DaimlerChrysler India owns a 6.6% stake in Tata Motors and the two companies have a history of forming alliances in India.
In 1994, when DCX began its manufacturing venture for Mercedes-Benz cars in India, the two companies began a 51/49 joint venture (JV), which was then known as Telco. DCX gradually increased its holding and in 2001 it bought out the entire equity held by Tata Motors. This wholly-owned unit, however, still holds the aforementioned stake in Tata Motors.
Recently Tata Motors gave the go-ahead to Mercedes-Benz's plan to manufacture commercial vehicles in India by issuing a ”no objection certificate” for the venture. According to the Economic Times, Indian government regulations required that Tata signed the certificate before Mercedes-Benz was given the go-ahead for its Indian manufacturing plans. Mercedes-Benz's parent group, DaimlerChrysler (DCX), currently imports a relatively small number of Mercedes-Benz trucks. However, this means that the vehicles in question are subject to import tariffs, and Mercedes-Benz wants to begin production at its passenger car production facility at Pune before moving assembly to a purpose-built truck facility at Chakan, near Pune.
Source: Economic Times
Wednesday, June 27, 2007
CII supporting companies that are going global
The Indian companies are going global and many of them have achieved multinational status. To facilitate this process, the Confederation of Indian Industry (CII) in partnership with major Indian companies has launched an initiative -India Inc Going Global.
It is an attempt to create a platform for established and emerging Indian companies, banks, management consultants, and law firms to come together and share insights, which can be leveraged while setting up offices overseas and acquiring overseas companies.
Chairman CII Indian MNCs Committee & Chairman GVK Biosciences said "The aim is to create an ecosystem which can accelerate the creation of multinational corporations from India. The initiative aims to provide a forum for learning sharing and addressing common challenges of the globalisation journey in an actionable format."
The initiative is being led by Asian Paints, Bharat Forge, ICICI Bank, Infosys Technologies, Mahindra & Mahindra, McKinsey & Company and Prof. Tarun Khanna, Jorge Paulo Lemann Professor of the Harvard Business School.
The initiative is organised into operational entities termed as `clusters'. These clusters are based on functional areas or common challenges and opportunities. The three operational clusters are Leadership Development & Talent Management, India Advantage and Inorganic Growth.
Deputy Managing Director ICICI Bank Ltd said the global merger and acquisition business is $4 trillion and Indian companies have only tapped one per cent of the market. Therefore the initiative will help reach this market.
Source: Hindu
It is an attempt to create a platform for established and emerging Indian companies, banks, management consultants, and law firms to come together and share insights, which can be leveraged while setting up offices overseas and acquiring overseas companies.
Chairman CII Indian MNCs Committee & Chairman GVK Biosciences said "The aim is to create an ecosystem which can accelerate the creation of multinational corporations from India. The initiative aims to provide a forum for learning sharing and addressing common challenges of the globalisation journey in an actionable format."
The initiative is being led by Asian Paints, Bharat Forge, ICICI Bank, Infosys Technologies, Mahindra & Mahindra, McKinsey & Company and Prof. Tarun Khanna, Jorge Paulo Lemann Professor of the Harvard Business School.
The initiative is organised into operational entities termed as `clusters'. These clusters are based on functional areas or common challenges and opportunities. The three operational clusters are Leadership Development & Talent Management, India Advantage and Inorganic Growth.
Deputy Managing Director ICICI Bank Ltd said the global merger and acquisition business is $4 trillion and Indian companies have only tapped one per cent of the market. Therefore the initiative will help reach this market.
Source: Hindu
Tuesday, June 19, 2007
SCM Case Study - Supply Chain Model of 'Unilever Group'
The business strategy of Unilever is to achieve the highest profitability, growth, and return-on-assets. It has sold many plants and has had to put in place processes to coordinate with the third parties that own them, complicating its processes to meet its asset goals. Unilever’s operating model has three components: quality, service, and cost. While keeping its global branding, the company’s strategy is to have local supply chain for local demand to minimize complexity.
Non Production Items (NPI) Organizational Model
Unilever has recognised the importance of implementing a global supply management programme focused on reducing Non Production Items (NPI).
The NPI organisation model being implemented in both Europe and North America (which will be extended to the rest of the world) is founded on clear cross-business governance and effective executive buying. Strategic sourcing is being supported by the global rollout of e-procurement and participation in some key Exchanges, particularly in Transora, where an equity stake is held. Regional and a few global NPI cluster teams have been formed which are undertaking a rigorous methodology to deliver the strategic sourcing strategies and implementation plans required to achieve the targeted savings.
Historically the majority of NPI's have been purchased locally, although there has been an increased move towards national and in a few instances, trans-national negotiations. European and to some extent global supply markets are becoming well established enabled in many instances through e-procurement. In such areas as IT hardware and software, travel & accommodation, energy, logistics and fleet management European and in some cases global supply markets and suppliers already exist. European markets are also emerging for office facilities, telecommunications, marketing point-of-sale items and technical supplies.
The supply-chain model's primary function within Unilever is to provide the Group’s business with shared understanding of the scope of the supply-chain and its sub-processes. The model provides the common language for the different Business Groups and thereby enables the identification and implementation of synergies. Some of Unilever's most important supply-chain model applications are assessing supply-chain performance and KPI development and alignment.
Distribution and Selling
# Unilever’s products are generally sold through its sales force and through independent brokers, agents and distributors to chain, wholesale, co-operative and independent grocery accounts, food service distributors and institutions. Products are distributed through distribution centres, satellite warehouses, company operated and public storage facilities, depots and other facilities.
# Home and Personal Care in North America (HPCNA) has also developed distribution centres for third-party manufacturers where products are collected to create heavier more efficient loads to re-supply customer distribution centres.
# Home & Personal Care business in Europe (HPCE) selects hauliers on cost, performance and environmental impact.
E-Procurement
Unilever meets two of the key corporate strategic thrusts: World Class Supply Chain and Simplification by implementing NPI strategic sourcing and e-procurement enablement. These are two of the six thrusts for implementation of world-class supply management:
# Implement executive buying
# Attract, develop and retain world-class buyers
# Professionalise NPI sourcing
# Enable e-procurement globally
# Accelerate and leverage simplification
# Drive information and measurement
Aggregation of demand and access to new suppliers through real time partnership has enabled Unilever to improve efficiencies of the extended supply chain. Workflow automation has helped in simplification of the internal processes, which has created scale for Unilever to leverage. For Unilever e-procurement represents the opportunity for sustaining the benefits gained from strategic sourcing through information, compliance and business process simplification. There are four ways of defining the benefits of e-procurement:
# A structural enabler for re-engineering the NPI procurement process enabling further benefits to be gained through strategic sourcing, business simplification, visibility of total spend and effective integration routes both internally, e.g. ERP, and externally.
# The means for conducting electronic business upstream using lowest cost links, i.e. cXML.
# A business model prompting re-evaluation of the mechanisms for connecting customers, enterprises and suppliers (incl. Exchanges and Marketplaces)
# A single front-end interface both externally to suppliers and internally for ERP and other areas of integration
Strategically e-procurement complements Unilever's overall e-initiatives. Learning from these and the strategic sourcing expertise gained during implementation, has improved business ability for the future e-procurement of both NPI and direct materials. Workflow automation and simplification to global sourcing processes has resulted in increased productivity and reduction of transaction costs. Data made available can then be applied to harmonise items purchased, rationalise needs with suppliers and monitor and reduce usage, thus further increasing Unilever's buying opportunities.
Exports
Unilever sells its products in nearly all countries throughout the world and manufacture in many of them. The company exports a wide range of products to countries where it does not makes them. For example, inside the European Union, Unilever makes many of its products in only a few member countries, for sale in all of them. The chosen manufacturing configuration is generally determined by an optimized regional sourcing strategy, which takes account of requirements for innovation, quality, service, cost and flexibility.
Global Supply Chain Management Solutions Providers
In an effort to streamline its daily operations, Unilever has partnered with several technology and logistics providers on a worldwide basis. Some of the major providers are:
Technology Providers
Some other technology providers are: -
# Manugistics Group Inc.
# SSA Global
# Syncra Systems Inc.
# Vastera Inc.
Logistics Providers
SCM Technologies in Unilever’s Business Model
Unilever's overall technology vision includes a strong push from client-server to thin-client architecture, Web technologies that bring the company closer to its customers, and business analytics to make management information easier to access, according to Rick Ballou, IT business-area director for Unilever Home and Personal Care North America.
With a market capitalization of $28 billion, the consumer-products giant reported that its recent IT achievements include the rollout of business-intelligence software from Hyperion, and "SAP ERP wall-to-wall" as a global standard. Unilever also has seen significant cost savings from its investment in Ariba's sourcing technology, which has resulted in a reduction of the office-supply purchasing budget by millions of dollars, and a consolidation of data centers from 18 to five; eventually, the number will fall to three.
A cross-functional global committee already is working on the shift from desktop client-server to portal technology. On the B2B front, in addition to its RFID efforts, Unilever is participating in an industry-wide effort to standardize data elements throughout the supply chain through UCCNet. Unilever has also expressed their continued interest in CRM.
Unilever collaborates on statistical and market promotion forecasts for key products with a few large customers, using a collaborative system from Waltham, Mass.-based Syncra Systems Inc.
The organization as whole had multiple ERP and CRM systems from several vendors, and 34 custom-built data warehouses. Unilever currently runs 100 separate, complete SAP enterprise resource-planning systems.
Similar on these lines, some of the major SCM technologies and IT solutions implemented in the business model of The Unilever Group are discussed below: -
ISIS Supply Management Information System: ISIS is Unilever’s integrated supply management information system. It helps its local, regional and global supply managers make appropriate sourcing decisions, allowing them to collate and analyse information quickly and easily. The system enables its managers to negotiate with suppliers in a transparent and efficient way, benefiting both parties. For more details on this, please visit https://isis-unilever.com/Sourcing.
E-procurement Solutions from Ariba: Unilever selected the Ariba Buyer software for e-procurement following a rigorous selection process and initial pilot in North America. Although initial success has been achieved Unilever believes that these are still early days and that the return of investment has still to be proven. While e-procurement is an inevitability for future supply chain optimisation the supply market, particularly in Europe, is still suffering from under-development. There is an emerging recognition that e-Procurement can affect total supply chain operation rather than just transactional activity. Until recently few have taken action to implement or sponsor the necessary changes. Encouragingly though, Unilever believes that this position is changing and unquestionably e-Procurement provides a catalyst for positive improvement in supply management profile.
Enterprise-Scale Data Warehouse and Business Intelligence Solutions: In order to gain a clear view of business performance across its 34 companies in 19 countries, Unilever Latin America has embarked upon an enterprise-scale data warehouse and business intelligence project called Sinfonia.
