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Note: Solve any 4 Cases Study’s
CASE: I ARROW AND THE APPAREL INDUSTRY
Ten years ago, Arvind Clothing Ltd., a subsidiary of Arvind Brands Ltd., a member of the Ahmedabad based Lalbhai Group, signed up with the 150- year old Arrow Company, a division of Cluett Peabody & Co. Inc., US, for licensed manufacture of Arrow shirts in India. What this brought to India was not just another premium dress shirt brand but a new manufacturing philosophy to its garment industry which combined high productivity, stringent in-line quality control, and a conducive factory ambience.
Arrow’s first plant, with a 55,000 sq. ft. area and capacity to make 3,000 to 4,000 shirts a day, was established at Bangalore in 1993 with an investment of Rs 18 crore. The conditions inside—with good lighting on the workbenches, high ceilings, ample elbow room for each worker, and plenty of ventilation, were a decided contrast to the poky, crowded, and confined sweatshops characterising the usual Indian apparel factory in those days. It employed a computer system for translating the designed shirt’s dimensions to automatically mark the master pattern for initial cutting of the fabric layers. This was installed, not to save labour but to ensure cutting accuracy and low wastage of cloth.
The over two-dozen quality checkpoints during the conversion of fabric to finished shirt was unique to the industry. It is among the very few plants in the world that makes shirts with 2 ply 140s and 3 ply 100s cotton fabrics using 16 to 18 stitches per inch. In March 2003, the Bangalore plant could produce stain-repellant shirts based on nanotechnology.
The reputation of this plant has spread far and wide and now it is loaded mostly with export orders from renowned global brands such as GAP, Next, Espiri, and the like. Recently the plant was identified by Tommy Hilfiger to make its brand of shirts for the Indian market. As a result, Arvind Brands has had to take over four other factories in Bangalore on wet lease to make the Arrow brand of garments for the domestic market.
In fact, the demand pressure from global brands which want to outsource form Arvind Brands is so great that the company has had to set up another large factory for export jobs on the outskirts of Bangalore. The new unit of 75,000 sq. ft. has cost Rs 16 crore and can turn out 8,000 to 9,000 shirts per day. The technical collaborators are the renowned C&F Italia of Italy.
Among the cutting edge technologies deployed here are a Gerber make CNC fabric cutting machine, automatic collar and cuff stitching machines, pneumatic holding for tasks like shoulder joining, threat trimming and bottom hemming, a special machine to attach and edge stitch the back yoke, foam finishers which use air and steam to remove creases in the finished garment, and many others. The stitching machines in this plant can deliver up to 25 stitches per inch. A continuous monitoring of the production process in the entire factory is done through a computerised apparel production management system, which is hooked to every machine. Because of the use of such technology, this plant will need only 800 persons for a capacity which is three times that of the first plant which employs 580 persons.
Exports of garments made for global brands fetched Arvind Brands over Rs 60 crore in 2002, and this can double in the next few years, when the new factory goes on full stream. In fact, with the lifting of the country-wise quota regime in 2005, there will be surge in demand for high quality garments from India and Arvind is already considering setting up two more such high tech export-oriented factories.
It is not just in the area of manufacture but also retailing that the Arrow brand brought a wind of change on the Indian scene. Prior to its coming, the usual Indian shirt shop used to be a clutter of racks with little by way of display. What Arvind Brands did was to set up exclusive showrooms for Arrow shirts in which the functional was combined with aesthetic. Stuffed racks and clutter eschewed. The product were displayed in such a manner the customer could spot their qualities from a distance. Of course, today this has become standard practice with many other brands in the country, but Arrow showed the way. Arrow today has the largest network of 64 exclusive outlets across India. It is also present in 30 retail chains. It branched into multi-brand outlets in 2001, and is present in over 200 select outlets.
From just formal dress shirts in the beginning, the product range of Arvind Brands has expanded in the last ten years to include casual shirts, T-shirts, and trousers. In the pipeline are light jackets and jeans engineered for the middle-aged paunch. Arrow also tied up with the renowned Italian designer, Renato Grande, who has worked with names like Versace and Marlboro, to design its Spring / Summer Collection 2003. The company has also announced its intention to license the Arrow brand for other lifestyle accessories like footwear, watches, undergarments, fragrances, and leather goods. According to Darshan Mehta, President, Arvind Brands Ltd., the current turnover at retail prices of the Arrow brand in India is about Rs 85 crore. He expects the turnover to cross Rs 100 crore in the next few years, of which about 15 per cent will be from the licensed non-clothing products.
In 2005, Arvind Brands launched a major retail initiative for all its brands. Arvind Brands licensed brands (Arrow, Lee and Wrangler) had grown at a healthy 35 per cent rate in 2004 and the company planned to sustain the growth by increasing their retail presence. Arvind Brands also widened the geographical presence of its home-grown brands, such as Newport and Ruf-n Tuf, targeting small towns across India. The company planned to increase the number of outlets where its domestic brands would be available, and draw in new customers for readymades. To improve its presence in the high-end market, the firm started negotiating with an international brand and is likely to launch the brand.
The company has plans to expand its retail presence of Newport Jeans, from 1200 outlets across 480 towns to 3000 outlets covering 800 towns.
For a company ranked as one of the world’s largest manufactures of denim cloth and owners of world famous brands, the future looks bright and certain for Arvind Brands Ltd.
Company profile
Name of the Company :Arvind Mills
Year of Establishment :1931
Promoters : Three brothers--Katurbhai, Narottam Bhai, and Chimnabhai
Divisions :Arvind Mills was split in 1993 into Units—textiles, telecom and garments. Arvind Ltd. (textile unit) is 100 per cent subsidiary of Arvind Mills.
Growth Strategy :Arvind Mills has grown through buying-up of sick units, going global and acquisition of German and US brand names.
Questions
1. Why did Arvind Mills choose globalization as the major route to achieve growth when the domestic market was huge?
2. How does lifting of ‘Country-wise quota regime’ help Arvind Mills?
3. What lessons can other Indian businesses learn form the experience of Arvind Mills?
CASE: II THE ECONOMY OF KENYA
Kenya’ economy has been beset by high rates of unemployment and underemployment for many years. But at no time has it been more significant and more politically dangerous than in the late 1990s as an authoritarian beset by corruption, cronyism and economic plunder threatened the economic stability of this once proud nation. Yet Kenya still has great potential. Located in East Africa, it has a diverse geographic and climatic endowment. Three-fifths of the nation is semiarid desert (mostly in the north), and the resulting infertility of this land has dictated the location of 85 per cent of the population (30 million in 2000) and almost all economic activity in the southern two-fifths of the country. Kenya’s rapidly growing population is composed of many tribes and is extremely heterogeneous (including traditional herders, subsistence and commercial farmers, Arab Muslims, and cosmopolitan residents of Nairobi). The standard of living at least in major cities, is relatively high compared to the average of other sub-Saharan African countries.
However, widespread poverty (per capita US$360), high unemployment, and growing income inequality make Kenya a country of economic as well as geographic diversity. Agriculture is the most important economic activity. About three quarters of the population still lives in rural areas and about 7 million workers are employed in agriculture, accounting for over two-thirds of the total workforce.
Despite many changes in the democratic system, including the switch from a federal to a republican government, the conversion of the prime ministerial system into a presidential one, the transition to a unicameral legislature, and the creation of a one-party state, Kenya has displayed relatively high political stability (by African standards) since gaining independence from Britain in 1963. Since independence, there have been only two presidents. However, this once stable and prosperous capitalist nation has witnessed widespread ethnic violence and political upheavals since 1992 as a deteriorating economy, unpopular one-party rule, and charges of government corruption create a tense situation.
An expansionary economic policy characterised by large public investments, support of small agricultural production units, and incentives for private (domestic and foreign) industrial investment played an important role in the early 7 per cent rate of GDP growth in the first decade after independence. In the following seven years (1973-80), the oil crisis let to a lower GDP growth to an annual rate of 5 per cent. Along with the oil price shock, lack of adequate domestic saving and investment slowed the growth of the economy. Various economic policies designed to promote industrial growth led to a neglect of agriculture and a consequent decline in farm prices, farm production, and farmer incomes. As peasant farmers became poorer, more migrated to Nairobi, swelling an already overcrowded city and pushing up an existing high rate of urban unemployment. Very high birthrates along with a steady decline in death rates (mainly through lower infant mortality) led Kenya’s population growth to become the highest in the world (4.1 per cent per year) in 1988. Population growth fell to a still high rate of 2.4 per cent for the period 1990-2000.
The slowdown in GDP growth persisted in the following five years (1980-85), when the annual average was 2.6 per cent. It was a period of stabilization in which political shakiness of 1982 and the severe drought in 1984 contributed to a slowdown in industrial growth. Interest rates rose and wages fell in the public and private sectors. An improvement in the budget deficit and current account trade deficit, obtained through cuts in development expenditures and recessive policies aimed at reducing imports, contributed to lower economic growth. By 1990, Kenya’s per capita income was 9 per cent lower than it was in 1980--$370 compared to $410. It continued to decline in the 1990s. In fact, GDP per capita fell at an annual average rate of 0.3 per cent throughout the decade. At the same time, the urban unemployment rate rose to 30 per cent.
Comprising 23 per cent of 2000 GDP AND 77 per cent of merchandise exports, agricultural production is the backbone of the Kenyan economy. Because of its importance, the Kenyan government has implemented several policies to nourish the agricultural sector. Two such policies include fixing attractive producer prices and making available increasing amounts of fertilizer. Kenya’s chief agricultural exports are coffee, tea, sisal, cashew nuts, pyrethrum, and horticultural products. Traditionally, coffee has been Kenya’s chief earner in foreign exchange.
Although Kenya is chiefly agrarian, it is still the most industrialised country in eastern Africa. Public and private industry accounted for 16 per cent of GDP in 2000. Kenya’s chief manufacturing activities are food processing and the production of beverages, tobacco, footwear, textiles, cement, metal products, paper, and chemicals.
Kenya currently faces a multitude of problems. These include a stagnating economy, growing political unrest, a huge budget deficit, high unemployment, a substantial balance of payments problem, and a stubbornly high population growth rate.
With the unemployment rate already at 30 per cent and its population growing, Kenya faces the major task of employing its burgeoning labour force. Yet only 10-15 per cent of seekers land jobs in the modern industrial sector. The remainder must find jobs in the self-employment sector; in the agricultural sector, where wages are low and opportunities are scarce; or join the masses of the unemployed.
In addition to the unemployment problem, Kenya must always be concerned with how to feed its growing population. An increase in population means an increasing demand for food. Yet only 20 per cent of Kenya’s land is arable. This implies that the land must become increasingly productive. Unfortunately, several factors work to constrain Kenya’s food output, among them fragmented landholdings, increasing environmental degradation, the high cost of agricultural inputs, and burdensome governmental involvement in the purchase, sale, and pricing of agricultural output.
For the fiscal year 1995, the Kenyan budget deficit was $362 million, well above the government’s target rate. Dealing with a high budget deficit is a second problem Kenya currently faces. Following the collapse of the East African Common Market, Kenya’s industrial growth rate has declined; as a result the government’s tax base has diminished. To supplement domestic savings, Kenya has had to turn to external sources of finance, including foreign aid grants from Western governments. Its highly protected public enterprises have been turning in a poor performance, thus absorbing a large chunk of the government budget. To pay for its expenses, Kenya has had to borrow from international banks in addition to foreign aid. In recent years, government borrowing from the international banking system rose dramatically and contributed to a rapid growth in money supply. This translated into high inflation and pinched availability of credit.
Kenya has also had a chronic international balance of payments problem. Decreasing prices for its exports, combined with increasing prices for its imports, left Kenya importing almost twice as much as it exported in 2000, at $3,200 million in imports and only $1,650 million in exports. World demand for coffee, Kenya‘s predominant exports, remains below supply. In 2001-01, a dramatic surge in coffee exports from Vietnam hurt Kenya further. Hence Kenya cannot make full use of its comparative advantage in coffee production, and its stock of coffee has been increasing. Tea, another main export, has also had difficulties. In 1987, Pakistan, the second largest importer of Kenyan tea, slashed its purchases. Combined with a general oversupply in the world market, this fall in demand drove the price of tea downward. Hence Kenya experienced both a lower dollar value and quantity demanded for one of its principal exports.
Kenya faces major challenges in the years ahead as the economy tries to recover. Current is expected to be no more than 1 to 2 per cent annually. Heavy rains have spoiled crops and washed away roads, bridges, and telephone lines. Foreign exchange earnings from tourism, once promising, dropped by 40 per cent in the mid-1990s, then suffered again after the August 7, 1998, terrorist bombing of the US embassy in Nairobi. Even more frightening, however, is the prospect of growing hunger as Kenya’s maize (corn) crop has failed to meet rising internal demand and dwindling foreign exchange reserves have to be spent to import food. Corruption is perceived to be so widespread that the International Monetary Fund and World Bank suspended $292 million in loans to Kenyan in the summer of 1997 while insisting on tough new austerity measures to control public spending and weed out economic cronyism. As a result, the economy went into a tailspin, foreign investors fled the country, and inflation accelerated markedly.
Unfortunately, needed structural adjustments resulting form the World Bank—and IMF—induced austerity demands usually take a long time. Whether the Kenyan political and economic system can withstand any further deterioration in living conditions is a major question. Public protests for greater democracy and a growing incidence of ethnic violence may be harbingers of things to come.
