Issuu on Google+


Editorial

CONTENTS

Director’s Message 10-Step Methodology for Deploying Taguchi's Design of Experiment for Process Optimization

1

Operations Strategy

5

National Manufacturing Policy

10

Dark Ages Of Manufacturing Industry

13

Interview with Mr. Jawahar Agarwal 16 Industrial Visit

22

Gurumantras: PMI

23

Debate- Is a Strong Manufacturing Base Essential for a Successful Economy?

25

Summer Internship

27

Book Review: The Toyota Way

30

Crossword

33

Team Strive

35

About the Cover Page The flames on the cover page represent heat of a furnace – an integral part of the manufacturing industry. The countless sparks signify the hard work and efforts of the over 60 million employees running the manufacturing sector in the country. The green colored theme marks the environmentfriendly trend in the sector, which is gaining prominence each day. The gears show the excellence and harmony between different processes that is very essential for the industry to perform and produce positive results, especially under the tremendous competition as well as the policy issues it has been facing.


EDITORIAL

Our economy is going through very tough times. The manufacturing industry is especially suffering due to various factors ranging from rising oil prices to the disputes in the allocation of natural resources. Manufacturing being the 75% constituent in the Index of Industrial Production (IIP) of the country, the growth of latter has been badly hit by the slump in the former. The IIP growth in July 2012 stood at 0.1% while the output of the manufacturing sector in the same month contracted by 0.2%. The corresponding figure in July 2011 was recorded to have witnessed a growth of 3.1%. On the other hand, we are also seeing some huge reforms in this area such as the National Manufacturing Policy (NMP) and Goods and Services Tax (GST). In light of the above developments, we can expect immense changes in the manufacturing sector of the country.

OPEP, the Operations and Supply Chain Club at IIM Raipur serves as a platform for the Students, Faculty members and Industry Practitioners for sharing of knowledge in the field of Operations and Supply Chain Management. This issue of the Strive magazine has been dedicated to the manufacturing sector. The magazine begins with an article by Prof. Maddulety who has listed down and explained a ten step methodology to implement Taguchi’s Design of Experiment. In the industry section, Dr. Dinesh Likhi,

Director (Production and Marketing) and Member, Board, in Mishra Dhatu Nigam Limited, talks about eight different strategies that a manufacturing company should follow to have a competitive advantage over its competitors while Mr. Jawaharlal Aggarwal, Vice President (Projects), Danieli India Ltd. has, through an interview, presented the real outlook of project management in the steel industry. The students have written article about some of the contemporary issues relevant to the manufacturing sector – ‘National Manufacturing Policy’- discusses the new manufacturing policy of the country. ‘Dark ages of Manufacturing’ discusses the challenges that stand in the way of the growth of the manufacturing sector. We have continued the columns Gurumantra and Debate from Strive Issue 2. The former explains Purchasing Managers’ Index (PMI) and the latter debates the importance of having a significant manufacturing base in an economy.

Three 2nd year PGP students of IIM Raipur have shared their summer internship experiences in Hero Motocorp, Jindal Steel and Power Ltd and Berger Paints. A book review of “The Toyota Way” and a brief account of a visit to Bhilai Steel Plant by IIM Raipur students are also included in this publication. We are thankful to Prof. B. S. Sahay, Prof. Vinita Sahay and Prof. Ajit Prasad for their motivation and immense support, Prof.

NOVEMBER 2012


Dinesh Kumar Likhi, Prof. Koilakuntla Maddulety and Prof. Omkarprasad Vaidya for teaching us the relevant subjects in the field of Operations and Supply Chain. We also thank Mr. Jawaharlal Aggarwal for taking out time from his busy schedule and contributing for the magazine. My editorial would be incomplete without acknowledging the support of Manoj, Sujitha, Thousif and Mark in bringing out

this issue and the whole Team OPEP for their commitment and dedication towards the club activities. Please send us your valuable feedback and suggestions for improvement at opep@iimraipur.ac.in. Akshay Agarwal, Editor Strive

TEAM STRIVE Editors Abhay Shankar Akshay Agarwal

Sub Editors Manoj Hariharan Sujitha Tikka Thousif Mohammed A

Designer Mark Lalduhsaka

NOVEMBER 2012


Director’s Message

I am glad to see how IIM Raipur has grown since its inception in 2010 and developed to create a benchmark in the field of Management Education and Research.

OPEP, the Operations and Supply Chain Club of the Institute, has played an important role in this journey towards excellence. The biannual e-magazine ‘Strive’ started by our students has been successful since its launch last year. I am pleased to present the third issue of ‘Strive’, which focuses on the Manufacturing Sector in India. Over the years, various policies and initiatives taken by the Government of India has made it one of the fastest growing economies in the world. But the less than expected growth rate of the Indian Manufacturing Industry has been a cause of concern. With the new National Manufacturing Policy (NMP) and several other reforms on the anvil, the scenario is expected to change in the near future. We can hope to witness the contribution to the GDP from this industry to rise to a more respectable figure from the present value of nearly 16%. I hope that this magazine will give you many interesting and insightful reads about this crucial subject. I wish OPEP a great success in their endeavour and hope that you enjoy reading this publication. Prof. B.S. Sahay Director, IIM Raipur

NOVEMBER 2012


10-Step Methodology for Deploying Taguchi's Design of Experiment for Process Optimization Dr Koilakuntla Maddulety Assistant Professor in Operations Management National Institute of Industrial Engineering (NITIE), Mumbai

international awards, some of the recent awards are: Bharat Jyoti Award (2012); Best Citizens of India Award (2012); Asia’s Best Professor Award(2011); Best Professor in Operations Management Award(2011) and Best Teacher in Operations Management Award(2011). He can be reached at koila@rediffmail.com, koila@nitie.edu or Contact +919969326007 Design of Experiments (DOE) techniques enables designers to determine simultaneously the individual and interactive effects of many factors that could affect the output results in any design. DOE also provides a full insight of interaction between design elements; therefore, it helps turn any standard design into a robust one. Simply put, DOE helps to pin point the sensitive parts and sensitive areas in designs that cause problems in yield. Designers are then able to fix these problems and produce robust and higher yield designs prior to going into production. R.A. Fisher in England developed the classical methods for design of experiments in the early part of the 20th century. They include a full variety of statistical design

DR KOILAKUNTLA MADDULETY

About the author Dr Koilakuntla Maddulety has 21 years of industrial/teaching experience and published/presented 50 plus research papers /case-studies in Journals (International & National)/Conferences and Seminars. He is member of several research committees and academic boards in India. He is the recipient of several national and

1

NOVEMBER 2012


techniques based on Latin squares (balanced square arrangements required for unbiased statistical experimentation) and developed for agricultural industry. While rigorous, a major problem with applying Fisher’s method in manufacturing industry is the time and cost required to learn and use it. Further, Fisher’s methods are often cumbersome to implement in manufacturing industrial experimentation because of certain assumptions and procedural emphasis.

propagated that quality is best achieved by minimizing the deviation from a target and the cost of quality should be measured as a function of the deviation from the standard Taguchi’s approach to the design of experiments utilizes the concept of robust design. Robust design refers to designing a product or a process in a way that it has minimal sensitivity to the external noise factors. It adds a new dimension to Fisher’s statistical experimental design by explicitly addressing the concerns faced by all process and product designers, namely  How to reduce economically the variation of a product’s function in the customer’s environment, and  How to ensure that the decisions found to be optimum during laboratory experiments will prove to be so in manufacturing and in customer environments? Taguchi’s methods lead to excellence in the selection and setting of product/process design parameters and their tolerances. In the past decade, engineers have applied these methods in over 500 automotive, electronics, information technology and process-industries worldwide. These applications have reduced cracks in castings, increased the life of drill bits, produced VLSI with fewer defects, speeded up the response time of UNIX V, and even guided

The Taguchi’s Approach Dr. Genichi Taguchi of Japan developed a method for designing experiments to investigate how different parameters affect the mean and variance of a process performance characteristic that defines how well the process is functioning. The experimental design proposed by Taguchi involves using orthogonal arrays to organize the parameters affecting the process and the levels at which they should be varying. Instead of having to test all possible combinations like the factorial design, the Taguchi method tests pairs of combinations. This allows for the collection of the necessary data to determine which factors most affect product quality with a minimum amount of experimentation, thus saving time and resources. The Taguchi method is best used when there is an intermediate number of variables (3 to 50), few interactions between variables, and when only a few variables contribute significantly. Genichi Taguchi believed that quality should be designed into the products and not inspected into it. Inspection does not produce good products but only segregates them from bad products. He also

2

NOVEMBER 2012


human resource management systems design. Methodology for deploying Robust Taguchi approach for process optimization (10 step methodology for problem solving)

process control (SPC) system. Even if you do not have the process completely in control, you must be able to reproduce process settings. You also need to determine the variability in the measurement system. If the variability in your system is greater than the difference/effect that you consider important, experimentation will not yield useful results. Minitab provides numerous tools to evaluate process control and analyze your measurement system.

