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BAHASA Implementation focussed and a “skin-in-the-game” pricing model

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BAHASA Delivering Industry Defying Results

Delivering Industry Defying Results

Vector Consulting Group is a management consulting firm which help companies build unique supply chain and operations capabilities that can be leveraged as a competitive advantage in the market. Vector uses the platform of Theory of Constraints solutions and thinking processes for developing these.

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As management consultants, we help clients build unique supply chain, operations, project execution and sales delivery capabilities.

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Need for Continuous New Product IntroductionsA good product variety is considered necessary to enable a firm to satisfy the wants and needs of different segments of its consumers and, thus, to increase the probability of completing a sale. The growth and expansion of a company are, therefore, often heavily built on its new products. So, it is very common to come across vision statements such as “We need X% of revenue coming from new products” or marketing teams complaining about “Our product range is too outdated; we need newer products to fuel our growth”. Consequently, most companies continuously launch new products to:<ol><li>Meet dynamic changes in demand: Quickly changing trends and consumer habits leave companies no option except to respect these by offering new products.</li><li>Offset the risk of obsolescence: Evolving technology is making it possible for companies to try and cater to customer demands for ‘smaller-lighter-faster’, thereby leading to a shorter life span of existing products (especially devices) of every firm.</li><li>Earn/protect margins: As a business strategy, companies must run ahead of price competition by differentiating their products and introducing new products that can command better margins.</li><li>Build brand image: Periodically, a company developing new products is likely to have a better reputation and can attract consumers more easily.</li><li>Refresh existing products: New versions of existing products give companies an opportunity to re-introduce and create a buzz around core products and also help to attract new audiences who may be drawn to the new offering though they might have been previously unfamiliar with the original portfolio.</li></ol>Too much of a good thing?When companies are riding a wave of growing sales, all new products are met with a lot of excitement. However, the continuous addition of new products to the company’s portfolio can be an enormous challenge for the supply chain due to two major issues:- Disaggregation of demand<figure class="image"><img style="aspect-ratio:1774/878;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//asset-7merchandisinggrid_1716366657.png" width="1774" height="878"></figure>With companies vying with each other to introduce new products and variants in the market across product categories, including garments, shoes, furniture, consumer durables, automobiles, electronics, books, music, and even some industrial products, there is an explosion of variety that is available to the customers. And, each introduction creates a new niche-based segment. For instance, in wall paints, there are a large number of pinks available; and there could be customers who understand the nuanced differences between them and prefer one pink over the others (Mera wala pink!). This phenomenon can be called “Disaggregation of demand”.Demand disaggregation is leading to the formation of what Chris Anderson in, his book by the same name, calls the “Long Tail” of demand – i.e., in some categories, ~20% of SKUs may cover just about 30%-40% sales, and the rest of the 60% of sales comes from the addition of small volumes of sale, each from many SKUs, thus creating the long tail of demand. This phenomenon poses several challenges for the supply chain.<figure class="image"><img style="aspect-ratio:3745/1617;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//asset-14merchandisinggrid_1716366676.png" width="3745" height="1617"></figure>&nbsp;- Dilemma posed by products in the decline phase<figure class="image"><img style="aspect-ratio:1670/1119;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//asset-15merchandisinggrid_1716366691.png" width="1670" height="1119"></figure>To addition to the above, the duration or the slope of the products life cycle of each of the SKUs in the market is difficult to foresee or predict accurately. However, it is an irrefutable fact that sales of all products eventually hit a slowdown. When this happens, each of these products (at the declining phase of its lifecycle) is often seen as the culprit for high inventories. An increase in inventory is naturally avoidable. It occupies space in warehouses, locks up cash, and companies have to discount or eventually scrap this inventory. All these lead to profit leakages.This problem has a bigger impact on suppliers who may not only have redundant FG inventory but also would have planned for RM. When products are discontinued, the suppliers are usually left holding huge leftover inventories at their end. This often leads to issues of trust between vendors and companies, and could manifest as supply issues for other items being procured from the same supplier. A huge lose-lose situation for both parties.The Way OutImplementing a Fixed Merchandizing Grid and Fast Replenishment can help companies overcome the conflict posed by variety and help companies maintain a regular influx of new introductions without worrying about inventory going out of hand.How does this work?Defining the Merchandising GridA fixed Merchandising Grid maps the entire product portfolio and limits the range-based parameters that truly matter to the end customer, thus allowing the company to maximise sales without burdening the supply chain.A common mistake companies make is to replicate products based on what the competition is offering or make product variants based on the different parameters/functions the sales team/other stakeholders consider important. For example, fabric designers might add a particular shade of black fabric with a thin blue line to the product portfolio in search of novelty in design. This may or may not reflect the end customers’ true considerations when they make a purchase, especially since the end consumer is not as knowledgeable as the designer about fabrics, shades or print. He may not be able to distinguish this SKU from another with, say, a thin grey line. So, eventually these cannibalise each other’s sales, reducing volume off-take of both. So, it is very important to have an understanding of the true parameters that are relevant to the end customer.For example, a shoe manufacturer may decide upon the following five parameters to form the merchandising grid:<ul><li>Demographic (e.g., men, women, and kids)</li><li>Occasion of use (e.g., men’s shoes may be formal, semi-formal and casual)</li><li>Style (e.g., men’s formal shoes may be laced-up or brogues)</li><li>Price (e.g., laced up shoes may be offered at &lt;Rs.999; Rs.1000 - Rs.3000; &gt; Rs.3000, etc.)</li><li>Colour (e.g., &lt;999 shoes can be offered in black or tan)</li></ul>After identifying the relevant number of parameters, the company can also decide on the segments of the grid where the company wants to be present. For example, if price is a parameter, the company may choose to be a premium player and ignore the lower price points. Once the relevant grid is defined, the company has to decide what is the number of products that it wants to include in each square of the grid to be able to offer:<ul><li>A relevant choice to the target consumer of each segment</li><li>A variety that does not cannibalise on each other’s sales</li></ul>For example, in the case of the above shoe manufacturer, the company can decide that it needs to offer two choices of black, &lt;Rs. 999, lace - up, formal, men’s shoes, to maximize sales opportunities.Once such decisions are made across the various squares of the grid, the existing products of the company have to be mapped against this grid. (Note: If the number of products in the portfolio is too many, rationalize the list based on volume and frequency of sales before taking this step).While there is nothing like a perfect number of ranges to be offered, there will be significant scope to cut down excess range from certain segments. In that case, a judgement has to be made based on sales and other considerations as to which ones in the range the company wants to keep. Very often, such an exercise leads to the realization that the company can do without ~40% of its SKUs. This range is drop frozen and only used for liquidation, without any additional fresh procurement being done. Also, clear gaps of where new products are needed – and which need to be prioritised – will emerge once the grid is finalised. These can be triggered for new product design and development.Steve Jobs’ product strategy matrix for AppleOne of the most successful examples of merchandising grid-based product portfolio control is demonstrated by Apple. Steve Jobs defined Apple’s company computer portfolio strategy by using only two parameters - the kind of user and the portability of the computer; and decided to have only a single product offering in each of these.<figure class="image"><img style="aspect-ratio:1541/669;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//steve-jobs-product-matrix_1716366718.png" width="1541" height="669"></figure>They have extended this strategy for new category introductions as well. This has ensured that Apple’s supply chain is one of the most agile in the industry, if not the world. An old product starts running out of stock within a week of the introduction of a new model that is expected to replace it. The aspirational inventory turns of a whopping 74 (industry average is 8) enabling Apple to enjoy the industry's highest gross margin and profitability.Most other companies offer a plethora of choices to every possible customer segment, and consequently, their supply chains have become so complicated that they suffer the twin problems of lost sales due to excess inventory of some variants while suffering high inventory and subsequent margin erosion due to discounts on others.By committing to freezing the range as per a defined merchandising grid, companies will protect themselves from the problems associated with demand disaggregation, as they will be limiting the range, not only for production but also for channel partners, distribution, and vendors.Introducing New Products into the GridSince the number of possible slots is frozen, whenever marketing teams take a decision to introduce any new product into this grid, they will also need to decide which product they want to discontinue. Not only that, a discontinuation and liquidation plan for the existing inventory of the product has to be chalked out. Taking these decisions in a systematic and timely manner will allow for a smooth liquidation of the products, even as they are selling in small volumes in the market. This will eliminate issues related to leftover inventory in the supply chain and distribution channel.Reacting to an Emerging Category or Line of BusinessSometimes a new category, not a part of the original merchandising grid, may emerge. For example, an automobile spares company may decide that it wants to be present in the emerging Electric Vehicle (EV) segment. Initially, a new row or column would have to be inserted into the grid. However, over time, some of the older cells that were occupied by increasing obsolescent products (e.g., Internal Combustion engines, in the example of the automobile company) will eventually disappear as the sales of those products reduce and fall below the economic threshold.In case a company enters a new line of business, this may involve the creation of a new portfolio of products. Therefore, a new grid will be defined on the basis of buying preferences of the customers of this business. Management of the range in this grid may initially be a strategic call taken by top management and, will, therefore, be different from range management for steady-running categories. However, over the long run, as the business line matures, the grid will be managed the same way as described earlier.ConclusionOnce the merchandising grid rules are implemented in a company, teams working on new product introductions will automatically be more careful in selecting what range they want to push in the market since it involves the decision to discontinue an existing product. This circumspection can improve the probability of the selected products doing well in the market. Moreover, fixing the merchandising grid approach also allows the entire system to focus on the success of the identified range of the company. Experience has shown that when the merchandising grid is used in a pull or replenishment-based supply chain, it can help.<ul><li>release plant capacity by up to ~20-25%</li><li>reduce inventory across all nodes by ~25%</li><li>improve availability in the market by up to 90%,</li><li>increase overall sales by 20-30%</li></ul>Therefore, plan carefully, and your new products will bring in the revenues and profitability that you anticipated. Think outside the box, but stay within the grid!

The Merchandising Grid can help release plant capacity by ~20%, reduce inventory by ~25% and increase overall sales by 20%. It helps create a rationalized product portfolio that maximizes sales without burdening the supply chain.

Merchandising Grid: The Mechanism for Product Portfolio Management

A wide variety of products may burden supply chain and erode profits. Having a Fixed Merchandizing Grid & Fast Replenishment can help. Read to know more

Merchandising Grid: The Mechanism for Product Portfolio Management  Vector Consulting Group

In the automobile industry, an Original Equipment Manufacturer’s (OEM) spares business has two major, and at times conflicting, needs to satisfy; 1) ensure delivery of spares to the customers at the point of requirement in the shortest possible time and 2) to do so in a manner that is financially beneficial to the company.1)Importance of delivery of sparesOnce an OEM (Original Equipment Manufacturer) has sold an automobile (car, truck, etc.) to a consumer, it becomes a commitment for the OEM to ensure that the spares and service are seamlessly available to the customer. In the case of some large OEMs, this could involve making more than 1.5 lakh individual parts readily available at all times! If customers (or the mechanics) struggle for parts whenever they want to repair or maintain their vehicles, they judge the OEM poorly. Frequent poor sales and service experience are known to negatively impact vehicle sales of a company.2)The financial challenge in spares managementEnsuring the availability of spares is naturally a major challenge due to the enormous variety of parts involved across the portfolio of the OEM’s vehicles. With new models being launched with increasing frequency, the number of spare part SKUs that have to be serviced also increases. Moreover, OEMs have to maintain this large variety of parts over the long life span of the automobiles (very often for more than 7 years). To complicate things further, some of these are in frequent demand while others are needed very infrequently. Unfortunately, this business has a large number of these infrequently demanded “stranger” items!Consequently, whenever automobile OEMs try to improve spares availability, the cash tied up in slow-moving inventory balloons! Further, it is not enough for a part to be available at the warehouse or the distributor’s location; all parts have to be available or delivered in the shortest possible time to the point of requirement (service dealers, retail shops, etc., from where the customers buy them).Because of the conflicting objectives of spare parts management, most automobile OEMs in India struggle with parts availability. The ramifications of such unavailability further lead to inefficiencies in service centres and ironically take away the advantage of what should have been a monopoly market for the automobile OEMs.Impact of unavailability at service dealershipsDelay in parts availability at service dealerships leads to high turnaround times for vehicles coming in for service and disgruntled customers. This, in turn, can have a cascading effect on service bay availability and delays in repairing other vehicles in the service center. Servicing in an OEM dealership is usually more expensive than getting it done outside. Unfortunately, most often, these higher prices do not translate into superior service in terms of vehicle turnaround times in the service centres; hence, it is not surprising to find customers seeking out cheaper alternatives. Therefore, most vehicles leave the automobile OEM service network after the warranty period. If we take cars – according to ACMA, while nearly 20% of the cars on the road are more than 15 years old, the typical age profile of cars reporting at dealerships is less than seven years.Impact of unavailability in the aftermarketMany automobile OEMs allow parts to be sold outside its network, more so for the older models. This is to ensure good reach of parts to counter the gaps in their existing service network. But, distributing large no of parts through a network of distributors, and small retailers comes with its own challenge. Most of these market players are small businessmen find it difficult to invest large sums as capital.The problem of unavailability is further aggravated by the presence of few, yet very large, wholesalers in the network. Their presence is assumed to be the answer to reach out to far-flung areas. So automobile companies sell in bulk to these large wholesalers at cheaper rates with the hope that they will help the company improve ‘reach’ and get sales from these unserved areas. Unfortunately these wholesalers are passive sellers who sell only to those who approach them and therefore do not serve this purpose effectively. Moreover they end up creating more area conflicts in current territories than serving the deeper geographies. Most OEMs have resigned themselves to live with this –the management bandwidth in the spares and service business is already fully occupied in expediting spares in the distribution and service network.These conditions impact the last-mile availability of original parts, creating an ideal condition for small local players to manufacture and sell counterfeits. Most of the counterfeit sellers also offer much better service to retail points due to their geographical concentration. Easy availability, a customer in dire need of parts (when the vehicle is down), and the non-availability of original parts make it a viable market for counterfeits.Consequently, no other consumer product category has seen counterfeiting to this extent in the Indian market. ACMA assesses that 36% of the components in the aftermarket are fake. It is also thought to be growing 9-11% annually. Since counterfeiting is usually of the OEM’s intellectual property, in addition to eating into the aftersales of the vehicle manufacturer, it may also spoil the vehicle and endanger the life of the driver.<figure class="image"><img style="aspect-ratio:933/933;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//1_1709892150.png" width="933" height="933"></figure>Core IssueIn the automobile industry, these chronic availability issues have their roots in how typical OEMs operate. They send in 3-month rolling schedules, based on sales forecasts of individual parts, to their vendors, who then manufacture and supply as per the schedules. In addition to supply being unreliable, the fact that forecasts are inherently error-prone creates situations wherein some items are stocked out, and others are in surplus. At the same time, demand tends to be skewed with high month-end spikes due to the prevalent practice of pushing material at month-ends (with or without incentives) to meet sales targets. This is one of the reasons why distributors tend to keep 45 to 60 days of stock even when the nearest company warehouse is just a few days away.When many parts are inherently slow-moving, pushing them to the channel partners aggravates the problem. The speed at which stock rotates deteriorates because the channel partner is exposed to a smaller demand and highly variable demand in a restricted geography. Thus, this practice impacts the buying power of channel partners and their ability to restock when items are sold out. A distributor’s daily working capital woes force him to restrict his business, and many tend to service only a limited number of retailers (usually larger retailers) who are perceived as low credit risk. Net impact is reduced availability of spares in the market.Direction of solutionAny solution should aim at ensuring parts are made available in the shortest possible time. But this has to be realized at the same or lower levels of inventory, and nobody in the entire chain should be burdened with extra investment.For this, it is imperative to classify parts into various categories and create a distribution strategy based on that. Based on frequency of the demand at the point of sale, parts can be classified thus:1. Fast mover Parts: These are regular maintenance parts like the Filters, Oils, Break Lining, Clutch, Belts, Oil Seals, Battery, Tyre, Wiper, etc., which are replaced as part of regular maintenance. In terms of sales, these are usually 60 to 70% of the total spare parts sold.2. Erratic Parts: These are parts which are prone to frequent damages like the gear parts, Bumper, wind shields, etc. They may also be exclusive parts needed for preventive maintenance of less popular models or consumables or items needed after minor accidents. While the vehicles of a particular model may not frequently visit a particular service centre, as far as the customer is concerned, these are regular items, and they will not have the patience to wait for long.3. Slow Parts: These are infrequently used repair parts or failure parts like Radiator, Window Glass, Fuel Injection, Crank Shaft, etc.4. Stranger parts (rare parts): These include major or rare Accident parts, parts with a small chance of failure or parts with large replacement cycles like Axels, Transmission, Cabin, Frame, Door, Fuel Tank, Central Locking System, etc.. Accident insurance claims, which are usually made in these cases, generally take 10 to 14 days. As long as the parts can be made available within this window, there would not be any hold-up for customer service due to unavailability.5. Out-of-circulation parts:&nbsp;These are usually stranger parts that belong to 4-10 year old models of the OEM and are no longer in production. And even though these parts are not used in current models, the OEM is legally expected to maintain these parts for repairs and replacements.<figure class="image"><img style="aspect-ratio:933/933;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//3_1709892290.png" width="933" height="933"></figure>Distribution StrategyBased on the above categorization it is evident that the frequency with which each part is demanded at a point of sale and customers’ willingness to wait can be used to decide which SKU has to be stocked where. For example, while the fast movers have to be readily available at the service dealerships (retailers), customer service is not usually jeopardized if a stranger part is not immediately on hand. Similarly, most customers are willing to wait for the out-of-circulation parts. This means that while the frequently needed parts have to be held closer to the consumption point, the less frequently demanded items can be held further upstream.&nbsp;This will help reduce the SKUs that have to be held at different stocking points, but the challenge in this environment is that VOR situations (Vehicle Off The Road), customer intolerance to waiting and repair bay blocking force service points to keep a large number of SKUs. But by questioning the assumption that this range has to be carried individually as they currently do, a mutually beneficial method can be evolved. A system of parts sharing can be set up between dealerships in a locality (cluster warehouse) in such a way that each dealer in the cluster will only carry a limited but independent set of erratic parts that others can source in the cluster. This can ensure that any part is available to another within 2 hours!&nbsp;A judicious decision of where to hold which kind of parts ensures easy availability of even stranger parts. However, OEM&nbsp; dealerships/channel partners also need to be able to service their customers within their limited capital. For this they have to hold less inventory of the kind of parts required to be by them.&nbsp;Stock is a function of lead time, therefore significantly reducing the lead time of the dealership/distributor from their next node (the regional warehouse) in the service distribution network can aid in reducing the stock the dealer has to maintain. Similarly availability at a central warehouse can help reduce inventory at the regional warehouse.&nbsp;Thus, when lead times are reduced, the minimum inventory to be held at various nodes in the network for every SKU will reduce, enabling stocking of an increased range of spares in the supply chain for the same working capital.In addition to decoupling the supply lead time from the replenishment time, a central warehouse is also needed to act as a dampener to absorb fluctuations in spares demand. The greatest variability in parts demand is logically at the point of sales, while the CWH, which is an aggregate location servicing demands from all points, experiences the least variability. Using this benefit of aggregation, a central warehouse can serve many different destinations in the supply chain far more efficiently whilst keeping the lowest possible overall stock in the system.Inventory Creation and Movement – from Push to PullIn the automobile industry, for the distribution strategy to succeed, availability has to be ensued at all points in the supply chain: in the central warehouse, regional warehouses, distributors/dealerships, and retailers. This is only possible if the supply chain moves away from the damaging ‘push’ system and implements a ‘pull’ i.e. instead of pushing inventory downstream each node quickly responds and replenishes the depletion from the inventory maintained at the subsequent node.<figure class="image"><img style="aspect-ratio:933/933;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//2_1709892311.png" width="933" height="933"></figure>Therefore, vendors in the system have to supply as per actual consumption from the central warehouse instead of forecast-based schedules. The prevalent approach of schedule-based planning for spares sourcing not only creates desync with real demand, but it also leads to FG inventory pile-up either at the vendor’s end or at the warehouse when the item is unexpectedly in surplus. Moving from this push system to a pull system wherein the movement of inventory is based on actual consumption takes away the need to arrive at accurate forecasts and send in monthly schedules. A communication system that indicates the level of stocks against a norm (daily) can be set up between the OEM’s warehouse and vendors for a daily order system.The vendor can then manufacture the corresponding parts and replenish stocks at the OEM as per priority, set based on actual level stock in comparison to the norm. This system enables the suppliers to receive purchase orders in a hassle-free manner. Constant change in order priorities that cause capacity loss for suppliers and unneeded FG can also be eliminated.Similarly, consumption-based inventory movement can be triggered between central warehouse, regional warehouse, service centres, distributors and even retailers (refer figure 2). At any two links, the inventory should move based on immediate ‘pull’ signals based on actual consumption, with the buffer levels signalling priority for replenishment. A fast courier service has to be engaged for rapid movement of stranger and slow parts from the regional and central warehouse to the point of sales or service.BenefitsThis model of managing spares will give immediate benefit to the automobile service dealerships and distributors. Higher sales achieved as an effect of better availability in the entire supply chain and without an increase in inventory allows dealers to earn high ROI and gives them the motivation to invest more resources towards improving reach and customer service in the market.But in order for this model to achieve its full potential in the aftermarket, cross-country dumping by the wholesalers which, forces distributors to erode their margins, has to be prevented, and price parity has to be maintained. Once wholesalers are removed from the network and replaced with dedicated distributors assigned to clear territories, the higher ROI would enable them to service retailers in their territories with regular beat plans. Consequently, the company will experience higher overall sales without any discounts or schemes.What’s more, since the material is ordered by downstream supply chain partners based on consumption, this process hitherto fraught with firefighting will move into auto mode. This and the reduction of month-end skew of orders can give a much needed-respite to the management team, giving them an opportunity to focus on initiatives to further increase market share.Industry studies peg the current size of the components business in the Indian automotive aftermarket to be between ₹28,000 Crs. - ₹24,800 Crs., whereas the service market is estimated at ₹8,000 Crs. The combined value is projected to rise to ₹60,000 Crs. by 2020. A recent Automobile Components Manufacturers Association (ACMA) study reveals coverage figures as low as 15-20%, indicating that most OEMs address this market ineffectively. But once the distribution network of the company spreads into the nooks and corners of the country, OEMs can not only increase vehicle sales, but they can also augment revenues by claiming this vast untapped opportunity in the aftermarket.

