welcome friends we are starting a new course
on a very important subject the manufacturing strategy you all may be knowing thatgovernment
of india is focusing a lot on make in india campaign government feels that manufacturing
is one sector which can provide employment to large number of youth of this country now
when government is looking for the strategic advantage of manufacturing we also need to
see that how manufacturing can provide that strategic advantage to an organisation to
a company now most of the organisations are marketing
driven organisation we are living in an era where customer is king and manufacturing is
considered to be a reactive function which is meant to fulfil the requirements as per
the marketing of the organisation marketing is considered to be the driving department
and manufacturing is considered to be fulfilling the requirements of market but this subject
of manufacturing strategy talks of that how manufacturing can also contribute in the strategy
and development of the organisation and therefore we need to consider that not
only manufacturing but all the functional areas of the organisation can contribute in
the strategic advantage or in providing some kind ofcompetitive advantage to the organisation
so in thiscourse we are going to see that how organisations particularly indian organisations
can use manufacturing for their competitive advantage in this session we are going to
discuss that what are the different dimensions of the manufacturing output what numbers are
propelling this phenomena of make in india in favour of india because there are more than hundred years
of history of manufacturing evolution and unfortunately india is nowhere in that hundred
years revolution now probably there is going to come some kind of golden era where india
can make a mark on the global manufacturing map and therefore from the india’s point of
view it becomes very very important to understand the strategic role of manufacturing now when
we see that what are the different sources of wealth creation since india is always known
as agrarian economy so agriculture we all know is the primary
source of wealth creation there was a saying that india lives in its villages most of the
indian population at the time of independence were in villages about seventy-five percent
of them were living in the villages and most of them were dependent on agriculture but
slowly and slowly if you see it now that the sizes of our farms are reducing and most of
the farmers are becoming marginal farmers so agriculture is no longer remaining a winning
proposition farmers are not able to enjoy the hard work they are able to they are producing
in their fields so second important source of wealth creation is manufacturing manufacturing
started as a manufacturing revolution or industrial revolution from europe and from europe it
went to usa and then to china and now china has become such a powerful manufacturing nation
thatabout a quarter of worlds global manufacturing output is coming only from china but there are some rays of hope also and therefore
we are going to discuss that how manufacturing can provide that benefit that advantage to
other nations and particular to india also and then third important source of wealth
creation that is services now india has particularly excelled in this field of services aboutsixty
percent of our gdp is coming only from the services sector most of the services are it
driven services where indian talent indian engineers indian technocrats have done something
exceptional and all through the globe whether you talk
of silicon valley whether you talk of europe whether you talk of australia everywhere indian
engineers are doing progress in the field of it but most of these it industries are
dependent on the foreign nations their clients are in europe are in america or in some other
part of the world so whatever is happening in those countries is directly going to affect
the indian it industry so therefore to depend on our own economy
our own situation manufacturing because india is a largely consumer driven economy we have
huge demand of almost all kinds of products andpresently that demand is fulfilled by the
chinese products so there is angood scope sufficient scope ample scope for fulfilling
our demand by domestic production and therefore it is very important that we develop our manufacturing
setup we develop this vibrant setup so that it not
only fulfils the demands of the local consumer it creates substitute for the imports and
it also develops the local employment so with this idea we are going to focus on this manufacturing
setup that how manufacturing can provide import substitution then it can also provide employment
and then it will also create lot of boosted economy because many of the services which
are presently done for the foreign nationals will be done for local players so that is the basic idea of focusing on manufacturing
that how india’s contribution of manufacturing in its gdp is somewhere between fifteen to
sixteen percent present and we want to increase it up to twenty-five percent in our gdp and
for that purpose we need to see that how can we leverage our manufacturing sector how can
we boost the manufacturing sector how can we invite more fdi into manufacturing sector
how can we encourage our local businessmen to start new units within the country so that is the whole idea of the marketing
strategy on one side which is from the policy point of view but at the organisational level
also at the organisational level also there are possibilities that we use manufacturing
for the advantage of organisation we have example of walmart where the success of walmart
is dependent on its supply chain advantage the supply chain which walmart has developed
that is the core strength or that is the core reason for the success of walmart one of the most profitable company on fortune
five hundred is apple the reason of apple’s success is its ability to innovate so each
company when you talk of apple when you talk of walmart walmart is the number one company
in the fortune five hundred on the basis of turnover and the success is because of supply
chain apple is number one in the fortune five hundred on the basis of profitability the
reason is their ability to innovate now we want that manufacturing can also contribute
in the success of some organisation so companies like toyota that is the best example to quote
that which company has got tremendous amount of success because of its manufacturing abilities
now we need that type of abilities in most of our indian companies unfortunately that
is not the case at the moment so therefore it is becoming important that
if you want to excel on the business of manufacturing we need to work at two levels one at the policy
level where we need to create an ecosystem so that we can promote concepts likeum make
in india and on the organisational level where we can take the advantage of manufacturing
for getting the competitive advantage for the organisation so that is thecontext in
which we are going to discuss this whole course now what is manufacturing so manufacturing
is basically defined in so many authors in different ways but the simplest way to understand