At the heart of Sinfonia, KALIDO® enterprise data warehouse creation and management software (KALIDO) provides a solution that will grow to encompass one of the largest databases in the world by 2007. KALIDO delivers an aggregated view of data across Unilever Latin America at high speed throughout constant business change such as acquisitions and market consolidation. KALIDO is now making it possible for Unilever Latin America (Unilever LA) to build and manage a fully functional, adaptive data warehouse throughout its lifecycle while simultaneously rolling out an underlying regional SAP system in a 4 to 5 year sister project called Harmonia.
The flexibility of KALIDO is enabling Unilever LA to maintain business continuity as the Sinfonia and Harmonia projects continue to roll out. The KALIDO data warehouse will grow both in geographic coverage and in scope, and is expected to reach 12 TB in size. Throughout this period of growth it will deliver consistent business information, taking increasing volumes of data from the ongoing SAP implementation.
Unilever LA is converging processes, systems and information to enable a truly regional approach to business. Using the KALIDO enterprise data warehousing solution, the organization is successfully delivering a large-scale enterprise data warehouse, on time and within budget, while simultaneously rolling out a region-wide SAP system.
The new information architecture Sinfonia, powered by KALIDO, will deliver high-quality data to 4,000 users by 8 am every day across five time zones. The solution will enable better understanding of regional supply chain processes, brands, customers and suppliers, and will allow Unilever to respond rapidly to new opportunities, even against a backdrop of constant internal and external business change.
Finally, KALIDO will facilitate strategic planning and drive improved decision-making, by delivering tailored information at high speed to key business users, enabling Unilever LA to realize substantial cost savings and improved ability to capitalize on business opportunities.
Supply Chain Information Systems: Using a variety of information systems and several other supply chain management technologies, Unilever aims to enhance its supply chain business model. The following diagram describes the company’s supply chain system vision: -
Discussed below are the various types of information systems used within the business model of The Unilever Group with their specific usage: -
# R&D System R&D System (LIMS): Used for formula development
# Specifications Systems: Used for Packaging, Raw Material, Formula, Master BOM, Finished Products and Process Specifications
# Manufacturing Planning Systems: Used for MRP, Production Orders, Purchase Orders, Standard Costs, RM/Pack/WIP Inventory, Financial Transactions, Material Masters and Production Reporting
# Planning Systems: Used for Demand Planning (DP), Demand Req Planning (DRP), Constrained Prod Planning (CPP), VMI and Finite Scheduling
# MFG Execution Systems (Various): Used for Finished Goods Production, Compounding/Batching, Quality/Lab Systems and Plant Maint Systems
# Order to Cash Systems: Used for Order Entry/Management, Terms of Sale, Deduction Tracking, Stock Allocation and Invoicing
# Finished Goods Management Systems: Used for Shipping, FG Warehouse, Transportation, Finished Goods Production (PIN) and Traceability
Supply Chain Strategies of Unilever N.V
Unilever’s logistics operations present perhaps the biggest opportunity to streamline its supply chain and boost the company’s ability to achieve its lofty growth goals. The company is in the process of consolidating its nearly 30 warehouses down to five massive distribution centers capable of shipping customer orders within a day’s time.
Much of that consolidation is a recognition that retailers are adopting zero-inventory policies, which require an optimal use of flow-through and cross docking in the warehouses. To increase asset utilization, lower inventories and improve service, Unilever adopted collaborative planning, forecasting and replenishment (CPFR) relationships with some retail customers. Thanks to those CPFR efforts, Unilever has been able to achieve 10% inventory reduction, 10% forecast accuracy improvement and 5% increase in sales due to better on-the-shelf availability.
According to Fred Berkheimer, vice president of logistics for Unilever Home and Personal Care, since orders are often impacted by factors that cannot be projected, collaboration between manufacturer and retailer is necessary to increase forecast accuracy. “High accuracy in replenishment can only be achieved through order forecast collaboration and extended supply chain visibility,” says Berkheimer. Today, Unilever’s logistics department is experiencing include improved relationships with retailers, better planning, improved on-time performance and more efficiency in handling promotions.
Path to Growth
In 2000, the company launched a five-year Path to Growth initiative to drop the total number of brands down to 400 by the end of 2004, achieve 5%-6% annual sales growth and a 16% increase in operating margins.
Three years ago, the company was running hundreds of manufacturing sites under an umbrella of 300 operating companies. Path to Growth mandates a reduction in sites to 150 locations.
Unilever's supply savings programme is one of the cornerstones within the Path to Growth Strategy towards the implementation of a world-class supply chain. Through Path to Growth, Unilever’s five-year strategic plan announced in February 2000, the company has greatly strengthened its business.
Unilever's Path to Growth Strategy
=> Reconnect with the consumer - to anticipate the future
=> Focus the brand portfolio - reflecting consumer appeal and growth potential
=> Pioneer new channels - to be in the right place at the right time
=> Develop a world-class supply chain - simplifying sourcing, manufacture, and marketing
=> Simplify the business - reducing complexity
Significant progress has been made towards the achievement of its strategic ambitions with a much more focused brand portfolio and faster growth in the leading brands, while the major reductions in costs and streamlining the asset base have resulted in sharply higher margins and improved capital efficiency.
Under the so-called "Path to Growth" strategy, Unilever first reorganized into two units—foods and nonfoods—in each major geographic area. Path to Growth also calls for Unilever, by 2004, to cut its collection of brands to 400, from a high of 1,600 two years ago. That core of 400 strong sellers—which includes SlimFast, Dove, Ben & Jerry's ice cream and Lipton tea—is expected to make up 90% to 95% of Unilever's total sales, up from 84% today. So far, 700 slow-moving brands, plus an incongruous industrial dry cleaning business, have been sold. Five hundred more are still to be divested, including a group of oils and spreads put up for sale last month.
Over the period 2000 – 2003, Unilever has generated over €16 billion of un-geared free cash flow. The company has also successfully integrated Bestfoods, one of the largest acquisitions ever made in the industry. With one more year to go under Path to Growth this creates a strong basis for the next phase of company’s development.
"Chipping of "Goods" Initiative – RFID
Unilever's Supply Chain Innovation team wants to understand how better tracking of products will affect manufacturing plants, distribution centers and stores. Unilever anticipates that manufacturing plants will have to reduce the length of product runs and make other refinements to react more quickly to changes in demand. And retailers will have to provide more timely information to suppliers.
In continuation to this strategy, on July 29, 2002, Unilever launched its third phase of a supply chain-tracking project under Britain's "Chipping of "Goods" initiative. The company planned to put RFID tags on 30,000 six-packs of Lynx deodorant and monitor them as they move from a manufacturing plant to three Safeway stores. As part of the initiative, Unilever's U.K. home and personal care products company, Lever Fabergé, is putting RFID tags on six-packs of Lynx deodorant at its factory in Leeds. After the individual cans of deodorant are made, they are vacuum-sealed and a small white label with an RFID tag in it is affixed to the package.
Sources: Company Reports, Press releases, M-a-p.co.uk, Findarticles.com, Sap.com, Logisticstoday.com, Kalido, “Unilever's NPI initiative”, By Tim Cooper-Jones, Published at M-a-p.co.uk, IEE (www.iee.org/OnComms/PN/controlauto/Unilever.pdf) and Rfidjournal.com
Non Production Items (NPI) Organizational Model
Unilever has recognised the importance of implementing a global supply management programme focused on reducing Non Production Items (NPI).
The NPI organisation model being implemented in both Europe and North America (which will be extended to the rest of the world) is founded on clear cross-business governance and effective executive buying. Strategic sourcing is being supported by the global rollout of e-procurement and participation in some key Exchanges, particularly in Transora, where an equity stake is held. Regional and a few global NPI cluster teams have been formed which are undertaking a rigorous methodology to deliver the strategic sourcing strategies and implementation plans required to achieve the targeted savings.
Historically the majority of NPI's have been purchased locally, although there has been an increased move towards national and in a few instances, trans-national negotiations. European and to some extent global supply markets are becoming well established enabled in many instances through e-procurement. In such areas as IT hardware and software, travel & accommodation, energy, logistics and fleet management European and in some cases global supply markets and suppliers already exist. European markets are also emerging for office facilities, telecommunications, marketing point-of-sale items and technical supplies.
The supply-chain model's primary function within Unilever is to provide the Group’s business with shared understanding of the scope of the supply-chain and its sub-processes. The model provides the common language for the different Business Groups and thereby enables the identification and implementation of synergies. Some of Unilever's most important supply-chain model applications are assessing supply-chain performance and KPI development and alignment.
Distribution and Selling
# Unilever’s products are generally sold through its sales force and through independent brokers, agents and distributors to chain, wholesale, co-operative and independent grocery accounts, food service distributors and institutions. Products are distributed through distribution centres, satellite warehouses, company operated and public storage facilities, depots and other facilities.
# Home and Personal Care in North America (HPCNA) has also developed distribution centres for third-party manufacturers where products are collected to create heavier more efficient loads to re-supply customer distribution centres.
# Home & Personal Care business in Europe (HPCE) selects hauliers on cost, performance and environmental impact.
E-Procurement
Unilever meets two of the key corporate strategic thrusts: World Class Supply Chain and Simplification by implementing NPI strategic sourcing and e-procurement enablement. These are two of the six thrusts for implementation of world-class supply management:
# Implement executive buying
# Attract, develop and retain world-class buyers
# Professionalise NPI sourcing
# Enable e-procurement globally
# Accelerate and leverage simplification
# Drive information and measurement
Aggregation of demand and access to new suppliers through real time partnership has enabled Unilever to improve efficiencies of the extended supply chain. Workflow automation has helped in simplification of the internal processes, which has created scale for Unilever to leverage. For Unilever e-procurement represents the opportunity for sustaining the benefits gained from strategic sourcing through information, compliance and business process simplification. There are four ways of defining the benefits of e-procurement:
# A structural enabler for re-engineering the NPI procurement process enabling further benefits to be gained through strategic sourcing, business simplification, visibility of total spend and effective integration routes both internally, e.g. ERP, and externally.
# The means for conducting electronic business upstream using lowest cost links, i.e. cXML.
# A business model prompting re-evaluation of the mechanisms for connecting customers, enterprises and suppliers (incl. Exchanges and Marketplaces)
# A single front-end interface both externally to suppliers and internally for ERP and other areas of integration
Strategically e-procurement complements Unilever's overall e-initiatives. Learning from these and the strategic sourcing expertise gained during implementation, has improved business ability for the future e-procurement of both NPI and direct materials. Workflow automation and simplification to global sourcing processes has resulted in increased productivity and reduction of transaction costs. Data made available can then be applied to harmonise items purchased, rationalise needs with suppliers and monitor and reduce usage, thus further increasing Unilever's buying opportunities.