Only 15% of India's aftermarket is addressed by OEMs! What can OEMs do to tap into this opportunity?

Spare the Trouble

Find out how OEMs can ensure seamless service while meeting their financial goals

Spare The Trouble | Vector Consulting Group

Let’s leapfrog from BS IV to BS VI in three years, the Indian government decided in 2017.‘That’s impossible!’ the auto industry protested. After all, it took Europe nine years to make this same jump! The feat the government was proposing is akin to conquering Mount Everest in one month (most expeditions take at least 2 months), industry experts opined.So, what’s prompting such vehement protests?&nbsp;To answer this, let’s understand the challenges BS VI poses for an auto company, particularly its Research and Development function.Mammoth work contentContextMany Indian auto companies operate across multiple product categories (ex: cars, bikes, SUVs, trucks etc.) and have built a large portfolio of engines over time. A regulation such as this one would affect the entire range of their products. This means that converting all these engine models to BS VI before April 2020 is truly a gargantuan task. The sheer work content itself is overwhelming for conversion to BS VI since all engine platforms require independent design, validation and homologation activities. In fact, most companies would not have seen these many engine upgrades in their entire history.ProblemsMost R&amp;D organizations do not have a clear assessment of their capacities. This is mainly due to the high ‘content variability’ and the non-deterministic nature of R&amp;D projects, where each project is different from the previous one. So, the time and effort required to complete a new project may be much different from the previous one and can’t be predicted. This is in sharp contrast to the highly deterministic and repetitive nature of work in operations, where the time taken to process an individual part is known to the last second, and therefore, the hourly capacity of a machine is known fairly accurately.When the R&amp;D department is unclear about how much capacity is enough and the workload is huge, it tends to take on many more projects than can be handled at a time. Overloading causes R&amp;D to stretch its capacity over many projects and try to do all things simultaneously. The downside of this approach is that while a large number of projects get started, and many move a certain distance, none or only a few of them finish within the regulated deadline. In short, the company gets no return for all the effort invested.Steep learning curveContextA huge shift in technology is needed to meet the demands placed by BS VI norms. Most Indian companies haven’t faced a technological transformation of this magnitude, and that, too, requires completion within such a short time period. In itself, the adoption of a new technology is a risky proposition. A hard deadline such as the one set by the government aggravates the situation because of the enormous pressure on resources.ProblemsBut, surprisingly, most managers do not see this pressure of time as a problem. In fact, they revel in reviews based on rhetoric around stiff deadlines, believing this factor to be the only driver of speed and the best way to control the many uncertainties in project environments. This couldn’t be further from the truth. It has been seen that in any design and development process, where the achievement of output depends on the completion of a certain scope of activities, and there is pressure to achieve this output fast, the scope or the process itself gets compromised.Ironically, wherever there is a scope violation to show faster output, the management tends to overlook it either due to a lack of visibility or unwillingness to check. But, such compromises in the fidelity of the design and development process, when not caught upfront, eventually lead to production issues on the plant and quality issues in the field.In regulatory projects like BS VI conversion, where time is short, and the management is on an overdrive to meet timelines, the above undesirable consequences are very likely. With so many engines and vehicles being converted to BS VI with such tight deadlines, companies can quickly lose control of the number of issues being generated owing to process non-conformance.Integration of engine with vehicleContextThe story never ends with the conversion of an engine to BS VI. After the Proof of Concept (POC) of a BS VI engine is complete, there is still a mountain of integrations and validations awaiting to be done with other non-engine sub-systems of the vehicle variants into which the modified engine goes.As an entire portfolio of engines has to be converted to BS VI, the physical compatibility of the modified engines with existing vehicle variants/vehicle BOMs (bill of materials) has to be checked. In the commercial vehicles segment, where customization is common, and vehicle BOMs exist in thousands, this exercise can become overwhelming. Moreover, the functional performance of the overall vehicle with the modified engine cannot be allowed to deteriorate and has to be validated every time an engine is modified.ProblemsModification of each vehicle variant requires contributions from a large number of teams, often working at different locations on different sub-systems. In this process, there may be iterative changes required in the engine as well as non-engine parts and systems.However, when the flow of work is not controlled, it is very easy for engine teams to get lost in the multiplicity of activities to be done on newer engines as they are picked up for POC and iterations coming from variants already under integration check with non-engine teams. When different non-engine teams also pick up integration work based on their individual preferences and conveniences, the synchronization between them suffers, leading to long stoppages in work whenever a team needs help from another. The stoppages cause teams needing help to open up still more work fronts, further worsening the situation.Escalation in vehicle costContextThe biggest challenge by far is the change in pricing dynamics that this initiative will bring about. The overall vehicle BOM cost is expected to increase by at least 5%-10% post-BS VI conversion. This sharp spike can wipe off most of the profits of the company if it does not pass on the cost to its consumers. However, increasing vehicle prices can result in a sudden dip in sales volume, especially in the non-commercial segment, where consumers can postpone their buying decisions.ProblemsMost auto companies are, therefore, apprehensive about the impact of BS VI on sales volumes. A dip is inevitable they say, unless the price increase is ‘justified’ by additional features (and not just by improved emission parameters). But these additional features will not only add incremental costs to the vehicle’s BOM, but they will also take up additional R&amp;D capacity for testing and validation. So, the already stretched R&amp;D capacity would be further burdened, and lead times get longer. Given that there is a full portfolio of engine models and corresponding vehicle variants to be converted to BS VI, this entire process may eventually jeopardize the achievement of BS VI deadlines for many companies.Summary of woesEnormous workload, a highly uncertain environment and dependence on external suppliers of a typical new product development means that the story of most R&amp;D organizations is already one of multiple conflicts playing out at different levels. But these unresolved conflicts are magnified whenever a regulatory tsunami like BS VI hits them with its mammoth work content and aggressive deadlines.What are these conflicts? Let’s list and describe them, specifically in the context of the challenges mentioned in this article.Conflict 1Firstly, a conflict manifests when a large body of work has to be quickly completed - like when the government enforced the BS VI conversion regulation for all engine models.<ul><li>On the one hand, there is the need to ensure full capacity utilization (avoid any starvation in R&amp;D) by loading all resources to the brim.</li><li>On the other hand, there is a need to prevent capacity diversion from important work by carefully controlling the load and identifying work that should not be done.</li></ul>Conflict 2The major shift in technology across numerous engines and models within a restricted timeline creates a conflict between:<ul><li>The need to meet regulatory deadlines by using aggressive timelines to expedite execution and</li><li>The need to prevent compromises in design and development processes from creeping in due to the aggressive timelines (imposed by management through reviews)</li></ul>Conflict 3The coordination required between many teams working on different sub-systems of the same vehicle variant creates a conflict between:<ul><li>Achieving high resource utilization locally in different R&amp;D teams by letting them take up projects in any manner which suits them best individually and</li><li>Achieving close synchronization between different teams required on the same projects by defining an organization-wide rhythm</li></ul>Conflict 4The change in pricing dynamics, and fear of a dip in sales post-BS VI leads to a conflict between:<ul><li>The need to add features in the vehicle to protect sales from dipping post-BS VI, (which in turn can lead to higher lead times and greater risks of not meeting deadlines) and</li><li>The need to protect deadlines by limiting the scope of work to the bare minimum required for BS VI conversion</li></ul>Criteria for successIf we are to resolve all the conflicts listed above, we need to create a solution that resolves multiple paradoxes. In other words, we need to have a solution which:<ul><li>Minimizes starvation in R&amp;D while preventing overloading and its impact (like causing diversion in capacity)</li><li>Removes the pressure of deadlines from the system while ensuring that resources work at maximum speed</li><li>Maximizes overall resource utilization in R&amp;D while improving synchronisation among teams</li><li>Enables addition in project scope in the form of new feature upgrades wherever required to protect sales while ensuring that deadlines are met despite the expansion of the scope.</li></ul>Theory of ConstraintsDo we have a ‘magical’ solution that can resolve all the above paradoxes at the same time? Yes. Adoption of Theory of Constraints (TOC).We all know that the trick behind even astounding acts of magic is a simple diversion.&nbsp;The&nbsp;<a href="https://vector-next-new.vercel.app/scientific-system-thinking">Theory of Constraints</a>&nbsp;also performs this magic in companies by employing some simple principles of systems thinking. The primary elements of the TOC&nbsp;solution involve the following:<ul><li>Using a good enough assessment of R&amp;D capacity -for limiting projects being worked upon at a time in the R&amp;D pipeline</li><li>A company-wide priority mechanism covering all teams in R&amp;D, parts development, process engineering, and operations to improve synchronisation between individual projects</li><li>Putting a stage-gate mechanism in place to prevent compromises from creeping into the design and development process and</li><li>Managing timelines through high-frequency flow management –changing the focus from chasing deadlines to achieving speed by managing activity completion</li></ul>The end result is shorter lead times (of delivery), higher output and a more agile response to uncertainties that may creep into individual projects.Research and development departments that work on these simple principles are very agile and are not only able to manage their regular R&amp;D work smoothly but are also able to respond competently to sudden regulatory requirements like a quick conversion to BS VI.

In 2017, India wanted to leapfrog from BS IV to BS VI norms - in only three years. How do companies respond to such sudden changes?

The Race from BS IV to BS VI: How to win by solving the woes in Auto R&D

Auto R&D can ensure a quick and smooth transition to BSVI in spite of various challenges? Know how.

The Race from BS IV To BS VI: How to Win By Solving The Woes In Auto R&D | Vector Consulting Group

Push or Pull? : The ongoing debateEvery sales manager in a <a href="https://vector-react-beta.vercel.app/industries/consumer-goods-retail">consumer goods</a> company faces a moment of truth in the last week of every month – on one hand he has to meet his sales targets but on the other hand the stocks available with him is not exactly what the market wants (either in terms of quantity or range). Faced with this conflict, he uses his “influence” with the distributor to sell volumes more than the immediate requirement. In return, the distributor gets some additional discount/scheme or extra credit period as a sweetener to “deal” with problem of excess stock. This way of managing sales is typically termed as “push sales”. The push sales syndrome is best seen in a skewed sales pattern across the month – the last week is usually more than 50% of the month’s sales. The week beginning next month, the sales dip again as the dealer does not have free cash to buy more. The skew is also reinforced by monthly batches of production, which leads to arrival of range of SKUs towards the second half of the month. The phenomenon of skewed sales is acute and wide spread in consumer goods industry. (The entire logistics industry supplying trucks to consumer goods industry face an overload of requirements in last week of every month.) Many of them tried the trick of converting the month end measure into weekly measures to break the skew. However the “monthly” production planning method comes in the way of breaking the skew as the SKU set arrival gets skewed. But with dealer off take also being skewed, the push pattern is a self-reinforcing cycle. The sales managers know the problems of push based supply chain. They also intuitively understand that if they stop the push strategy and supply only as per pure consumption (or only immediate requirement) they will have a much consistent sales pattern across time periods. Most of them know the advantages of smoothening the sales on receivables and capacity planning.The know-how of how to implement pull is readily available and is also advocated by many consultants. However most players in consumer goods industry are still operating on the “push mode”. One of prime reasons why most companies do not switch to some form of pull distribution is the fear of sale loss. If they implement a pull system and supply what is immediately required, the fear is that the released working capital will be used by the distributor/retailer to buy more of competition products and hence the sales of company implementing the pull system will be jeopardized. This fear of losing immediate sales is holding back organizations to switch from “push” to “pull” mode of sales.The Fear: Unfounded?The <a href="https://vector-react-beta.vercel.app/theory-of-constraints">Theory of Constraints</a> approach towards implementation of pull distribution combines pull supply chain implementation with a win-win market offer, which has made the implementation of pull systems risk free in the transition phase.If on one hand the supplier is helping distributors with frequent replenishments only as per consumption (pure pull), the distributor uses the released capital to stock more variety. In many environments the distributors only deal with small sub-set of SKUs (out of the total company portfolio). They restrict the range to reduce risks to capital stuck in non-moving SKUs.When the supplier company supplies small quantities of new range while releasing capital from the excessively stocked items, a win-win partnership is created and pull system becomes a reality. This has to be coupled with two other enabling supply chain paradigms:<ul><li>A production system has to move away from producing large batches as per monthly forecast to production based on consumption from central warehouse.</li><li>The central warehouse should move away from being a flow-through warehouse (or a trans-shipment point) to being an aggregator of inventory. This implies that the inventory at central warehouse is higher than that with the distributors.</li></ul>The implementation of pull system provides staggering results both to the supplier and the distributor. TOC pull systems have been successfully implemented in India in many companies in varying environments (auto spare parts, garments, steel, fashion shoes, FMCG). In each case the results were staggering (around 30 to 40% jump in sales in period of implementation) particularly when the implementation was done along with a Win-Win offer with distributors. The ability to use the released capital to extend the range provided the practical approach for companies to implement replenishment with the distributors. The fear of capital flight to competition is prevented while at the same time; the ROI of distributors also improves due to frequent rotation of inventory.In some environments the risks of the distributors in new range is further alleviated by an option of “return back” if the inventory of new range does not move beyond a specific time. Such a radical approach helps distributors in trying out new range in the market thus increasing the chances of new range hitting the shelve space. This sounds almost like a silver bullet.The Silver Bullet: Not so Silver?In first stage of most implementations, the sales growth is beyond the expectations of management. So the first phase of implementing pull with the distributors gets stabilized sooner than later. However the real power of this pull solution lies at the retail point primarily because at the retail point the sales fluctuations (and forecast accuracy) is worse as compared to that at a comparatively aggregated levels like distributor or a further aggregated level like the central warehouse of the company. At the same time, the direct reach of most companies in India at a retail level is very limited. When the distributors struggle with problems of working capital, they tend to limit the exposure to retail outlets. As a result the “real reach” (where retailers are serviced on a regular basis) is very limited. This also indirectly shows that the real power of a pull system lies in retail – sales potential is many times higher than what is experienced at the distributor level.However the implementation of any pull system requires an overhead of frequent communication of requirement. The essence of pull system is aligning distribution to daily sales. Hence getting the daily sales data is key towards transition. To pull a system, In case of distributors, it is easier to get this information as most of them being large entities, have computer systems and the daily business transactions are usually with an IT system. With minimal IT intervention, one can get the IT systems of distributor to transfer daily data to supplier company’s IT system. This is crucial as we are moving to a system of daily communication of requirements as opposed to once or twice a month ordering by distributor (frequency at an SKU level).However at the retail level, particularly in India, the level of use of IT is extremely low. Most of the retail outlets are mom and pop stores (The modern retail is relatively a small portion of the total retail population). The retail market is spread out and number of the outlets run into few millions. When retail outlets are spread out, wholesalers also dominate the channel instead of distributors. (As compared to the distributors, the wholesalers do not usually have a territory allegiance and sell high volumes to highest bidder). The “open market” conditions at the retail level coupled with difficulty in setting up the “daily-sales-data-collection” infrastructure has dissuaded many companies from trying pull based implementation at the retail level.When companies stop at implementing pull systems only between them and the distributors, the pressure of increasing sales targets hits them hard. The first phase of implementation of pull systems with distributor does give a significant sales jump and takes away the pressure of increasing targets. The “honeymoon” period of the first phase continues till all large distributors are on-board on the replenishment program. With more sales coming in, the targets also grow. The problem starts when one wants the next jump – the next jump has to come from implementation in retail but if it is not done and targets are high, invariably companies slowly start creeping back to the push mode. You would surely know some companies who have claimed to implement pull systems, for the first 3 weeks it is a pure pull and in the last week, the situation deteriorates to push mode (as they fulfill their targets!). Availability at central warehouse also deteriorates in the first week and soon distributors start having higher inventory per SKU and the ROI drops to old levels. They go back to the mode of restricting range and also restricting reach.Companies starting on the journey of pull systems actually do not have an option to stop the implementation at the distributor level only. They have to go to the next level of opportunity and enjoy the higher level of sales. They have to get away from the “pressure of meeting monthly targets” and hence the need to push. The biggest compromise to any operational discipline comes from pressure of meeting targets. The only way one can avoid the pressure is to ensure there is no scarcity of sales. So, companies starting on the journey of a pull system have to find a way to implement the pull systems in the vast environment of mom and pop retail outlets else it is better to not even start on the path of the replenishment program.The Good Enough ApproachIT systems can help us get daily data but having IT systems for a large population of mom and pop stores is practically infeasible. So daily sales data (daily ordering for an SKU) is infeasible but the current environment is far from the best approach of daily ordering at a SKU level. Even when retailers are actively buying from wholesalers, the maximum frequency is once a month per SKU (exceptions are fast perishable items like bread or milk). In many cases the buying frequency (at SKU level) is much more than a month. Getting daily data is difficult but there is huge gap between current practice (monthly) to desired level (daily). We can make a huge improvement by adopting good enough instead of the best. A weekly frequency of ordering is a huge improvement. The weekly frequency or once in a fortnight can be implemented with help of sales man visiting retail outlets to collect order. This weekly sales man can be on the pay-roll of the distributor as he has earned enough from the replenishment program to take the next jump.The word “sales man” here is a misnomer. The person is expected to visit a retail outlet at a pre-determined frequency and define requirement based on the difference between stock levels at retailer and the norm. While one may argue that the job can be left to the retailer. But in most mom and pop stores, the inventory management and ordering is usually very ad-hoc. So left to the retailer, he might tend to order more quantities per SKU than required. The job of the “sales man” also called the DSR (Dealer sales representative) is to ensure that he does not collect orders more than the norm. In a way he is not a typical sales man who should be happy getting more quantities.The focus on the DSR is two fold:<ul><li>Ensure ordering does not go beyond norm and</li><li>Visit frequency is adhered to without any compromise (so that the retailer experiences the frequent service to change his behavior).</li></ul>Allowing the distributor/wholesaler sales man, an outsider, to check stocks and create orders requires a very high level of buy-in. The retailer has obvious advantages of increased ROI for the category of business. But since each category of products in his portfolio occupies a small percentage of his overall business, he has a poor intuition of ROI at category level. So in this case, each retailer has to be explained how his buying decisions impact his ROI at a category level. Such buy-in sessions have to be customized at a retailer level with data of the specific retailer. This involves a huge effort and the people trying to convince the retailers have to be competent in explaining the concept to the retailer. The efforts are huge but if well assisted by templates and a training program, we can convert an art to a process, which can be rolled out to the masses.The above approach also has another effect, when we get a wholesaler to service a retail outlet with a predefined frequency; we have to limit the geography of retailers for the wholesaler. This means that the wholesaler gets indirectly converted to a distributor. This goes a long way in avoiding territory conflicts and price wars across territory.Fleetguard Filters:A case of extension of pull solution unto the retail point.Fleetguard started the journey of implementing pull replenishment right from suppliers to production shop unto the distributors. Within one year, it completed the first phase of implementation and got significant benefits. Then it decided to get into the most difficult phase of implementing at the retail points – mom and pop stores spread across the country.Conceptually the sales managers understood the potential gain. They fanned out across the length and breadth of the country communicating to more and more retailers. As a first step, Fleetguard’s sales managers just convinced retailers to order frequently with the conviction that the dealer sales man will come at a defined frequency. In the first phase, FG did not get into the process of checking stocks and comparing with norms to generate the retail orders.The retailers liked what they heard and more and more retailers agreed to work with the Fleetguard distributors. The company’s reach, as measured by the retail outlets that stock goods bought from the distributors increased from about 10000 outlets to over 27000 outlets over a period of three years. Though there was corresponding sales increase resulting from an increase in the number of outlets, it was clear that the essence of replenishment was not in place. Retailers were still ordering based on their judgment and tended to carry large stocks of a few products thus blocking their capital from more SKUs. The moot question is why does the retailer not see the obvious benefits that the company is trying so hard to give them?The answer probably is a combination of two thoughts in the mind of the retailerOne that any company accounts for at the most 5% of the retailer’s business, so any improvement there is akin to be noise in the mind of the retailer. Two, that perception of unavailability in the mind of the retailer was not as severe as in the mind of the company. They tend to compensate the lack of availability of an SKU from one company with the availability of a similar SKU from another company thus believing that at the retail outlet level, the range and availability is not so bad as it is made it to be.The above two facts coupled together led the retailer to believe that his judgment based ordering was the best way of doing business and any improvements would be minuscule with the efforts of monitoring stocks and sales to order as per consumption being too much to justify.The Fleetguard team decided to take this issue head on and disprove the hypothesis of each retailer based on actual data of each retailer. Having access to over one year’s weekly purchase data of each retailer, the Fleetguard team constructed a customized analysis for each retailer and demonstrated that there were some products where the retailer was carrying more than four to six weeks of stocks of some products (for some as high as 16 weeks) when the supply frequency was only one week!In addition based on a one time stock take, they also demonstrated to the retailer that there were some loss. And then they nailed the issue by demonstrating that retailer was not out of stock on any product that he was buying from Fleetguard owing to the excellent availability and weekly visit of the DSR. So if the retailer spread his capital better by reducing stocks of existing SKUs and using the money to buy more products from the Fleetguard portfolio, he stands to make more money.The approach called for new challenges in sales processes – since FG is dealing with large mass of retailers. It had to have processes, trained manpower to convince retailer with the new way of working where orders are generated frequently based on stock and limited to a norm and capital redeployed to a bigger range. Fleetguard has one of fastest growing reach in the auto industry. At the same time it is able to convince retailers with the new way of working. Almost always, the retailer concludes with one thought: if this is the situation for the products of Fleetguard – a company that is working so well, what would be the situation of other companies which are still operating in the old paradigm?As Fleetguard gets more retailers on board and gets their buy-in on new way of working, they should reach a stage where a mass of retailers will try to change the way they operate and force dealers, across different brands of auto parts to supply as per consumption and who in turn should force the auto spare parts supplier to move to the pull system. Maybe one day, the actions of Fleetguard will change the way entire auto spare parts industry operates.The efforts of Fleetguard managers are unique in the entire industry. They are perhaps the only company in the world where the sales men do not have sales targets – neither primary nor secondary. They have targets to ensure the enabling actions to implement pull in the vast market of India is done at the fastest possible time. These efforts (over the last three years) have resulted in their ability to reach over 35000 retailers every week. These retailers are now increasing the range of the company’s products to nearly double of what they held earlier. The combined effect of increasing reach and range is that their sales growth is far outstripping the rate at which the market is growing. However, they cannot rest on their laurels as the numbers of auto retailers in the country is more than 1,00,000 and the range that the company has is much larger than an average retailer’s holding.They have started a journey on a path where no one has gone before. Their approach is best verbalized by following lines of the famous poem by Robert Frost – the road not taken.I shall be telling this with a sigh Somewhere ages and ages hence: Two roads diverged in a wood, and I took the one less traveled by, and that has made all the difference.”

