manufacturing competitiveness-sgd-6-nov-2009

Manufacturing Competitiveness:

Issues & Challenges

S G Deshmukh

ABV-Indian Institute of Information Technology & Management

Gwalior

6 Nov 2009 25th National Convention of mechanical Engineers:

Challenges for Manufacturing in next decade

Speaking points..

Role of manufacturing

Two perspectives : Economic & System Oriented

Competitiveness

Case of Auto component

Multi-sector study

Insights gained

Concluding remarks

Two Views

Macroeconomic View

Operations Management View

An overview of Indian Economy

Economic Performance

o Sustained economic growth o Average last 10 years 6.5%

o Forecast for 2010 –IMF 6.5 %

o (world: 2.5%)

o Forecast till 2050 – Goldman Sachs 5 % p.a.

o Services share in GDP over 55 % share in GDP (in 2007-08)

o Manufacturing sector grew at 8.8% in 2007-08 (15 % share in GDP in 2007-08)

Manufacturing Competitiveness ‘Made in India’

Second most attractive destination for manufacturing

o AT Kearney’s FDI Confidence Index 2004

Indian industry globally competitive in a wide range of manufacturing skill-intensive products:

o Apparels, electrical and electronics components; speciality chemicals; pharmaceuticals; etc.

Automotive components: Major MNC’s & their OEMs sourcing high-quality components from India

o Volvo, GM, GE, Chrysler, Ford, Toyota, Unilever, Cummins, Delphi

Indian companies now having manufacturing presence in many countries

o Over 55% of approved outward investment by India companies in manufacturing activities

Manufacturing vis-vis growth in GDP

Source: NMCC (2009) report on Enhancing Competitiveness

Real GDP Growth Rates %

Share

in GDP

in 2007

% Share

in

Exports of

goods

/services

in 2007

% Share in

world

population

in

2007

Country 2001 2003 2005 2007

USA 0.8 2.5 2.9 2.0 21.3 9.6 4.7

Canada 1.8 1.9 2.9 2.7 2.0 2.9 0.5

Germany 1.2 -0.2 0.8 2.5 4.3 9.2 1.3

France 1.9 1.1 1.9 2.2 3.2 4.0 1.0

UK 2.5 2.8 2.1 3.0 3.3 4.3 0.9

Japan 0.2 1.4 1.9 2.1 6.6 4.7 2.0

China 8.3 10.0 10.4 11.9 10.8 7.8 20.4

India 3.9 6.9 9.1 9.3 4.6 1.4 18.0

World 2.2 3.6 4.5 5.0

Year-on-year growth trends of

various sectors Source: NMCC (2009) report on Enhancing Competitiveness

Year Primary

Sector

Secondary

Sector

Tertiary Sector Total GDP Manufacturing

1993-94 3.30% 7.50% 6.40% 5.70% 8.60%

1994-95 4.70% 10.40% 5.80% 6.40% 10.80%

1995-96 -0.70% 13.20% 9.60% 7.30% 15.50%

1996-97 9.90% 8.00% 6.90% 8.00% 9.50%

1997-98 -2.60% 2.00% 9.00% 4.30% 0.10%

1998-99 6.30% 3.60% 8.10% 6.70% 3.10%

1999-00 2.70% 3.50% 9.30% 6.40% 3.20%

2000-01 -0.20% 6.40% 5.70% 4.40% 7.70%

2001-02 6.30% 2.40% 6.90% 5.80% 2.50%

2002-03 -7.20% 6.80% 7.50% 3.80% 6.80%

2003-04 10.00% 6.00% 8.80% 8.50% 6.60%

2004-05 0.00% 8.50% 9.90% 7.50% 8.70%

2005-06 5.90% 8.00% 11.00% 9.40% 9.00%

2006-07 3.80% 10.60% 11.20% 9.60% 12.00%

2007-08 4.50% 8.10% 10.70% 9.00% 8.80%

Significance of manufacturing ..1..

Crucial to Indian economy.

Effect of improvement in manufacturing sector goes far beyond

Manufacturing sells goods to other sectors and in turn buys materials and services from them for its growth and development.

Spurs demand for : raw materials to intermediate components. Impinges on software to financial, health, accounting, transportation etc.