Exports
Unilever sells its products in nearly all countries throughout the world and manufacture in many of them. The company exports a wide range of products to countries where it does not makes them. For example, inside the European Union, Unilever makes many of its products in only a few member countries, for sale in all of them. The chosen manufacturing configuration is generally determined by an optimized regional sourcing strategy, which takes account of requirements for innovation, quality, service, cost and flexibility.
Global Supply Chain Management Solutions Providers
In an effort to streamline its daily operations, Unilever has partnered with several technology and logistics providers on a worldwide basis. Some of the major providers are:
Technology Providers
Some other technology providers are: -
# Manugistics Group Inc.
# SSA Global
# Syncra Systems Inc.
# Vastera Inc.
Logistics Providers
SCM Technologies in Unilever’s Business Model
Unilever's overall technology vision includes a strong push from client-server to thin-client architecture, Web technologies that bring the company closer to its customers, and business analytics to make management information easier to access, according to Rick Ballou, IT business-area director for Unilever Home and Personal Care North America.
With a market capitalization of $28 billion, the consumer-products giant reported that its recent IT achievements include the rollout of business-intelligence software from Hyperion, and "SAP ERP wall-to-wall" as a global standard. Unilever also has seen significant cost savings from its investment in Ariba's sourcing technology, which has resulted in a reduction of the office-supply purchasing budget by millions of dollars, and a consolidation of data centers from 18 to five; eventually, the number will fall to three.
A cross-functional global committee already is working on the shift from desktop client-server to portal technology. On the B2B front, in addition to its RFID efforts, Unilever is participating in an industry-wide effort to standardize data elements throughout the supply chain through UCCNet. Unilever has also expressed their continued interest in CRM.
Unilever collaborates on statistical and market promotion forecasts for key products with a few large customers, using a collaborative system from Waltham, Mass.-based Syncra Systems Inc.
The organization as whole had multiple ERP and CRM systems from several vendors, and 34 custom-built data warehouses. Unilever currently runs 100 separate, complete SAP enterprise resource-planning systems.
Similar on these lines, some of the major SCM technologies and IT solutions implemented in the business model of The Unilever Group are discussed below: -
ISIS Supply Management Information System: ISIS is Unilever’s integrated supply management information system. It helps its local, regional and global supply managers make appropriate sourcing decisions, allowing them to collate and analyse information quickly and easily. The system enables its managers to negotiate with suppliers in a transparent and efficient way, benefiting both parties. For more details on this, please visit https://isis-unilever.com/Sourcing.
E-procurement Solutions from Ariba: Unilever selected the Ariba Buyer software for e-procurement following a rigorous selection process and initial pilot in North America. Although initial success has been achieved Unilever believes that these are still early days and that the return of investment has still to be proven. While e-procurement is an inevitability for future supply chain optimisation the supply market, particularly in Europe, is still suffering from under-development. There is an emerging recognition that e-Procurement can affect total supply chain operation rather than just transactional activity. Until recently few have taken action to implement or sponsor the necessary changes. Encouragingly though, Unilever believes that this position is changing and unquestionably e-Procurement provides a catalyst for positive improvement in supply management profile.
Enterprise-Scale Data Warehouse and Business Intelligence Solutions: In order to gain a clear view of business performance across its 34 companies in 19 countries, Unilever Latin America has embarked upon an enterprise-scale data warehouse and business intelligence project called Sinfonia.
At the heart of Sinfonia, KALIDO® enterprise data warehouse creation and management software (KALIDO) provides a solution that will grow to encompass one of the largest databases in the world by 2007. KALIDO delivers an aggregated view of data across Unilever Latin America at high speed throughout constant business change such as acquisitions and market consolidation. KALIDO is now making it possible for Unilever Latin America (Unilever LA) to build and manage a fully functional, adaptive data warehouse throughout its lifecycle while simultaneously rolling out an underlying regional SAP system in a 4 to 5 year sister project called Harmonia.
The flexibility of KALIDO is enabling Unilever LA to maintain business continuity as the Sinfonia and Harmonia projects continue to roll out. The KALIDO data warehouse will grow both in geographic coverage and in scope, and is expected to reach 12 TB in size. Throughout this period of growth it will deliver consistent business information, taking increasing volumes of data from the ongoing SAP implementation.
Unilever LA is converging processes, systems and information to enable a truly regional approach to business. Using the KALIDO enterprise data warehousing solution, the organization is successfully delivering a large-scale enterprise data warehouse, on time and within budget, while simultaneously rolling out a region-wide SAP system.
The new information architecture Sinfonia, powered by KALIDO, will deliver high-quality data to 4,000 users by 8 am every day across five time zones. The solution will enable better understanding of regional supply chain processes, brands, customers and suppliers, and will allow Unilever to respond rapidly to new opportunities, even against a backdrop of constant internal and external business change.
Finally, KALIDO will facilitate strategic planning and drive improved decision-making, by delivering tailored information at high speed to key business users, enabling Unilever LA to realize substantial cost savings and improved ability to capitalize on business opportunities.
Supply Chain Information Systems: Using a variety of information systems and several other supply chain management technologies, Unilever aims to enhance its supply chain business model. The following diagram describes the company’s supply chain system vision: -
Discussed below are the various types of information systems used within the business model of The Unilever Group with their specific usage: -
# R&D System R&D System (LIMS): Used for formula development
# Specifications Systems: Used for Packaging, Raw Material, Formula, Master BOM, Finished Products and Process Specifications
# Manufacturing Planning Systems: Used for MRP, Production Orders, Purchase Orders, Standard Costs, RM/Pack/WIP Inventory, Financial Transactions, Material Masters and Production Reporting
# Planning Systems: Used for Demand Planning (DP), Demand Req Planning (DRP), Constrained Prod Planning (CPP), VMI and Finite Scheduling
# MFG Execution Systems (Various): Used for Finished Goods Production, Compounding/Batching, Quality/Lab Systems and Plant Maint Systems
# Order to Cash Systems: Used for Order Entry/Management, Terms of Sale, Deduction Tracking, Stock Allocation and Invoicing
# Finished Goods Management Systems: Used for Shipping, FG Warehouse, Transportation, Finished Goods Production (PIN) and Traceability
Supply Chain Strategies of Unilever N.V
Unilever’s logistics operations present perhaps the biggest opportunity to streamline its supply chain and boost the company’s ability to achieve its lofty growth goals. The company is in the process of consolidating its nearly 30 warehouses down to five massive distribution centers capable of shipping customer orders within a day’s time.
Much of that consolidation is a recognition that retailers are adopting zero-inventory policies, which require an optimal use of flow-through and cross docking in the warehouses. To increase asset utilization, lower inventories and improve service, Unilever adopted collaborative planning, forecasting and replenishment (CPFR) relationships with some retail customers. Thanks to those CPFR efforts, Unilever has been able to achieve 10% inventory reduction, 10% forecast accuracy improvement and 5% increase in sales due to better on-the-shelf availability.
According to Fred Berkheimer, vice president of logistics for Unilever Home and Personal Care, since orders are often impacted by factors that cannot be projected, collaboration between manufacturer and retailer is necessary to increase forecast accuracy. “High accuracy in replenishment can only be achieved through order forecast collaboration and extended supply chain visibility,” says Berkheimer. Today, Unilever’s logistics department is experiencing include improved relationships with retailers, better planning, improved on-time performance and more efficiency in handling promotions.
Path to Growth
In 2000, the company launched a five-year Path to Growth initiative to drop the total number of brands down to 400 by the end of 2004, achieve 5%-6% annual sales growth and a 16% increase in operating margins.
Three years ago, the company was running hundreds of manufacturing sites under an umbrella of 300 operating companies. Path to Growth mandates a reduction in sites to 150 locations.
Unilever's supply savings programme is one of the cornerstones within the Path to Growth Strategy towards the implementation of a world-class supply chain. Through Path to Growth, Unilever’s five-year strategic plan announced in February 2000, the company has greatly strengthened its business.
Unilever's Path to Growth Strategy
=> Reconnect with the consumer - to anticipate the future
=> Focus the brand portfolio - reflecting consumer appeal and growth potential
=> Pioneer new channels - to be in the right place at the right time
=> Develop a world-class supply chain - simplifying sourcing, manufacture, and marketing
=> Simplify the business - reducing complexity
Significant progress has been made towards the achievement of its strategic ambitions with a much more focused brand portfolio and faster growth in the leading brands, while the major reductions in costs and streamlining the asset base have resulted in sharply higher margins and improved capital efficiency.
Under the so-called "Path to Growth" strategy, Unilever first reorganized into two units—foods and nonfoods—in each major geographic area. Path to Growth also calls for Unilever, by 2004, to cut its collection of brands to 400, from a high of 1,600 two years ago. That core of 400 strong sellers—which includes SlimFast, Dove, Ben & Jerry's ice cream and Lipton tea—is expected to make up 90% to 95% of Unilever's total sales, up from 84% today. So far, 700 slow-moving brands, plus an incongruous industrial dry cleaning business, have been sold. Five hundred more are still to be divested, including a group of oils and spreads put up for sale last month.
Over the period 2000 – 2003, Unilever has generated over €16 billion of un-geared free cash flow. The company has also successfully integrated Bestfoods, one of the largest acquisitions ever made in the industry. With one more year to go under Path to Growth this creates a strong basis for the next phase of company’s development.
"Chipping of "Goods" Initiative – RFID
Unilever's Supply Chain Innovation team wants to understand how better tracking of products will affect manufacturing plants, distribution centers and stores. Unilever anticipates that manufacturing plants will have to reduce the length of product runs and make other refinements to react more quickly to changes in demand. And retailers will have to provide more timely information to suppliers.
In continuation to this strategy, on July 29, 2002, Unilever launched its third phase of a supply chain-tracking project under Britain's "Chipping of "Goods" initiative. The company planned to put RFID tags on 30,000 six-packs of Lynx deodorant and monitor them as they move from a manufacturing plant to three Safeway stores. As part of the initiative, Unilever's U.K. home and personal care products company, Lever Fabergé, is putting RFID tags on six-packs of Lynx deodorant at its factory in Leeds. After the individual cans of deodorant are made, they are vacuum-sealed and a small white label with an RFID tag in it is affixed to the package.
Sources: Company Reports, Press releases, M-a-p.co.uk, Findarticles.com, Sap.com, Logisticstoday.com, Kalido, “Unilever's NPI initiative”, By Tim Cooper-Jones, Published at M-a-p.co.uk, IEE (www.iee.org/OnComms/PN/controlauto/Unilever.pdf) and Rfidjournal.com
Thursday, June 14, 2007
Human Capital Trends in Indian Automotive Sector
The success of Indian enterprise has encouraged foreign companies to also set up their base in India. Thanks to many Korean, Japanese, European and US auto firms for investing in India and for linking their prosperity to India’s future. All these firms, Indian and foreign, are contributing to making India an automotive and industrial powerhouse, making us a global manufacturing hub.
