sTRIVE final.pdf

CONTENTS
Editorial
Director’s Message
10-Step Methodology for Deploying
Taguchi's Design of Experiment for
Process Optimization 1
Operations Strategy 5
National Manufacturing Policy 10
Dark Ages Of Manufacturing
Industry 13
Interview with Mr. Jawahar Agarwal 16
Industrial Visit 22
Gurumantras: PMI 23
Debate- Is a Strong Manufacturing
Base Essential for a Successful
Economy? 25
Summer Internship 27
Book Review: The Toyota Way 30
Crossword 33
Team Strive 35
About the Cover Page
The flames on the cover page represent heat of a furnace – an integral part of the manufacturing
industry. The countless sparks signify the hard work and efforts of the over 60 million employees
running the manufacturing sector in the country. The green colored theme marks the environmentfriendly
trend in the sector, which is gaining prominence each day. The gears show the excellence and
harmony between different processes that is very essential for the industry to perform and produce
positive results, especially under the tremendous competition as well as the policy issues it has been
facing.

EDITORIAL
Our economy is going through very tough
times. The manufacturing industry is
especially suffering due to various factors
ranging from rising oil prices to the disputes
in the allocation of natural resources.
Manufacturing being the 75% constituent in
the Index of Industrial Production (IIP) of
the country, the growth of latter has been
badly hit by the slump in the former. The IIP
growth in July 2012 stood at 0.1% while the
output of the manufacturing sector in the
same month contracted by 0.2%. The
corresponding figure in July 2011 was
recorded to have witnessed a growth of
3.1%.
On the other hand, we are also seeing some
huge reforms in this area such as the
National Manufacturing Policy (NMP) and
Goods and Services Tax (GST). In light of
the above developments, we can expect
immense changes in the manufacturing
sector of the country.
OPEP, the Operations and Supply Chain
Club at IIM Raipur serves as a platform for
the Students, Faculty members and Industry
Practitioners for sharing of knowledge in the
field of Operations and Supply Chain
Management.
This issue of the Strive magazine has been
dedicated to the manufacturing sector. The
magazine begins with an article by Prof.
Maddulety who has listed down and
explained a ten step methodology to
implement Taguchi’s Design of Experiment.
In the industry section, Dr. Dinesh Likhi,
Director (Production and Marketing) and
Member, Board, in Mishra Dhatu Nigam
Limited, talks about eight different strategies
that a manufacturing company should follow
to have a competitive advantage over its
competitors while Mr. Jawaharlal Aggarwal,
Vice President (Projects), Danieli India Ltd.
has, through an interview, presented the real
outlook of project management in the steel
industry.
The students have written article about some
of the contemporary issues relevant to the
manufacturing sector – ‘National
Manufacturing Policy’- discusses the new
manufacturing policy of the country. ‘Dark
ages of Manufacturing’ discusses the
challenges that stand in the way of the
growth of the manufacturing sector. We
have continued the columns Gurumantra and
Debate from Strive Issue 2. The former
explains Purchasing Managers’ Index (PMI)
and the latter debates the importance of
having a significant manufacturing base in
an economy.
Three 2 nd year PGP students of IIM Raipur
have shared their summer internship
experiences in Hero Motocorp, Jindal Steel
and Power Ltd and Berger Paints. A book
review of “The Toyota Way” and a brief
account of a visit to Bhilai Steel Plant by
IIM Raipur students are also included in this
publication.
We are thankful to Prof. B. S. Sahay, Prof.
Vinita Sahay and Prof. Ajit Prasad for their
motivation and immense support, Prof.
NOVEMBER 2012

Dinesh Kumar Likhi, Prof. Koilakuntla
Maddulety and Prof. Omkarprasad Vaidya
for teaching us the relevant subjects in the
field of Operations and Supply Chain.
We also thank Mr. Jawaharlal Aggarwal for
taking out time from his busy schedule and
contributing for the magazine. My editorial
would be incomplete without
acknowledging the support of Manoj,
Sujitha, Thousif and Mark in bringing out
this issue and the whole Team OPEP for
their commitment and dedication towards
the club activities. Please send us your
valuable feedback and suggestions for
improvement at opep@iimraipur.ac.in.
Akshay Agarwal,
Editor
Strive
TEAM STRIVE
Editors
Abhay Shankar
Akshay Agarwal
Sub Editors
Manoj Hariharan
Sujitha Tikka
Thousif Mohammed A
Designer
Mark Lalduhsaka
NOVEMBER 2012

Director’s Message
I am glad to see how IIM Raipur has grown since its
inception in 2010 and developed to create a benchmark
in the field of Management Education and Research.
OPEP, the Operations and Supply Chain Club of the
Institute, has played an important role in this journey
towards excellence. The biannual e-magazine ‘Strive’
started by our students has been successful since its
launch last year.
I am pleased to present the third issue of ‘Strive’, which
focuses on the Manufacturing Sector in India. Over the
years, various policies and initiatives taken by the
Government of India has made it one of the fastest
growing economies in the world. But the less than
expected growth rate of the Indian Manufacturing
Industry has been a cause of concern. With the new
National Manufacturing Policy (NMP) and several
other reforms on the anvil, the scenario is expected to
change in the near future. We can hope to witness the
contribution to the GDP from this industry to rise to a
more respectable figure from the present value of nearly
16%. I hope that this magazine will give you many
interesting and insightful reads about this crucial
subject.
I wish OPEP a great success in their endeavour and
hope that you enjoy reading this publication.
Prof. B.S. Sahay
Director, IIM Raipur
NOVEMBER 2012

