A study on evolution of supply chain: from outsourcing to Collaborative Supply Chain; Myth or Reality?

By Divya Kathuria

2006-2007

A Dissertation presented in part consideration for the Degree of Msc Operations Management

ACKNOWLEDGEMENT
Writing of this dissertation would not have been possible without the help and guidance of numerous people. First and foremost, I would like to express my heartfelt gratitude to my supervisor, Professor Kulwant S. Pawar, for his professional guidance, advice and support. I would also like to extend my gratefulness to the company officials who gave me their valuable time and information, which made this dissertation an authentic piece of research. My sincere thankfulness to my parents and family for unconditional love, support, encouragement and patience throughout the course of this dissertation. Also, Id like to thank a couple of my friends who provided further encouragement and support, which equipped me with the right tools to finish my work.

TABLE OF CONTENTS
Chapter 1, Introduction
1.1 Introduction 1.2 Objectives of the Study 1.3 Organization of the Dissertation

Chapter 2, Literature Review

2.1 Evolution of Trade 2.1.1 Globalization of Trade 2.2 Make or Buy? 2.3 Outsourcing 2.3.1 Benefits of Outsourcing 2.3.2 Risks in Outsourcing 2.4 Supplier Selection 2.5 Evolution of Supply Chain 2.5.1 Methodology of building Collaborative Supply Chain Network 2.5.2 Impact of Collaborative Supply Chain Network

Chapter 3, Methodology
3.1 The General perspective 3.2 The Research Content 3.3 The Research Participants 3.4 instruments used in Data Collection 3.5 Procedures Used
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3.6 Data Analysis 3.7 Expected Problems 3.8 Summary of the Methodology

Chapter 4, The India Advantage Chapter 5, Case Studies

5.1 EXL Industries and Central Wheel Components 5.1.1 EXL Industries 5.1.2 Central Wheel Components 5.2 Bomrah Industries and Real Industria Elettromeccanica 5.2.1 Bomrah Industries 5.2.2 Real Industria Elettromeccanica 5.3 Welspring Universal and ABC Limited 5.3.1 Welspring Universal 5.3.2 ABC Limited 5.4 Krishna YPB Electro-Chemicals Ltd. And XYZ Inc. 5.4.1 Krishna YPB Electro-Chemicals Ltd. 5.4.2 XYZ Inc.

Chapter 6, Analysis
6.1 Qualitative Analysis 6.2 Quantitative Analysis 6.2.1 Case of Bomrah Industries and Real Industria Elettromeccanica 6.2.2 Case of Welspring Universal and ABC Limited 6.2.3 Case of EXL Industries and Central Wheel Components 6.2.4 Case of Krishna YPB Electro-Chemical & XYZ Inc 6.2.5 Summary of all cases

Chapter 7, Conclusion
7.1 Introduction 7.2 Limitations

References Bibliography

LIST OF FIGURES

Figure 1, Outsource or not Matrix (Quinn & Hilmer, 1995)

Figure 2, Potential Contract Relationships (Quinn & Hilmer, 1995)

Figure 3, Bomrah Industries and Real Industria Elettromeccanica

Figure 4, Welspring Universal and ABC Limited

Figure 5, EXL Industries and Central Wheel Components

Figure 6, Krishna YPB Electro-Chemical & XYZ Inc

Figure 7, Indian Suppliers and Worldwide Buyers

ABSTRACT
This dissertation aims to understand the outsourcing relationships between Indian companies and the world. Outsourcing has evolved over the years from being a mere buyer-seller relationship to a collaborative supply chain partner network.

The companies today score an edge over each other on the basis of the agility in their supply chains. The fight over shelf space is getting bigger and better.

India as an outsourcing destination, is becoming popular with many new clients due to improving infrastructure, experience gained due to being a favoured destination for a long time. With competition getting stiffer, from competitors like China, India has risen to the challenge and is living upto it.

The companies in India are gaining respect, for their outstanding quality and cost advantage and now the future of outsourcing lies with them.

Chapter 1, Introduction 1.1 Introduction

Outsourcing is getting the work done from a company outside the business. It usually is because of the cost and knowledge advantage of the companies who are outsourcees as they become specialists in the field. The knowledge based outsourcing to different countries is being led by India.

It is impossible to describe India in words alone. The nation is very large and enjoys such a rich and diverse mixture of language, culture, climate and history that it would confound even the most dedicated author. It is in many ways the most paradoxical nation on earth for it offers glorious riches juxtaposed with the desperation of extreme poverty.

The quality of the Indian knowledge based industry is leading the world into an outsourcing revolution that is no less important than the invention of the steamship or railway. India and the world are poised on the cusp of a revolution. The nation has millions of educated English speakers entering the workforce each year.

For Instance, Brian Thomson, writes for Computer Weekly, BTs filed operatives receive their daily job sheets via the internet, their PDAs talk to Chinese servers, their monthly pay is transferred directly into their Egg accounts. They drive their Daewoo vans to the supermarket on the way home, where the shelves are stacked to planes e-mailed from Delhi; the checkouts send sales information back

India also has an edge because of the larger working population. It means its possible to locate niche services that just would not be possible at home (western countries). Also, the time zone is an added advantage.

However, everything is not good and there have been several complaints and scandals. Several soft issues like protection of data, frauds etc are coming up. Quality of outsourcing to India is under question at the moment.

1.2 Objectives of the study

To assess quality of work done by Indian outsourcees by probing the worldwide outsourcers

to get Indian outsourcees self-assess their work Understand and find any gaps in the assessment Validate the trend of Collaborative supply chain networks

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1.3 Organization of the Dissertation

Chapter 1, Introduction

This chapter provides an introduction to the dissertation topic.

Chapter 2, Literature Review This chapter sets the academic tone for the research. It provides a comprehensive discussion on the existing literature on globalization, outsourcing, make v/s buy, benefits of outsourcing, risks of outsourcing, supplier selection, evolution of supply chain, methodology for evolution of supply chain and impact of collaborative supply chain networks.

Chapter 3, Methodology

In this chapter, the objectives and procedure are described for carrying out the research. A detailed description is provided exploring the rationale for choosing the specific techniques for data collection and analysis. The framework chosen for the study and the basis for its use is provided.

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Chapter 4, India Advantage

This chapter gives an overview of the Indian outsourcing industry. The various factors that affect the growth of Indian outsourcing industry are discussed in detail.

Chapter 5, Cases

Primary data collected is presented in form of case studies for a comprehensive and interesting reading. The companies are divided in a buyer-seller pair and discussed as cases.

Chapter 6, Analysis

This chapter gives a detailed analysis of the primary data qualitatively and quantitatively.

Chapter 7, Conclusion

In this chapter, a summary to the entire research is provided. It brings together the different elements of the findings, and proposes an overall conclusion to the research conducted, integrating different elements of research into one explanation.

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Chapter 2, Literature Review

2.1 Evolution of Trade

Since 3000 BC, Great rivers like The Nile, The Indus. The Yellow River, The Tigris and Euphrates acted as passages to extensive trade routes. The transportation of goods by water was the easiest method, in an era when towns and villages were linked by footpaths rather than roads. Cedarwood is one of the first goods to be exported from Phoenicia, in Eastern Mediterraenean. (http://www.historyworld.net/wrldhis/PlainTextHistories.asp?groupid=1 916&HistoryID=ab72)

Around 1000 BC, a shift occurred from transporting goods on boats to camels and thus emerged the widespread use of camels in Africa and Asia, opening newer routes to and from North Africa, Middle East, India, Mongolia, Petra near Gulf of Aqaba.

In 300 BC, evolution of combined routes took place. Goods arrived in caravans from Eastern world and were put on board and they traveled further westward.

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2.1.1 Globalization of Trade

Once goods started flowing freely all across the world, trade increased manifold and tremendous development took place in form of

infrastructure, technology, communication methods and production methods. From barter system to introduction of cash, to differentiation of currencies, the world has evolved over the millenniums.

This world has seen all things from world wars, to peace treaties, to formation of United Nations and WTO, from one civilization to another, from mass production to mass customization, from price wars to quality checks, the trade barriers have only decreased. Milner et. al., 2003 substantiate further that trade policies in different countries aid in increasing trade. This has helped the world further to dilute the boundaries of various countries. Companies in one country often trade with companies of different nations. This broadens the trading horizon. With the broadening, some countries benefited a lot and turned into developed nations and some countries did not. This further broadened the gap between the income levels, living standards, purchasing power parity in people across the world. Manufacturing entered a new era due to ever-changing market needs and the spread of manufacturing capabilities worldwide. In a manufacturing enterprise, customer desires for delivery, quality, product performance,

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cost and product variety which, require the firm to generate creative solutions that enable firms to satisfy multiple and global performance measures. (Doll et al., 1990) The technological advancements in the manufacturing industry, sent ripples in the production cycles of various companies. Newer trading practices helped lower costs, ensure

uniformity of products, improve labour conditions, increase profit margins. According to Pawar et al, 1994, in the late 1980s Western firms recognized the importance of competing on factors other than cost. Factors like quality and reliability became the norm in every product due to high quality Japanese goods. New Production techniques like Optimized Production Technology, Total Quality Management, Materials Requirements Planning and Just-in-time were introduced as a result of high competition. While this Industrial evolution was going on and trade was becoming more and more open and competitive all over the world, the question of procuring goods, or parts of goods started to arise. In business terms the big question was to make or buy? i.e. to make goods in-house which leads to high investment of money, time, research and development, expertise, personnel etc, or to buy it from a specialized supplier who is already a leader in the field and has the cost, quality, expertise advantage? The criterion for effective decision making in this question

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was very difficult to either determine or apply, as every single decision is different from the other.

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2.2 Make or Buy?

Existing practices in several industries also fail to indicate whether high or low vertical integration leads to any advantageous position. With certain companies, vertical integration works very well and with some it does not work at all. In the same industry type also, different companies have a different approach as each ones factors and decision making variables are different than the other. For e.g.: Companies that outsource production simply because they are not cost-competitive must be prepared to be overtaken by efficient competitors, or even by their suppliers entering the market in direct competition. (Bruck, 1995). Also, what you outsource is also a very important decision making criterion. If a company decided to outsource a critical differentiating factor then it loses its advantage or expertise and may risk losing market share to competitors. However, every company is not operationally superior in every field. So, outsourcing brings no harm to any company provided the right thing is outsourced, for the right reason and to the right person.