Amidst this phenomenal growth, there are numerous trends and developments being experienced across the human capital / resources function within the Indian automotive sector. Discussed below are excerpts of some of the available articles and editorials on this topic.
Trend 1: Reverse brain drain for Auto R&D
According to Booz Allen Hamilton, R&D spending in India has grown by 17% in 2006 whereas, comparative figures in US and Europe is only 5.2% and 2.3% respectively. With globalization, Indian corporate segment experience more and more challenges in market competitiveness and product innovation. Indian strategists are focusing on making their R&D investments judicially to get higher research output in lesser costs. Corporate India seems to have realized that product innovation is the key to survival and may serve the best competitive strategy for sustenance.
According to the Society of Indian Automobile Manufacturers, there are already over 250 Indian expatriates who have returned to work on R&D in domestic automobile companies Mahindra & Mahindra, Ashok Leyland, Tata Motors and Hindustan Motors. SIAM predicts that their numbers will double in two years.
With investments of over Rs 100,000 crore lined up in the Indian automobile industry, and European and US car majors making an aggressive push into India, Indian car companies have begun to understand the significance of R&D. Investments are small -- R&D budgets are just 1 to 2 per cent of domestic car makers' turnover -- but are expected to grow rapidly. "The return of expatriates is helping the Indian companies to overcome their human resource challenge in the field of research. The significant development of the automotive industry is now a magnetic proposition for qualified people to return and harness their knowledge," said Dilip Chenoy, director general, SIAM.
SIAM has set up a society in the US known as the Association of Scientists of Indian Origin that taps Indians working in the automobile majors there and provides access to domestic firms to identify and recruit talent in engineering and R&D. There are numerous examples.
# Arvind S Bharatwaj, for instance, took a 50 per cent cut in his salary in General Motors in the US to return to India and now heads the advanced engineering unit of Chennai-based Ashok Leyland. He has been blending the use of electronics and engineering (infotronics) in commercial vehicles to come out with new high-tech products for the company.
# Pawan Goenka, also returned after a 14-year stint with General Motors' global research and development centre in Detroit. He now heads the automotive division in Mahindra and has been the force behind the introduction of Scorpio, the most successful SUV ever launched in India. He has also prepared the blueprint to sell the Indian SUV in the US.
# V Sumantran, who was closely associated with GM's futuristic EV1 electric cars project and then played a key role in Tata Motors' small car before he quit, now advises Ashok Leyland on developing battery-operated hybrid trucks and buses.
# Raja Pant left the design development facility of Ford Motor Company in the US and is now with the body fabrication business of Tata Motors.
# Sudhir Rao, who was with General Motors engine development operations in Detroit, now works with Avtec Engines, a unit of Hindustan Motors, which supplies engines to Mitsubishi Motors and General Motors India.
Source: Business World
MY SAY
=> Although there are only few examples, more and more Indian R&D executives will come back to India.
=> As several Auto biggies have already started setting up their R&D centers in various locations of India, availability of these brains will consolidate & position India as the next R&D hub.
=> Cars in the near future will have a touch of Indian-ness in their designs.
=> After BPOs and KPOs in ITES Sector, manufacturing sector and more specifically its R&D function is going be the next BIG THING in India.
Trend 2: Auto sector in south Indian state to create 500,000 jobs
The automobile industry in Tamil Nadu in south India will be able to generate as many as 500,000 fresh jobs in the next 10 years and emerge as a 20 billion U.S. dollars industry, a study by an Indian industry chamber said Monday. The study by the Confederation of Indian Industry (CII) titled "Mapping of Human Resource Skills in Tamil Nadu - 2015" said by 2015, the auto sector will employ 580,000 people.
The southern Indian state is already home to major auto companies such as Ford, Hyundai, Ashok Leyland and components firms that employ about 80,000 people. Tamil Nadu has 30 percent share of the auto components market and 17-20 percent share of the vehicle industry in India, the CII study says, adding the sector has the potential for a six-to-seven fold increase in output.
It estimates the size of the industry in Tamil Nadu will be 15 billion U.S. dollars to 20 billion U.S. dollars by 2015. The study observes that the recent trends in the auto industry include the adoption of lean manufacturing practices, quality, shift from assemblers to contract manufacturers and techno- commercial purchases. "In product development, the auto industry needs project management and problem solving skills to identify root causes for design issues," the study says.
Source: CII
MY SAY
=> Tamil Nadu would become the Detroit of India
=> Most of the manufacturing and R&D units from Auto sector would be concentrated in this region.
=> Besides, Tamil Nadu, Maharastra is also seeing such investments and could emerge as the next preferred destination for Auto sector.
Trend 3: Stats on Market Size and HR Challenges in Indian Automobile Sector
# Growth Trend
o Auto sector could grow to $145 b by 2016
o The domestic automobile market has been growing at 14.2 per cent CAGR over the past 4 years (2000-01 to 2004-05), While the auto components market has been growing at 19.2 per cent CAGR (2000-01 to 2003-04).
o The automotive sector also offers significant employment opportunities. It employs 0.45 million people directly and around 10 million people indirectly
# HR Challenges
o Insufficient skills in certain areas, including interpersonal communication, computer literacy, and product knowledge
o Insufficient training
o Insufficient numbers of high-performance customer-facing personnel
o Difficulty securing the best talent to sales and management positions
o A low awareness of career opportunities and paths within the industry, and
o A nagging image problem for the industry exacerbating these issues
o Rajeev Dubey, president of HR and corporate services for Mahindra & Mahindra Ltd., one of the 10 largest Indian business conglomerates, says that with the exception of the relatively few managers with multinational experience, India’s homegrown managers are poorly prepared to cope with global challenges arising from mergers and acquisitions, joint ventures, and entering new markets.
o Of 50 companies in the automotive supply sector, Gaurav Lahiri, operations manager at the Hay Group India in Gurgaon, estimates that only three or four are trying out cutting-edge HR practices. “It’s a case of overpromise and no deliver,” he says. “From an intellectual standpoint everyone nods their head and says strategic HR is great. Whether leaders are engaging and motivating people on the ground is a question. We seldom come across a CEO client that loves the HR managers: They’re constantly complaining about how the HR guys are clueless on the business practices.”
MY SAY
=> I strongly feel that there is very low focus on R&D in Indian companies and thats the reason why India still lacks the ability to compete on designs and technology aspects.
=> Although we have proved to the world that we can produce the best brains yet our managers lack the experience to handle global challenges arising from M&As, JVs and globalization. However, due to the increasing investment from global auto companies in India more and more best practices would be siphoned to India that will gradually give the required exposure to Indian executives. Although it would take some time but I strongly feel that in the next 10-15 years we will see some dynamic leaders in the likes of Carlos Ghosn and Katsuaki Watanabe...
Trend 4: India the latest stop for young executives
# India has become more attractive to executives seeking a chance to test their mettle in a growing market. Some 300 new foreign executives are forecast to come to India this year, according to Kris Lakshmikanth of The Head Hunters.
# According to Evalueserve, India will need more than 100,000 expatriates by 2010. In 2002, the government reported that 13,000 expats were working in the country. Yet the need goes beyond language skills to the highest levels of management. "In India, most business is at the start-up stage, so we need managerial talent," says Sudhakar Balakrishnan, director of Adecco Consulting in Bangalore.
# Indians themselves have filled some of this shortfall, as more are staying here rather than venturing abroad - reversing decades of brain-drain. The need for foreigners remains, however, whether it is for foreign companies establishing their presence in India or for Indian companies wanting experienced Western executives.
MY SAY
=> It would eventually lead to more interaction and exposure for Indian executives.
=> Indirectly this will help in the transition of best practices to Indian corporate world.
=> More and more new executives or rather leaders will emerge from India gradually.
Trend 5: Interesting development in Mahindra & Mahindra – Search process for HR
CEOs in India went outside the HR pipeline to find executives with business acumen who could add a strategic HR perspective. For example, when the leadership team at Mahindra & Mahindra wanted strong HR leadership, they hired Yale University-educated Dubey as president of HR and corporate services. In a career path not usually seen in the United States, Dubey previously had been a CEO for two companies in the Tata Group, India’s largest private conglomerate.
“I had never been part of the HR function, but I dealt with a lot of HR issues when I was a CEO,” Dubey says. Now, he leads 150 HR professionals at Mahindra & Mahindra. “We do a lot of work that’s strategic to the success of our businesses: talent management, creating synergy, creating a culture of integration, mapping, succession planning and developing a global mind-set.”
MY SAY
=> I always feel that HRs in India lack the knowledge on actual business of their company. They are always focussed on the functions, operations and designations and totally ignore the actual requirement of competencies. This leads to the hiring of candidates who eventually prove that they were wrong hires in most of the cases.
=> This practice of picking up a candidate who was earlier a CEO is a very logical and intelligent move of M&A.
=> This offers a very logical approach of hiring i.e. depending on the main corporate strategy of the company, people in the HR function should be chosen from relevant background. This will insure that HR executives will have a clear and complete understanding of not only the human capital requirements but also the competencies required to execute corporate vision.
Trend 6: Indian tech drives autoworld
From infra-red vision in headlamps to in-car Bluetooth applications, Big Auto is turning to India for top-of-the-line technology.
Auto MNCs have been wiring back-office functions to India including supply chain management and procurement functions for their global operations. What’s new is the tech edge in the latest round of sourcing. A host of OEMs due for an India debut are looking at both component and IT sourcing as part of their regional strategy. And car makers like General Motors, Nissan, DaimlerChrysler, BMW and Ford already outsource a host of back-office functions for their global requirements.
Wipro Technologies, Satyam Computer Systems, Genpact are some of the vendors involved in auto outsourcing. Says NS Bala, senior vice-president for manufacturing solutions, Wipro Technologies, “Auto companies are focussing on managing their brands. Applications like Bluetooth in car, remote diagnostics services and new systems that seek to improve safety on roads are being outsourced to India.” Wipro Technologies has eight automobile clients and a 1,000-people team developing applications for global car majors.
Genpact’s BPO has around 1,000 people engaged in finance, accounts payable, analytics, supply chain management and procurement tasks for global auto makers.
Source: Economic Times
MY SAY
=> Its too early to pin our hopes and start projecting on this market in India due to the presence of some of the best technology companies worldwide. It would be really a tough competition for all these companies to earn a share in this market.
=> As India has an edge due to cost effectiveness and availibility of talented yet cheap labour. I foresee these companies to handle all those aspects which would be backend tools or can be outsourced.
Amidst this phenomenal growth, there are numerous trends and developments being experienced across the human capital / resources function within the Indian automotive sector. Discussed below are excerpts of some of the available articles and editorials on this topic.