10-Step Methodology for Deploying
Taguchi's Design of Experiment for Process
Optimization
Dr Koilakuntla Maddulety
Assistant Professor in Operations Management
National Institute of Industrial Engineering (NITIE), Mumbai
international awards, some of the recent
awards are: Bharat Jyoti Award (2012);
Best Citizens of India Award (2012); Asia’s
Best Professor Award(2011); Best Professor
in Operations Management Award(2011)
and Best Teacher in Operations
Management Award(2011).
He can be reached at koila@rediffmail.com,
koila@nitie.edu or Contact +919969326007
DR KOILAKUNTLA MADDULETY
About the author
Dr Koilakuntla Maddulety has 21 years of
industrial/teaching experience and
published/presented 50 plus research papers
/case-studies in Journals (International &
National)/Conferences and Seminars. He is
member of several research committees and
academic boards in India. He is the
recipient of several national and
Design of Experiments (DOE) techniques
enables designers to determine
simultaneously the individual and interactive
effects of many factors that could affect the
output results in any design. DOE also
provides a full insight of interaction between
design elements; therefore, it helps turn any
standard design into a robust one. Simply
put, DOE helps to pin point the sensitive
parts and sensitive areas in designs that
cause problems in yield. Designers are then
able to fix these problems and produce
robust and higher yield designs prior to
going into production.
R.A. Fisher in England developed the
classical methods for design of experiments
in the early part of the 20 th century. They
include a full variety of statistical design
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techniques based on Latin squares (balanced
square arrangements required for unbiased
statistical experimentation) and developed
for agricultural industry. While rigorous, a
major problem with applying Fisher’s
method in manufacturing industry is the
time and cost required to learn and use it.
Further, Fisher’s methods are often
cumbersome to implement in
manufacturing industrial experimentation
because of certain assumptions and
procedural emphasis.
The Taguchi’s Approach
Dr. Genichi Taguchi of Japan developed a
method for designing experiments to
investigate how different parameters affect
the mean and variance of a process
performance characteristic that defines how
well the process is functioning. The
experimental design proposed by Taguchi
involves using orthogonal arrays to organize
the parameters affecting the process and the
levels at which they should be varying.
Instead of having to test all possible
combinations like the factorial design, the
Taguchi method tests pairs of combinations.
This allows for the collection of the
necessary data to determine which factors
most affect product quality with a minimum
amount of experimentation, thus saving time
and resources. The Taguchi method is best
used when there is an intermediate number
of variables (3 to 50), few interactions
between variables, and when only a few
variables contribute significantly.
Genichi Taguchi believed that quality
should be designed into the products and not
inspected into it. Inspection does not
produce good products but only segregates
them from bad products. He also
propagated that quality is best achieved by
minimizing the deviation from a target and
the cost of quality should be measured as a
function of the deviation from the standard
Taguchi’s approach to the design of
experiments utilizes the concept of robust
design. Robust design refers to designing a
product or a
process in a
way that it
has minimal
sensitivity to
the external
noise factors.
It adds a new
dimension to
Fisher’s
statistical
experimental design by explicitly addressing
the concerns faced by all process and
product designers, namely
• How to reduce economically the
variation of a product’s function in the
customer’s environment, and
• How to ensure that the decisions found
to be optimum during laboratory
experiments will prove to be so in
manufacturing and in customer
environments?
Taguchi’s methods lead to excellence in the
selection and setting of product/process
design parameters and their tolerances. In
the past decade, engineers have applied
these methods in over 500 automotive,
electronics, information technology and
process-industries worldwide. These
applications have reduced cracks in castings,
increased the life of drill bits, produced
VLSI with fewer defects, speeded up the
response time of UNIX V, and even guided
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human resource management systems
design.
Methodology for deploying Robust Taguchi
approach for process optimization (10 step
methodology for problem solving)
1 Defining the Statement of
problem
Developing a good problem statement helps
make sure that right variables are being
studied. At this step, the questions that want
to be answered are identified.
For example, a problem statement can be as
follows.
The problem faced by the Manufacturing
Unit of XYZ Ltd, was 7% ‘wastage &
rejection’ of product due to improper
molding operation, which contributed a
revenue loss of around 84, 00,000 per year.
2 Determination of the objectives
A well-defined objective will ensure that the
experiment answers the right questions and
yields practical, usable information. At this
step, the goals of the experiment are being
defined.
For example, objectives can be defined as
follows.
a) Acquiring knowledge of deployment of
Taguchi Approach for solving Problem
b) Deploying the Taguchi Approach at
Problem area systematically in 10 steps.
c) Reducing 50% ‘wastage & rejection’ i.e.
from 7% to 3.5% by optimum setting of
input parameters of moulding process.
3 Ensuring correctness of
Measurement System
Ideally, both the process and the
measurements should be in statistical control
as measured by a functioning statistical
process control (SPC) system. Even if you
do not have the process completely in
control, you must be able to reproduce
process settings. You also need to determine
the variability in the measurement system. If
the variability in your system is greater than
the difference/effect that you consider
important, experimentation will not yield
useful results.
Minitab provides numerous tools to evaluate
process control and analyze your
measurement system.
4 Identification of Characteristics
that are to be optimized.
The Brainstorming Technique was used by
involving all the concerned employees and
executives to find out the characteristics of
products that are to be optimized.
5 Identification of the factors and
factor levels that are influencing
the performance characteristics
This step involves identification of the
controllable and noise factors that are
influencing the above performance
characteristics and determination of the
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levels and values for all identified
controllable and noise factors.
6 Developing Design for
Experimentation with the help of
Minitab Software.
The Taguchi’s method of statistical design
of experiments is done by using Orthogonal
Arrays. The choice of Orthogonal Array will
depend on the number of factors suggested
in step 5. Common arrays include an L8,
which looks at seven factors at two levels or
an L16, which looks at 15 factors at two
levels. An L8 or L16 array is ideal for initial
screening experiments.
7 Conducting the experiments as
per Designs and posting the
values in Minitab worksheet as
needed.
8 Analysis of data for selected
Quality Characteristics and
Interpretation of Analyses and
selection of the optimum levels
of the significant factors.
After collecting the data relating to
performance, against each of the critical
quality characteristics, it must be analyzed
to ascertain the precision and accuracy
achieved. This involves determining the
cause and effect relationship that exists
between the settings for each of the factors
and resulting performance on each measured
quality characteristic. Often this requires
several iterations of previous steps to arrive
at a full understanding of these relationships.
9 Prediction of the expected
results for optimal setting with
the help of Minitab.
10 Validation of optimal setting by a
confirmation Trails.
To verify that the relationships have been
correctly identified, the optimum settings for
the various factors are determined, and a
confirmation run carried out. This is
intended to ensure that the output is as
expected in terms of performance against
each quality characteristic and once
validated, these settings can then be
implemented as the new standard for each
factor.
Taguchi methods systematically reveal the
complex cause-effect relationships between
design parameters and performance. These
in turn lead to building quality performance
into processes and products before actual
production begins.
References
[1]. Montgomery, Douglas C., ‘Design and
Analysis of Experiments’, 5 th edition,
Wiley edition, 2006,
[2]. Bagchi, Tapan P., ‘Taguchi methods
explained – Practical steps to Robust
design’, Eastern Economy edition,
1993.
[3]. Christine Simms, John S. Garvin,
(2002),""It's a black art": "design of
experiments" switches on the light",
Managerial Auditing Journal, Vol. 17
Iss: 1 pp. 65 - 71
[4]. http://cms3.minitab.co.kr/board/minitab
_data/7.%20DesignofExperimentsAllT
opics.pdf
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NOVEMBER 2012