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2.3 Outsourcing

Amiti et. al., 2004, says The dictionary defines it as the procuring of services or products . . . from an outside supplier or manufacturer in order to cut costs. However, it is not clear what is meant by outside. Some people interpret it to mean outside the firm, and others outside the country. Media and political attention seems firmly focused on

international outsourcing, even though domestic outsourcing is also common. However, outsourcing is not a new trend. Amiti et. al., 2004, supports that the growing outsourcing of services in industrial countries is simply a reflection of benefits from the greater division of labor and trade that have been described for manufactured goods. In the past times, the service sector considered itself very safe from international competition as what is tradable depended heavily on innovation in technology. Service industry always supported open trade as they werent insecure about their job being stolen away by someone sitting far away in some other continent. However, with advancement in technology like Internet, making world a completely virtual place, the risk and fear increased in service professionals. This resulted in withdrawl of support of all white-collared professionals for free trade policies. Instead, these very workers who were resolute supporters of

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open trade policies started pressurizing governments for formulating policies limiting the amount of outsourcing every firm could do. Amiti et. al. 2004, say that among individuals in the United States with incomes over $100,000, those actively supporting free trade slid from 57 percent in 1999 to 28 percent in January 2004. However, whether outsourcing is really resulting in job losses or not is a question to be pondered on. Its a situation of net gain, as on the whole the situation improves.

The two strategic approaches when properly combined, aid managers to fully utilize their companys skills. Concentrate the firms own resources on a set of Core

Competencies where it can achieve definable preeminence and provide unique value for customers.

Strategically

outsource

other

activities

including

many

traditionally considered integral to any company for which the firm has neither a critical strategic need nor special capabilities. (Quinn & Hilmer, 1995)

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If

these

approaches

are

combined

then

the

company

benefits

tremendously in the following ways: Concentration of energies and investments on the organizations best area yields the maximum return.

Competitors that plan to expand into the companys industry have to face a very strong resistance in form of well-developed core competencies and thus, protects the market share and existence.

Use of fully specialized suppliers ensure unmatched price and product quality, making it impossible to achieve that fine balance of investments, innovations and expert knowledge either by competitors or even internally in the company.

Rapidly changing marketplaces and technological situations, this joint strategy decreases risks, shorten cycle times, lower

investments, and creates better responsiveness to customer needs. (Quinn & Hilmer, 1995)

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While the company gains in the above said ways when it out sources goods, the most important factor is COST, which often helps companies decide between many contenders of the contract. However, the following points must be considered while concentrating on cost:

Factor Costs: The biggest advantage suppliers can have is cheaper personnel. This one cost can lead to such huge differences in costs between our own company and supplier, or two suppliers. Countries that are still developing have very cheap labour and thus the costs are so low that every producer of developed countries is tempted to outsource. Whereas, a hasty decision based only on cost, can also have its disadvantages, like quality issues, delivery unreliability, political risks, obsolete production techniques.

Economies of Scale: A supplier will always have higher economies of scale, as his level of production for the same component will be much higher than a manufacturers own production unit. At certain times, a suppliers quote is lesser than just the raw material procured by a manufacturer. Also, supplier must be enjoying the benefits of bulk buying and availing discounts.

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Productivity: Manufacturers will always lag behind the suppliers in productivity as half their staff is working in non-manufacturing functions, but the cost per unit unit includes that cost also. This indirect labour should be discounted while calculating cost per unit produced and then the efficiency of the unit if judged. However, this high cost of employees can turn into a major concern for companies and they might fly towards automation.

Design-to-cost potential: All the above factors are very important to any outsourcing decision, but another very important

consideration is outsourcing. Other than just production costs, warehousing, transportation and setup costs should also be considered and reduced to ensure wholesome reduction in cost. The bigger picture has to be considered here and all scopes from design-to-cost have to be reviewed and considered for improvement. However, not all organizations can afford this. Companies with the greatest experience in systems optimization and the best

knowledge of their manufacturing processes involved can think of doing it. This potential is also a high credential while selecting a supplier as any supplier who is willing to tailor its manufacturing processes according to any buyer is advantageous. However, there should be a constant effort in optimizing the whole system rather than the just one part or one process as optimizing one could lead

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to

not

so

advantageous

position

of

the

other

parts/processes.(Bruck, 1995)

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2.3.1 Benefits of Outsourcing (Dean,1994)

Reduced Cost: Suppliers often produce for more than one buyer this, they have huge scales of business and they save substantial cost by economies of scale. Also, certain places in this world have cheap labour and infrastructure costs and outsourcing there saves considerable amount of money.

Increased Flexibility: Personnel are a huge cost to any organization. Also, they are a fixed cost. So outsourcing helps to reduce this cost by paying only for the work done and thus improving efficiency and adding flexibility to the financial kitty of the company.

Updated Technology Everyday: Vendors specialize in the goods they produce and thus to keep the competitive edge, they have to be constantly updated. A company normally if insourcing may not indulge in upgradation that often but with a specialized supplier, the advantage is huge. Also, since the required product maybe the suppliers only business so the competence and expertise in the field is definitely higher.

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Focus on Core Competencies:

No

firm

outsources

its

core

competency. All other peripheral activities can be outsourced to make the supply chain more efficient, lean and agile. This helps the firm concentrate further on its own strengths and develops it to its maximum strengths.

Less Management Distraction: The activities that are outsourced are usually those that the firm can take time off on, but if the firm is still insourcing them, top managements attention remains on the activities. This leads to precious time wasted and underutilised. The administrative task can be handled at the lower level and this the top management utilized much better.

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2.3.2 Risks in Outsourcing

According to Quinn and Hilmer, 1995, outsourcing may lead to many benefits but it has its own share of risks any company has to consider before taking any decision. Managements main concerns are:

Loss of critical or developing wrong skills: Many companies in developed countries outsourced manufacture of many minor

components, and also taught their suppliers in the developing countries how to produce according to their standards. This required a lot of time and investment from the companies as the standards in the suppliers country was not so developed. However, these companies discovered that the deliveries were not at the desired benchmark. During this whole process, the company decides to move out of that business and has to undertake a lot of trouble getting back in as it again requires huge costs and time. On the other hand, even if the suppliers do learn, the risk of supply to competitors or in a lower level markets independently. Also, the company loses its flexibility to introduce newer designs quickly in the market or without the consent of its suppliers.

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Loss of Cross Functional Skills: In a working environment, when people from different departments interact, the company also benefits indirectly because of the exchange of ideas. Skills and understanding of employees are developed merely by constant interaction between departments on an informal and a formal level. If the companies outsource major activities, then this interaction is likely to become less healthy and there will be a considerable loss of cross-functional skills. Also, if the activities are outsourced differently at far off places then this interaction becomes near impossible as then unrelated

companies cannot have free exchange of ideas. However, contractual pre-arrangements are usually the key to avoid such situations. This ensures that the required personnel is available from the outsourcer when needed.

Loss of Control over a supplier: Suppliers can have serious priority issues with the buyer. Close contact should be maintained essentially at all times from both sides to ensure that the relationship is going smoothly. Constant communication is the key to handle such a relationship, where the point of contact is mostly email, telephone or fax. Certain buying companies get very fussy over certain

requirements they have off the suppliers, like for e.g., owning a particular set of machines. Sellers might also retaliate and may cancel

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the contract and shut down the sellers line. Also, after learning all the expertise from the buyer, a seller might try to bypass him in the market and may start selling the product under his name. Also, passing on information to the competition is always a cause of worry.

However, all these problems are only probable and careful definition, limitation and implementation of means to remedy such external conflicts are critical in any but the most routine outsourcing

arrangements. Companies that outsource extensively have generally found satisfactory legal and operational ways to deal with the problem and are often willing to share useful techniques with those outside their industry.(Quinn and Hilmer, 1995)

There are always certain inherent problems with outsourcing, but there are costs associated with insourcing too. If a genuine framework is made, consisting of all types of outsourcing arrangements, analysis of strategic issues, a lot of those costs and risks can be lowered considerably. If combined correctly, core competency, correct outsourcing strategy have helped businesses flourish tremendously, with increase in profits, decrease in costs, addition in expertise, better product development.

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2.4 Supplier Selection

Suppliers should be ideally reliable and efficient, which would ensure that companies will outsource everything except for their core

competency, their unique competitive edge. However, supplier markets are really imperfect and thus a lot of problems are entailed in form of price fluctuations, quality of goods, timely delivery or any other key scopes like warehousing etc. However, whether or not outsourcing takes place is a very strategic decision based on a simple comparison between the vulnerability of the product/process with respect to the companys strategy and its potential for that product/process becoming the companys competitive edge. These two factors can be arrayed in a simple matrix:

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Figure1. Outsource or not Matrix (Quinn & Hilmer, 1995)

This figure is very straightforward to understand and explain. The higher the potential for competitive edge and the degree of strategic vulnerability the higher the urge to produce internally as no company likes to give away its trump cards in anyone elses hands. The precious formula or method should be carefully preserved and full control should be exercised on such a product. As the degree of vulnerability and potential for competitive edge becomes lower, the need for control also gets lower and this product can be easily outsourced without much problems.

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According to Quinn & Hilmer, 1995, the following factors help a company decide whether to exercise very high control or less control, in other words, to either outsource or insource: Competitive edge: The key question to asked here is that can the company achieve a maintainable competitive edge by performing the activity internally on a continuous basis. If the activity is critical for the company then it should be definitely kept internal even if its a tad expensive than the worlds best supplier.

Transaction

costs:

All

transaction

costs

like

Research

and

Development cost, personnel development and infrastructure investments should be taken into consideration by a company while comparing costs with a supplier as eventually over time, all edge will be lost on these very basis. Often these costs are overlooked and these mistakes can prove very expensive. Also, constant top management focus is needed if any activity is insourced. This cost is very high if the activity is not very important in the business, and top management should be freed from unnecessary burdens.

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Vulnerability: The law of supply and demand also applies to the supplier and buyer market. The more the suppliers in the industry, the lesser the dominance of suppliers over buyers, and vice versa. Also, the level of innovation and research and development reduces if the number of suppliers are less in the market as the suppliers tend to monopolize the market. Another form of vulnerability is the lack of information available from the suppliers. This usually happens in the developing nations, where business policies are not that stringent and thus the suppliers tend to lax out on the strict western standards. For e.g.: a supplier in asia could be facing a raw material or labour disruptions but he tends to hide these concerns until its too late for the customer to react, and this leads to disruption in supply chain of the buyer. Also, a related problem with lack of information is in a scenario where certain suppliers may have specialized information, which is unique to them and they might charge monopolized exorbitant prices, but they cannot be replaced, thus forcing the buyer to purchase the service.

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Degree of sourcing control: Control over the production process of an activity determines whether or not it may be outsourced. There is a wide range of options any company can undertake while taking an outsourcing decision. For maintaining its competitive edge, a company should consider a lot of alternative arrangements before agreeing on one. The practice and law of strategic alliances are rapidly developing new ways to deal with common control issues by establishing specified procedures that permit direct involvement in limited stages of a partner's activities, without incurring either the costs of ownership arrangements or the loss of control inherent in arm's-length transaction.