Trend 1: Reverse brain drain for Auto R&D
According to Booz Allen Hamilton, R&D spending in India has grown by 17% in 2006 whereas, comparative figures in US and Europe is only 5.2% and 2.3% respectively. With globalization, Indian corporate segment experience more and more challenges in market competitiveness and product innovation. Indian strategists are focusing on making their R&D investments judicially to get higher research output in lesser costs. Corporate India seems to have realized that product innovation is the key to survival and may serve the best competitive strategy for sustenance.
According to the Society of Indian Automobile Manufacturers, there are already over 250 Indian expatriates who have returned to work on R&D in domestic automobile companies Mahindra & Mahindra, Ashok Leyland, Tata Motors and Hindustan Motors. SIAM predicts that their numbers will double in two years.
With investments of over Rs 100,000 crore lined up in the Indian automobile industry, and European and US car majors making an aggressive push into India, Indian car companies have begun to understand the significance of R&D. Investments are small -- R&D budgets are just 1 to 2 per cent of domestic car makers' turnover -- but are expected to grow rapidly. "The return of expatriates is helping the Indian companies to overcome their human resource challenge in the field of research. The significant development of the automotive industry is now a magnetic proposition for qualified people to return and harness their knowledge," said Dilip Chenoy, director general, SIAM.
SIAM has set up a society in the US known as the Association of Scientists of Indian Origin that taps Indians working in the automobile majors there and provides access to domestic firms to identify and recruit talent in engineering and R&D. There are numerous examples.
# Arvind S Bharatwaj, for instance, took a 50 per cent cut in his salary in General Motors in the US to return to India and now heads the advanced engineering unit of Chennai-based Ashok Leyland. He has been blending the use of electronics and engineering (infotronics) in commercial vehicles to come out with new high-tech products for the company.
# Pawan Goenka, also returned after a 14-year stint with General Motors' global research and development centre in Detroit. He now heads the automotive division in Mahindra and has been the force behind the introduction of Scorpio, the most successful SUV ever launched in India. He has also prepared the blueprint to sell the Indian SUV in the US.
# V Sumantran, who was closely associated with GM's futuristic EV1 electric cars project and then played a key role in Tata Motors' small car before he quit, now advises Ashok Leyland on developing battery-operated hybrid trucks and buses.
# Raja Pant left the design development facility of Ford Motor Company in the US and is now with the body fabrication business of Tata Motors.
# Sudhir Rao, who was with General Motors engine development operations in Detroit, now works with Avtec Engines, a unit of Hindustan Motors, which supplies engines to Mitsubishi Motors and General Motors India.
Source: Business World
MY SAY
=> Although there are only few examples, more and more Indian R&D executives will come back to India.
=> As several Auto biggies have already started setting up their R&D centers in various locations of India, availability of these brains will consolidate & position India as the next R&D hub.
=> Cars in the near future will have a touch of Indian-ness in their designs.
=> After BPOs and KPOs in ITES Sector, manufacturing sector and more specifically its R&D function is going be the next BIG THING in India.
Trend 2: Auto sector in south Indian state to create 500,000 jobs
The automobile industry in Tamil Nadu in south India will be able to generate as many as 500,000 fresh jobs in the next 10 years and emerge as a 20 billion U.S. dollars industry, a study by an Indian industry chamber said Monday. The study by the Confederation of Indian Industry (CII) titled "Mapping of Human Resource Skills in Tamil Nadu - 2015" said by 2015, the auto sector will employ 580,000 people.
The southern Indian state is already home to major auto companies such as Ford, Hyundai, Ashok Leyland and components firms that employ about 80,000 people. Tamil Nadu has 30 percent share of the auto components market and 17-20 percent share of the vehicle industry in India, the CII study says, adding the sector has the potential for a six-to-seven fold increase in output.
It estimates the size of the industry in Tamil Nadu will be 15 billion U.S. dollars to 20 billion U.S. dollars by 2015. The study observes that the recent trends in the auto industry include the adoption of lean manufacturing practices, quality, shift from assemblers to contract manufacturers and techno- commercial purchases. "In product development, the auto industry needs project management and problem solving skills to identify root causes for design issues," the study says.
Source: CII
MY SAY
=> Tamil Nadu would become the Detroit of India
=> Most of the manufacturing and R&D units from Auto sector would be concentrated in this region.
=> Besides, Tamil Nadu, Maharastra is also seeing such investments and could emerge as the next preferred destination for Auto sector.
Trend 3: Stats on Market Size and HR Challenges in Indian Automobile Sector
# Growth Trend
o Auto sector could grow to $145 b by 2016
o The domestic automobile market has been growing at 14.2 per cent CAGR over the past 4 years (2000-01 to 2004-05), While the auto components market has been growing at 19.2 per cent CAGR (2000-01 to 2003-04).
o The automotive sector also offers significant employment opportunities. It employs 0.45 million people directly and around 10 million people indirectly
# HR Challenges
o Insufficient skills in certain areas, including interpersonal communication, computer literacy, and product knowledge
o Insufficient training
o Insufficient numbers of high-performance customer-facing personnel
o Difficulty securing the best talent to sales and management positions
o A low awareness of career opportunities and paths within the industry, and
o A nagging image problem for the industry exacerbating these issues
o Rajeev Dubey, president of HR and corporate services for Mahindra & Mahindra Ltd., one of the 10 largest Indian business conglomerates, says that with the exception of the relatively few managers with multinational experience, India’s homegrown managers are poorly prepared to cope with global challenges arising from mergers and acquisitions, joint ventures, and entering new markets.
o Of 50 companies in the automotive supply sector, Gaurav Lahiri, operations manager at the Hay Group India in Gurgaon, estimates that only three or four are trying out cutting-edge HR practices. “It’s a case of overpromise and no deliver,” he says. “From an intellectual standpoint everyone nods their head and says strategic HR is great. Whether leaders are engaging and motivating people on the ground is a question. We seldom come across a CEO client that loves the HR managers: They’re constantly complaining about how the HR guys are clueless on the business practices.”
MY SAY
=> I strongly feel that there is very low focus on R&D in Indian companies and thats the reason why India still lacks the ability to compete on designs and technology aspects.
=> Although we have proved to the world that we can produce the best brains yet our managers lack the experience to handle global challenges arising from M&As, JVs and globalization. However, due to the increasing investment from global auto companies in India more and more best practices would be siphoned to India that will gradually give the required exposure to Indian executives. Although it would take some time but I strongly feel that in the next 10-15 years we will see some dynamic leaders in the likes of Carlos Ghosn and Katsuaki Watanabe...
Trend 4: India the latest stop for young executives
# India has become more attractive to executives seeking a chance to test their mettle in a growing market. Some 300 new foreign executives are forecast to come to India this year, according to Kris Lakshmikanth of The Head Hunters.
# According to Evalueserve, India will need more than 100,000 expatriates by 2010. In 2002, the government reported that 13,000 expats were working in the country. Yet the need goes beyond language skills to the highest levels of management. "In India, most business is at the start-up stage, so we need managerial talent," says Sudhakar Balakrishnan, director of Adecco Consulting in Bangalore.
# Indians themselves have filled some of this shortfall, as more are staying here rather than venturing abroad - reversing decades of brain-drain. The need for foreigners remains, however, whether it is for foreign companies establishing their presence in India or for Indian companies wanting experienced Western executives.
MY SAY
=> It would eventually lead to more interaction and exposure for Indian executives.
=> Indirectly this will help in the transition of best practices to Indian corporate world.
=> More and more new executives or rather leaders will emerge from India gradually.
Trend 5: Interesting development in Mahindra & Mahindra – Search process for HR
CEOs in India went outside the HR pipeline to find executives with business acumen who could add a strategic HR perspective. For example, when the leadership team at Mahindra & Mahindra wanted strong HR leadership, they hired Yale University-educated Dubey as president of HR and corporate services. In a career path not usually seen in the United States, Dubey previously had been a CEO for two companies in the Tata Group, India’s largest private conglomerate.
“I had never been part of the HR function, but I dealt with a lot of HR issues when I was a CEO,” Dubey says. Now, he leads 150 HR professionals at Mahindra & Mahindra. “We do a lot of work that’s strategic to the success of our businesses: talent management, creating synergy, creating a culture of integration, mapping, succession planning and developing a global mind-set.”
MY SAY
=> I always feel that HRs in India lack the knowledge on actual business of their company. They are always focussed on the functions, operations and designations and totally ignore the actual requirement of competencies. This leads to the hiring of candidates who eventually prove that they were wrong hires in most of the cases.
=> This practice of picking up a candidate who was earlier a CEO is a very logical and intelligent move of M&A.
=> This offers a very logical approach of hiring i.e. depending on the main corporate strategy of the company, people in the HR function should be chosen from relevant background. This will insure that HR executives will have a clear and complete understanding of not only the human capital requirements but also the competencies required to execute corporate vision.
Trend 6: Indian tech drives autoworld
From infra-red vision in headlamps to in-car Bluetooth applications, Big Auto is turning to India for top-of-the-line technology.
Auto MNCs have been wiring back-office functions to India including supply chain management and procurement functions for their global operations. What’s new is the tech edge in the latest round of sourcing. A host of OEMs due for an India debut are looking at both component and IT sourcing as part of their regional strategy. And car makers like General Motors, Nissan, DaimlerChrysler, BMW and Ford already outsource a host of back-office functions for their global requirements.
Wipro Technologies, Satyam Computer Systems, Genpact are some of the vendors involved in auto outsourcing. Says NS Bala, senior vice-president for manufacturing solutions, Wipro Technologies, “Auto companies are focussing on managing their brands. Applications like Bluetooth in car, remote diagnostics services and new systems that seek to improve safety on roads are being outsourced to India.” Wipro Technologies has eight automobile clients and a 1,000-people team developing applications for global car majors.
Genpact’s BPO has around 1,000 people engaged in finance, accounts payable, analytics, supply chain management and procurement tasks for global auto makers.
Source: Economic Times
MY SAY
=> Its too early to pin our hopes and start projecting on this market in India due to the presence of some of the best technology companies worldwide. It would be really a tough competition for all these companies to earn a share in this market.
=> As India has an edge due to cost effectiveness and availibility of talented yet cheap labour. I foresee these companies to handle all those aspects which would be backend tools or can be outsourced.
India Inc. facing an attrition rate of 20%
Increasing opportunities and employee aspirations induced by robust economic growth have led to an unhealthy attrition rate, exceeding 20 per cent for India Inc, with services sector facing the maximum brunt, an ASSOCHAM study shows.
An ASSOCHAM Business Barometer Survey on 'Attrition Problem in a Growing Economy' has revealed that attrition rate at 40 per cent is alarming in the services sector, while the same in manufacturing was 20 per cent.
