Manufacturing: The next triumph card for India

Anil Bhasin, Vice President, Enterprise, Cisco India & SAARC

Manufacturing is slowly but surely sweeping back in the national economic space. India is witnessing a wave of growth in manufacturing after its decline in the late nineties. The current surge in the manufacturing sector is touted to be much more promising than the first wave. With this new manufacturing opportunity slated to be more skills intensive, the industry leaders foresee India as well poised to take advantage of this shift.

Over and above the feel good factor of being given a second chance, there are graver reasons that necessitate the country's success in manufacturing this time round. Manufacturing has linkages with the all other sectors of the economy. The progress of manufacturing still sets the tone for the overall business cycle and the health of this sector is very much at the core of India's socio-economic fabric.

Inspite of the boom in the services sector, 75% of India's working population is educated only to middle school or below. This staggering figure of approximately 600 million people is not even equipped to benefit from the opportunities in the flourishing knowledge sector. It is only the labor intensive manufacturing sector that has the capability to generate employment in adequate numbers to absorb the larger labor pool.

Manufacturing has large stakes involved, not just because the sector employs 30 per cent of the non-agricultural workforce in India, but also because of its contribution to the overall economy/GDP. According to FICCI even though agriculture supports 60% of the working population, it contributes only 22% of the country's gross domestic product. This mismatch between distribution of workforce and value added in agriculture is one of the main reasons for the large number of poor, and this trend is expected to further widen in the coming decades. Against this background, only a sharp increase in the Indian manufacturing sector workforce will increase overall income levels of the country.

The economic benefits of playing the manufacturing card are quite clear - if India is to sustain overall GDP growth of 8% per annum, it is essential that both manufacturing and services grow at more than 11% even when agriculture growth picks up from its current 2.3%.

So let's take stock of India's manufacturing sector as it is poised today - The country is increasingly getting recognized for high value goods requiring a fair amount of engineering precision and quality. No wonder then that the export opportunity of industries such as auto components (US $ 25 billion by 2015), and textile (US $ 50 billion by 2010) is mind boggling to say the least.

However to get a realistic picture of the achievements of the manufacturing sector, one only has to compare its performance to that of India's sunrise industry- software services. The Indian IT services industry which is only about two decades old has already notched up exports in excess of US $15 billion. This is in comparison to the age old industries of textile and auto components which are today at US $13.4 billion and US$ 1.4 respectively.

Challenges facing the manufacturing industry

What then needs to be explored are the reasons for the manufacturing industry's chequered performance. In a scenario wherein skilled Indian labor is as inexpensive as China's in absolute terms, wherein lies the Indian manufacturing industry's Achilles heel?

FICCI estimates that the higher input costs for the Indian manufacturing sector as a result of cascading effect of indirect taxes on selling prices of commodities, higher cost of utilities like power, railway transport, water, higher cost of finance and high transactions costs puts the sector at a severe disadvantage as compared to its Asian counterparts.

In a ten point agenda that encompasses factors such as entry of more private sector investors in important infrastructure sectors like electricity distribution, aviation, roads, railways, ports and a new bill for improving India's labor laws including encouraging contract labor, FICCI has laid down guidelines to the government to accelerate growth and improve competitiveness of Indian manufacturing.

However, over and above more conducive government regulation, what the Indian manufacturing sector needs is a productivity boost. CEOs of some of India's leading export firms on visits to China have come away impressed at the efficiency per employee and the dawning realization that current productivity of their factories is half to one third levels of what might otherwise be achievable.

IT to increase productivity on the shop floor

Today when most exporters are looking forward to unshackled growth, their first step has been to completely overhaul existing machinery, putting in place imported machines that offer productivity levels that are six or seven times higher than those of Indian machines.

This however is but a small step in the larger scheme of things. In today's business environment, manufacturers must increase productivity through the entire supply chain - this necessitates that real-time data from the plant floor be made available to their ERP, SCM, and Manufacturing Execution Systems (MES) systems. However, due to disparate networks, that data is often hidden.

Manufacturers till now have built various control networks that are often separate from their business networks. These legacy control networks use proprietary interfaces that can prohibit the control and business networks from communicating, creating silos of information.

Enter the need for an Intelligent Networked Manufacturing (INM) vision. What this entails is an Ethernet to the Factory (EttF) solution that allows for the integration of plant floor data with business systems, providing employees with access to the information as and when they need it. While this improves business efficiencies and decision-making abilities on one hand, more importantly it enables manufacturers to obtain visibility to the factory floor without disrupting the production line.

EttF empowers manufacturers to add new services to the existing control network at any time and at any location in the network, while maintaining the existing control scheme. Manufacturers can add wireless applications and improve plant personnel mobility. They can add IP-based phones, which eliminate the need to add separate time-division multiplexing (TDM) phone lines. They can add security and intrusion detection to existing network services, all without interrupting critical manufacturing processes. The end result is the provision of repeatable, deterministic data from real-time devices, helping to ensure the continued efficient operation of the manufacturing plant and the emergence of each and every employee into a strategic business asset.