Figure 2 Potential Contract Relationships (Quinn & Hilmer, 1995)

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Flexibility versus control: In the above framework, Figure 2, there is a constant tradeoff between flexibility and control. If a company decides to outsource any of its goods, then the supplier has to share some risks involved with the production. For eg: fluctuation in demand. The company that has the decision to make has to decide whether to offload some of the risk by outsourcing or keep it to themselves. The arrangement of outsourcing that any company decides to take up varies with the activity to be outsourced and the companys desired control and flexibility. Many suppliers are now offering services like partnerships, or more flexible arrangements so that the buyer does not have to part with the control of the product. (Quinn & Hilmer, 1995)

The new technologies of many suppliers have lowered transaction costs substantially, making it possible to specify, transport, store, and coordinate inputs from external sources so inexpensively that the balance of benefits has shifted from insourcing to outsourcing. In certain specialized niches, outside companies have grown to such size and sophistication that they have developed economies of scale, scope, and knowledge intensity so formidable that neither smaller nor more integrated producers can effectively compete with them (for example, ADP Services in payroll, and ServiceMaster in maintenance). To the extent that knowledge of a specific activity is more important than

34

knowledge of the end product itself, specialized suppliers can often produce higher value-added at lower cost for that activity than almost any integrated company.(Quinn & Hilmer, 1995)

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2.5 Evolution of Supply Chain

Complex Partnering relationships over the years are taken into account and coping with the increased scale, diversity and service-oriented nature of the activities potentially outsourced is derived. These focus mainly on a much more professional and highly trained purchasing and contract management group and a greatly enhanced logistics information system (to track and evaluate vendors, coordinate transportation activities, and manage service transactions and materials movements from the vendors' hands to the customers'). There is vast electronic document interchange (EDI) and materials requirements planning (MRP) literature on such logistics management for products and components. A number of companies have established direct computer connections with their suppliers to be constantly in touch and communicating their newest developments. Very easily available softwares have made it possible to constantly monitor suppliers at remote locations. The activities now have moved from the middle level to top level management where these are constantly kept under the scanner under watchful eyes. Quinn and Hilmer, 1995, say most companies feel that they may not be able to manage their suppliers sufficiently using their current knowledge base and to the desired level of expertise. Most successful outsourcers upgrade both their top management talent and their information systems for this purpose. When they move aggressively,

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many companies have found that they actually improve their knowledge bases through strategic outsourcing, Also, they feel that employees dont just get to network with local colleagues but the best in the world, which keeps them active and agile. As a side benefit of outsourcing, they can pressure internal supply groups to compete with the best external companies, question subordinates more knowledgeably, and keep internal groups more competitive.

According to Muckstadt et al, 2001, there are five principles of supply chain management excellence:

Know The Customer: Customer requirements have to be clearly known and understood for the construction of an effective supply chain. Information like due date expectation, service requirements, method of acquisition and delivery etc have to be known in order to fully satisfy them. However, this requirement may differ from customer to customer, product to product, and thus this aspect has to be very thoroughly understood.

Construct a lean supply chain that eliminates waste, variability and uncertainty: Since a long time many firms have dedicatedly become leaner and more fitter organizations. This revolution was spiraled by the success of Toyota Production System all over the world. Lead

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times have become shortened, inventory has reduced considerably, just-in-time etc strategies are constantly used to make sure that the organization becomes more and more agile. This in turn helps reduce costs, highly satisfied customers, empowered employees and overall a much better organization. However, with supply chains extending worldwide nowadays, all partners of the supply chain have to be involved and equally dedicated to improve or else all effort goes waste. The entire supply chain has to be designed and overhauled as a whole system and not individualistic parts.

Build tightly coupled information infrastructures: With the boundaries disappearing, and businesses spreading worldwide, the most

important criteria for success is secure transfer of information. Information of various levels of confidentiality are often transferred from one part of the world to another and if during that transition the transfer isnt secure, then the company is at very high risk. Using technologies like XML, permits supply chain partners to share up-todate information. However, in collaborative supply chain, merely passing the data is not sufficient, rather, joint planning of inventory and production strategy is undertaken which aides the strengthening of the relationships.

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Build tightly coupled business processes: All business processes must be designed to support the objectives of the supply chain. They must be designed in such a way that both inter and intra-organizational objectives are achieved. Efficient flow of materials must be induced. While designing the processes, the capabilities of all partners must be evaluated with extreme care. It should be made sure that each partner is comfortable using the processes.

Construct tightly coupled decision support systems: Decision support environments are made to forecast demand, drive production and allocation decisions. The main goal is create plans that consider all elements comprehensively. These systems have a very substantial impact on operating behaviour and as a result the on the whole operation of the supply chain. The need to tackle uncertainty has to be well thought-out while designing the system to accommodate flexibility.

Move information first, material second: Fluctuations are as normal as the change between day and night everyday and need to be dealt with carefully in order to ensure optimized supply chain. Information can be moved easily than the material. Utilising this information can reduce unnecessary material movement, which leads to cost savings and increased efficiency.(Baliga, 2001)

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2.5.1 Methodology of building Collaborative Supply Chain Network

An effective supply chain is the key to success in todays world. The fight is not anymore on price, quality, leanness, but supply chain agility. However, as all supply chains are not perfect, there is always scope for improvement, and currently the trend is towards collaborative network formation. With worldwide supply chain formations, cultural barriers more than anything, need to be overcome. The improvement has to occur in two main phases:

Internal Improvement: Internal processes need to simplified and clarified as clearly and quickly as possible. Every process from procurement, purchasing, storing, communicating etc have to be laid out and then consolidated as one policy across the company. Uniformity of thought and operation has to exist in each and every department and branch of the company or else the customer has the chance of being mislead. Only one face of the company should be shown to each and every customer, as it helps in further simplification of the policies and procedures. (Baliga, 2001)

External Improvement: Once the internal processes are sorted out and consolidated, focus should be placed on the supply chain partners. Sharing of information becomes very vital at this stage to

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ensure uniformity in the thinking pattern. The supply chain partners need to be clear in understanding any message or else the Bull whip effect comes into play (Fine,1998). With supply chain collaboration as the ultimate goal, information sharing should be coherently interdependent. Once all business processes of the suppliers are shaped according to the buyer, the planning, forecasting etc has to be done jointly to ensure clarification of purpose. With such close communication, the reaction to updated information becomes very quick and efficient. For eg: with using vendor-integrated EPOS(Electronic point of sale) system, the replenishment of order becomes automated and saves a lot of time and cost. However, all this is not possible if the contract is not a collaborative network or long term contract. (Baliga,2001)

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2.5.2 Impact of Collaborative Supply Chain Networks (Kalwani et al, 1995)

Impact on Sales: In a Collaborative Supply Chain, all partners have to be interdependent on each other. Many suppliers have to make investments that are only one buyer-centric. This decision to stick with one buyer can be both very advantageous and

disadvantageous at the same time. The buyer will be very supportive and trustful of the buyer as he is getting preference over the others and would tend to compensate for the opportunity cost, on the other hand, this move may mean putting all eggs in one basket. All scope of any sort of interaction with other buyers gets diminished. (Miles and Snow, 1992). Also, in this type of arrangement, the whole process or entire activity is allocated to a supplier rather than one single part. Thus, the sales are boosted to a high level. For the buyer, the advantage is that the understanding of the need of the consumer is better understood by the supplier and thus, he also contributes in development of new products. This also leads to mutual trust and respect in the supply chain network.

Impact on Inventory Holding and Control Costs: In a collaborative supply chain, suppliers will always have a higher quantity to

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produce than other small time supplier and hence will have lower costs of manufacturing due to economies of scale. Also, since the suppliers have long term contracts they can plan their inventory, purchasing, labour planning, according to their own flexibility and thus, benefit from surety of the order. However, suppliers may also be at the receiving end of the power advantage in the supply chain and the buyer may push costs like warehousing, transportation, to the supplier. The overall equation, however, is beneficial for both sides and the overall inventory holding and control costs are reduced for both the supplier and buyer.

Impact on Selling Prices: Selling price is the cost plus profit for any company whether it is the buyer or the supplier in a supply chain. The general rule says that by the principle of learning, the cost of any process reduces as time passes. Most companies are aware of this phenomenon and like to take advantage of it in the long term. The buyer may use coercive influence on the supplier to reduce costs as they know exactly since how long has the supplier been using a production technique. The power of bargain becomes very high in terms of the buyer. However, the supplier may also command a premium and still retain the contract as the company will prefer to deal with a known

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but costlier supplier than an unknown but cheap one (Corey, 1991). Thus, the balance is maintained equally on this aspect and the power in the relationship will determine which way is chosen.

Impact on profitability: Suppliers benefit tremendously by entering into long term contracts. It helps the supplier to understand both the buyers demands as well as buyers customers demands. This in turn helps the supplier to serve the buyer in the most desired manner thus maintaining that steady flow of income. The cost of servicing and maintaining the customers account also becomes less as needs become clearer. Also, in new product development, knowing and understanding your customer proves beneficial as the first time right approach rings true. Buyers on the other hand save a lot in form of costs of developing new partners for the same products over and over again, the constant process of asking for quotes for every order, comparison and selection gets eliminated and a lot of cost is saved. (Kalwani et al, 1995)

44

Chapter 3, Methodology

This chapter explains the methods used in carrying out the study, giving special emphasis on the analysis of the data. It should be noted at the outset that the methodology to a certain extent was an evolving one, which took definite shape as the study progressed.

3.1 The General Perspective

This dissertation is aimed at checking the real world situation in the evolution process of the supply chain. Existing literature points out that the suppliers in the outsourcing supply chain are now treated as strategic partners, an essential part of the supply chain. This evolution was a very gradual process as companies are also changing with the times and in todays world, the competition is not on the basis of price or quality but the agility of supply chain. This research is both qualitative and quantitative in nature as in this particular subject a numerical analysis as well as a deeper

understanding of the subject was required. A qualitative research is a very sensitive behavioral study based on literary data. In this type of research, the behavioral aspect of the subject under consideration is reasoned. In this research, a more focused study is undertaken asking

45

questions like why and how, and understanding the reasons behind the choices made. In a quantitative research, numbers are used to compute and determine results. The results are often enough to lead to a result. Secondary data was also collected to gain better understanding of the subject. This secondary data helped to achieve the final decision on the topic.

3.2 The Research Context

This study involved a detailed understanding of the relationship between suppliers from India and buyers from outside India in countries like France, Germany, UK, USA. The companies provided some confidential information and prefer not to disclose their identity for personal reasons. Thus, in the case studies about the companies, their names and some vital data will be withheld or altered to protect the identity and the wishes of the companies. Also, this study had a different objective in the beginning, however, as time progressed, the current topic became the obvious choice to be studied in this context much better than the previous one. There were many concepts like the treatment of the Indian counterparts in the supply chain is slowly gaining importance, became more and more and eventually became the objective of the research.

46

3.3 The Research Participants

Managers of companies in India, Europe and USA, took part in this research. Companies in India were first contacted and then their counterparts in various parts of the world were contacted. The concept was to study the Indian company and its counterpart in pairs and do a gap analysis. By gap analysis, its meant that the gap between the perception of the Indian counterpart and the actual outlook of its global partner was studied.