Find out how companies can solve the sales dilemma with ‘pull’ mode of sales

The Road Less Travelled

Contrary to expectation switching to a pull based sales system can deliver 30-40% jump in sales. Know how.

The Road Less Travelled | Vector Consulting Group

Published: SmartCEO Magazine September 1, 2014&nbsp;These days e-tailers in India, have been making headlines with their mind-boggling valuation figures. One of the most established firms in this space, Amazon has a valuation of more than 500 times its earnings. Amazon’s sales growth is near exponential with a 40% CAGR over the last decade. However, even after decades of existence, it makes a meagre net profit of around USD 270 million on sales of over USD 74 billion. The Economist reported that Amazon’s core retail business does little better than break even; most of its meagre profits come from the independent vendors who sell through Amazon’s marketplace.&nbsp;Back home, Flipkart declared it wants to become the first Indian company to touch $100 Bn. – not in revenues or profits but in valuation. Indian newspaper reports are full of valuation and funding stories of different e-tailers. However, what is lost in the hysteria is the debate on business viability or bottom-line numbers. Analysis of the balance sheets filed by the top e-retailer companies with the Ministry of Corporate Affairs shows that most of them are making massive and consistent cash losses. Yet valuations are ever-increasing. The argument that scale will ultimately bring desired profits does not seem a strong one, looking at the profitability of Amazon after decades of existence.&nbsp;Clearly, these e-retailers, unlike traditional retailers, prioritise valuation over profits. While for a 'brick and mortar' company, these two factors should have a strong positive correlation, the game seems to be different for e-retailers.&nbsp;The tactics for higher valuation are simple – get more and more customers to buy from the website – the more the customers, the more is the valuation. The way to do it is massive through variety (Amazon offers 30 times more variety than WalMart) and massive discounts. As customers, we would have no complaints at all. But what about the brand companies supplying to these firms?&nbsp;Brand companies feel it is important to be there in the e-retailer channel or suffer from market share loss, as more and more customers are moving online to buy across different consumer goods categories. But Brand companies have to offer massive discounts to stay relevant in this channel. With high discounts on one channel and normal prices in the traditional wholesale channel, channel conflicts are inevitable. Recently, Samsung faced a rebellion from all its traditional dealers. Hundreds of Samsung dealers across the country have threatened to boycott the company’s products over pricing concerns. The dealers said that they would stop stocking Samsung phones unless the South Korean tech giant takes steps to narrow the wide gap in pricing between its phones sold at various physical outlets and on e-commerce sites.&nbsp;On one hand, brand companies want to be present in the e-retail channel to retain market share, but on the other hand, this action may ultimately destroy the traditional channel where brand companies have significant volumes sold with good prices. It is like being caught between the rock and the hard place.&nbsp;One can have two arguments against the proposed threat of e-retailers.<ul><li>The size of the e-retail market for any consumer product category is too small to even worry about.&nbsp;</li><li>If modern retail could not create a significant dent in traditional channels in India, why should we be worried about the e-retail challenge?&nbsp;</li></ul>With pressures of profitability, modern retail in India has not been expanding at a pace where it can be a threat to the traditional channel in a big way, other than a few urban market hubs. Even after a decade of the birth of modern retail in India, a vast percentage of sales of every brand company (80%-90%) comes from traditional channels rather than modern retail. This is because the entire modern retail industry is struggling to make profits, and this is coming in the way of expanding rapidly.However, e-retail has the potential to disrupt the traditional channel because, on one the hand they seem to have a different business objective – need to meet valuation numbers over profits, and on the other hand, they have two major advantages.&nbsp;Range AmplificationE-retailers can carry a massive variety and reach out to customers with much lower inventory-carrying costs than traditional or modern retailers.&nbsp;Reach AmplificationWith Internet connections increasing exponentially, good enough logistics support will provide the necessary reach much faster and cheaper for an e-retailer company.&nbsp;Brands, these days, are working with two different types of competing organizations – one willing to make losses to gain valuation (e-commerce) while the other wanting to run as a normal economic enterprise with profits as the prime motive (brick-and-mortar retail).&nbsp;The combined effect is a real threat to the traditional channel. We can make the typical Darwinian argument of survival of the fitter enterprise. However, one should not forget that we are clearly looking at two different types of competing organizations.&nbsp;If companies do not react to the threat, one may eventually see the traditional wholesale/distribution marginalized, and the profitability of brand companies will take a huge hit when sales from multi-brand e-retailers overcome traditional channel sales. The rapid sales growth (much beyond the industry average) of these e-retailer companies is clearly telling us that they have started eating into the share of traditional channels.&nbsp;As traditional channels die out and e-retailers become mega buyers from the brand companies, the power equation will totally shift towards e-retailers. Selling to a few large buyers (read e-retailers) as opposed to numerous small distributors will bring the brand companies under perennial margin pressures. The pressure can eventually get passed on to the manufacturing sector of the country. The relentless pressure on margins can drive manufacturing out of the country to lower-cost destinations. While there is a need to look at rules of fair competition at an overall economic level, brand companies have to take steps to protect themselves against this threat.&nbsp;Way out for the brand companiesInstead of falling for the short-term lure of 'buying' sales from e-retailers by offering massive discounts, brand companies need to think long-term to overcome the threat.&nbsp;The traditional distributor channel with sales from a retail counter still has two major advantages over the e-retailers.&nbsp;<ul><li>Ability to look/feel the product before buying (other than books and music where there is no such advantage between two channels&nbsp;</li><li>Get an instant delivery – rather than wait for days.</li></ul>However, comparatively, they suffer from two major disadvantages:&nbsp;<ul><li>The reach potential of e-retailers can be potentially higher than the retail footprint of a brand company&nbsp;</li><li>The extent of variety visible to the end customer&nbsp;</li></ul>If brand companies can nullify the disadvantages, they stand to beat the e-retailers. The two disadvantages can be overcome by creating a distribution reach, where one is present in nearly every relevant retail outlet in the country with a good enough range.&nbsp;Customers do not always stay in the house and browse the net; they also go out to the office and run daily errands. If brand companies are able to place products wherever a customer is likely to be around, the reach objective is achieved. 7-Eleven stores in Japan have achieved this level of reach. The stores are available wherever the consumer is likely to be around. It is nearly impossible not to come across a 7-Eleven store while one is doing his/her daily chores outside of his house in many places in Japan.&nbsp;Brand companies in India selling through multi-brand outlets should strive for this form of reach – to be there wherever a customer is likely to go! The current 'mom and pop' store retail foot footprint set up by many small traders across the country has been done with the same objective – be present wherever a customer is likely to move around. So, one can ride on this vast retail footprint available in the country. However, the problem with this footprint is the long tail. Most of the retailers are small, but collectively, they can give large volumes. Most brand companies typically neglect the tail, assuming it is inefficient to deal with this 'tail'. Brand companies depend on a wholesale network to deal with the long 'tail' of small retailers. The wholesale network is not effective in ensuring a good reach and range availability for a brand company.&nbsp;If brand companies efficiently serve the tail directly through distributers without resorting to wholesalers in the channel, the game of reach can be won easily.&nbsp;This calls for a different distribution strategy than what most companies do – forecast and push. Forecast and push locks a significant amount of working capital in inventory at the distributor. This limits the ability of distributors to service many retail outlets and forces them to limit their range, which is considerably lower than that of the supplying company. The range at the retailer is even smaller for the same reasons.&nbsp;The objectives of range expansion at the point of sale and reach depth (increase selling points) can be achieved if one moves over to pull distribution at lower inventory. A pull distribution model can allow any distributor in almost any category of consumer products to operate with just 7-10 days of inventory (the maximum distance between a distributor and the nearest depot of the brand company). This pull distribution will help release capital locked in inventory of few SKUs, which can be used to add many SKUs to its range and increase reach.&nbsp;Bajaj Electricals Ltd. (Appliances Business) and the Interio divison of Godrej &amp; Boyce, are using these principles to increase the depth of distribution to many small retail points in the country, which was previously left to the mercy of wholesalers and a few large dealers. Similarly, Fleetguard Filters (part of the Cummins group) has been able to remove all wholesalers in the channel and is directly servicing about 60,000 auto retail points for spare parts using a distributor model. It is perhaps the only auto spare parts company to have achieved the status of zero wholesaling in the network, a benchmark which even the best of FMCG companies have been unable to achieve in India.&nbsp;Once a company gets the desired reach coupled with very good availability at many geographical points in the country – it can beat the e-retailer at its own game.While e-retailers try to move towards faster deliveries to counter the challenge of physical retailers, they will open multiple local warehouses. They will lose out on the aggregation benefits of large central warehouses. If they follow the traditional techniques of forecast or reorder point systems to move inventory between locations, they will be afflicted with the same mismatched high inventory woes as a traditional network, leading to delivery unreliability.&nbsp;Despite having a large physical reach in the country, brand companies need to also cater to the community who would prefer to buy from the net. They can have their own dedicated e-stores. The capability built to have very high availability in its many stocking points (warehouses and distributors) across the country, the brand e-stores can offer same-day delivery with unmatched reliability – a feat very difficult to copy. The e-store will allow the brand company to show an even larger variety (as with the distributor) than the nearest local retailer.&nbsp;With this combination strategy (of dedicated e-store and traditional distribution), brand companies can then decide to be present in the multi-brand e-retailers, with their own terms – without resorting to discounting (i.e. the same price as that of its retailers).&nbsp;With reach and range same as that of the e-retailers, they can retain the brand strength by selling on advantage of the features in their own channels, rather than just using price as a selling tool and commoditizing the brand in the multi-brand e-channel.&nbsp;

E-retailers prioritize valuation over profits. Moreover, they have range and reach advantages due to their model. This can be a threat to traditional channels. Brands must counterbalance by adopting innovative distribution models for sustained success in this dynamic market.

Overcoming the threat of e-tailers

Brands can retard the power of e-tailers by serving their distribution 'long tail' directly. Know how.