1 Defining the Statement of problem Developing a good problem statement helps make sure that right variables are being studied. At this step, the questions that want to be answered are identified. For example, a problem statement can be as follows. The problem faced by the Manufacturing Unit of XYZ Ltd, was 7% ‘wastage & rejection’ of product due to improper molding operation, which contributed a revenue loss of around 84, 00,000 per year.

4 Identification of Characteristics that are to be optimized. The Brainstorming Technique was used by involving all the concerned employees and executives to find out the characteristics of products that are to be optimized.

2 Determination of the objectives

5 Identification of the factors and factor levels that are influencing the performance characteristics

A well-defined objective will ensure that the experiment answers the right questions and yields practical, usable information. At this step, the goals of the experiment are being defined. For example, objectives can be defined as follows. a) Acquiring knowledge of deployment of Taguchi Approach for solving Problem b) Deploying the Taguchi Approach at Problem area systematically in 10 steps. c) Reducing 50% ‘wastage & rejection’ i.e. from 7% to 3.5% by optimum setting of input parameters of moulding process.

This step involves identification of the controllable and noise factors that are influencing the above performance characteristics and determination of the

3 Ensuring correctness of Measurement System Ideally, both the process and the measurements should be in statistical control as measured by a functioning statistical

3

NOVEMBER 2012


levels and values for all controllable and noise factors.

9 Prediction of the expected results for optimal setting with the help of Minitab.

identified

6 Developing Design for Experimentation with the help of Minitab Software.

10 Validation of optimal setting by a confirmation Trails.

The Taguchi’s method of statistical design of experiments is done by using Orthogonal Arrays. The choice of Orthogonal Array will depend on the number of factors suggested in step 5. Common arrays include an L8, which looks at seven factors at two levels or an L16, which looks at 15 factors at two levels. An L8 or L16 array is ideal for initial screening experiments.

To verify that the relationships have been correctly identified, the optimum settings for the various factors are determined, and a confirmation run carried out. This is intended to ensure that the output is as expected in terms of performance against each quality characteristic and once validated, these settings can then be implemented as the new standard for each factor. Taguchi methods systematically reveal the complex cause-effect relationships between design parameters and performance. These in turn lead to building quality performance into processes and products before actual production begins.

7 Conducting the experiments as per Designs and posting the values in Minitab worksheet as needed. 8 Analysis of data for selected Quality Characteristics and Interpretation of Analyses and selection of the optimum levels of the significant factors.

References [1]. Montgomery, Douglas C., ‘Design and Analysis of Experiments’, 5th edition, Wiley edition, 2006, [2]. Bagchi, Tapan P., ‘Taguchi methods explained – Practical steps to Robust design’, Eastern Economy edition, 1993. [3]. Christine Simms, John S. Garvin, (2002),""It's a black art": "design of experiments" switches on the light", Managerial Auditing Journal, Vol. 17 Iss: 1 pp. 65 - 71 [4]. http://cms3.minitab.co.kr/board/minitab _data/7.%20DesignofExperimentsAllT opics.pdf

After collecting the data relating to performance, against each of the critical quality characteristics, it must be analyzed to ascertain the precision and accuracy achieved. This involves determining the cause and effect relationship that exists between the settings for each of the factors and resulting performance on each measured quality characteristic. Often this requires several iterations of previous steps to arrive at a full understanding of these relationships.

4

NOVEMBER 2012


Operations Strategy

Dr. Dinesh Likhi, Director (Production and Marketing) and Member, Board, in Mishra Dhatu Nigam Limited Strategic Framework Manufacturing

For

on one hand, embraced as providing a unique value to the customers efficiently and on the other as a strategy that can produce unnecessary cost and complexity.

A company needs a ‘strategy’ that specifies the kind of competitive advantage it seeks in its market place and articulates how it shall be achieved. In today’s changing, challenging and competitive world, it is not enough for a company to have its goal to be as good as that of its toughest competitor, advanced equipment or the transfer of production to a low–wage area, rather, a need has arisen for ‘strategic flexibility’, better suited to respond to the market requirements of the time than to pursue a mere generic approach to competitive success.

Later, four distinct approaches to customization namely - collaborative, adaptive, cosmetic and transparent have been identified, which provided a framework for companies to design customized products and to support business processes. Each of the approaches is important in its own way and differs on the conditions under which each should be employed. Collaborative customization is apt for businesses which deals with customers who cannot easily articulate their requirements, and grow frustrated when forced to select from a plethora of options. The adaptive approach is appropriate for businesses whose customers want the product to perform in different ways in different situations. The cosmetic approach is appropriate when customer’s usage of a product is the same but differs only in how they want it to be presented. The transparent approach to customization is appropriate when customers’ specific needs are easily predictable.

It is, thus, obvious that the key to long term success of a company is being able to do things better than your competitors, besides selecting and creating operating capabilities in anticipation of market demands.

Mass Customization – Developing Unique Operating Capabilities Providing remarkable services to customers is imperative in order to perform better than the competitors. One of the programs invented to meet every customer’s request is mass customization. This attempt has been

5

NOVEMBER 2012


The various combinations of the approaches to customization have to be explored and a company has to come up with the combination that would create customer unique value at the lowest possible cost.

enabled, accurate budget allocations are made and the risk of performance issues at the functional block level are minimized. During product development stage, supply chain management plays a key role not only in operations to deliver new product, but also in adopting innovative processes such as IPD.

Product Development – A Way to Survive Competition Creating a sustainable product development competitive advantage is the most effective organizational capability, which will have a greater impact on market share and the rate of share growth than other organizational capabilities. The company has to be adept at creating new products and extensions of them to be competitive, according to the changing market conditions and the product life cycle, a factor popularly known as timeto-market and to deliver this capability, being productive and timely is imperative. The rise in customer expectations in this competitive environment has made quality and accuracy (in design), a virtue of design, which also determines a business competitive status.

Technology Strategy – A Competitive Advantage for a Diversified Corporation In a diversified corporation, it is essential for a corporate technology strategy to be an integral part of corporation’s business strategy. In fact, it has become an economic imperative of late. The developed strategy has to be continuously evolving and also must adapt to the changing competitive patterns. A well-structured strategy gives an opportunity for senior managers of the organization to understand the threats and opportunities faced by the corporation, which in turn helps in improving efficiency, effectiveness and profitability of the corporation (or business).

Human Capital Strategy Human capital is the most valuable and important asset held by an organization today. Managing human capital effectively is directly proportional to the success of the company and an effective management in turn requires a well-formulated strategy. The strategy of human capital is based on two principles –

With the help of processes like Integrated Product Development and Sequential Development, smooth functioning is

6

NOVEMBER 2012


People are assets whose value can be enhanced through investment. As with any investment, the goal is to maximize value while managing risk.

mission of the organization; provide sustained leadership that recognizes change as a permanent condition were put across by the participating organizations as principles for effective human resource management. The human capital practices have to be evaluated and the process has to be continuous in order to achieve the organization’s strategic objectives.

An organization’s human capital approaches should be designed, implemented and assessed by the standard of how well they help the organization achieve results and pursue its mission.

Strategic Flexibility – In Uncertain Times

Quite a number of principles related to human capital management were put forth by various organizations, aimed at managing human capital efficiently. GAO in April 1995 sponsored a 2-day symposium of 32 leaders from leading private and public organizations, to discuss the approaches of these organizations towards managing people. The principles – Value people as assets rather than coasts; hold managers responsible for achieving results instead of imposing rigid, process-oriented rules and standards; choose an organizational structure appropriate to the organization, rather than trying to make ‘one size fit all’; integrate human resource management into the

To succeed in today’s competitive environment, a set of robust strategies that can respond to any scenario that challenges a business or a corporation, is needed. However, formulating strategies for a business, to withstand disruptions is a herculean task and this does not come easily. Though strategies for maintaining flexibility is different for different businesses, depending upon the various factors that bring about change, few steps like – challenge complacency, employee empowerment, open lines of communication, collaboration through cross functional teams, transparency in information sharing, will by and large stand valid.

Global Sourcing – Globalization at its Best Global sourcing, which is a way of sourcing goods and services from the global market, is one of those strategies that is drawing increasing attention from organizations. It aims at exploiting global efficiencies in delivering goods and services at reduced cost and it shouldn’t come as surprise that it

7

NOVEMBER 2012


has become an integral part of the strategic sourcing plan and procurement strategy of many organizations.

the best opportunity to achieve a breakthrough in highly competitive industries. However, in order to achieve this, a thorough understanding of all aspects related to global sourcing, is required.