3.4 Instruments used in Data Collection

Several instruments were used in this research, and it was conducted in different ways for different companies, however, it can be broadly classified into three categories: Filling of the questionnaire: A set questionnaire, which was corresponding for both the supplier and buyer was sent across and the responses were studied carefully with comparison to each other. This questionnaire helped to achieve the basic purpose of the report, i.e. to study the gap of perception between both parties. Interview conducted: Once the questionnaire was received, an interview was conducted by whatever means possible, and that included, personal meeting, telephonic interview, live chat, video

47

chat etc as physical boundaries of the world proved a big barrier. The companies in India & UK, gave all personal interviews, the company in France and Germany preferred telephonic interview, and the company in USA offered live video chat as a sustainable option. Secondary data collection: A lot of reading was done on the topic which included journals, books, news articles, magazine articles etc. Reading various publications gave a very clear picture of what has already been talked about the topic and where is the gap. The gap was identified and thus the research topic was conceptualized.

3.5 Procedures Used

In carrying out the research design, several procedures were used to ensure that the research was carried with utmost professionalism, diligence and importance. The questionnaires were paired up so that the gap analysis could be easily done and if differences exist in perception of the buyer and supplier, it would be clearly visible and very clearly comparable. While the interviews were conducted, this was further probed whether the suppliers felt any amount of mistrust or misconduct by the buyer, or did they have to undergo any stringent tests for qualifying for the order.

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Also, the advantages of such an arrangement were probed and a lot of insights were yielded. Some of the participants requested anonymity and revealed certain information for better understanding of the researcher, but with the condition that the data will not be used in writing. Such data is very closely guarded and ensured that none of it appears in the final report. In the secondary data, all due references were given to the respected authors. No piece of work has gone in the literature review without a mention.

3.6 Data Analysis

The data was analysed with utmost care and a definite analysis was concluded. The data was presented in two forms: Case Studies: The questionnaires and the interviews were compiled together to form case studies and both the buyers and the suppliers replies were compiled together and formed two caselets of one main case study. Total four main studies were made and a clear analysis could be achieved about the current day relationship between the buyers and suppliers. Statistical Analysis: The questionnaires were also compared to the corresponding pairs questionnaire and a gap analysis wherever

49

present is shown. A graphical representation is shown and wherever gap exists, its clearly visible.

3.7 Expected Problems

In this study, using this kind of methodology, was a bit risky because the information that was provided by the companies had no proofs to back it up. The word of the managers was final and biding and there was no contesting the answer. Even if the researcher felt that a certain piece of information was concealed, which was vital for the project, he/she could not do much about it. Thus, this was a potential problem and certain questions that were a bit tricky were asked in more than way to get the desired answers. By using this strategy, the managers never felt that their request was being ignored and the desired responses were also achieved.

3.8 Summary of the Methodology

This study and research work is used to gain a better understanding of the subject and the question at hand. In this type of research, where a deeper understanding of how and why was supposed to be achieved, the methodology proved to be very right, and the insights were very fruitful for the topic.

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Chapter 4, The India Advantage

Globalization means going international and exploring different facilities and business processes, outside the home country, for better and more viable options. This entire world has its own distinctive advantages spread area wise and its only smart to make use better and cheaper options in this costcutter economy. Every single added cost makes the product expensive and this decreases sales dramatically. Every customer wants the best value for money. In manufacturing industry, the practice of obtaining goods and services by contract from outside sources has become commonplace. The trend started in 60s and now every manufacturing industry has a part of its value chain situated in a foreign country. However, services started getting outsourced only in the later 1970s as earlier, sensitive information was transferred from one part of the world to another with great difficulty. was very The encoding, and decoding expensive. and The

transportation

process

difficult

infrastructure in the developing countries was also very poor at that time and thus, they were not competent enough to handle such sensitive and high importance data. The shifting of business processes started with shifting of call centers from main cities to other less developed cities which had cheap labour as compared to the main cities. This led to cost reduction and the thinking

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process that these services will work fine even if moved elsewhere. On the other hand, the other parts of the world were progressing at a very fast pace and the means of communication were becoming more convenient and cheaper. All these factors led to outsourcing of various service activities to nations like India, Philippines, China, Malaysia, Taiwan etc. (Dossani and Kenney, 2003)

Amongst all the new found possibilities, India got a lot of attention due to many factors:

English Speaking Expert personnel: When the British freed India as their colony in 1947, the best thing they left behind was English. One of the biggest advantages India has over many competitors like China is the stronghold over the English language. This factor has helped India bag a huge number of accounts from companies in the European and American continent. This is one of the biggest reasons why India is the service outsourcing hub rather than manufacturing.

Round The Clock Service: Time saving is another reason for outsourcing some of the in-house IS work to offshore outsourcers. Different time zones enable the companies to have 24 hours working days in the US, which reduces development and lead

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times considerably. This helps in tremendous growth of sales and business potential. Also, many problems can be solved very timely due to the time zone difference. For e.g.: if an error occurs in the system it can be fixed overnight due to time zone difference. However, this time saving is only possible if the supplier and customer have a good telecommunications and infrastructure.

Cost Efficiency: The wage rates in India are far lower than the developed countries. This leads to huge cost savings and directly affects the bottomline of the company. The cost savings is as huge as 50 60%.

Competitive Advantage: Indian professionals are highly competent and charge much lesser than their counterparts in Europe or America. This leads to a higher competitive advantage for the company as it is employing equally competent labour at a much cheaper price. This leads to a high amount of savings and thus ultimately benefiting the company in lowering costs for the end consumer.

Assured Quality Standards: The workers in India are very professional and skilled. Their competencies are at par with the worldwide standard. Thus, even if companies outsource work, they

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do not end up compromising on quality. Also, since the Indian professionals work for more than one company they may use better techniques and technologies and are likely to be better updated than people working for one company only as updating requires investment which is not readily available at all times.

Availability of labour pool: In India, the available workforce is very competent, highly qualified and extremely cheap. The number of people becoming graduates is very high in India as compared to other parts of the world. Thus, there is never a shortage for good labour at the desired level and experience. India produces 3.1 million college graduates an year, which is expected to double by 2010. (Kripalani et al, 2003).

Improving Infrastructure: Infrastructure broadly consists of factors like Telecommunication, Transportation links, Electricity,

education system etc. In these all fields India is progressing very rapidly and its becoming better and better. The telecommunication sector attracts a lot of FDI from various parts of the world. Companies like Vodafone has bought major stake in the telecom industry and is now operating on a full scale. The road, rail links are getting better and more and more destinations are getting connected. The electricity supply is a bit of a problem but its

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getting privatized and thus getting more and more regularized, however, even facilities like 24 hour backups are easily available at cheap costs. Since 2001, Delhi has been furiously building a network of high- ways. Modern airports are next. Deregulation of the power sector should lead to new capacity. Free education for girls to age 14 is a national priority. "One by one, the government is solving the bottlenecks," says Deepak Parekh, a financier who heads the quasi-governmental Infrastructure Development Finance Co.(Kripalani, et al, 2003)

Government Incentives: If India can turn into a fast-growth economy, it will be the first developing nation that used its brainpower, not natural resources or the raw muscle of factory labor, as the catalyst.(Kripalani, et al, 2003). The government of India recognizes this opportunity and is giving incentives and tax holidays to various firms that set up their plants in India. The government realizes that the opportunities provided by the multi national companies are very beneficial for India as they create more and more job opportunities, and help the nation to develop better. India accounts for 60% of the US economy. (Kripalani, et al, 2003). According to Deutsche Bank Reasearch, 2005, India has the highest score for attractiveness in outsourcing and offshoring at 7.12. A.T. Kearney also agrees by stating India as the no.1

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outsourcing destination in A.T. Kearney Global Services Location Index, 2007.

However, since every coin has two sides, India too has its disadvantages which need to be considered while making a well thought out decision.

Red Tapism: India has a lot of bureaucratic procedures to be followed when doing anything. A simple procedure that should take a day for example can take more than 2 days and thus, the companies from the developed and efficient nations get frustrated and do not understand the system. Also, the number of procedures to be followed while starting a new thing also gets mind-boggling for a company used to a very simple system. The various departments in India keep passing the job around themselves and there are a lot of permits and licences to be obtained. This is not a very conducive system for any organization that is planning to start a venture in India.

Heavy Regulatory System: The government has very strict and socialist views still for the development of the nation. FDI limits in many industries are capped and often an Indian partner is mandatory for entering a business. This is very unlikely in developed countries like America and the companies find this piece

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of information very hard to digest. Often companies do not want to share their profits with anyone, but the only way to enter India is thru this method. This is not a very investment friendly technique. The economy has to open up and free trade should be promoted.

Poor

Infrastructure:

Infrastructure

in

India

has

improved

tremendously over the past few years but its miles away from the global standards. Infrastructure is improving and there is a lot of scope for improvement too. This forces the companies willing to invest in the country to stick to the main metro cities only. If they want to look towards the second or the third tier cities, it is not a feasible solution and this has led to crowding up of the main cities and will soon reach its saturation. The low cost advantage of India will start to diminish then very drastically. The property rates have shot up so dramatically in the past 1-2 years. This discourages the small time companies with smaller budgets.

Rising Costs: The very success of the Indian remote services sector is weakening its leadership position. The increasing demand for trained professionals in cities such as Bangalore, Mumbai and New Delhi is pushing wages up by 10 to 20 percent per year. The boom has also raised turnover rates, which in turn increases recruiting and training costs. (Kearney, 2007)

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Fraud and Security risk: Indias success has also attracted intense scrutiny from rivals and the worlds media. High turnover rates and rapid growth have increased the risk of security violations and fraud. Several highly publicized fraud cases have prompted the leading industry association, NASSCOM, to launch a national register for workers in the services export sector and instigate more rigorous background checks on new employees.(Kearney, 2007)

The large and increasingly skilled, but low-cost, labor pool will continue to be Indias greatest asset and will ensure its leadership for years to come. In addition, with increasing attention focused on the sector, the countrys political and business leaders are pushing hard to improve the business environment and infrastructure to support continued growth. However, the country has to be careful with its policies on future as newer destinations like Estonia, Pakistan and Sri Lanka are coming up and offer similar benefits as India. To keep its edge, more outsourcing friendly policies have to be developed or else the companies will simply move elsewhere. (King, 2007)

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Chapter 5, Case studies

Case studies are prepared from the primary data collected from Indian Suppliers and European Buyers. Each case is divided into two parts, the first is the Indian suppliers point of view of the outsourcing experience for them and the second is the side of the buyers. The buyer and supplier in each study are actual buyers and suppliers and thus a clear comparison can be made to reach a conclusion.

