Manufacturing Talk tag:www.infosysblogs.com,2010:/manufacturing-talk/1 2010-02-22T10:23:30Z Discuss trends and ideas on issues around the high-tech, industrial, aerospace & defense, automotive, and process manufacturing industries Movable Type 3.2ysb5-20051201 Top 5 trends in Automotive Industry of 2010 tag:www.infosysblogs.com,2010:/manufacturing-talk//1.15 2010-02-22T10:09:02Z 2010-02-22T10:23:30Z With lessons learnt in the recession of 2009, automotive OEMs show common trends for 2010. An accelerated M&A activities and strategic alliance, expansion into new geographies to sustain growth, sharp focus on new product development aligned to alternate fuel vehicles, collaboration to reduce procurement costs and hedge supplier risks and downsizing supply chains in line with reduced volumes would be the imperatives for perpetuating sustenance. It is to be seen how the major players like Toyota, GM, Ford, VW etc. match up the onslaught from the “Young Turks” from emerging markets like Geely, Chery, Tata Motors. But the writing is clear on the wall – Emerging markets like China and India are the happening hot-spots for the future of automotive industry. Sudripto De The writing is clear on the wall…. Toyota at the helm of automotive industry has been bitten large by the recall bug. And that’s not just because of being at the top, but unforeseen to most admirers, because of the forced diversion from its basic tenets of lean. And the other warlords like GM and Ford has its back against the wall still scouting for buyers for Pontiac , while literally surrendering to lesser mortals like Sichuan Tengzhong and Zhejiang Geely of China to shed its overladen baggage of Hummer and Volvo cars respectively, having tasted bitter pills with its deals with Magna for Opel and Vauxhall, Roger Penske for Saturn and Spyker for SAAB. VW, the European biggie had to tie-up with Suzuki Motors through a 20% stakes and Engineering collaboration for next-generation mini-car, possibly Alto, to capture Indian market. Renault has similar plans of shrinking European market and wants to enter China with Nissan’s help to reach the 1 million magic figures in China. Chrysler which has a close relationship with Fiat has planned its product plan till 2014 with amalgamation of Fiat platforms in Chrysler’s brands like Dodge and Jeep by 2013.  With these far reaching changes sweeping the industry there are some converging trends which emerge in the automotive industry in 2010]]> The Top 5 trends in automotive industry in 2010 will be:

1.       Acceleration in Merger and Acquisition: As cash-strapped organizations in US and Europe look for “saviors” for some of their brands or subsidiaries, there will be an emergence of “Young Turks” from fast-growing markets like India (Tata Motors, Mahindra etc.) and China (Geely, Chery etc.). In addition there will be strategic partnerships between automotive OEMs with contrasting strengths (like Suzuki and VW or Chrysler and Fiat) to leverage their strengths on common platforms.

2.       Entry into new geographies: New markets like India (with 11% growth) and China (9% growth) holds strong promise.  As US new car sales dipped from 15+ million vehicles in 2006 to about 8+ million vehicles by the end of 2009, there is a shift in focus to these emerging markets. Some OEMs would leverage the existing presence of their alliance partners to enable an entry strategy, like Renault’s entry into China. With some other OEMs like GM, they have upgraded their GMDAT offices in Korea to develop market attractive mini-cars for India and Korea.

3.       Reducing time-to-market for alternate energy vehicles: Cornered by the “green revolution” most automotive OEMs are forced to look for alternate energy sources like hybrids, electric vehicles, ethanol, bio-diesel etc. Seeing the success of Toyota Prius, all automotive OEMs are planning rapid prototyping and accelerate sourcing and commercialize their alternate fuel concept vehicles. This will consequently lead to a major change in their supply chains including energy and parts suppliers, pipeline and distribution agencies, energy storage and retail agencies.

4.        Procurement collaboration: As referred in my previous blogs, automotive OEMs are coming closer to collaborate. This collaboration has been presently been more mature in areas of procurement, with BMW and Daimler showing affinity towards development of a common procurement platform on the lines of COVISINT of GM. Even Tier-1 suppliers are moving in this direction to collaborate for procurement from their lower-tier suppliers. This will serve three basic objectives; namely, de-risk OEMs against any supplier hegemony, enable procurement cost reduction through economies of scale and “right-sourcing” (instead of indiscriminate low-cost sourcing) and develop the desired traceability through the supply chain necessary for quality and regulatory requirements.  