Operations Strategy
Dr. Dinesh Likhi,
Director (Production and Marketing) and Member, Board, in Mishra Dhatu
Nigam Limited
Strategic Framework For
Manufacturing
A company needs a ‘strategy’ that specifies
the kind of competitive advantage it seeks in
its market place and articulates how it shall
be achieved. In today’s changing,
challenging and competitive world, it is not
enough for a company to have its goal to be
as good as that of its toughest competitor,
advanced equipment or the transfer of
production to a low–wage area, rather, a
need has arisen for ‘strategic flexibility’,
better suited to respond to the market
requirements of the time than to pursue a
mere generic approach to competitive
success.
It is, thus, obvious that the key to long term
success of a company is being able to do
things better than your competitors, besides
selecting and creating operating capabilities
in anticipation of market demands.
Mass Customization – Developing
Unique Operating Capabilities
Providing remarkable services to customers
is imperative in order to perform better than
the competitors. One of the programs
invented to meet every customer’s request is
mass customization. This attempt has been
on one hand, embraced as providing a
unique value to the customers efficiently and
on the other as a strategy that can produce
unnecessary cost and complexity.
Later, four distinct approaches to
customization namely - collaborative,
adaptive, cosmetic and transparent have
been identified, which provided a
framework for companies to design
customized products and to support business
processes. Each of the approaches is
important in its own way and differs on the
conditions under which each should be
employed.
Collaborative customization is apt for
businesses which deals with customers who
cannot easily articulate their requirements,
and grow frustrated when forced to select
from a plethora of options. The adaptive
approach is appropriate for businesses
whose customers want the product to
perform in different ways in different
situations. The cosmetic approach is
appropriate when customer’s usage of a
product is the same but differs only in how
they want it to be presented. The transparent
approach to customization is appropriate
when customers’ specific needs are easily
predictable.
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The various combinations of the approaches
to customization have to be explored and a
company has to come up with the
combination that would create customer
unique value at the lowest possible cost.
Product Development – A Way to
Survive Competition
Creating a sustainable product development
competitive advantage is the most effective
organizational capability, which will have a
greater impact on market share and the rate
of share growth than other organizational
capabilities. The company has to be adept at
creating new products and extensions of
them to be competitive, according to the
changing market conditions and the product
life cycle, a factor popularly known as timeto-market
and to deliver this capability,
being productive and timely is imperative.
The rise in customer expectations in this
competitive environment has made quality
and accuracy (in design), a virtue of design,
which also determines a business
competitive status.
enabled, accurate budget allocations are
made and the risk of performance issues at
the functional block level are minimized.
During product development stage, supply
chain management plays a key role not only
in operations to deliver new product, but
also in adopting innovative processes such
as IPD.
Technology Strategy – A
Competitive Advantage for a
Diversified Corporation
In a diversified corporation, it is essential for
a corporate technology strategy to be an
integral part of corporation’s business
strategy. In fact, it has become an economic
imperative of late. The developed strategy
has to be continuously evolving and also
must adapt to the changing competitive
patterns.
A well-structured strategy gives an
opportunity for senior managers of the
organization to understand the threats and
opportunities faced by the corporation,
which in turn helps in improving efficiency,
effectiveness and profitability of the
corporation (or business).
Human Capital Strategy
With the help of processes like Integrated
Product Development and Sequential
Development, smooth functioning is
Human capital is the most valuable and
important asset held by an organization
today. Managing human capital effectively
is directly proportional to the success of the
company and an effective management in
turn requires a well-formulated strategy. The
strategy of human capital is based on two
principles –
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People are assets whose value can be
enhanced through investment. As with any
investment, the goal is to maximize value
while managing risk.
An organization’s human capital approaches
should be designed, implemented and
assessed by the standard of how well they
help the organization achieve results and
pursue its mission.
Quite a number of principles related to
human capital management were put forth
by various organizations, aimed at managing
human capital efficiently. GAO in April
1995 sponsored a 2-day symposium of 32
leaders from leading private and public
organizations, to discuss the approaches of
these organizations towards managing
people. The principles – Value people as
assets rather than coasts; hold managers
responsible for achieving results instead of
imposing rigid, process-oriented rules and
standards; choose an organizational structure
appropriate to the organization, rather than
trying to make ‘one size fit all’; integrate
human resource management into the
mission of the organization; provide
sustained leadership that recognizes change
as a permanent condition were put across by
the participating organizations as principles
for effective human resource management.
The human capital practices have to be
evaluated and the process has to be
continuous in order to achieve the
organization’s strategic objectives.
Strategic Flexibility – In
Uncertain Times
To succeed in today’s competitive
environment, a set of robust strategies that
can respond to any scenario that challenges
a business or a corporation, is needed.
However, formulating strategies for a
business, to withstand disruptions is a
herculean task and this does not come easily.
Though strategies for maintaining flexibility
is different for different businesses,
depending upon the various factors that
bring about change, few steps like –
challenge complacency, employee
empowerment, open lines of
communication, collaboration through cross
functional teams, transparency in
information sharing, will by and large stand
valid.
Global Sourcing – Globalization at
its Best
Global sourcing, which is a way of sourcing
goods and services from the global market,
is one of those strategies that is drawing
increasing attention from organizations. It
aims at exploiting global efficiencies in
delivering goods and services at reduced
cost and it shouldn’t come as surprise that it
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has become an integral part of the strategic
sourcing plan and procurement strategy of
many organizations.
Global sourcing largely involves integrating
and coordinating common items, materials,
processes, technologies, designs and
suppliers across worldwide buying, design
and operating locations. The issues (or
rather disadvantages) confronted by an
organization while it progresses from
domestic purchasing to global sourcing are
far outweighed by the advantages. Some
advantages of global sourcing include
expanding supply capacity, withstanding
competition in a potential market, tapping
into skills or resources unavailable
domestically. Some key disadvantages
include increase in monitoring and hidden
costs associated with different cultures and
time zones, longer lead times.
The Characteristics of
Outstanding Global Sourcing
• Executive commitment to global
sourcing
• Rigorous and well defined processes
• Availability of needed resources
• Integration through Information
Technology
• Supportive Organizational design
• Structured approaches to communication
• Methodologies for measuring savings
Global sourcing which is a continuously
evolving process reaps abundant benefits, if
managed and supported properly. It offers
the best opportunity to achieve a
breakthrough in highly competitive
industries. However, in order to achieve this,
a thorough understanding of all aspects
related to global sourcing, is required.
Six Sigma - An Approach to
Quality
Six Sigma - a business management strategy
is a data-driven approach and methodology
for eliminating defects. To reach Six Sigma,
a process must not produce more than 3.4
defects per million and this technique is far
more advanced compared to other
techniques like TQM, quality circles etc., as
it focuses on defects per million. In order to
achieve six-sigma, fine-tuning the existing
systems alone is not sufficient. Rather, new
methods and procedures should replace old
ones existing in an organization. The
techniques which were first formulated to
improve the manufacturing processes are
now being largely applied in other business
areas. The Six Sigma DMAIC process
(define measure, analyze, improve, control)
is a five-step process for achieving the
standards. The streamlining is started off by
defining the project goals and customer
deliverables, followed by measuring the
process to determine current performance,
analyzing the root causes of the defect,
followed by improving the process by
eliminating defects and lastly controlling
future process performance.
Though there is another process known as
DMADV process, most of the companies
start implementing DMAIC process first, as
it is considered the primary step to
product/process improvement.
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References
[1]. Robert H. Hayes and Gary P. Pisano,
Beyond World-Class: The new
manufacturing strategy, Harvard
Business Review, January-February
1994
[2]. James H. Gilmore and B. Joseph Pine II,
The Four Faces of Mass Customization,
Harvard Business Review, January-
February 1997
[3]. John Kamauff, Robert D. Landel and
Walter Sedlazek, Note on product
development: A competitive edge for
operations, Ivey Management Services,
Version: (A) 2001-04-27
[4]. Thomas C. MacAvoy, Paul M.
Hammaker, Technology strategy for a
diversified corporation, University of
Virginia Darden School Foundation,
Charlottesville, VA, UVA-OM-
0659
[5]. Tom Cross, Senior Director of Executive
Education, Human capital strategy,
University of Virginia Darden School
Foundation, Charlottesville, VA, UVA-
OB-0848
[6]. Peter Jacobs, Five steps to thriving in
times of uncertainty, Harvard
Management Update, article reprint no.
U0512A
[7]. Robert J. Trent and Robert M. Monczka,
Achieving excellence in global sourcing,
MIT Sloan Management Review, Fall
2005, Vol. 47 No.1
[8]. Hal Plotkin, Six Sigma: What it is and
how to use it, Harvard Management
Update, article reprint no. U9906C
QUICK FACT
Oldsmobile was the first car to be mass produced in 1900. The
"Model-T" Ford was the first car to be built on an assembly line in
December of 1908, but was only the second car to be mass produced
in large numbers
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National Manufacturing Policy
Gagandeep Singh, PGP 2012-14
Indian Institute of Management Raipur
In the backdrop of dismal manufacturing performance Government has launched the National
Manufacturing Policy. The new National Manufacturing Policy (NMP) with its National
Investment and Manufacturing Zones (NIMZ) came at a crucial time with the country facing a
lower than expected GDP growth, smaller net inflow of foreign investment , and a continuously
devaluing currency. With the new NMP, there is cheer and hope within industry but its ultimate
success or failure is a question whose answer lies in the womb of the future.
Over the years, numerous policy measures
and economic restructuring have heralded
the process of growth and development
thereby making India one of the fastest
growing economies in the world. However,
the dismal performance of India’s
manufacturing sector, especially when
compared with the manufacturing sectors of
other countries at more or less the same
level of development, has been a cause of
concern. This necessitated the development
of a dedicated policy for the sector with a
view to accelerated development, inclusive
growth and provision of gainful
employment. This is how the National
Manufacturing Policy came into being.
The NMP is a policy solution for a number
of challenges and a strategic tool to be
applied to select zones designated for
promoting manufacturing .The new National
Manufacturing Policy (NMP) with its
National Investment and Manufacturing
Zones (NIMZ) came at a crucial time with
the country facing a lower than expected
GDP growth, smaller net inflows of foreign
investment - both portfolio and direct, and a
continuously devaluing currency. The
NIMZs would be a combination of
production units, utilities, logistics solutions,
environmental protection solutions,
residential complex and value added
services.
Government of India decided to bring out
the National Manufacturing Policy to bring
about a quantitative and qualitative change
with the following six objectives:
1. Increase manufacturing sector growth to
12-14% over the medium term to make
it the engine of the growth of the
economy. The 2-4% differential over the
medium term growth rate of the overall
economy will enable manufacturing to
contribute at least 25% of the National
GDP by 2022.
2. Increase the rate of job creation in
manufacturing sector to create 100
million additional jobs by 2022.
3. Creation of appropriate skill sets among
the rural migrants and urban poor to
make growth inclusive.
4. Increase domestic value addition and
technological depth in manufacturing
sector.
5. Enhance global competitiveness of
Indian manufacturing sector through
appropriate policy support.
6. Ensure sustainability of growth,
particularly with regard to the
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environment including energy
efficiency, optimal utilization of natural
resources and restoration of
damaged/degraded eco-systems.
The policy envisages that “the NIMZs
would be large areas of developed land, with
the requisite eco-system for promoting
world-class manufacturing activities”.
Special economic zones (SEZs), with their
focus on exports are different from NIMZs
as the latter are envisaged as industrial
townships of a minimum size of 5000
hectares.
Each NIMZ will be managed by a special
purpose vehicle (SPV), which will be
conferred the powers prescribed by the
policy. The policy specifies that the SPV’s
CEO must be a senior central or state
government official. So, the inherent
intention is to make these townships
function as a public corporation for the
benefit of the private sector, free from
bureaucratic hassles and delays that mar the
India’s existing urban local bodies. The aim
is to permit both clustering and
concentration of infrastructure. In one way
or the other, it is a return to the past, though
these are designed to stimulate
manufacturing activities by a cluster of
smaller firms and enterprises, rather than
being daunted by a single large employer.
The standards set are really high: to increase
manufacturing sector’s share of GDP to
25%, and create 100 million additional jobs
by 2022. In order to see this dream turning
into reality, it is time to bring about the
changes rather than just envisaging them
innumerably.
For this purpose NMIZs should be set up
quickly without any red-tapism and
bureaucratic hassles. These zones should
operate under a set of rules and regulations
that are compatible and comparable with the
rest of the Asian countries. Manufacturing in
India contributes to a mere 15% of GDP,
unlike China (34%), Thailand (40%), South
Korea, Poland, Turkey and Malaysia
(approximately 26-30%). In addition to that,
in last two decades, the Indian economy has
directly jumped from being agrarian to be
heavily skewed towards the tertiary sector
(i.e. services sector), skipping the crucial
intermediate phase of thrust on
industrialization. To be able to meet the
performance standards, the manufacturing
sector needs to develop at an exceptionally
high rate in order to be able to leave behind
the overall GDP growth rate over the next
decade. This is likely to happen in the long
run, if the share of manufacturing in overall
GDP rises. Given the shares of agriculture
(Primary sector), services (Tertiary sector)
and industry (manufacturing sector being the
dominant part) must add up to 100 per cent,
it is not clear from the policy as to which of
the other two sectors is the one to make way
for the greater amount of manufacturing
sector’s share in the overall GDP and within
an aggregate growth target of nine per cent.
The most likely alternative is the preference
of manufacturing activities over agriculture
which is certainly going to be above of
contention. Furthermore it is true that
India’s Asian peers — Indonesia, China and
South Korea — have a much higher share of
manufacturing when compared with India,
but there is no cogent reason to think that
11
NOVEMBER 2012