Fig 1 Continuum of Economic Systems
Pure Market Pure Centrally Planned Economy
Economy
The US France India China
Canada Brazil Cuba
UK North Korea
Questions
1. Is the economic environment of Kenya favourable to international business? Yes or no—substantiate.
2. In the continuum of economic systems (see Fig 1), where do you place Kenya and why?
Case III: LATE MOVER ADVANTAGE?
Though a late entrant, Toyota is planning to conquer the Indian car market. The Japanese auto major wants to dispel the notion that the first mover enjoys an edge over the rivals who arrive late into a market.
Toyota entered the Indian market through the joint venture route, the partner being the Bangalore based Kirloskar Electric Co. Know as Toyota Kirloskar Motor (TKM), the plant was set up in 1998 at Bidadi near Bangalore.
To start with, TKM released its maiden offer—Qualis. Qualis is not a newly conceived, designed, and brought out vehicle. Rather it is the new avatar of Kijang under which brand the vehicle was sold in markets like Indonesia.
Qualis virtually had no competition. Telco’s Sumo was not a multi-utility vehicle like Qualis. Rather, it was mini-truck converted into a rugged all-purpose van. More importantly, Toyota proved that even its old offering, but decked up for India, could offer better quality than its competitor. Backed by a carefully thought out advertising campaign that communicated Toyota’s formidable global reputation, Qualis went on a roll and overtook Tata Sumo within two years of launch.
Sumo sold 25,706 vehicles during 2000-2001, compared to a 3 per cent growth over the previous year, compared to 25,373 of Qualis. But during 2001-2002, it was a different story. Qualis had been clocking more than 40 per cent share of the market. At the end of Sept 2001, Qualis had sold over 25,000 units, compared to Sumo’s 18000 plus.
The heady initial success has made TKM think of the future with robust confidence. By 2010, TKM wants to make and sell one million vehicles per year and garner one-third share of the Indian market.
The firm is planning to introduce a wide range of vehicle—a sub-compact, a sedan, a luxury car and a new multi-utility vehicle to replace Qualis. A significant percentage of the vehicles will be exported.
But Toyota is not as lucky in China. Its strategy of ‘late entry’ in China seems to have back fired. In 2005, it sold just 1,83,000 cars in China, the fastest growing auto market in the world. Toyota ranks ninth in the market, far behind Volkswagen, General Motors, Hyundai and Honda.
Toyota delayed producing cars in China until 2002, when it entered a joint venture with a local company, the First Auto Works Group (FAW). The first car manufactured by Toyota-FAW, the Vios, failed to attract much of a market, as, despite its unremarkable design, it was three times as expensive as most cars sold in China.
Late start was not the only problem. There were other lapses too. Toyota assumed the Chinese market would be similar to the Japanese market. But Chinese market, in reality, resembled the American market.
Sales personnel in Japan are paid salaries. They succeeded in building a loyal clientele for Toyota by providing first-class service to them. Likewise, most Japanese auto dealers sell a single brand, thereby ensuring their loyalty to it. Japan is a relatively a well-knit country with an ethnically homogeneous population. Accordingly, Toyota used nationwide advertising to market its products in its home country.
But China is different. Sales people are paid commissions and most dealers sell multiple brands. Obviously, loyalty plays little role in motivating either the sales staff or the dealers, who will ignore a slow selling product should a more profitable one turn up. Besides, China is a large, diverse country. A standardised ad campaign will not do. Luckily, Toyota is learning its lessons.
Competition in the Chinese market is tough, and Toyota’s success in reaching its goal of selling a million cars a year, by 2010, is uncertain. But, its chances are brighter as the company is able to transfer lessons learned in the American market to its operations in China.
Questions
1. Why has the ‘late corner’s strategy’ of Toyota failed in China, though it succeeded in India?
2. Why has Toyota failed to capture the Chinese market? Why is it trailing behind its rivals?
CASE: IV DELVING DEEP INTO USER’S MIND
Whirlpool is an American brand alright, but has succeeded in empowering the Indian housewife with just the tools she would have designed for herself. A washing machine that doesn’t expect her to get ‘ready for the show’ (Videocon’s old jingle), nor adapt her plumbing, power supply, dress sense, values, attitudes and lifestyle to suit American standards.
That, in short, is the reason that Whirlpool White Magic, in just three years since its launch in 1999, has become the choice of the discerning Indian housewife. Also worth noting is how quickly the brand’s sound mnemonic, ‘Whirlpool, Whirlpool’, has established itself.
Whiteboard beginning
As a company, the US-based white goods major Whirlpool had entered India in 1989, in a joint venture with the TVS group. Videocon, which had pioneered washing machines in India, was the market leader with its range of low-priced ‘washers’ (spinning tubs) and semi-automatic machines, which required manual supervision and some labour. The brand’s TV commercial, created by Pune-based SJ Advertising, has evoked considerable interest with its jingle (‘It washes, it rinses, it even dries your clothes, in just a few minutes…and you’re ready for the show’). IFB-Bosch’s front-loading, fully automatic machines, which could be programmed and left to do their job, were the labour-free option. But they were considered expensive and unsuited to Indian conditions. So Videocon faced competition from me-too machines such as BPL-Sanyo’s. TVS Whirlpool was something of an also-ran.
The market’s sophistication started rising in the 1990s and there was a growing opportunity in the price-performance gap between expensive automatics and laborious semi-automatics. In 1995, Whirlpool gained a majority control of TVS Whirlpool, which was then renamed Whirlpool Washing Machines Ltd (WMML). Meanwhile, the parent bought Kelvinator of India, and merged the refrigerator business in 1996 with WMML to create Whirlpool of India (WOI), to market both fridges and washing machines. Whirlpool’s ‘Flexigerator’ fridge hit the market in 1997. Two years later, WOI launched its star White Magic range of washing machines.
Whitemagic was late to the market, but WOI converted this to a ‘knowledge advantage’ by using the 1990s to study the Indian market intensely, through qualitative and quantitative market research (MR) tools, with the help of IMRB and MBL India. The research team delved deep into the psyche of the Indian housewife, her habits, her attitude towards life, her schedule, her every day concerns and most importantly, her innate ‘laundry wisdom’.
If Ashok Bhasin, vice-president marketing, WOI, was keen on understanding the psychodynamics of Indian clothes washing, it was because of his belief that people’s attitudes and perceptions of categories and brands are formed against the backdrop of their bigger attitudes in life, which could be shaped by broader trends. It was intuitive, to begin with, that the housewife wanted to gain direct control over crucial household operations. It was found that clothes washing was the daily activity for the Indian housewife, whether it was done personally, by a maid, or by a machine.
The key finding, however, was the pride in self-done washing. To the CEO of the Indian household, there was no displacing the hand wash as the best on quality. And quality was to be judged in terms of ‘whiteness’. Other issues concerned water consumption, quantity of detergent used, and fabric care—also something optimized best by herself. A thorough wash, done with gentle agility, was what the magic was all about.
That was the break-through insight used by Whirlpool for the design of all its washing machines, which adopted a ‘1-2, 1-2 Hand Wash Agitator System’ to mimic the preferred handwash technique. With a consumer so particular about washing, one could expect her to be value-conscious on other aspects too. Sure enough, WOI found the housewife willing to pay a premium for a product designed the way she wanted it. Even for a fully automatic, she wanted a top-loader; this way, she doesn’t fear clothes getting trapped in if the power fails, and retains the ability to lift the shutter to take clothes out (or add to the wash) even while the machine is in the midst of its job.
The target consumer, defined psychographically as the Turning Modernist (TM), was decided upon only after the initial MR exercise was concluded. This was also the stage at which the unique selling proposition (USP)—‘whitest white’—was thrashed out.
WOI first launched a fully automatic machine, with the hand-wash agitator. Then came the deluxe model with a ‘hot wash’ function. The product took off well, but WOI felt that a large chunk of the TM segment was also budget-bound. And was quite okay with having to supervise the machine. This consumer’s identity as a ‘home-maker’ was important to her, an insight that Whirlpool was using for the brand overall, in every product category.
So WOI launched a semi-automatic washing machine, with ‘Agisoak’ as a catchword to justify a 10—15 per cent premium over other brand’s semi-automatics available in India.
The advertising, WOI was clear, had to flow from the same stream of reasoning. It had to be responsive, caring, modern, stylish, and warm, and had to portray the victory of the Homemaker. FCB-Ulka, which had bagged Whirlpool’s account in March 1997 from contract (in a global alignment shift), worked with WOI to coin the sub-brand Whitemagic, to break into consumer mindspace with the whiteness proposition.
The launch commercial on TV, in August 1999, scored a big success with its ‘Whirlpool, Whirlpool’ jingle…and a mother’s fantasy of her daughter’s clothes wowing others. A product demonstration sequence took the ‘1-2, 1-2’ message home, reassuring the consumer that the wash would be just as good as that of her own hand. The net benefit, of course, was an unharried home life.
Second Wave
Sadly, the Indian market for washing machines has been in recession for the past two years, with overall volumes declining. This makes it a fight for market share, with the odds stacked against premium players.
Even though Whirlpool has sought to nudge the market’s value perception upwards, Videocon remains the largest selling brand in volume terms with its competitively priced machines. Washers have been displaced by semi-automatics, which are now the market’s mainstay (in the Rs 7,000-12,000 price range). In fact, these account for three-fourths of the 1.2 million units the Indian market sold in 2000. With a share of 17 per cent, Whirlpool is No. 2 in this voluminous segment.
Whirlpool’s bigger success has been in the fully automatic segment (Rs 12,000-36,000 range). This is smaller with sales of 177,600 units in 2000, but is predicted to become the dominant one as Indian GDP per head reaches for the $1,000 mark. With a 26 per cent share, Whirlpool has attained leadership of this segment.
That places WOI at the appropriate juncture to plot the value curve to be ascended over the new decade.
According to IMRB data, Whirlpool finds itself in the consideration set of 54 per cent of all prospective washing machine buyers, and has an ad recall of close to 85 per cent. This indicates the medium-term potential of Whitemagic, a Rs20.5 crore on a turnover of Rs1,042.8 crore, one-fifth of which was on account of washing machines.
The innovations continue. Recently, Whirlpool has launched semi-automatic machines with ‘hot wash’. The brand’s ‘magic’ isn’t showing signs of wearing off either. The current ‘mummy’s magic’ campaign on TV is trying to sell Whitemagic as a competent machine even for heavy duty washing such as ketchup stains on a white tablecloth.
The Homemaker, of course, remains the focus of attention. And she remains as vivacious, unruffled, and in control as ever. The attitude: you can sling the muckiest of stuff on to white cloth, but sparkling white is what it remains for its her hand that’ll work the magic, with a little help from some friends… such as Whirlpool.
Questions
1. What product strategy did WOI adopt? And why? Global standardisation? Local customisaton?
2. What pricing strategy did WOI follow? What, according to you, could have been the appropriate strategy?
3. What lessons can other white goods manufacturers learn from WOI?
CASE V: CONSCIENCE OR COMPETITIVE EDGE
The plane touched down at Mumbai airport precisely on time. Olivia Jones made her way through the usual immigration bureaucracy without incident and was finally ushered into a waiting limousine, complete with uniformed chauffeur and soft black leather seats. Her already considerable excitement at being in India for the first time was mounting. As she cruised the dark city streets, she asked her chauffeur why so few cars had their headlights on at night. The driver responded that most drivers believed that headlights use too much petrol! Finally, she arrived at her hotel, a black marble monolith, grandiose and decadent in its splendour, towering above the bay.
The goal of her four-day trip was to sample and select swatches of woven cotton from the mills in and around Mumbai, to be used in the following season’s youth-wear collection of shirts, trousers, and underwear. She was thus treated with the utmost deference by her hosts, who were invariably Indian factory owners or British agents for Indian mills. For three days she was ferried from one air-conditioned office to another, sipping iced tea or chilled lemonade, poring over leather-bound swatch catalogues, which featured every type of stripe and design possible. On the fourth day, Jones made a request that she knew would cause some anxiety in the camp. “I want to see a factory,” she declared.
After much consultation and several attempts at dissuasion, she was once again ushered into a limousine and driven through a part of the city she had not previously seen. Gradually, the hotel and the Western shops dissolved into the background and Jones entered downtown Mumbai. All around was a sprawling shantytown, constructed from sheets of corrugated iron and panels of cardboard boxes. Dust flew in spirals everywhere among the dirt roads and open drains. The car crawled along the unsealed roads behind carts hauled by man and beast alike, laden to overflowing with straw or city refuse—the treasure of the ghetto. More than once the limousine had to halt and wait while a lumbering white bull crossed the road.
Finally, in the very heart of the ghetto, the car came to a stop. “Are you sure you want to do this?” asked her host. Determined not be faint-hearted, Jones got out the car.
White-skinned, blue-eyed, and blond, clad in a city suit and stiletto-heeled shoes, and carrying a briefcase, Jones was indeed conspicuous. It was hardly surprising that the inhabitants of the area found her an interesting and amusing subject, as she teetered along the dusty street and stepped gingerly over the open sewers.