Global sourcing largely involves integrating and coordinating common items, materials, processes, technologies, designs and suppliers across worldwide buying, design and operating locations. The issues (or rather disadvantages) confronted by an organization while it progresses from domestic purchasing to global sourcing are far outweighed by the advantages. Some advantages of global sourcing include expanding supply capacity, withstanding competition in a potential market, tapping into skills or resources unavailable domestically. Some key disadvantages include increase in monitoring and hidden costs associated with different cultures and time zones, longer lead times.

Six Sigma - An Approach to Quality Six Sigma - a business management strategy is a data-driven approach and methodology for eliminating defects. To reach Six Sigma, a process must not produce more than 3.4 defects per million and this technique is far more advanced compared to other techniques like TQM, quality circles etc., as it focuses on defects per million. In order to achieve six-sigma, fine-tuning the existing systems alone is not sufficient. Rather, new methods and procedures should replace old ones existing in an organization. The techniques which were first formulated to improve the manufacturing processes are now being largely applied in other business areas. The Six Sigma DMAIC process (define measure, analyze, improve, control) is a five-step process for achieving the standards. The streamlining is started off by defining the project goals and customer deliverables, followed by measuring the process to determine current performance, analyzing the root causes of the defect, followed by improving the process by eliminating defects and lastly controlling future process performance.

The Characteristics of Outstanding Global Sourcing •

Executive sourcing

commitment

Rigorous and well defined processes

Availability of needed resources

Integration Technology

Supportive Organizational design

Structured approaches to communication

Methodologies for measuring savings

through

to

global

Information

Though there is another process known as DMADV process, most of the companies start implementing DMAIC process first, as it is considered the primary step to product/process improvement.

Global sourcing which is a continuously evolving process reaps abundant benefits, if managed and supported properly. It offers

8

NOVEMBER 2012


References

Charlottesville, VA, UVA-OM0659 [5]. Tom Cross, Senior Director of Executive Education, Human capital strategy, University of Virginia Darden School Foundation, Charlottesville, VA, UVAOB-0848 [6]. Peter Jacobs, Five steps to thriving in times of uncertainty, Harvard Management Update, article reprint no. U0512A [7]. Robert J. Trent and Robert M. Monczka, Achieving excellence in global sourcing, MIT Sloan Management Review, Fall 2005, Vol. 47 No.1 [8]. Hal Plotkin, Six Sigma: What it is and how to use it, Harvard Management Update, article reprint no. U9906C

[1]. Robert H. Hayes and Gary P. Pisano, Beyond World-Class: The new manufacturing strategy, Harvard Business Review, January-February 1994 [2]. James H. Gilmore and B. Joseph Pine II, The Four Faces of Mass Customization, Harvard Business Review, JanuaryFebruary 1997 [3]. John Kamauff, Robert D. Landel and Walter Sedlazek, Note on product development: A competitive edge for operations, Ivey Management Services, Version: (A) 2001-04-27 [4]. Thomas C. MacAvoy, Paul M. Hammaker, Technology strategy for a diversified corporation, University of Virginia Darden School Foundation,

QUICK FACT

Oldsmobile was the first car to be mass produced in 1900. The "Model-T" Ford was the first car to be built on an assembly line in December of 1908, but was only the second car to be mass produced in large numbers

9

NOVEMBER 2012


National Manufacturing Policy Gagandeep Singh, PGP 2012-14 Indian Institute of Management Raipur

In the backdrop of dismal manufacturing performance Government has launched the National Manufacturing Policy. The new National Manufacturing Policy (NMP) with its National Investment and Manufacturing Zones (NIMZ) came at a crucial time with the country facing a lower than expected GDP growth, smaller net inflow of foreign investment , and a continuously devaluing currency. With the new NMP, there is cheer and hope within industry but its ultimate success or failure is a question whose answer lies in the womb of the future. Over the years, numerous policy measures and economic restructuring have heralded the process of growth and development thereby making India one of the fastest growing economies in the world. However, the dismal performance of India’s manufacturing sector, especially when compared with the manufacturing sectors of other countries at more or less the same level of development, has been a cause of concern. This necessitated the development of a dedicated policy for the sector with a view to accelerated development, inclusive growth and provision of gainful employment. This is how the National Manufacturing Policy came into being.

environmental protection solutions, residential complex and value added services. Government of India decided to bring out the National Manufacturing Policy to bring about a quantitative and qualitative change with the following six objectives: 1. Increase manufacturing sector growth to 12-14% over the medium term to make it the engine of the growth of the economy. The 2-4% differential over the medium term growth rate of the overall economy will enable manufacturing to contribute at least 25% of the National GDP by 2022. 2. Increase the rate of job creation in manufacturing sector to create 100 million additional jobs by 2022. 3. Creation of appropriate skill sets among the rural migrants and urban poor to make growth inclusive. 4. Increase domestic value addition and technological depth in manufacturing sector. 5. Enhance global competitiveness of Indian manufacturing sector through appropriate policy support. 6. Ensure sustainability of growth, particularly with regard to the

The NMP is a policy solution for a number of challenges and a strategic tool to be applied to select zones designated for promoting manufacturing .The new National Manufacturing Policy (NMP) with its National Investment and Manufacturing Zones (NIMZ) came at a crucial time with the country facing a lower than expected GDP growth, smaller net inflows of foreign investment - both portfolio and direct, and a continuously devaluing currency. The NIMZs would be a combination of production units, utilities, logistics solutions,

10

NOVEMBER 2012


For this purpose NMIZs should be set up quickly without any red-tapism and bureaucratic hassles. These zones should operate under a set of rules and regulations that are compatible and comparable with the rest of the Asian countries. Manufacturing in India contributes to a mere 15% of GDP, unlike China (34%), Thailand (40%), South Korea, Poland, Turkey and Malaysia (approximately 26-30%). In addition to that, in last two decades, the Indian economy has directly jumped from being agrarian to be heavily skewed towards the tertiary sector (i.e. services sector), skipping the crucial intermediate phase of thrust on industrialization. To be able to meet the performance standards, the manufacturing sector needs to develop at an exceptionally high rate in order to be able to leave behind the overall GDP growth rate over the next decade. This is likely to happen in the long run, if the share of manufacturing in overall GDP rises. Given the shares of agriculture (Primary sector), services (Tertiary sector) and industry (manufacturing sector being the dominant part) must add up to 100 per cent, it is not clear from the policy as to which of the other two sectors is the one to make way for the greater amount of manufacturing sector’s share in the overall GDP and within an aggregate growth target of nine per cent. The most likely alternative is the preference of manufacturing activities over agriculture which is certainly going to be above of contention. Furthermore it is true that India’s Asian peers — Indonesia, China and South Korea — have a much higher share of manufacturing when compared with India, but there is no cogent reason to think that

environment including energy efficiency, optimal utilization of natural resources and restoration of damaged/degraded eco-systems. The policy envisages that “the NIMZs would be large areas of developed land, with the requisite eco-system for promoting world-class manufacturing activities”. Special economic zones (SEZs), with their focus on exports are different from NIMZs as the latter are envisaged as industrial townships of a minimum size of 5000 hectares. Each NIMZ will be managed by a special purpose vehicle (SPV), which will be conferred the powers prescribed by the policy. The policy specifies that the SPV’s CEO must be a senior central or state government official. So, the inherent intention is to make these townships function as a public corporation for the benefit of the private sector, free from bureaucratic hassles and delays that mar the India’s existing urban local bodies. The aim is to permit both clustering and concentration of infrastructure. In one way or the other, it is a return to the past, though these are designed to stimulate manufacturing activities by a cluster of smaller firms and enterprises, rather than being daunted by a single large employer. The standards set are really high: to increase manufacturing sector’s share of GDP to 25%, and create 100 million additional jobs by 2022. In order to see this dream turning into reality, it is time to bring about the changes rather than just envisaging them innumerably.

11

NOVEMBER 2012


basis of DMIC. This is exactly the reverse of what the policy should ultimately aim to achieve. In fact, policies such as NMP should focus on the creation of superior projects like DMIC - which aim to develop the entire region by providing state of art infrastructure and manufacturing hubs. DMIC itself would take another 3-4 years to be operationalized. This, in turn, implies that the proposed NIMZs will also take same amount of time to start yielding desired results.

they represent a ‘sacrosanct norm’ to which India should comply. As a matter of fact, the protectionist policy regime still seems to be the fixation of the government and the policy makers. This is illustrated by the following recommendation on the exceptionally glaring reference to regional trade agreements - “It will be ensured that such agreements will not have a detrimental effect on domestic manufacturing in India”. The main motive of such multilateral frameworks is promotion of competition in the domestic market in order to increase their competitiveness and efficiency. Such measures in the policy document are likely to defeat the very purpose of the multilateral trade agreements. Various experts have opined that in the wake of rising competition from China, the Indian government has upped the ante by unveiling NMP.