Overcoming The Threat Of E-Tailers | Vector Consulting Group

After intense lobbying by groups representing millions of India’s small traders and shopkeepers who say their businesses have been threatened by online retailers, the government has put in place a wide array of regulations to stem the tide of e-commerce in the country. These new policiesi restrict sale of products via companies in which e-commerce firms have an equity interest, disallow giants such as Amazon.com Inc and Walmart-owned Flipkart from pressuring sellers to sell exclusively on their platforms. These policies also demand that companies store data locally and put a cap on prices of selected item. These steps, however, are unlikely to slow online retailing in the country. On the contrary, as compared to physical store retailers, growth of online retailers is likely to continue at the same rapid pace. Their source of competitive advantage is a devastating combination of inherent strengths and a unique business model.Advantage of accessibility (reach)Over half a billion people are using the Internet in India. Most are doing so using smart phonesii. Riding the wave of this expanding Internet infrastructure and increasing smartphone penetration, online retailers have conquered new frontiers especially in Tier 2 and 3 cities where consumers have little access to major brands.Advantage of space management (variety)Unlike store retailers who are always constrained for space, these virtual entities enjoy access to unlimited shelf space where they can display an almost endless variety.Advantage of inventory management (costs)At the same time, the online model also allows overheads and inventory costs to be kept low. Physical retail chains tend to have inventory distributed in the entire sequential multi-tier structure – manufacturer, centralised warehouse, regional distribution centres and physical stores. Online retailers have done away with this multi-echelon distribution model and ship items direct from a warehouse to the customer. This means that they do not have to maintain these facilities, especially the stores. Moreover, servicing from an aggregated location means that unlike physical stores, they do not have to contend with the problem mismatched stock (what is demanded vs. what is available) at every downstream node in the chain.Advantage of agile demand feedback (response to market dynamics)To ensure that they have the right inventory, online retailers also leverage an in-depth understanding of real time demand data. For example, Ratatouille, an artificial intelligence-based software, helps Myntra predict which designs are sure to be top-sellers. This has helped them go beyond fast fashion to ‘intelligent’ fashion and swiftly offer designs based on the hottest trends in the market.Advantage of Pricing Flexibility (response to market dynamics)Most physical store retailers need significant time to implement any price variation, and hence, are handicapped to impact price-demand elasticity. However virtual stores can do it almost instantly – they can dynamically set prices according to customer activity on the website, competitors’ pricing, product availability, item preferences, and other factors.Advantage of Dynamic Visual Merchandising (response to in-store behaviour)They can also dynamically assimilate consumer buying behaviour to offer displays, specific to a single customer. For example, when a customer researches through the catalogues of a product range on Flipkart, the search patterns are recorded and a ‘persona’ is created for the customer so that when he returns to the website, the searching time is drastically reduced by showing the most relevant products that the customer would be interested in buying – it is like changing the visual merchandising of a store (VM) for every visitor!Business Model AdvantageThese advantages are further strengthened by the online retailers’ very mode of operations – most are able to patiently absorb sustained losses for a long period of time while aggressively pursuing top line growth.Traditional retail channel Vs E-CommerceThe biggest competition for these online retailers is the traditional channel in the country. Currently, this traditional channel accounts for well over 90% of the business for most consumer good companies. Kirana's and independent traders (wholesalers, dealers, and distributors) flourish in every nook and cranny of the country; this sector is one of the biggest sources of revenue and employment in the Indian economy. Therefore, it is important to evaluate how this channel stacks up in comparison to e-commerce players along the above discussed factors.Despite the advent of organized physical store retailing in India towards the end of the last century, traditional retail continued to thrive. Wholesalers in this channel are so efficient that they often earn 15-50% ROI in spite of the wafer thin margins of 2-3% that they accrue. This is a feat not many in modern trade have been able to consistently replicate! But as e-commerce becomes more popular, this channel is bracing for a different kind of challenge. As indicated by the table below (table 1), the online model enjoys much better efficiency levels. The only chink in the armour of these apparently unassailable retailers seems to be their inability to let customers physically interact and evaluate the product before purchase, and also their inability to instantly deliver them.E-tailers are working on these by creating a few physical stores, giving free or speedier delivery options, using liberal return policies, offering the choice to ‘try before you buy’, etc. Moreover, in time, e-commerce can potentially exceed the reach of traditional retailers. Thus, a significant shift of market share to online retailers looks inevitable. Many predict that traditional stores will slowly but surely be wiped out.<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//vector-cg-article-7-battle-for-indias-retail-market-n_1712571380.png" width="1000" height="1000"></figure>The fall out – Future market dynamicsThis impending decline of the traditional channel is bad news not only for the millions of small stores and traders in the traditional channel, but is also a cause of alarm for consumer goods companies. As dominant online retailers emerge, the market dynamics for consumer goods companies will completely turn on its head.Today, in India, consumer goods companies hold sway, unlike in countries like the U.S., where negotiating power is either with big box retailers like Walmart or online companies like Amazon. Companies here sell to hundred-odd distributers and they in turn cater to thousands of retailers; there is no single entity in this chain with enough clout to negotiate for more favourable terms. Even the largest organized food and grocery retailers in the country typically have only ~14% gross margin. Internationally, many retailers command a far higher margin.But with rise in volumes being sold through them, online retailers have already started increasing their influence on Indian suppliers. Unchecked, in time, India too is will likely move to a scenario similar to that experienced in more advanced nations- where suppliers to the few dominant retailers, experience a relentless downward pressure on prices.Clearly, it is in the best interest of consumer goods companies to protect the endangered traditional channel. But the question is how?Saving traditional retailThe most crucial issue for this channel is its tendency to be bulky, sluggish and unresponsive to market changes (refer table 1). What’s worse, this channel is completely opaque; once merchandise enters it through a primary sale, its movement is invisible! Consumer goods companies that use this channel suffer from the following issues:Inability to understand timing of demand– Since there is always a huge amount of inventory in the channel, it delays demand information flow to the brand owners. The month-end sales skew, and the intermittent bull whip effect, created by schemes, only serves to bury this information further.Inability to gauge true demand– Frequent instances of stock outs at the point of sale, makes it impossible to gauge the potential demand for products.Inability to pinpoint the location of demand– When wholesalers who operate without territory allegiance are in the system, the location of demand is not clearly known for any targeted marketing efforts. For instance, for many companies, the Delhi territory offers a lion’s share of their total sales. But from there, the goods spread across the country, thus blinding the company to geographic demand patterns.Inability to gauge true demand for a new productWhen there is excess inventory is the system, it also becomes very difficult for new products to find shelf space at retailers. Retailers are far more concerned with selling the aging inventory (before it becomes unsellable). Without a fair chance to fight for customers’ attention, many new products die undeserved and premature deaths.The good news is that this can change if this channel can offer better visibility and become more responsive to demand. This will significantly mitigate all the other problems, too- i.e. a more agile inventory management system can ensure better availability of products at lower inventory levels.Implementing an IT system at millions of retailers is impractical; it is a gargantuan task unlikely to be accomplished in the near term. Moreover, the problem in the channel cannot be solved by an IT system; the issue is far more fundamental. Most problems in this channel stem from the fact that products are pushed down the distribution channel by companies based on forecasts causing rampant mismatch of inventory at different levels. Sales targets, discounts, and scheme based inventory movement create irrelevant inventory and aggravate the mismatches.Evidently, a HUGE contributor to the apathy in this channel is the prevailing distribution practices of consumer goods companies. If they change these practices, they can help protect millions of small shopkeepers and themselves.Building visibility and agility in the traditional channelThis means that the current push sales method of inventory movement has to be eliminated and a mechanism of movement of inventory has to be implemented such that sales at all nodes in the channel are true reflections of consumption at a lower node. Then, sales from the company to distributors will be a reflection of the sales of distributors to retailers and sales at distributors will be the reflection of market consumption from retail points. And if the company can get visibility what is sold to each retailer (IT systems at this level already exist though they rarely share this info), targeted initiatives can be undertaken at each individual retailer to increase sales.For this, companies will have to make significant changes in the way they operate. They will have to<ul><li>Move away from forecasting ‘push-based’ selling to ‘pull’ mode of inventory distribution which ensures that the inventory levels in the entire supply chain is lean, right from suppliers to retailers.</li><li>Transform the current combative relationship with distributors to a collaborative one of ‘channel partnership’ which will encourage the distributors to reach out to all potential retailers (big and small) in the territory and offer frequent and reliable deliveries.</li><li>Shift from target/ discounting-based sales strategy to a comprehensive Go-To-Market strategy which eliminates the practice of pushing unwanted inventory downstream and does not force partners to buy in volume while ensuring continuous growth in sales. This will also allow management to focus on enablers, actions, and metrics needed to increase and track the growth of the company’s retailer base, range enhancement, and sales patterns at each retailer. This will initiate inflow of daily data on real consumption directly from the battlefield.</li><li>Undertake targeted initiatives based on real demand visibility: The above steps can boost the quantum of information available to the consumer goods company. Intelligence thus available from the retail network is comparable to ‘big data’. The company can now track what is selling (or not) and from where – irrespective of whether it is a small shop in the by-lanes of Dharavi or a large retailer located in a tier IV town. This access to detailed consumption patterns along with the capacity to quickly mitigate issues can enable the company to gain unprecedented ability to react to vagaries of sales at retail points.</li></ul>Traditional retail – Standing tall next to online retailersThis replenishment-based distribution system is a winning model for both consumer goods companies and traditional retail outlets. Inventory level for all parties (company, distributor, retailer) in the channel will fall, inventory can turn faster, and profitability will improve. This will not only offset the inventory cost advantage of online retailers but will also allow the channel to stay lucrative enough to attract investment and growth. This will also improve ‘reach’ of this channel in the growing economy of India.Further, without inventory in the channel blocking visibility and working capital, this agile supply chain can allow companies to respond smoothly to emerging demand patterns in the market- i.e. prevent stock-outs and excesses, and ensure quick responses to pricing changes.The model (as discussed so far) would address a significant part of the problem. The small stores, however, will continue to grapple with the challenge of offering variety to satisfy the evolving tastes of consumers. But this can be addressed, too. Most Kiranas a have a fair grasp of their catchment’s tastes, but are generally prevented from expanding variety due to inadequate capital and space. Since, the retailer’s capital will now only be engaged in small lots of a relevant range; with the freed up capital he can expand variety as and when he sees fit. The brand company can also prompt trial by offering information on consumption and demand patterns gathered from other retailers in the area.To further augment the variety visible to shoppers, retailers can use an instore display unit (can be a simple e-tablet) which showcases the much higher range available at the distributor and other retailers in the area. The displayed items can be customized to individual shoppers based on previous purchasing patterns and can be used to show products most relevant to the customer. The customer can make his choice and then, if unwilling to wait for the retailer to source it normally, can opt for the products to be couriered to him directly from the distributor or delivered by another retail partner. A margin sharing agreement can make this a win-win arrangement for all concerned parties.ConclusionThe biggest challenge in implementing this new way of distribution will, of course, be to ensure that all stakeholders come on board and are on the same page. This is a matter of changing mindsets and current paradigms, not about government regulation and policies. Moreover, irrespective of regulations, as long as funds are plentiful and making profit is not an objective, online retailers will continue to adapt. It would be more purposeful for industry bodies like Retailers’ Association of India, All India Manufacturers’ Organization, Confederation of Indian Industry etc. to champion the cause of the livelihood of millions of small retailers and traders. If all companies can agree to play by the right rules, the traditional retail channel can co-exist with online retailers ensuring better competitive practices in the marketplace.i <a href="https://economictimes.indiatimes.com/news/economy/policy/government-tighten-norms-for-e-commerce-companies-for-sale-of-products/articleshow/67258251.cms">https://economictimes.indiatimes.com/news/economy/policy/government-tighten-norms-for-e-commerce-companies-for-sale-of-products/articleshow/67258251.cms</a>&nbsp; ii <a href="https://economictimes.indiatimes.com/articleshow/68288868.cms?utm_source=contentofinterest&amp;utm_medium=text&amp;utm_campaign=cppst">https://economictimes.indiatimes.com/articleshow/68288868.cms?utm_source=contentofinterest&amp;utm_medium=text&amp;utm_campaign=cppst</a>&nbsp;

Can traditional retailers survive the e-commerce onslaught? A replenishment-based distribution system can help consumer goods companies protect their traditional channel from being decimated by e-commerce.

Battle for India’s retail market: Who will rescue traditional stores from online retailers?

After intense lobbying by groups representing millions of India’s small traders and shopkeepers who say online retailers have threatened their businesses, the government has established many regulations to stem the tide of e-commerce in the country. These new policiesi restrict the sale of products via companies in which e-commerce firms have an equity interest and disallow giants such as Amazon.com Inc. and Walmart-owned Flip kart from pressuring sellers to sell exclusively on their platforms. These policies also demand that companies store data locally and put a cap on the prices of selected items. These steps, however, are unlikely to slow online retailing in the country. On the contrary, as compared to physical store retailers, the growth of online retailers is likely to continue at the same rapid pace. Their source of competitive advantage is a devastating combination of inherent strengths and a unique business model.&nbsp;Advantage of accessibility (reach)Over half a billion people in India are using the Internet. Most are doing so using smart phonesii. Riding the wave of this expanding Internet infrastructure and increasing smartphone penetration, online retailers have conquered new frontiers, especially in Tier 2 and 3 cities where consumers have little access to major brands.&nbsp;Advantage of space management (variety)Unlike store retailers, who are always constrained for space, these virtual entities enjoy access to unlimited shelf space where they can display an almost endless variety.&nbsp;Advantage of inventory management (costs)At the same time, the online model also allows overheads and inventory costs to be kept low. Physical retail chains tend to have inventory distributed in the entire sequential multi-tier structure – manufacturer, centralised warehouse, regional distribution centres and physical stores. Online retailers have done away with this multi-echelon distribution model and ship items directly from a warehouse to the customer. This means that they do not have to maintain these facilities, especially the stores. Moreover, servicing from an aggregated location means that unlike physical stores, they do not have to contend with the problem of mismatched stock (what is demanded vs. what is available) at every downstream node in the chain.Advantage of agile demand feedback (response to market dynamics)To ensure that they have the right inventory, online retailers also leverage an in-depth understanding of real-time demand data. For example, Ratatouille, an artificial intelligence-based software, helps Myntra predict which designs will be top-sellers. This has helped them go beyond fast fashion to ‘intelligent’ fashion and swiftly offer designs based on the hottest trends in the market.&nbsp;Advantage of Pricing Flexibility (response to market dynamics)Most physical store retailers need significant time to implement any price variation and, hence, are handicapped to impact price-demand elasticity. However, virtual stores can do it almost instantly – they can dynamically set prices according to customer activity on the website, competitors’ pricing, product availability, item preferences, and other factors.&nbsp;Advantage of Dynamic Visual Merchandising (response to in-store behaviour)They can also dynamically assimilate consumer buying behaviour to offer displays specific to a single customer. For example, when a customer researches through the catalogues of a product range on Flipkart, the search patterns are recorded, and a ‘persona’ is created for the customer so that when he returns to the website, the searching time is drastically reduced by showing the most relevant products that the customer would be interested in buying – it is like changing the visual merchandising of a store (VM) for every visitor!&nbsp;Business Model AdvantageThese advantages are further strengthened by the online retailers’ very mode of operations – most are able to patiently absorb sustained losses for a long period of time while aggressively pursuing top-line growth.&nbsp;Traditional retail channel v/s E-Commerce&nbsp;The biggest competition for these online retailers is the traditional channel in the country. Currently, this traditional channel accounts for well over 90% of the business for most consumer goods companies. Kirana's and independent traders (wholesalers, dealers, and distributors) flourish in every nook and cranny of the country; this sector is one of the biggest sources of revenue and employment in the Indian economy. Therefore, it is important to evaluate how this channel stacks up in comparison to e-commerce players along the above discussed factors.&nbsp;Despite the advent of organized physical store retailing in India towards the end of the last century, traditional retail continued to thrive. Wholesalers in this channel are so efficient that they often earn 15-50% ROI in spite of the wafer-thin margins of 2-3% that they accrue. This is a feat not many in modern trade have been able to consistently replicate! But as e-commerce becomes more popular, this channel is bracing for a different kind of challenge. As indicated by the table below (table 1), the online model enjoys much better efficiency levels. The only chink in the armour of these apparently unassailable retailers seems to be their inability to let customers physically interact and evaluate the product before purchase and also their inability to instantly deliver the goods.&nbsp;E-tailers are working on these by creating a few physical stores, giving free or speedier delivery options, using liberal return policies, offering the choice to ‘try before you buy’, etc. Moreover, in time, e-commerce can potentially exceed the reach of traditional retailers. Thus, a significant shift of market share to online retailers looks inevitable. Many predict that traditional stores will slowly but surely be wiped out.<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//vector-cg-article-7-battle-for-indias-retail-market-n_1712571362.png" width="1000" height="1000"></figure>The fall out – Future market dynamicsThis impending decline of the traditional channel is bad news not only for the millions of small stores and traders in the traditional channel but also for consumer goods companies. As dominant online retailers emerge, the market dynamics for consumer goods companies will completely turn on its head.&nbsp;Today, in India, consumer goods companies hold sway, unlike in countries like the U.S., where negotiating power is either with big box retailers like Walmart or online companies like Amazon. Companies here sell to hundred-odd distributors, and they, in turn, cater to thousands of retailers; there is no single entity in this chain with enough clout to negotiate for more favourable terms. Even the largest organized food and grocery retailers in the country typically have only ~14% gross margin. Internationally, many retailers command a far higher margin.&nbsp;But with the rise in volumes being sold through them, online retailers have already started increasing their influence on Indian suppliers. Unchecked, in time, India too will likely move to a scenario similar to that experienced in more advanced nations - where suppliers to the few dominant retailers, experience a relentless downward pressure on prices.&nbsp;Clearly, it is in the best interest of consumer goods companies to protect the endangered traditional channel. But the question is how?Saving traditional retailThe most crucial issue for this channel is its tendency to be bulky, sluggish and unresponsive to market changes (refer table 1). What’s worse is that this channel is completely opaque; once merchandise enters it through a primary sale, its movement is invisible! Consumer goods companies that use this channel suffer from the following issues:&nbsp;Inability to understand the timing of demand&nbsp;– Since there is always a huge amount of inventory in the channel, it delays the demand information flow to the brand owners. The month-end sales skew, and the intermittent bullwhip effect created by schemes, only serve to bury this information further.&nbsp;Inability to gauge true demand– Frequent instances of stock-outs at the point of sale make it impossible to gauge the potential demand for products.&nbsp;Inability to pinpoint the location of demand- When there is excess inventory in the system, it also becomes very difficult for new products to find shelf space at retailers. Retailers are far more concerned with selling the ageing inventory (before it becomes unsellable). Without a fair chance to fight for customers’ attention, many new products die undeserved and premature deaths.&nbsp;Inability to gauge true demand for a new productWhen there is excess inventory is the system, it also becomes very difficult for new products to find shelf space at retailers. Retailers are far more concerned with selling the aging inventory (before it becomes unsellable). Without a fair chance to fight for customers’ attention, many new products die undeserved and premature deaths.The good news is that this can change if this channel can offer better visibility and become more responsive to demand. This will significantly mitigate all the other problems, too- i.e. a more agile inventory management system can ensure better availability of products at lower inventory levels.Implementing an IT system at millions of retailers is impractical; it is a gargantuan task unlikely to be accomplished in the near term. Moreover, the problem in the channel cannot be solved by an IT system; the issue is far more fundamental. Most problems in this channel stem from the fact that products are pushed down the distribution channel by companies based on forecasts, causing rampant mismatch of inventory at different levels. Sales targets, discounts, and scheme-based inventory movement create irrelevant inventory and aggravate the mismatches.&nbsp;Evidently, a HUGE contributor to the apathy in this channel is the prevailing distribution practices of consumer goods companies. If they change these practices, they can help protect millions of small shopkeepers and themselves.Building visibility and agility in the traditional channelThis means that the current push sales method of inventory movement has to be eliminated and a mechanism of inventory movement has to be implemented such that sales at all nodes in the channel are true reflections of consumption at a lower node. Then, sales from the company to distributors will be a reflection of the sales of distributors to retailers and sales at distributors will be the reflection of market consumption from retail points. And if the company can get visibility into what is sold to each retailer (IT systems at this level already exist, though they rarely share this info), targeted initiatives can be undertaken at each individual retailer to increase sales.&nbsp;For this, companies will have to make significant changes in the way they operate. They will have to<ul><li>Move away from forecasting ‘push-based’ selling to ‘pull’ mode of inventory distribution, which ensures that the inventory levels in the entire supply chain are lean, right from suppliers to retailers.&nbsp;</li><li>Transform the current combative relationship with distributors into a collaborative one of ‘channel partnership’ which will encourage the distributors to reach out to all potential retailers (big and small) in the territory and offer frequent and reliable deliveries.&nbsp;</li><li>Shift from target/discounting-based sales strategy to a comprehensive Go-To-Market (GTM) strategy, which eliminates the practice of pushing unwanted inventory downstream and does not force partners to buy in volume while ensuring continuous growth in sales. This will also allow management to focus on enablers, actions, and metrics needed to increase and track the growth of the company’s retailer base, range enhancement, and sales patterns at each retailer.</li><li>Undertake targeted initiatives based on real demand visibility: The above steps can boost the quantum of information available to the consumer goods company. Intelligence thus available from the retail network is comparable to ‘big data’. The company can now track what is selling (or not) and from where – irrespective of whether it is a small shop in the by-lanes of Dharavi or a large retailer located in a tier IV town. This access to detailed consumption patterns, along with the capacity to quickly mitigate issues, can enable the company to gain unprecedented ability to react to vagaries of sales at retail points.&nbsp;</li></ul>Traditional retail – Standing tall next to online retailers.&nbsp;This replenishment-based distribution system is a winning model for both consumer goods companies and traditional retail outlets. Inventory levels for all parties (company, distributor, retailer) in the channel will fall, inventory can turn faster, and profitability will improve. This will not only offset the inventory cost advantage of online retailers but will also allow the channel to stay lucrative enough to attract investment and growth. This will also improve ‘reach’ of this channel in the growing economy of India.&nbsp;Further, without inventory in the channel blocking visibility and working capital, this agile supply chain can allow companies to respond smoothly to emerging demand patterns in the market- i.e. prevent stock-outs and excesses and ensure quick responses to pricing changes.&nbsp;The model (as discussed so far) would address a significant part of the problem. The small stores, however, will continue to grapple with the challenge of offering variety to satisfy the evolving tastes of consumers. But this can be addressed, too. Most Kiranas have a fair grasp of their catchment’s tastes, but are generally prevented from expanding variety due to inadequate capital and space. Since the retailer’s capital will now only be engaged in small lots of a relevant range, with the freed-up capital he can expand variety as and when he sees fit. The brand company can also prompt trials by offering information on consumption and demand patterns gathered from other retailers in the area.&nbsp;To further augment the variety visible to shoppers, retailers can use an in-store display unit (can be a simple e-tablet) which showcases the much higher range available at the distributor and other retailers in the area. The displayed items can be customized to individual shoppers based on previous purchasing patterns and can be used to show products most relevant to the customer. The customer can make his choice and then, if unwilling to wait for the retailer to source it normally, can opt for the products to be couriered to him directly from the distributor or delivered by another retail partner. A margin-sharing agreement can make this a win-win arrangement for all concerned parties.&nbsp;ConclusionThe biggest challenge in implementing this new way of distribution will, of course, be to ensure that all stakeholders come on board and are on the same page. This is a matter of changing mindsets and current paradigms, not about government regulation and policies. Moreover, irrespective of regulations, as long as funds are plentiful and making profits is not an objective, online retailers will continue to adapt. It would be more purposeful for industry bodies like Retailers’ Association of India, All India Manufacturers’ Organization, Confederation of Indian Industry etc., to champion the cause of the livelihood of millions of small retailers and traders. If all companies can agree to play by the right rules, the traditional retail channel can co-exist with online retailers, ensuring better competitive practices in the marketplace.&nbsp;i <a href="https://economictimes.indiatimes.com/news/economy/policy/government-tighten-norms-for-e-commerce-companies-for-sale-of-products/articleshow/67258251.cms">https://economictimes.indiatimes.com/news/economy/policy/government-tighten-norms-for-e-commerce-companies-for-sale-of-products/articleshow/67258251.cms</a>&nbsp; ii <a href="https://economictimes.indiatimes.com/articleshow/68288868.cms?utm_source=contentofinterest&amp;utm_medium=text&amp;utm_campaign=cppst">https://economictimes.indiatimes.com/articleshow/68288868.cms?utm_source=contentofinterest&amp;utm_medium=text&amp;utm_campaign=cppst</a>&nbsp;

Consumer goods companies can save traditional retailers from the threat of online retailers. Know how.