Her host led her down an alley, between the shacks and open doors and inky black interiors. Some shelters, Jones was told, were restaurants, where at lunchtime people would gather on the rush mat floors and eat rice together. In the doorway of one shack there was a table that served as a counter, laden with ancient cans of baked beans, sardines, and rusted tins of fluorescent green substance that might have been peas. The eyes of the young man behind the counter were smiling and proud as he beckoned her forward to view his wares.
As Jones turned another corner, she saw an old man in the middle of the street, clad in a waist cloth, sitting in a large bucket. He had a tin can in his hand with which he poured water from the bucket over his head and shoulders. Beside him two little girls played in brilliant white nylon dresses, bedecked with ribbons and lace. They posed for her with smiling faces, delighted at having their photograph taken in their best frocks. The men and women around her with great dignity and grace, Jones thought.
Finally, her host led her up a precarious wooden ladder to a floor above the street. At the top Jones was warned not to stand straight, as the ceiling was just five feet high. There, in a room not 20 feet by 40 feet, 20 men were sitting at treadle sewing machines, bent over yards of white cloth. Between them on the floor were rush mats, some occupied by sleeping workers awaiting their next shift. Jones learned that these men were on a 24-hour rotation, 12 hours on and 12 hours off, every day for six months of the year. For the remaining six months they returned to their families in the countryside to work the land, planting and building with the money they had earned in the city. The shirts they were working on were for an order she had placed four weeks earlier in London, an order of which she had been particularly proud because of the low price she had succeeded in negotiating. Jones reflected that this sight was the most humbling experience of her life. When she questioned her host about these conditions, she was told that they were typical for her industry—and most of the Third World, as well.
Eventually, she left the heat, dust and din to the little shirt factory and returned to the protected, air-conditioned world of the limousine.
“What I’ve experienced today and the role I’ve played in creating that living hell will stay with me forever,” she thought. Later in the day, she asked herself whether what she had seen was an inevitable consequence of pricing policies that enabled the British customer to purchase shirts at £12.99 instead of £13.99 and at the same time allowed the company to make its mandatory 56 percent profit margin. Were her negotiating skills—the result of many years of training—an indirect cause of the terrible conditions she has seen?
Once Jones returned to the United Kingdom, she considered her position and the options open to her as a buyer for a large, publicly traded, retail chain operating in a highly competitive environment. Her dilemma was twofold: Can an ambitious employee afford to exercise a social conscience in his or her career? And can career-minded individuals truly make a difference without jeopardising their future? Answer her.
ATTEMPT ANY FOUR CASE STUDY
CASE I - A CASE OF ALPHA TELENET LIMITED
Alpha Telecom Ltd., a part of Alpha Group was established in 1976 by its visionary Chairman and Managing Director, A. S. Verma. The company started with manufacturing of Electronic Push Button Telephones (EPBT) and Cordless phones in 1985 in Allahabad. On July 7, 1995 Alpha Tele-Ventures Limited was incorporated. A mobile service called 'Web-Tel' was launched in Kochin, which eventually expanded its operations in Andhra Pradesh in 1996.
Till 1994, fixed telephone services were provided by Department of Telecommunications (DoT) which had a monopoly in this business. This was regarded as self-defeating because DoT was a regulator as well as a competitor. With increasing pressure for privatisation, the government agreed to give license to private operators. Finally in December 1996, the bill of privatisation of fixed telephone services was passed. The New Telecom Policy (NTP) with its targets for improving tele-density was an ambitious policy. The NTP planned to achieve a tele-density (number of telephones per 100 people) of 7 by the year 2005 and 15 by the year 2010, which translated into 130 mn lines. The policy also planned an investment of Rs. 4000 billion by the year 2010. The above factors combined with the fact that the domestic long distance telephony was open to private players, led to considerable demand for the company's products. But to get the tenders from Ministry of Telecommunication, Government of India, a license fee was to be paid over a period of 15 years and the viability of telecom projects was also affected by the guidelines that required private operators to earmark at least 10% of their telephone lines for villages. The operating companies did not like the idea of having to pay for the maintenance of lines that might not be used most of the times. The license fee of Maharashtra state was minimum at Rs.643 crores. Thus, Alpha Telenet, a pioneer in every field wanted to avail this opportunity and started the survey for extending the services in Pune. Their marketing survey team provided the statistics of existing customers of DoT, the waiting list of DoT, potential of users for successive years and so on.
Alpha Telenet Ltd. (ATL) decided to start their fixed line telephone operations in technical collaboration with Telecom Italia at Pune in Maharashtra. Initially, they received permission for installing their exchanges covering 0.5 km. of radius which was too small with respect to the cost involved and thus difficult to achieve lucrative returns. After struggling for a year, they finally got permission to set up exchanges covering 1 km. of radius. They set up their exchanges in potential areas in the city. Another problem was that the consumer's mindset fixated was with DoT and they were not ready to accept the services of Alpha Telenet Ltd. This was due to opposite tariff rates for household consumers. Consumers did not rely on ATL as they were private players. ATL initially had attracted the customers from the areas where the waiting line for DoT connections was high. Further, they had provided the connections with wireless CDMA receivers for only Rs. 3000 (movable within the area of 5 km radius) though its actual cost was Rs.15,000. The connection between exchanges by optical fibre ensured high quality of voice and data transmission, which was later to be shifted to the conventional copper wires for consumer connections. The company made the connection using Ring Topology stay connected even in case of line disturbances.
They also installed a Submarine Optical Fibre Cable to Singapore with an 8.4 Tbps (terabits per second) capacity providing high-class worldwide connectivity. Alpha Telenet installed the latest Digital Switches from Tiemens and other devices, which were fully compatible with the equipment of other telecom providers in India. The company installed a digital Geographical Information System (GIS) for network surveillance. A 24-hr Internal Network Management System for technical support and infrastructure maintenance were also installed with a dedicated round-the-clock toll-free call centre to ensure prompt services.
In 1997, Alpha Telenet Ltd. obtained a license for providing fixed-line services in Maharashtra state circle and formed a joint venture with Behrin Telecom, Alpha BT, for providing VSAT services. On June 4, 1998 they started the first private fixed-line services launched in Pune in the Maharashtra circle and thereby ending fixed-:-line services monopoly of DoT (now TSNL). Alpha entered into a license agreement with DoT in 2002 to provide international long distance services in India and became the first private telecommunications service provider. The company also launched fixed line services in the states of Goa, Uttar Pradesh, Gujarat and Delhi.
With the start of basic telephony services in the .state of Maharashtra, residents of the area and others felt a great sense of breaking away from the old and traditional government monopoly. The kind of ill-treatment of customers and also the red-tapism and bureaucracy which prevailed earlier, was about to end. It was observed that no private telecom company wanted to start their operations in less profitable areas like Bihar and other eastern states .
. The tariff plans of the TSNL and Alpha Telenet Ltd. were opposite to each other. TSNLS tariff structure was upwards i.e., price per unit increase with number of calls and vice versa for Alpha Telenet. This was the beginning of the entry of private players in the sector.
1 . Give a critical analysis of the privatisation of telecom sector in India.
2. Highlight the secrets of success of Alpha Telenet Ltd. in terms of technological advancements and service~ provided.
CASE II - GEARING• FOR GROWTH
Premier Differential Gears Pvt. Ltd. (PDGL) was formed in the year 1991 near Noida in the state of Uttar Pradesh (India). The company was established to cater to the ever¬growing needs of the differential gear market for cars, jeeps, trucks, and tractors. It was established under the aegis of the parent company called Premier Gears Pvt. Ltd. which in turn was established in the year 1962 at Noida. The parent company was engaged in the manufacturing of automobile transmission gears. With a modest start in 1961, it had never looked back and by 2006, it became the largest manufacturer of automobile transmission gears in the country. The parent company had employee strength of 2,500 trained and dedicated employees and was producing a range of over 1,000 gears. Premier Gears Pvt. Ltd. was making gears for virtually every major brand of truck, car, jeep and tractor. In 2006, the group company comprised of three firms namely, Premier Gears Pvt. Ltd. (manufacturing Transmission gears, Gearbox assemblies, Laser marking machines, and Material handling equipments), Premier Differential Gears Pvt. Ltd. (manufacturing differential gears) and Elve Corporation (a government recognized export house).
PDGL was manufacturing a wide range of Crown Wheel and Pinions, Bevel Gears, Bevel Pinions, and Spider Kit Assemblies. The installed capacity was 20,000 sets per month. PDGLs focus on quality, fast product development and customer service had enabled it to become an OEM supplier to many car and tractor companies in India, the EU, and Asia. Almost 75% of the total production was exported to a number of countries like Germany, Russia, USA, China, Japan, South Mrica, etc. The domestic OEM and replacement market accounted for the remaining 25% of the company's sales and in a short span of time, the company had become one of the major players in the Indian replacement market. The use of latest technology and comprehensive quality control systems at PDGL go a long way to ensure that customers get exactly what they want.
PDGL was using world class Gleason machines in its manufacturing programme. The raw material for manufacturing gears was in the form of forgings, which were procured from various parts of the country for manufacturing crown wheels and pinions. These forgings were subjected to turning followed by drilling. The drilled crowns and pinions were taken for tapping, which were then rimmed. After this, the teeth cutting procedure was applied which was called broaching. The broached units were then heat-treated. Heat treatment was very critical in producing gears having short tolerance levels. To meet this end, the company had two rotary furnaces and one state-of-the-art Continuous Gas Carburizing Furnace (CGCF) from Aichelin ALD of Austria to heat-treat its products. After the heat treatment, a number of intermediate processes like short blasting, phosphating, lapping were performed which resulted into the finished product, ready for putting company marks to avoid imitation/forgery. The company had developed a state-of-the-art 70-watt ND¬YAG laser-marking machine in collaboration with Quantum Laser (UK), which was used for marking on its produces. Laser marking was environment-friendly and was applied without any force or contact and thus the material was not subjected to any stress. The marked products were" manually pushed onto a conveyer for packing and dispatching. All the above have enabled the company to meet international standards and to produce world¬class gears with the highest performance standards.
The upstream portion of the supply chain at PDGL included a number of forgers located at "geographically dispersed locations in various parts of the country. These forgers were supplying the forgings to PDGL, which were then used in manufacturing the differential gears. All of the raw material was routed to the POGL works through road transport and"" due to large distances, transportation costs were a major issue in increasing the efficiency of this upstream portion of the supply chain. The forgings were supplied according to the drawings and dimensions set by design engineers at the company. The company indeed tried some local suppliers to cope up with the increasing transportation costs but the results on quality front wet satisfactory. To serve this end, the company was planning to develop some local suppliers. It had planned to provide them support in the areas of procuring good material for producing forgings, procuring good quality machines and" training their workforce in the required technical know-how. This was considered as an investment by the company to reduce its inbound transportation costs. To meet the small lot requirements of the forgings, the company was also contemplating to share the truckloads with the parent company. This was feasible because of the geographical proximity of the parent company, which was situated at a distance of less than 15 kms, the similar nature of raw material and same suppliers supplying to both the units.
The internal supply chain at PDGL comprised of various processing stations/lines" through which the forgings were transformed into finished differential gears. The movement of the work-in-progress between various stations was semi-automatic in which the workers manually placed the goods on trolleys/carts. Even the finished units were manually placed on a conveyer; which needed to be pushed to send the units to the packing section. There was a risk of units being damaged in this process. To minimize this risk, the company was planning to have automatic systems for moving the material from one place to another. It was decided to have hydraulic lifts, cranes, electronic escalators and the likes for progression of material from forging to packing. The packing material was stored on first floor as and when it arrived, with the help of casual laborers, which was inefficient and also involved a: risk of some• casualty.
The downstream portion of the supply chain at PDGL included around 10 distributors located evenly in various parts of the country. These distributors were supplying the products of PDGL to number of car, truck, jeep and tractor manufacturers. This portion of the supply chain also included a large replacement market, which accounted for almost half of the company's domestic sales. To meet its distribution needs the company had a panel of transporters, who used to distribute the finished goods. At times, the consignments scheduled for distributors were delayed because of lack of full truckload. One possible solution to this problem was sharing of truckload with the parent company. This was feasible because both the companies shared the same distribution network. The distribution of export consignments was through an intermediary who helped the company in exporting its products to the US, UK, Germany, China, Italy, Turkey, Saudi Arabia, Singapore, Malaysia, Thailand, Indonesia, and Nigeria, amongst other countries. The company's wide export range included replacement gears for internationally renowned automotive manufacturers like Mercedes¬Benz, Mitsubishi, Toyota, Nissan, Clark, Eaton, Fuller, New Process, ZP, Hino, Fuso, Tong Feng, Tata, Leyland, Massey Ferguson, Magirus - Deutz and various others.
There was a shortage of skilled employees. Therefore, the company has recently started training input for all their 400 employees. These training programmes are being conducted in the organization to enhance the skills of the employees and the duration of these programmes were 20 hours per month. On the financial front, the company is continuously moving on the growth track showing better financial results year after year. It has embarked on an ambitious plan to double its turnover by the end of this financial year and to become the world's numero-uno in the automotive gear-manufacturing segment. The current capacity utilization was at a meager 6000 sets against a total installed capacity of 20,000 sets per month.
1. Comment on the upstream and downstream supply chain portions operating in the company.
2. How far are the plans to improve the supply chain efficiency in the company feasible?
3. "Internal supply chain at the company can be characterized by the lack of it". Comment.