With the new NMP, there is cheer and hope within the industry, since this largely neglected part of the Indian economy is now being paid attention to and its genuine concerns are finally getting addressed. The nature of ‘policy’ is that it is a ‘policy’ and it is of no use until it is implemented in an effective and efficient manner which seems to be the greater concern as of now. NMP has provided a well knitted framework for providing the much required boost to the manufacturing sector but the crux remains to be the implementation of the same. The first half has been exhilarating and enchanting; rising hopes for the other half. Let’s hope that it turns out to be at par with the sky high expectations.

To ensure proper implementation of the new National Manufacturing Policy (NMP), it is indispensable to liberalize India’s labor markets and make the movement of labor perfectly mobile across the sectors; otherwise there is no incentive for industry to create jobs. To make this happen, there has to be a greater understanding between government agencies, industry representatives and representatives of major unions. While conceptually NMIZs seem to be an excellent idea, it runs the risk of ending up being ineffectual given the problems faced by many SEZs with regard to land acquisition. Also, the policy relies on creation of few Greenfield clusters that too only along the Delhi-Mumbai Industrial Corridor (DMIC). Thus, it appears as if the NIMZs have been conceptualized on the

References [1]. http://india.gov.in/allimpfrms/alldocs/16 395.pdf [2]. http://www.etmag.com/etmagnews/daily-news/2012/0531/26.htm [3]. http://www.eastasiaforum.org/2011/11/3 0/does-india-really-need-a-nationalmanufacturing policy/

12

NOVEMBER 2012


Dark Ages of Manufacturing Industry Shahul Hameed, PGP 2012-14 Indian Institute of Management Raipur

This article captures the current situation of manufacturing business in India. Though our GDP started rising again after a long period, the contribution of manufacturing sector in this growth is very meager. There are numerous reasons around this issue and lack of Government intervention is one primary reason among those. Is the manufacturing industry doomed to wane further even in the forthcoming periods as well? Or is there any possibility of turnaround? Indian market as well as manufacturing sector. The GDP growth of India has revived up to 5.5% in the last quarter after dropping from a high of 9.2% in Q4 in 2010-11 to a low of 5.3% in Q4 in 2011-12. So it is not your fault to presume that you could not find any better time than this, to make all your investments here, since India has started showing some positive signs eventually after a long period of rough patch. But, you fail to realize one important fact, that you come to a sudden conclusion by getting to know only a few facts where further explorations are highly needed.

You are a reputed manufacturing firm, say ABC Ltd. and I am also an equally wellknown consulting firm, say XYZ Ltd. You come to me and seek advice to open a manufacturing firm in India, having considered India to be a huge market that could be exploited to your full capability. You sound very confident and optimistic about your plans. But you could not have expected even a little that I am going to shatter all your plans in a flash by saying, ‘please never ever think of doing a manufacturing business in India’. My answer sends a real shocking signal to you and it looks like you do not get convinced at all. Since you come to me with a programmed state of mind, of setting up a business and earning a super- normal profit, my job is getting tougher in making you understand the reality. Now you consider me as a naive consultant and get a second thought of going to some better consultants. Since you paid me some advance amount for the advisory services and you don’t want to lose your investment just like that, you halfheartedly decide to spend some time with me to know the logic behind my hypothesis.

I am making you dig deeper into the other data available; now you come to know that out of the whole GDP growth, manufacturing sector has posted a mere

I am starting my justifications by presenting some current facts pertaining to overall

13

NOVEMBER 2012


growth of only 0.2% which is totally dreadful for a sector. This result shows clearly the plethora of problems the Indian manufacturers are facing. Also while looking at another data on inflation in this July, figures reveal that the rate of price rise of primary products was at a high 10% plus while that for manufactured goods was only about half that rate; this means the manufacturing goods’ price remains pegged at a certain level in spite of the increase in overall inflation.

scope for you to decrease the cost of production unless you adopt a 100% efficiency in your production which is also not practically possible and even if it happens, it is not going to reduce your burden to a large extent. So the manufacturers are cornered from all sides, only because of the external problems and not due to those which are caused by them.

You may wonder why this happens because overall inflation means all products’ prices should also go up equally without any discrimination; since all fixed and variable costs should have been going up because of inflation. Naturally you will increase your price to maintain your profit margin or at least to avoid losses. So, as a manufacturer, you could be least bothered about inflation as long as you are also able to raise your price level. If your product comes under the necessity category, you can fully afford to do it, but in case of luxury products, you can’t do so since the demand for a luxury product may go lower with the price raise. Also due to the liberalization of economy, foreign products are already flooded in Indian markets and if you raise the prices above a threshold level, you will lose a large share of customer bases.

In case of such crunch situations, it is quite natural to expect that the government will act to the rescue. After all, these things have happened because of the inefficiency of the government to tame the inflation and control the rising prices of all other products. So it becomes their moral responsibility to take all the corrective measures, but unfortunately they are not doing so. Instead, they are doing exactly the opposite of what has been expected out of them by merely increasing the interest rate of lending several times. If you see in last 2-3 years, the repo rate has been increased so often with the sole intent of controlling inflation. But inflation is relentless in its pursuit and due to the coagulation of funds caused due to the hike in interest rates, the overall economic growth is adversely impacted and this is comparatively worse in the manufacturing sector.

So now you realize that you can’t raise the prices and the only option left is reducing the cost of production. But you are not going to get any relief here as well because the cost of raw materials and other inputs such as labour and capital would naturally grow higher due to inflation and there is a little

14

NOVEMBER 2012


Also the policy makers do not bother about this industry much because of their low political gains here. They keep on giving their limited available funds in the form of subsidies that could fetch them a super-hero image in the minds of common people which would increase their chances of coming to power again. So it is quite expected that they won’t give much attention for this area which contributes to substantial 25% of the nation’s GDP growth.

too agree with this, but still, you want to bring your business here after sometime and hence you shoot your last question to me, by asking when all these problems will get perished. And my straight answer to you is considering the current political and economic scenarios, it is not that easy to solve all the problems in a flash. But at the same time, the possibility can’t be discounted completely. The government and the oppositions should co-operate with each other and help in paving way for the set of policies that could uplift the sector from the ORS current dismal state. Hopefully it happens soon.

Now I make you understand fully the overall image of this industry in India. It is in a very dark and gloomy state because of many external issues and yet no one to go to; if this continues, very soon, all domestic manufacturing firms will shut down their units and only the foreign products will be available in the market which would further complicate our problems.

Reference [1]. Article on ‘Policy – Induce Manufactures’ in the editorial column of The Economic Times dated 5th Sep, 2012

Being a consultant, I am suggesting you to not dare think again of setting up a manufacturing unit here. Now I feel satisfied that I made all your paid money worth .You

QUICK FACT Manufacturing accounts for less than 16% of the GDP in India. On a comparative scale (in other emerging countries), the corresponding share of manufacturing sector in the GDP of Thailand, China and Malaysia are 40%, 34% and 28% respectively.

15

NOVEMBER 2012


Interview with Mr. Jawahar Aggarwal VP - Projects, Danieli India Limited various technical, commercial and legal problems and successfully completed and commissioned the same. After his superannuation from SAIL, he joined Essar Steel Orissa Limited (a group company of ESSAR Group) in Feb 2008 as VP (Projects) responsible for management of their Beneficiation, Slurry Pipeline and Pelletization Project. He, in Jan 2010, joined Surya Roshni Limited to steer their proposed 6.0 MTPA Integrated Steel Project in Karnataka. At Danieli India Limited, Mr. Aggarwal is responsible for executing their FTSR (flexible thin slab rolling) project in NMDC.

