Yahoo for Indian manufacturing?

A report in the Economic Times says that among the top five companies in India, four are manufacturing companies. Chk this report here:
http://economictimes.indiatimes.com/Editorials/Indias_manufacturing_story/articleshow/3173702.cms

On the face value this is a time to say "Cheers" to the Indian manufacturing industry that has been in the shadows of accomplishments by service companies. History has repeatedly shown that the super powers, whether Romans, Greeks, Russians, Americans or Chinese have been all manufacturing led economies. India with a push in service and software oriented industries was trying to create a different path for global dominance. While creating a different path is not a problem it had imposed a sort of step motherly feeling for manufacturing. The general sentiments also did not favour manufacturing. That India would always be an underdog to China in manufacturing was accepted as fait accompli.

At one level the report surely increases the confidence level of Indian manufacturing. It sort of creates a feel good factor. This feel good factor is not a small thing as it slowly create a wave of positive attitude towarda manufacturing industries. This would mean more people taking up manufacturing as a profession, more investments, more output and so on. It is only on the basis of such positive sentiments that economies develop and take off. There are of course tens of ways to counter the article. The aquistions of Indian firms are still young and cannot be called a success. Manpower is still a huge problem. But overall the article does give a thumbs up for the manufacturing sector.

Fuel costs dictating change

Continuously rising oil prices have thrown many calculations out of gear. Suddenly the cost of one drop of fuel has begun to matter. There are reports of Americans moving towards smaller and fuel efficient cars. I refer to Americans because they are the most inefficient users of oil and other energy. As a fallout of this most automakers have changed their production plans. Check this report on Nissan.
http://www.allheadlinenews.com/articles/7011219024
Nissan is cutting production of its SUVs and trucks and moving towards making more Ultima cars which I believe would be a lot more fuel efficient. Most other automakers would have already changed their plans as well. To be able to make the new plans effective is altogether a different question.

Small cars are typically low margin high volume business. SUVs are high margin vehicles for manufacturers. Changing from SUVs to small cars is not merely changing from one vehicle to another, it is a huge change in mindset. Every small waste has to be examined in case of low margin businesses. SUV factories may not be tuned to operate in this environment where every single bolt and washer has to be accounted for.

Since the talk is on changes being dictated by fuel, I would like to point out one more article-
http://www.nytimes.com/2008/06/11/business/11air.html?hp
Airlines are now washing the engines more often as small specks of dirt can increase the fule consumed. They are also switching to lighted seats, carrying lesser water for toilets. Fuel which was 15% of their costs in the year 2000 is all ready more than 40% of the costs today.

If I think of the time aircrafts in India spend on circling the airports (plus the low cost of manpower), I am sure the proportion of fuel costs would be much higher. Smarter management to reduce this time would easily bring a smile to the bottom lines of most airlines. Such changes and calculations would be considered academic last year, but today it could mean a difference between life and death.

Global manufacturing

The flavour of the season for global conglomerates is to have specialised factories in different parts of the world specialise in a certain product. So, for example, a manufacturing plant in India can be a hub for small heat exchangers that are supplied to the entire world from here. The same company would supply boilers worldwide from their plant in China. This supposedly ensures that the companies get the benefits of scale and specialisation. Also control is easier.

What this ignores is that the businesses becomes too dependant on the fuel prices. At the US$125 per barrel range I am sure that the entire mathematics of localised manufacturing has gone awry. Read this article that talks about manufacturing in China becoming uneconimical:

http://seekingalpha.com/article/79417-challenges-pile-up-for-chinese-manufacturing?source=news_sitemap

The key would be to find the proportion of fuel costs in the total cost of the product. The company could then factor in the fuel comfort zone - the price of fuel upto which they are comfortable manufacturing in specialised regions.

Struggling Dell?