Battle For India’s Retail Market: Who Will Rescue Traditional Stores from Online Retailers? | Vector Consulting Group

Can pharmaceutical giants address their unique operational challenges to help them be more flexible on the shop floor, discover hidden capacity, significantly increase output and respond quickly to changing market demands? They can, with a unique 'pull' based approach.

Accelerated pharma manufacturing

Pharmaceutical plants can discover hidden capacity, significantly increase output and respond quickly to market demand. Find out how

Accelerated Pharma Manufacturing | Vector Consulting Group

COVID pandemic: A bolt from the blueWith COVID-19, many organizations are experiencing the impact of a pandemic for the first time in their lifetime. Most were unprepared to deal with a disruption of this scale. Economic activity in the country took a severe beating when a complete lockdown was enforced to contain the spread of the COVID-19 virus. Organizations suffered severely; their sales have fallen off the cliff.&nbsp;Viruses can never be completely eliminated from any country with a single lockdown. This means that, even when the complete lockdown is lifted, and some territories have been selectively opened up based on the number of Covid cases in these areas, the areas open for business are not likely to remain stable. It is very likely that new cases of Covid infection will re-emerge in different areas from time to time, leading to fresh bouts of localized lockdowns. This will likely go on until a vaccine for &nbsp;COVID-19 can be administered to the entire population.&nbsp;Are we being pessimistic?Going by past records of our struggle with and triumph over infectious diseases, we can confidently assume that a vaccine or a treatment for COVID-19 is sure to be invented, thus relegating the disease to the same status as that of a common flu, which passes without triggering a pandemic.&nbsp;Should organizations forget this episode as one of its kind?Nevertheless, organizations can learn from this pandemic and prepare for any similar crises that can befall us. There are countless zoonotic viruses out there in nature with the potential to create havoc for the world populace and economy. It might serve organizations to become pandemic-resistant. This means that organizations need to be ready to exist and thrive in environments where lockdowns are dynamically imposed across territory.&nbsp;Why we claim current practices of consumer goods companies are not pandemic-resistant&nbsp;Most organizations follow a process of forecasting and a push-based monthly planning system for manufacturing, procurement, and distribution. The horizon of planning can vary from one month to even six months, depending on the lead time of the entire delivery system. Since forecasting errors are inevitable, and there is a need to provide stability to procurement and production, many organizations grudgingly try to fix the schedule to a smaller part of the entire planning horizon, extending to a month or more, depending on the type of environment.&nbsp;The errors in forecasting in the fixed horizon lead to stock-outs, wrong placement of inventory and continuous expediting, along with a month-end skew in dispatches.&nbsp;Organizations have learned to live with this phenomenon because many others in their industry follow similar practices and suffer from the same problems. Being in a herd, at times, gives the courage to stay in the status quo.&nbsp;However, the same practices which force companies to fix production and distribution plans for at least a month can cause more havoc in an environment of dynamically shifting lockdowns.&nbsp;<ul><li>Inventory turns will deteriorate drastically when some locations come under lockdown. At times, inventory turns can become half based on the period of lockdown and sluggish sales in the aftermath.&nbsp;</li><li>Extended lockdowns, such as the ongoing one in the country, can lead some distributors into a severe liquidity crisis. If they are short of cash and end up in credit locks, they may not be able to restart business immediately after lockdown. In turn, this can lead to a gridlock, which prevents them from getting more supplies, leading to eventual loss of sales for the parent company.&nbsp;</li></ul><figure class="image"><img style="aspect-ratio:400/400;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//1_1711626386.png" width="400" height="400"></figure><ul><li>The capacity of the sales team in lockdown areas is also likely to be lost as they are unable to meet customers. Others cannot be pressed into service to take this up because salespeople are traditionally allocated fixed geographies. Moreover, in an environment of uncertainty and travel restrictions, they would be struggling to cover their own geographies and would not be in a position to take on the extra load.&nbsp;</li><li>Suppliers clustered in an area under lockdown can disrupt production. They can also cause delays in ramp-up after the lifting of the lockdown due to working capital woes.&nbsp;</li></ul>The impact of the above will be a double whammy of deteriorating working capital turns and a significant loss of sales.&nbsp;Only those companies who have developed systems designed for agility to react to uncertainties created by dynamic lockdowns (disruption) and changing demand patterns across geographies will survive and gain market share in this environment.Potential problems with the current way of managing sales in the post-lockdown situation:&nbsp;<ul><li>High risk of losing sales from areas where the assigned salespeople are unable to visit or refuse to visit (out of fear of infection)&nbsp;</li><li>Drop in sales productivity by as much as 75% due to restrictions in the amount of time markets stay open&nbsp;</li><li>Compromised range selling since each visit has to be short, if more retailers have to be visited in a limited time&nbsp;</li><li>Broken rhythm of weekly beat – order collection and dispatch due to limited time/manpower to visit the market&nbsp;</li><li>Significant crippling of indirect distribution since retailers have no time/are unable to go and purchase from wholesalers&nbsp;</li></ul>This means shortening the decision horizon of following decisions&nbsp;<ul><li>What to produce?&nbsp;</li><li>How much to produce?&nbsp;</li><li>Where to send the inventory?&nbsp;</li><li>How much to send?&nbsp;</li></ul>The shorter the horizon for planning, the fewer the forecasting errors. So, ideally, for maximum flexibility, the horizon for these decisions should be reduced to a single day. (A monthly plan for planning overall RM and capacity coverage can continue). This will allow production and inventory management to react seamlessly to emerging scenarios of dynamic lockdowns.&nbsp;Similarly, a company should be able to divert sales efforts to areas where opportunities exist in the very short horizon without getting bogged down by the traditional geography-linked organization structures.&nbsp;Direction of Solution- Flexibility leading to Agility1. Flexibility in planningCompanies have to shift into a process of daily planning based on daily consumption signals from the recipient node(s) in the system. The TOC methodology of ‘Pull-Manufacturing’, ‘<a href="https://new-stage.vectorconsulting.in/en/research-and-publication/articles/rally-with-your-allies/">Pull-Procurement</a>’ and ‘<a href="https://new-stage.vectorconsulting.in/en/research-and-publication/articles/managing-distribution-chain-is-there-a-better-way-than-gazing-the-crystal-ball/">Pull-Distribution</a>’ enables companies to react to daily variability without losing out on efficiencies.&nbsp;Companies that have moved to this way of planning have low committed positions in inventory in all downstream nodes with the ability to swiftly resupply any demand in each area. Hence, they will be able to transition to normalcy fast while their counterparts struggle with supplies.&nbsp;<figure class="image"><img style="aspect-ratio:400/400;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//2_1711626659.png" width="400" height="400"></figure>2. Flexibility in manufacturing and suppliesWith daily dynamic planning systems, plants will have higher flexibility. However, it is also important for companies with multiple plants to move away from the practice of dedicating plants to specific sets of products and make products across the various plants to reduce risk. Otherwise, if a particular plant becomes part of a lockdown area, products of this plant will quickly become unavailable in the market. Making products across the various plants implies that entire change-over times need to be reduced to ensure that plants maintain similar levels of efficiency despite adding more variety.&nbsp;Single product facilities:<figure class="image"><img style="aspect-ratio:400/400;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//3_1711714812.png" width="400" height="400"></figure>Multi-product facilities:&nbsp;Reduce risk of market unavailability of products by having multi-product facilities.&nbsp;When suppliers also move into a system of daily pull-based manufacturing, they will have low levels of inventory, and at the same time, they will rapidly adjust to changing demand patterns. Low inventory levels also allow suppliers to operate with low working capital (almost half of a monthly planning system), which in turn allows them to bounce back after lockdown much faster than others.&nbsp;3. Flexibility in distributionThe idea of having an aggregated hub and distributed spoke model of distribution has been accepted by most companies in this GST era. Companies have started consolidating warehouses with that model in mind. However, having a single physical hub warehouse can be a risky idea if the area goes into a lockdown. Hence, companies need to have multiple hub locations with the ability to behave as a single virtual hub.&nbsp;Single aggregated hub:<figure class="image"><img style="aspect-ratio:400/400;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//4_1711627122.png" width="400" height="400"></figure>The distribution to downstream locations should follow the pull model of consumption-based inventory movement to minimize the risk of large inventory moving out and piling up at any location downstream. It is also important to distance the warehouses from the plants to ensure that even if the plant goes under lockdown, the warehouses can continue to supply from their buffers. And if a warehouse goes under lockdown, the plant can redirect its stock to other warehouses. Warehouses should not be in close proximity to densely populated areas.Multiple hub locations with pull model of inventory movement:<figure class="image"><img style="aspect-ratio:400/400;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//5_1711627208.png" width="400" height="400"></figure>4. Flexibility in SalesCompanies depending on physical 'beat plans' for order taking will have a big issue. With social distancing and limited capacity due to travel and market opening restrictions, the ability to physically collect orders shall be severely jeopardized. Hence, it is imperative to set up a system of centralized, yet distributed, order-taking on phone calls. This not only enables a greater reach of sales force, but the model also de-risks the vagaries due to physical order taking. Since a tele-order representative can touch three to four times the number of retailers compared to an on-field foot soldier, it will free up sales manpower for the distributors. The remaining sales team of distributors and the company can focus on physical visits to expand ‘reach’ or to solve the problems of retailers who are not placing orders frequently.&nbsp;Companies who have moved on to this model prior to the current COVID crisis, have not only expanded their sales reach but are also now ready to operate seamlessly in an environment of dynamic lockdown. The other advantages of this model are a ‘direct connect’ with retailers and the ability to derive data-driven insights thanks to the availability of retail point data from even the smallest mom –and-pop store. Further, unlike the rigid traditional sales structure, these companies have the flexibility to immediately shift the calling location without any problem as and when needed.&nbsp;<figure class="image"><img style="aspect-ratio:400/400;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//6_1711627246.png" width="400" height="400"></figure>Advantages of shifting to phone calls instead of physical visits for order-taking from customers5. Flexibility in physical branch officesIn such a sales environment, do companies really need a branch office? The current COVID triggered lockdown has proven that most of the discussions and review work can now be done over virtual platforms. The work of local logistics and documentation in the branch can also be easily moved to a centralized back office, making the physical branch office redundant. Moving all back-office work to a central location also allows one to share the workload across branch offices and proves more robust and cost-effective.<figure class="image"><img style="aspect-ratio:400/400;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//7_1711627274.png" width="400" height="400"></figure>6. Flexibility in sales channelsCompanies need to re-think models of selling. While physical stores will continue to exist, many buyers might choose to move to e-commerce modes if there are too many hassles of social distancing at the retail point. It is important for companies to build/collaborate with hyperlocal e-commerce platforms where customers have the ability to view inventory in the nearest location and place orders over an app. This will allow companies to provide products through any channel the customer chooses without undue dependence on the e-commerce marketplace.&nbsp;<figure class="image"><img style="aspect-ratio:400/400;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//8_1711714837.png" width="400" height="400"></figure>Flexibility on these six levels will enable organizations to respond rapidly to a market that is dynamic, especially during a pandemic.&nbsp;

This article explores why current manufacturing and distribution practices are pandemic-vulnerable and proposes a transformative approach centred around daily planning, flexible manufacturing, distribution, sales, and physical operations. By adopting agility-oriented strategies, companies can navigate uncertainties effectively, ensuring resilience and market share growth in the evolving landscape shaped by the pandemic.

Pandemic-resistant manufacturing and distribution

Some lessons from the disruption caused by Covid-19 and how organizations can avoid anything similar in the future. Read to know more.

Pandemic-resistant Manufacturing and Distribution | Vector Consulting Group

BA Read More

API manufacturing in India is less attractive than in China. However, by enhancing operational excellence in manufacturing and R&D, India's API industry can unleash its true potential.

Mighty molecules: Strategies for reclaiming the global API throne

Mighty Molecules

“If a factory is torn down, but the rationality that produced it is left standing, then that rationality will simply produce another factory.” Robert Pirsig, Zen and the art of motorcycle managementWarning letters and their impactAn analysis of the number of warning letters issued by USFDA over the yearsi to pharmaceutical companies across the globe has been increasing over the years.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-1_1715836065.png" width="4500" height="4500"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Number-of-FDA-warning-letters.png" alt="">In the warning letter, FDA makes it clear that the concerned company must correct the problem and provide directions and a timeframe for the company to inform the FDA of their plans for correction. Failure to address the FDA’s concerns can lead to enforcement actions that have significant repercussions as well as product liability exposure. Therefore when a warning letter is received, company employees, especially senior management (who are already very busy), scramble to address it in the stipulated time frame.It is estimated that a single warning letter leads to a loss of approx. 900 man-hours across the hierarchy. This increases exponentially if there are multiple warning letters received simultaneously. It has to be noted that this will be at the cost of progress on their routine, ongoing tasks.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-2_1715836091.png" width="4500" height="4500"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Estimation-of-time-needed-to-address-a-single-warning-letter.png" alt="">After this marathon, the remediation procedures that FDA expects companies to implement can be even more expensive than complying in the first place. Moreover, there are long-term repercussions in terms of loss of credibility with regulators - not just the FDA but also other global regulators, leading to increased scrutiny and more inspections. In case of repeat offenders, they often have to pay hefty fines and sign a consent decree of permanent injunction that will bind them to be compliant in perpetuity. All this can impact the company’s business/financial performance, affect company valuations, and reduce the overall reputation.The problemThe major reasons for FDA warning letters are not unknown. About 50% of FDA warning letters pinpoint CAPA (corrective action and preventive action) failuresii. CAPA failures also show up year after year in these warning letters. Most of these CAPA failures are also clearly indicated by the FDA as a failure of root cause analysis.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-3-01-01-01-01_1716452582.png" width="4500" height="4500"></figure>What does not work wellSo, over the years, pharma labs have been using multiple techniques to identify the root cause so that they can take the necessary actions to improve their quality performance. The popular techniques employed include 5-Whys, Fishbone diagrams, Pareto chart, Failure Mode and Effect Analysis (FMEA), decision trees, and brainstorming.A significant chunk of the results of these analyses tends to point to human or analyst error (~40-55%). Therefore, some of the typical actions companies have taken are adopting digital systems for reducing documentation error, putting in next-generation analytical testing technology, automation of few of the quality processes, increasing the level of supervision in the lab, increase in the training of analysts and addition of resources to reduce the load on the system.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-4_1715836178.png" width="4500" height="4500"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Typical-results-of-analysis-of-sources-of-error.png" alt="">However, experience has shown many of these companies that these steps (always quite expensive in terms of time or money or both), while offering some improvement, do not help sustain high-quality standards consistently. After a while, any improvement that accrued stagnates or even more perplexingly, when something improves, something else seems to deteriorate. Moreover, FDA has increasingly been criticizing the finding of ‘human error’ as the conclusion of root cause analysis as limited or shallow and has been urging companies to take a deeper look.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-5-01-01-01-01_1716452608.png" width="4500" height="4500"></figure>The real root cause: Cognitive overload<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-6_1715836239.png" width="4500" height="4500"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/The-real-root-casue-cognitive-overload.png" alt="">A closer study of the testing environment in pharma companies will indicate that the analysts are often under a situation of significant ‘cognitive overload’. The analysts have the responsibility to<ul><li>conduct all activities of assigned tests as per the TDS (test data sheet) - i.e. collect glassware and documents, arrange for chemicals and reagents, ensure the validity of all solutions prepared till tests are complete, select appropriate equipment (e.g., column), manage instruments, etc.</li><li>generate an audit trail for which they also have to record the equipment used.</li><li>concurrently record various observations in TDS and maintain a separate checklist to ensure no steps are missed.</li></ul>Skips and misses: All this the analysts have to manage in an eight-hour shift by switching between various stages of testing (instrument setting/monitoring, solution preparation, mobile phase, collecting glassware, checking/arranging resources, etc.) and by trying to take advantage of the natural waiting time in some of these stages. Unfortunately, the human brain finds such a balancing act and this level of multi-tasking very difficult to manage. Therefore, occurrences of inadvertent skips and misses became inevitable.Systemic error masked as human error: In addition to such human errors, testing environments also tend to have systemic errors due to<ul><li>missing information in the SOPs set or because of inadequately documented SOPs.</li><li>a process gap or due to a gap in the testing method</li></ul>However, when faced with a melee of different kinds of problems cropping up daily, it is difficult for managers to correctly infer and assign real causality for these errors. So, in this confusion, even systemic errors are mistaken for human error. This inevitably leads to frequent-finger pointing, stress and inability to take timely corrective actions.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-7-01-01-01-01_1716452634.png" width="4500" height="4500"></figure>Direction of solution:Based on these insights, it is obvious that the only option is to first address the cognitive overload in the system to bring down real manual errors to minimal levels. Then the systemic errors due to incorrect methods followed, unclear procedures, etc., will become visible, and actions can be taken to rectify them.While this logic is unrefutably simple, implementing a system-wide, counterintuitive solution that can significantly bring down the cognitive load on analysts without loss of overall productivity is obviously a huge challenge. The key to this is to release capacity by identifying and eliminating significant wastages in the activities of the analysts. Research by Vector has shown that the level of analyst capacity wastage can be as high as 40% in a typical pharma lab.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-8-01-01-01-01_1716452657.png" width="4500" height="4500"></figure>The ‘flow’ focussed solutions that Vector implements for eliminating these wastages and for releasing capacity serve a dual purpose. On the one hand it enables the released capacity to be used for controlling the loading of analysts, and on the other, it will re-set the quality practices of the company to a much higher level of rigour. For instance, improving the STPs (Standard Testing Procedures) by detailing them more thoroughly to remove elements of subjectivity can ensure that a large number of systematic errors are eliminated.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-9_1715836355.png" width="4500" height="4500"></figure>A few pioneering companies have implemented this new approach. Within a few months, they could significantly reduce invalid OOS and bring down lab incidents! Some salient details of the results of the implementation achieved with a major multi-national pharma company’s labs in a year are as below:<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-10_1715836375.png" width="4500" height="4500"></figure>If more companies address cognitive overload, which is the true root cause of their quality issues, it can bring down quality-related inconsistencies and keep companies ‘inspection ready’ at all times. With that, one is sure to see a dramatic dip in the warning letters FDA has to issue.i<a href="https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/compliance-actions-and-activities/warning-letters">https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/compliance-actions-and-activities/warning-letters</a> ii<a href="https://www.taproot.com/fda-warning-letters-capa-and-root-cause-analysis/">https://www.taproot.com/fda-warning-letters-capa-and-root-cause-analysis/</a> iii<a href="https://www.ipa-india.org/wp-content/themes/ipa/pdf/6f.pdf">https://www.ipa-india.org/wp-content/themes/ipa/pdf/6f.pdf</a>

Many generic pharma companies continue to struggle with high levels of invalid OOS and lab incidents, making them vulnerable to adverse observations from the US FDA. Often, 'analyst error' is cited as the reason, but the real reason is something else.