CASE III - INTELLIGENT MOVEMENTS: ANYWHERE ANYTIME
Deepak Pai, an engineering graduate and a postgraduate in management from United States, was working in Transport Corporation of India (TCI), the market leader in conventional transportation. He established Speed Cargo as an express cargo distribution company after leaving TCI. Speed Cargo, started with its head office at Hyderabad, as a small cargo specialist in 1989, upgrading itself to desk-to-desk cargo in 1992, cargo management services in 1995 and became a public limited company when it was listed in Bombay Stock Exchange in 1999. The company was maintaining a strong customer base of prestigious companies like Acer, Cadilla, Sony, Panasonic, Titan, Dabur and Hitachi to name a few.
Speed Cargo Limited (SCL), a leader in the express cargo movement pioneered in distribution and supply chain management solutions in India. It differentiated the concept of cargo, from conventional transport industry by offering door pickup, door delivery, assured delivery date and containerized movement. It had a turnover of Rs.3600 million in 2005-06. The company had a strong team of 6400 employees with the fleet of 2000 vehicles on road and an extensive network covering 3,20,000 kilometers per day and a reach of 594 out of 602 districts in India. In addition to this, it was having a well-structured multimodal connectivity and 6lakh square feet mechanized warehousing facility. Warehousing facilities were comprised of the most modern storied system and material handling equipment offering very high level of operational efficiency. The four modes of transport - Road, Air, Sea and Rail were seamlessly integrated, enabling SCL to effortlessly reach anytime anywhere.
The international wing of SCL took care of the SAARC countries and Asia Pacific region covering 220 countries with a specialized India-centric perspective. The company had gone online by connecting 90 percent of its offices to provide web-centric solutions to its customers.
The company also offered money back guarantee to express cargo services. The services offered were customized for corporate, small and medium enterprises, cluster markets, wholesale markets and individuals. The state-of-the-art technology made things easier for the customers whose cargo could be tracked and traced in the simplest manner, because SCL had an effective tracking system. SCL believed that best of technology enabled best of service, and its outlays on providing the IT edge had always resulted in innovative services and solutions. SCL, in its day-to-day operations, used technologically advanced equipments like Fork Lifters, Hydraulic Trucks, Hand Trolly, Drum Trolly, Rubber Pads cushioning, Taper Rollers to move big crates, color codes for identification to delivery what it promised.
Between 1989, when company was born, and 1995, SCL started a unique value added service called Cash-On-Delivery for the advantage of its customers. SCL introduced Call Free Number for the first time in the logistics industry in India. To establish largest network in air and to facilitate faster delivery of shipments, SCL entered into a tie-up with Indian Airlines in 1996; The Company introduced the concept of 3rd party logistics and later started offering complete logistics and supply chain solutions in 1997. The courier service Suvidha later rechristened as Zipp was launched in 1998. The company entered into a tie¬up with Bhutan and Maldives Postal Departments to expand its operations to SAARC countries in 1999. The Speed Cargo Development Center was set up at Pune in India for training of its employees in the same year.
An exclusive cargo train in association with Indian Railways between Mumbai and Kolkata was launched in 2001. Based on a survey conducted by Frost and Sullivan, SCL was conferred the Voice of Customer Award for being the best logistics company in 2003. After simplifying the internal process for faster and better communication, and a smarter way to work, SCL set up its corporate office at Singapore in 2003 to create an international hub with an aim to reach out to the world. The company introduced a mechanized racking system in the automated warehouse at Panvel (Maharastra) in 2004.
SCL was sensitive to the avenues where it could contribute to building a better society. Displaying continuous social responsibility, SCL associated itself with several community development programs and contributed generously to many social causes. SCL was the first to build makeshift houses for 400 families who were affected during a massive earthquake in Bhuj district of Gujarat in India during January 2001. They reached the devastated village the same day to provide food, clothes, medication and water to the affected people.
In 2003, SCL accepted to develop one of the government schools located at Banjara Hills in Hyderabad, and built a building with basic facilities like classrooms, staff rooms and toilets, and provided furniture for students and staff. The housekeeping and security of the school, which was now having 1100 students, was also taken care of by the company. After Tsunami, one of the worst natural disasters that struck South East Asia in December 2004 leaving over 10 lakh people dead and over 4 million displaced, SCL was on the rescue scene as it brought in food, water, clothing, medication, a team of doctors and cooks, and provided the affected people with essential utensils. After rehabilitating the people in Nagapattnam and Cuddalore, it took up the development of a high school in Nagore where 500 students came in from the Tsunami affected families. SCL also actively participated in Kargil contributions and other rescue and rehabilitation works in India.
LOOKING AHEAD
SCL believed that in the age of convergence, it had kept pace with time with its infrastructure, people and technological capabilities for moving cargo to its destination on time, by making intelligent movements in air and sea, as well as on road and rail. The company had experience of handling wide range of materials including confidential papers related to University examination and sensitive goods like polio drops and life-saving medicines. In view of the strengths of its competitors such as DHL, Safexpress and Blue Dart, the company had enhanced services with a greater focus on cargo management and customer satisfaction with the new operations backed by better strategic planning. To achieve its aim, SCL had strategically tied-up with Jubli Commercials, an lATA accredited freight forwarder, which started its operations as Air Cargo Agent.
The company was confident that it was set to become 24 x 7 one-stop solution provider for all freight forwarding services including customs clearance for international cargo. SCL having 40 percent share in express distribution business was developing a huge centralized warehouse on 22 acres of land at Nagpur in India. The centralized warehouse, which was about to be commissioned, was designed as a major hub or express distribution center for 200 smaller hubs as its spokes catering to the needs of its customers across India. SCL believed that it is a concept, a vision and an idea ahead of its time, which looked at a global perspective and was constantly reinventing itself in delivering the future of logistics.
Questions
1. What made SCL a leader in the logistics industry?
2. Discuss the strategies adopted by SCL for its survival in the competitive scenario.
3. Comment on the contributions of SCL to society.
4. What steps the company should take to globalize its network reach?
Discuss the strategies adopted by SCL for expansion.
CASE IV - LOGISTICS OUTSOURCING
Company Profile
Indian Steels Limited (ISL) is a Rs. 6000 crore company established in the year 1986. The company envisaged being a continuously growing top class company to deliver superior quality and cost effective products for infrastructure development. With major customers being from Public Sector Undertakings, the company has established itself well and is said to be considering its expansion plan and proposed merger with another steel making giant in the country.
In 1996, owing to the cut throat competition in the emerging dynamic global markets, ISL emphasized on both effectiveness and efficiency. The company strongly believed in focusing on its core competency (i.e. manufacturing of steel) and outsourcing the rest to its reliable partners. Outsourcing of its outbound logistics was one such move in this direction. ISL out sourced its stockyards and other warehousing services to a third party called Consignment Agent, who was selected on an annual basis through a process of competitive bidding. The CA was responsible for the entire distribution of the products within the geographical limits of the allotted market segment and was paid by the company according to the loads of transaction (measured in metric tonnes) dealt by him. The company also believed in maintaining long-term relationships with the suppliers as well as the buyers. It always prioritized the needs of its regular and important customers over others and this worked out to be a win-win strategy. The case brings out the model of outsourcing logistics the company has adapted for the enhancement of its supply chain competency and thus leveraging more on its core competency which led to increased productivity.
Indian Steels Limited (ISL) is a Rs. 6000 crore company established in the' year 1986. The company envisaged being a continuously growing top class company to deliver superior quality and cost effective products for infrastructure development. The company performed with a mission to attain 7 million ton liquid steel capacity through technological up-gradation, operational efficiency arid expansion; to produce steel with international standards of cost and quality; and to meet the aspirations of the stakeholders. The production started in the year 1988 and initially, it manufactured Angles, Pig Irons) Beams and Wire Rods that were mainly used for constructing roads) dams and bridges. These products were mainly supplied to Public Sector Undertakings such as Railways, Public Works Department (PWD) Central Public Works Department (CPWD) Rashtriya Setu Nigam Limited, Audyogik Kendra Vikas Nigam Ltd. and various foundry units. The company had its headquarters at Raipur with three stockyards (a kind of warehouse with a huge land to store the products).
The company has established itself well and is said to be considering its expansion plan and proposed merger with another steel making giant in the country. The company was awarded ISO 9001, ISO 14001 and ISO 18001 certifications. The temperature in the plant premises is reportedly about 6°C lesser than that of the township, thanks to the greenery being maintained therein.
Logistics Outsourcing
Outbound logistics which basically connects the source of supply with the sources of demand with an objective of bridging the gap between the market demand and capabilities of the supply sources was always a problem for companies operating in this industry. Consisting of components like warehousing network, transportation network) inventory control system and supporting information systems outbound logistics was always playing a key role in making the right product available at the right place, at the right time at the least possible cost. In 1996 owing to the cut throat competition in the emerging dynamic global markets, ISL emphasized on both effectiveness and efficiency. The company strongly believed in focusing on its core competency (Le. manufacturing of steel) and outsourcing the rest to its reliable partners. Outsourcing of its outbound logistics was one such move in this direction.
Recognizing the growing demand for its products from the big, diversified and geographically¬dispersed customers, the company started expanding the number of warehousing stockyards. From a humble beginning, the company today has 26 stockyards; most of them are outsourced. Each of the outsourced stockyards was managed by a third party, which the company referred to as Consignment Agent (hereafter referred to as CA) in the area. The CA was selected on an annual basis through competitive bidding process. The performance of CA was closely monitored by a company representative (full time employee of ISL working in the site of CA). The CA was responsible for the entire distribution of the products within the geographical limits of the allotted market segment and Was paid by the company according to the loads of transaction (measured in metric tonnes) dealt by him. Based on their sales turnover CAs were trifurcated into A, Band C categories. The CAs with a monthly turnover of Rs. 150-200 crore fell under A category) whereas those with Rs. 100 - 150 crore were B and less than Rs. 100 \ crore were C category.
In addition to the company representative) a team of marketing division operated in the town where, the site of CA was located. This department was responsible or estimating the future demand, translating it into orders and sending to the manufacturing plant. Material dispatch was done using either one or a combination of the two modes: Rail, Road. While using rail as the mode of transportation, the company had a choice to book a Normal Rake (a full train with about 35 wagons, each wagon with an approximate capacity of 60 tonnes) or a Jumbo Rake (a full train of about 52 wagons, each wagon with an approximate capacity of 60 tonnes). At times, the company was engaging the services of the CONCOR (Container Corporation of India) where a train of 62 to 70 wagons, each wagon with about 26 tonnes capacity was used for transportation. Instead, if the company decided to send the material by road, the company had a choice between Trailor (25-30 tonnes} and Truck (15-20 tonnes). The choice of transportation mode was based on the quantity of dispatch.
As soon as the material was dispatched from the manufacturing plant, the respective CA used to get a Stock Transfer Chalaan electronically through Virtual Private Network, which was developed by a professional software service provider. In-transit, monitoring was generally done with the help of Indian Railways, if the mode was Rail. Otherwise, truck/trailor drivers were contacted through mobile phone. Transit generally took five to six days, providing time for CA to plan for receiving materials. The CA used to utilize this time for arranging material handling devices like heavy cranes and required labour. The material thus unloaded was reaching the warehousing stockyard where CA was responsible for arranging the materials as per the warehousing norms of ISL.
The company broadly classified materials into Long Products and Rounds. Products falling into each category were further classified by their size, shape and utility and the company used a distinct colour code for this purpose. Each subcategory of material had a specific place for downloading. The company used Bin System for this purpose. While downloading the material in stockyard, the company norms insisted that CA arrange for providing Dunnagt Material. This enabled the CA to store material without 1 direct contact with the land surface and thus reduced the probability of material deterioration. Material was stored in the stockyard until an authorized representative of the customer used to come and collect it. While dispatching material to the customer, a Loading Slip was generated against the Delivery Order. The company" also believed in maintaining long-term relationships with the suppliers as well as the buyers. It always prioritized the needs of its regular and important customers over others and this worked out to be a win-win strategy.
Operational problems were majorly because of uncertainties in transportation, fluctuation in supply of electricity and the load bearing capacity of the soil in the stockyard. Some: more problems were encountered whenever there was a change in CA and these were overcome by training the employees of the new CA and keeping the old CA responsible for the: material in his stockyard for six months after the contract as well. Observations reveal that, at times there were situations wherein CAs had to do those things which they were not legally supposed to do (like subcontracting) because of the pressures mounted by political leaders with selfish interests.
Despite these problems, this model of outsourcing logistics was working out very well for the company. The practices, which were started in the year 1996 have sustained major changes in the environment and are being practiced even in 2006. It has enhanced the supply chain competency of the company by enabling it leverage more on its core competency, which leads to increased productivity.
1. Analyze the case in view of the logistics outsourcing practices of the ISL.
2. Discuss the importance of logistics outsourcing with reference to supply chain management.
3. Suggest strategies for further strengthening the supply chain of ISL.
4. The participants/students are expected to have a clear understanding of Supply Chain and Logistics Management concepts.
5. The issues involved in the case are Sales Forecasting, Strategic Sourcing, Selection of Warehousing Service Provider, Transportation Mode and other nuances in Logistics Management.
