a very critical issue to ever supply chain executive.

3. Daily fight for survival

Imagine your supplier can only produce 1000 parts and daily requirement is of 1200 nos. Under capacity situation like these is a nightmare for any supply chain executive. This leads to daily fight for survival which includes day long follow-up with supplier and often night long vigil at his end to ensure smooth supplies.

4. Costing issues

Recession bought a much needed relief for supply chain executive in terms of supplier management as not many were coming up with cost increase proposal due to fear of losing their already reduced business. Also globally commodities prices were at their all time lows thus giving buyers much needed relief and helped them achieve their cost reduction targets however lower off take also meant that amortization cost increased dramatically. But now the things have changed completely. Commodities prices are at upswing again, suppliers have become aggressive in terms of posturing specially in areas where they know they are the only source. Also push by many industries of stock build-up to meet demand and pushing future expansion projects fast is only adding to the overall cost and managing these issues are becoming increasingly difficult for them.

5. Manpower issues

Recession has forced many organizations to downsize aggressively which included manpower downsizing also. Now to manage increased capacity the requirement also is to have skilled manpower. That’s the reason recruiting has picked up again in the economy. However it’s not easy to hire skilled managers overnight to manage this situation. This only adds to the problem in the current scenario.

Another issue relating to manpower is of remunerations There were minimal or no hike in pay during the last couple of year due to recession but now that numbers have started to look upwards organizations needs to handle the pay issue very carefully to retain their best manpower and supply chain executive needs to monitor that respective pay revision do take place at their supplier end so that workforce remain motivated enough to handle the current scenario.

Information Management and Data Management

The most essential aspect about purchasing is having all the data and information about the product. Many companies have gone ahead with extensive data mining activities and had some amazing results. There is lots of examples with organizations adopting spend analysis projects at regional as well as global level to reduce spend and enhance savings.

However most of the spend analysis project simply put the readily available data like spend involving a particular category of product through a period of time and then analyze it to create value in terms of consolidation and savings. This method is very effectively used till now but organizations have to move ahead from here to tap in large about of information that is available in the system apart from simple numbers and data sheets.

To understand this concept it is very important to understand the difference between data and information. Data is essentially any kind of number i.e. part price, part number, supplier name, share of business, yearly spend, raw material / foreign exchange prices and trends etc. Information is knowledge about supplier base and part. Generally there are key suppliers in every organization and there is a continuous negotiation and interactions which takes place with them. These negotiations don’t happen only with one dep’t or person but with different persons and departments.

The reason why I defined data and information is that data analysis is becoming increasingly common but at information level even the first step of compilation has not begun yet in most organizations. Data analysis was the first step of Consolidation which has been on since a decade now. Now organizations should move ahead with information management and analysis.

The essential aspect of data and information management is that buyer should have each and every bit of information with him during its sourcing process. This will take science of purchasing to next level. I would talk about details about this thought in my next blogs and will try to explore the topic in full detail. Also I would like to involve my reader’s participation to refine my thoughts on this topic.

Buyer Role in Managing Strikes

There have been lots of new aspects about purchasing that I am learning lately. The latest is understanding of handling of strike at supplier end. This is a nightmare situation for a buyer when his supplier, who is single source for many critical components, is hit by strike. To start with once the strike has started the buyer has very little time to react but there are lots of steps which can prevent the strike or give advance warning signals of the same and also prevent the line stoppage at his end.

Buyers are the eyes and ears of an organizations supply chain. They are the one who are at constant touch with the outer world and they have to keep looking for clues of any impending catastrophe. Understanding the enivornment at supplier end is possible on frequent supplier visits. There is a popular saying that “Prevention is better then cure”. Not only looking minutely at the process and raw material of the supplier it is important to keep on communicating with workers at supplier end. Machine operators, dispatch workers and other shop floor workers provide many clues of distress related to salary or working culture. Immediately this should be discussed with the supplier management at the highest order and necessary corrective actions should be placed.

Although despite of best efforts strikes do happen like the current strike in labor sensitive North Indian Auto Hub around Delhi / NCR. It is also important to deal with the crisis by moving to alternate source and planning your inventory accordingly. However it is very difficult to completely negate the effects of these strikes and almost impossible to prevent such occurrences but detail and thorough planning can reduce the downtime at the manufacturing organization to certain degrees.

Indian Automobile Industry: A story of success

The emergence of India and China has been synomanus with two different terms manufacturing and service. If you compare manufacturing infrastructure in China and India then China dwarfs India . But now, India has proven that its manufacturing Industry, specifically auto-manufacturing can surpass China with its quality and low cost. While China 's auto exports plunged 60% between January and July to 1.65 lakh units, India exported a total of 2.30 lakh cars, vans, SUVs and trucks in the period, representing a growth of 18%.

China has become a great auto exporter because of huge subsidies, an undervalued exchange rate and dirt-cheap credit. The amazing success of Indian story could be attributed to two big factors one is very competitive and open Indian auto industry and innovation success of Indian auto industry.

Indian auto industry has expanded heavily from mid 1990s when only cars available were of Maruti Suzuki (a Suzuki group company). Now with heavy duties on importing cars and exploding domestic car market saw world leaders like GM, Toyota , Honda, Hyundai entering Indian auto space. Also local players like TATA and Mahindra benefited from increased spending power from Indians working in successful IT industry. The Auto companies competed by constantly producing new models with improved features like fuel efficiency and increasing their capacity in India for domestic market. The cheap and highly skilled Indian manpower helped these companies t o not only increased their footprints in India but the low cost of production with high quality is making India a favorable destination for all major auto OEMs to make India their export hub.

India is also increasingly becoming synonymous with innovation. It is already becoming hub for small car and is home of world cheapest car i.e. $2500 Nano from TATA Motors. Also big R&D centre is being planned by Suzuki to enhance development of new generation models of his existing portfolio of Swift and Alto which is buoyed by latest Suzuki success of indigenously developed A star which is a big hit in export market for Maruti Suzuki. Others players like GM and Ford are also ramping up there R&D centers in India to develop small car concepts faster and effectively.

With all this development India has shown the world of its success in competitive market and answered China’s manufacturing might with new innovative concepts and designs.