Getting to the true root of lab quality problems

“If a factory is torn down, but the rationality that produced it is left standing, then that rationality will simply produce another factory.” Robert Pirsig, Zen and the art of motorcycle managementWarning letters and their impactAn analysis of the number of warning letters issued by USFDA over the yearsi to pharmaceutical companies across the globe has been increasing over the years.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-1_1715836065.png" width="4500" height="4500"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Number-of-FDA-warning-letters.png" alt="">In the warning letter, FDA makes it clear that the concerned company must correct the problem and provide directions and a timeframe for the company to inform the FDA of their plans for correction. Failure to address the FDA’s concerns can lead to enforcement actions that have significant repercussions as well as product liability exposure. Therefore when a warning letter is received, company employees, especially senior management (who are already very busy), scramble to address it in the stipulated time frame.It is estimated that a single warning letter leads to a loss of approx. 900 man-hours across the hierarchy. This increases exponentially if there are multiple warning letters received simultaneously. It has to be noted that this will be at the cost of progress on their routine, ongoing tasks.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-2_1715836091.png" width="4500" height="4500"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Estimation-of-time-needed-to-address-a-single-warning-letter.png" alt="">After this marathon, the remediation procedures that FDA expects companies to implement can be even more expensive than complying in the first place. Moreover, there are long-term repercussions in terms of loss of credibility with regulators - not just the FDA but also other global regulators, leading to increased scrutiny and more inspections. In case of repeat offenders, they often have to pay hefty fines and sign a consent decree of permanent injunction that will bind them to be compliant in perpetuity. All this can impact the company’s business/financial performance, affect company valuations, and reduce the overall reputation.The problemThe major reasons for FDA warning letters are not unknown. About 50% of FDA warning letters pinpoint CAPA (corrective action and preventive action) failuresii. CAPA failures also show up year after year in these warning letters. Most of these CAPA failures are also clearly indicated by the FDA as a failure of root cause analysis.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-3-01-01-01-01_1716452582.png" width="4500" height="4500"></figure>What does not work wellSo, over the years, pharma labs have been using multiple techniques to identify the root cause so that they can take the necessary actions to improve their quality performance. The popular techniques employed include 5-Whys, Fishbone diagrams, Pareto chart, Failure Mode and Effect Analysis (FMEA), decision trees, and brainstorming.A significant chunk of the results of these analyses tends to point to human or analyst error (~40-55%). Therefore, some of the typical actions companies have taken are adopting digital systems for reducing documentation error, putting in next-generation analytical testing technology, automation of few of the quality processes, increasing the level of supervision in the lab, increase in the training of analysts and addition of resources to reduce the load on the system.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-4_1715836178.png" width="4500" height="4500"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Typical-results-of-analysis-of-sources-of-error.png" alt="">However, experience has shown many of these companies that these steps (always quite expensive in terms of time or money or both), while offering some improvement, do not help sustain high-quality standards consistently. After a while, any improvement that accrued stagnates or even more perplexingly, when something improves, something else seems to deteriorate. Moreover, FDA has increasingly been criticizing the finding of ‘human error’ as the conclusion of root cause analysis as limited or shallow and has been urging companies to take a deeper look.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-5-01-01-01-01_1716452608.png" width="4500" height="4500"></figure>The real root cause: Cognitive overload<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-6_1715836239.png" width="4500" height="4500"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/The-real-root-casue-cognitive-overload.png" alt="">A closer study of the testing environment in pharma companies will indicate that the analysts are often under a situation of significant ‘cognitive overload’. The analysts have the responsibility to<ul><li>conduct all activities of assigned tests as per the TDS (test data sheet) - i.e. collect glassware and documents, arrange for chemicals and reagents, ensure the validity of all solutions prepared till tests are complete, select appropriate equipment (e.g., column), manage instruments, etc.</li><li>generate an audit trail for which they also have to record the equipment used.</li><li>concurrently record various observations in TDS and maintain a separate checklist to ensure no steps are missed.</li></ul>Skips and misses: All this the analysts have to manage in an eight-hour shift by switching between various stages of testing (instrument setting/monitoring, solution preparation, mobile phase, collecting glassware, checking/arranging resources, etc.) and by trying to take advantage of the natural waiting time in some of these stages. Unfortunately, the human brain finds such a balancing act and this level of multi-tasking very difficult to manage. Therefore, occurrences of inadvertent skips and misses became inevitable.Systemic error masked as human error: In addition to such human errors, testing environments also tend to have systemic errors due to<ul><li>missing information in the SOPs set or because of inadequately documented SOPs.</li><li>a process gap or due to a gap in the testing method</li></ul>However, when faced with a melee of different kinds of problems cropping up daily, it is difficult for managers to correctly infer and assign real causality for these errors. So, in this confusion, even systemic errors are mistaken for human error. This inevitably leads to frequent-finger pointing, stress and inability to take timely corrective actions.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-7-01-01-01-01_1716452634.png" width="4500" height="4500"></figure>Direction of solution:Based on these insights, it is obvious that the only option is to first address the cognitive overload in the system to bring down real manual errors to minimal levels. Then the systemic errors due to incorrect methods followed, unclear procedures, etc., will become visible, and actions can be taken to rectify them.While this logic is unrefutably simple, implementing a system-wide, counterintuitive solution that can significantly bring down the cognitive load on analysts without loss of overall productivity is obviously a huge challenge. The key to this is to release capacity by identifying and eliminating significant wastages in the activities of the analysts. Research by Vector has shown that the level of analyst capacity wastage can be as high as 40% in a typical pharma lab.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-8-01-01-01-01_1716452657.png" width="4500" height="4500"></figure>The ‘flow’ focussed solutions that Vector implements for eliminating these wastages and for releasing capacity serve a dual purpose. On the one hand it enables the released capacity to be used for controlling the loading of analysts, and on the other, it will re-set the quality practices of the company to a much higher level of rigour. For instance, improving the STPs (Standard Testing Procedures) by detailing them more thoroughly to remove elements of subjectivity can ensure that a large number of systematic errors are eliminated.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-9_1715836355.png" width="4500" height="4500"></figure>A few pioneering companies have implemented this new approach. Within a few months, they could significantly reduce invalid OOS and bring down lab incidents! Some salient details of the results of the implementation achieved with a major multi-national pharma company’s labs in a year are as below:<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-10_1715836375.png" width="4500" height="4500"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Parameter-and-improvement.png" alt="">If more companies address cognitive overload, which is the true root cause of their quality issues, it can bring down quality-related inconsistencies and keep companies ‘inspection ready’ at all times. With that, one is sure to see a dramatic dip in the warning letters FDA has to issue.i<a href="https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/compliance-actions-and-activities/warning-letters">https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/compliance-actions-and-activities/warning-letters</a> ii<a href="https://www.taproot.com/fda-warning-letters-capa-and-root-cause-analysis/">https://www.taproot.com/fda-warning-letters-capa-and-root-cause-analysis/</a> iii<a href="https://www.ipa-india.org/wp-content/themes/ipa/pdf/6f.pdf">https://www.ipa-india.org/wp-content/themes/ipa/pdf/6f.pdf</a>

How can Indian CROs reduce the number of observations and deviations observed during the studies by 40%-50% and generate the final integrated report 25%-35% faster with the same resources while protecting the quality of reports? Find out

Agile CROs can fly high

New products are vital for the growth of companies. Increased competition from other companies, changing consumer behaviour, advancements in technology, ensuring freshness of product offerings, diversification of risk, etc. are some of the reasons why new products have to be launched.In environments where market dynamics are rapidly changing, a company is considered healthy and growing only if at least 25%-30% of their overall sales is accrued from their new productsi. This is expected to be significantly higher for companies that deal with lifestyle or technology products. So, firms put in a lot of effort into understanding the market and try to continuously develop new products. However, according to research by Clayton Christensen, Harvard Business School Professor and renowned Author, there are over 30,000 new products introduced into the market every year, and 95% of them failii.\<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//1_1712575368.png" width="1000" height="1000"></figure>What is often not realized is that the success of any new product is dependent not only on its ideation and development stage, but also on the way it is launched in the market. Even a revolutionary product can fail. 75% of consumer-packaged goods and retail products fail to reach the minimum sales expectations after launch. And products that start out strong may also have trouble sustaining success.This article will examine the challenges faced by companies while launching a new product and the tactics needed to ensure that new products of a company have the best opportunity to succeed and sustain in the market.NPL – The ChallengesWhile there could be numerous reasons for products to fail (e.g. legal issues, socio-cultural mismatch, product falls short of claims, etc.), the major cause of failure, for otherwise acceptable new products, tend to be associated with the scale up or roll out.So, if we did a postmortem of a typical failed product, you are likely to see the following issues:<ul><li>Lack of visibility on the shelves at retail counters – The newly launched product is not getting the right placements (both in terms of quantum and the type of outlet). Or after having got the required placements, they are not getting the right visibility. (Note: Products are usually launched with considerable fanfare, ATL/BTL activities to support it. But even if these succeed in catching the customer attention, in most cases these customers will not go beyond their regular, known outlets to try and buy this product)</li><li>Customers could not get the product in many places: Even though the product could be placed in relevant retail outlets and made visible, it became unavailable very soon and vast majority of customers never got the chance to even see it (let alone buy it)</li><li>Delay in addressal of feedback received from the market: There were pockets of customers giving feedback about the new product/ processes, that if included could have prevented the demise of the product. However, company could not act on this in time.</li><li>Customers could not get sufficient product information: Customers did not get a chance to understand how to use the product (new category of product). Or the customers did not understand the products’ new features. This led to loss of interest from consumers.</li></ul>These indicate that if you don’t scale your supply chain quickly, become available consistently, course correct where needed and grab customer loyalty, your product is toast. Further, your competition may launch its own version and walk away with the market. But how can we ensure that these issues don’t happen during/after launch?To identify a solution, we must first understand the nature of new product launches in greater detail.What is the real issue?The most important characteristic of new products launches is that Consumer response to the new product is uncertain. Even though the product may have gone through a market research phase, reality is the only true test of consumer willingness to adopt a new product and there is no trend data available to predict potential sales.<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//2_1712575404.png" width="1000" height="1000"></figure>Because of this, companies are in perpetual dilemma when it comes to launching a new product. “Do they take a cautious approach and launch the product in a select few territories, or do they adopt the big bang strategy and launch it across all their POS?” Both have pros and cons. A smaller launch allows companies to test the trend in demand. Moreover, incorporating any changes to the product or processes without affecting the brand’s reputation is easier if the initial launch is limited. However, a big bang launch means companies can enjoy the first mover advantage in all geographies and increase all sales opportunities before competition gets an inkling.However, very often, this choice is taken out of the hands of companies. Delays in the new product development of the products, and threat of missing the appropriate timing/launch window (could be beginning of a season, a festival, etc.), result in pressure to launch the product when it is ready across as many territories as possible,. The risks of this are easily imaginable, though. Bigger the scale of launch, higher is the level of uncertainty of demand. The sales team also has to be proportionately bigger to cater to this scale of launch. With very little time available to impart proper training to the sales team, the USP of the product is not effectively communicated to the potential consumer of the product. Moreover, there is very little focus on responding to the feedback provided by the consumers. And, in this rush the supply chain is has also not been equipped to respond to demand fluctuations. This increases the possibility of product shortages in some areas where it is selling well (even though it is available in excess in other parts of the supply chain). Patchy availability of the products eventually puts off consumers. This leads to poor adoption of the product and in the company discarding the product as unpopular.Product failures creates a vicious cycle for companies, – as products fail more often than not, there is greater pressure to take up more new products for development to ensure growth of the company! So, finding a way to address these challenges and improve the typical hit ratio of product launches is imperative.<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//3_1712575424.png" width="1000" height="1000"></figure>Direction of SolutionIt is clear that reducing the extent of demand uncertainty during a new product launch will help improve its effectiveness. The best way to reduce uncertainty so as to have better control over the supply chain/sales team readiness is to launch new products in a phased manner- i.e., stagger the rollout across territories/POS.Ensuring effectiveness of new product launchesStaggering the rollout across territories/POS helps companies take the required steps to ensure effectiveness of new product launches:<ol><li>Reduces demand uncertainty by Testing the product: For this the territories and POS should be selected in such a manner that there is adequate representation, this will allow the company to check whether the product is working in those areas before a full roll out. Care also has to be taken to ensure that the product is displayed well (by defining percentage of capital and space for the new product) and there is continuous availability of the new product at the POS.</li><li>Align the supply chain in line with expected demand: This is because when the roll out is phased out:<ol><li>Manufacturing capacity can be stepped up slowly and aligned in line with the demand.</li><li>The distribution channel can ensure adequate stocks for display and repeat sales where there are more sales.</li><li>There is now even the possibility to ensure buffer capacity to manage any sudden spike in demand.</li></ol></li><li>Provide adequate training: With this approach, challenges and overheads related to training will also come down. A relatively smaller sales team to be trained before launch, and so the quality of the training improves, and one can expect improved adherence to your sales strategy, communication guidelines, etc.</li><li>Capacity to analyze and respond to the feedback: In a staggered rollout, there is enough capacity in the system to focus on and respond to the feedback provided by the early consumers for both the product and the marketing collaterals. This can help limit the exposure of the product’s issues to a small set of customers, thereby, preventing a negative perception of the new product to a wider audience. One also will have the agility to resolve these issues in a timely manner, resulting in greater customer satisfaction levels with the new product. Collecting and responding to information on marketing collaterals can help align the marketing spends as per market requirements.</li></ol>Next stepsThe learnings gained from one rollout to be transferred to the next rollout. And the sales team already trained on the product initially can be utilized to further train other teams in other territories during this scale up. Thus, the entire sales team gets trained better to effectively communicate product’s USP/features and help customers adopt the product. Moreover, since the company can implement customer feedback into the product and processes in a timely manner, the brand can quickly gain customer trust and loyalty.When more and more products are launched successfully, the pressure on NPD comes down and they can work in a more focused manner on a more considered number of new products. This will allow them to help launch products in a timely manner reducing pressure on having to take a big bang approach in new product launches.What to expect?Implement this new product launch strategy, and significant improvement in success ratio of new product launches is virtually guaranteed (at least 30% improvement in number of hits) and the company can expect ~ 50% increase in contribution of new products into overall sales. Once consistent availability of the products across all potential outlets continues to be assured find out how by clicking on this <a href="http://new-stage.vectorconsulting.in/en/research-and-publication/articles/managing-distribution-chain-is-there-a-better-way-than-gazing-the-crystal-ball/">link</a>, the product life of each new product is also expected to improve accruing more returns for the company.Referencesi) <a href="https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.590.6072&amp;rep=rep1&amp;type=pdf">CiteSeer</a>&nbsp; ii) <a href="https://www.forbes.com/sites/shamahyder/2019/10/17/how-to-launch-a-new-product-or-service-what-the-latest-research-teaches-us-about-successful-launches/?sh=7cafbe04412a">Forbes.com</a>&nbsp;

According to research, ~95% of new product launches fail. How can companies improve the success rate of their new product launches?

Acing New Product Launches

Using the Flow Model of Project management in residential real estate projects, companies can increase IRR from 17% to 21%.

Bahasa Steps to Ensure Excellent IRR in Real Estate Projects

Steps to Ensure Excellent IRR in Real Estate Projects

How to improve the Internal Rate of Return (IRR) for real estate projects?  Rapid Project Execution helps. Know more