Provides a foundation for organic growth in other sectors of economy

Offers employment opportunities directly or indirectly.

State of manufacturing helps to assess health of economy by various stakeholders

Significance of manufacturing ..2..

Significant developments globally as well as within the country have impacted on Indian manufacturing sector.

Substantial reduction in trade barriers across the globe and in India

IT revolution – Impact on productivity and costs.

Emergence of low cost manufacturing hubs – China and other South East Asian countries

Formation of National Manufacturing Competitiveness Council (NMCC) in 2004

NMCC has brought out strategic

perspective as starting point.

Formation of NMCC in 2004

Attaining competitive edge in ‘manufacturing’ depends critically on mitigating constraints; both the general constraints such as inadequate infrastructure, high transaction costs, higher interest, power and regulatory issues as well as sector specific constraints such as technology up gradation, market access, duty structure, managerial practices and competitive scales etc. Resolution of these constraints necessitates focused attention and action involving not only inter-Ministerial/Departmental co-ordination but also closer interaction amongst stakeholders viz; industry, input providers, financial institutions, education, research and management institutions.

Recognizing the importance of manufacturing in overall economic growth of a country and the need for enhancing its productivity, competitiveness and employment generation, NMCC was formed. to have a national approach on manufacturing.

National Strategy For Manufacturing

After detailed discussions with the Industry, Economists, Academia, Government Departments concerned including Planning Commission, Economic Advisory Council of the Prime Minister and various stakeholders, “The National Strategy for Manufacturing” has been prepared and submitted to the Government for its adoption and implementation.

It attempts to identify the areas of policy and outlines the strategic directions that need to be pursued in order to realize higher levels of growth and employment. India has to aim at achieving a long term GDP growth rate of 8 to 10 percent to substantially improve the living conditions of its people for which the manufacturing sector should target an average growth rate of 12 to 14 per cent.

Long term manufacturing strategy

Enhance Government focus on manufacturing competitiveness

Creating conditions for investment in and growth of the manufacturing sector

Lowering the cost of manufacturing

Investing in innovations

Strengthening education and training at all levels

Adoption of global best practices in manufacturing

Right market framework, competition and regulation

Issues relating to competitiveness in small and medium industries

Competitiveness of public sector manufacturing industries

Infrastructure development

Perspectives on competitiveness Competitiveness is a concept comprising of the potential, the

process and the performance.

GMR (2001)

To be competitive, several factors must exist: the desire to win,

commitment or perseverance and the availability of certain

resources.

Khalil (2000)

Competitiveness is defined in terms of ‘helping business to win’,

‘price’, product range and quality and ‘distribution and marketing’.

Dou and

Hardwick(1998)

Competitiveness arises or results from firm-specific initiatives like:

better management, leveraging and stretching of resources.

Hamel and Prahlad

(1993)

Ability to design, produce and /or market products or services

superior to those offered by competitors, considering the price

and non-price qualities.

Cruz and

Rugman(1992)

Competitiveness is synonymous with productivity and is assumed

To capture quality feature as well as efficiency feature.

Porter (1990)

Competitiveness is the ability to raise income as rapidly as

competitors and to make investments necessary to keep up with

Them in the future.

Scott (1989)

Extent to which a business sector offers potential for growth and

attractive return on investment

WCR(1994)

Competitiveness..

Extent to which a business sector satisfies the needs of customers from the appropriate combination of the following product/service characteristics: price, quality, innovation , and satisfies the needs of its constituents; for example, workers in terms of involvement, benefit programmes, training, and safe workplace; offers attractive return on investment and also offers the potential for profitable growth.

Company competitiveness is defined as "the ability to design, produce and/or market products superior to those offered by competitors, considering the price and non-price qualities" (WCR, 1991).

Observations ..1..

Manufacturing sector India was liberalized much later

than the liberalization in other late industrializing

countries in Asia like Taiwan, Singapore, China and

Thailand.

Much of the changes in these other countries were led

by the electronics sector and were export oriented,

Indian firms were led by those in the process industry or

related to mechanical engineering

Focus was largely domestic.

Activities in the newer sectors (e.g., telecommunications)

dominated by MNCs who were starting to serve the freshly liberalized and growing Indian markets.

Observations ..2..