manufacturing is that it is a value addition process you are doing some kind of value addition
in the raw materialspare parts components subassemblies these are the inputs and then
these inputs go for some kind of conversion process this processing is the conversion
process you do some kind of fabrication you do some kind of assembly work all these are
the physical things so you have raw material you have components
you have subassemblies semi finished components you do some kind of fabrication you do some
kind of assembly etcetera and as a result you create manufacturing output that is the
products so this is the value addition process as you are moving from left to right you see
that you are adding value in this process and that walue value is the core of any manufacturing
process now ifyou are doing processing where some
of the activities are not value driven activities then that is going to create problem for your
organisation problem is your cost will increase but your output value will not increase proportionately
and that is what manufacturing studies means that we need to identify that what are our
value addition activities and what are our non-value adding activities and over a period
of time we will try to eliminate all non-value adding activities so it is important that
what is value and what is not value that we need to understand and if we can understand
that what are the values so again if we go in to philosophy of value from our scriptures
to western authors there are different concepts which can define value but the simplest way
to understand value in the context of manufacturing is that something which is going to help in
improving the customer satisfaction that is value and things which are not going to help
in improving the customer satisfaction these are non-value for example for example ifwe are doing painting
on a job so because painting is going to increase the customer satisfaction because you are
doing paintof those colours which are soothing to the customers so painting is avalue adding
activity but if you are storing your products in between if your products are in queue waiting
for the processing to happen so this waiting activity this movement of
product from one machine to another machine these are not adding any value which are going
to help which are going to increase the customer satisfaction so therefore these are non-value
adding activities in our discussion during this course we will again and again emphasise
that we need to minimise these non-value adding activities so unnecessary movement of goods
in the shop floor unnecessary queuing of the goodswaiting for their processing and so many
similar activities are non-value acti activities so we need to see thatas a manufacturing engineer
as a student of management or as a decision maker in the organisation we need to differentiate
that what are our value adding activities what are non-value adding activities and then
we need to continuously focus in thissystem ofraw material conversion process and the
productthat in this conversion process only value adding activities are there if you are
having non-value adding activities these are going to damage your manufacturing strategy so one important thingwhich is there that
value and non-value andcontinuously this debate will go on in our discussion that what are
non-value adding activities andwe need to eliminate those non-value adding activities
in order to have coc competitive advantage from the manufacturer now in the beginning
of this course it isi think important to discuss some of the global shifts which are affecting
the manufacturing landscape and particularly i am talking in the context of india andwhen you see the global shifts so we can
have these three important changes which are happening in last four and five years one
is deflation in factor cost the factor cost the input cost to the manufacturing processes
are continuously decreasing then decline of china that is also a very important phenomena
which is happening nowadays and some new manufacturing locations are also emerging as i mentioned earlier that the decline of
china and emergence of new manufacturing locations these are rays of hope that yes india can
also play some important role in the global manufacturing map and let us discuss these
things in some more detail now as i was mentioning that the cost of input materials are continuously
decreasing so if i see the cia report which was presented in fourteenthmanufacturing summit
in two thousand fifteen so it says thataccording to us energy information
administration that the cost of oil the cost of steel and cost of copper all these thingswhich
are important inputs to the manufacturing setup are continuously decreasing you can
see all these graphs so these are continuously decreasing andthis is one big advantage to
the manufacturing sector that your input cost is continuously decreasing and the other interesting fact is that that
in countries like india there is a strong consumer demand continuously becauseof the
factor which is one very important that our per capita income is continuously increasing
the size of middle class in india is continuously on the increasing trend and thereforethe demand of consumer is continuously
becoming strong in countries like india and therefore the prices of end products have
not fallen though the input cost has fallen because of low prices of the raw materials
oils energy etcetera but the end products price have not fallen and as a result of that
if you see because of these thingsyour input cost is reducing but output coss output price
is remaining at the same level so here the profit margins are increasing so you have additional margin for the manufacturers
because your inputs are reducing output is remaining at the same level so either you
can compete on the basis of price you can reduce the price so you can become in amorecompetitive
category or you can reinvest the additional margin for creating more facilities or you
can reinvest that additional margin for better r&d innovations so all these things are in
favour of manufacturingbecause of reducing prices and strong consumer demand within the
country the second important factor is about china
as we all know the industrial revolution started from europe and then america picked up and
at that time the idea was thatif you produce the quality products the cost is going to
up and all through the globe we were following the same idea that cost and quality are inversely
proportional then came the phenomena of japan where they did a massive revolution in this
thought process of american industries and japanese used to say that cost and quality
can go hand-in-hand if you are producing the quality products and if you understand the
meaning of quality in the right perspective cost of the product will go down at the idea
of japanese manufacturing is basically driven from the concept of value so when you eliminate
non-value adding things obviously your cost is going to decrease and they gave a much
wider definition much wider understanding of the concept of quality and slowly and slowly all through the globe
this started from company like toyota and but within no time almost whole globe including
