International Supply Chain Management

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Table of Contents

  1. Introduction ............................................................................................1

2.1. Problem statement 1 ..............................................................................2

2.2. Recommended Solution/s to Problem 1 ................................................2

3.1. Problem statement 2 ..............................................................................4

3.2. Recommended Solution/s to Problem 2 ................................................4

4.1. Problem statement 3 ..............................................................................5

4.2. Recommended Solution/s to Problem 3 .................................................5

5. Conclusion .................................................................................................6

6. Reference list .............................................................................................7

  1. Introduction

Established in the early 1900’s as a spice trading company, Shiv Group of Companies (India) has expanded to other business opportunities like auto parts, electronics, finance, pharmaceuticals, tea, etc. It is one of the largest industrial conglomerates in India with about 20 subsidiaries and employing over 37,000 personnel and exporting its products to the US, UK and Germany (Banerjee, Jamal & Awasthy, 2005). Piggy-backing on the image of its mother company, Shiv Industries’ operation in the moulded rubber industry should be taken into consideration by top management.

Shiv Industries’ operations mostly focused on producing rubber products for the automotive industry. The globalization of the automotive industry resulted to lower costs of production and assembly. For automobile manufacturers to continue business, they looked to suppliers to lower costs but also maintain high quality. In the end, automobile manufacturers relied on component parts suppliers and outsourced some of their non-critical component parts. This led to the rise of the automotive supplier industry in countries worldwide including India (Banerjee et al, 2005).

Locally, the Indian auto-industry was also developed through a series of legislations by the Indian government. The entry of Suzuki Motor Corporation into India during the 1980’s to form Maruti Udyog Limited and the government’s Industry Policy of 1991 liberated regulations for industrial expansion and foreign investment (Banerjee et al, 2005). This liberalization resulted to the transformation of the Indian auto-industry, bringing new technologies and higher standards of quality. The automotive supplier industry, where Shiv Industries operates, is comprised of hundreds of large to medium-scale companies and thousands more of small-scale operations (Banerjee et al, 2005).

Consequently, Shiv Industries faced different challenges that it needs to resolve. Its primary focus was the automotive industry but it also has non-automotive products catering to various industries like defence utilities and washing machines. The automotive replacement market is another opportunity that Shiv Industries should look into for potential growth. Thus, the company should also look deeply into their distribution network to expand their business, rather than just depending on the network of its mother company.

Shiv Industries should also confront quality issues. As foreign manufacturers have stricter quality standards, they usually favour their own choice of component part suppliers or offered outsourcing contracts to local suppliers who could reach their quality standards. So Shiv Industries must also improve their product design and technology in order to win those outsourcing contracts. Strategic partnerships were also common in the industry to achieve technological advancements.

The company was also confused on their pricing strategies given that they produce a wide variety of products but cannot lower their prices due to high overhead costs. Lowering this overhead costs mean that the company should review its operations by possibly outsourcing low-technology products while improving high- to medium-technology products through tie-ups or joint ventures.

Overall, Shiv Industries needs to assess its current position in the automotive parts industry and review possible opportunities outside it and decide whether to move forward by itself or with the help of a foreign company.

2.1. Problem Statement 1

Shiv Industries’ distribution network is not extensive enough to deliver their products to their customers as it only relies on its parent group’s distribution system. As a consequence, it limits the customer reach of Shiv Industries primarily in Central India only that gives a minimal market share. This problem was mainly caused by Shiv Industries’ disadvantageous location in Raipur, which is a long distance away from the automotive hub of India, Gurgaon City.

2.2. Recommended Solution/s to Problem 1

In every company, distribution network issues is one of the most important that has to be addressed. Initially, Shiv Industires’ management should know the company’s distribution network composition and decide on which distribution strategy to use. By distribution network composition, it meant the overall details of the whole supply chain network; for example, the number of suppliers, location of manufacturing facilities, warehouses, etc. Distribution strategy includes management decision of operations control, delivery system, transportation methods and control, and replenishment strategy (Nair, Raju & Anbudayashankar, n.d.).

As the company uses its parent group’s distribution network, it seems that the company wants to retain a centralized control of operations. However, it is imperative for Shiv Industries to extend and go outside its parent group’s network in order to gain more market share. The company could operate from two delivery sources; Single-product locations and Distribution centres.