Maximum attrition is taking place among employees in the age group of 26-30 years, while those with an experience of 2-4 years are most vulnerable to job-hopping, the survey covering 160 HR heads noted.
Interestingly, women employees were less prone to job changing compared to men.
"For every 10 males jumping the fence there were only two females crossing over. Even if women face the pressure of balancing the management of their families and workplace, they tend to be more stable than their male colleagues," 52 per cent of HR managers surveyed said.
With India joining the globalised world of business, the movement of workforce across national boundaries has also added to the rising level of employee turnover, according to 72 per cent of the ABB respondents.
The immediate gains in salary package was found to be responsible for job change in 61 per cent of the cases, growth potential was also rated quite high as an important reason.
Source: ASSOCHAM
An ASSOCHAM Business Barometer Survey on 'Attrition Problem in a Growing Economy' has revealed that attrition rate at 40 per cent is alarming in the services sector, while the same in manufacturing was 20 per cent.
Maximum attrition is taking place among employees in the age group of 26-30 years, while those with an experience of 2-4 years are most vulnerable to job-hopping, the survey covering 160 HR heads noted.
Interestingly, women employees were less prone to job changing compared to men.
"For every 10 males jumping the fence there were only two females crossing over. Even if women face the pressure of balancing the management of their families and workplace, they tend to be more stable than their male colleagues," 52 per cent of HR managers surveyed said.
With India joining the globalised world of business, the movement of workforce across national boundaries has also added to the rising level of employee turnover, according to 72 per cent of the ABB respondents.
The immediate gains in salary package was found to be responsible for job change in 61 per cent of the cases, growth potential was also rated quite high as an important reason.
Source: ASSOCHAM
Auction websites changing traditional M&A processes in India & the World
Investment bankers have found a new rival in executing merger and acquisition deals in the form of the Internet, which allows sale or purchase of a company at the the click of a mouse.
Marking a significant coming-of-age for the e-commerce industry, online auction platforms like eBay are no more just about selling or buying consumer goods. In fact, entire companies are being sold and acquired on these websites in a simpler, faster and cheaper way than the traditional methods involving a plethora of investment bankers and advisors.
The trend is catching up fast in India as well after a number of successful deals in the US and other countries.
A Lucknow-based telecom firm is seeking bids for 25% stake in the company on eBay India website, a retail outlet in Kharagpur is on sale for a minimum of Rs18 lakh, while another electric vehicle manufactruing firm from the country is also soliciting potential buyers on the website.
Besides, an operational job portal Alphacareer.com, based in Bangalore, has also listed itself for sale on the eBay USA website and is seeking buyers from across the world.
Another e-commerce website focussed on sale and purchase of a business, Biz Buy Sell, has a US-based company seeking buyer for its fully-staffed Indian software developement subsidiary in Mumbai at a base price of $500,000.
There are several other such examples on some of these auction sites.
Inference
Market experts believe prospects for such deals in India should improve further, given the growing number of Internet users and increasing awareness about such websites.
According to web traffic tracking firm comScore, India is already one of the ten most populous countries in terms of Internet users and is growing at a sharp rate.
Source: PTI
Marking a significant coming-of-age for the e-commerce industry, online auction platforms like eBay are no more just about selling or buying consumer goods. In fact, entire companies are being sold and acquired on these websites in a simpler, faster and cheaper way than the traditional methods involving a plethora of investment bankers and advisors.
The trend is catching up fast in India as well after a number of successful deals in the US and other countries.
A Lucknow-based telecom firm is seeking bids for 25% stake in the company on eBay India website, a retail outlet in Kharagpur is on sale for a minimum of Rs18 lakh, while another electric vehicle manufactruing firm from the country is also soliciting potential buyers on the website.
Besides, an operational job portal Alphacareer.com, based in Bangalore, has also listed itself for sale on the eBay USA website and is seeking buyers from across the world.
Another e-commerce website focussed on sale and purchase of a business, Biz Buy Sell, has a US-based company seeking buyer for its fully-staffed Indian software developement subsidiary in Mumbai at a base price of $500,000.
There are several other such examples on some of these auction sites.
Inference
Market experts believe prospects for such deals in India should improve further, given the growing number of Internet users and increasing awareness about such websites.
According to web traffic tracking firm comScore, India is already one of the ten most populous countries in terms of Internet users and is growing at a sharp rate.
Source: PTI
Capital flows can hurt India competitiveness - RBI
Large capital inflows could result in overvaluation of India's currency and erode competitiveness of traditional and goods sectors in the long term, deputy governor of the Reserve Bank of India (RBI) said on Thursday.
Rakesh Mohan, in a paper for a Bank of France seminar in Paris posted on the RBI's Web site www.rbi.org.in, said large remittances and a sustained spurt in software exports were complicating exchange rate management. "(These) coupled with capital inflows have the potential for possible overvaluation of the currency and the resultant erosion of long-term competitiveness of other traditional and goods sectors," Mohan said.
India is part of the way through a three-phase, five-year plan towards greater capital account convertibility. Mohan said opening up the capital account meant market participants needed to be better able to absorb greater volatility and shocks.
"In the context of progress towards further capital account convertibility, the market participants are going to be faced with increased risks on multiple accounts: volatility in capital flows, volatility in asset prices, increased contagion and state of ability of legacy institutions in managing risks."
Source: Reuters
Rakesh Mohan, in a paper for a Bank of France seminar in Paris posted on the RBI's Web site www.rbi.org.in, said large remittances and a sustained spurt in software exports were complicating exchange rate management. "(These) coupled with capital inflows have the potential for possible overvaluation of the currency and the resultant erosion of long-term competitiveness of other traditional and goods sectors," Mohan said.
India is part of the way through a three-phase, five-year plan towards greater capital account convertibility. Mohan said opening up the capital account meant market participants needed to be better able to absorb greater volatility and shocks.
"In the context of progress towards further capital account convertibility, the market participants are going to be faced with increased risks on multiple accounts: volatility in capital flows, volatility in asset prices, increased contagion and state of ability of legacy institutions in managing risks."
Source: Reuters
Prospects of Semiconductor Production in India
According to Gartner, semiconductor manufacturing in India is currently limited, and although there are no operational wafer fab plants in the country right now, five fab plants have been proposed, with approved ones targeted to go live between 2009 and 2010.
Philip Koh, Gartner's research vice president of semiconductor for Asia-Pacific acknowledged the "possibility" that electronics manufacturing services providers in Southeast Asia may move some of the manufacturing facilities to India, but noted that OEM (original equipment manufacturer) investments moving out of the region are not significant right now.
In recent years, electronics manufacturing services providers have set up plants in India, and equipment manufacturers such as Samsung and Nokia are also establishing their mobile-phone manufacturing plants in India, he noted.
Ganesh Ramamoorthy, Gartner's principal research analyst based in Mumbai, India, said that rising salaries and disposable income levels are driving up India's consumption of hi-tech products, such as PMPs, DVD players and notebooks. India's current semiconductor consumption is estimated at about $2.7bn (£1.4bn).
To cater to the rapidly growing domestic market, OEMs including Nokia and Motorola are building manufacturing plants in India, Ramamoorthy said.
He added that the initial focus will be to cater to the local market for up to three years, with a strong possibility of ramping up production to cater to export markets in neighbouring countries such as United Arab Emirates, Sri Lanka, Pakistan and Bangladesh by as early as 2008.
Exports to these countries currently account for less than five percent of India's total production, but that is likely to change, according to Gartner.
Ramamoorthy said that by 2011, between 10 percent and 20 percent of mobile-phone production, for example, could be for export. For instance, if 100 million phones are going to be produced in India by then, 20 percent will be for the export market.
India's equipment production in 2006 amounted to about US$14bn (£7bn), and is expected to increase to US$30bn (£15bn) by 2011, said Gartner.
Source: Gartner
Philip Koh, Gartner's research vice president of semiconductor for Asia-Pacific acknowledged the "possibility" that electronics manufacturing services providers in Southeast Asia may move some of the manufacturing facilities to India, but noted that OEM (original equipment manufacturer) investments moving out of the region are not significant right now.
In recent years, electronics manufacturing services providers have set up plants in India, and equipment manufacturers such as Samsung and Nokia are also establishing their mobile-phone manufacturing plants in India, he noted.
Ganesh Ramamoorthy, Gartner's principal research analyst based in Mumbai, India, said that rising salaries and disposable income levels are driving up India's consumption of hi-tech products, such as PMPs, DVD players and notebooks. India's current semiconductor consumption is estimated at about $2.7bn (£1.4bn).
To cater to the rapidly growing domestic market, OEMs including Nokia and Motorola are building manufacturing plants in India, Ramamoorthy said.
He added that the initial focus will be to cater to the local market for up to three years, with a strong possibility of ramping up production to cater to export markets in neighbouring countries such as United Arab Emirates, Sri Lanka, Pakistan and Bangladesh by as early as 2008.
Exports to these countries currently account for less than five percent of India's total production, but that is likely to change, according to Gartner.
Ramamoorthy said that by 2011, between 10 percent and 20 percent of mobile-phone production, for example, could be for export. For instance, if 100 million phones are going to be produced in India by then, 20 percent will be for the export market.
India's equipment production in 2006 amounted to about US$14bn (£7bn), and is expected to increase to US$30bn (£15bn) by 2011, said Gartner.
Source: Gartner
India’s airline sector anticipating more consolidation
India’s booming airline industry will see further consolidation by 2010 amid growing competition, rising costs and over-capacity along key routes, an industry body said on 13 June.
At least fourteen new airlines such as Easy Air, Trans India and Star Air are seeking government approval to launch operations.
From just three private airlines in 2003, the number has jumped to ten, including low-cost carriers such as SpiceJet, Go Air, Paramount Airways and IndiGo. “Carrier rationalisation along key routes is required, as we see over-concentration of seat capacity along main routes,” said Kapil Kaul, chief executive with responsibility for the Indian subcontinent at the Centre for Asia Pacific Aviation (CAPA) on 13 June.
“Greater consolidation is expected to continue... in the form of strategic alliances, market exits and buyouts of smaller airlines,” he said on the last day of a three-day aviation summit in India’s financial capital. India’s low-cost carriers (LCCs) captured 35% of market share in April this year, Kaul said.
These budget carriers are likely to double their market share by 2010 -- one of the highest in the world, the CAPA said in a recent report on the Indian subcontinent. The performance of two new LCCs -- Air India Express and JetLite (formerly Air Sahara) -- in the domestic market is likely to be closely watched.
“The overall picture in India for present is one of growth, but against a backdrop of extreme, and mounting, unprofitability,” the CAPA report said. India’s airline industry lost 500 million dollars in the year ending March 2007, spurring domestic players to buy rivals.