they represent a ‘sacrosanct norm’ to which
India should comply.
As a matter of fact, the protectionist policy
regime still seems to be the fixation of the
government and the policy makers. This is
illustrated by the following recommendation
on the exceptionally glaring reference to
regional trade agreements - “It will be
ensured that such agreements will not have a
detrimental effect on domestic
manufacturing in India”. The main motive
of such multilateral frameworks is
promotion of competition in the domestic
market in order to increase their
competitiveness and efficiency. Such
measures in the policy document are likely
to defeat the very purpose of the multilateral
trade agreements. Various experts have
opined that in the wake of rising competition
from China, the Indian government has
upped the ante by unveiling NMP.
To ensure proper implementation of the new
National Manufacturing Policy (NMP), it is
indispensable to liberalize India’s labor
markets and make the movement of labor
perfectly mobile across the sectors;
otherwise there is no incentive for industry
to create jobs. To make this happen, there
has to be a greater understanding between
government agencies, industry
representatives and representatives of major
unions. While conceptually NMIZs seem to
be an excellent idea, it runs the risk of
ending up being ineffectual given the
problems faced by many SEZs with regard
to land acquisition. Also, the policy relies on
creation of few Greenfield clusters that too
only along the Delhi-Mumbai Industrial
Corridor (DMIC). Thus, it appears as if the
NIMZs have been conceptualized on the
basis of DMIC. This is exactly the reverse of
what the policy should ultimately aim to
achieve. In fact, policies such as NMP
should focus on the creation of superior
projects like DMIC - which aim to develop
the entire region by providing state of art
infrastructure and manufacturing hubs.
DMIC itself would take another 3-4 years to
be operationalized. This, in turn, implies that
the proposed NIMZs will also take same
amount of time to start yielding desired
results.
With the new NMP, there is cheer and hope
within the industry, since this largely
neglected part of the Indian economy is now
being paid attention to and its genuine
concerns are finally getting addressed. The
nature of ‘policy’ is that it is a ‘policy’ and it
is of no use until it is implemented in an
effective and efficient manner which seems
to be the greater concern as of now. NMP
has provided a well knitted framework for
providing the much required boost to the
manufacturing sector but the crux remains to
be the implementation of the same. The first
half has been exhilarating and enchanting;
rising hopes for the other half. Let’s hope
that it turns out to be at par with the sky high
expectations.
References
[1]. http://india.gov.in/allimpfrms/alldocs/16
395.pdf
[2]. http://www.etmag.com/etmagnews/daily-news/2012/0531/26.htm
[3]. http://www.eastasiaforum.org/2011/11/3
0/does-india-really-need-a-nationalmanufacturing
policy/
12
NOVEMBER 2012

Dark Ages of Manufacturing Industry
Shahul Hameed, PGP 2012-14
Indian Institute of Management Raipur
This article captures the current situation of manufacturing business in India. Though our GDP
started rising again after a long period, the contribution of manufacturing sector in this growth
is very meager. There are numerous reasons around this issue and lack of Government
intervention is one primary reason among those. Is the manufacturing industry doomed to wane
further even in the forthcoming periods as well? Or is there any possibility of turnaround?
You are a reputed manufacturing firm, say
ABC Ltd. and I am also an equally wellknown
consulting firm, say XYZ Ltd. You
come to me and seek advice to open a
manufacturing firm in India, having
considered India to be a huge market that
could be exploited to your full capability.
You sound very confident and optimistic
about your plans. But you could not have
expected even a little that I am going to
shatter all your plans in a flash by saying,
‘please never ever think of doing a
manufacturing business in India’.
My answer sends a real shocking signal to
you and it looks like you do not get
convinced at all. Since you come to me with
a programmed state of mind, of setting up a
business and earning a super- normal profit,
my job is getting tougher in making you
understand the reality. Now you consider me
as a naive consultant and get a second
thought of going to some better consultants.
Since you paid me some advance amount for
the advisory services and you don’t want to
lose your investment just like that, you halfheartedly
decide to spend some time with
me to know the logic behind my hypothesis.
Indian market as well as manufacturing
sector. The GDP growth of India has revived
up to 5.5% in the last quarter after dropping
from a high of 9.2% in Q4 in 2010-11 to a
low of 5.3% in Q4 in 2011-12. So it is not
your fault to presume that you could not find
any better time than this, to make all your
investments here, since India has started
showing some positive signs eventually after
a long period of rough patch. But, you fail to
realize one important fact, that you come to
a sudden conclusion by getting to know only
a few facts where further explorations are
highly needed.
I am making you dig deeper into the other
data available; now you come to know that
out of the whole GDP growth,
manufacturing sector has posted a mere
I am starting my justifications by presenting
some current facts pertaining to overall
13
NOVEMBER 2012

growth of only 0.2% which is totally
dreadful for a sector. This result shows
clearly the plethora of problems the Indian
manufacturers are facing. Also while
looking at another data on inflation in this
July, figures reveal that the rate of price rise
of primary products was at a high 10% plus
while that for manufactured goods was only
about half that rate; this means the
manufacturing goods’ price remains pegged
at a certain level in spite of the increase in
overall inflation.
You may wonder why this happens because
overall inflation means all products’ prices
should also go up equally without any
discrimination; since all fixed and variable
costs should have been going up because of
inflation. Naturally you will increase your
price to maintain your profit margin or at
least to avoid losses. So, as a manufacturer,
you could be least bothered about inflation
as long as you are also able to raise your
price level. If your product comes under the
necessity category, you can fully afford to
do it, but in case of luxury products, you
can’t do so since the demand for a luxury
product may go lower with the price raise.
Also due to the liberalization of economy,
foreign products are already flooded in
Indian markets and if you raise the prices
above a threshold level, you will lose a large
share of customer bases.
So now you realize that you can’t raise the
prices and the only option left is reducing
the cost of production. But you are not going
to get any relief here as well because the
cost of raw materials and other inputs such
as labour and capital would naturally grow
higher due to inflation and there is a little
scope for you to decrease the cost of
production unless you adopt a 100%
efficiency in your production which is also
not practically possible and even if it
happens, it is not going to reduce your
burden to a large extent. So the
manufacturers are cornered from all sides,
only because of the external problems and
not due to those which are caused by them.
In case of such crunch situations, it is quite
natural to expect that the government will
act to the rescue. After all, these things have
happened because of the inefficiency of the
government to tame the inflation and control
the rising prices of all other products. So it
becomes their moral responsibility to take
all the corrective measures, but
unfortunately they are not doing so. Instead,
they are doing exactly the opposite of what
has been expected out of them by merely
increasing the interest rate of lending several
times. If you see in last 2-3 years, the repo
rate has been increased so often with the
sole intent of controlling inflation. But
inflation is relentless in its pursuit and due to
the coagulation of funds caused due to the
hike in interest rates, the overall economic
growth is adversely impacted and this is
comparatively worse in the manufacturing
sector.
14
NOVEMBER 2012

Also the policy makers do not bother about
this industry much because of their low
political gains here. They keep on giving
their limited available funds in the form of
subsidies that could fetch them a super-hero
image in the minds of common people
which would increase their chances of
coming to power again. So it is quite
expected that they won’t give much
attention for this area which contributes to
substantial 25% of the nation’s GDP growth.
Now I make you understand fully the overall
image of this industry in India. It is in a very
dark and gloomy state because of many
external issues and yet no one to go to; if
this continues, very soon, all domestic
manufacturing firms will shut down their
units and only the foreign products will be
available in the market which would further
complicate our problems.
Being a consultant, I am suggesting you to
not dare think again of setting up a
manufacturing unit here. Now I feel satisfied
that I made all your paid money worth .You
too agree with this, but still, you want to
bring your business here after sometime and
hence you shoot your last question to me, by
asking when all these problems will get
perished. And my straight answer to you is
considering the current political and
economic scenarios, it is not that easy to
solve all the problems in a flash. But at the
same time, the possibility can’t be
discounted completely. The government and
the oppositions should co-operate with each
other and help in paving way for the set of
policies that could uplift the sector from the
ORS current dismal state. Hopefully it
happens soon.
Reference
[1]. Article on ‘Policy – Induce
Manufactures’ in the editorial column of
The Economic Times dated 5 th Sep,
2012
QUICK FACT
Manufacturing accounts for less than 16% of the GDP in India. On a comparative scale (in
other emerging countries), the corresponding share of manufacturing sector in the GDP of
Thailand, China and Malaysia are 40%, 34% and 28% respectively.
15
NOVEMBER 2012