CONTACT:
DR. PRASANTH MBA PH.D. DME MOBILE / WHATSAPP: +91 9924764558 OR +91 9447965521 EMAIL: prasanththampi1975@gmail.com WEBSITE: www.casestudyandprojectreports.com
International Business
Marks - 100
Note: Solve any 4 Cases Study’s
CASE: I ARROW AND THE APPAREL INDUSTRY
Ten years ago, Arvind Clothing Ltd., a subsidiary of Arvind Brands Ltd., a member of the Ahmedabad based Lalbhai Group, signed up with the 150- year old Arrow Company, a division of Cluett Peabody & Co. Inc., US, for licensed manufacture of Arrow shirts in India. What this brought to India was not just another premium dress shirt brand but a new manufacturing philosophy to its garment industry which combined high productivity, stringent in-line quality control, and a conducive factory ambience.
Arrow’s first plant, with a 55,000 sq. ft. area and capacity to make 3,000 to 4,000 shirts a day, was established at Bangalore in 1993 with an investment of Rs 18 crore. The conditions inside—with good lighting on the workbenches, high ceilings, ample elbow room for each worker, and plenty of ventilation, were a decided contrast to the poky, crowded, and confined sweatshops characterising the usual Indian apparel factory in those days. It employed a computer system for translating the designed shirt’s dimensions to automatically mark the master pattern for initial cutting of the fabric layers. This was installed, not to save labour but to ensure cutting accuracy and low wastage of cloth.
The over two-dozen quality checkpoints during the conversion of fabric to finished shirt was unique to the industry. It is among the very few plants in the world that makes shirts with 2 ply 140s and 3 ply 100s cotton fabrics using 16 to 18 stitches per inch. In March 2003, the Bangalore plant could produce stain-repellant shirts based on nanotechnology.
The reputation of this plant has spread far and wide and now it is loaded mostly with export orders from renowned global brands such as GAP, Next, Espiri, and the like. Recently the plant was identified by Tommy Hilfiger to make its brand of shirts for the Indian market. As a result, Arvind Brands has had to take over four other factories in Bangalore on wet lease to make the Arrow brand of garments for the domestic market.
In fact, the demand pressure from global brands which want to outsource form Arvind Brands is so great that the company has had to set up another large factory for export jobs on the outskirts of Bangalore. The new unit of 75,000 sq. ft. has cost Rs 16 crore and can turn out 8,000 to 9,000 shirts per day. The technical collaborators are the renowned C&F Italia of Italy.
Among the cutting edge technologies deployed here are a Gerber make CNC fabric cutting machine, automatic collar and cuff stitching machines, pneumatic holding for tasks like shoulder joining, threat trimming and bottom hemming, a special machine to attach and edge stitch the back yoke, foam finishers which use air and steam to remove creases in the finished garment, and many others. The stitching machines in this plant can deliver up to 25 stitches per inch. A continuous monitoring of the production process in the entire factory is done through a computerised apparel production management system, which is hooked to every machine. Because of the use of such technology, this plant will need only 800 persons for a capacity which is three times that of the first plant which employs 580 persons.
Exports of garments made for global brands fetched Arvind Brands over Rs 60 crore in 2002, and this can double in the next few years, when the new factory goes on full stream. In fact, with the lifting of the country-wise quota regime in 2005, there will be surge in demand for high quality garments from India and Arvind is already considering setting up two more such high tech export-oriented factories.
It is not just in the area of manufacture but also retailing that the Arrow brand brought a wind of change on the Indian scene. Prior to its coming, the usual Indian shirt shop used to be a clutter of racks with little by way of display. What Arvind Brands did was to set up exclusive showrooms for Arrow shirts in which the functional was combined with aesthetic. Stuffed racks and clutter eschewed. The product were displayed in such a manner the customer could spot their qualities from a distance. Of course, today this has become standard practice with many other brands in the country, but Arrow showed the way. Arrow today has the largest network of 64 exclusive outlets across India. It is also present in 30 retail chains. It branched into multi-brand outlets in 2001, and is present in over 200 select outlets.
From just formal dress shirts in the beginning, the product range of Arvind Brands has expanded in the last ten years to include casual shirts, T-shirts, and trousers. In the pipeline are light jackets and jeans engineered for the middle-aged paunch. Arrow also tied up with the renowned Italian designer, Renato Grande, who has worked with names like Versace and Marlboro, to design its Spring / Summer Collection 2003. The company has also announced its intention to license the Arrow brand for other lifestyle accessories like footwear, watches, undergarments, fragrances, and leather goods. According to Darshan Mehta, President, Arvind Brands Ltd., the current turnover at retail prices of the Arrow brand in India is about Rs 85 crore. He expects the turnover to cross Rs 100 crore in the next few years, of which about 15 per cent will be from the licensed non-clothing products.
In 2005, Arvind Brands launched a major retail initiative for all its brands. Arvind Brands licensed brands (Arrow, Lee and Wrangler) had grown at a healthy 35 per cent rate in 2004 and the company planned to sustain the growth by increasing their retail presence. Arvind Brands also widened the geographical presence of its home-grown brands, such as Newport and Ruf-n Tuf, targeting small towns across India. The company planned to increase the number of outlets where its domestic brands would be available, and draw in new customers for readymades. To improve its presence in the high-end market, the firm started negotiating with an international brand and is likely to launch the brand.
The company has plans to expand its retail presence of Newport Jeans, from 1200 outlets across 480 towns to 3000 outlets covering 800 towns.
For a company ranked as one of the world’s largest manufactures of denim cloth and owners of world famous brands, the future looks bright and certain for Arvind Brands Ltd.
Company profile
Name of the Company :Arvind Mills
Year of Establishment :1931
Promoters : Three brothers--Katurbhai, Narottam Bhai, and Chimnabhai
Divisions :Arvind Mills was split in 1993 into Units—textiles, telecom and garments. Arvind Ltd. (textile unit) is 100 per cent subsidiary of Arvind Mills.
Growth Strategy :Arvind Mills has grown through buying-up of sick units, going global and acquisition of German and US brand names.
Questions
1. Why did Arvind Mills choose globalization as the major route to achieve growth when the domestic market was huge?
2. How does lifting of ‘Country-wise quota regime’ help Arvind Mills?
3. What lessons can other Indian businesses learn form the experience of Arvind Mills?
CASE: II THE ECONOMY OF KENYA
Kenya’ economy has been beset by high rates of unemployment and underemployment for many years. But at no time has it been more significant and more politically dangerous than in the late 1990s as an authoritarian beset by corruption, cronyism and economic plunder threatened the economic stability of this once proud nation. Yet Kenya still has great potential. Located in East Africa, it has a diverse geographic and climatic endowment. Three-fifths of the nation is semiarid desert (mostly in the north), and the resulting infertility of this land has dictated the location of 85 per cent of the population (30 million in 2000) and almost all economic activity in the southern two-fifths of the country. Kenya’s rapidly growing population is composed of many tribes and is extremely heterogeneous (including traditional herders, subsistence and commercial farmers, Arab Muslims, and cosmopolitan residents of Nairobi). The standard of living at least in major cities, is relatively high compared to the average of other sub-Saharan African countries.
However, widespread poverty (per capita US$360), high unemployment, and growing income inequality make Kenya a country of economic as well as geographic diversity. Agriculture is the most important economic activity. About three quarters of the population still lives in rural areas and about 7 million workers are employed in agriculture, accounting for over two-thirds of the total workforce.
Despite many changes in the democratic system, including the switch from a federal to a republican government, the conversion of the prime ministerial system into a presidential one, the transition to a unicameral legislature, and the creation of a one-party state, Kenya has displayed relatively high political stability (by African standards) since gaining independence from Britain in 1963. Since independence, there have been only two presidents. However, this once stable and prosperous capitalist nation has witnessed widespread ethnic violence and political upheavals since 1992 as a deteriorating economy, unpopular one-party rule, and charges of government corruption create a tense situation.
An expansionary economic policy characterised by large public investments, support of small agricultural production units, and incentives for private (domestic and foreign) industrial investment played an important role in the early 7 per cent rate of GDP growth in the first decade after independence. In the following seven years (1973-80), the oil crisis let to a lower GDP growth to an annual rate of 5 per cent. Along with the oil price shock, lack of adequate domestic saving and investment slowed the growth of the economy. Various economic policies designed to promote industrial growth led to a neglect of agriculture and a consequent decline in farm prices, farm production, and farmer incomes. As peasant farmers became poorer, more migrated to Nairobi, swelling an already overcrowded city and pushing up an existing high rate of urban unemployment. Very high birthrates along with a steady decline in death rates (mainly through lower infant mortality) led Kenya’s population growth to become the highest in the world (4.1 per cent per year) in 1988. Population growth fell to a still high rate of 2.4 per cent for the period 1990-2000.
The slowdown in GDP growth persisted in the following five years (1980-85), when the annual average was 2.6 per cent. It was a period of stabilization in which political shakiness of 1982 and the severe drought in 1984 contributed to a slowdown in industrial growth. Interest rates rose and wages fell in the public and private sectors. An improvement in the budget deficit and current account trade deficit, obtained through cuts in development expenditures and recessive policies aimed at reducing imports, contributed to lower economic growth. By 1990, Kenya’s per capita income was 9 per cent lower than it was in 1980--$370 compared to $410. It continued to decline in the 1990s. In fact, GDP per capita fell at an annual average rate of 0.3 per cent throughout the decade. At the same time, the urban unemployment rate rose to 30 per cent.
Comprising 23 per cent of 2000 GDP AND 77 per cent of merchandise exports, agricultural production is the backbone of the Kenyan economy. Because of its importance, the Kenyan government has implemented several policies to nourish the agricultural sector. Two such policies include fixing attractive producer prices and making available increasing amounts of fertilizer. Kenya’s chief agricultural exports are coffee, tea, sisal, cashew nuts, pyrethrum, and horticultural products. Traditionally, coffee has been Kenya’s chief earner in foreign exchange.
Although Kenya is chiefly agrarian, it is still the most industrialised country in eastern Africa. Public and private industry accounted for 16 per cent of GDP in 2000. Kenya’s chief manufacturing activities are food processing and the production of beverages, tobacco, footwear, textiles, cement, metal products, paper, and chemicals.
Kenya currently faces a multitude of problems. These include a stagnating economy, growing political unrest, a huge budget deficit, high unemployment, a substantial balance of payments problem, and a stubbornly high population growth rate.
With the unemployment rate already at 30 per cent and its population growing, Kenya faces the major task of employing its burgeoning labour force. Yet only 10-15 per cent of seekers land jobs in the modern industrial sector. The remainder must find jobs in the self-employment sector; in the agricultural sector, where wages are low and opportunities are scarce; or join the masses of the unemployed.
In addition to the unemployment problem, Kenya must always be concerned with how to feed its growing population. An increase in population means an increasing demand for food. Yet only 20 per cent of Kenya’s land is arable. This implies that the land must become increasingly productive. Unfortunately, several factors work to constrain Kenya’s food output, among them fragmented landholdings, increasing environmental degradation, the high cost of agricultural inputs, and burdensome governmental involvement in the purchase, sale, and pricing of agricultural output.
For the fiscal year 1995, the Kenyan budget deficit was $362 million, well above the government’s target rate. Dealing with a high budget deficit is a second problem Kenya currently faces. Following the collapse of the East African Common Market, Kenya’s industrial growth rate has declined; as a result the government’s tax base has diminished. To supplement domestic savings, Kenya has had to turn to external sources of finance, including foreign aid grants from Western governments. Its highly protected public enterprises have been turning in a poor performance, thus absorbing a large chunk of the government budget. To pay for its expenses, Kenya has had to borrow from international banks in addition to foreign aid. In recent years, government borrowing from the international banking system rose dramatically and contributed to a rapid growth in money supply. This translated into high inflation and pinched availability of credit.
Kenya has also had a chronic international balance of payments problem. Decreasing prices for its exports, combined with increasing prices for its imports, left Kenya importing almost twice as much as it exported in 2000, at $3,200 million in imports and only $1,650 million in exports. World demand for coffee, Kenya‘s predominant exports, remains below supply. In 2001-01, a dramatic surge in coffee exports from Vietnam hurt Kenya further. Hence Kenya cannot make full use of its comparative advantage in coffee production, and its stock of coffee has been increasing. Tea, another main export, has also had difficulties. In 1987, Pakistan, the second largest importer of Kenyan tea, slashed its purchases. Combined with a general oversupply in the world market, this fall in demand drove the price of tea downward. Hence Kenya experienced both a lower dollar value and quantity demanded for one of its principal exports.
Kenya faces major challenges in the years ahead as the economy tries to recover. Current is expected to be no more than 1 to 2 per cent annually. Heavy rains have spoiled crops and washed away roads, bridges, and telephone lines. Foreign exchange earnings from tourism, once promising, dropped by 40 per cent in the mid-1990s, then suffered again after the August 7, 1998, terrorist bombing of the US embassy in Nairobi. Even more frightening, however, is the prospect of growing hunger as Kenya’s maize (corn) crop has failed to meet rising internal demand and dwindling foreign exchange reserves have to be spent to import food. Corruption is perceived to be so widespread that the International Monetary Fund and World Bank suspended $292 million in loans to Kenyan in the summer of 1997 while insisting on tough new austerity measures to control public spending and weed out economic cronyism. As a result, the economy went into a tailspin, foreign investors fled the country, and inflation accelerated markedly.