The country’s largest domestic carrier Jet Airways bought competitor Air Sahara for nearly 340 million dollars in April, followed by a deal between Kingfisher and Air Deccan airlines in May.
India’s airlines have expanded aggressively in recent years, with about 480 aircraft on order for delivery through to 2012.
Source: Wall Street Journal
At least fourteen new airlines such as Easy Air, Trans India and Star Air are seeking government approval to launch operations.
From just three private airlines in 2003, the number has jumped to ten, including low-cost carriers such as SpiceJet, Go Air, Paramount Airways and IndiGo. “Carrier rationalisation along key routes is required, as we see over-concentration of seat capacity along main routes,” said Kapil Kaul, chief executive with responsibility for the Indian subcontinent at the Centre for Asia Pacific Aviation (CAPA) on 13 June.
“Greater consolidation is expected to continue... in the form of strategic alliances, market exits and buyouts of smaller airlines,” he said on the last day of a three-day aviation summit in India’s financial capital. India’s low-cost carriers (LCCs) captured 35% of market share in April this year, Kaul said.
These budget carriers are likely to double their market share by 2010 -- one of the highest in the world, the CAPA said in a recent report on the Indian subcontinent. The performance of two new LCCs -- Air India Express and JetLite (formerly Air Sahara) -- in the domestic market is likely to be closely watched.
“The overall picture in India for present is one of growth, but against a backdrop of extreme, and mounting, unprofitability,” the CAPA report said. India’s airline industry lost 500 million dollars in the year ending March 2007, spurring domestic players to buy rivals.
The country’s largest domestic carrier Jet Airways bought competitor Air Sahara for nearly 340 million dollars in April, followed by a deal between Kingfisher and Air Deccan airlines in May.
India’s airlines have expanded aggressively in recent years, with about 480 aircraft on order for delivery through to 2012.
Source: Wall Street Journal
Chip industry cuts 2007 growth forecast
The Semiconductor Industry Assn. cut its forecast for the market's growth this year to 1.8% on Wednesday, citing falling prices for memory chips and microprocessors.
Sales of processors will drop 1.6% to $32.6 billion, the San Jose-based group said. Revenue from flash memory chips, used in digital cameras and music players, will be little changed, the trade association said. It had earlier forecast a 10% rise in total chip sales this year.
The SIA's revised outlook mirrors that of other forecasters, who have said that although semiconductor makers are selling more chips, too much production and competition are pulling down prices. Last month, research firm Gartner Inc. cut its growth projection for this year to 2.5%. Trade group WSTS Inc. expects a 2.3% sales gain.
"End markets continue to be strong, with consumers realizing major benefits from lower chip prices," SIA President George Scalise said. A fall in the price of processors and memory chips is "the major factor contributing to lower growth than previously projected."
The SIA expects industry sales to reach a record $252 billion this year and grow to $306 billion in 2010.
Samsung Electronics Co., the world's second-largest chip maker, and other manufacturers suffered a 33% decline in the average selling price of dynamic random access memory chips between December and April, according to the SIA. DRAM provides the main memory for personal computers.
The market for processors, the "brains" of PCs, faces increasing price competition between Intel Corp., the world's largest chip maker, and Advanced Micro Devices Inc., the SIA said. PC sales are still expected to grow 10% this year to 255 million units.
Source: Bloomberg
Sales of processors will drop 1.6% to $32.6 billion, the San Jose-based group said. Revenue from flash memory chips, used in digital cameras and music players, will be little changed, the trade association said. It had earlier forecast a 10% rise in total chip sales this year.
The SIA's revised outlook mirrors that of other forecasters, who have said that although semiconductor makers are selling more chips, too much production and competition are pulling down prices. Last month, research firm Gartner Inc. cut its growth projection for this year to 2.5%. Trade group WSTS Inc. expects a 2.3% sales gain.
"End markets continue to be strong, with consumers realizing major benefits from lower chip prices," SIA President George Scalise said. A fall in the price of processors and memory chips is "the major factor contributing to lower growth than previously projected."
The SIA expects industry sales to reach a record $252 billion this year and grow to $306 billion in 2010.
Samsung Electronics Co., the world's second-largest chip maker, and other manufacturers suffered a 33% decline in the average selling price of dynamic random access memory chips between December and April, according to the SIA. DRAM provides the main memory for personal computers.
The market for processors, the "brains" of PCs, faces increasing price competition between Intel Corp., the world's largest chip maker, and Advanced Micro Devices Inc., the SIA said. PC sales are still expected to grow 10% this year to 255 million units.
Source: Bloomberg
Wednesday, June 13, 2007
Indian M&A Deals - H1 2007 update
According to data compiled by global consultancy firm Grant Thornton, 42 cross-border deals with an announced value of $4.11 billion were carried out by Corporate India in May, while 32 domestic M&As garnered just $0.26 billion to their kitty.
The total number of M&A deals announced in May was worth $4.37 billion, with United Spirits buying out Whyte & Mackay for $1.11 billion, and Suzlon Energy’s controlling stake in REpower for 1.7 billion dollars, being the most significant deals of the month, Thorton said.
The M&A deals in the month totalled 74 with announced values of $4.37 billion as against 57 deals worth $3.98 billion in April, Thornton’s Dealtracker report said.
Out of the total cross-border deals, 30 were outbound with Indian companies acquiring businesses outside the country for a value of $3.79 billion.
There were 12 inbound deals (international companies acquiring Indian businesses) with an announced value of close to $0.32 billion. Besides, the total number of private equity deals announced during the month stands at 24 with an announced value of $1.56 billion as against 23 deals with a total announced value of $0.44 billion in April.
Some top deals
Canadian steel maker Algoma’s shareholders approved the $1.74 billion sale of the company to Essar Steel Holdings, clearing the way for a deal struck in mid-April. Algoma said it expects the acquisition to be completed by June 18.
May’s largest deals were United Spirits’ acquisition of Scottish beverage maker Whyte and Mackay for $1.2 billion and Suzlon Energy’s purchase of a controlling stake in Germany’s RE Power for $1.7 billion.
According to Grant Thornton Corporate Advisory Services - The average size of acquisitions in 2007 has been about $160 million to $180 million but that number has been inflated by a few multibillion-dollar deals. Out of the 287 M&A deals reported so far this year, only about 20 have been worth more than $160 million.
Deal activity is likely to remain brisk in technology and pharmaceuticals. Telecom, which saw one of the largest inbound acquisitions of the year when British giant Vodafone agreed to buy Hutchison Telecom’s stake in Hutchison Essar for $11.1 billion, is another possible venue for more deals, but it would likely consist of fewer transactions with larger value.
India is the world’s fastest-growing cellular market, adding over 6 million subscribers a month.
World Bank’s private sector arm, International Finance Corporation (IFC) invested 30 million dollars in Kanoria Chemicals and Electrotherm India in May.
Private equity investor Sequoia Capital invested about $7 milion in IT firm Minglebox.com, while Reliance Capital picked up a stake in Precision Wires for $4.12 million, the data show.
Some of the major inbound cross-border deals include French banking major BNP Paribas’s acquisition of 45 per cent stake in financial services firm Sundaram Home Finance for $45.81 million.
Besides, Standard Chartered Bank bought 49 per cent stake for $34.19 million in UTI Securities and Interpublic Group hiked its stake in Lintas India to 100 per cent for $100 million.
In March and April, there were 111 M&A deals with a total value of about $6.12 billion. These included 62 domestic deals with a value of $0.73 billion. The number of inbound cross-border deals has been 17 with a value of $1.98 billion and the number of outbound cross border deals was 32 with a value of $3.41 billion.
The total number of M&A deals announced in May was worth $4.37 billion, with United Spirits buying out Whyte & Mackay for $1.11 billion, and Suzlon Energy’s controlling stake in REpower for 1.7 billion dollars, being the most significant deals of the month, Thorton said.
The M&A deals in the month totalled 74 with announced values of $4.37 billion as against 57 deals worth $3.98 billion in April, Thornton’s Dealtracker report said.
Out of the total cross-border deals, 30 were outbound with Indian companies acquiring businesses outside the country for a value of $3.79 billion.
There were 12 inbound deals (international companies acquiring Indian businesses) with an announced value of close to $0.32 billion. Besides, the total number of private equity deals announced during the month stands at 24 with an announced value of $1.56 billion as against 23 deals with a total announced value of $0.44 billion in April.
Some top deals
Canadian steel maker Algoma’s shareholders approved the $1.74 billion sale of the company to Essar Steel Holdings, clearing the way for a deal struck in mid-April. Algoma said it expects the acquisition to be completed by June 18.
May’s largest deals were United Spirits’ acquisition of Scottish beverage maker Whyte and Mackay for $1.2 billion and Suzlon Energy’s purchase of a controlling stake in Germany’s RE Power for $1.7 billion.
According to Grant Thornton Corporate Advisory Services - The average size of acquisitions in 2007 has been about $160 million to $180 million but that number has been inflated by a few multibillion-dollar deals. Out of the 287 M&A deals reported so far this year, only about 20 have been worth more than $160 million.
Deal activity is likely to remain brisk in technology and pharmaceuticals. Telecom, which saw one of the largest inbound acquisitions of the year when British giant Vodafone agreed to buy Hutchison Telecom’s stake in Hutchison Essar for $11.1 billion, is another possible venue for more deals, but it would likely consist of fewer transactions with larger value.
India is the world’s fastest-growing cellular market, adding over 6 million subscribers a month.
World Bank’s private sector arm, International Finance Corporation (IFC) invested 30 million dollars in Kanoria Chemicals and Electrotherm India in May.
Private equity investor Sequoia Capital invested about $7 milion in IT firm Minglebox.com, while Reliance Capital picked up a stake in Precision Wires for $4.12 million, the data show.
Some of the major inbound cross-border deals include French banking major BNP Paribas’s acquisition of 45 per cent stake in financial services firm Sundaram Home Finance for $45.81 million.
Besides, Standard Chartered Bank bought 49 per cent stake for $34.19 million in UTI Securities and Interpublic Group hiked its stake in Lintas India to 100 per cent for $100 million.
In March and April, there were 111 M&A deals with a total value of about $6.12 billion. These included 62 domestic deals with a value of $0.73 billion. The number of inbound cross-border deals has been 17 with a value of $1.98 billion and the number of outbound cross border deals was 32 with a value of $3.41 billion.
Multi-national 3PLs not getting returns in China
According to a recent publication by China Supply Chain Council (CSCC) and Global Supply Chain Council, many multi-national 3PLs in China, despite the initial euphoria of having acquired or entering into JVs with successful Chinese counterparts, have yet to show an equitable return on their investments in China.
In fact, despite the initial promise of having door-to-door capabilities stretching from sourcing of raw materials and manufacturing of goods in China all the way to delivering finished products to the hands of consumers in the developed world have yet to reap justifiable returns. It seems that many of these multi-national 3PLs are still offering their services as if they were mere freight forwarders, and are having serious problems in getting their new offerings to the consciousness of shippers.