About Mr. Jawahar Aggarwal

Mr. J.L. Aggarwal is the Vice President (Projects) in Danieli India Limited. He is a B.Sc.Engg (Mech) Hons. from Punjab Engineering College, Chandigarh and an M.Tech in Management & Systems from IIT Delhi. He joined Hindustan Steel Limited (Now known as Steel Authority of India Limited) in the year 1968 as Junior Engineer. He worked in various plants and units of SAIL in different capacities in the areas of maintenance, consultancy, design engineering, project formulation, project execution and project management. He retired as Executive Director (Projects) from Durgapur Steel Plant in the year 2007. He had completed various projects during this period and had steered the modernization scheme of Durgapur Steel Plant in the year 2007. During the above period, Mr. Aggarwal worked as General Manager (Project) on deputation to SCOPE for completion of a sick project beset with

A Brief History of Steel Industry in India The steel industry in India has a very interesting history. The modern iron and steel industry in India owes its origin to the grand vision and perseverance of Jamsetji, Nusserwanji Tata who conceived the first integrated steel plant in India. The Tata Iron and Steel Company Limited (Tata Steel) was registered in Bombay on 26th August 1907. The plant was set up with an initial ingot steel capacity of a mere 0.1 million tonnes. The first blast furnace was blown-in on 2nd December 1911, and the first ingot rolled on 16th February 1912. Soon after the outbreak of the First World War in 1914, the plant was geared to meet the priority needs of the government. It worked on a 24 hour schedule, and sold its

16

NOVEMBER 2012


product to the government at a fraction of the price prevailing in the open market. Tatas supplied 1500 miles of rails and 300,000 tonnes of steel to the allies’ war effort. During this period, Tata Steel embarked on an expansion of the works. The greater extension programme was taken up in 1917 to raise the steel production to 500,000 tonnes.

contributed in a big way towards supplying war materials. Steel Industry is a highly capital intensive industry and the returns from investment take a long time to start. But at the same time it is the backbone and mother of all manufacturing industries. Post independence, the Government of India in its vision took the right decision to set up steel plants in the public sector. The first public sector steel plant was conceived at Rourkela. Hindustan Steel Limited (HSL) was set up on January 19, 1954 to manage only one plant that was coming up at Rourkela. This was followed by Bhilai ad Durgapur Steel Plants for which the preliminary work was done by the Iron and Steel Ministry. From April 1957, the supervision and control of these two steel plants were also transferred to Hindustan Steel.

The programme was delayed due to the war and could be completed only in 1924. Disruption of steel supplies of iron and steel products from Europe during the First World War opened up the possibility of a second steel plant in the country and this gave birth to Indian Iron and Steel Company in the year 1918. While the blast furnaces were started in 1922 and 1924, the steel making facilities were set up in 1939. By this time Tata Steel also added new units and, a capacity of 800,000 tonnes of saleable Steel was attained by 1939. At that time, Tata Steel came to be regarded as the largest Steel plant in the British Empire and also the cheapest exporter of pig iron in the world.

The 1 MT phases of Bhilai and Rourkela Steel Plants were completed by the end of December 1961andof Durgapur in January 1962.Progressively,the capacities of these plants were expanded and by 1972-73 HSL had a capacity of 4.0 MT.

During the years of the Second World War between 1939 and 1945, Tata Steel

A new steel company, Bokaro Steel Limited (Bokaro Steel Plant), was incorporated in January 1964 to construct and operate the steel plant at Bokaro. To evolve a new model for managing industry the Ministry of Steel and Mines drafted a policy statement which was presented to the Parliament on December 2, 1972. On this basis the concept of creating a holding company to manage inputs and

17

NOVEMBER 2012


outputs under one umbrella was mooted. This led to the formation of Steel Authority of India Ltd. The company, incorporated on January 24, 1973 was made responsible for managing five integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel Plant and the Salem Steel Plant. In 1978 SAIL was restructured as an operating company.

1.0 MT each. In 1972 Hindustan Steel Limited was restructured to form Steel Authority of India Limited, a holding company to manage inputs and outputs under one umbrella. This was converted to an operating company in 1978. Over the years the private sector has also come up in this area and the total installed capacity of steel in India stands at close to 70 MTPA.

Post liberalization, many private entrepreneurs have also come up in this sector and set up integrated steel plants. The present installed capacity of steel in India is approximately 70 MT and India ranks 4th in World Steel Production.

Strive: What is the biggest change you have seen from the time you started your career? Mr. J L Aggarwal: I have been in the steel Industry for nearly 44 years, 39 years in SAIL and about 5 years in private sector steel industry post retirement from SAIL. During the first about 15-20 years the pace of change in this sector was not very dynamic. There were not many technology changes and not much of capacity expansion. But after the second half of the eighties the industry has seen phenomenal growth both quantitatively as well as qualitatively. Some of the major changes that the industry has witnessed are

Strive: When and how did you get associated with steel industry? Mr. J L Aggarwal: My association with steel began in the year 1966 when I came to Durgapur as a student engineer trainee during the college summer break. However, I started my professional career in Steel Industry in the year 1968 after my graduation from Punjab Engineering College Chandigarh. At that time a job in Hindustan Steel Limited (now known as Steel Authority of India Limited) and so also in other PSUs was considered a plum job. At that time the steel industry in India was at a primitive stage with only Tata Steel and IISCO in the private sector both established pre-independence and HSL in the Public sector set up post-independence with Rourkela, Bhilai and Durgapur Steel plants. Then came Bokaro Steel Plant followed by Rashtriya Ispat Nigam Limited. All these plants were started with an initial capacity of

1. 2. 3. 4.

Increased role of private sector Adoption of New Technologies Concern for environment Benchmarking with the world standards in terms of operating parameters 5. Amalgamations and mergers of Technology Suppliers across the world. But sadly, being a blue collar job industry it has lost its sheen in the eyes of the younger generation who prefer white collar jobs. Strive: Could you please let us know more about the challenges faced by you during project management and execution in

18

NOVEMBER 2012


various public companies?

and

private

Mr. J L Aggarwal: I have already highlighted the challenges faced in project management. The other issues are

sector

Mr. J L Aggarwal: Although as a Mechanical Engineer I started my career in Maintenance but over the years I graduated to Project Management which became my Key Area of Activity. As compared to Operations Management where the stress is on volumes and profits, the Project Management offers different opportunities and challenges every day. The biggest challenge is to complete the project without cost over-run and time over-run. The project, to be successful, needs a very meticulous and micro planning. The problems in project management are quite often unpredictable and one has to plan for all eventualities. Some of the common problems faced are

1. Delays in statutory clearances. 2. Over-interference of the regulatory authorities resulting in fear leading to indecision. This is particularly relevant to public sector. 3. Cost and time over-run due to delays. Strive: Could you let us know about any of the projects which failed in execution stage and the possible reasons for the same? Mr. J L Aggarwal: When you talk of a failed project, it has to my mind two connotations. Firstly, a project that does not yield the anticipated results/returns after implementation and secondly a project that could not be implemented as planned. As a Project Management professional it is the second connotation which concerns me the most and from that perspective, the one project which comes to my mind is the SCOPE Minar Project in Delhi. Although it was not a project related to steel industry, but I was entrusted to this project at a stage when it was already midway and had got estranged with multidimensional problems – technical, commercial, legal and administrative. This was a project for the construction of a 20 storied building for housing the offices of the PSUs. This project which was started in 1987 and was to be completed in 3 years took almost 15 years to complete. The one single reason which according to me caused the inordinate delay was that the management of the project was left in the hands of someone who had no stakes in the project. The whole project got engulfed in technical, legal and commercial

1. Shortage of funds 2. Delays in statutory clearances 3. Delays in technical decisions by consultants 4. Delays by Suppliers/contractors as sometimes they take orders at unworkable price. 5. Conflict of operational and project requirements particularly in case of brown field projects. Having been mostly in the public sector I must say that there was generally no shortage of funds as the projects are conceived after ensuring the availability of funds, but in private sector this sometimes becomes a major constraint. Strive: Could you please share with us the issues faced while executing projects onshore?

19

NOVEMBER 2012


problems and disputes and came to a standstill after almost 70% investment. With the change in management and other drastic steps the project was completed thus avoiding a huge loss to the exchequer. The project management must be in the hands of one who has stakes in the project. The stakes could be either in the form of investment/profit or in terms of future growth in the organisation or in terms of rewards/punishment. Quite often in some organisations the project job is considered second to operations projects and persons who cannot prove themselves in production are entrusted with projects. While the results in Production management are visible over a short term, the results of Project Management are generally visible only in the long run.

Even during the execution process there is lot of flexibility in private sector whereas in public sector, the rules and procedure restrict the project manager from taking decisions which are necessary in the interest of the project. Strive: Could you please share with us the recent trends or practices in steel industry? Mr. J L Aggarwal: As I mentioned earlier, Steel Industry is a very capital intensive industry where the return on investment is not immediate. That is why post independence the steel industry was initially set up in the public sector where the objective was not exactly profit but to prepare a base for the national development and for the manufacturing sector. However with the passage of time it became necessary to make the industry competitive and to run it as a profitable venture. This has seen many changes in trends and practices namely,

Strive: Having rich experience of working in both public and private sector steel companies, could you please let us know the differences in both?