5.1 EXL Industries and Central Wheel Components

5.1.1 EXL Industries

The company

EXL Industries is a manufacturer of spokes, nipples and chains in New Delhi, India. They manufacture bicycle spokes, motor cycle spokes, moped spokes and for four wheeler applications since 1980. Their unit is of a small size with 100 employees and an estimated turnover of Rs. 50 million p.a. They have a second production plant in Udyog Vihar

Gurgaon, Haryana ,India.

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Spokes and nipples are supplied to various bicycle and motor cycle manufacturers. They are original equipment manufacturers, as well as they are supplying to the replacement markets and the export market. Major OEM orders are received from Yamaha Motors India ltd. LML India, Avon cycles, Hero Cycles. The brand name Marshall, is one of the leading brands in the bicycle and motorcycle replacement products category. In the overseas market, major buyers are from Europe, Africa, Iran, Jordan etc. The buyers from Europe are the motorcycle and bicycle wheel manufacturers.

Main competition includes subsidiaries of Hero Honda called Hema Engineering and a subsidiary of TVS cycles known as Upasna Engineering. In the replacement (local) market, they have a number of competitors but they are very small in size and capacity in comparison, to compete strongly.

Mr. Sunil Kathuria, Managing Director, says that the goods offered by us is rated very highly by our customers and the quality is maintained by the high standards of ISO 9001:2000 standards. The rejection rate is <0.5 ppm. This enables us to obtain orders from our prospective clients who are looking for cheaper but a high quality product

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The facility follows ISO standards to manufacture the goods and then dispatching them.

The manufacturing process is undertaken in the following way:

Vendor Validation: Gradation of suppliers is done annually and visits to their facilities are done from time to time to ensure that the required infrastructure is present and quality standards are maintained. There is often a tender floated after a 3-5 yr term and the supplier with the best infrastructure and closest match to quality is chosen.

Raw Material Selection: As Manufacturers of motorcycle spoke, nipple and chain, the raw material required is steel wire rods, steel wires, CRCA strips and Flat Wires. The incoming material is checked for carbon content, and various physical and mechanical parameters like: surface finish, visual wellness of the products and mechanical dimensions like tensile strength, hardness, bend test, chemical composition etc

Processes: The machinery is latest from Germany for manufacturing and constant up gradation is done for maintaining the desired position and constant reduction of costs. The ISO parameters are followed in manufacturing processes where each and every machine has a product flow chart, along with the dimensions of the products to be

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manufactured. They have the required gauges, micrometers and other instruments which are calibrated as per the schedule. Once goods are produced, they are given heat treatment and

electroplating. And this process also follows the quality control standards. The goods are then checked both pre and post packing and one final exhaustive checking is done for sending only the best parts in the market.

Mr. Kathuria also iterates, Customer is king and his satisfaction is of prime importance. He is treated well with good quality, timely delivery, and reduced costs so that repeat orders become a norm. It is these very factors that have led to Marshall being such a successful brand in the market. However, all is not well and China is coming up as a major competition. To overcome this problem, technology is constantly upgraded so that quality is maintained at the highest level and customers become more loyal.

The company is dedicated to research and development for the betterment of the industry and solving the potential problems the industry could face. They are developing aluminum nipples because of rising prices of brass, however, the buyers are yet to be convinced for its benefits. The major reason for this wariness is due to low quality alloy steel nipples from China. The company is confident though, and is

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hoping to give the customers another revolutionary solution to the rising prices of nipples due to increase in raw material costs.

The company also believes that now their buyers do not treat them as mere suppliers and takes active interest in the day to day functioning of the company. Also, the company is now consulted for any strategic decision regarding their products for the feasibility and achievability of the desired product.

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5.1.2 Cental Wheel Components

The Company

Central Wheel Components(CWC) opened for business in Birmingham in 1900 and has grown steadily since then to become Europe's largest supplier of motorcycle wheel components. Their product offering ranges from rims, spokes and nipples, SuperMoto Wheels to Wheel building. Their Tyre division, Wheel House Tyres, supply tyres for road, trials and classic bikes, so when it comes to tyres, we cater for all your two wheel requirements. Their Coleshill factory stocks more than 15,000 rims and 500,000 spokes and nipples at any one time, most manufactured on-site. In addition to supplying components, they also offer a comprehensive inhouse wheel building service. Wheels are generally built onto customer's own rims, but Supermoto complete wheel packages including hubs, can be supplied. They are also capable of building wheels from scratch or restoring the customers existing wheels. Their customers range from enthusiastic bikers to motorcycle

manufacturers and even include the National Motorcycle Museum.They were chosen by a world renowned Museum to restore or replace the wheels of their prized exhibits.

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Central Wheel Components consider no task too specialised and no job too small to benefit from their expertise. Whatever the customer desires, it is provided to him. Customization is one of their main strengths. The Company has been outsourcing the manufacturing of its standard products to many suppliers in India and China. The company is particularly keen to do business with their Indian suppliers. CWC prefers the quality and price combination of the Indian suppliers better than the cheaper but low quality deal China is offering. CWC did careful selection of sellers in India, and now depends heavily on them for their manufacturing needs. Apart from being cheap, Indian products are of world-class manufacturing standards, very high quality, superbly packed and delivered. The service level offered by the company is excellent and CWC would like to place more steady longer term contracts with the firm. Their supplier EXL Industries(EXL) is experimenting with a new product in the market at the moment and CWC has done various tests to check the credibility of the product. So far, CWC approves of the product and now will initiate the market testing of the product. Pilot studies will be carried out to observe the success rate and the product officially launched in the market.

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CWC is very pleased with the newer products their Indian supplier is coming up with. This saves the company huge investment on research and development. With a supplier elsewhere in the world, he can concentrate fully on the product development. Being a dedicated supplier ensures that he keeps up with the latest trends, of upcoming products, finishing techniques, packaging

techniques, delivery methods etc. this in turn really benefits CWC as it is getting the best of both worlds. He is getting newer products, on the best possible price without investing heavily. However, the picture is not all rosy. Delivery time and dependability are two very major concerns CWC has with EXL. Orders today are very punctual and any delay caused leads to huge losses. Outsourcing does save costs, but loss of reputation is much more expensive than any other saving. CWC plans to address this issue very soon with the concerned supplier and work their way around it. Solutions like buffer stock, or accrual stock may be put in place to ensure smooth functioning of operations. Overall, CWC is pretty satisfied with the outsourcing experience but would like things to get better and better with time.

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5.2 Bomrah Industries and Real Industria Elettromeccanica

5.2.1 Bomrah Industries

The Company

Bomrah Industries is a spare parts manufacturing facility in New Delhi, India. They manufacture and export starter drives, car starter drives, auto starter drives, starter drive assemblies, self starter drive assemblies for various automobiles. They have a small factory of about 200 employees with an estimated turnover of Rs. 25 million. with

manufacturing facilities also in Chandigarh and Jalandhar, Punjab, India. Since the year 1994 they have been supplying outside the Indian subcontinent, with buyers from all over the world from countries like Italy, USA, France and Russia. Their main clients are Bosch, Caterpillar, Citroen, Datsun Nissan, Chrysler, Fiat to name a few. Their main competitor is China which makes the products at a much lesser cost and is becoming a cause of worry for the company.

Bomrah Industries products are commercialized and established in the entire domestic market. Their products are also in high demand in countries all over the world through the OEMs (Original Equipment Manufacturer) for use as 'Ready Replacement Products'.

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Mr Tejinder Singh Wahi, the Marketing Manager of the company, believes that the quality of goods offered by them to their buyers is very high and hovers around 2-3% defective parts per million. However, they have very high quality checks and unsatisfactory goods are rejected and find their way in the local market. The global standard is ofcourse 0.6 ppm but such high quality standards often require very high investments and the rate of return on investment isnt very high to make such a huge effort, so thus, very effective quality checks is the key for Bomrah Industries.

The checking is done at 4 stages :

Raw Material: Only the highest quality raw materials are used to make the products as the standards demanded by the buyers are very high and the slightest of slack can cause a great deal of problem for the buyer in his market. In-house physical testing & chemical analysis of a wide range of raw material and products is done.

Process: The processes used to transform the raw material to finished goods are the most updated ones. Processes like cold forging and hot forging, manufacturing of various components / parts involving

machining work on CNC and conventional Lathe Machines Newer technology and latest machinery equipment is used as India as an

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outsourcing destination is perceived as outdated and retention of client is very important for a company. Finished Goods: The goods once produced are checked thoroughly checked for any defects and products are rejected even with the slightest defect. No compromise is made on this aspect. The company incurs maximum expense on this factor but its a worthy investment and offers good returns. This inspection is done by two inspectors independently and thus reduces the rate of defected product to the negligible.

Assembly: The products manufactured have to be assembled together before export and thorough checks are done for the fitness of the joints as these parts are very vital in the final finished product, and if they fail, the finished product crashes. Thus, the checks are done with supreme diligence.

The company prides itself on the level of service and flexibility it offers to its customers and regards that this is the best order retaining strategy for them. Customization of product for the buyers is also one of the main strengths of this company. China offers cheaper products however it compromises on quality and thus is not a very favored choice of buyers. However, the trust factor tilts very distinctively towards India and major contracts often follow each other. The company has a very active customer relationship management department to ensure repeat orders

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and contracts. Visits from and to buyers are made quarterly or biannually leading to better interpersonal relations and the person contacting on both sides have a face and is not merely a name or a voice. This ensures better affinity from both ends.

The Problems

Infrastructural

problems

like

delays

in

shipping,

labour

strikes,

incompetent road connections lead to bottlenecks for the company and often lead to earning a bad name. The buyers are very apprehensive and often do not trust the suppliers on the deliuvery date efficiency. This affects the dependability and reliability of the supplier. The upsetting element is that supplier has no control over macro factors and often suffers because of them. Another problem is in dealing with European buyers is the language barrier. any correspondence becomes impossible without a translator. Different countries have different languages and often different cultures too. The onus of communication often rests on the supplier. A common language should be a good solution, just like a common currency was. For eg: Euro. Also, with the rising rupee, the profit margins have shrunk considerably for the manufacturers, but the buyers constantly pressurize for the same

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price and the companys bottomline is bursting at its seams for a no profit, no loss equation.

In spite of all the problems all companies try to overcome their issues by adding buffer stock to their system, or learning the languages or negotiating better. The outsourcers come to these companies for their reduced costs, better quality and increased flexibility. The company relies heavily on the response received from clients which serves as a post-delivery feedback and helps them improve their products and services. Their greatest strength is the ability to pay attention to detail as it has helped them produce flawless products. They boast of a world class product analysis and reliability testing lab which constitutes their testing facilities. A thorough understanding of International Quality standards has resulted in their company getting quite a few of the prestigious certifications which validate the genuine quality of their products.