Unfortunately, needed structural adjustments resulting form the World Bank—and IMF—induced austerity demands usually take a long time. Whether the Kenyan political and economic system can withstand any further deterioration in living conditions is a major question. Public protests for greater democracy and a growing incidence of ethnic violence may be harbingers of things to come.
Fig 1 Continuum of Economic Systems
Pure Market Pure Centrally Planned Economy
Economy
The US France India China
Canada Brazil Cuba
UK North Korea
Questions
1. Is the economic environment of Kenya favourable to international business? Yes or no—substantiate.
2. In the continuum of economic systems (see Fig 1), where do you place Kenya and why?
Case III: LATE MOVER ADVANTAGE?
Though a late entrant, Toyota is planning to conquer the Indian car market. The Japanese auto major wants to dispel the notion that the first mover enjoys an edge over the rivals who arrive late into a market.
Toyota entered the Indian market through the joint venture route, the partner being the Bangalore based Kirloskar Electric Co. Know as Toyota Kirloskar Motor (TKM), the plant was set up in 1998 at Bidadi near Bangalore.
To start with, TKM released its maiden offer—Qualis. Qualis is not a newly conceived, designed, and brought out vehicle. Rather it is the new avatar of Kijang under which brand the vehicle was sold in markets like Indonesia.
Qualis virtually had no competition. Telco’s Sumo was not a multi-utility vehicle like Qualis. Rather, it was mini-truck converted into a rugged all-purpose van. More importantly, Toyota proved that even its old offering, but decked up for India, could offer better quality than its competitor. Backed by a carefully thought out advertising campaign that communicated Toyota’s formidable global reputation, Qualis went on a roll and overtook Tata Sumo within two years of launch.
Sumo sold 25,706 vehicles during 2000-2001, compared to a 3 per cent growth over the previous year, compared to 25,373 of Qualis. But during 2001-2002, it was a different story. Qualis had been clocking more than 40 per cent share of the market. At the end of Sept 2001, Qualis had sold over 25,000 units, compared to Sumo’s 18000 plus.
The heady initial success has made TKM think of the future with robust confidence. By 2010, TKM wants to make and sell one million vehicles per year and garner one-third share of the Indian market.
The firm is planning to introduce a wide range of vehicle—a sub-compact, a sedan, a luxury car and a new multi-utility vehicle to replace Qualis. A significant percentage of the vehicles will be exported.
But Toyota is not as lucky in China. Its strategy of ‘late entry’ in China seems to have back fired. In 2005, it sold just 1,83,000 cars in China, the fastest growing auto market in the world. Toyota ranks ninth in the market, far behind Volkswagen, General Motors, Hyundai and Honda.
Toyota delayed producing cars in China until 2002, when it entered a joint venture with a local company, the First Auto Works Group (FAW). The first car manufactured by Toyota-FAW, the Vios, failed to attract much of a market, as, despite its unremarkable design, it was three times as expensive as most cars sold in China.
Late start was not the only problem. There were other lapses too. Toyota assumed the Chinese market would be similar to the Japanese market. But Chinese market, in reality, resembled the American market.
Sales personnel in Japan are paid salaries. They succeeded in building a loyal clientele for Toyota by providing first-class service to them. Likewise, most Japanese auto dealers sell a single brand, thereby ensuring their loyalty to it. Japan is a relatively a well-knit country with an ethnically homogeneous population. Accordingly, Toyota used nationwide advertising to market its products in its home country.
But China is different. Sales people are paid commissions and most dealers sell multiple brands. Obviously, loyalty plays little role in motivating either the sales staff or the dealers, who will ignore a slow selling product should a more profitable one turn up. Besides, China is a large, diverse country. A standardised ad campaign will not do. Luckily, Toyota is learning its lessons.
Competition in the Chinese market is tough, and Toyota’s success in reaching its goal of selling a million cars a year, by 2010, is uncertain. But, its chances are brighter as the company is able to transfer lessons learned in the American market to its operations in China.
Questions
1. Why has the ‘late corner’s strategy’ of Toyota failed in China, though it succeeded in India?
2. Why has Toyota failed to capture the Chinese market? Why is it trailing behind its rivals?
CASE: IV DELVING DEEP INTO USER’S MIND
Whirlpool is an American brand alright, but has succeeded in empowering the Indian housewife with just the tools she would have designed for herself. A washing machine that doesn’t expect her to get ‘ready for the show’ (Videocon’s old jingle), nor adapt her plumbing, power supply, dress sense, values, attitudes and lifestyle to suit American standards.
That, in short, is the reason that Whirlpool White Magic, in just three years since its launch in 1999, has become the choice of the discerning Indian housewife. Also worth noting is how quickly the brand’s sound mnemonic, ‘Whirlpool, Whirlpool’, has established itself.
Whiteboard beginning
As a company, the US-based white goods major Whirlpool had entered India in 1989, in a joint venture with the TVS group. Videocon, which had pioneered washing machines in India, was the market leader with its range of low-priced ‘washers’ (spinning tubs) and semi-automatic machines, which required manual supervision and some labour. The brand’s TV commercial, created by Pune-based SJ Advertising, has evoked considerable interest with its jingle (‘It washes, it rinses, it even dries your clothes, in just a few minutes…and you’re ready for the show’). IFB-Bosch’s front-loading, fully automatic machines, which could be programmed and left to do their job, were the labour-free option. But they were considered expensive and unsuited to Indian conditions. So Videocon faced competition from me-too machines such as BPL-Sanyo’s. TVS Whirlpool was something of an also-ran.
The market’s sophistication started rising in the 1990s and there was a growing opportunity in the price-performance gap between expensive automatics and laborious semi-automatics. In 1995, Whirlpool gained a majority control of TVS Whirlpool, which was then renamed Whirlpool Washing Machines Ltd (WMML). Meanwhile, the parent bought Kelvinator of India, and merged the refrigerator business in 1996 with WMML to create Whirlpool of India (WOI), to market both fridges and washing machines. Whirlpool’s ‘Flexigerator’ fridge hit the market in 1997. Two years later, WOI launched its star White Magic range of washing machines.
Whitemagic was late to the market, but WOI converted this to a ‘knowledge advantage’ by using the 1990s to study the Indian market intensely, through qualitative and quantitative market research (MR) tools, with the help of IMRB and MBL India. The research team delved deep into the psyche of the Indian housewife, her habits, her attitude towards life, her schedule, her every day concerns and most importantly, her innate ‘laundry wisdom’.
If Ashok Bhasin, vice-president marketing, WOI, was keen on understanding the psychodynamics of Indian clothes washing, it was because of his belief that people’s attitudes and perceptions of categories and brands are formed against the backdrop of their bigger attitudes in life, which could be shaped by broader trends. It was intuitive, to begin with, that the housewife wanted to gain direct control over crucial household operations. It was found that clothes washing was the daily activity for the Indian housewife, whether it was done personally, by a maid, or by a machine.
The key finding, however, was the pride in self-done washing. To the CEO of the Indian household, there was no displacing the hand wash as the best on quality. And quality was to be judged in terms of ‘whiteness’. Other issues concerned water consumption, quantity of detergent used, and fabric care—also something optimized best by herself. A thorough wash, done with gentle agility, was what the magic was all about.
That was the break-through insight used by Whirlpool for the design of all its washing machines, which adopted a ‘1-2, 1-2 Hand Wash Agitator System’ to mimic the preferred handwash technique. With a consumer so particular about washing, one could expect her to be value-conscious on other aspects too. Sure enough, WOI found the housewife willing to pay a premium for a product designed the way she wanted it. Even for a fully automatic, she wanted a top-loader; this way, she doesn’t fear clothes getting trapped in if the power fails, and retains the ability to lift the shutter to take clothes out (or add to the wash) even while the machine is in the midst of its job.
The target consumer, defined psychographically as the Turning Modernist (TM), was decided upon only after the initial MR exercise was concluded. This was also the stage at which the unique selling proposition (USP)—‘whitest white’—was thrashed out.
WOI first launched a fully automatic machine, with the hand-wash agitator. Then came the deluxe model with a ‘hot wash’ function. The product took off well, but WOI felt that a large chunk of the TM segment was also budget-bound. And was quite okay with having to supervise the machine. This consumer’s identity as a ‘home-maker’ was important to her, an insight that Whirlpool was using for the brand overall, in every product category.
So WOI launched a semi-automatic washing machine, with ‘Agisoak’ as a catchword to justify a 10—15 per cent premium over other brand’s semi-automatics available in India.
The advertising, WOI was clear, had to flow from the same stream of reasoning. It had to be responsive, caring, modern, stylish, and warm, and had to portray the victory of the Homemaker. FCB-Ulka, which had bagged Whirlpool’s account in March 1997 from contract (in a global alignment shift), worked with WOI to coin the sub-brand Whitemagic, to break into consumer mindspace with the whiteness proposition.
The launch commercial on TV, in August 1999, scored a big success with its ‘Whirlpool, Whirlpool’ jingle…and a mother’s fantasy of her daughter’s clothes wowing others. A product demonstration sequence took the ‘1-2, 1-2’ message home, reassuring the consumer that the wash would be just as good as that of her own hand. The net benefit, of course, was an unharried home life.
Second Wave
Sadly, the Indian market for washing machines has been in recession for the past two years, with overall volumes declining. This makes it a fight for market share, with the odds stacked against premium players.
Even though Whirlpool has sought to nudge the market’s value perception upwards, Videocon remains the largest selling brand in volume terms with its competitively priced machines. Washers have been displaced by semi-automatics, which are now the market’s mainstay (in the Rs 7,000-12,000 price range). In fact, these account for three-fourths of the 1.2 million units the Indian market sold in 2000. With a share of 17 per cent, Whirlpool is No. 2 in this voluminous segment.
Whirlpool’s bigger success has been in the fully automatic segment (Rs 12,000-36,000 range). This is smaller with sales of 177,600 units in 2000, but is predicted to become the dominant one as Indian GDP per head reaches for the $1,000 mark. With a 26 per cent share, Whirlpool has attained leadership of this segment.
That places WOI at the appropriate juncture to plot the value curve to be ascended over the new decade.
According to IMRB data, Whirlpool finds itself in the consideration set of 54 per cent of all prospective washing machine buyers, and has an ad recall of close to 85 per cent. This indicates the medium-term potential of Whitemagic, a Rs20.5 crore on a turnover of Rs1,042.8 crore, one-fifth of which was on account of washing machines.
The innovations continue. Recently, Whirlpool has launched semi-automatic machines with ‘hot wash’. The brand’s ‘magic’ isn’t showing signs of wearing off either. The current ‘mummy’s magic’ campaign on TV is trying to sell Whitemagic as a competent machine even for heavy duty washing such as ketchup stains on a white tablecloth.
The Homemaker, of course, remains the focus of attention. And she remains as vivacious, unruffled, and in control as ever. The attitude: you can sling the muckiest of stuff on to white cloth, but sparkling white is what it remains for its her hand that’ll work the magic, with a little help from some friends… such as Whirlpool.
Questions
1. What product strategy did WOI adopt? And why? Global standardisation? Local customisaton?
2. What pricing strategy did WOI follow? What, according to you, could have been the appropriate strategy?
3. What lessons can other white goods manufacturers learn from WOI?
CASE V: CONSCIENCE OR COMPETITIVE EDGE
The plane touched down at Mumbai airport precisely on time. Olivia Jones made her way through the usual immigration bureaucracy without incident and was finally ushered into a waiting limousine, complete with uniformed chauffeur and soft black leather seats. Her already considerable excitement at being in India for the first time was mounting. As she cruised the dark city streets, she asked her chauffeur why so few cars had their headlights on at night. The driver responded that most drivers believed that headlights use too much petrol! Finally, she arrived at her hotel, a black marble monolith, grandiose and decadent in its splendour, towering above the bay.
The goal of her four-day trip was to sample and select swatches of woven cotton from the mills in and around Mumbai, to be used in the following season’s youth-wear collection of shirts, trousers, and underwear. She was thus treated with the utmost deference by her hosts, who were invariably Indian factory owners or British agents for Indian mills. For three days she was ferried from one air-conditioned office to another, sipping iced tea or chilled lemonade, poring over leather-bound swatch catalogues, which featured every type of stripe and design possible. On the fourth day, Jones made a request that she knew would cause some anxiety in the camp. “I want to see a factory,” she declared.
After much consultation and several attempts at dissuasion, she was once again ushered into a limousine and driven through a part of the city she had not previously seen. Gradually, the hotel and the Western shops dissolved into the background and Jones entered downtown Mumbai. All around was a sprawling shantytown, constructed from sheets of corrugated iron and panels of cardboard boxes. Dust flew in spirals everywhere among the dirt roads and open drains. The car crawled along the unsealed roads behind carts hauled by man and beast alike, laden to overflowing with straw or city refuse—the treasure of the ghetto. More than once the limousine had to halt and wait while a lumbering white bull crossed the road.
Finally, in the very heart of the ghetto, the car came to a stop. “Are you sure you want to do this?” asked her host. Determined not be faint-hearted, Jones got out the car.
White-skinned, blue-eyed, and blond, clad in a city suit and stiletto-heeled shoes, and carrying a briefcase, Jones was indeed conspicuous. It was hardly surprising that the inhabitants of the area found her an interesting and amusing subject, as she teetered along the dusty street and stepped gingerly over the open sewers.