According to Hugos (2011), a single-product location is a company factory or warehouse “where a single product or a narrow range of related items are available for shipment” (p. 92). This means that Shiv should designate and establish a facility that produces products that are predictable and has a high level of demand. It is also advisable for Shiv to use this strategy for large and bulk orders of customers so that the company could reach economies of scale. For example, if there is a high demand for rubber bushes and grommets in Gurgaon City, then Shiv should establish a satellite-manufacturing plant or set up a warehouse there to make sure that customers are sufficiently served.

On the other hand, distribution centres were defined by Hugos (2011) as facilities or warehouses “where bulk shipments of products arrive from single-product locations” (p.93). This strategy could be more efficient and applicable for Shiv Industries because it provides savings in transporting large amounts of a wide range of products to a location that is near to the customers. This is mostly better for companies who manufactures far away from their customers like Shiv Industries. The company’s main manufacturing plant is located in Raipur, about 1,000 kilometres away from Gurgaon City that creates a longer delivery time of ordered products. As such, customers who need products quickly and regularly would just end up ordering from Shiv’s competitors who are located in Gurgaon City. Thus, if Shiv Industries would use distribution centres, they could continue manufacturing in their main plant and just send inventory stock of products to its distribution centre in Gurgaon City.

However, they should also make sure that sufficient quantities of their products are stored in the distribution centre. To do this, Shiv Industries could employ a distribution requirements planning (DRP) to integrate their inventory information in their distribution centres with the company’s manufacturing planning and control (MPC) system in Raipur. In addition to inventory information, demand forecasts and resupply plans could be also linked with the company’s manufacturing plans under a DRP System (Jacobs, Berry, Whybark & Vollmann, 2011).

3.1. Problem Statement 2

The globalization of the Indian automotive industry increased not only the competition in the market but also the quality standards of automobiles that also affected the automotive parts supplier industry. As such, questions of quality standards should be addressed by Shiv Industries in order for them to get supply contracts from both local and foreign automobile manufacturers, as well as other non-automotive customers. This was evidenced by Banerjee et al (2005) that Hyundai Motors Company had uncertainties about Shiv Industries’ “ability to develop and deliver high end products to meet their existing standards”(p. 45).

3.2. Recommended Solution/s to Problem 2

Given its association with its parent group company, Shiv Industries had a decent number of customers. But the company should not rely on that for long as globalization created a shift of purchasing influence to the customers. Customers require lower costs but high quality, which are both hard to achieve at the same time. However, recent developments in technology are now conceived and could possibly achieve these two business objectives at the same time.

Research and development in technology is one thing that Shiv Industries’ should focus on to improve their quality standards. And to do this, it should extensively review its current tie-up with a multi-national company specializing in advanced rubber technology. If current situations require the two companies to elevate their relationship to a joint venture or merger, then it should be considered jointly to benefit both sides. With a joint-venture, Shiv Industries would be able to gain technological advancements to design and produce high quality products for both the local and international markets (Banerjee et al, 2005).

In addition to technological advancements, Shiv Industries could also focus on quality control of their products. Juran (as cited in Gardiner, 2010) wrote that quality control proves that “the process can produce the product under operating conditions with minimal inspection” (p. 247). Three often used approaches for quality control using teams are quality circles, special-purpose teams and self-managed teams. According to Krajewski, Ritzman and Malhotra (2007), quality circles or problem-solving teams are comprised of small groups of supervisors and employees who identify, evaluate and solve quality problems. Special-purpose teams are ad-hoc groups that solve issues regarding management, labor or both. Self-managed teams are composed certain employees that work together to create a product or service (Krajewski et al, 2007).

Employing quality management software programs under a manufacturing planning and control (MPC) system is another solution that Shiv Industries could implement to make sure that rules and procedural actions for quality control and assurance are followed (Jacobs et al, 2011). Examples of MPC systems can be included in highly advanced Enterprise Resource Planning (ERP) systems that are developed and sold by Baan, SAP and People Soft. These systems would not only solve out quality issues but also provide an enterprise-wide information system issues (Nair et al, n.d.).

Additionally, Shiv Industries could also implement what automotive manufacturers use for their quality controls to achieve an ISO 9001:2000 standards in the automobile production industry (Goicoechea & Fenollera, 2012). One example is the DEMING or PDCA cycle in which four steps are followed to undertake any improvement. The first step is PLAN in which analytical tools are used to know the cause and provide the solutions to solve the issues. Next is DO which puts concrete actions to solve the problems and followed by CHECK which measures the results of the actions. Lastly, ACT is a continuous or cyclical strategy to improve the actions further or extend the solutions to other issues.

