Role of Supply Chain Management in Make in India initiative
India is a country blessed by nature in terms of natural resources. It is a source for large number of significant minerals and substances like coal, iron ore, mica, bauxite, natural gas, diamonds, limestone and thorium. India not only has these resources but also tops the ranking list in the world for these mineral reserves. For coal, India has 4th largest reserves, for bauxite 5th largest and for manganese ore 7th largest. Hence as far as raw material strength is concerned, our country has sufficient of it. But still it lags behind a number of countries in utilizing these resources and thus manufacturing.
One of the major reasons being its inability to harness these resources. The factors that make India lag behind other countries include legal rules of licensing, control pricing, currency controlling, labor laws, land rules, environment regulations, poor infrastructure, political barriers and corruption that is prevalent. Although India has a good demographic dividend now but it is expected that population of workers aged 15 to 24 will reduce by 61 million by 2030 in India and other BRIC nations. This again poses a serious threat to manufacturing industry.
INDIA: A Manufacturing Hub?
Make in India, a whimsical step taken by our Prime Minister Mr. Narendra Modi is an initiative taken towards boosting manufacturing in India and increase the contribution of manufacturing to GDP from 15% to 30%. Manufacturing is a very important sector for any country and acts to strengthen the backbone of economy. Encouraging manufacturing in our own country will reduce costs and give employment to our people. Creating more employment opportunities will prevent brain drain as well. Effective supply chain will play a huge role in making this a reality.
Supply chain involves the whole process of converting raw materials into finished product. Each stage requires inputs in various forms and value is being added at each stage and so it is known as Value chain. The value addition incurs costs that result in overall effect on final price. Now if the cost at the very beginning stage i.e. raw material cost is high, the ultimate product costs will automatically rise. The reason for high cost of raw materials is that they are imported from foreign countries instead of being extracted from our own country. Now imagine that not only the raw materials are imported but also the manufactured parts and finished products are imported. Imagine the amount of money that is being flown out of the country for no reason.
Now to “Make in India” there have to be facilities and opportunities equivalent to other developed countries so that the dream of making India a self-sufficient country comes true. In addition to that India also has to overcome the barriers present.
The most important part of excellent manufacturing is well maintained supply chains, but as of now India does not witness a good level of operations management. In India a huge portion of gross domestic product equal to 14% is spent on logistics. 22 % of total sales is caught up in inventories of all the supply chains. Due to inefficient logistic network there is a wastage of 20% in cold supply chains. It is agreed that making development in supply chain in a country like India which is seventh largest according to area, is not that easy but it is not impossible too.
The reason for poor logistics network are numerous and they have been effecting production since ages. There are some geographical disadvantages also. As compared to China, India lags behind by two weeks in shipping line from United States. Indian infrastructure which denotes roads, railways, airports, seaports, information technology (IT) and telecommunications is very deprived as compared with other developed and developing countries. Indian infrastructure is rated 54th among 59 countries in comparison to other developing countries (World Economic Forum, 2000). Only 48% of all villages present in India are connected by roads. Indian railways are rated 25th among 59 nations, World Economic Forum and the quality of airport infrastructure is rated 40th among 59 countries. All these figures tell us that infrastructure of India is not up to the mark of handling efficient supply chains. This results in grave disadvantages in acquiring of necessary materials required especially when companies are planning to get global. Make in India will promote the up-gradation of supply chains in India by strengthening freight network. This is a cycle of improvement that will take place. Due to Make in India campaign freight network will improve and the improvement leads to achieving better results for Make in India. To make this possible government has kept funds for increasing freight capacity by 50%.
Small and medium enterprises hold a very important space in Indian industrial sector as they have been able to perform efficient process of assembling goods in less costs and also maintained the quality standards. There is enough scope of cost reduction due to number of available factors, the only need being to employ them successfully. The reduced cost of logistics will decrease price of goods not only in India but also globally in turn making them more competitive. This will ultimately affect the economy and give us fruitful results being aspired by Make in India. In situations where it is inevitable to import machinery and components there the suppliers should also be asked to import certain minimum amount of components or raw materials from India so that the exchange remains same.
Hence improvements can be done in number of areas to come up with better supply chains which play a major role in Make in India. The focus should be on improving all zones including inventory management, operations and manufacturing. Utilization of latest technologies like radio frequency identification will lead to matching the pace of demand and reducing errors. Information technology and analytics should be utilized vigorously to standardize processes and keep a track of all activities. Internet of Things (IoT) and big data analytics will definitely help in making India’s supply chain competent.
The article is written by Akanksha Rajput. She is a second year PGP student at Indian Institute of Management Raipur