Her host led her down an alley, between the shacks and open doors and inky black interiors. Some shelters, Jones was told, were restaurants, where at lunchtime people would gather on the rush mat floors and eat rice together. In the doorway of one shack there was a table that served as a counter, laden with ancient cans of baked beans, sardines, and rusted tins of fluorescent green substance that might have been peas. The eyes of the young man behind the counter were smiling and proud as he beckoned her forward to view his wares.
As Jones turned another corner, she saw an old man in the middle of the street, clad in a waist cloth, sitting in a large bucket. He had a tin can in his hand with which he poured water from the bucket over his head and shoulders. Beside him two little girls played in brilliant white nylon dresses, bedecked with ribbons and lace. They posed for her with smiling faces, delighted at having their photograph taken in their best frocks. The men and women around her with great dignity and grace, Jones thought.
Finally, her host led her up a precarious wooden ladder to a floor above the street. At the top Jones was warned not to stand straight, as the ceiling was just five feet high. There, in a room not 20 feet by 40 feet, 20 men were sitting at treadle sewing machines, bent over yards of white cloth. Between them on the floor were rush mats, some occupied by sleeping workers awaiting their next shift. Jones learned that these men were on a 24-hour rotation, 12 hours on and 12 hours off, every day for six months of the year. For the remaining six months they returned to their families in the countryside to work the land, planting and building with the money they had earned in the city. The shirts they were working on were for an order she had placed four weeks earlier in London, an order of which she had been particularly proud because of the low price she had succeeded in negotiating. Jones reflected that this sight was the most humbling experience of her life. When she questioned her host about these conditions, she was told that they were typical for her industry—and most of the Third World, as well.
Eventually, she left the heat, dust and din to the little shirt factory and returned to the protected, air-conditioned world of the limousine.
“What I’ve experienced today and the role I’ve played in creating that living hell will stay with me forever,” she thought. Later in the day, she asked herself whether what she had seen was an inevitable consequence of pricing policies that enabled the British customer to purchase shirts at £12.99 instead of £13.99 and at the same time allowed the company to make its mandatory 56 percent profit margin. Were her negotiating skills—the result of many years of training—an indirect cause of the terrible conditions she has seen?
Once Jones returned to the United Kingdom, she considered her position and the options open to her as a buyer for a large, publicly traded, retail chain operating in a highly competitive environment. Her dilemma was twofold: Can an ambitious employee afford to exercise a social conscience in his or her career? And can career-minded individuals truly make a difference without jeopardising their future? Answer her.
ATTEMPT ANY FOUR CASE STUDY
CASE I - A CASE OF ALPHA TELENET LIMITED
Alpha Telecom Ltd., a part of Alpha Group was established in 1976 by its visionary Chairman and Managing Director, A. S. Verma. The company started with manufacturing of Electronic Push Button Telephones (EPBT) and Cordless phones in 1985 in Allahabad. On July 7, 1995 Alpha Tele-Ventures Limited was incorporated. A mobile service called 'Web-Tel' was launched in Kochin, which eventually expanded its operations in Andhra Pradesh in 1996.
Till 1994, fixed telephone services were provided by Department of Telecommunications (DoT) which had a monopoly in this business. This was regarded as self-defeating because DoT was a regulator as well as a competitor. With increasing pressure for privatisation, the government agreed to give license to private operators. Finally in December 1996, the bill of privatisation of fixed telephone services was passed. The New Telecom Policy (NTP) with its targets for improving tele-density was an ambitious policy. The NTP planned to achieve a tele-density (number of telephones per 100 people) of 7 by the year 2005 and 15 by the year 2010, which translated into 130 mn lines. The policy also planned an investment of Rs. 4000 billion by the year 2010. The above factors combined with the fact that the domestic long distance telephony was open to private players, led to considerable demand for the company's products. But to get the tenders from Ministry of Telecommunication, Government of India, a license fee was to be paid over a period of 15 years and the viability of telecom projects was also affected by the guidelines that required private operators to earmark at least 10% of their telephone lines for villages. The operating companies did not like the idea of having to pay for the maintenance of lines that might not be used most of the times. The license fee of Maharashtra state was minimum at Rs.643 crores. Thus, Alpha Telenet, a pioneer in every field wanted to avail this opportunity and started the survey for extending the services in Pune. Their marketing survey team provided the statistics of existing customers of DoT, the waiting list of DoT, potential of users for successive years and so on.
Alpha Telenet Ltd. (ATL) decided to start their fixed line telephone operations in technical collaboration with Telecom Italia at Pune in Maharashtra. Initially, they received permission for installing their exchanges covering 0.5 km. of radius which was too small with respect to the cost involved and thus difficult to achieve lucrative returns. After struggling for a year, they finally got permission to set up exchanges covering 1 km. of radius. They set up their exchanges in potential areas in the city. Another problem was that the consumer's mindset fixated was with DoT and they were not ready to accept the services of Alpha Telenet Ltd. This was due to opposite tariff rates for household consumers. Consumers did not rely on ATL as they were private players. ATL initially had attracted the customers from the areas where the waiting line for DoT connections was high. Further, they had provided the connections with wireless CDMA receivers for only Rs. 3000 (movable within the area of 5 km radius) though its actual cost was Rs.15,000. The connection between exchanges by optical fibre ensured high quality of voice and data transmission, which was later to be shifted to the conventional copper wires for consumer connections. The company made the connection using Ring Topology stay connected even in case of line disturbances.
They also installed a Submarine Optical Fibre Cable to Singapore with an 8.4 Tbps (terabits per second) capacity providing high-class worldwide connectivity. Alpha Telenet installed the latest Digital Switches from Tiemens and other devices, which were fully compatible with the equipment of other telecom providers in India. The company installed a digital Geographical Information System (GIS) for network surveillance. A 24-hr Internal Network Management System for technical support and infrastructure maintenance were also installed with a dedicated round-the-clock toll-free call centre to ensure prompt services.
In 1997, Alpha Telenet Ltd. obtained a license for providing fixed-line services in Maharashtra state circle and formed a joint venture with Behrin Telecom, Alpha BT, for providing VSAT services. On June 4, 1998 they started the first private fixed-line services launched in Pune in the Maharashtra circle and thereby ending fixed-:-line services monopoly of DoT (now TSNL). Alpha entered into a license agreement with DoT in 2002 to provide international long distance services in India and became the first private telecommunications service provider. The company also launched fixed line services in the states of Goa, Uttar Pradesh, Gujarat and Delhi.
With the start of basic telephony services in the .state of Maharashtra, residents of the area and others felt a great sense of breaking away from the old and traditional government monopoly. The kind of ill-treatment of customers and also the red-tapism and bureaucracy which prevailed earlier, was about to end. It was observed that no private telecom company wanted to start their operations in less profitable areas like Bihar and other eastern states .
. The tariff plans of the TSNL and Alpha Telenet Ltd. were opposite to each other. TSNLS tariff structure was upwards i.e., price per unit increase with number of calls and vice versa for Alpha Telenet. This was the beginning of the entry of private players in the sector.
1 . Give a critical analysis of the privatisation of telecom sector in India.
2. Highlight the secrets of success of Alpha Telenet Ltd. in terms of technological advancements and service~ provided.
CASE II - GEARING• FOR GROWTH
Premier Differential Gears Pvt. Ltd. (PDGL) was formed in the year 1991 near Noida in the state of Uttar Pradesh (India). The company was established to cater to the ever¬growing needs of the differential gear market for cars, jeeps, trucks, and tractors. It was established under the aegis of the parent company called Premier Gears Pvt. Ltd. which in turn was established in the year 1962 at Noida. The parent company was engaged in the manufacturing of automobile transmission gears. With a modest start in 1961, it had never looked back and by 2006, it became the largest manufacturer of automobile transmission gears in the country. The parent company had employee strength of 2,500 trained and dedicated employees and was producing a range of over 1,000 gears. Premier Gears Pvt. Ltd. was making gears for virtually every major brand of truck, car, jeep and tractor. In 2006, the group company comprised of three firms namely, Premier Gears Pvt. Ltd. (manufacturing Transmission gears, Gearbox assemblies, Laser marking machines, and Material handling equipments), Premier Differential Gears Pvt. Ltd. (manufacturing differential gears) and Elve Corporation (a government recognized export house).
PDGL was manufacturing a wide range of Crown Wheel and Pinions, Bevel Gears, Bevel Pinions, and Spider Kit Assemblies. The installed capacity was 20,000 sets per month. PDGLs focus on quality, fast product development and customer service had enabled it to become an OEM supplier to many car and tractor companies in India, the EU, and Asia. Almost 75% of the total production was exported to a number of countries like Germany, Russia, USA, China, Japan, South Mrica, etc. The domestic OEM and replacement market accounted for the remaining 25% of the company's sales and in a short span of time, the company had become one of the major players in the Indian replacement market. The use of latest technology and comprehensive quality control systems at PDGL go a long way to ensure that customers get exactly what they want.
PDGL was using world class Gleason machines in its manufacturing programme. The raw material for manufacturing gears was in the form of forgings, which were procured from various parts of the country for manufacturing crown wheels and pinions. These forgings were subjected to turning followed by drilling. The drilled crowns and pinions were taken for tapping, which were then rimmed. After this, the teeth cutting procedure was applied which was called broaching. The broached units were then heat-treated. Heat treatment was very critical in producing gears having short tolerance levels. To meet this end, the company had two rotary furnaces and one state-of-the-art Continuous Gas Carburizing Furnace (CGCF) from Aichelin ALD of Austria to heat-treat its products. After the heat treatment, a number of intermediate processes like short blasting, phosphating, lapping were performed which resulted into the finished product, ready for putting company marks to avoid imitation/forgery. The company had developed a state-of-the-art 70-watt ND¬YAG laser-marking machine in collaboration with Quantum Laser (UK), which was used for marking on its produces. Laser marking was environment-friendly and was applied without any force or contact and thus the material was not subjected to any stress. The marked products were" manually pushed onto a conveyer for packing and dispatching. All the above have enabled the company to meet international standards and to produce world¬class gears with the highest performance standards.
The upstream portion of the supply chain at PDGL included a number of forgers located at "geographically dispersed locations in various parts of the country. These forgers were supplying the forgings to PDGL, which were then used in manufacturing the differential gears. All of the raw material was routed to the POGL works through road transport and"" due to large distances, transportation costs were a major issue in increasing the efficiency of this upstream portion of the supply chain. The forgings were supplied according to the drawings and dimensions set by design engineers at the company. The company indeed tried some local suppliers to cope up with the increasing transportation costs but the results on quality front wet satisfactory. To serve this end, the company was planning to develop some local suppliers. It had planned to provide them support in the areas of procuring good material for producing forgings, procuring good quality machines and" training their workforce in the required technical know-how. This was considered as an investment by the company to reduce its inbound transportation costs. To meet the small lot requirements of the forgings, the company was also contemplating to share the truckloads with the parent company. This was feasible because of the geographical proximity of the parent company, which was situated at a distance of less than 15 kms, the similar nature of raw material and same suppliers supplying to both the units.
The internal supply chain at PDGL comprised of various processing stations/lines" through which the forgings were transformed into finished differential gears. The movement of the work-in-progress between various stations was semi-automatic in which the workers manually placed the goods on trolleys/carts. Even the finished units were manually placed on a conveyer; which needed to be pushed to send the units to the packing section. There was a risk of units being damaged in this process. To minimize this risk, the company was planning to have automatic systems for moving the material from one place to another. It was decided to have hydraulic lifts, cranes, electronic escalators and the likes for progression of material from forging to packing. The packing material was stored on first floor as and when it arrived, with the help of casual laborers, which was inefficient and also involved a: risk of some• casualty.
The downstream portion of the supply chain at PDGL included around 10 distributors located evenly in various parts of the country. These distributors were supplying the products of PDGL to number of car, truck, jeep and tractor manufacturers. This portion of the supply chain also included a large replacement market, which accounted for almost half of the company's domestic sales. To meet its distribution needs the company had a panel of transporters, who used to distribute the finished goods. At times, the consignments scheduled for distributors were delayed because of lack of full truckload. One possible solution to this problem was sharing of truckload with the parent company. This was feasible because both the companies shared the same distribution network. The distribution of export consignments was through an intermediary who helped the company in exporting its products to the US, UK, Germany, China, Italy, Turkey, Saudi Arabia, Singapore, Malaysia, Thailand, Indonesia, and Nigeria, amongst other countries. The company's wide export range included replacement gears for internationally renowned automotive manufacturers like Mercedes¬Benz, Mitsubishi, Toyota, Nissan, Clark, Eaton, Fuller, New Process, ZP, Hino, Fuso, Tong Feng, Tata, Leyland, Massey Ferguson, Magirus - Deutz and various others.
There was a shortage of skilled employees. Therefore, the company has recently started training input for all their 400 employees. These training programmes are being conducted in the organization to enhance the skills of the employees and the duration of these programmes were 20 hours per month. On the financial front, the company is continuously moving on the growth track showing better financial results year after year. It has embarked on an ambitious plan to double its turnover by the end of this financial year and to become the world's numero-uno in the automotive gear-manufacturing segment. The current capacity utilization was at a meager 6000 sets against a total installed capacity of 20,000 sets per month.