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5.2.2 Real industria elettromeccanica The Company Founded in 1949 as a small private Company named CREAT in the course of the following years this small firm moved quite a few times to a bigger space due to its continuous growth. In 1969 the company entered into industry with a staff of about 30-35 people on an area of approximately 1.200 square meters. Since 1973 the company goes by the name of REAL (after merger of CPS, the works where coils and field coils were manufactured thusfar, and CREAT), and at present is operating under the guide of Mr.Eraldo della Rovere, director of the firm and his son Claudio supervising all daily activities of their staff. REAL employs approximately 40 people internal and an equal number outside the company, all taking care in some way of the manufacturing of STARTERS, ALTERNATORS and their REPLACEMENT PARTS The main field in which operates is the manufacturing of the above-stated commercial vehicles (trucks, buses), tractors and heavy duty, including parts destinated for Original Equipment (IVECO, NEW HOLLAND MAGNETI MARELLI DENSO etc.). REAL sells only brand new products perfectly interchanging OEM products, either as complete units and replacement parts.

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Besides the starters and alternators made by REAL itself, the company can also supply its customers with distributed parts (including a lot of original equipment made items fitting to European passenger

cars/trucks + starters and alternators for Far East made vehicles). REAL design and manufacture also D.C. interlock motors for industrial and nautical applications, alternators and magnetic brakes for sporting equipments. Lastly REAL has a wide range of glow plugs for diesel cars. REAL manufactures all the components necessary to assemble the complete units by using high technology machineries and tools. All materials are tested on their processing with electronic testers to warrant their constant quality.

In Italy, REAL can count on Depots, Concessionaires, Agents and direct Customers, while as to Export there are mostly direct Customers, only a few Agents, Business Men and Sole Distributors. Abroad REAL has obtained worldwide connections: Europe, Africa, Middle East, Asia, Oceania, U.S.A./Canada, Central and South-America.

Real has been outsourcing its products to India and Taiwan for about 8 years. The main benefits the company has derived from this outsourcing are cost competitiveness with excellent quality. The main motivating factor for outsourcing was saving considerable costs.

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However, the outsourcing story has not been very smooth for Real. Glitches in service, dependability and delivery time; have given the company some very harrowing time. Late delivery of orders, wrong order, defects in orders, poor packaging; were some issues the company had a lot of problem solving.

The standards in the developing companies are so low, that they are not able to understand our needs very well. For them, attention to detail is not very important. Things have improved substantially now, but still need considerable improvement, says the companys procurement manager.

Now the problem is more at the government and the infrastructure level. The company understands that but does not wish to sympathise with the same. It feels if we are doing business, and the company wants to keep our order, it needs to raise its standards matching to ours.

With the globalization of the developing countries, things have bettered and the company hopes it becomes to the level they expect. Once this happens, there is nothing stopping countries like India to become the worlds best outsourcing destination.

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5.3 Welspring Universal and ABC Limited

In this pair of cases the companies discussed are Welspring universal and ABC Limited. The company ABC Limited wished to keep their identity anonymous and have been given a fictitious name to protect their wishes.

5.3.1 Welspring Universal

The Company

Welspring Universal is a privately held company, with over 2 generations of engineering manufacturing experience. They are involved in a variety of products relating to 3 distinct industry groups: the welding industry, the leisure furniture industry, and the garden tools trade. They manufacture & export over 800 different products, with worldwide exports to over 40 countries. Welspring has a well-respected name in India among its industry groups. Their business methods and models are emulated by many, making them a market leader. With buyers who can be termed as the who's who in their respective industries, Welspring is determined to make efforts to maintain its market leadership.

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About The Directors

Mr. V. N. Sekhri, the founder-director, has been in the engineering manufacturing trade for over 50 years. He is widely traveled, and has a deep knowledge of the wide array of manufacturing processes. Mr. Pradeep Sekhri (Paul Sekhri), the managing-director, is an Electrical Engineer, with a MBA from USA. Having lived, studied and worked in the US for over 12 years, he is well conversant with western quality standards.

Commitment To Quality

Welspring is heavily committed to Quality. They have an ISO-9002 certification for their Welding business, with other divisions also soon to be certified. Equipped with an updated laboratory & testing equipment, in-house CAD facilities, and a Quality Control & development team of over 20 personnel, they treat quality as job one. The company follow the American Net Standard Institute for code of practice. Their products come with a full replacement guarantee, if found defective.

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Customer Service

At Welspring, customer service is a top priority! India's developing infrastructure notwithstanding, they are committed to providing

customers with timely deliveries on the wide range of products that they offer. In this space age where speed & time are extremely important, this becomes an important yardstick for comparison, as speedy deliveries across a wider range of products, becomes a critical factor to stay competitive.

The change in Supply Chain management

The buyers have started to treat the suppliers as supply chain partners. Any change in specifications of the product is discussed very closely with the supplier at the planning stage of new product development. The suppliers have been able to achieve this position by constantly satisfying the buyers in its product quality, delivery and service requirements.

Marketing Initiatives

Welspring undertakes a lot of exhibitions and trade shows for marketing and customer bonding. International presence in trade shows helps the company to increase physical visibility and credibility in the buyers

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judgment. Also, the trade shows and exhibitions act as neutral grounds for holding meetings and reaching agreements.

The Manufacturing Facilities

India is a country where labour is still cheap, but in this new millennium, Welspring has committed themselves to further upgrading their

manufacturing processes and facilities so that they can offer a yet better quality & consistency to their products, instead of the traditional manually intensive production. To this effect, they import machines and equipment regularly, in an effort to implement more efficient production processes, that are safe & environment friendly. Also, the quality threshold much lower in the Indian labourers mindset, automation becomes vital. Failure to do so leads to poor product consistency. Zero defect policy is very difficult to implement. It requires very heavy investment but offers very rate of return. With a total of over 150,000 square feet of manufacturing facilities, a well matured workforce of over 400 employees, they are looking for opportunities for more expansion, and a greater role in their fields of trade.

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The problems faced while being an outsourcee Red Tapism in India: India is a very bureaucratic country where there are various licenses for a simple procedure. This wastes a lot of time and in turn delays delivery of goods to buyers.

Specialized Packing: Every buyer has its own packing specifications and at times it becomes very tardy for the supplier to pack the same goods in different ways. There is always a chance of mix ups and mistakes with the uneducated labour working for them.

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5.3.2 ABC Limited

(ABC Limited wished to maintain anonymity and as a result any information about the companys background, profile is protected.)

ABC Limited is the buyer of Welspring Universal. They use their welding products as work-in-process. They are a USA based company.

The company is outsourcing the products to the Indian company for the past 9 years. The outsourcing journey of the company has been very topsy-turvy. This company is outsourcing goods, since the time this trend was initiated in the global market.

One of the main reasons for outsourcing goods was the low cost the Indian company was offering. Labour and other factors in India are very cheap as compared to other western countries. Many factors support Indias outsourcing status. India has a specialist knowledge pool of workers, that enable the outsourcers to make use of outstanding quality at a cheaper price than its western counterparts.

All businesses want to reduce their costs, so it enables them to increase profit margin and achieve more success. Outsourcing to India supports

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this school of thought and enables the companies to achieve quick profits. This lures a lot of companies.

However, every picture has a flip side and so does this Indian outsourcing bubble. With qualified labour, you need infrastructure to support the transfer of goods produced by the excellent and cheap labour. India lacks infrastructure and it has quite some time, this has been a constant cry of most investors in India. Its a developing economy and many manufacturers still suffer from macro problems.

ABC Ltd faced a lot of problems with Welspring Universal on account of flexibility, cost, delivery time and dependability. The company saw uncertain times, where delvery of order or receiving a correct order was a boon. A shipment would take 6 months to reach at certain times. The supply chain agility went for a toss. The company had to keep buffer stock at all times to ensure raw material availability. This increased theit holding or inventory cost instead.

ABC Ltd believes, now as Indias presence in global arena is improving, so is the countrys infrastructure. The buyers have a lot of hope for Indian manufacturers and believe the Indian companies will benefit tremendously now.

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Indian companies have waited long enough for their good times and now, with so mnay global opportunities at hand, they plan to make the most out of their party.

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5.4 Krishna YPB Electro Chemical Ltd. and XYZ Inc

5.4.1 Krishna YPB Electro Chemical Ltd.

Krishna

Electro-Chemicals

is

company

that

manufactures

electroplating chemicals in Surajpur, Noida, India. It is a small unit and of 20 workers with an estimated turnover of Rs 40 million. They have a comprehensive product range comprising of spray metal cleaners, electrolytic meal cleaners, descalers, copper plating processes, nickel plating processes, hexavalent chrome plating processes, trivalent bright chrome plating processes, cyanide plating process to name a few. Their main buyers are from China, Thailand, Malaysia, Indonesia and Turkey. They are using indigenously developed technology in formulation of their product. They have a background of a joint venture with a German company. Some of the products have been modified to suit local as well as individual local market.

According to Mr. Yash Bhalla, Managing Director the market is really flourishing for Indian manufacturers right now. In their industry, innovation and customization are the most important elements for success and with world class engineers at hand with the strong education system of India, becoming a global leader is not unachievable.

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While manufacturing industrial goods, relationship management and proficient research and development are the key factors to be paid utmost attention to for constant success. Krishna Electro-Chemicals is promoting environment friendly chemicals which are processed in a way that least damage is done to the environment. This facility however, is expensive than the normal and a lot of buyers are apprehensive trying out newer products. The process of manufacturing electroplating chemicals is very scientific and very high standards of quality are maintained. The process is very simple. All the ingredients are added as per the recipe and mixed homogenously for a specified time under controlled conditions of pH, temperature, density. After the product is properly mixed, its taken out and quality control is checked. After the test is OK, the product is filled with required packing and sent to the customer. They use ribbon blending mixture with a stainless steel housing driven by a gear box and motor for speed control. The housing is a rectangular tank with round bottom and a discharge opening for taking out the finished goods. The mixing is done by a ribbon made out of stainless steel strip welded onto the shaft. This ribbon rotates with the mass and mixes it properly. For liquid products, we use mixing tanks made of Polyproylene reinforced with FRP. The tank is fitted with a vertical mixer driven by low speed motor. The lower end of the shaft of the mixture has

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a marine type impeller made of stainless steel. The unit is fitted with a filteration unit for removing suspended particles. The final product is taken out by a bottom discharge valve.

While exporting the goods, the problems faced are very common amongst all exporters. While communicating with countries where English is not a primary language, is a very harrowing experience. Especially countries like Turkey, China etc. are impossible to deal with without a translator.

The price of raw materials has been soaring and the buyers do not allow increasing the prices. This has forced the company to reduce its profit margin and this is affecting the bottomline immeasurably. Such forced decisions by the buyers often create a rift between the dealings and often leads to disruption of smooth business operations. However, the price pressures are further stiffened by competition from China. This has led to the business prospects for exports being dampened seriously.

For exporting the goods, the quality expected is very high and such high quality requires heavy and intensive investment. However, the cost of improvement with each percent of error reduced is very high and not relative at all. This means that with each 0.1% error reduced, the amount of investment required increases. This is not justified with the small scale businesses in India. This just increases the amount of 85

inspection of the final product. Labour is very cheap in India and Inspectors can be easily trained for accuracy in product being sent out.