Dell Inc. is closing its manufacturing facility in Austin, Texas. check this article.
http://www.marketwatch.com/news/story/dell-close-texas-plantweigh-sale/story.aspx?guid=%7B0DF2ADF8-453A-4B08-BC32-74E75CFA0389%7D

The article starts by labelling Dell as a 'struggling computer maker.' This is the first time I have seen the adjective 'struggling' being used to describe Dell. The makers of Dell had a merry time because of absence of legacy supply chain that allowed them to sell products directly. While direct sale was good for the commercial segment, retail consumers were never the major target of Dell. Now, with commercial spend on a tight leash Dell has no option but to look out and attract retail consumers. This is easier said than done.

China and US at it again

The current feud is about contaminated heparin that has apparently caused 81 deaths in the United States. To a lay man it might seem like a simple issue of contamination happening at a local facility in China that has weak processes. Read this link in The New York Times
http://www.nytimes.com/2008/04/22/health/policy/22fda.html?_r=1&scp=1&sq=heparin+China&st=nyt&oref=slogin
There is an amusing paragraph in the middle: China has in recent years exported poisonous toothpaste, lead-painted toys, toxic pet food, tainted fish and now, contaminated medicine.

All this seems to be part of a larger battle to assert dominance. This is not a political blog, but the point of putting it here is that your products may suffer becuase of your country's relation with your customers' country. Judging by these events I think it might be prudent for small manufacturers to avoid certain markets altogether. In short run it might seem to be a bad business idea, but in the long term it should work out.

Moral of the story: Just because you have a market, it may not be a good idea to sell there.

New product development

My last post in November 2007 was about sew product development and so I start the blog again after 5 months on the same topic. When the user and the designer are two seperate departments both would naturally have different requirements. Not necessarily all these requirements can be mapped, because all may not be logical. For example if a doctor has a preference for a particular brand of surgical instruments he will not switch brands merely on the basis of logic. There is a realiability based bond that he has with the current brand.

Coming back the the point, when users and designers of a product are a very different set of people, conflicts are bound to occur. Nothing displays this conflict more than the development of India's indigenous battle tank Arjun. The designer is DRDO and the user is the Indian Army. Chk the link
http://www.business-standard.com/common/news_article.php?leftnm=10&bKeyFlag=BO&autono=320813
Ajai Shukla has done beautiful work in bringing out the story from both sides.

One more point of consideration is the long lead time of design. The long lead time ensures that customers have time to be impregnated by new ideas and rock the existing boat. The key would be to create a product as fast as possible and give it to the customer. There will always be a scope for improvement. This scope should not limit the product being produced. Like the Eurofighter mentioned in the article, a basic product should roll out first and then there can be incremental improvements. Unless there is a huge safety issue I believe that some product is better than no product. Given the strategic nature of defense sector I believe that some version of the tank should be in service as soon s possible and it can be developed as and when needed.

I'll do some wishful thinking here. Maybe if the design was modular, we could very easily replace the old technology modules with new gadgets as soon as they are designed.

Global approach?

Mahindra and Mahindra's Scorpio is now a legend. It is a completely 'India' car designed at a fraction of the cost of all international automakers. Mahindras used the knowledge of their vendors to have some form of distributed design to speed up and reduce the cost of new product development.

http://findarticles.com/p/articles/mi_m3012/is_10_182/ai_94335258

The link is a very detailed article on the evolution of Scorpio.

Boeing 787 dreamliner followed pretty much the same story. Boeing had a practice of giving completed designs to its vendors. For the 787 they let their vendors do a lot of their own designing themselves. The 787 project, if documented, could be a lesson of how not to manage a new product development.

http://seattletimes.nwsource.com/html/boeingaerospace/2003986302_webbair01.html

This brings me to my central belief that nothing is 'good' or 'bad'. There is a lot more to these practices than meets the eye. Implementing modern techniques taking them at their face value is not a guarantee of success. The deeper implications need to be understood.

It is not that collaborative designs cannot succeed in aircraft industry. Also it is not that the concept will always be a hit in automobiles. There are a lot of 'other' factors involved.

I am not too sure of being able to document these other factors as of now. I would love contributions to help me answer this..