Interview with Mr. Jawahar Aggarwal
VP - Projects, Danieli India Limited
About Mr. Jawahar Aggarwal
Mr. J.L. Aggarwal is the Vice President
(Projects) in Danieli India Limited. He is a
B.Sc.Engg (Mech) Hons. from Punjab
Engineering College, Chandigarh and an
M.Tech in Management & Systems from IIT
Delhi. He joined Hindustan Steel Limited
(Now known as Steel Authority of India
Limited) in the year 1968 as Junior
Engineer. He worked in various plants and
units of SAIL in different capacities in the
areas of maintenance, consultancy, design
engineering, project formulation, project
execution and project management. He
retired as Executive Director (Projects)
from Durgapur Steel Plant in the year 2007.
He had completed various projects during
this period and had steered the
modernization scheme of Durgapur Steel
Plant in the year 2007. During the above
period, Mr. Aggarwal worked as General
Manager (Project) on deputation to SCOPE
for completion of a sick project beset with
various technical, commercial and legal
problems and successfully completed and
commissioned the same. After his
superannuation from SAIL, he joined Essar
Steel Orissa Limited (a group company of
ESSAR Group) in Feb 2008 as VP (Projects)
responsible for management of their
Beneficiation, Slurry Pipeline and
Pelletization Project. He, in Jan 2010,
joined Surya Roshni Limited to steer their
proposed 6.0 MTPA Integrated Steel Project
in Karnataka. At Danieli India Limited, Mr.
Aggarwal is responsible for executing their
FTSR (flexible thin slab rolling) project in
NMDC.
A Brief History of Steel Industry
in India
The steel industry in India has a very
interesting history. The modern iron and
steel industry in India owes its origin to the
grand vision and perseverance of Jamsetji,
Nusserwanji Tata who conceived the first
integrated steel plant in India. The Tata Iron
and Steel Company Limited (Tata Steel) was
registered in Bombay on 26th August 1907.
The plant was set up with an initial ingot
steel capacity of a mere 0.1 million tonnes.
The first blast furnace was blown-in on 2nd
December 1911, and the first ingot rolled on
16th February 1912.
Soon after the outbreak of the First World
War in 1914, the plant was geared to meet
the priority needs of the government. It
worked on a 24 hour schedule, and sold its
16
NOVEMBER 2012

product to the government at a fraction of
the price prevailing in the open market.
Tatas supplied 1500 miles of rails and
300,000 tonnes of steel to the allies’ war
effort. During this period, Tata Steel
embarked on an expansion of the works. The
greater extension programme was taken up
in 1917 to raise the steel production to
500,000 tonnes.
The programme was delayed due to the war
and could be completed only in 1924.
Disruption of steel supplies of iron and steel
products from Europe during the First World
War opened up the possibility of a second
steel plant in the country and this gave birth
to Indian Iron and Steel Company in the
year 1918. While the blast furnaces were
started in 1922 and 1924, the steel making
facilities were set up in 1939.
By this time Tata Steel also added new units
and, a capacity of 800,000 tonnes of saleable
Steel was attained by 1939. At that time,
Tata Steel came to be regarded as the largest
Steel plant in the British Empire and also the
cheapest exporter of pig iron in the world.
During the years of the Second World War
between 1939 and 1945, Tata Steel
contributed in a big way towards supplying
war materials.
Steel Industry is a highly capital intensive
industry and the returns from investment
take a long time to start. But at the same
time it is the backbone and mother of all
manufacturing industries. Post -
independence, the Government of India in
its vision took the right decision to set up
steel plants in the public sector. The first
public sector steel plant was conceived at
Rourkela. Hindustan Steel Limited (HSL)
was set up on January 19, 1954 to manage
only one plant that was coming up at
Rourkela. This was followed by Bhilai ad
Durgapur Steel Plants for which the
preliminary work was done by the Iron and
Steel Ministry. From April 1957, the
supervision and control of these two steel
plants were also transferred to Hindustan
Steel.
The 1 MT phases of Bhilai and Rourkela
Steel Plants were completed by the end of
December 1961andof Durgapur in January
1962.Progressively,the capacities of these
plants were expanded and by 1972-73 HSL
had a capacity of 4.0 MT.
A new steel company, Bokaro Steel Limited
(Bokaro Steel Plant), was incorporated in
January 1964 to construct and operate the
steel plant at Bokaro.
To evolve a new model for managing
industry the Ministry of Steel and Mines
drafted a policy statement which was
presented to the Parliament on December 2,
1972. On this basis the concept of creating a
holding company to manage inputs and
17
NOVEMBER 2012

outputs under one umbrella was mooted.
This led to the formation of Steel Authority
of India Ltd. The company, incorporated on
January 24, 1973 was made responsible for
managing five integrated steel plants at
Bhilai, Bokaro, Durgapur, Rourkela and
Burnpur, the Alloy Steel Plant and the
Salem Steel Plant. In 1978 SAIL was
restructured as an operating company.
Post liberalization, many private
entrepreneurs have also come up in this
sector and set up integrated steel plants. The
present installed capacity of steel in India is
approximately 70 MT and India ranks 4 th in
World Steel Production.
Strive: When and how did you get
associated with steel industry?
Mr. J L Aggarwal: My association with
steel began in the year 1966 when I came to
Durgapur as a student engineer trainee
during the college summer break. However,
I started my professional career in Steel
Industry in the year 1968 after my
graduation from Punjab Engineering College
Chandigarh. At that time a job in Hindustan
Steel Limited (now known as Steel
Authority of India Limited) and so also in
other PSUs was considered a plum job. At
that time the steel industry in India was at a
primitive stage with only Tata Steel and
IISCO in the private sector both established
pre-independence and HSL in the Public
sector set up post-independence with
Rourkela, Bhilai and Durgapur Steel plants.
Then came Bokaro Steel Plant followed by
Rashtriya Ispat Nigam Limited. All these
plants were started with an initial capacity of
1.0 MT each. In 1972 Hindustan Steel
Limited was restructured to form Steel
Authority of India Limited, a holding
company to manage inputs and outputs
under one umbrella. This was converted to
an operating company in 1978. Over the
years the private sector has also come up in
this area and the total installed capacity of
steel in India stands at close to 70 MTPA.
Strive: What is the biggest change you have
seen from the time you started your career?
Mr. J L Aggarwal: I have been in the steel
Industry for nearly 44 years, 39 years in
SAIL and about 5 years in private sector
steel industry post retirement from SAIL.
During the first about 15-20 years the pace
of change in this sector was not very
dynamic. There were not many technology
changes and not much of capacity
expansion. But after the second half of the
eighties the industry has seen phenomenal
growth both quantitatively as well as
qualitatively. Some of the major changes
that the industry has witnessed are
1. Increased role of private sector
2. Adoption of New Technologies
3. Concern for environment
4. Benchmarking with the world standards
in terms of operating parameters
5. Amalgamations and mergers of
Technology Suppliers across the world.
But sadly, being a blue collar job industry it
has lost its sheen in the eyes of the younger
generation who prefer white collar jobs.
Strive: Could you please let us know more
about the challenges faced by you during
project management and execution in
18
NOVEMBER 2012

various public and private sector
companies?
Mr. J L Aggarwal: Although as a
Mechanical Engineer I started my career in
Maintenance but over the years I graduated
to Project Management which became my
Key Area of Activity. As compared to
Operations Management where the stress is
on volumes and profits, the Project
Management offers different opportunities
and challenges every day. The biggest
challenge is to complete the project without
cost over-run and time over-run. The
project, to be successful, needs a very
meticulous and micro planning. The
problems in project management are quite
often unpredictable and one has to plan for
all eventualities. Some of the common
problems faced are
1. Shortage of funds
2. Delays in statutory clearances
3. Delays in technical decisions by
consultants
4. Delays by Suppliers/contractors as
sometimes they take orders at
unworkable price.
5. Conflict of operational and project
requirements particularly in case of
brown field projects.
Having been mostly in the public sector I
must say that there was generally no
shortage of funds as the projects are
conceived after ensuring the availability of
funds, but in private sector this sometimes
becomes a major constraint.
Strive: Could you please share with us the
issues faced while executing projects
onshore?
Mr. J L Aggarwal: I have already
highlighted the challenges faced in project
management. The other issues are
1. Delays in statutory clearances.
2. Over-interference of the regulatory
authorities resulting in fear leading to
indecision. This is particularly relevant
to public sector.
3. Cost and time over-run due to delays.
Strive: Could you let us know about any of
the projects which failed in execution stage
and the possible reasons for the same?
Mr. J L Aggarwal: When you talk of a
failed project, it has to my mind two
connotations. Firstly, a project that does not
yield the anticipated results/returns after
implementation and secondly a project that
could not be implemented as planned. As a
Project Management professional it is the
second connotation which concerns me the
most and from that perspective, the one
project which comes to my mind is the
SCOPE Minar Project in Delhi. Although it
was not a project related to steel industry,
but I was entrusted to this project at a stage
when it was already midway and had got
estranged with multidimensional problems –
technical, commercial, legal and
administrative. This was a project for the
construction of a 20 storied building for
housing the offices of the PSUs. This project
which was started in 1987 and was to be
completed in 3 years took almost 15 years to
complete. The one single reason which
according to me caused the inordinate delay
was that the management of the project was
left in the hands of someone who had no
stakes in the project. The whole project got
engulfed in technical, legal and commercial
19
NOVEMBER 2012