The chemical market all over the world has very bright prospects and a new revolution is approaching the industry. Eco-friendly chemicals are the most promising upcoming trend. More and more companies are investing a lot of money in research and development of economically viable products. This innovation will benefit one and all. The end product may not be the same exactly, but, itll be worth all the pain, when it does not leave hazardous remnants behind.

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5.4.2 XYZ Inc

(XYZ Inc. wished to maintain anonymity and as a result any information about the companys background, profile is protected.)

XYZ Inc is a chrome polishing and plating company in Malaysia. They are doing business with Krishna YPB (YPB) for 3 years now. Chemical manufacturing and blending was an in-house activity for the company for a very long time.

However, with increasing raw material costs, constant up gradation of machinery required, the company started making losses of the return of investments. Thats when outsourcing was viewed as an alternative viable enough for sustenance.

While selecting a supplier in India, the company took very stringent measures. The suppliers underwent tests, regular factory visits, review of procedures and policies. Once the selection was done, regular checks were made on the company to ensure the procedures were being followed with utmost care. The contracts were given out for short-term, ranging from 6 months to 12 months, for fresh review of performance.

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This was due to the reputation Indian companies have in the world market. Their dependability factor is extremely low and many companies are wary for committing to a longer term contract. This is not very beneficial for the Indian companies but they are seldom left with a choice. Certain factors are very macro for their control.

However, XYZ feels that, many Indian companies go out of the way to serve their customer to overcome the problem of infrastructure in India.

XYZ also feels that the Indian companies are now gaining repute for their outstanding quality and state-of-the-art manufacturing systems. And the icing on the cake is that amazing quality at very low prices. With the further improvement in Indian infrastructure, the country is bound to reap fruits and rewards.

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Chapter 6, Analysis and Discussion

6.1 Qualitative Analysis

After reviewing the cases, there is a clear trend visible in the progressive change in the position of the supplier in the supply chain. The buyer now treats the supplier more like a partner than a mere outsourcee.

The buyers now treat Indian suppliers differently because of the following reasons:

Flexible: The Indian suppliers are very flexible to their buyers needs and believe in customization. The machines and labourers are well trained to accommodate any request feasible. The Indians believe in making the customer most happy. Whether the customization is in manufacturing the product, finishing, packing or delivering, Indians can accommodate all needs. The general nature and culture of India is that they treat their buyer as god because it is due to them that they are able to earn bread and feed their families. The buyers are dealt with a lot of respect and his wishes are treated as commands.

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Superior Quality: Quality is a standard requirement in the manufacturing industry today. Norms like ISO have become

commonplace and almost a pre-requisite for companies wishing to export overseas. With stiff competition from China, India wins hands down with very high quality. Companies believe in making it right first time so that everyone is satisfied; from the buyers, to the end product users. Any fault in products today incur a lot of cost like the warranty replacement cost, helpline maintenance cost, reputation loss, loss of customer loyalty etc. The companies in India understand this and wish to avoid these costs by ensuring superior quality of their products. They believe in letting their products do the talking rather than their marketing company. They also realize that manufacturing high quality products will ensure the retention of clients more than any other customer relationship management tool.

Improving infrastructure: India is an upcoming economy. The growth rate is increasing every year and almost is in double digits. The country is developing at a break-neck speed and infrastructure is improving in all sectors : power, telecom, roadways, railways, education. More and more smaller towns are getting electrified in India and the owners of mobile phones in India are doubling every year. This infrastructure improvement is leading to industrialization in smaller cities and towns. This in turn enables companies to move their facilities

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to cheaper locations, employing inexpensive labour at discounted rates for infrastructure facilities like power, telecom etc. This leads to huge economies of scale and low cost price. The low cost price increases the profit margins for the companies and improves the top lines. Education system in India is also improving substantially over time. There was always quantity but now even the quality is getting better. Premier institutes for professional studies are opening up and more and more graduates are getting better and more job specific education. Fields like IT, Hotel Management, Hospitality, Aviation are getting a push and in turn providing India with specially trained manpower. This reduces the cost of training substantially and now organizations merely provide a bridge between the bookish knowledge and the actual real world practices. This is giving India a very strong edge over other countries. Also, English is becoming a common medium for imparting education which again helps in trading internationally without a problem.

Credible clients in their kitty: The Indian suppliers are now tier 1 or tier 2 suppliers for their many buyers. This is like a vicious circle. If one competitor is buying from a particular supplier, that supplier has a higher chance of bagging an order from his buyers competitor as his market reputation increases with the type of buyers he has. If a buyer is placing an order, his competitor presumes that all background checks have been done and thus, in turn, saves his background check costs.

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Also, its not just competitors but buyers in unrelated markets like two companies operating in different geographical locations that can help leading to another order. For e.g. A respected buyer from Asia can earn his supplier an order from Europe, because of the Asian buyers reputation.

Indians are getting globalised: The buyers all over the world are outsourcing more and more goods and services to India, as the quality standards are becoming higher. Also, due to regular exports, the suppliers now understand the buyers needs better and are able to satisfy them better, be it product specifications, packing requirements, delivery schedule or delivery method. The general Indian mindset is of treating the customer as king and thus, it results in higher service levels. The higher level of service really promotes satisfaction and repeat orders from the buyers. India, as an outsourcing contender has gained reputation in the world market as a high quality, low price export destination. Also, with the globalization of the Indian economy, the basic standards for every process and product have increased considerably and match the western counterparts. This leads to better understanding of buyers worldwide and thus, their satisfaction index getting better.

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Indian manufacturers more professional now: With the increase in trade activity, the Indian manufacturers have become more proficient and trained to attend to their buyers needs. The buyers mostly are from the developed part of the world and have very high standards for quality, packaging, merchandising, delivery methods, delivery time etc. Indian manufacturers had a lot of problems understanding these parameters as they did not require any of these standards in domestic trade. However, things have improved and the Indians do not say yes to everything without assessing their situation. This was a common problem with the Indians that the moment they thought they could get an order, they said yes without looking at production schedules, raw material availability, labour shifts etc and often delayed their orders. This had started earning them a bad reputation, but they realized their mistake and now are working towards resurrecting it.

Trustworthy: Indian suppliers are not merely treated as suppliers, to whom orders are given, goods received and payment made. A lot of trust is advanced in the supply chain nowadays. The suppliers are not merely a part of the supply chain but partners. A lot of decisions are taken about new product development, change in existing product design, are consulted with the suppliers, well before any changes are brought in. Important and confidential pieces of information are shared with the supply chain partners in India by companies worldwide. Marketing plans,

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production schedules, product launch dates and other sensitive information is shared for quicker co-ordination and response throughout the supply chain. With rapid production ramp up schedules, supplier has to be trustworthy enough to be passed on critical information. With competitors paying any amount for sensitive information, the suppliers are chosen with careful consideration. A lot of preliminary checks are undertaken to ensure the right choice is being made in selection of partners. Slowly but surely the Indian suppliers have become supply chain partners over a span of time.

Better language support than China: English language is one of the best things British colonization has given to India. Most of the Indian population in the metro cities is English speaking. This acts a clear advantage over other non-english speaking countries like China. It is due to this very factor that India has more services outsourced than manufacturing jobs as English is the main medium of communication in most part of the world. The dialect difference is quickly adapted by the Indian service providers and can offer versatility at the same time. Also, most other English speaking nations, the same job costs many times the Indian quote, so automatically they become the favorites. Cheap work at high quality in customized language is Indias forte and helps to bag a lot of contracts.

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Better quality and technology: Technology modernization is an everyday occurrence in this world. Newer systems and methods are introduced for various processes across the production line. However, every technological improvement requires intensive investment from the manufacturers and often are delayed till break even point of the last enhancement is achieved. This leads to redundancy in the market as competitors may have a different time frame for the investments, i.e. while one company is in the middle of the time frame for achieving break even point, its competitor could be at the end of its cycle and upgrade putting the company at a temporary disadvantage. This can seriously hit the companys bottomline for some time. However, outsourcing can solve this problem. Since outsourcees are providing their merchandise to many customers, constant upgradation of technology is done to stay abreast with the innovations worldwide. Indian manufacturers constantly improve their systems and processes due to the heavy orders from all over the world.

Cost not competitive than China: China is becoming a huge dragon that is ready to eat away everyones profit in the outsourcing sector. With the ever developing infrastructure, and cheap labour, China offers some very competitive prices for most goods its produces. It wouldnt be an overstatement if it is said that China is producing more than half of the worlds goods, at the cheapest prices.This is a serious disadvantage for

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India. Even with cheap labour, India has a lot of difficulty in producing the goods at the same price as China and often loses out In the numbers game. However, the quality of Chinese goods isnt rated very high and thus, manufacturers looking for quality, do not mind paying a little bit extra to Indian manufacturers.

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6.2 Quantitative Analysis

While collection of primary data for this research, all companies were made to give ratings on various criterion like quality, service, flexibility, dependability, cost and delivery time. The Indian suppliers were made to judge themselves from the buyers point of view and buyers gave ratings on the Indian suppliers. The objective of these ratings was to understand the perception gap, if any, from both contributors. This study revealed some very fascinating aspects of Indian companies reputation in the outsourcing industry from all over the world.

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6.2.1 Case of Bomrah Industries and Real Industria Elettromeccanica

9 8 7 6 5 4 3 2 1 0 Quality Service Flexibility Dependability Cost Delivery Time Bomrah Industries Real Industria elettromeccanica

Figure 3, Bomrah Industries and Real Industria Elettromeccanica

Bomrah Industries are manufacturers of starter drives for cars and scooters exporting to companies all over the world. Their clients are mostly from Europe and south-east Asia. In this profile, the buyer is a French company, who have rated Bomrah Industries on various criterion like quality, service, flexibility. Its very interesting to note that Bomrah Industries are quite aware of their position in the eyes of its customer. While under-estimating themselves onfcators like quality and cost, they feel they are doing well in service, dependability and delivery time. Bomrahs main concern, the cost competitiveness from China is not seen as big a threat as they perceive. Also, cost is one of the major factors for getting the orders for this company.

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However, there are many problem areas Bomrah need to work on. On factors like service, dependability and delivery time, Bomrah has overestimated their credibility. The French buyers expect better dependability and delivery time. However, the company mentioned in the interview, that delivery time is a macro factor completely out of their control. This does lead to bad reputation but there isnt much the company can do to control this factor.