IT to manage the supply chain

The role of IT to manage the manufacturer's supply chain has been long documented; however in the past, companies measured the success of their supply chains-product development, production and supply, and sales and service-by whether they produced a good product at a good price.

An effective, profitable supply chain today is driven by customer demand. According to AMR Research, in the next-generation supply chain, end-user demand will drive all supply chain activities among trading partners. This is virtually impossible with the traditional supply chain, where people and processes are often isolated not just from the customer but also from each other.

The new supply chains will need to respond quickly to demand and command a better price without having to discount excess inventory, meet evolving and more rigorous external and internal compliance mandates, such as radio frequency identification (RFID) and enterprise resource planning (ERP) extensions, not to mention outsource functions without losing control, visibility, speed, quality, or other requirements

The need of the hour is a Demand Driven Supply Chain (DDSC) solution that enables visibility into the entire supply chain, allowing manufacturers to make informed decisions based on the most up to date information and flexibility to make decisions based on current inventory levels. Additionally a DDSC solution contrary to traditional supply chain constraints can re-route goods in transit, manage network security across many different connected locations, both internal and external and also allow for collaboration with the factory floor, suppliers, distribution centers, and even customers.

The result is improved decision making by feeding real-time data about customer demand into a partner's production and distribution process, improved sales and order forecasting, manufacturing and distribution planning, and matching customer demand to available supply. It also allows for easy adaptability to changing market conditions, including changes in the supply of raw materials and improving the movement of goods to deliver the right amount of inventory to the right place at the right time. This helps to keep costs down and ensure prompt and accurate order fulfillment.

IT to better manage new product introductions

Faced with increasingly demanding customers and intensifying global competition, manufacturers must find ways to achieve greater efficiency and speed in the product development process. It follows that today shorter product lifecycles are putting more pressure on development organizations to bring products to market more quickly. Lack of access to the same information set can result in costly engineering change orders, unanticipated problems with regulatory compliance, and higher support costs after product introduction. Companies lack the flexibility to expand their labor pools or reduce development costs with contractors and off-shore development teams because of concern about loss of control and safeguarding intellectual property.

Collaborative Product Development (CPD) solution that focuses on establishing a collaborative environment during the product development phase of new product introductions is what's required. The CPD solution enables all stakeholders, including key suppliers, logistics providers, production control, and engineers, to collaborate with each other with one common set of information. This results into reduced costs, greater flexibility in choosing development resources, rapid time to market, and faster safety and environmental compliance. As a result, manufacturers gain greater agility so they can be more responsive to changing customer demands and can stay ahead of the competition.

IT to build and manage customer intimacy

Manufacturers today are focusing on customer intimacy as the way to stay lean and profitable by delivering what customers want, when they want it, with the high-quality, personalized service and support they expect. The prevailing wisdom that manufacturers could become leaner, more profitable organizations by reducing production and transaction costs is now passé. A major barrier to achieving customer intimacy is the limited ability of sales, service, and support to exchange information for better understanding and anticipation of customer requirements. Without a foundation for optimizing interactions across these crucial customer-facing functions, manufacturers faced challenges such as customer retention, inability to anticipate customer needs leading to waste in production, impairing profitability and competitiveness, lack of a unified view of the customer and concerns over control and security that makes it more difficult to outsource non-strategic support functions to reduce costs.

There is a need for a Customer Interaction Network (CIN) solution that helps enhance interactions across all customer touch points, including sales, service, outsourcing vendors, and channel partners, to work together more effectively and efficiently to achieve greater customer intimacy. By anticipating and responding to customer needs, companies not only improve customer loyalty, but also optimize the entire production process to deliver what sells.

The CIN solution helps enable manufacturers to improve their customer interaction process, specifically anticipating and responding to customer needs, maintaining higher customer satisfaction scores, reduced time to problem resolution, lower cost of acquiring and servicing customers and tighter channel partner integration.

In conclusion, to compete and succeed in a price-driven market, manufacturers must create a business edge by offering something that their competitors don't. Shorter lead times, faster turnaround times, and better service are key "customer-centric" competitive advantages that can make the difference in attracting new business and retaining existing business.

Cisco's Intelligent Networked Manufacturing vision that encompasses Ethernet to the Factory, Demand Driven Supply Chains, Collaborative Product Development and Customer Interaction Network can transform separate manufacturing processes into a single, efficient, collaborative workflow across the entire organization. The result is an integrated workflow solution that delivers real-time information to employees, partners, and customers at any time, from anywhere in the world, creating greater mobility and seamless connectivity.


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