4.1. Problem Statement 3

Having a wide range of products, Shiv Industries imposes a premium price on all its products which makes it disadvantageous and uncompetitive to their customers. Their pricing strategy is compounded with high overhead costs due to investments on high- to medium-technology products which also increases the prices of their low-technology products. Thus, this renders them a low market share in both automotive and replacement market industry and a few customers in the non-automotive sectors.

4.2. Recommended Solution/s to Problem 3

To reduce overhead costs, Shiv Industries’ could also strategically outsource some of its manufacturing requirements to other companies. By strategic outsourcing, the company could reduce capital investment by reselling some machinery and equipment to other companies. As low-technology products are easily manufactured and replicated, cost savings could be realized if Shiv Industries would just outsource production of these products from another company as aggregated orders results to economies of scale. Outsourcing the low-technology products could result to lower prices and improved market share (Simchi-Levi, Kaminsky & Simchi-Levi, 2003).

Strategic outsourcing would also help Shiv Industries’ to focus on their core competencies and strengths. With their current tie-up with a multinational company, Shiv Industries’ could concentrate on developing and improving their high- to medium-technology products and possibly outsource production as well. However, the company would also risk of losing competitive and technological knowledge of these high- to medium-technology products if they outsource its production. This is because outsourcing of manufacturing may also prevent the development of innovations and solutions that require cross-functional teamwork (Simchi-Levi et al 2003). Therefore, Shiv Industries’ should retain the development and production of these high- to medium-technology products that would also result to better quality control. Maintaining quality control of these products is important because these are required component parts of automobile manufacturers which have high standards of quality. By doing these, the company would be able to retain their premium pricing strategy due to the speciality and exclusivity of these high- to medium-technology products.

  1. Conclusion

Every company faces different challenges that it need to understand and resolve. Shiv Industries’ is one example that needs to evaluate its current situation in order to continue or improve its standing in its industry. Limited by its dependence on the distribution network of its parent company, it is not capable of delivering its products to its primary customers especially in the automotive hub of India. To resolve this issue, Shiv Industries should create a distribution centre near Gurgaon City so that automobile manufacturers as well as replacement market customers would be able to regularly buy products from them. Distribution requirements planning system would also help the company to link inventory (including demand and supply) information from the distribution centre to their manufacturing plans in their factory in Raipur.

Quality issues in the range of products of Shiv Industries should also be answered by the company. Continuing their tie-up with a global company or even advancing it into a joint venture or merger could bring technological advancements to Shiv Industries. Quality control programs like quality circles, special-purpose teams and self-managed teams would also reduce the quality problems plaguing the company. Quality management software programs could be also included in the company’s manufacturing planning control systems as well as implementing quality control standards to achieve an ISO 9001:2000 standard in the automobile production industry.

Lastly, overhead production costs should be resolved by Shiv Industries by looking at alternative companies to supply them with their low-technology products. However, Shiv Industries should retain the development and production control of their high- to medium-technology products to make sure that these products have high standards of quality. As such, they could possibly continuously offer these high-quality products at a premium price to automotive and non-automotive customers.

  1. Reference List

Banerjee, A., Jamal, M. & Awasthy, D. (2005). Shiv industries: facing the challenge of global competition. Asian Journal of Management Cases. 2(1), 37-67.

Gardiner, D. (2010). Operations management for business excellence (2nd ed.). Auckland, New Zealand: Pearson

Goicoechea, I. & Fenollera, M. (2012). Quality management in the automotive industry. DAAAM international scientific book. Chapter 51, 619-632.

Hugos, M. (2011). Essentials of supply chain management (3rd ed.). Hoboken, NJ: John Wiley & Sons

Jacobs, F., Berry, W., Whybark, D., & Vollmann, T. (2011). Manufacturing planning and control for supply chain management. New York, NY: McGraw-Hill Irwin

Krajewski, L., Ritzman, L. & Malhotra, M. (2007). Operations management processes and value chains (8th ed.). Upper Saddle River, New Jersey: Pearson Education

Nair, P., Raju, V. & Anbudayashankar, S. (n.d.). Overview of information technology tools for supply chain management. Retrieved from on Information Technology Tolls for Supply Chain Management3963.pdf

Simchi-Levi, D., Kaminsky, P. & Simchi-Levi, E. (2003). Designing and managing the supply chain (2nd ed.). New York, NY: McGraw-Hill Irwin