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6.2.2 Case of Welspring Universal and ABC Limited

10 9 8 7 6 5 4 3 2 1 0 Quality Service Flexibility Dependability Cost Delivery Time Welspring Universal ABC Limited

Figure 4, Welspring Universal and ABC Limited

Welspring Universal manufactures welding parts for garden tools and sells them in markets all over the world with major orders from USA, Africa, France, Germany, Spain, Taiwan, Malaysia etc. ABC Limited is an American company which manufactures garden tools all over USA, Canada, Mexico etc. Both companies rated Welspring Universal on the criterion of flexibility, service etc and Welspring fell very short on the marks provided by their buyer on the standards of flexibility, dependability, cost and delivery time. Welspring really considers itself better than their buyers rate them. This is very unhealthy for the company as the areas that need some

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improvement like cost and delivery time are very highly assessed. This will ultimately lead to complacency on the companys part regarding these areas and the dissatisfaction from the buyer will increase. This can be a perilous situation as ABC Limited may want to look for alternatives that offer better cost, delivery time and flexibility. However, The company considers its quality levels quite lower than the buyer discerns. This can also be a big problem as unnecessary investment will get diverted to improving quality whereas it should be diverted to other factors like reducing costs and improving delivery time.

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6.2.3 Case of EXL Industries and Central Wheel Components

10 9 8 7 6 5 4 3 2 1 0 Quality Service Flexibility Dependability Cost Delivery Time EXL Industries Central Wheel Components

Figure 5, EXL Industries and Central Wheel Components

EXL Industries manufactures spokes and nipples for motorcycles and bicycles. They sell their merchandise overseas to many countries like United Kingdom, Germany, France, Turkey, Nigeria etc. Their brand name Marshall is very famous in the local and the international market. Central Wheel Components are tyre manufacturers and supply to motorcycle and bicycle manufacturers. Top customers include Raleigh bicycles, BMW etc.

When the ratings of both companies were compared, some intriguing results were revealed. EXL Industries thought of themselves being very

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high on flexibility, dependability and cost. However, their buyer does not agree to their school of thought. Central Wheel Components feels that the company really has to pull up their socks and make their orders more dependable. CWC is never really sure of their order being met the way they exactly require. Western standards are higher than Indian and thus, the company has to understand the exact requirements and try their best to fulfill them.

CWC also feels that the quality and service offered by EXL Industries are to the desired standards. The quality is world-class and the service offered is personalized and CWC is extremely happy and satisfied with it. CWC would like to keep their orders with the company for a long time to come.

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6.2.4 Case of Krishna YPB Electro-Chemical & XYZ Inc

10 9 8 7 6 5 4 3 2 1 0 Quality Service Flexibility Dependability Cost Delivery Time Krishna YPB Electro-Chemical XYZ Inc

Figure 6, Krishna YPB Electro-Chemical & XYZ Inc

Krishna YPB Electro Chemical manufactures chemicals for industrial use for clients all over the world. Their main export destinations are Turkey, Malaysia, China and Singapore. XYZ Inc deal in chrome based products and use the chemicals as raw material. The quality of the chemical is very important for the finished products quality.

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When both companies evaluated the standards on which the comparison was made, the fluctuation was very high. Krishna YPB needs to understand their client better and try to fulfil their needs. Krishna YPB rate themselves very highly on dependability and delivery time. Both these factors are inter-related. If the delivery time is met, the dependability of the customer becomes higher, and vice versa. However, their buyers standards and requirements are not met at all. There is a huge perception gap which needs to be addressed seriously as the buyer is very dissatisfied with the performance. This is not very healthy for the business. On the other hand, Krishna YPB, has undervalued themselves in areas of quality and cost. Their customer seems very happy with the quality and the cost offered. Krishna YPB has a complete lack of communication with their client and the issues need to be sorted and discussed for future relationships.

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6.2.5 Summary of all cases

40 35 30 25 Indian Suppliers 20 15 10 5 0 Quality Service Flexibility Dependability Cost Delivery Time Worldwide Buyers

Figure 7, Indian Suppliers and Worldwide Buyers

Scores of both sides i.e. the companies and their foreign counterparts were summed up to get an absolute representation of the scenario.

Some very interesting results can be drawn from the snapshot. The Indian manufacturers underrate their quality standards in comparison to their buyers expectations. Most buyers are more than satisfied by the quality levels maintained by the Indian companies.

Another point of discussion is cost. Indian manufacturers have this constant fear of getting laid off because of lower price from china, however, the buyers consider Indian prices very competitive. Also, the strengthening Indian rupee is a point of bother which has

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forced the exporters to increase prices to meet their profit margins. This is well understood by buyers and the cost still remains competitive.

Delivery time is a very serious flaw in the portfolio of the Indian manufacturers. Global supply chains nowadays have very precise delivery times and any delay causes a lot of tribulations in the chain. It often acts like a domino effect and more than one person gets affected by the same. This is a macro level problem and thus, the Indian manufacturers have to work their way around it to ensure timely deliveries.

Another very important deficiency is the dependability of the worldwide buyers on Indian manufacturers. The supply chains today run on trust and dependability and any shortfall in this area can lead to cancellation of orders. The Indian companies need to keep up their promised word or else their reputation will go for a toss in the world market.

Foreign buyers are more or less happy with the service levels and the flexibility offered by the Indian manufacturers to keep the customer happy. They appear extremely happy and satisfied with Indians on these criteria.

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Chapter 7, Conclusion 7.1 Conclusion

The supply chain is the most integral part of any business nowadays. The companies do not compete over product lines, prices, variety but the proficiency of their respective supply chains. This has led to each part of the supply chain gain significance. The evolution of the supply chain has been the most substantial development in the business practices. Once companies decided to look outside their strengths, for procuring goods and services that were not core competencies, outsourcing started gaining importance. However, as every new trend, outsourcing faced resistance. The conflict of whether or not to outsource started to dissolve with outsourcing becoming the obvious favorite. Outsourcing has many benefits ranging from reduced costs, specialized knowledge, uniformity of products, higher quality standards and improved profit margins. Every coin has two sides and so does outsourcing, with its ill-effects like loss of control over production, loss of critical information, loss of specialized skills. The suppliers are chosen after considering a lot of factors like competitive edge of the concerned process or activity, transaction cost like research and development cost, personnel development cost; degree of sourcing control is to be decided whether it is high or low, flexibility

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versus control of firm on the product. Supplier selection is a very careful activity which is done with utmost care and caution in todays day and age. The level of outsourcing depends on two factors degree of the products or activites strategic vulnerability and potential of competitive edge in the market. If both factors are low then the company out sources the process off the shelf, and does not invest its time and resources in manufacturing. If both factors are medium, the company indulges into special ventures and contracts for moderate control. If both factors are high, and strategic control is required, the company prefers to produce the product internally. However, now the supply chains are aiming towards excelling through agile and dependable partnerships. Suppliers across the world are chosen carefully and integrated firmly in the global supply chains. The production schedules, market demand is so unpredictable that building and maintaining trust with your supply chain partner is the key to success. Rapid ramp ups in production to meet short term surge in demand is only possible if the liaison with the seller is transparent. The seller has to be prepared enough to supply the increased order in time for the transaction to be carried through to the end consumer. This is done by following many principles like creating a leaner supply chain, crafting efficient information transfer systems, maintaining similar business process across the chain.

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The company has to affirm at every stage internal and external that its branches or suppliers, to maintain a homogenous face of the company to the customers. All business policies, ethics, codes of practice, should be carefully formulated and adopted universally. The companies have spread globally and need to maintain uniformity despite the variety in the world. This helps to advocate the companys right image across to customer no matter where he is in the world. The collaborative supply chain networks enable the company to increase sales, decrease holding and inventory costs, increase profitability etc. The suppliers also benefit by the longer term contracts, which enable them to plan in a phased manner for the future requirements. The main destinations for receiving major outsourcing contracts are China, India, Philippines, Malaysia, Taiwan etc. India in particular has received a lot of attention by buyers worldwide due to many factors working in its favour. Its young English speaking population, suitable time zone for most parts of the Europe and USA, cost efficiency, global quality standards, cheap labour, improving infrastructure and government incentives are impetus for the world to stop and take notice. The suppliers in India are now treated with a lot of respect and credibility. Indian suppliers have come a long way from being highly unprofessional to trustworthy partners in global supply chains.

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From the primary research done in this study, where Indian suppliers and their worldwide buyers were profiled for the satisfaction of the whole outsourcing experience. Both parties filled questionnaires and were interviewed in various methods like personal interview, telephonic interview, live chat and video conferencing. The results established from the analysis clearly verify the upcoming trend of Collaborative supply Chains. The buyers across the world view the suppliers as supply chain partners. Indian sellers are treated at par with any global supplier in terms of respect, trustworthiness and order fulfilling capacity. From the information obtained from the interviewees the Indian sellers offer a more professional, flexible, higher quality and superior customer service. They also provide state-of-the-art manufacturing facilities and global quality standards. The Indian seller is also gaining credibility because the infrastructure in the country is improving; the government is promoting the initiatives. In the recent years, the Indian manufacturers had a reputation of being yes-men to everything their buyer demanded but never delivering anything in the desired manner or on time. This was leading to bad reputation and loss of orders. However, the Indians recognized their folly on time and made amends to improve things. From the quantitative analysis, clear trends of dissatisfaction are reflecting for delivery time and dependability. Also, the Indians feel

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differently and this could be another dangerous trend for the country. However, it is macro problem, and the government needs to take initiatives to undertake corrective measures. The whole country is getting affected by such infrastructural blockages. Also, the manufacturers need to get more professional and follow worldclass standards in small things like packaging, methods of

transportation, storage of raw material etc. The western companies pay a lot of attention to small things and get upset if standards are not followed. The Indian suppliers are treated as partners by their buyers. In the pervious decade, the Indians were not considered trustworthy enough for getting any importance in the supply chain. However, nowadays the Indian suppliers hold a very important place in their supply chains. The suppliers are constantly consulted with any change of plans; any new product development is not undertaken without involving the suppliers in the feasibility analysis. The suppliers on the other hand, are also involved in research and development activities for their buyers. Since it is the suppliers that are doing the actual manufacturing, the production techniques can be refined on the job much better than on paper. There are dedicated teams on the suppliers facilities now that are constantly working to reduce costs, ensure efficient use of machinery or developing newer products. Also, suppliers have the trust of the companies buying from them and thus any improvements suggested are taken seriously and a decisive committee looks over the changes.

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The buyers also share confidential high security information with their suppliers in event of any change in production plans. With companies following the rapid ramp-up production schedule the suppliers have to be informed of the production plans as the volumes need to be geared up and brought down very quickly. Thus, Indian suppliers have a lot of opportunities to cater to this world. If all cards are played well, India will be No.1 outsourcing destination with its strengths.

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7.2 Limitations

The time frame allocated to this study was very limited. Three months was a short period to do justice to the topic. A detailed analysis is required to gathering better understanding of the topic.

The primary data sample is not sufficient to substantiate any trends of the whole industry. The sample is very small and is indicative of a minute percentage of the market.

Distortion of information is possible due to personal interviews being a mode of data collection. Company officials always try to present the best picture of the company and may distort certain facts crucial for the report in order to prevent a bad reputation of the company.

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