Steps to Ensure Excellent IRR In Real Estate Projects | Vector Consulting Group

IntroductionJust-In-Time (JIT), a production philosophy pioneered by Toyota in the 1970s, it became popular with Toyota’s rapid growth and was quickly adopted globally by major OEMs during the 1980s and 1990s. The implementation of JIT by these OEMs attempted to integrate their operations with their suppliers and vehicle dealerships into a seamless supply chain.&nbsp;Implementing JITOnce JIT is implemented, a supply chain management system is expected to showcase the following characteristics/benefits:‘Pull’ based inventory movementInventory movement will be ‘just in time’ in the entire supply chain and is based on pull from the previous node or “bin availability”. For instance, when a bini signals that it needs replenishment, it initiates the movement of materials from the supplier or storage area to the production line. This movement is typically rapid and aligned with the production schedule. Forecasts will be used only for high level planning. E.g. for raw material planning but not for actual RM procurement or for planning production. The idea is that any movement of inventory before the actual need for it can generate excess inventory, and any movement later will create shortages.Frequent DeliveriesSuppliers, OEMs, and dealerships would practice frequent and small deliveries. For e.g., raw materials will be received just-in-time for production at the production line.Smooth and stable production flowA smooth and continuous production flow is expected to be seen at suppliers and OEMs without frequent stoppages or disruptions.Reduced/Stable Inventory LevelsSuppliers, OEMs, and dealerships will have very limited stock of raw materials, work-in-progress, and finished goods. These levels will stay stable – no large variability across the supply chain.Lean ManufacturingLean manufacturing principles, actively identifying and eliminating waste, focusing on value-adding activities, and optimizing processes is followed by the OEM and all suppliers.Continuous ImprovementCompanies/entities will have a culture of Kaizen (continuous improvement) and encourage employee involvement in identifying and implementing process enhancements. Actions such as standardization, quality initiatives, set-up time reduction, etc., are taken to reduce variability in the system and improve synchronization.To sum up, by emphasizing precise production and timely delivery of goods without excess inventory, JIT‘s pull mode of operations promises efficiency and reduced costs for suppliers, OEMs and Dealerships. The reports of benefits experienced by many international vehicle manufacturers in their operations attracted many large Indian OEMs to adopt JIT as well.However, even a small dipstick survey can indicate that all is not as expected.The challengesWhile most OEMs (75%) have implemented JIT practices in their processes, their supply chain partners have not been roped in JIT. This means the JIT implementation is not end to end in any Indian OEM’s supply chain. One exception seen is of an MNC OEM in India who has done a zero inventory model at dealer level, with real demand from end consumer demand triggering inventory movement. Some have also done a demand-pull replenishment for only spare parts from their OEM warehouse to dealers. However, most follow a hybrid push-pull system – i.e. of monthly/weekly forecast based ordering from dealers, scheduling monthly production requirements from suppliers with daily inventory movement to OEM plants as per demand.&nbsp;Poor stability in the supply chain – expediting and firefightingMoreover, the stability that a JIT supply chain is expected to offer is not realized. As per 90% of respondents in this survey, JIT is partially and ineffectively implemented by their firms. The lack of stability can also be seen in two parameters - the level of expediting and the variability of the inventory profile.With significant expediting and firefighting (75% of the respondents of this research indicated that JIT system involves a lot of firefighting), attempt is made to ensure 1-2 days of full kit at OEMs and suppliers but time to time kits are incomplete for production. The availability of full kits is found to be only 75% at OEMs and 70% at suppliers for assembly. Even if one item is not available, the plan has to be changed. Consequently, the production plan adherence is poor especially at suppliers (only 80-85%).<figure class="image"><img src="https://images.vectorconsulting.in/storage/editor_uploads//screenshot-2023-12-26-at-40711-pm_1703587034.png"></figure>Poor stability in the supply chain - inventory variability&nbsp;At the same time, even though suppliers (Tier 1) are included by most of the OEMs in a JIT partnership, there are clear signs that the inventory benefits are skewed towards the OEMs. Thus, while the OEM may have only one day or one shift worth of inventory, the suppliers hold 10-12 days of inventory for OEMs, even when they are only a few hours away from the assembly plants of the auto OEM. Similarly, dealerships maintain 1-3 months sales worth of stocks depending upon the season.&nbsp;<img src="https://images.vectorconsulting.in/storage/editor_uploads//screenshot-2023-12-26-at-40801-pm_1703587085.png">90% of the survey respondents also reported that in the current practice, the inventory stays in the supplier’s books till it is inwarded in the OEM’s facility while it moves to the dealership account on a factory exit basis from the OEM. The trend is common across all OEMs surveyed and 90% of the suppliers affirmed this practice. Similarly, 85% of the Tier 1 suppliers tend to follow the same practice of inwarding with their suppliers.Further, the inventory of the entire supply chain goes haywire from time to time. For example, after COVID-19, the dealer inventory of the OEMs ballooned, and the reaction of OEMs for production correction had a significant lag (about 6-7 months of lag). After COVID, the glut in the market was followed by shortages since OEMs could also not ramp up when demand picked up. This infamous ‘bull-whip’ effect is part of every economic downturn.Combination of push-pull inventory movementA closer look at the supply chain can show other indicators to show that inventory movement is not fully ‘pull-based’. Many OEMs get inventory from suppliers in JIT. However, production in the entire supply chain (according to 100% of suppliers and OEMs surveyed) is based on forecasts rather than actual consumption or demand.<figure class="image"><img src="https://images.vectorconsulting.in/storage/editor_uploads//screenshot-2023-12-26-at-40901-pm_1703587145.png"></figure>However, market demand fluctuates, and these forecasts don’t match reality (accuracy is 60%-80%). Consequently, issues such as rescheduling, searching for missing components and daily expediting ensues. It is not uncommon for 15%-25% of the full kits needed for the day to be incomplete at many OEMs in spite of regular full kit meetings. Expediting by the OEMs leads to a change in what is demanded daily from the supplier vis-a-vis the order schedule. There is up to 25% variation experienced by suppliers with OEM schedules.<figure class="image"><img src="https://images.vectorconsulting.in/storage/editor_uploads//screenshot-2023-12-26-at-40930-pm_1703587175.png"></figure>Because plant scheduling and material planning of suppliers is based on the monthly or weekly forecast of the OEM, the suppliers’ ability to respond quickly to OEMs’ daily production plan changes is restricted. Even though the supplier keeps significant inventory buffers to try and prevent the situation (10-12 days), there is often a mismatch in what can be supplied and what the OEM demands; therefore, suppliers often fail to meet changing requirements at a daily level. It must be noted here that while some of this inventory kept by the supplier is by design, some is due to a change in plan by the OEM (made as per plan but not lifted yet). The Tier 1 supplier has a similar relationship with their vendors.Real problemThese findings from this research point to<img src="https://images.vectorconsulting.in/storage/editor_uploads//screenshot-2023-12-26-at-41018-pm_1703587221.png">&nbsp;As can be seen in the study, in spite of JIT (or because of it), a majority of Indian Auto OEMs are struggling to effectively manage demand - especially at the SKU level, across various time horizons. Shorter product cycles, changes in regulations, and an accelerated introduction of new components into the market are aggravating demand fluctuations. In this environment of high demand variability across products, companies do not have the ability to do demand levelling, i.e. having a cadence of SKUs across time periods (Heijunka). Without this levelling, adhering strictly to a JIT-based approach (bin availability-based inventory movement) throughout the supply chain becomes difficult. Any attempt to do so is detrimental since small disturbances will have a cascading effect on the operations of all entities in the supply chain.Hence, a system has been established in India where JIT/bins are used within OEM’s operations and for moving inventory from suppliers to OEMs. So, large auto OEMs maintain little or no inventory (1 shift or day’s inventory inside their premises). However, they require suppliers to keep an adequate stock of supplies at warehouses near OEM assembly lines. Moreover, since production at the supplier is not based on JIT but on forecasts (inevitably inaccurate), this also leads to the accumulation of inventory. Wherever suppliers are larger than their own vendors, a similar situation ensues.Direction of solutionHow, then, can the automotive supply chain be improved? It is well accepted that a pull system is superior to a forecast-based approach because it minimizes waste, reduces excess inventory, and ensures production or ordering aligns precisely with real customer demand. So, any Direction of Solution proposed should protect these advantages and offer a practical and effective end-to-end pull system in this industry that offers a win-win-win (win for all partners).In an environment of inherently high variability, trying to eliminate it altogether, as attempted by the Heijunka, is impractical. However, variability can be dampened considerably with the help of buffers. For such a buffered system to be implemented and to make sure that this system responds to market demand with agility and also, the following steps have to be taken:<img src="https://images.vectorconsulting.in/storage/editor_uploads//screenshot-2023-12-26-at-41201-pm_1703587324.png">The most effective starting point to implement a system of 'buffers replenishing buffers' will be on the demand side of the auto OEM. We can mitigate demand spikes at the dealer level by transferring inventory from the OEM to the dealer based solely on consumption rather than adhering to fixed sales targets/forecasts.This will involve the OEM creating a central warehouse to maintain FG inventory that can absorb fluctuations in demand from dealerships during the supply lead time. Production at the OEM should be driven by actual consumption from the warehouse (a fall in buffer level or norm), rather than on sales forecasts. This will improve load balancing and operational flow at the plant.Component suppliers can also maintain an FG inventory from which they supply the OEM's RM inventory based on daily consumption. The suppliers should transition to pull-based production, producing based on actual off-take from their FG warehouse rather than using monthly schedules. This will decouple them from any fluctuations in the OEM’s manufacturing plans as well. A similar system, which helps reduce supply lead-time and ensures adequate availability of feeding components from Tier II vendors, can be established.<img src="https://images.vectorconsulting.in/storage/editor_uploads//screenshot-2023-12-26-at-41252-pm_1703587376.png">2 Implement an execution-based priority method to deal with variability in demand and capacity so that the system gets clear signals on what to focus upon when total demand across products exceeds capacity&nbsp;Procurement and production based on daily consumption rather than forecasts will allow for better responsiveness to changing demand patterns. However, since demand is not levelled, it is possible that total daily demand across products exceeds capacity at an entity (which is not a problem in an environment where demand is levelled). So, in this situation, a priority system is needed to identify which products to produce/dispatch, etc. For every item, a target inventory can be set based on ‘paranoid’ consumption during replenishment time (the maximum forecasted demand during the replenishment time factored by the fluctuations in the replenishment time). The prevailing level of stock, as compared to this target level of various products/buffer levels, can be used to signal priority using simple colour codes. For example, on a daily basis, some FG SKUs will have lower stock compared to the target level while others may have higher stock. A color-based priority system will, in this situation, signal the following:<figure class="image"><img src="https://images.vectorconsulting.in/storage/editor_uploads//screenshot-2023-12-26-at-41323-pm_1703587410.png"></figure>Naturally, Red SKUs should be prioritized over Yellow and Green. This system is important as reacting to small quantity consumption is clearly inefficient. Thus, the colour system provides the necessary flexibility for these decisions.<figure class="image"><img src="https://images.vectorconsulting.in/storage/editor_uploads//screenshot-2023-12-26-at-41323-pm_1703587410.png"></figure>&nbsp;&nbsp;3 A method of periodic changing of norms of the buffers by intelligent sensing of any change in demand patterns both in near future and recent past.The colour-based system can also trigger adjustments in inventory norms. For instance, if sales rates consistently exceed supply rates or supply, the norm can be increased. A mechanism can also be put in place to adjust the norm in preparation for known jumps or drops in sales (e.g. major promotional events by the OEM). This method of tracking priority zones of SKUs and periodic changing of norms of the buffers by forward and backward sensing of demand needs can be put in place (giving very high transparency in the system) with the help of end-to-end IT infrastructure.ConclusionThe study highlights the limitations of JIT (Just-In-Time) manufacturing. Clearly, implementing JIT is not advisable in the current automobile industry environment, as demand variability is high across products, and companies are unable to level demand as Toyota once could. Attempts by OEMs to avail themselves of the inventory benefits of JIT have resulted in the creation of two separate worlds within the supply chain: a JIT world at the OEMs and a non-JIT world at partner organisations. This has led to stock pileups with partners in the supply chain, resulting in increased costs and low capital turnover for suppliers and dealers, often leading to friction in relationships.To implement a pull system that can benefit the entire supply chain, a solution is proposed involving buffering and intelligent decoupling to absorb variability in the system. This approach ensures seamless flow, provides flexibility, and aligns the supply chain with market movements without increasing inventory levels in the supply chain.&nbsp;i Bins are storage locations or containers used to hold a specific quantity of components or materialsii VUCA stands for Volatility, Uncertainty, Complexity, and Ambiguity, describing the unpredictable and challenging nature of modern business environments

Our study on India's auto industry could not find any end-to-end JIT implementation in the supply chians of auto companies. We explore why and propose an alternative pull system with buffers and smart decoupling to  overcome the limitations of JIT while securing its advantages.

Just-In-Time or Just Not There? Reevaluating India's Automotive Supply Chain Dynamics

IntroductionJust-In-Time (JIT), a production philosophy pioneered by Toyota in the 1970s, it became popular with Toyota’s rapid growth and was quickly adopted globally by major OEMs during the 1980s and 1990s. The implementation of JIT by these OEMs attempted to integrate their operations with their suppliers and vehicle dealerships into a seamless supply chain.&nbsp;Implementing JITOnce JIT is implemented, a supply chain management system is expected to showcase the following characteristics/benefits:‘Pull’ based inventory movementInventory movement will be ‘just in time’ in the entire supply chain and is based on pull from the previous node or “bin availability”. For instance, when a bini signals that it needs replenishment, it initiates the movement of materials from the supplier or storage area to the production line. This movement is typically rapid and aligned with the production schedule. Forecasts will be used only for high level planning. E.g. for raw material planning but not for actual RM procurement or for planning production. The idea is that any movement of inventory before the actual need for it can generate excess inventory, and any movement later will create shortages.Frequent DeliveriesSuppliers, OEMs, and dealerships would practice frequent and small deliveries. For e.g., raw materials will be received just-in-time for production at the production line.Smooth and stable production flowA smooth and continuous production flow is expected to be seen at suppliers and OEMs without frequent stoppages or disruptions.Reduced/Stable Inventory LevelsSuppliers, OEMs, and dealerships will have very limited stock of raw materials, work-in-progress, and finished goods. These levels will stay stable – no large variability across the supply chain.Lean ManufacturingLean manufacturing principles, actively identifying and eliminating waste, focusing on value-adding activities, and optimizing processes is followed by the OEM and all suppliers.Continuous ImprovementCompanies/entities will have a culture of Kaizen (continuous improvement) and encourage employee involvement in identifying and implementing process enhancements. Actions such as standardization, quality initiatives, set-up time reduction, etc., are taken to reduce variability in the system and improve synchronization.To sum up, by emphasizing precise production and timely delivery of goods without excess inventory, JIT‘s pull mode of operations promises efficiency and reduced costs for suppliers, OEMs and Dealerships. The reports of benefits experienced by many international vehicle manufacturers in their operations attracted many large Indian OEMs to adopt JIT as well.However, even a small dipstick survey can indicate that all is not as expected.The challengesWhile most OEMs (75%) have implemented JIT practices in their processes, their supply chain partners have not been roped in JIT. This means the JIT implementation is not end to end in any Indian OEM’s supply chain. One exception seen is of an MNC OEM in India who has done a zero inventory model at dealer level, with real demand from end consumer demand triggering inventory movement. Some have also done a demand-pull replenishment for only spare parts from their OEM warehouse to dealers. However, most follow a hybrid push-pull system – i.e. of monthly/weekly forecast based ordering from dealers, scheduling monthly production requirements from suppliers with daily inventory movement to OEM plants as per demand.<figure class="image"><img src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//1_1708591358.png"></figure>Poor stability in the supply chain – expediting and firefightingMoreover, the stability that a JIT supply chain is expected to offer is not realized. As per 90% of respondents in this survey, JIT is partially and ineffectively implemented by their firms. The lack of stability can also be seen in two parameters - the level of expediting and the variability of the inventory profile.With significant expediting and firefighting (75% of the respondents of this research indicated that JIT system involves a lot of firefighting), attempt is made to ensure 1-2 days of full kit at OEMs and suppliers but time to time kits are incomplete for production. The availability of full kits is found to be only 75% at OEMs and 70% at suppliers for assembly. Even if one item is not available, the plan has to be changed. Consequently, the production plan adherence is poor especially at suppliers (only 80-85%).<figure class="image"><img src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//2_1708591390.png"></figure>Poor stability in the supply chain - inventory variability&nbsp;At the same time, even though suppliers (Tier 1) are included by most of the OEMs in a JIT partnership, there are clear signs that the inventory benefits are skewed towards the OEMs. Thus, while the OEM may have only one day or one shift worth of inventory, the suppliers hold 10-12 days of inventory for OEMs, even when they are only a few hours away from the assembly plants of the auto OEM. Similarly, dealerships maintain 1-3 months sales worth of stocks depending upon the season.&nbsp;<figure class="image"><img src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//3_1708591415.png"></figure>90% of the survey respondents also reported that in the current practice, the inventory stays in the supplier’s books till it is inwarded in the OEM’s facility while it moves to the dealership account on a factory exit basis from the OEM. The trend is common across all OEMs surveyed and 90% of the suppliers affirmed this practice. Similarly, 85% of the Tier 1 suppliers tend to follow the same practice of inwarding with their suppliers.Further, the inventory of the entire supply chain goes haywire from time to time. For example, after COVID-19, the dealer inventory of the OEMs ballooned, and the reaction of OEMs for production correction had a significant lag (about 6-7 months of lag). After COVID, the glut in the market was followed by shortages since OEMs could also not ramp up when demand picked up. This infamous ‘bull-whip’ effect is part of every economic downturn.Combination of push-pull inventory movementA closer look at the supply chain can show other indicators to show that inventory movement is not fully ‘pull-based’. Many OEMs get inventory from suppliers in JIT. However, production in the entire supply chain (according to 100% of suppliers and OEMs surveyed) is based on forecasts rather than actual consumption or demand.<figure class="image"><img src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//4_1708591437.png"></figure>However, market demand fluctuates, and these forecasts don’t match reality (accuracy is 60%-80%). Consequently, issues such as rescheduling, searching for missing components and daily expediting ensues. It is not uncommon for 15%-25% of the full kits needed for the day to be incomplete at many OEMs in spite of regular full kit meetings. Expediting by the OEMs leads to a change in what is demanded daily from the supplier vis-a-vis the order schedule. There is up to 25% variation experienced by suppliers with OEM schedules.<figure class="image"><img src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//5_1708591453.png"></figure>&nbsp;Because plant scheduling and material planning of suppliers is based on the monthly or weekly forecast of the OEM, the suppliers’ ability to respond quickly to OEMs’ daily production plan changes is restricted. Even though the supplier keeps significant inventory buffers to try and prevent the situation (10-12 days), there is often a mismatch in what can be supplied and what the OEM demands; therefore, suppliers often fail to meet changing requirements at a daily level. It must be noted here that while some of this inventory kept by the supplier is by design, some is due to a change in plan by the OEM (made as per plan but not lifted yet). The Tier 1 supplier has a similar relationship with their vendors.Real problemThese findings from this research point to<figure class="image"><img src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//jit1_1708592057.png"></figure>&nbsp;As can be seen in the study, in spite of JIT (or because of it), a majority of Indian Auto OEMs are struggling to effectively manage demand - especially at the SKU level, across various time horizons. Shorter product cycles, changes in regulations, and an accelerated introduction of new components into the market are aggravating demand fluctuations. In this environment of high demand variability across products, companies do not have the ability to do demand levelling, i.e. having a cadence of SKUs across time periods (Heijunka). Without this levelling, adhering strictly to a JIT-based approach (bin availability-based inventory movement) throughout the supply chain becomes difficult. Any attempt to do so is detrimental since small disturbances will have a cascading effect on the operations of all entities in the supply chain.Hence, a system has been established in India where JIT/bins are used within OEM’s operations and for moving inventory from suppliers to OEMs. So, large auto OEMs maintain little or no inventory (1 shift or day’s inventory inside their premises). However, they require suppliers to keep an adequate stock of supplies at warehouses near OEM assembly lines. Moreover, since production at the supplier is not based on JIT but on forecasts (inevitably inaccurate), this also leads to the accumulation of inventory. Wherever suppliers are larger than their own vendors, a similar situation ensues.Direction of solutionHow, then, can the automotive supply chain be improved? It is well accepted that a pull system is superior to a forecast-based approach because it minimizes waste, reduces excess inventory, and ensures production or ordering aligns precisely with real customer demand. So, any Direction of Solution proposed should protect these advantages and offer a practical and effective end-to-end pull system in this industry that offers a win-win-win (win for all partners).In an environment of inherently high variability, trying to eliminate it altogether, as attempted by the Heijunka, is impractical. However, variability can be dampened considerably with the help of buffers. For such a buffered system to be implemented and to make sure that this system responds to market demand with agility and also, the following steps have to be taken:<figure class="image"><img src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//6_1708591534.png"></figure>The most effective starting point to implement a system of 'buffers replenishing buffers' will be on the demand side of the auto OEM. We can mitigate demand spikes at the dealer level by transferring inventory from the OEM to the dealer based solely on consumption rather than adhering to fixed sales targets/forecasts.This will involve the OEM creating a central warehouse to maintain FG inventory that can absorb fluctuations in demand from dealerships during the supply lead time. Production at the OEM should be driven by actual consumption from the warehouse (a fall in buffer level or norm), rather than on sales forecasts. This will improve load balancing and operational flow at the plant.Component suppliers can also maintain an FG inventory from which they supply the OEM's RM inventory based on daily consumption. The suppliers should transition to pull-based production, producing based on actual off-take from their FG warehouse rather than using monthly schedules. This will decouple them from any fluctuations in the OEM’s manufacturing plans as well. A similar system, which helps reduce supply lead-time and ensures adequate availability of feeding components from Tier II vendors, can be established.2 Implement an execution-based priority method to deal with variability in demand and capacity so that the system gets clear signals on what to focus upon when total demand across products exceeds capacity Procurement and production based on daily consumption rather than forecasts will allow for better responsiveness to changing demand patterns. However, since demand is not levelled, it is possible that total daily demand across products exceeds capacity at an entity (which is not a problem in an environment where demand is levelled). So, in this situation, a priority system is needed to identify which products to produce/dispatch, etc. For every item, a target inventory can be set based on ‘paranoid’ consumption during replenishment time (the maximum forecasted demand during the replenishment time factored by the fluctuations in the replenishment time). The prevailing level of stock, as compared to this target level of various products/buffer levels, can be used to signal priority using simple colour codes. For example, on a daily basis, some FG SKUs will have lower stock compared to the target level while others may have higher stock. A color-based priority system will, in this situation, signal the following:<figure class="image"><img src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//7_1708591604.png"></figure>Naturally, Red SKUs should be prioritized over Yellow and Green. This system is important as reacting to small quantity consumption is clearly inefficient. Thus, the colour system provides the necessary flexibility for these decisions.<figure class="image"><img src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//8_1708591628.png"></figure>The colour-based system can also trigger adjustments in inventory norms. For instance, if sales rates consistently exceed supply rates or supply, the norm can be increased. A mechanism can also be put in place to adjust the norm in preparation for known jumps or drops in sales (e.g. major promotional events by the OEM). This method of tracking priority zones of SKUs and periodic changing of norms of the buffers by forward and backward sensing of demand needs can be put in place (giving very high transparency in the system) with the help of end-to-end IT infrastructure.ConclusionThe study highlights the limitations of JIT (Just-In-Time) manufacturing. Clearly, implementing JIT is not advisable in the current automobile industry environment, as demand variability is high across products, and companies are unable to level demand as Toyota once could. Attempts by OEMs to avail themselves of the inventory benefits of JIT have resulted in the creation of two separate worlds within the supply chain: a JIT world at the OEMs and a non-JIT world at partner organisations. This has led to stock pileups with partners in the supply chain, resulting in increased costs and low capital turnover for suppliers and dealers, often leading to friction in relationships.To implement a pull system that can benefit the entire supply chain, a solution is proposed involving buffering and intelligent decoupling to absorb variability in the system. This approach ensures seamless flow, provides flexibility, and aligns the supply chain with market movements without increasing inventory levels in the supply chain.&nbsp;i Bins are storage locations or containers used to hold a specific quantity of components or materialsiii VUCA stands for Volatility, Uncertainty, Complexity, and Ambiguity, describing the unpredictable and challenging nature of modern business environments&nbsp;

Have automobile companies in India really implemented Just In Time (JIT)?