country like india started following the concept of japanese manufacturing systems in the end
of twentieth century came another magic and that magic is from china china focused only
on low-cost and as a result they started flooding the markets of globe with their low-cost products andin nineteen nineties china was contributing
only around three percent of global manufacturing output and presently as i mentioned althe
earlier also that china is contributing more than twenty-five percent of global manufacturing
output so within just two decades within twenty years all these things happen and how this
happened they got some cost advantage factors and the chinese government also took it as
a challenge for developing favourable infrastructure and input setup input ecosystem for large-scale
production facilities and all these things favourably addressed by developing chinese
manufacturing industry andnow whether you travel to japan or you travel to america or
you travel to europe everywhere you find made in china product so this was a kind of magical
story that is why i write it as chinese magic but what is happening now slowly and slowly
we see this chinese mag magic is coming down because there are some factors which are contributing
to the decline of this chinese magic china originally started to supply labour intensive
low technology products so most of the chinese products were labour-intensive and low technology
but slowly and slowly when the manufacturing industry and r&d activities in china started
growing up they entered into very sophisticated designdeveloped engineering products and now they are into very much high-tech
products also but though you can see that china is still dominating the global manufacturingmap
but to some extent this dominance isdiluting nowadays because there are some factors which
are contributing to the decline of this chinese magic and these factorsthis graph can help you to
understand that the row growth of chinese manufacturing the production growth is continuously
decreasing since two thousand fourteen andthis figure is now coming to around six point eight
percent which was once upon a time was up to ten point four percent so this graph indicates
thatthe decline is happening in the tai chinese manufacturing and the factors which are contributing
to the decline ofchinese manufacturing setup is one is inflation in chinese wages the china wastaking the advantage of low factor
cost and in the low factor costthe wages were very important becausemost of the products
which china was manufacturing was the labour-intensive so the labour cost was a very important component
of the chinese products but v now the chinesewages are also significantly increasing as compared
to europe and america so the advantage of low cost low wages is slowly and slowly eroding
from the china the second important thing is strengthening
of yuan becauseearlier china was not an export economy so the yuan’s value was very low but
now china is mostly an export driven economy so lot of foreign exchange is coming to china
and as a result when lot of dollar is flowing into china the yuan is strengthening up so
as a result the export is becoming costlier from china so that is another factor which
is contributing in the decline of chinese exports now cheaper energy in the west energy is one
very important input to manufacturing setup and thanks to shell because of that we havelot
of natural gas available inwestern part particularly europe and america andthe advantage of thatlow
cost of energy is now going in favour of usa and part of europe also and then one very
important change which is happening nowadays that most of the industries are going for
rapid automation and cost of technology is also decreasing
so now it is easy for other companiesother countries to adopt technology so robots are
coming iot is coming in the manufacturing setup and this degree of automation is changing
the set ofmanufacturing from labour-intensive to technology intensive and the adoption cost
of technology is also decreasing so it is becoming easier for other competitors other
countries to adopt technology in their manufacturing setup so that advantage ofadopting technology at
low costis also taking the advantage of manufacturing away from china so these are some of the factors
which arecontributing to the decline ofchinesemagic andtherefore it is possible for other countries
to chip in into thatspace which becomes umempty because of decline of thischinese growth then another factor which ischanging the global
manufacturing shift i am takingah three countries just to give you a brief idea one is uk which
is from europe another is vietnam which is from south east asian countries and third
is ethiopia which is from east africa the point which i am trying to make thatnow all
across the globe uk is coming very strongly as a low-cost manufacturing setup vietnam is since last around ten years is
becoming a possible substitute for the chinese manufacturing industry because of low wages
because of disciplined workers because of the other infrastructure which is coming up
very fast in vietnam ethiopia that is in east africa is another very strong manufacturing
hub coming up in the african continent it has lot ofadvantages for the manufacturing
setuplike hundred percent tax holidays for ten yearslot ofother promisesof supply of
timber and other water resources etcetera energy available at low costso these are some
of the new manufacturing destinationswhich arealmost offering the similar kind of advantage
which china used to have andthereforeif you consider the logistics cost as an important
phenomena of distribution soit will be in coming days possible thatpeople will start
manufacturing at different locations to serve the local markets andtherefore if you see the graph herewhich
is a survey done bycai with the help ofbcg and in this survey it was seen thathow different
countries can pose threator the biggest competitor for indian industries and in thisobviously
chinais the number one but if you see thatsouth-east asian countries like thailand vietnam etcetera
are another very important promising area which can be the competitor for a indianmanufacturing
company and then you seeeither usa or latin american
countries where brazil mexico argentina etcetera are there these are also going to be thepossible
manufacturing competitor for india in the coming years so it is not only the china butthe
manufacturing will be distributed at various other locations alsoevensmaller countries
in our ownnearby like bangladesh srilanka etcetera can also pose good amount of competition
to the indian manufacturing setup sothis gives you idea thatlot of countries
will come upas a potential competitor for indian manufacturing organisation but on the
other side this also gives you one advantagethat competition will not remain only focused to
china rather it will be distributed to various other places so there will be chances for
india also but we have to be proactive in taking the advantage of the shift of competition
from one country to various other countries sowith thiswe conclude this session and we
will welcome you to the next session thank you very much