problems and disputes and came to a
standstill after almost 70% investment. With
the change in management and other drastic
steps the project was completed thus
avoiding a huge loss to the exchequer. The
project management must be in the hands of
one who has stakes in the project. The stakes
could be either in the form of
investment/profit or in terms of future
growth in the organisation or in terms of
rewards/punishment. Quite often in some
organisations the project job is considered
second to operations projects and persons
who cannot prove themselves in production
are entrusted with projects. While the results
in Production management are visible over a
short term, the results of Project
Management are generally visible only in
the long run.
Strive: Having rich experience of working
in both public and private sector steel
companies, could you please let us know
the differences in both?
Mr. J L Aggarwal: There is a vast
difference in the working of Public and
Private Sector. Basically the Public sector
has to function within a strictly defined set
of rules and procedures and there is no scope
for mid course corrections/ changes which
according to me are sometimes very
essential for the overall success of the
project. In private sector there is more
flexibility and freedom of decision-making.
Just to elaborate, the tendering process in
public sector has to strictly follow the
process of lowest tender whereas in private
sector the project management is free to
negotiate with all tenderers and are thus able
to draw the maximum price advantages.
Even during the execution process there is
lot of flexibility in private sector whereas in
public sector, the rules and procedure restrict
the project manager from taking decisions
which are necessary in the interest of the
project.
Strive: Could you please share with us the
recent trends or practices in steel industry?
Mr. J L Aggarwal: As I mentioned earlier,
Steel Industry is a very capital intensive
industry where the return on investment is
not immediate. That is why post
independence the steel industry was initially
set up in the public sector where the
objective was not exactly profit but to
prepare a base for the national development
and for the manufacturing sector. However
with the passage of time it became necessary
to make the industry competitive and to run
it as a profitable venture. This has seen
many changes in trends and practices
namely,
1. Higher capacities of units to get the
benefits of economies of scale.
2. To reduce dependence on manpower
through extensive automation and
computerization.
3. Changes in technology to take care of
the environmental norms.
4. To produce special steels instead of the
garden varieties for better profitability.
5. Technology change to use low quality
ores and other scarce raw materials.
6. Continuous pressure on cost reduction
through technology, innovation,
automation etc.
Strive: What are the benchmarks and
standards followed in Steel Industry?
20
NOVEMBER 2012

Mr. J L Aggarwal: The steel industry
follows a number of operational benchmarks
aimed at reducing costs and increasing
productivity like
1. Energy consumption per tonne of steel
produced
2. Coke consumption per tonne of steel
produced
3. Make-up water consumption per tonne
of steel produced
4. Manpower cost per tonne of steel
produced
5. Yield of finished product as percent of
input
6. Percent of profit spent on Corporate
social responsibility
The Govt. of India has instituted an
institutional award called Prime Minister’s
Trophy for the best integrated steel plant in
the country and every year the performance
of all participating integrated steel plants is
judged by an expert panel on various bench
marks and a trophy awarded to the best
judged steel plant. The panel carries out an
extensive survey including cleanliness and
housekeeping, comparison of performance
parameters, benchmarks’ achievement,
labour productivity, CSR activities and
many other factors before announcing the
award.
Strive: India, the world's fourth-largest
steel producer, has been a net importer
since 2008. Don’t you think there are some
flaws in the current system?
Mr. J L Aggarwal: India is the fourth
largest steel producer in the world but the
per capita steel consumption in India is a
mere 57 kg (in 2011) as against the world
average of 206 kg. Considering the
country’s population and the lack of
infrastructure facilities there is a huge
demand of steel in the country. Although
many plans were announced by the Govt. of
India to increase the steel production
capacity in the country the actual
implementation on the ground has not been
commensurate with the plans. Although so
many MOUs have been made by the
different states for setting up of steel plants
not even 25% have actually been
implemented. This is obviously due to the
flaws in the system where even the serious
players like POSCO, Tatas and Mittal have
not been able to break grounds in Orissa. In
my opinion, the Govt. should lay more stress
on expanding the Steel capacity in Public
sector rather than giving mines to the private
sector.
Strive: What is the one advice you give to
young managers joining the
manufacturing industry?
Mr. J L Aggarwal: In spite of over 60 years
of independence we still remain a
developing nation. My advice to young
managers is that whatever career or
profession they choose, they should excel in
their work and also contribute towards
nation building.
21
NOVEMBER 2012

Industrial Visit
Students visit to Bhilai Steel Plant
On Thursday, the 18th of October, 57
students of PGP 2012-14 batch of Indian
Institute of Management Raipur visited
Bhilai Steel Plant, the flagship unit of Steel
Authority of India Limited. This plant is
popularly known for being the sole supplier
of the country's longest rail tracks of 260
meters.
Bhilai Steel Plant is located about 35 km
from Raipur, the capital city of Chhattisgarh,
and is one of the major producers of steel
plates, wire rods and other structural parts.
The students had the opportunity of visiting
four main sections of the plant namely the
rail and structural mill, the blast furnace, the
plate mill and the coke ovens.
The seven different products from the rail
and structural mill are used by the Indian
Railways and various other companies in the
business of construction equipment
development. In the Plate Mill, heavy and
medium plates are rolled out, using
continuously cast slabs as input. It was a
new experience for the students to find the
automated process of heating the steel,
converting it into plates and then cooling it
for the purpose of quenching and stress
relieving. The plates produced here are
widely used in the defense sector and ship
building processes.
watch the hot sparkling metal (Pig Iron)
flowing and getting collected into
containers. There are 6 furnaces in the plant.
The students also visited Coke Oven area
where coke is produced, which is the input
for the blast furnace and the purest form of
coal. From there the group also had the
opportunity to visit Merchant Mill, Wire
Rod Mill, Steel Melting Shops and Sintering
Plant.
The team was accompanied by officer from
BSP, Mr. Panna Lal, who provided various
insights regarding production of different
type of steel products beginning from the
processing of iron ore. The session that
came to an end with a vote of thanks turned
out to be well coordinated. All in all it was a
great learning experience – an opportunity to
gain knowledge about the technical and
managerial work flow and operations of a
large manufacturing firm.
After this the group headed to the Blast
Furnace shop and had the opportunity to
22
NOVEMBER 2012

Q) Sir, the term PMI is very commonly
used in the media these days. What exactly
is PMI?
A) PMI stands for Purchasing Managers’
Index. It is a very important and popular
indicator of the economic health of the
manufacturing sector.
Q) Could you let us know how PMI
originated?
A) The first PMI report was published for
the US in 1948 by the Institute for Supply
Management (ISM). Since then, the ISM has
been releasing the PMI on the first business
day of every month. The main operator and
owner of the Purchasing Managers Index
(PMI) series outside the US is the Markit
Group, a global financial information
services company.
Q) How is this index determined or
calculated?
A) The PMI is a composite of five “subindicators”,
and each one has a weight
assigned to it. Following are the sub-indices
and the respective weights:
• Production level (.25)
• New orders (from customers) (.30)
• Supplier deliveries - (are they
coming faster or slower?) (.15)
• Inventories (.10)
• Employment level (.20)
These sub-indices provide unrivalled insight
into key economic drivers such as inflation,
Gurumantras: PMI
Purchasing Managers Index
exports, employment and inventories. They
are determined by surveying many
purchasing managers around the respective
country or economy (over 400 in case of the
USA), chosen on the basis of their
geographical and industry diversifications.
The reason behind surveying purchasing
managers for this purpose is that they are
among the first to know when trading
conditions, and therefore company
performance, change for the better or worse.
The survey is very simple and the
calculation, even more so. The purchasing
managers answer each question with one of
only three options: “better”, “same” or
“worse”, keeping their respective industry in
mind. To determine the final PMI, half of
the percentage of the respondents that report
no change in the conditions with respect to
the previous month is added to the percent
of respondents that report better conditions.
Putting it more clearly, if x% of the
respondents report better conditions and y%
report no change as compared to the
previous month, the PMI figure is (x +
0.5*y).It is obvious that the final figure
would lie between 0 and 100.
Q) What is the significance of PMI?
A) A thumb rule suggests that a PMI of over
50 indicates expansion of the manufacturing
sector as compared to the previous month,
and vice versa. As is clear from the survey
technique, the PMI is a sentiment reading of
the purchasing managers.
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NOVEMBER 2012