In fact, despite the initial promise of having door-to-door capabilities stretching from sourcing of raw materials and manufacturing of goods in China all the way to delivering finished products to the hands of consumers in the developed world have yet to reap justifiable returns. It seems that many of these multi-national 3PLs are still offering their services as if they were mere freight forwarders, and are having serious problems in getting their new offerings to the consciousness of shippers.
Tuesday, June 5, 2007
Global Logistics: Thinking beyond BRIC
Business dialogue around low-cost-country sourcing and emerging markets has become almost ubiquitous. But many of those conversations are limited to the BRIC countries: Brazil, Russia, India, and China. That’s unfortunate, since a great many opportunities also exist in Central and Eastern Europe (CEE).
In fact, Accenture’s recent research initiative on global operations found that emerging CEE markets are coveted by more companies than those of any country with the exception of China and India. Among European executives, Central and Eastern Europe was cited as the second most important emerging market next to China.
Why Central and Eastern Europe? One good reason is that most CEE countries are now part of the European Union. Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia joined in 2004. Bulgaria and Rumania were admitted in early 2007 and admittance of Turkey is pending. For companies outside the region, EU accession means new market and offshoring opportunities—as well as more freedom to conduct barrier-free business.
Central and Eastern European companies are also working hard to update their facilities, seeking to match Western levels of unit cost, quality and product availability, and thus make their businesses more sustainable and attractive to Western buyers. Even with these upgrades, CEE wages remain far lower than in Western Europe, and it could be 20 years before the gap closes completely.
Other potential advantages for non-CEE companies include more potential transportation modes and fewer problems with language and culture. Distance-related savings can also be a factor since, compared to Asia, the back-and-forth movement of parts and finished goods between CEE and Western Europe involves about one-tenth the distance. However, distance-related cost differences are not always as significant as one might suppose. Careful study is critical.
Barriers and challenges
While the reasons above are promising for those looking to the region as a source of new sales and sourcing opportunities, the road to Central and Eastern Europe can still be a bumpy ride. In fact, many companies may find that the time is not yet right to factor this region into their global strategies. They may, for example, discover that the advantages of EU accession, lower wages, and shorter distances are offset by lingering problems with intra-country transport. Cabotage is still prohibited for the 12 recently joined EU countries. This limits outsiders’ ability to formulate pan-European Union strategies now—when opportunities to secure competitive advantage are greatest.
To make their CEE programs work, most companies will need the help of third-party services providers. Unfortunately, the availability and performance of third parties in Central and Eastern Europe is inconsistent. In a recent survey, only 25 percent of Western European respondents characterized the performance of their offshored logistics services as high or very high in terms of reliability, quality, lead times, and customer service. And only 29 percent stated that their 3PL-related savings exceeded 10 percent.
It’s also worth noting that the CEE remains an agglomeration of a dozen countries, most with their own taxation system, regulations, language, and socio-cultural idiosyncrasies. There are even variations in their receptiveness to outside business. For example, companies in Slovakia, Romania, and Slovenia tend to be more interested in sourcing partnerships with Western Europe than those in Hungary and the Czech Republic. Accenture also has observed that state-owned enterprises (holdovers from the communist epoch) are less hungry for trade than public or privately held corporations. Fortunately, the number of state-owned enterprises is falling rapidly.
Making the choice
Deciding to source parts from, or expand sales, into Central and Eastern Europe is no less complicated than it is for any extra-national region. First and foremost, the choice must be made in light of a larger global operations strategy that integrates product development, sourcing, manufacturing, transportation, storage, sales and operations planning, and provision of after-sale services. Key components of the strategy will be formal programs for analyzing and redesigning supply chain networks, aligning (and potentially flattening or centralizing) the organization, and assessing the need for, and potential value of third parties.
Most important, however, is the recalculation of each affected item’s total cost of ownership. Like any such expansion, penetration of Central and Eastern Europe could result in supply chain cost increases that negate anticipated savings. In order of impact, the supply chain cost categories most affected by an offshoring decision tend to be:
- Aligning logistics, manufacturing, and assembly.
- Redesigning and maintaining the extended network over time.
- Compensating for changes in lead times and higher raw-material inventories.
- Transportation/distribution network restructuring and optimization.
- Exception handling.
- Ensuring supply chain flexibility to accommodate shifts in demand.
Given these factors, any sound global strategy should include a detailed total cost of ownership analysis that goes beyond calculating the acquired cost of materials and components..
An exceptional global strategy will also acknowledge Central and Eastern Europe’s potential to help meet an organization’s changing sourcing needs, provide new markets for its products and services, and widen its path in the race to high performance.
Reference: Article originally published in Logisticsmanagement written by Patrick M. Byrne, the managing partner of the Accenture Supply Chain Management practice, which helps clients improve their performance through supply chain strategy, sourcing and procurement, supply chain planning, manufacturing and design, fulfillment, and service management. Based in Reston, Va., he can be reached at pat.byrne@accenture.com
In fact, Accenture’s recent research initiative on global operations found that emerging CEE markets are coveted by more companies than those of any country with the exception of China and India. Among European executives, Central and Eastern Europe was cited as the second most important emerging market next to China.
Why Central and Eastern Europe? One good reason is that most CEE countries are now part of the European Union. Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia joined in 2004. Bulgaria and Rumania were admitted in early 2007 and admittance of Turkey is pending. For companies outside the region, EU accession means new market and offshoring opportunities—as well as more freedom to conduct barrier-free business.
Central and Eastern European companies are also working hard to update their facilities, seeking to match Western levels of unit cost, quality and product availability, and thus make their businesses more sustainable and attractive to Western buyers. Even with these upgrades, CEE wages remain far lower than in Western Europe, and it could be 20 years before the gap closes completely.
Other potential advantages for non-CEE companies include more potential transportation modes and fewer problems with language and culture. Distance-related savings can also be a factor since, compared to Asia, the back-and-forth movement of parts and finished goods between CEE and Western Europe involves about one-tenth the distance. However, distance-related cost differences are not always as significant as one might suppose. Careful study is critical.
Barriers and challenges
While the reasons above are promising for those looking to the region as a source of new sales and sourcing opportunities, the road to Central and Eastern Europe can still be a bumpy ride. In fact, many companies may find that the time is not yet right to factor this region into their global strategies. They may, for example, discover that the advantages of EU accession, lower wages, and shorter distances are offset by lingering problems with intra-country transport. Cabotage is still prohibited for the 12 recently joined EU countries. This limits outsiders’ ability to formulate pan-European Union strategies now—when opportunities to secure competitive advantage are greatest.
To make their CEE programs work, most companies will need the help of third-party services providers. Unfortunately, the availability and performance of third parties in Central and Eastern Europe is inconsistent. In a recent survey, only 25 percent of Western European respondents characterized the performance of their offshored logistics services as high or very high in terms of reliability, quality, lead times, and customer service. And only 29 percent stated that their 3PL-related savings exceeded 10 percent.
It’s also worth noting that the CEE remains an agglomeration of a dozen countries, most with their own taxation system, regulations, language, and socio-cultural idiosyncrasies. There are even variations in their receptiveness to outside business. For example, companies in Slovakia, Romania, and Slovenia tend to be more interested in sourcing partnerships with Western Europe than those in Hungary and the Czech Republic. Accenture also has observed that state-owned enterprises (holdovers from the communist epoch) are less hungry for trade than public or privately held corporations. Fortunately, the number of state-owned enterprises is falling rapidly.
Making the choice
Deciding to source parts from, or expand sales, into Central and Eastern Europe is no less complicated than it is for any extra-national region. First and foremost, the choice must be made in light of a larger global operations strategy that integrates product development, sourcing, manufacturing, transportation, storage, sales and operations planning, and provision of after-sale services. Key components of the strategy will be formal programs for analyzing and redesigning supply chain networks, aligning (and potentially flattening or centralizing) the organization, and assessing the need for, and potential value of third parties.
Most important, however, is the recalculation of each affected item’s total cost of ownership. Like any such expansion, penetration of Central and Eastern Europe could result in supply chain cost increases that negate anticipated savings. In order of impact, the supply chain cost categories most affected by an offshoring decision tend to be:
- Aligning logistics, manufacturing, and assembly.
- Redesigning and maintaining the extended network over time.
- Compensating for changes in lead times and higher raw-material inventories.
- Transportation/distribution network restructuring and optimization.
- Exception handling.
- Ensuring supply chain flexibility to accommodate shifts in demand.
Given these factors, any sound global strategy should include a detailed total cost of ownership analysis that goes beyond calculating the acquired cost of materials and components..
An exceptional global strategy will also acknowledge Central and Eastern Europe’s potential to help meet an organization’s changing sourcing needs, provide new markets for its products and services, and widen its path in the race to high performance.
Reference: Article originally published in Logisticsmanagement written by Patrick M. Byrne, the managing partner of the Accenture Supply Chain Management practice, which helps clients improve their performance through supply chain strategy, sourcing and procurement, supply chain planning, manufacturing and design, fulfillment, and service management. Based in Reston, Va., he can be reached at pat.byrne@accenture.com
Retail revolution in Russia - Driving factor for Supply Chain Market
The retail sector is driving supply chain development in Russia, says a study by global consultancy Capgemini. The retail market, actively expanding from Moscow and the Central Region deeper into the country, is responsible for churning logistics development in Siberian cities. Novosibirsk and Yekaterinburg, Siberia’s two largest cities, are rapidly developing their logistics and transport infrastructure to accommodate the growing needs of retail chains. Russia’s logistics development goal: to become a gateway to Europe for product flowing from Asia.
Top 25 Supply Chain Models
AMR Research released its annual Supply Chain Top 25 report. The report identifies the top 25 manufacturers and retailers that exhibit superior supply chain capabilities and performance. The companies in this report demonstrate excellence across basic metrics related to execution - return on assets, revenue growth, and inventory turns - and are recognized by their peers and AMR Research as supply chain leaders. In this year's list, Nokia, Apple and P&G are at the top three of the list. Others in the list of top 25 include Motorola (12), Johnson & Johnson (14), Nike (18), GSK (20) and HP (21). AMR Research analysis also shows that supply chain leadership translates into stronger market performance. Consistently, the Supply Chain Top 25 as a whole has outperformed the Dow Jones Industrial Average, the S&P 500, and the NASDAQ.
Following is the list of Top 25 Companies with Best Supply Chain Models:
To read the entire article, please visit:
http://www.amrresearch.com/Content/View.asp?pmillid=20450
Following is the list of Top 25 Companies with Best Supply Chain Models:
To read the entire article, please visit:
http://www.amrresearch.com/Content/View.asp?pmillid=20450
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