1. Higher capacities of units to get the benefits of economies of scale. 2. To reduce dependence on manpower through extensive automation and computerization. 3. Changes in technology to take care of the environmental norms. 4. To produce special steels instead of the garden varieties for better profitability. 5. Technology change to use low quality ores and other scarce raw materials. 6. Continuous pressure on cost reduction through technology, innovation, automation etc.

Mr. J L Aggarwal: There is a vast difference in the working of Public and Private Sector. Basically the Public sector has to function within a strictly defined set of rules and procedures and there is no scope for mid course corrections/ changes which according to me are sometimes very essential for the overall success of the project. In private sector there is more flexibility and freedom of decision-making. Just to elaborate, the tendering process in public sector has to strictly follow the process of lowest tender whereas in private sector the project management is free to negotiate with all tenderers and are thus able to draw the maximum price advantages.

Strive: What are the benchmarks and standards followed in Steel Industry?

20

NOVEMBER 2012


Mr. J L Aggarwal: The steel industry follows a number of operational benchmarks aimed at reducing costs and increasing productivity like

Mr. J L Aggarwal: India is the fourth largest steel producer in the world but the per capita steel consumption in India is a mere 57 kg (in 2011) as against the world average of 206 kg. Considering the country’s population and the lack of infrastructure facilities there is a huge demand of steel in the country. Although many plans were announced by the Govt. of India to increase the steel production capacity in the country the actual implementation on the ground has not been commensurate with the plans. Although so many MOUs have been made by the different states for setting up of steel plants not even 25% have actually been implemented. This is obviously due to the flaws in the system where even the serious players like POSCO, Tatas and Mittal have not been able to break grounds in Orissa. In my opinion, the Govt. should lay more stress on expanding the Steel capacity in Public sector rather than giving mines to the private sector.

1. Energy consumption per tonne of steel produced 2. Coke consumption per tonne of steel produced 3. Make-up water consumption per tonne of steel produced 4. Manpower cost per tonne of steel produced 5. Yield of finished product as percent of input 6. Percent of profit spent on Corporate social responsibility The Govt. of India has instituted an institutional award called Prime Minister’s Trophy for the best integrated steel plant in the country and every year the performance of all participating integrated steel plants is judged by an expert panel on various bench marks and a trophy awarded to the best judged steel plant. The panel carries out an extensive survey including cleanliness and housekeeping, comparison of performance parameters, benchmarks’ achievement, labour productivity, CSR activities and many other factors before announcing the award.

Strive: What is the one advice you give to young managers joining the manufacturing industry? Mr. J L Aggarwal: In spite of over 60 years of independence we still remain a developing nation. My advice to young managers is that whatever career or profession they choose, they should excel in their work and also contribute towards nation building.

Strive: India, the world's fourth-largest steel producer, has been a net importer since 2008. Don’t you think there are some flaws in the current system?

21

NOVEMBER 2012


Industrial Visit

Students visit to Bhilai Steel Plant watch the hot sparkling metal (Pig Iron) flowing and getting collected into containers. There are 6 furnaces in the plant.

On Thursday, the 18th of October, 57 students of PGP 2012-14 batch of Indian Institute of Management Raipur visited Bhilai Steel Plant, the flagship unit of Steel Authority of India Limited. This plant is popularly known for being the sole supplier of the country's longest rail tracks of 260 meters.

The students also visited Coke Oven area where coke is produced, which is the input for the blast furnace and the purest form of coal. From there the group also had the opportunity to visit Merchant Mill, Wire Rod Mill, Steel Melting Shops and Sintering Plant.

Bhilai Steel Plant is located about 35 km from Raipur, the capital city of Chhattisgarh, and is one of the major producers of steel plates, wire rods and other structural parts.

The team was accompanied by officer from BSP, Mr. Panna Lal, who provided various insights regarding production of different type of steel products beginning from the processing of iron ore. The session that came to an end with a vote of thanks turned out to be well coordinated. All in all it was a great learning experience – an opportunity to gain knowledge about the technical and managerial work flow and operations of a large manufacturing firm.

The students had the opportunity of visiting four main sections of the plant namely the rail and structural mill, the blast furnace, the plate mill and the coke ovens. The seven different products from the rail and structural mill are used by the Indian Railways and various other companies in the business of construction equipment development. In the Plate Mill, heavy and medium plates are rolled out, using continuously cast slabs as input. It was a new experience for the students to find the automated process of heating the steel, converting it into plates and then cooling it for the purpose of quenching and stress relieving. The plates produced here are widely used in the defense sector and ship building processes. After this the group headed to the Blast Furnace shop and had the opportunity to

22

NOVEMBER 2012


Gurumantras: PMI Purchasing Managers Index

Q) Sir, the term PMI is very commonly used in the media these days. What exactly is PMI?

exports, employment and inventories. They are determined by surveying many purchasing managers around the respective country or economy (over 400 in case of the USA), chosen on the basis of their geographical and industry diversifications.

A) PMI stands for Purchasing Managers’ Index. It is a very important and popular indicator of the economic health of the manufacturing sector.

The reason behind surveying purchasing managers for this purpose is that they are among the first to know when trading conditions, and therefore company performance, change for the better or worse. The survey is very simple and the calculation, even more so. The purchasing managers answer each question with one of only three options: “better”, “same” or “worse”, keeping their respective industry in mind. To determine the final PMI, half of the percentage of the respondents that report no change in the conditions with respect to the previous month is added to the percent of respondents that report better conditions.

Q) Could you let us know how PMI originated? A) The first PMI report was published for the US in 1948 by the Institute for Supply Management (ISM). Since then, the ISM has been releasing the PMI on the first business day of every month. The main operator and owner of the Purchasing Managers Index (PMI) series outside the US is the Markit Group, a global financial information services company. Q) How is this index determined or calculated?

Putting it more clearly, if x% of the respondents report better conditions and y% report no change as compared to the previous month, the PMI figure is (x + 0.5*y).It is obvious that the final figure would lie between 0 and 100.

A) The PMI is a composite of five “subindicators”, and each one has a weight assigned to it. Following are the sub-indices and the respective weights: • • • • •

Production level (.25) New orders (from customers) (.30) Supplier deliveries - (are they coming faster or slower?) (.15) Inventories (.10) Employment level (.20)

Q) What is the significance of PMI? A) A thumb rule suggests that a PMI of over 50 indicates expansion of the manufacturing sector as compared to the previous month, and vice versa. As is clear from the survey technique, the PMI is a sentiment reading of the purchasing managers.

These sub-indices provide unrivalled insight into key economic drivers such as inflation,

23

NOVEMBER 2012


Another important fact is that though it seems that the index concerns only the manufacturing sector, it is widely believed that it reads the economy as a whole. This is true even for the countries like the USA and India, where the services sector is predominant. The reason for this is that usually, the beginning as well as the end of recessions is deep-rooted in the manufacturing industry. So the health of the general economy is closely related to that of the manufacturing sector. Thus PMI also stands as a good indicator of future GDP levels.

the most comprehensive global economic survey available to professional investors. The data is produced using the same methodology in over 20 countries, including all emerging markets. Thus PMI serves as a means for international comparisons. The PMI represents reliable factual data on actual business conditions rather than opinion or confidencebased measurements.

Q) Are there any limitations of PMI? A) Only a few, like

An index level of 42 is considered as a benchmark for GDP expansion. If the PMI falls below 42%, it indicates a strong possibility of a recession in the near future.

Not only is the value of the index, but its rate of change also very important. A sharp drop in the index in a short time, even if the figures are above 50, could be a bad sign.

The survey is, as compared to other indicators, very subjective in its data retrieval. PMI alone is not nearly as effective. It is advisable to use it in context with more data-driven indicators like GDP.

Q) What makes PMI so unique?

REFERENCES

A) PMI has several unique benefits, namely

[1]. http://www.investopedia.com/university/ releases/napm.asp (last visited on 23rd October 2012) [2]. http://www.markit.com/en/products/rese arch-and-reports/pmis/pmi.page (last visited on 23rd October 2012) [3]. http://www.investopedia.com/terms/p/p mi.asp#axzz2A1w2AjuW (last visited on 23rd October 2012) [4]. http://en.wikipedia.org/wiki/Purchasing_ Managers_Index (last visited on 23rd October 2012)

Apart from providing a snapshot of the health of the overall economy, it also gives an insight in the subindicators like employment and inventories. It is a very timely index and is also very quick, much faster than the equivalent official data. Thus it provides the first indication of economic trends each month. The PMIs around the world survey over 20,000 different companies every month, and thus representing

24

NOVEMBER 2012


DEBATE- Is a Strong Manufacturing Base Essential for a Successful Economy?