Another important fact is that though it
seems that the index concerns only the
manufacturing sector, it is widely believed
that it reads the economy as a whole. This is
true even for the countries like the USA and
India, where the services sector is
predominant. The reason for this is that
usually, the beginning as well as the end of
recessions is deep-rooted in the
manufacturing industry. So the health of the
general economy is closely related to that of
the manufacturing sector. Thus PMI also
stands as a good indicator of future GDP
levels.
An index level of 42 is considered as a
benchmark for GDP expansion. If the PMI
falls below 42%, it indicates a strong
possibility of a recession in the near future.
Not only is the value of the index, but its
rate of change also very important. A sharp
drop in the index in a short time, even if the
figures are above 50, could be a bad sign.
Q) What makes PMI so unique?
A) PMI has several unique benefits, namely
• Apart from providing a snapshot of
the health of the overall economy, it
also gives an insight in the subindicators
like employment and
inventories.
• It is a very timely index and is also
very quick, much faster than the
equivalent official data. Thus it
provides the first indication of
economic trends each month.
• The PMIs around the world survey
over 20,000 different companies
every month, and thus representing
the most comprehensive global
economic survey available to
professional investors.
• The data is produced using the same
methodology in over 20 countries,
including all emerging markets. Thus
PMI serves as a means for
international comparisons.
• The PMI represents reliable factual
data on actual business conditions
rather than opinion or confidencebased
measurements.
Q) Are there any limitations of PMI?
A) Only a few, like
• The survey is, as compared to other
indicators, very subjective in its data
retrieval.
• PMI alone is not nearly as effective.
It is advisable to use it in context
with more data-driven indicators like
GDP.
REFERENCES
[1]. http://www.investopedia.com/university/
releases/napm.asp (last visited on 23rd
October 2012)
[2]. http://www.markit.com/en/products/rese
arch-and-reports/pmis/pmi.page (last
visited on 23rd October 2012)
[3]. http://www.investopedia.com/terms/p/p
mi.asp#axzz2A1w2AjuW (last visited on
23rd October 2012)
[4]. http://en.wikipedia.org/wiki/Purchasing_
Managers_Index (last visited on 23rd
October 2012)
24
NOVEMBER 2012

DEBATE- Is a Strong Manufacturing Base Essential
for a Successful Economy?
FOR
Economies cannot
succeed without
having a strong
manufacturing base.
It means competitive
and innovative
Aditya Polisetty processes which
PGP2012-14 are at par with the
global competition so that they can develop
export markets and sustain their strong hold
in the domestic market.
When we look at countries like the US (for
the past century), Russia, Germany and now
China (for past 2 decades) we do not fail to
recognize that all of them are strong
economies and manufacturing strong holds.
Economies today are largely dependent on
the service sector (banking, insurance,
healthcare, retail, IT etc.).One should not
fail to acknowledge that many of them are
manufacturing based services
(transportation, telecommunication, IT,
insurance, etc). Generally services are
mostly non tradable (except few services
like banking, engineering) as they still
require the service provider and the
consumer to be at the same place, which
requires immigration of personnel which,
today, many countries discourage. This
creates a scenario of low balance of
payments, which on long term is not good
for a nation’s economy
Historically manufacturing sector have been
providing jobs to people with lower
education and skill sets and this is still true
in developing economies. However, good
education and skill sets do fetch handsome
salaries. This can be attributed to the fact
that the productivity in the manufacturing
industry is high. This disposable income
generates the demand for services and
provides scope for growth.
The manufacturing sector now-a-days is
mainly dependent on economies of scale.
Lower production costs give advantage in
the international trade and strategic sourcing
which is evident in the countries like China
and South Korea. This will help in growth of
a nation by generating not only revenues but
also by providing employment at various
levels.
Economists across the world believe that
developing nations like the BRIC countries
should emphasize on the development of
competent manufacturing sector. Large
internal demands and good export markets
should help them to keep good balance of
payments without which growth of
economies is impossible.
Taking into consideration the above view
points, it would not be correct to say
“manufacturing good, services bad”, it’s
only to drive home the point that ignoring or
undervaluing the manufacturing sector
means invitation for our peril.
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NOVEMBER 2012

DEBATE- Is a Strong Manufacturing Base Essential
for a Successful Economy?
AGAINST
At present, the essential factors in measuring
an economy’s progress, quality and future is
the success and vitality of its service sector
and not the manufacturing sector. Service
sector is the primary wealth creator in
developed and developing countries, owing
to more that 60% of the world’s GDP.
Countries all over the world have shown
rising value-added share of services industry
while the share of manufacturing industry
has declined. Advanced economies of the
world like the U.K., the U.S., Canada, etc
which were predominantly manufacturing
economies, have shown declining share of
manufacturing sector, an indication of the
inevitable post-industrialization shift. In the
growing economies of the world, the service
sector has grown rapidly during its transition
to market economies.
At the same time, the interdependencies of
manufacturing and service sector are
increasing. Almost 90% of the added value
in products from the industry comes from
services. Even the machine and plant
producers are more dependent on
maintenance contracts, which constitute the
largest share of their turnovers rather than
the actual machines. Investment goods
sector is an example of firms that exist
solely on services.
Sustainability gives service industry an edge
over manufacturing industry. The service
industry is more dependent on human capital
rather than natural capital when compared to
manufacturing
industry. This
reduces the
pressure on local,
regional and global
environments. This
also prompts the
countries to put
emphasis on
creating educated
and trained workers
S.Sreejith
PGP2012-14
which in turn makes the global development
sustainable, both environmentally and
socially.
Service-oriented economies are not
necessarily prone to low balance of
payment. Deterioration of current account of
economies is not always a result of a
declining manufacturing sector or an
increasing service sector, but also the fiscal
and monetary policies pertaining in that
economy.
The niches beyond manufacturing make the
service industry the easiest way to rapid and
explosive development for poor and
developing countries. This development can
be sustained because there is a huge room
for catch up and convergence. In turn, the
competition in manufacturing industry and
high educational levels in the developed
economies will push it towards service
industry. Thus it can be established that
sustainable economic success can be
achieved by a predominantly service based
economy with a comparatively small
manufacturing base.
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NOVEMBER 2012

Summer Internship
Prashant Meshram PGP2011-13
Indian Institute of Management Raipur
I did my summer
internship with Hero
MotoCorp, Gurgaon
plant. I was assigned
the project titled
"Projecting accuracy &
defining norms in
improving the service
Prashant Meshram ratio in SPD services",
PGP11-13 which was in tandem
with the SCM team in the Materials
Department.
In course of my internship, I worked on the
following lines under Spare Parts Division
(SPD)
i. Learning the key concepts that are being
used in forecasting the spare parts
demand by HMCL.
ii. Projecting the accuracy in the SPD by
analyzing the last three years data.
iii. Identifying the various factors that are
responsible for the demand fluctuations
in SPD.
iv. Recommendations to minimize the effect
of the identified factors.
To attain the objectives, the following tasks
have to be accomplished:
1.A thorough study on spare parts demand
forecasting has to be done to construct a
speculative outline of spare part
management.
2.Evaluation of the case project
documentation to get a clear concept of the
case.
3.Interact with project personnel in different
roles to understand the current state of the
project and to get a holistic picture of the
business environment. Unconstrained
conversations with anyone related to the
subject in order to evaluate everything from
the most far-out ideas to detailed
improvements of forecasting algorithms.
4.Perform statistical analysis with real
demand data to project accuracy of different
forecast algorithms.
I learnt that various components require
significant improvements. The most
significant factor that affected the demand
variation was found to be the SCHEDULE
vs. SUPPLY figures. Any fluctuation where
supply is not meeting the schedule leads to
the variation in the subsequent months and
thus affects the service ratio to a great extent
and vice versa. Dealers are trained to
understand the benefits associated with the
maintenance of the spare parts. Variation at
the dealers end gives rise to the random
demand which is transferred ultimately to
the supplier end thus exhibiting the bullwhip
effect. This can be minimized with the help
of CFRP (Collaborative Forecasting and
Replenishment Program) and proper channel
alignment.
Internship at HMCL gave me an ample
opportunity to relate the theory and practical
aspects of business. I got a scrutinized
glimpse of various forecasting methods used
in manufacturing industries and how supply
can be optimized for intermittent demand. It
was an unforgettable learning experience to
work with the world’s largest manufacturer
of two wheelers.
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NOVEMBER 2012