1. Comment on the upstream and downstream supply chain portions operating in the company.
2. How far are the plans to improve the supply chain efficiency in the company feasible?
3. "Internal supply chain at the company can be characterized by the lack of it". Comment.
CASE III - INTELLIGENT MOVEMENTS: ANYWHERE ANYTIME
Deepak Pai, an engineering graduate and a postgraduate in management from United States, was working in Transport Corporation of India (TCI), the market leader in conventional transportation. He established Speed Cargo as an express cargo distribution company after leaving TCI. Speed Cargo, started with its head office at Hyderabad, as a small cargo specialist in 1989, upgrading itself to desk-to-desk cargo in 1992, cargo management services in 1995 and became a public limited company when it was listed in Bombay Stock Exchange in 1999. The company was maintaining a strong customer base of prestigious companies like Acer, Cadilla, Sony, Panasonic, Titan, Dabur and Hitachi to name a few.
Speed Cargo Limited (SCL), a leader in the express cargo movement pioneered in distribution and supply chain management solutions in India. It differentiated the concept of cargo, from conventional transport industry by offering door pickup, door delivery, assured delivery date and containerized movement. It had a turnover of Rs.3600 million in 2005-06. The company had a strong team of 6400 employees with the fleet of 2000 vehicles on road and an extensive network covering 3,20,000 kilometers per day and a reach of 594 out of 602 districts in India. In addition to this, it was having a well-structured multimodal connectivity and 6lakh square feet mechanized warehousing facility. Warehousing facilities were comprised of the most modern storied system and material handling equipment offering very high level of operational efficiency. The four modes of transport - Road, Air, Sea and Rail were seamlessly integrated, enabling SCL to effortlessly reach anytime anywhere.
The international wing of SCL took care of the SAARC countries and Asia Pacific region covering 220 countries with a specialized India-centric perspective. The company had gone online by connecting 90 percent of its offices to provide web-centric solutions to its customers.
The company also offered money back guarantee to express cargo services. The services offered were customized for corporate, small and medium enterprises, cluster markets, wholesale markets and individuals. The state-of-the-art technology made things easier for the customers whose cargo could be tracked and traced in the simplest manner, because SCL had an effective tracking system. SCL believed that best of technology enabled best of service, and its outlays on providing the IT edge had always resulted in innovative services and solutions. SCL, in its day-to-day operations, used technologically advanced equipments like Fork Lifters, Hydraulic Trucks, Hand Trolly, Drum Trolly, Rubber Pads cushioning, Taper Rollers to move big crates, color codes for identification to delivery what it promised.
Between 1989, when company was born, and 1995, SCL started a unique value added service called Cash-On-Delivery for the advantage of its customers. SCL introduced Call Free Number for the first time in the logistics industry in India. To establish largest network in air and to facilitate faster delivery of shipments, SCL entered into a tie-up with Indian Airlines in 1996; The Company introduced the concept of 3rd party logistics and later started offering complete logistics and supply chain solutions in 1997. The courier service Suvidha later rechristened as Zipp was launched in 1998. The company entered into a tie¬up with Bhutan and Maldives Postal Departments to expand its operations to SAARC countries in 1999. The Speed Cargo Development Center was set up at Pune in India for training of its employees in the same year.
An exclusive cargo train in association with Indian Railways between Mumbai and Kolkata was launched in 2001. Based on a survey conducted by Frost and Sullivan, SCL was conferred the Voice of Customer Award for being the best logistics company in 2003. After simplifying the internal process for faster and better communication, and a smarter way to work, SCL set up its corporate office at Singapore in 2003 to create an international hub with an aim to reach out to the world. The company introduced a mechanized racking system in the automated warehouse at Panvel (Maharastra) in 2004.
SCL was sensitive to the avenues where it could contribute to building a better society. Displaying continuous social responsibility, SCL associated itself with several community development programs and contributed generously to many social causes. SCL was the first to build makeshift houses for 400 families who were affected during a massive earthquake in Bhuj district of Gujarat in India during January 2001. They reached the devastated village the same day to provide food, clothes, medication and water to the affected people.
In 2003, SCL accepted to develop one of the government schools located at Banjara Hills in Hyderabad, and built a building with basic facilities like classrooms, staff rooms and toilets, and provided furniture for students and staff. The housekeeping and security of the school, which was now having 1100 students, was also taken care of by the company. After Tsunami, one of the worst natural disasters that struck South East Asia in December 2004 leaving over 10 lakh people dead and over 4 million displaced, SCL was on the rescue scene as it brought in food, water, clothing, medication, a team of doctors and cooks, and provided the affected people with essential utensils. After rehabilitating the people in Nagapattnam and Cuddalore, it took up the development of a high school in Nagore where 500 students came in from the Tsunami affected families. SCL also actively participated in Kargil contributions and other rescue and rehabilitation works in India.
LOOKING AHEAD
SCL believed that in the age of convergence, it had kept pace with time with its infrastructure, people and technological capabilities for moving cargo to its destination on time, by making intelligent movements in air and sea, as well as on road and rail. The company had experience of handling wide range of materials including confidential papers related to University examination and sensitive goods like polio drops and life-saving medicines. In view of the strengths of its competitors such as DHL, Safexpress and Blue Dart, the company had enhanced services with a greater focus on cargo management and customer satisfaction with the new operations backed by better strategic planning. To achieve its aim, SCL had strategically tied-up with Jubli Commercials, an lATA accredited freight forwarder, which started its operations as Air Cargo Agent.
The company was confident that it was set to become 24 x 7 one-stop solution provider for all freight forwarding services including customs clearance for international cargo. SCL having 40 percent share in express distribution business was developing a huge centralized warehouse on 22 acres of land at Nagpur in India. The centralized warehouse, which was about to be commissioned, was designed as a major hub or express distribution center for 200 smaller hubs as its spokes catering to the needs of its customers across India. SCL believed that it is a concept, a vision and an idea ahead of its time, which looked at a global perspective and was constantly reinventing itself in delivering the future of logistics.
Questions
1. What made SCL a leader in the logistics industry?
2. Discuss the strategies adopted by SCL for its survival in the competitive scenario.
3. Comment on the contributions of SCL to society.
4. What steps the company should take to globalize its network reach?
Discuss the strategies adopted by SCL for expansion.
CASE IV - LOGISTICS OUTSOURCING
Company Profile
Indian Steels Limited (ISL) is a Rs. 6000 crore company established in the year 1986. The company envisaged being a continuously growing top class company to deliver superior quality and cost effective products for infrastructure development. With major customers being from Public Sector Undertakings, the company has established itself well and is said to be considering its expansion plan and proposed merger with another steel making giant in the country.
In 1996, owing to the cut throat competition in the emerging dynamic global markets, ISL emphasized on both effectiveness and efficiency. The company strongly believed in focusing on its core competency (i.e. manufacturing of steel) and outsourcing the rest to its reliable partners. Outsourcing of its outbound logistics was one such move in this direction. ISL out sourced its stockyards and other warehousing services to a third party called Consignment Agent, who was selected on an annual basis through a process of competitive bidding. The CA was responsible for the entire distribution of the products within the geographical limits of the allotted market segment and was paid by the company according to the loads of transaction (measured in metric tonnes) dealt by him. The company also believed in maintaining long-term relationships with the suppliers as well as the buyers. It always prioritized the needs of its regular and important customers over others and this worked out to be a win-win strategy. The case brings out the model of outsourcing logistics the company has adapted for the enhancement of its supply chain competency and thus leveraging more on its core competency which led to increased productivity.
Indian Steels Limited (ISL) is a Rs. 6000 crore company established in the' year 1986. The company envisaged being a continuously growing top class company to deliver superior quality and cost effective products for infrastructure development. The company performed with a mission to attain 7 million ton liquid steel capacity through technological up-gradation, operational efficiency arid expansion; to produce steel with international standards of cost and quality; and to meet the aspirations of the stakeholders. The production started in the year 1988 and initially, it manufactured Angles, Pig Irons) Beams and Wire Rods that were mainly used for constructing roads) dams and bridges. These products were mainly supplied to Public Sector Undertakings such as Railways, Public Works Department (PWD) Central Public Works Department (CPWD) Rashtriya Setu Nigam Limited, Audyogik Kendra Vikas Nigam Ltd. and various foundry units. The company had its headquarters at Raipur with three stockyards (a kind of warehouse with a huge land to store the products).
The company has established itself well and is said to be considering its expansion plan and proposed merger with another steel making giant in the country. The company was awarded ISO 9001, ISO 14001 and ISO 18001 certifications. The temperature in the plant premises is reportedly about 6°C lesser than that of the township, thanks to the greenery being maintained therein.
Logistics Outsourcing
Outbound logistics which basically connects the source of supply with the sources of demand with an objective of bridging the gap between the market demand and capabilities of the supply sources was always a problem for companies operating in this industry. Consisting of components like warehousing network, transportation network) inventory control system and supporting information systems outbound logistics was always playing a key role in making the right product available at the right place, at the right time at the least possible cost. In 1996 owing to the cut throat competition in the emerging dynamic global markets, ISL emphasized on both effectiveness and efficiency. The company strongly believed in focusing on its core competency (Le. manufacturing of steel) and outsourcing the rest to its reliable partners. Outsourcing of its outbound logistics was one such move in this direction.
Recognizing the growing demand for its products from the big, diversified and geographically¬dispersed customers, the company started expanding the number of warehousing stockyards. From a humble beginning, the company today has 26 stockyards; most of them are outsourced. Each of the outsourced stockyards was managed by a third party, which the company referred to as Consignment Agent (hereafter referred to as CA) in the area. The CA was selected on an annual basis through competitive bidding process. The performance of CA was closely monitored by a company representative (full time employee of ISL working in the site of CA). The CA was responsible for the entire distribution of the products within the geographical limits of the allotted market segment and Was paid by the company according to the loads of transaction (measured in metric tonnes) dealt by him. Based on their sales turnover CAs were trifurcated into A, Band C categories. The CAs with a monthly turnover of Rs. 150-200 crore fell under A category) whereas those with Rs. 100 - 150 crore were B and less than Rs. 100 \ crore were C category.
In addition to the company representative) a team of marketing division operated in the town where, the site of CA was located. This department was responsible or estimating the future demand, translating it into orders and sending to the manufacturing plant. Material dispatch was done using either one or a combination of the two modes: Rail, Road. While using rail as the mode of transportation, the company had a choice to book a Normal Rake (a full train with about 35 wagons, each wagon with an approximate capacity of 60 tonnes) or a Jumbo Rake (a full train of about 52 wagons, each wagon with an approximate capacity of 60 tonnes). At times, the company was engaging the services of the CONCOR (Container Corporation of India) where a train of 62 to 70 wagons, each wagon with about 26 tonnes capacity was used for transportation. Instead, if the company decided to send the material by road, the company had a choice between Trailor (25-30 tonnes} and Truck (15-20 tonnes). The choice of transportation mode was based on the quantity of dispatch.
As soon as the material was dispatched from the manufacturing plant, the respective CA used to get a Stock Transfer Chalaan electronically through Virtual Private Network, which was developed by a professional software service provider. In-transit, monitoring was generally done with the help of Indian Railways, if the mode was Rail. Otherwise, truck/trailor drivers were contacted through mobile phone. Transit generally took five to six days, providing time for CA to plan for receiving materials. The CA used to utilize this time for arranging material handling devices like heavy cranes and required labour. The material thus unloaded was reaching the warehousing stockyard where CA was responsible for arranging the materials as per the warehousing norms of ISL.
The company broadly classified materials into Long Products and Rounds. Products falling into each category were further classified by their size, shape and utility and the company used a distinct colour code for this purpose. Each subcategory of material had a specific place for downloading. The company used Bin System for this purpose. While downloading the material in stockyard, the company norms insisted that CA arrange for providing Dunnagt Material. This enabled the CA to store material without 1 direct contact with the land surface and thus reduced the probability of material deterioration. Material was stored in the stockyard until an authorized representative of the customer used to come and collect it. While dispatching material to the customer, a Loading Slip was generated against the Delivery Order. The company" also believed in maintaining long-term relationships with the suppliers as well as the buyers. It always prioritized the needs of its regular and important customers over others and this worked out to be a win-win strategy.
Operational problems were majorly because of uncertainties in transportation, fluctuation in supply of electricity and the load bearing capacity of the soil in the stockyard. Some: more problems were encountered whenever there was a change in CA and these were overcome by training the employees of the new CA and keeping the old CA responsible for the: material in his stockyard for six months after the contract as well. Observations reveal that, at times there were situations wherein CAs had to do those things which they were not legally supposed to do (like subcontracting) because of the pressures mounted by political leaders with selfish interests.
Despite these problems, this model of outsourcing logistics was working out very well for the company. The practices, which were started in the year 1996 have sustained major changes in the environment and are being practiced even in 2006. It has enhanced the supply chain competency of the company by enabling it leverage more on its core competency, which leads to increased productivity.
1. Analyze the case in view of the logistics outsourcing practices of the ISL.
2. Discuss the importance of logistics outsourcing with reference to supply chain management.
3. Suggest strategies for further strengthening the supply chain of ISL.
4. The participants/students are expected to have a clear understanding of Supply Chain and Logistics Management concepts.
5. The issues involved in the case are Sales Forecasting, Strategic Sourcing, Selection of Warehousing Service Provider, Transportation Mode and other nuances in Logistics Management.
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