5.       Focus on vehicle SCM: As credit availability becomes elusive and OEMs start depending more and more on their internal cash flows to finance investment opportunities, supply chain optimizations become quite imperative for OEMs to perpetuate sustenance. This supply-chain-restructuring needs to be carried out in each of the legacy and emerging regions due to changing volume shift from US and European markets to emerging markets of India and China. Sensing major increase in volumes, organizations like Honda and VW have already taken-up measures to rationalize processes and optimize supply chains in emerging economies to meet the challenges of future.

As automotive OEMs start to settle after the severe crisis of 2009 (except Toyota who are still reeling under major recalls) it remains to be seen how these trends would impact their performance in the next 12 months. It has been an observation that as the markets start to blossom most OEMs lose retrospective and swing back to the same age-old practices which has led to the crises. What is certain is that the emerging OEMs are catching up fast on the heels of the US, German and Japanese OEMs, and if they do not adapt to the changing market trends, survival will be a challenge. ]]> Do variety wishes of shoppers always corner the manufacturers? tag:www.infosysblogs.com,2009:/manufacturing-talk//1.14 2009-11-03T17:09:32Z 2009-11-03T17:29:44Z Most Chief Operating Officers look for classical techniques to identify cost drivers or price function factors, which do not help in today’s fast changing variety-prone market. The driver-to-driven variety function technique would help COOs identify the factors which needs to be controlled to provide the required choice to customers and also manage their operational efficiencies Sudripto De Shoppers  across the world, whether they are buying toys  from roadside hawkers or investing in capital goods to be shipped from abroad, always look for variety! They cherish variety in products, variety in prices, variety in delivery of goods and of course variety in service.  The customers always want that the choice should reside with them. In the wake of such variety-prone world, manufacturers are forced to adopt “variety” to a large extent to meet the market forces. But these manufacturers would not leave a chance to sneak in “variety” in certain other quarters to manage their efficiencies. The manufacturer is thus not just driven by variety, but also drives variety. The classical economic theory of supply and demand “match-point” being the price decider …… has to be rewritten. In today’s economy it is the driven-to-driver variety intersection which determines price of the manufactured products.

]]> These two variety functions, the Driven and the Driver, need some deeper scanning. Let us take the driven variety function first.  The Driven Variety function comprises of multiple parameters with multiple factors which shape the behavior of these parameters.

The driven variety parameters

1.  Product Parameter:  This parameter is a driven parameter, as most product requirements are driven by the market. Except for a very few manufacturers who develop innovations which become benchmarks in the market, others always follow and thus are driven. The greater the driving pull from the market, the lesser is the flexibility for the manufacturer to charge the price they desire. Even the innovators always get a dipstick survey to gauge the acceptability of their products from the market. Some of the factors which shapes the behaviour of the parameter are :

·         Product Configuration

·         Product features

·         Product Quality & reliability

·         Product ergonomics

·         Product color, look & feel

·         Product Hazards and risks

·         Product brand name

2.  Cost to Customer:  These are essential costs which the customer or the end consumer has to shell out post sale. The more a manufacturer is able to provide variety for the customer to choose during the post sales period, the longer would be the stay for the customer with that manufacturer. These costs if perceived to be high vis-à-vis the value they provide would immediately reduce the attractiveness of the product in the market and drive the manufacturer to reduce prices. So, they also fall in the driver category of the variety function. Some of these costs are mandatory as per law, but it is upon the manufacturing concerns business acumen to optimize them for the benefit of their customers. Those manufacturers who are able to influence a better deal for these mandatory costs enjoy a huge loyalty among their customers. Give here are some of the factors which shape this parameter behavior:

·         Running costs of fuel/ energy

·         Warranty, service or repair costs

·         Refill, renewal and re-issue charges

·         Disposal costs

·         Insurance, taxes and duties

3.  Sales and Distribution:  The various choices which the manufacturer provides to its customers either directly or through the multiple channels to place orders, buy, make payments and finally delivery of their desired products, the larger is the customer base. These manufacturers are the ones who rule the market and are in a position to define prices in the market. Some would argue that one would always go to a grocery store to buy vegetables. To this argument I would only respond…. Dominos make a greater impact in the market, as they have understood the need for fulfilling hunger and made home delivery of their pizzas to suit customer’s comfort. That is why they enjoy a wide patronageworldwide. So, the factors which would essentially shape the behavior of this parameter are:

·         Ease of accessibility

·         Level of availability

·         Store visibility

·         Awareness & promotion

4.  Regulatory Constraints:  To bring discipline in product manufacturing and corporate governance, the regulatory authorities sanction constraints on manufacturers. The impositions in some form or the other have a bearing on the cost of the production. Also, their non-compliance would tarnish the image of the manufacturers so much in the market, that it would severely impact the acceptability of the products in the market. Even though this parameter speaks about constraints instead of variety, it is those manufacturers who have adopted various techniques to make compliance a way of life who clamor less and succeed in the market. The factors shaping the behaviour of this parameter are:

·         Environmental constraints

·         Safety constraints

·         Operational prohibitions

·         Social responsibility requirements

 

The driver variety parameters

1.  Process flexibility: This parameter is largely developed as an antidote to the demand for variety from the market. Manufacturers developed ways and means of blending mass production techniques with customization requirements to develop the “mass customization” methodologies. Perfected to some extent by Toyota through their Toyota Production Systems, they capture the concepts of Lean Manufacturing, and deploy simple efficient “autonomation” to achieve the both the economies of scale and variety of scope.  The factors aligned to this parameter are:

·         Ease of changeover

·         Waste elimination level

·         Level of plant load utilization

·         Man-to-machine synergy level

2.  Sourcing efficiency: This is the only weapon available for the manufacturers who can leverage enough influence on their suppliers for inducing variety into the products they purchase. But this largely depends on the how strong is the bond between the manufacturer and its supplier. Traditional “parent-child” relationship does not hold good in changed scenarios, where suppliers who serve multiple manufacturers have a dominant position. Toyota’s keiretsu system has also undergone structural changes, as manufacturers would also not like to live under the constant of single source. To bring in variety into production, products and even service styles a partnership needs to be developed with suppliers. To develop such a partnership the following factors should be considered:

·         Level of contractual obligations

·         Level of information and IP (Intellectual Property) sharing

·         Depth of technological strength

·         Soundness of financial strength

Most Chief Operating Officers (COO) would take a classical approach for cost calculations or price function definition while designing their optimal operations.  Where they generally face challenge is that the classical techniques do not look for factors which infuse the required change and variety which the market is demanding. Such a driven-to-driver variety function assessment would help them reach factors faster and more accurately.

Look-out for the next blog which takes a deep-dive into each of these parameters and techniques and explains how the manufacturers have mastered the two Driver-variety parameters to tilt the balance in their favour aginst all odds from the four Driven-variety parameters.

]]> Five Questions Facing European Manufacturing CIOs tag:www.infosysblogs.com,2009:/manufacturing-talk//1.13 2009-09-17T11:57:50Z 2009-09-30T07:19:04Z CIOs of European Manufacturing companies have started to think beyond the recession. What challenges do they face? Are there aspects that need to be done differently? Satya Samal Finally the summer has come to an end. Traffic is back in Parisian roads and the early morning London-Frankfurt flights are full again. It was a different summer in many ways. First England won back the Ashes. Then there is more hope about economy in general and General Motors in particular in comparison to last summer when Lehman folded. On a more mundane note, in my 10 years in Europe, this was the  most hectic August.  Over a span of 6 weeks, I had the privilege of meeting several senior IT leaders across automotive, aerospace, chemicals, machine manufacturing, high tech and defence companies in Europe. I am going to share some of the exciting discussions I had in this space, starting with the five questions that I heard CIOs are asking as they cautiously prepare for post-recession economy.

]]> How to un-fix the fixed costs?

How does the COO of a company making machineries for semi-conductor company respond when the revenues drop by a third? How does the CIO of a truck maker react when the vehicle sales drop by 40% in 9 months? Unlike the rapidly changing demand, many things are fixed in the European CIO’s world - license fees, annual maintenance contract, rate cards, committed business volume, work force size, leasing fees and so on. Re-negotiation takes time and effort and costs money. Letting go the workforce creates reputation and service delivery risk. Naturally the question in everyone’s mind is – how to un-fix this fixed cost without breaking anything else?

 

How to adjust IT for the Nano world?

More than 90% of growth in car industry comes from the emerging markets. The problem is, this market is notoriously price sensitive and wants stuff at Nano price. (On a different note, the $2,500 Nano has started rolling into Mumbai roads, and one thing that struck me is how spacious and city-friendly this car is). So how do companies make money when the growth is at the most price-sensitive end of the market? What is IT’s role in this? Can IT bring down its costs in line with the new pricing realities? More importantly, what can IT do to help business operate profitably when price has become such a critical factor.

What is the cash-neutral way to One IT?