Exports out of India were not necessary their top priority

(unlike the MNCs from seventies and eighties who had to

meet the export obligation and the phased indigenization

policies of the government).

Growth in demand in India and the coming of these

competing firms from outside India meant that domestic

firms had to adjust their strategies quite rapidly.

With increased purchasing power, the demand for goods

was growing and the manufacturing sector could hope to

get fair returns if they invested in upgrading their plants,

processes & products.

MNCs, had, brought with them new skills, new practices,

new product & process technologies, and new form of

competition based on quality and service.

Basis for my presentation

Chandra and Sastry ( 1st & 2nd National Manufacturing Survey: 1997, 2002)

Chandra (3rd National Manufacturing Survey: 2007)

Dangayach & Deshmukh (2001, 2005, 2007)

Singh et al. (2004, 2007)

Momaya (2004, 2006, 2007)

National Manufacturing Surveys

Manufacturing Survey Number

Year Sample size

Conducted by

1 1997 56 Chandra & Sastry

2 2002 83 Chandra & Sastry

3 2007 683 Chandra (For NMCC)

Key Finding of 1st Manufacturing Survey(1997)

Opportunistic approach, not improved the shop floor activities

A large number of firms embarked on quality initiatives

Operations - opportunity driven rather than strategy driven

Competitive priority • Quality

• Operations related

• Structural changes

• Innovation and R&D

Key Finding of 2nd Manufacturing Survey (2002) ..1..

A large number of firms embarked on productivity improvement initiatives

Operations -opportunity driven rather than strategy driven

Indian firms low on new product introduction, unable

to (or not caring to) successfully ride on the “imitation

to improvement” cycle

Supply Chain of firms fragmented, complex and lacks discipline

Competitive priority

• Quality of product

• On time delivery

• Broad distribution

Key Finding of 2nd Manufacturing Survey(2002) ..2..

Most important practices that the firms would focus on

during the next two years :

Integrating Information Systems across functions within

Business Units

Continuous Improvement of Current Manufacturing

Processes

Management Training

Developing Manufacturing Strategy to support Business

Strategy

Integrating Information Systems within Manufacturing

Key Finding of 3rd Manufacturing Survey(2007) ..1..

Firms in different regions and of different sizes appear to be adopting differing strategies for competing in the market.

Scale of operations of most firms below their global competitors. Reasons: Expensive capital costs, restrictive labour laws and small size of the domestic market and inadequate systems to manage large work forces.

Quality continues to remain as the highest priority for most firms. Innovation and R&D has the least priority. Similarly, they identify fast /on-time delivery as areas of concern.

Five most important practices that the firms would focus on during the next two years are:

• Improving the quality of work life;

• Continuous Improvement of current manufacturing processes;

• Supervisor training;

• Management training; and Worker training.


Skill building at all levels as one of the most crucial driver for growth in the future.

• The presence of “continuous improvement” as a priority.

Supply Chain coordination as a key weakness for most manufacturing firms.

While firms do see benefits from investment in innovation, investments in R&D are very low.

• Most training for innovation happens when new technology or equipment is purchased.

Investment and usage of IT on shop floor is very low.

Three areas that have seen the maximum improvement are: overall quality as perceived by the customers,

• average customer defect rates, and

• delivery lead times. However, the variance across lead times is very high.

Small firms that are customizing requirements of customers are doing well. This service approach to production may be the distinctive mark of Indian manufacturing.


Regional imbalances exist in terms of capabilities of firms.

Strategies of firms and their performance vary by size. Tiny and small firms spend a higher percentage of their sales in R&D as compared to large and medium sized firms. Medium size firms hold the maximum promise in terms of their ability to compete on the basis of higher productivity and operational parameters as compared to the sales value.

Global acknowledgement of manufacturing

16 Deming award-winning companies

One Japan Quality Medal winner

111 TPM Excellence awards companies ( Japan Institute of Plant Maintenance) - amongst the

highest tallies worldwide outside Japan

China has no Deming winners (only 11 TPM Excellence award winners )

Remark..

“The Indian automotive and component

industry is the most competitive globally

for its ability to design and plan ‘frugal’

products.”

Carlos Ghosn, President, Renault.

A study of Auto component manufacturers

A questionnaire based survey of auto component manufacturers all over the country

Sample Size : 75

Response on a scale of 1 to 5.

