MODERN SUPPLY CHAIN MANAGEMENT: BALANCING TIME AND PRICE How Indian suppliers can benefit from changing Western requirements 10 October, 2013
What is the difference between these two products? Vertical brand Wholesale brand RETAIL RETAIL PRICE PRICE 92 % cotton, 8 % spandex 92 % cotton, 8 % spandex about the same weight about the same weight • Sourced via importers • Directly sourced • Produced in Turkey • Produced in Bangladesh 01-131002(6)-KG 2
Modern Supply Chain Management: Balancing Time and Price Agenda • India is already an important supplier for most Western countries • Western demand patterns and therefore the rules of the game are changing dramatically • Indian suppliers will be able to further increase their business if they adapt promptly to these changes 01-131002(6)-KG 3
India already accounts for about 2% of Western import volume Indian exports to USA and EU, 2012 In US $ bn $ 49 bn $ 37 bn 14.8 14.8 9.6 8.1 7.6 7.2 6.1 4.7 4.6 3.9 3.1 1.2 Textile Manu- Petro- Raw- Food Others Textile Manu- Petro- Raw- Food Others facturing leum materials facturing leum materials 2% OF ALL EU IMPORTS 2% OF ALL US IMPORTS 01-131002(6)-KG 4 Source: UNStat; OC&C analysis
India’s positive development is mainly based on its low labour costs and its strengths in the service sector India’s key success factors Exports of goods CAGR 2007-2012 Large work force with relatively low labour costs Strong services sector (esp. IT) GDP 1 14.4% CAGR 2007-2012 Partly well-educated work force (mainly within strong service sector) 6.5% General Structural changes with broad governmental Strong services sector (esp. IT) government support expenditure CAGR 2007-2012 Heavy increase of domestic demand Strong services sector (esp. IT) 16.1% 01-131002(6)-KG 1. In US $ at constant prices (2005) 5 Source: IMF; WTO; OC&C analysis
However, to further gain, numerous Indian suppliers have to improve their quality level… Global competitiveness index – selected supplier criteria GCI: Local supplier quantity 1 GCI: Local supplier quality 2 Score from 1-7 (best) Score from 1-7 (best) India 5.7 Germany 6.0 Germany 5.6 US 5.5 US 5.5 Hong Kong SAR 5.5 Hong Kong SAR 5.5 Sri Lanka 4.9 Sri Lanka 5.2 China 4.5 China 5.0 Indonesia 4.5 Indonesia 4.9 India 4.4 Bangladesh 4.7 Bangladesh 4.1 Cambodia 4.2 Cambodia 3.9 Myanmar 3.2 Myanmar 3.0 01-131002(6)-KG 1. Question: “In your country, how numerous are local suppliers?” India South Ease Asia Western benchmarks 2. Question: “In your country, how would you assess the quality of local suppliers?” 6 Source: World Economic Forum; OC&C analysis
… as well as cope with a quite challenging environment – one of the main challenges are India’s infrastructural problems Selected economical criteria for doing business in India Corruption Perceptions Index Reliability of power supply 1 The most problematic factors for doing business in India (0 = extremely, 100 = not at all) (1 = not at all, 7 = extremely) 6.2 79 6.1 73 Inadequate 5.1 supply of 18.1 % infrastructure Inefficient 3.1 39 36 government 17.5 % bureaucracy Corruption 17.3 % Tax Germany USA China India Germany USA China India 7.6 % regulations “India power -cuts are normal “Judiciary is not untouched by and we have learnt to deal corruption.” Policy 6.6 % accordingly.” instability CHIEF JUSTICE OF INDIA MD VOLKSWAGEN INDIA 01-131002(6)-KG 1. Question: “In your country, how would you assess the reliability of the electricity supply (lack of interruptions and lack of vo ltage fluctuations)?” 7 Source: World Economic Forum; Transparency International; Press clippings; OC&C analysis
India’s trade logistics sector is increasingly under pressure Back-up India’s trade logistics sector Status quo The Logistics Performance Indicator, selected countries – 2007, 2010, 2012 • India’s rapid economic growth over the 2007 2010 2012 4.11 last decade has put pressure on its 4.10 4.03 3.93 limited transportation infrastructure 3.86 3.84 • The sector has received growing 3.52 3.49 attention from the government and the 3.32 public 3.12 3.08 3.07 • The fulfilment of India’s economic growth aspirations would be seriously challenged by this shortage Rank Germany United States China India in 2012 “India’s greatest impediment is its #4 #9 #26 #46 inability to quickly and efficiently move products from inland facilities to its ports.” On a scale of 1 to 5 1 , the LPI illustrates a INBOUND LOGISTICS MAGAZINE country’s performance in trade logistics 01-131002(6)-KG 1. 1 = low performance, 5 = excellent performance 8 Source: World Bank (2012); Inbound Logistics Magazine; OC&C analysis