Historically manufacturing sector have been providing jobs to people with lower education and skill sets and this is still true in developing economies. However, good education and skill sets do fetch handsome salaries. This can be attributed to the fact that the productivity in the manufacturing industry is high. This disposable income generates the demand for services and provides scope for growth.

FOR

Economies cannot succeed without having a strong manufacturing base. It means competitive and innovative processes which Aditya Polisetty PGP2012-14 are at par with the global competition so that they can develop export markets and sustain their strong hold in the domestic market.

The manufacturing sector now-a-days is mainly dependent on economies of scale. Lower production costs give advantage in the international trade and strategic sourcing which is evident in the countries like China and South Korea. This will help in growth of a nation by generating not only revenues but also by providing employment at various levels.

When we look at countries like the US (for the past century), Russia, Germany and now China (for past 2 decades) we do not fail to recognize that all of them are strong economies and manufacturing strong holds. Economies today are largely dependent on the service sector (banking, insurance, healthcare, retail, IT etc.).One should not fail to acknowledge that many of them are manufacturing based services (transportation, telecommunication, IT, insurance, etc). Generally services are mostly non tradable (except few services like banking, engineering) as they still require the service provider and the consumer to be at the same place, which requires immigration of personnel which, today, many countries discourage. This creates a scenario of low balance of payments, which on long term is not good for a nation’s economy

Economists across the world believe that developing nations like the BRIC countries should emphasize on the development of competent manufacturing sector. Large internal demands and good export markets should help them to keep good balance of payments without which growth of economies is impossible. Taking into consideration the above view points, it would not be correct to say “manufacturing good, services bad”, it’s only to drive home the point that ignoring or undervaluing the manufacturing sector means invitation for our peril.

25

NOVEMBER 2012


DEBATE- Is a Strong Manufacturing Base Essential for a Successful Economy?

manufacturing industry. This reduces the pressure on local, regional and global environments. This also prompts the countries to put emphasis on creating educated S.Sreejith and trained workers PGP2012-14 which in turn makes the global development sustainable, both environmentally and socially.

AGAINST

At present, the essential factors in measuring an economy’s progress, quality and future is the success and vitality of its service sector and not the manufacturing sector. Service sector is the primary wealth creator in developed and developing countries, owing to more that 60% of the world’s GDP. Countries all over the world have shown rising value-added share of services industry while the share of manufacturing industry has declined. Advanced economies of the world like the U.K., the U.S., Canada, etc which were predominantly manufacturing economies, have shown declining share of manufacturing sector, an indication of the inevitable post-industrialization shift. In the growing economies of the world, the service sector has grown rapidly during its transition to market economies.

Service-oriented economies are not necessarily prone to low balance of payment. Deterioration of current account of economies is not always a result of a declining manufacturing sector or an increasing service sector, but also the fiscal and monetary policies pertaining in that economy.

At the same time, the interdependencies of manufacturing and service sector are increasing. Almost 90% of the added value in products from the industry comes from services. Even the machine and plant producers are more dependent on maintenance contracts, which constitute the largest share of their turnovers rather than the actual machines. Investment goods sector is an example of firms that exist solely on services.

The niches beyond manufacturing make the service industry the easiest way to rapid and explosive development for poor and developing countries. This development can be sustained because there is a huge room for catch up and convergence. In turn, the competition in manufacturing industry and high educational levels in the developed economies will push it towards service industry. Thus it can be established that sustainable economic success can be achieved by a predominantly service based economy with a comparatively small manufacturing base.

Sustainability gives service industry an edge over manufacturing industry. The service industry is more dependent on human capital rather than natural capital when compared to

26

NOVEMBER 2012


Summer Internship Prashant Meshram PGP2011-13 Indian Institute of Management Raipur

I did my summer internship with Hero MotoCorp, Gurgaon plant. I was assigned the project titled "Projecting accuracy & defining norms in improving the service

3.Interact with project personnel in different roles to understand the current state of the project and to get a holistic picture of the business environment. Unconstrained conversations with anyone related to the subject in order to evaluate everything from the most far-out ideas to detailed improvements of forecasting algorithms. 4.Perform statistical analysis with real demand data to project accuracy of different forecast algorithms.

ratio in SPD services", Prashant Meshram PGP11-13 which was in tandem with the SCM team in the Materials Department. In course of my internship, I worked on the following lines under Spare Parts Division (SPD) i.

ii. iii.

iv.

I learnt that various components require significant improvements. The most significant factor that affected the demand variation was found to be the SCHEDULE vs. SUPPLY figures. Any fluctuation where supply is not meeting the schedule leads to the variation in the subsequent months and thus affects the service ratio to a great extent and vice versa. Dealers are trained to understand the benefits associated with the maintenance of the spare parts. Variation at the dealers end gives rise to the random demand which is transferred ultimately to the supplier end thus exhibiting the bullwhip effect. This can be minimized with the help of CFRP (Collaborative Forecasting and Replenishment Program) and proper channel alignment.

Learning the key concepts that are being used in forecasting the spare parts demand by HMCL. Projecting the accuracy in the SPD by analyzing the last three years data. Identifying the various factors that are responsible for the demand fluctuations in SPD. Recommendations to minimize the effect of the identified factors.

To attain the objectives, the following tasks have to be accomplished:

Internship at HMCL gave me an ample opportunity to relate the theory and practical aspects of business. I got a scrutinized glimpse of various forecasting methods used in manufacturing industries and how supply can be optimized for intermittent demand. It was an unforgettable learning experience to work with the world’s largest manufacturer of two wheelers.

1.A thorough study on spare parts demand forecasting has to be done to construct a speculative outline of spare part management. 2.Evaluation of the case project documentation to get a clear concept of the case.

27

NOVEMBER 2012


Summer Internship Harish Verma PGP2011-13

Indian Institute of Management Raipur

levels to be maintained. The inventory is classified on ABC and VED. Further, Optimum level of any inventory can be based on its operations, maintenance schedule and history. The optimum level of insurance inventory is mainly based on experience of engineers and managers. There cannot be any optimal level of general spares but efforts are made to keep them close to zero.

I did my Summer Internship with Jindal Power Limited (JPL), Tamnar (Chhattisgarh), (officially known as O P Jindal Super Thermal Power Plant) known to be India’s first mega Harish Verma thermal power plant PGP 2011-13 having 1000 MW (4 X 250 MW) installed capacity. The 1000 MW power plant, which is operational for the last few years, requires considerable amount to be invested for the maintenance of inventory, the levels of which are bound to increase with the number of operational years of plant, thereby creating a need to evaluate the inventory and to maintain the same at optimal levels perpetually.

I targeted the supply chain of power generation, the process of power generation, present and past inventory levels, material procurement practices, and store management practices. I had the opportunity to visit all the concerned departments namely operations, MRP, procurement, stores on weekly basis, which helped me understand the role and working of each of the departments. I could gather major information required for accomplishing the task, by interacting with the concerned officials and through official records and SOP of departments. The internship project helped me attain insight into the efforts made to maintain the inventory at optimal levels. It also helped me in gaining hands-on experience of managerial aspects of power plant operations. My work was applauded by the officials and I hope, my recommendation would help JPL manage their inventory levels and address the existing problem in an efficient way.

My task included analyzing the material management practices followed at JPL and finding out the optimum level of inventory to be maintained in order to ensure the maximum plant availability. Managing large inventory that involves thousands of plant items, is a complex task. In thermal power plant, the procurement is not essentially done on the basis of Economic Order Quantity (EOQ). Generally, long term contracts are signed for the supply of material required. Lead time plays a vital role in calculation of optimal level. The production plan dominates the inventory

28

NOVEMBER 2012


Summer Internship Abhijeet Srivastava PGP2011-13 Indian Institute of Management Raipur

As far as channel sales are concerned one of the biggest issue for any supply chain manager is to tackle inventories on hold. We tried to get into the root of the issue just to realize a lot of marketing tactics become the reason for this problem but nevertheless to retain market share companies consider this as a “necessary evil”. If supply chain lived in isolation we could have suggested some strict measures to handle this issue. But since the marketing angle also had to be kept in mind we developed moderate strategies that would neither affect the sales nor the company’s internal inventory model. We suggested auto generated reports in Oracle to track and alert for increased inventory due to billed material lying in the warehouses. Accordingly the whole supply chain from the depot to the factory would be alerted.