Auto Components India, December 2022New Product Development (NPD) comes with its share of challenges. This complexity arises from factors such as the development of various parts by different auto component manufacturers, which must not only come together in the final vehicle but also function flawlessly as a system. It is equally important to deliver NPD through a process that is robust, precise, and repeatable on a scale. While the end customer gets to see a stylish high-performance automobile, they don’t see the back end where numerous auto component manufacturers toil to achieve this complex and audacious goal.&nbsp;A saga of skips &amp; missesThe automotive landscape is changing. Electric Vehicles (EVs) are predicted to take over the industry and IC engines will eventually become extinct. The advent of EVs and the elimination of the IC engine, the most complex part of erstwhile vehicle design, has democratised the industry. With entry barriers razed to the ground and new EV players entering with advanced technologies, the existing auto OEMs are feeling the heat like never before. The race to be the first market leader in the EV segment has pushed the OEMs to quickly move from the drawing board to the market, at a faster rate than ever before.&nbsp; &nbsp;There is a pressure from the top management to move the project to the tooling development phase. This often prompts OEMs to persuade vendors to concurrently start development with final tooling, even as the prototype is being finalised. The assumption is that this process will help save time. However, this wishful thinking never materialises. The components manufacturers proceed to hard tooling only to realise later that there are glaring gaps in design and cost estimations. Any changes made to the hard tools are expensive and consume a lot of time. This leads to a series of actions in the advanced stages of development to minimise changes in design to get some leeway from OEMs to accommodate whatever best can be achieved.&nbsp;<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//cc-blog-2-img-1-01-01_1717069659.png" width="4500" height="4500"></figure><img src="https://qclab.app/wp-content/uploads/2023/01/Asset-10-1024x190.png" alt="">The juggernaut rolls …The situation is aggravated by the fact that any change made in an auto component can have a big impact on other interfacing components in a vehicle. One small late change in a component can therefore create urgencies for many auto component vendors for the same OEM. Invariably, the auto component manufacturers’ engineering teams find themselves juggling urgencies in the development work of different OEMs that they cater to. The Result – elapsed time in component development increases by leaps and bounds.&nbsp;<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//cc-blog-2-img-2-01-01_1717069709.png" width="4500" height="4500"></figure>Also, each component may have multiple child parts coming from different (tier2) vendors – electrical, mechanical,&nbsp;or electronics. The ad hoc urgencies and escalations experienced by the component vendors trickle down to their tier2 vendors supplying the child parts. This leads to de-synchronisation in the arrival of child parts and consequently leads to delayed testing. But as they need to meet the timeline expectations of OEMs, components are often mass-produced prior to completion of testing and full production stabilisation. This not only leads to a loss of production capacity but also leaves many issues unresolved, as both the design and development teams are forced to shift their attention to other new projects.<figure class="image"><img style="aspect-ratio:4500/4500;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//cc-blog-2-img-3-01-01-01_1717069744.png" width="4500" height="4500"></figure>What managers think!This perpetual struggle of balancing the coordination issues and frequent delays makes the managers yearn for more detailed planning and scheduling. They also tend to believe that design mistakes are due to a lack of skill and or experience of designers. Frustratingly, however robust the plans are, and however skilled the designers are, neither of these helps the stakeholders in sticking to their plans or preventing re-work in design. This is because a large proportion of the planned timelines are under the ambit of OEMs. Variability, the timeline of a single task tends to have a cascading effect on all the subsequent tasks of the auto-component NPD team. Even a highly skilled designer will tend to have skips and misses in an environment with such urgencies. Under these circumstances, there must be a way out!&nbsp;Four simple rules to increase productivity during New Product Development (NPD) process:&nbsp;The best an auto component manufacturer can do is to ensure that they provide the fastest response to OEMs from their end. This will ensure that they are a “Preferred Supplier”. To achieve this, they are required to take full control of the flow within their NPD organisations, irrespective of what is happening externally. The solution for faster lead times is to follow these four simple rules:&nbsp;<ul><li>Respect Full kits/Design Gates – Do not start the development phase of a project until the full kit of interacting designs has been completed and verified (“gating” rules). This way, there will be minimal interruptions (and iterations) during development. Managers are aware of the benefits of gate control, but they break this rule owing to time pressure. However, if the design phase for an auto component can be completed quickly, it would be easier to abide by the gating rules.</li><li>Limit WIP with clear priority – The time taken to complete the design phase can be reduced if multi-tasking can be avoided, and the designers are able to work uninterrupted to the best extent possible. It is possible if Work in Progress (WIP) is limited and clear priority is assigned to all the tasks. This can bring the focus back to the closure of projects in the desired sequence and lead to quicker issue resolution. The outcome would be a reduction in lead times as well as higher capacity in design!</li><li>Follow high-frequency management – To speed up the new product development process further, the management must observe the workflow at a pre-defined frequency (daily at the execution level, weekly at the department and/or section level, etc.), and proactively intervene to address any interruption to the flow. Take needed decisions, provide help, and resolve any collaboration issues.</li><li>Buffer the project and not the tasks – Traditional project planning, with its emphasis on task deadlines, hides buffers in each task. These buffers usually get wasted during the execution phase.&nbsp;</li><li>In a revised planning approach, tasks are initially stripped of their buffers to provide a more aggressive estimate of project completion. Then the information about the buffers is used intelligently to predict the most likely completion date and Expected Time of Completion (ETC). This visibility into the ETC can give out periodic signals that will help auto component manufacturing companies’ top management understand where their intervention may be needed.</li></ul>ConclusionAdopt these four simple rules of having a design full kit before development, controlling WIP, performing high-frequency management, and monitoring projects ETC. This approach can drastically reduce the lead time for NPD (with a minimum 50% improvement) while also significantly enhancing output (exceeding 100%) within your organisation!&nbsp;

New Product Development in the auto industry is fairly complex and involves multiple component manufacturers who must collaborate seamlessly. Even a tiny delay can have a cascading effect on timelines and costs. Here are four simple rules to increase productivity in auto NPD.

The Components Conundrum

The automotive new product development (NPD) ecosystem is one of the most complex environments. This article talks about how a finished automobile at the backend has manufacturers toiling away to achieve a complex and audacious end goal.

The Components Conundrum - vectorconsulting

Arvind Retail is home to 5 distinguished brands, including iconic brands Arrow, US Polo, Flying Machine, Tommy Hilfiger, and Calvin Klein, catering to a wide range of consumer preferences. With a network of nearly 1300 standalone stores, 5000 departmental and multi-brand stores operated by them and a strategic mix of online partnerships, Arvind Retail has a robust presence across the Indian retail landscape.&nbsp;However, Arvind Fashions, like most major fashion retailers, faced challenges in effectively managing its inventory. The primary issue was the dichotomy between well-performing styles experiencing stockout leading to sales loss on one side, and slow-moving garments having excess inventory at the store, leading to increasing working capital requirement on the other side.To address this problem, with the help of Vector, Arvind implemented a solution which categorized their offerings into distinct streams based on the product life cycle. In contrast to Fashion styles with lower life cycles, the styles that were perennial in nature were classified as Core styles, and their supply chain was redesigned to never go out of stock in the stores (NOOS). It is worthwhile to note that many fashion retailers call some of their products 'Core'; however, they run the supply chain process for the 'Core' portfolio similarly to what they do for Fashion Styles, leading to the dichotomy explained above in the paragraph. Arvind Fashion team, along with Vector Consulting, executed a paradigm change in the business process to enable continuous availability of the 'Core' styles.&nbsp;The change involved alignment of all the internal and external pillars of their value chain, right from fabric mills to garment vendors to their internal warehouse, on the new business processes and an integrated view of the inventory profile using VectorFLOW software. The system algorithm and necessary IT handshakes enabled frequent replenishment to the stores, ensuring high daily availability at all the stores while reducing the inventory holding significantly.&nbsp;Through diligent implementation to ensure high daily availability in a short span of time, the team almost doubled the sales while reducing the inventory by more than half, thus gaining upwards of 4 times ROI on CORE styles.&nbsp;<figure class="image"><img style="aspect-ratio:1080/1080;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//image_1715075961.png" width="1080" height="1080"></figure>

Arvind Fashions is home to over 27 distinguished brands cutting across all formats of retail.

Arvind Fashions Ltd.

Vector Consulting Group. Case study: Learn how Arvind Fashions optimized inventory for its various brands, doubling sales and achieving 4x ROI with an innovative approach

Vector Consulting Group | Arvind Fashions |  Boosting Sales & ROI with Smart Inventory Management

We have developed bespoke solutions for equipment manufacturing or custom manufacturing companies to help them identify and address constraints in operations, sales, spares &amp; services, or new product development that limit consistent sales and profit growth.&nbsp;Working with companies like Laxmi Machine Works (LMW), Godrej Material Handling, RPG Raychem, Kirloskar Oil Engines Ltd. Bajaj Electricals (Luminaries Division), amongst many others, we have helped clients bring about excellence in equipment delivery, turbo-charge their sales &amp; business development efforts and set new benchmarks in after-sales services.&nbsp;

An equipment manufacturing or custom manufacturing company’s ability to grow its sales and profits consistently is limited by constraints in the following areas like Operations, Sales, Spares and Services and New Product Development:

Consulting Services for Equipment Manufacturing Companies

Analyses of top custom manufacturing companies, including manufacturers of capital goods and custom manufacturers of machinery and equipment, which design a product and make to order, show that only a handful have realized healthy sales, profits & ROI in the last decade.

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Equipment Manufacturing BA

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Equipment Manufacturing

Vector Consulting Group helps industrial equipment manufacturing firms develop agile new product development, operations, sales and service to enhance ROI.

Industrial Equipment Manufacturing Consulting Services in India | Vector Consulting Group

Our unique solutions for auto OEMs and auto components manufacturers help them overcome constraints that hinder their organizational performance in new product development, manufacturing, distribution and sales.&nbsp; &nbsp; Over the years, we have worked with companies like Tata Motors – Commercial Vehicles (Spare Parts &amp; Services Division), Ashok Leyland, International Tractors Ltd. (Sonalika Tractors), Fleetguard Filters, JK Fenner (India) Ltd to set new industry benchmarks in operational performance in different areas of business.

We offer consulting services to organizations engaged in manufacturing and distribution of automobiles or auto components. Our consulting methodology focuses on identifying the leverage point of an organization for intervention.

Auto OEMs & Auto Components Consulting Services

Auto OEMs, auto part manufacturers and auto aftermarket players constantly struggle with the auto industry's highly cyclical nature, i.e. an economic boom is generally accompanied by high sales, while sales usually suffer during economic downturns.

Auto and Auto Components

Our unique solutions for auto OEMs and auto components manufacturers help them overcome constraints that hinder their organizational performance in new product development, manufacturing, distribution and sales.&nbsp; &nbsp; Over the years, we have worked with companies like Tata Motors – Commercial Vehicles (Spare Parts &amp; Services Division), Ashok Leyland, International Tractors Ltd. (Sonalika Tractors), Fleetguard Filters, JK Fenner (India) Ltd., to set new industry benchmarks in operational performance in different areas of business.

Auto and automotive business consulting services from Vector Consulting Group can enable companies to grow profits consistently whether the industry is going through an economic boom or a downturn.

Automotive & Auto Part Business Consulting Services | Vector Consulting Group

Our solutions for consumer goods or consumer packaged goods (CPG) companies have helped companies expand their range &amp; reach in the market and create pull from influencers while improving overall supply chain and distribution efficacies.&nbsp;Our interventions in Sales &amp; Distribution, New Product Development, Inventory Planning, and CRM programs have delivered quantum business results for companies like Bajaj Electricals (Consumer Products), VIP Industries Ltd., Godrej Interio, Polycab, Pidilite, Godrej Security Solutions, and many more.&nbsp;

Organizations producing, distributing, and making products available at retail points can be consumer goods companies or consumer packaged goods companies (CPG). Such companies could develop a constraint in areas like Internal Operations and Distribution, External Distribution, Sales Bandwidth, Retail Operations and New Product Development.

Consumer Goods & Retail Consulting Services

Much as they may wish otherwise, most Indian consumer good companies find that they have no consistent “Reach” into almost 65% of the country’s population (especially in rural, rur-ban areas) since they believe that this spread out population would be ‘cost inefficient’ to service.

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Consumer Goods & Retail

Vector Consulting Group provides consumer good and retail consulting services to help increase sales by exponentially improving availability of products across the country.

Consumer Good and Retail Consulting Services in India | Vector Consulting Group

Textile manufacturers or fashion garment retailers could develop a constraint in Operations, Sales, Retail operations or Sampling. Our unique solutions for textile manufacturing or fashion garment retailing help organizations facing operational challenges in operations, sales, or sampling management. We have worked with Blackberrys, Westside Retail, Arvind Fashions, Trident Group (Home Textiles), and Raymonds, amongst others, to improve their On-Time-In-Full (OTIF) performance, availability at retail store level, reduce overall inventory and working capital deployed in the business. Some of our clients have set new industry benchmarks.

Companies in this domain are export houses which undertake garment manufacturing for large retailers as per fabric or garment designs given to them. They could also be fashion retailers who design, source and sell garments under their own brands in addition to selling other garment company brands. These two types of companies (textile manufacturers or fashion garment retailers) can develop a constraint in Operations, Sales, Retail operations or in Sampling.

Textile and Garments

Traditionally, India’s textile businesses enjoyed lower labor costs and significant government support (capital subsidy, duty drawbacks etc.) However, things have changed in recent years, and the industry is now losing its edge to countries such as Bangladesh and Vietnam! Find out how Indian companies can regain their superiority in the global markets

Textile & Garments

Vector Consulting Group provides consulting services to textile firms to drastically reduce lead time in operations and sample making, increase capacity utilization, reduce lead time and improve sales.

Textile and Garments Consulting Services in India | Vector Consulting Group

Solutions for Engineering and Construction (EPC) companies to help them identify and solve constraints in project execution and operations that can limit their growth in sales and profits.&nbsp;Using our unique Flow Management of Projects approach, we have helped clients such as Skipper, Ltd., Bajaj Electricals (Engineering &amp; Projects Division), Godrej (Electricals &amp; Electronics Division), Tata Bluescope Steel Ltd., KEI Industries Ltd. to deliver projects ahead of schedule, while executing more projects from given operating expenses of the company.

An Engineering and Construction (EPC) company’s ability to grow and sustain sales and profits is limited by constraints in Project Management and Sales.

Consulting Services for Engineering and Construction Businesses

The growth of project organizations dealing with turnkey projects involving engineering, procurement and site construction has slowed down despite healthy demand because they operate in a highly uncertain environment (ROW issues, bureaucratic hurdles, etc.) Find out how companies can not only manage but also flourish in spite of these challenges.

Engineering & Construction

Vector Consulting Group offers consulting services to engineering and construction companies to enable business growth and sustenance of profits, by developing high speed project execution capabilities.

Engineering and Construction Consulting Services in India | Vector Consulting Group

Our solutions for organizations involved in pharmaceutical research &amp; development, production, export, and distribution of medicines help them address ongoing challenges or constraints in operations, R&amp;D, distribution or management of QC labs. &nbsp;Our innovative solution has helped Ajanta Pharma, Lupin, and Strides resolve their lab quality issues, reduce R&amp;D lead time and improve delivery performance while enhancing the productivity of resources.

Organizations working in the area of Life sciences, especially those dealing with research, development, production, export or distribution of pharmaceutical drugs and formulations, can have an ongoing challenge or a constraint in Operations, Research & Development or in Distribution to International Warehouses.

Life Sciences

While the pharmaceutical industry faces many unique challenges, the fairly healthy gross margins this industry enjoys have made it possible for businesses to thrive during good times and remain viable even through tough times. However, with unprecedented and increasing competition, business complexity, velocity and volatility of markets, companies are now struggling with stressed supply chains, profit erosion, and continuously lowering returns.

Vector Consulting Group offers consulting services to enable life sciences and pharmaceutical companies improve output from R&amp;D and manufacturing, reduce inventory, lead time and improve overall profits.

Consulting Services for Life Sciences | Pharmaceutical industry - Vector Consulting Group

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Discover how refining Standard Operating Procedures can truly prevent accidents in critical industries. Dive into our analysis and expert insights for effective SOP management.

SOPs and their effectiveness in the prevention of accidents

Discover how Flow Management transforms CAPEX project efficiency and ROI in India offering vital strategies for optimization.

Uncertainty is the only certainty in the world of projects, says Anantha Keerthi, Partner, Vector Consulting Group

Discover how India's auto OEMs master minimal inventories, balancing JIT efficiency with supply chain stability for improved availability and productivity.

The lean inventory illusion: A closer look at India's auto supply chains

Discover the intricacies of the pharmaceutical supply chain, where global ties shape availability and crises reveal the urgency for resilience. As technology and nearshoring redefine the landscape, we probe the balance of supply, demand, and regulation. Stay ahead with our in-depth analysis.

Lives depend on the success of the life sciences supply chain

Discover India's rural transformation: Rising digitalization spurs economic growth and entrepreneurial ventures, poised to eclipse urban consumption by 2030. Unveil the potential for market expansion in our detailed analysis.

Rural India’s economic shift: Digital drive spurs growth

The article discusses the growth covering the pharma industry masks entrenched supply chain conflicts. The dilemma of ensuring agility to meet changing demand without escalating costs threatens the industry's very foundation.

Unlocking pharma manufacturing agility: Innovations for reliability, flexibility, and growth

Explore how the Interim Budget 2024-25 is transforming infrastructure with accelerated highway projects and innovative solutions to critical challenges.

Highway projects have witnessed relatively good speed ever since the government began securing at least 80% to 90% of ROW land

The article delves into the transformative role of Agile Clinical Research Organizations (CROs) are pivotal in reshaping industry outcomes, transitioning to valued partners with strategies to boost productivity and satisfaction.

Revolutionizing outcomes: Agile CROs lead the way

Leverage your ERP systems with a business-centric approach. Avoid fragmented implementations and costly overhauls. Our method integrates tailored solutions into existing ERPs, enhancing efficiency and ROI. Learn how our approach has successfully transformed numerous organizations' operational efficiency.

Balancing standardization and customized ERP to improve manufacturing profitability

Discover how India plans to bridge its staggering 33 million skilled labor gap in construction, unlocking a trillion-dollar opportunity and transforming the employment landscape.

‘Guru-chela’ method of skill upgradation is too slow

The article delves into the extensive impact of the Red Sea attacks across various sectors, providing a comprehensive analysis of the challenges faced due to the disruptions.

Red Sea attacks disrupt trade in India, MEA as freight, trade finance costs surge amid major delays

BAHASA As part of the alliance, TIS Inc—one of the technology firms in Japan, has acquired a 20% stake in Vector. The alliance paves the way for Vector to expand its footprint in growing markets, including Indonesia, Japan, and Thailand.

BAHASA Vector Consulting Group announces capital and business alliance with TIS Inc.

As part of the alliance, TIS Inc—one of the technology firms in Japan, has acquired a 20% stake in Vector. The alliance paves the way for Vector to expand its footprint in growing markets, including Indonesia, Japan, and Thailand.

Vector Consulting Group announces capital and business alliance with TIS Inc.

Vector Consulting Group announces capital and business alliance with TIS Inc

BAHASA The article talks about ways to create a new culture that facilitates ideation and criticism to dismantle the formal and informal systems supporting a hierarchy-driven culture.

BAHASA How to create a culture of criticism to facilitate innovation?

The article talks about ways to create a new culture that facilitates ideation and criticism to dismantle the formal and informal systems supporting a hierarchy-driven culture.

How to create a culture of criticism to facilitate innovation?

BAHASA  The article explains how India's generic pharma business, despite facing challenges recently, can maintain its 'number one' tag.

BAHASA  India can continue to be number one in generic pharma business

The article explains how India's generic pharma business, despite facing challenges recently, can maintain its 'number one' tag.

India can continue to be number one in generic pharma business

BAHASA  Vector Consulting Group, India's largest homegrown management consulting firm, announced its foray into the Indonesian market.

BAHASA  Vector Consulting Group expands its footprint and launches operations in Indonesia

Vector Consulting Group, India's largest homegrown management consulting firm, announced its foray into the Indonesian market.

Vector Consulting Group expands its footprint and launches operations in Indonesia

Scientific Systems Thinking

To overcome the above weaknesses of conventional business diagnostics, Vector uses a thinking process approach that combines the philosophy of deductive reasoning methods of the Greek philosopher, Aristotle; the&nbsp;Theory of Constraints approach of the Israeli physicist and management guru, Eli Goldratt; the rules of scientific experimentation of Sir Francis Bacon; and the philosophy of science as propounded by the Austrian-British philosopher, Karl Popper. We call it the Scientific Systems Thinking.

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BAHASA Enabling Companies to solve chronic industry problems.

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Enabling Companies to solve chronic industry problems.

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BAHASA After a company-wide implementation of TOC, the company enjoyed a CAGR of 25% in the last 10 years.

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After a company-wide implementation of TOC, the company enjoyed a CAGR of 25% in the last 10 years.

Arvind Fashions

Solution for Retail Success

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Ajanta Pharma deployed a new dynamic pull-based scheduling approach in operations and supply chain and managed to release 15%-20% capacity and improve OTIF performance for their US warehouses to 99%.

Bahasa Ajanta Pharma Ltd.

Ajanta Pharma Ltd.

A multinational pharmaceutical company based in India

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