This was one of the most discussed themes. Companies I spoke to have huge worries about the mishmash in their IT landscape.  Multiple mergers, independent business unit structures, technology hedging and often lack of planning have led to an IT landscape that is difficult to understand, expensive to run and time consuming to change. Solutions to this issue is unambiguously clear – get rid of duplications. But this requires investment –more than 2 to 3 times the cost of running these applications. Getting business to fund such investments when there is limited assured benefits is a challenge. Is there a way out of this trap? Perhaps there is a cash-neutral way to achieve One IT?

 

Are we fitting square pegs into round holes?

Services is the new Manufacturing –at least if you go by how manufacturers make money these days. Telecom companies now run exchanges and engine makers earn more money maintaining engines than selling them. But surprisingly very little investment is yet to flow into applications and processes that supports the Services business. Naturally the maturity of applications supporting Services business is a order of magnitude lower than the Manufacturing applications.  The other problem is trying to overlay the Services process on the Manufacturing data model – bit like trying to fit square pegs into round holes. Can Services business requirements be met by patching the existing applications or is there a need for a different approach?

 

What is the unclouded version of Cloud Computing?

It is difficult to ignore Cloud Computing. It is supposed to change the very way companies do IT – instead of building one’s own IT, companies can get all their IT from the tap. Ground-breaking stuff. But when the memories of Dot Com crash still give a nightmare, how does a responsible CIO respond to all the hype surrounding cloud computing? Perhaps wait it out for a few more years. But what if competition gets it before us? What should and could we do in the next 12 months when it comes to Cloud Computing?

]]> Innovation imperative. Risks in supply chains. Mitigate with caution (and actionable intelligence) tag:www.infosysblogs.com,2009:/manufacturing-talk//1.11 2009-06-05T14:07:00Z 2009-06-05T14:50:48Z Krishnan Parasuraman Despite all the doom and gloom in the economy, the mood in this year’s AMR Research Executive Conference was notably upbeat.  And so was the message around innovation.  Former Disney boss Michael Eisner’s “creativity in a box” expression summed up the prescription for this economy: organizations need to think about creative combination of physical products, content and IP to survive and thrive in this new economy.  

]]> What should companies do to have their supply chains lead the way and become a source of competitive advantage?

There are three characteristics that make the leaders tick:
  1. Mastery of content based supply chain: what Apple has done with App Store and iTunes, or how Nokia is connecting with its customers thru N-Gage and the Ovi platform, or how Nike is embedding their brand and design within the physical product.
  2. Continuous innovation.
  3. Understanding the role of data in their supply chain and making it completely demand driven. One interesting data point mentioned was that it takes three times more to sense demand than respond to demand. Most organizations plan their operations on market order and given the complexity of today’s supply chain that is far from the real demand.

Another aspect that differentiates the leaders from the rest is their anticipation and preparedness for risk, and the ability to act on it. As if the economy and market aren’t enough, there are other risks to mitigate while getting creative products to market?  Latest research suggested that supply failure, commodity price volatility and product quality failures are some of the top risks for global supply chains. The mitigation strategies for these risks are not that complex, it’s the ability to detect some of these early warnings and dynamically tweak the supply chain that separates the best from the rest.  It doesn’t mean, however, that we’re back to multi-million dollar complex systems and multi-year implementations to instrument, acquire and report on vast amount of data that resides within the supply network.  There is enough maturity and commoditization in the technology space that one doesn’t have to spend enormous amount of money for a solution to get better visibility across the supply chain and have the capability to act on it. The key is identifying the right set of metrics to monitor, making sure that the quality of data supporting those metrics is good, and providing some feedback loop to act on the outcomes to impact supply chain performance. This can be done iteratively by simply starting with a few select metrics.

To learn more about how to get started, register for the webcast hosted by AMR Research: “'Enable the Agile Supply Chain - Unlock Value with Actionable Insights and Collaborative Execution”

For more information on ‘next generation supply chains’, go to nextgenerationsupplychains.com

Listen to my discussion with VJ Bala, Head of Manufacturing Marketing at Infosys

Download the podcast

]]> Demystifying Global Engineering - The right concoction is key to cutting the flab... tag:www.infosysblogs.com,2009:/manufacturing-talk//1.9 2009-02-03T02:31:50Z 2009-02-10T09:57:47Z Engineering of complex systems involve three major elements - expertise, engineering scale and program management. “Engineering expertise” seeds innovation (through experience and product knowledge), “engineering scale” accomplishes the complex engineering work in a systematic/standardized manner and “program management” ensures that all pieces of the puzzle come together as planned. Valmeeka Nathan
]]>
Global Engineering involves breaking up of complex engineering programs into granular levels, enabling globally distributed teams to innovate at varying degrees. For optimum (lean) results it is essential to have a balanced mix of experts, engineers and program managers as each of these resources has its own cost and availability constraints. Having more proportion of experts in a team –as in most of customer’s established engineering organizations- is certainly not a “must to have”. Experts offering higher levels of innovation and program directions are definitely required but, such higher level competencies are not mandatory for the entire team.  If the majority of the engineers are capable of contributing at granular levels of innovation and have the ability and motivation to execute in a systematic and standardized manner (leveraging their experience and competencies), the resulting engineering organization can be much more leaner, innovative and agile.