Source: Singh R K, Garg S, Deshmukh SG (2007) Strategy

development for competitiveness: A study on Indian auto

component sector, International J of Productivity & Performance

Management, 56 (4), 284-307

Framework

Pressures

Constraints

Improvement agenda

Competitive Performance

Issues

Investments priorities

Priorities for developing competencies

Strategies for cost & quality

Performance and Competitiveness

Challenges

Adoption of technology: If competitiveness is to be enhanced, it is imperative that technology (such as AMT or software such as ERP) needs to be properly adopted.

Training human resources at various levels: For implementing technology , training of manpower is a necessity. Training could include management of change and sensitization towards new paradigm of manufacturing

Synergistically combing manufacturing with services and thereby leveraging advantage in the global market: India is perceived as software capital of the world. This strength needs to be properly leveraged with hardware and other functions related to manufacturing .

Developing the overall supply chain perspective to strengthen the manufacturing function which can help to get competitive advantage : It seems that many firms have not yet integrated themselves along the basic philosophy of supply chain. This seamless transition is a must , for competitive manufacturing.

Multi-sector study of manufacturing

A questionnaire based survey manufacturers all over the country

Sectors: – Automobile

– Electronics

– Machinery

– Process

Sample Size : 120

Response on a scale of 1 to 5. Source: Dangayach G S and Deshmukh S G (2008) Implementation of

Manufacturing strategy: A multi-sectoral study of Indian manufacturing industry, In J of Services and Operations Management, 4(1), 1-33

Operational Measures of Competitive Priorities Conformance quality (CQ)

Product durability (PD)

Product reliability (PR)

Product performance (PP)

Quality (Q)

Cost (C) Low cost (LC)

Delivery (D)

Flexibility (F)

Delivery speed (DS)

Dependable delivery (DD)

Product mix changes (PM)

Product customization (PC)

Design Changes (DC)

Volume Changes (VC)

New Products (NP)

Explanation of Competitive Priorities

Conformance Quality (CQ): Improve conformance to design specifications

Product Durability (PD): Provide durable product

Product Reliability (PR): Offer consistent, reliable quality

Product Performance (PP): Provide high performance product

Delivery Speed (DS): Provide fast deliveries

Dependable Delivery (DD): Make on time delivery or meet delivery schedules

Explanation of Competitive Priorities

Product Mix changes (PM): Make rapid product mix changes

Product Customization (PC): Customize products to customer needs

Design Changes (DC): Make rapid design changes

Volume Changes (VC): Make rapid volume changes

New Product introduction (NP): Introduce new products quickly

Low Cost (LC): Ability to profit in price competitive markets

Agenda for Improvement

Improvement through

Advanced Manufacturing Technology (AMT)

Integrated Information Systems (IIS)

Advanced Management Systems (AMS)


CAD: Computer supported design and drafting system

CAE: Computer assisted engineering methods

CAPP: Computer assisted systems and techniques for process planning

CNC: Numerically controlled machine tools

DNC: Numerical controlled machine with centralized computer

Robotics (RO): use of Robots for pick and place or other material handling work

Cellular Manufacturing (CM): organizing the shop floor such that an operator has the resources to produce an entire product.


FMS: Computer integrated systems which have the flexibility to rapidly change product type and mix

AMHS: Automatic material handling devices such as conveyors, gantry robots etc.

AGV: Driver less vehicles run on special painted paths

Bar Coding (BC): Bar identification system

Automated storage and retrieval system (AS/RS): Mechanized stock management system

Integrated Information Systems (IIS)

MRP: Computer assisted material planning system

MRPII: Computer based system for planning and allocation of work among employees

ERP: Integrated information management system

ABC: Philosophy of cost reduction through activity based cost accounting


Office Automation (OA): Computerization of office systems

Customer relations (CR): Improve customer satisfaction, customer-supplier relationship

Total quality management (TQM): Approach to improving the competitiveness of an organization through kaizen, total participation and continuous improvement

Recycling (RC): Reusing waste materials

Business process reengineering (BPR): Fundamental rethinking and radical redesign of business processes to achieve improvements


Statistical process control (SPC): The use of statistical methods to control quality