In its main export industry fashion, India is competing with well-established and fast-developing countries Illustrative Fashion industry – expected volume shift between supply markets Europe Trader Business Volumes are expected to shift ? because… Turkey Tunisia Morocco … customers want to reduce their How can Indian dependency on a few supply suppliers benefit markets from expected Bangladesh Vietnam Indonesian etc. … smaller volumes are consolidated volume shifts? … cost benefits are exploited ? India China … lead time is of increasing importance 01-131002(6)-KG Expected decrease Expected increase 9
Modern Supply Chain Management: Balancing Time and Price Agenda • India is already an important supplier for most Western countries • Western demand patterns and therefore the rules of the game are changing dramatically • Indian suppliers will be able to further increase their business if they adapt promptly to these changes 01-131002(6)-KG 10
To be on the winner side, it is key to understand your customers’ needs – is it enough to be just faster and cheaper? Supply chain targets Cost Time Quality 01-131002(6)-KG 11
Your customers’ world and therefore their habits are changing dramatically! Main consumer trends and consequences for retail business models MAIN CONSUMER TRENDS CHANGE …AND FORCE YOUR CUSTOMERS TO ADVANCE THE RULES OF THE GAME... THEIR BUSINESS MODELS Successful business models Faster trend cycles that are more challenging to determine Verticals Online platforms Increasing consumer expectations concerning product offer and its presentation Former Discount / value Trendy / differentiation Better-educated consumers, also with concepts Department stores regards to costs Specialist dealers / Future multi-label stores High data based transparency of consumers’ Category killers behavioural patterns 01-131002(6)-KG 12
Which business models do your Western clients rely on? The losing or the upcoming ones? Successful retail business models – former and future Verticals Former Online platforms Discount / value Department stores Trendy / differen- tiation concepts Specialist Wholesale brands dealers / multi- label stores Future Category killers 01-131002(6)-KG 13
Most of those upcoming business models benefit from increasingly influencing their supply chain Success factor “degree of influence on your supply chain” TODAY’S FOCUS HIGH degree of influence on LOW degree of influence the supply chain on the supply chain STANDARD Example: Non-Food / Example: Brands in food • Long product lifecycles products and general merchandising in Requires a cost- retailing, beauty, DIY, optimised supply LOW • Low margins food retailing if suppliers / etc. (businesses chain demand private labels are easily • Limited range of products WITHOUT private label) uncertainty replaceable INNOVATIVE Example: Brands in • Short product lifecycles Requires a time- Example: Verticals products and multimedia, (pure) optimised and (fashion), online retailers , HIGH • High margins retailers in fashion, etc. flexible supply private labels, demand (businesses WITHOUT chain • Broad range of products uncertainty private label) Design organisations Purchase organisations Most demanding customer group 01-131002(6)-KG 14
Modern Supply Chain Management: Balancing Time and Price Agenda • India is already an important supplier for most Western countries • Western demand patterns and therefore the rules of the game are changing dramatically • Indian suppliers will be able to further increase their business if they adapt promptly to these changes 01-131002(6)-KG 15
To supply upcoming models, it requires more than reducing costs: Strategic thinking, flexibility & reliability are key! Levers to optimise supply chain targets Cost • Strategic supplier management Decide on the type of cooperation you target based on your (to be improved?) capabilities • Cooperative production planning Optimise your utilisation to exploit cost benefits and to allow for short lead times due to accurate planning • Fact-based negotiation standards Define your strategic answer to increasing cost • General lead time transparency and cost pressure reduction Adjust your processes to allow for required flexibility and reliability • Fast track capability Time Quality Strategically decide on • Offered quality level your feasible offer and Decide on your targeted customer group and resulting quality level adjust your flexibility / process accordingly • Cooperate Social Responsibility (Re-)Define levers to deal with compliance issues 01-131002(6)-KG (at your and your subcontractor ’s site) 16
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