Expertise is not about doing the same things again and again. Experts should be leveraged for higher level innovations and for establishing program level directions. Innovative frameworks should be leveraged for forming a winning combination of  (i) scarcely available systems engineering experts, (ii) abundant supply of engineers and (iii) capable program managers for lean global engineering operations. A right concoction is key for cutting the flab…

]]> Global sourcing - what's a mid-market process manufacturer to do? tag:www.infosysblogs.com,2009:/manufacturing-talk//1.5 2009-01-12T17:56:01Z 2009-01-28T09:20:02Z Paul van Deventer
Two main concerns have become apparent; 1) difficulty in showing significant cost reduction with a smaller operation, and 2) a concern that mid-market customers will not receive high levels of customer service from large offshore service providers.

Strides have been made to address the need for a stronger cost benefit to smaller operations through shared services offerings - but for large service providers who are serious about the mid-market the challenge remains to convince prospective customers and advisory firms that they will not be treated with less care and attention.
]]> Double-dipping: social media delivers the marketing 2-in-1 tag:www.infosysblogs.com,2008:/manufacturing-talk//1.3 2008-12-18T13:48:40Z 2008-12-18T15:10:25Z VJ Bala Marketers are the “voice of the customer” to the business, and accomplish this through market research, analysis and insights to guide product / service development (inbound). And, of course, they plan and execute activities to get customers to buy or influence other customers (outbound). The beauty of social media in B2B marketers’ kitty is that it does a bit of both, a compelling proposition in these times. For cash strapped B2B companies, effective use of social media can be more than an inexpensive alternative… it can provide a window into particularly un-expressed customer needs and preferences, yield higher returns with more effective marketing, and increase intimacy with customers. Realizing the full potential of social media in marketing involves a lot more than inserting a blog into a website. It requires re-thinking the marketing processes to engage customers vs. transactional relationships, implementing technology platforms and tools to analyze customer behavior and offer a positive interaction experience, and putting in place governance mechanisms to sustain this and reduce the risk of alienating customers, etc.

Here’s a real life example from a high-tech company.

]]> Seizing the pot of gold on the rainbow behind the tornado tag:www.infosysblogs.com,2008:/manufacturing-talk//1.2 2008-12-18T09:15:00Z 2008-12-18T09:25:17Z Got your attention, huh - before you dismiss the pursuit of the myth, at least admit that we are in a tornado or a perfect storm or your favorite metaphor for the mess the U.S. economy is in, in general,... Badri Devalla Got your attention, huh - before you dismiss the pursuit of the myth, at least admit that we are in a tornado or a perfect storm or your favorite metaphor for the mess the U.S. economy is in, in general, and manufacturing in particular. Hi tech OEMs are suffering with cut backs in Enterprise and Consumer spending hurting the whole value chain, Discrete mfrs are caught between high local manufacturing costs in the face of slumping demand vs high cost (of hedging) fuel costs if they choose to manufacture elsewhere, auto manufacturers ..well .. There's plenty to talk about gloom and doom, but the U.S. Manufacturing sector will recover sooner than we brave to predict - a combination of federal spending, fiscal policies, lower material costs, potentially lower labor costs all work in its favor. So, if you are still with me past this second step of seeing beyond the tornado, I am bit closer to have you take a peek at the rainbow of opportunity - by all anecdotal accounts, there's a massive flushing of inventory in the supply chain in progress - withering demand has led to production shutdowns, and the cash flow issues for the entire mfg supply chain is flushing out inventory. So, rest assured that in several sub-industry categories, just as the rainbow appears, the entire supply chain is going to look like a candy store left open on Halloween eve. In some industry segments, it is imperative today to plan for seizing the opportunity - I want to hear from you what the top 3 industry sub-segments are in U.S. Manufacturing where planning now will yield compounded returns once the sector pcks up -If I were a betting man, I'd look to making the beaten down consumer more productive but enough with my Kool-aid .....I'll submit a shortlist in my next post.