I did my summer internship with Berger Paints India Ltd. The company is Calcutta based and considered the second largest paint company in

Abhijeet Srivastava the country. My project was to PGP 2011-13 explore the opportunities in differentiating the service levels of the company through robust application of supply chain parameters. I got a highly competitive team at Berger Paints and after 10 days of brainstorming we found that the best way to bring in Service Differentiation through Supply Chain Management would be to reduce lead times, improve customer satisfaction, differentiate the delivery process and pull up the inventory system. At the backbone of all these modifications would obviously be the IT infrastructure of Berger paints

Learning about Facility Location was used to map the coordinates of various depots of Berger Paints in New Delhi and then suggest a theoretically perfect location for central warehouse. The calculation for this location also took the volumes served at these depots into account. Adjustments were made later on to find a practically near perfect location for central warehouse.

It was agreed that we should integrate the back end and front end nodes of the supply chain into the supply chain system of the company. For this purpose more emphasis was laid on informing the dealers about the company activities and also methods to integrate their inventory system along with that of company’s inventory system were developed.

In all the internship at Berger Paints was great learning experience. We got not just a chance to use our knowledge from the classroom teaching in the real world but also an opportunity to add vastness to that knowledge

29

NOVEMBER 2012


.

Book Review: The Toyota Way Akshay Agarwal, PGP 2011-13, Indian Institute of Management Raipur

government, Dr. Liker admits that in the following years he closely saw and studied the huge difference in the approach of the Japanese companies, especially Toyota, and the US companies, in terms of the underlying business philosophy and management principles. He further states that Toyota also stood apart from other Japanese auto companies like Mazda and Nissan.

The Toyota Way is a best seller written by Dr. Jeffrey Liker and published in 2004 by McGraw Hill. In a nutshell, the book explains the management principles and business philosophy behind the reputation of Toyota for the quality and reliability of its products. Further, the book also represents an attempt by the author to help managers in every industry, including services industry, to understand these principles as well as inculcate them in their organization to achieve lean manufacturing or processes in the true sense.

In 1991, Dr. Liker co-founded the Japan Technology Management Program at the University of Michigan. The program allowed him to focus more intensely on Toyota. By this time the Big 3 US auto makers had realized Toyota’s strength and were actively trying to compete. During these years, Dr. Liker worked in various countries and industries, trying to teach them the principles of lean manufacturing and processes. He had contributed to several books, journals and research publications, and won accolades for some of them. But writing the book “The Toyota Way” gave him the unique opportunity to put down all that he had

Dr. Liker, a professor at the University of Michigan, got involved in a US-Japan automotive study in the 1980s. In his book, he states that the automotive industry was in turmoil due to the recession and “Japanese invasion”, i.e. the capturing of the US markets by Japanese auto companies. Though the latter factor was attributed (by US auto executives) largely to collusion between the Japanese companies and the

30

NOVEMBER 2012


learnt by observing Toyota over the past twenty years in a single volume. Given Dr. Liker’s vast experience with Toyota and involvement with other companies and industries, coupled with his academic background, he seems to be one of the most appropriate persons to write “The Toyota Way”.

If one wants to summarize the book, it focuses on two pillars – Continuous Improvement (kaizen)–looking for and accepting challenges is just the way of doing business at Toyota. Respect for People – Toyota provides employment security to its employees as well as involves them in improving their jobs. Motivating the employees and nurturing mutual trust are considered to be highly imperative.

Toyota has been very open in sharing the secret of its success. It created a joint venture with GM in 1982 called NUMMI to share the famous Toyota Production System (TPS) with its global competitor. Another similar step was the setting up of Toyota Supplier Support Center (TSSC) in 1992. TSSC aimed at teaching TPS to US companies by setting up working models in units across industries and the country. These developments also made it easier for Dr. Liker to study Toyota and its practices closely.

The book has been divided into three parts: Part 1 is an introduction of the present success and the history of Toyota. It covers the evolution of TPC and its subsequent application to the Lexus and Prius. It should be noted that while “The Toyota Way” was being written, Toyota had become a major competitor for US auto companies, and was fast progressing to outrun them owing to its high profitability as well as quality. Despite the higher labor costs in Japan, Toyota outperformed the competition and had the lowest product development time, high consistency in the processes and the product quality and highly competitive pricing.

This publication is a neat and organized compilation of years of observation, interviews of over 40 Toyota managers and scores of visits which encompassed units and sales offices of Toyota, its suppliers and of American companies who tried to learn TPS. Dr. Liker has stated three goals for authoring this book:

Most companies today still use the traditional mass manufacturing approach as done by Ford and GM. On the other hand, TPS believes in incorporating flexibility in production lines to provide a variety of products and keeping costs low by eliminating waste and high utilization of resources.

1. To share his own insights of the culture of the high performing and unique organization – Toyota 2. To provide a different look at the factors contributing to its success 3. To help other companies to learn from Toyota and improve themselves.

31

NOVEMBER 2012


When TSSC took up a section of a US company which was well-known for its lean practices and processes and applied TPS, unprecedented improvements were observed. This shows the extent to which the corporate world misunderstands the concept of lean manufacturing. Lean practices are not just a set of tools like 5S and just-in-time but an entire system that must be inculcated in the very culture of the organization.

Toyota Way principles would lead to shortterm and unsustainable jumps in the performance measures.

Part 2 explains the 14 principles of the Toyota Way identified by Dr. Liker. These principles drive the tools and techniques of the TPS and Toyota’s management.

The terminology surrounding lean processes and tools have been widely used over the decade, but “The Toyota Way” suggests that most of the usage has been misleading or at least incomplete. Besides, Dr. Liker has laid emphasis on the application and success of Toyota’s principles in the services industry, which is highly relevant given the boom in this sector in the last two decades. The Toyota Way is an eye-opener for any manager or management student and has the potential to turn around the way one thinks of business.

Part 3 focuses on how other organizations can use these principles and study TPS to bring improvements in their own businesses. A separate section has been devoted for the application of the Toyota Way to services industries.

The 14 principles have been divided into four sections: 1. Long-Term Philosophy 2. The Right Process Will Produce the Right Results 3. Add Value to the Organization by Developing Your People and Partners 4. Continuously Solving Root Problems Drives Organizational Learning The above sections also display the base of their respective principles. Using a variety of TPS tools while following only a few of the

QUICK FACT Long before Detroit became renowned for the production of automobiles, the city had earned a national reputation for the manufacturing of cigars and chewing tobacco. Tobacco companies were among the city's leading employers at the turn of the twentieth century, employing more than 10,000 people. In the mid-1920s, it was estimated that 210 million cigars and 14 million pounds of chewing tobacco were produced in Detroit each year.

32

NOVEMBER 2012


Crossword

Across 1. Type of manufacturing in which the entire production process working together in harmony to achieve the goals of the firm. 3. The production of large amounts of standardized products on production lines. 7. Describes the amount of production scheduled against a plant or machine 8. Production type in which manufacturing is done by hand with or without the aid of tools. 10. Referring to a system to notify workers of a quality or process problem 11. Integrative philosophy of management for continuously improving the quality of products and processes. 12. Opposite of Process Manufacturing 13. The opposite of Just in Time manufacturing(Short form). 15. An integrated set of activities designed to achieve production using minimal inventories 18. Branch of manufacturing that is associated with formulas and manufacturing recipes.

33

NOVEMBER 2012


19. A manufacturing system in which there is some amount of flexibility that allows the system to react in the case of changes, whether predicted or unpredicted. 20. An inventory control system; it is a scheduling system that helps determine what to produce, when to produce it, and how much to produce. 21. A modern economic and social system based on industrial mass production

Down 1. A map of the path taken by a specific product as it travels down the value stream in a massproduction organization 2. The unavailability of a quantity of component needed to manufacture a works order. 4. Also known as Deming circle 5. Time required for a machine to produce different part 6. What automobile company did the lean production philosophy originate from? 9. It is a "do-it-now" approach to continuous improvement. 13. A production strategy that strives to improve a business return on investment by reducing inprocess inventory and associated carrying costs 14. A manufacturing approach in which equipment and workstations are arranged to facilitate small-lot, continuous-flow production. 16. Father of Statistical Quality Control (last name) 17. A method of creating a clean and orderly workplace that exposes waste and errors.

QUICK FACT It took Henry Ford's Motor Company seven years to manufacture 1 million Automobiles. One hundred thirty-two working days after this figure was reached (in 1924), the company had made 9 million more cars.

34

NOVEMBER 2012


Solution to Crossword

Team Strive

35

NOVEMBER 2012


Operations and Supply Chain Club Indian Institute of Management Raipur GEC Campus, Old Dhamtari Road, Sejbahar Raipur 492015, India Email: opep@iimraipur.ac.in 36 Blog: http://opepiimraipur.blogspot.in/ NOVEMBER 2012


IIM Raipur Strive Vol 2 Issue 1