Just-in-time (JIT): Produce and deliver finished goods just-in-time to be sold

Benchmarking (BM): Comparing a company's performance against the best practice

Workforce involvement (WI): Giving worker more planning responsibility

Employee empowerment (EE): Philosophy of handing responsibility and decision making to employees lower down in organization

Management training (MT): Training and skill development programs for managers

Top Ten Improvement Activities of Indian Companies (in descending order)

Management training (AMS)

Total quality management (AMS)

Customer relations (AMS)

Workforce involvement (AMS)

Employee empowerment (AMS)

Statistical process control (AMS)

Benchmarking (AMS)

Computer aided design (AMT)

Material requirement planning (IIS)

Office automation (AMS)

Top seven activities are from AMS

SIA Model

Simplify: simplification of processes with advanced management systems such as TQM, BPR, WI etc.

Integrate: Integration of various functions through information systems (MRP, ERP etc.)

Automate: Deploying advanced manufacturing technologies like CAD, CAM, FMS etc.

Importance Ratings (on a scale of 1 to 5) to Improvement Activities (IA)

1 2 3 4 5 Mean Score

AMS (3.28)

IIS (2.83)

AMT

(2.25)

IA

Insights ..1..

Firms are investing more in AMS as compared to IIS and AMT.

The top three improvement activities Management training (AMS),

Total quality management (AMS)

Customer relations (AMS)

The quality movement in the country characterized by ISO 9000’s popularity has motivated companies to invest in AMS with a focus on human related issues.

Insights ..2..

The second locus of improvement seems to be on integrating various business functions and processes. IIS can act as enabler in this direction. That is why Indian companies seem to invest more on IIS.

Because of availability of vast manpower base, automation is generally given the last priority in the agenda of Indian companies.

Indian manufacturing companies are reluctant to invest in AMT because: a) high investment , b) related problems of ‘management of change’ and c) adaptability of such technologies in Indian context.

Ran

k

iNDIA USA Europe JAPAN 1 Conformance quality Design flexibility Consistent quality Competition based on price

2 Product reliability Rapid product mix

changes

Reliable products Reliable products

3 Dependable delivery Quick introduction

of new products

Dependable deliveries Dependable deliveries

4 Product durability Rapid volume

changes

Competition based on

price

Fast deliveries

5 Provide high

performance product

Fast deliveries Fast deliveries Quick introduction of new

products

6 Fast Deliveries Customize

products

High performance

products

Consistent quality

7 Product customization Dependable

deliveries

Quick introduction of

new products

High performance products

8 Rapid volume changes Consistent quality Customize products Customize products

9 Rapid product mix

changes

Reliable products Rapid volume changes Design flexibility

10 Quick introduction of

new product

Competition based

on price

Rapid product mix

changes

Rapid product mix changes

Competitive Priorities

Challenges: External

Environmental in nature – the recent financial crisis around the world will restrict exports as much as possible and

National barriers raised,

Ability of firms to raise resources tested due to scarce credit though interest rates might come down, firms will be under pressure to survive and consequently, price competition will become intense (and firms will be offering more value for money).

Challenges: Internal

Challenges within the walls of the organization will relate to tiding over the short term crisis financially.

This may be the opportunity to focus on

productivity through training and process improvements (which will be helpful in the

short term as well) so that when the global markets pick up, firms have built competitive strengths.

Key Insights

Greater Emphasis on soft issues “The hard stuff is easy

The soft stuff is hard

Soft stuff is more important than the hard stuff”.

Miliken & Co. (USA)

Manufacturing Contributes to Competitive Success

Manufacturing Strategy is not limited to a few key decisions about technology, capacity; but it is defined by the total pattern of decisions across the full range of manufacturing systems.

Concluding remarks..

Competitiveness of Indian manufacturing is a function of the nature and extent of capabilities developed by these firms. Capability building is a complex process – it is supported by a variety of drivers and the extent can be measured by a range of outcomes.

Indian firms have been building a wide range of capabilities.

Restructuring of the industry is slowly leading to the emergence of a firms that is desirous of competing globally.

Acknowledgement

Prof G S Yadava (IEI)

Prof G S Dangayach (MMNIT, Jaipur)

Prof S K Garg (DTU, N Delhi)

Dr R K Singh (DTU, N Delhi)