I did my Summer
Internship with Jindal
Power Limited (JPL),
Tamnar (Chhattisgarh),
(officially
known as O P Jindal
Super Thermal Power
Plant) known to be
Harish Verma India’s first mega
PGP 2011-13 thermal power plant
having 1000 MW (4 X 250 MW) installed
capacity. The 1000 MW power plant, which
is operational for the last few years, requires
considerable amount to be invested for the
maintenance of inventory, the levels of
which are bound to increase with the number
of operational years of plant, thereby
creating a need to evaluate the inventory and
to maintain the same at optimal levels
perpetually.
My task included analyzing the material
management practices followed at JPL and
finding out the optimum level of inventory
to be maintained in order to ensure the
maximum plant availability. Managing large
inventory that involves thousands of plant
items, is a complex task. In thermal power
plant, the procurement is not essentially
done on the basis of Economic Order
Quantity (EOQ). Generally, long term
contracts are signed for the supply of
material required. Lead time plays a vital
role in calculation of optimal level. The
production plan dominates the inventory
Summer Internship
Harish Verma PGP2011-13
Indian Institute of Management Raipur
levels to be maintained. The inventory is
classified on ABC and VED. Further,
Optimum level of any inventory can be
based on its operations, maintenance
schedule and history. The optimum level of
insurance inventory is mainly based on
experience of engineers and managers.
There cannot be any optimal level of general
spares but efforts are made to keep them
close to zero.
I targeted the supply chain of power
generation, the process of power generation,
present and past inventory levels, material
procurement practices, and store
management practices. I had the opportunity
to visit all the concerned departments
namely operations, MRP, procurement,
stores on weekly basis, which helped me
understand the role and working of each of
the departments. I could gather major
information required for accomplishing the
task, by interacting with the concerned
officials and through official records and
SOP of departments.
The internship project helped me attain
insight into the efforts made to maintain the
inventory at optimal levels. It also helped
me in gaining hands-on experience of
managerial aspects of power plant
operations. My work was applauded by the
officials and I hope, my recommendation
would help JPL manage their inventory
levels and address the existing problem in an
efficient way.
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NOVEMBER 2012

Summer Internship
Abhijeet Srivastava PGP2011-13
Indian Institute of Management Raipur
I did my summer
internship with
Berger Paints
India Ltd. The
company is
Calcutta based and
considered the
second largest
paint company in
Abhijeet Srivastava
the country. My
PGP 2011-13 project was to
explore the opportunities in differentiating
the service levels of the company through
robust application of supply chain
parameters.
I got a highly competitive team at Berger
Paints and after 10 days of brainstorming we
found that the best way to bring in Service
Differentiation through Supply Chain
Management would be to reduce lead times,
improve customer satisfaction, differentiate
the delivery process and pull up the
inventory system. At the backbone of all
these modifications would obviously be the
IT infrastructure of Berger paints
It was agreed that we should integrate the
back end and front end nodes of the supply
chain into the supply chain system of the
company. For this purpose more emphasis
was laid on informing the dealers about the
company activities and also methods to
integrate their inventory system along with
that of company’s inventory system were
developed.
As far as channel sales are concerned one of
the biggest issue for any supply chain
manager is to tackle inventories on hold. We
tried to get into the root of the issue just to
realize a lot of marketing tactics become the
reason for this problem but nevertheless to
retain market share companies consider this
as a “necessary evil”. If supply chain lived
in isolation we could have suggested some
strict measures to handle this issue. But
since the marketing angle also had to be kept
in mind we developed moderate strategies
that would neither affect the sales nor the
company’s internal inventory model. We
suggested auto generated reports in Oracle
to track and alert for increased inventory due
to billed material lying in the warehouses.
Accordingly the whole supply chain from
the depot to the factory would be alerted.
Learning about Facility Location was used
to map the coordinates of various depots of
Berger Paints in New Delhi and then suggest
a theoretically perfect location for central
warehouse. The calculation for this location
also took the volumes served at these depots
into account. Adjustments were made later
on to find a practically near perfect location
for central warehouse.
In all the internship at Berger Paints was
great learning experience. We got not just a
chance to use our knowledge from the
classroom teaching in the real world but
also an opportunity to add vastness to that
knowledge
29
NOVEMBER 2012

.
Book Review: The Toyota Way
The Toyota Way is a best seller written by
Dr. Jeffrey Liker and published in 2004 by
McGraw Hill.
In a nutshell, the book explains the
management principles and business
philosophy behind the reputation of Toyota
for the quality and reliability of its products.
Further, the book also represents an attempt
by the author to help managers in every
industry, including services industry, to
understand these principles as well as
inculcate them in their organization to
achieve
lean
manufacturing or
processes in the true
sense.
Dr. Liker, a professor at
the University of
Michigan, got involved in
a US-Japan automotive
study in the 1980s. In his
book, he states that the
automotive industry was
in turmoil due to the
recession and “Japanese
invasion”, i.e. the
capturing of the US
markets by Japanese auto
companies. Though the
latter factor was attributed
(by US auto executives)
largely to collusion
between the Japanese
companies and the
Akshay Agarwal, PGP 2011-13,
Indian Institute of Management Raipur
government, Dr. Liker admits that in the
following years he closely saw and studied
the huge difference in the approach of the
Japanese companies, especially Toyota, and
the US companies, in terms of the
underlying business philosophy and
management principles. He further states
that Toyota also stood apart from other
Japanese auto companies like Mazda and
Nissan.
In 1991, Dr. Liker co-founded the Japan
Technology Management Program at the
University of Michigan.
The program allowed him
to focus more intensely on
Toyota. By this time the
Big 3 US auto makers had
realized Toyota’s strength
and were actively trying to
compete. During these
years, Dr. Liker worked in
various countries and
industries, trying to teach
them the principles of lean
manufacturing and
processes. He had
contributed to several
books, journals and
research publications, and
won accolades for some of
them. But writing the book
“The Toyota Way” gave
him the unique opportunity
to put down all that he had
30
NOVEMBER 2012

learnt by observing Toyota over the past
twenty years in a single volume. Given Dr.
Liker’s vast experience with Toyota and
involvement with other companies and
industries, coupled with his academic
background, he seems to be one of the most
appropriate persons to write “The Toyota
Way”.
Toyota has been very open in sharing the
secret of its success. It created a joint
venture with GM in 1982 called NUMMI to
share the famous Toyota Production System
(TPS) with its global competitor. Another
similar step was the setting up of Toyota
Supplier Support Center (TSSC) in 1992.
TSSC aimed at teaching TPS to US
companies by setting up working models in
units across industries and the country.
These developments also made it easier for
Dr. Liker to study Toyota and its practices
closely.
This publication is a neat and organized
compilation of years of observation,
interviews of over 40 Toyota managers and
scores of visits which encompassed units
and sales offices of Toyota, its suppliers and
of American companies who tried to learn
TPS.
Dr. Liker has stated three goals for authoring
this book:
1. To share his own insights of the
culture of the high performing and
unique organization – Toyota
2. To provide a different look at the
factors contributing to its success
3. To help other companies to learn
from Toyota and improve
themselves.
If one wants to summarize the book, it
focuses on two pillars –
Continuous Improvement (kaizen)–looking
for and accepting challenges is just the way
of doing business at Toyota.
Respect for People – Toyota provides
employment security to its employees as
well as involves them in improving their
jobs. Motivating the employees and
nurturing mutual trust are considered to be
highly imperative.
The book has been divided into three parts:
Part 1 is an introduction of the present
success and the history of Toyota. It covers
the evolution of TPC and its subsequent
application to the Lexus and Prius.
It should be noted that while “The Toyota
Way” was being written, Toyota had
become a major competitor for US auto
companies, and was fast progressing to
outrun them owing to its high profitability as
well as quality. Despite the higher labor
costs in Japan, Toyota outperformed the
competition and had the lowest product
development time, high consistency in the
processes and the product quality and highly
competitive pricing.
Most companies today still use the
traditional mass manufacturing approach as
done by Ford and GM. On the other hand,
TPS believes in incorporating flexibility in
production lines to provide a variety of
products and keeping costs low by
eliminating waste and high utilization of
resources.
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NOVEMBER 2012

When TSSC took up a section of a US
company which was well-known for its lean
practices and processes and applied TPS,
unprecedented improvements were
observed. This shows the extent to which the
corporate world misunderstands the concept
of lean manufacturing. Lean practices are
not just a set of tools like 5S and just-in-time
but an entire system that must be inculcated
in the very culture of the organization.
Part 2 explains the 14 principles of the
Toyota Way identified by Dr. Liker. These
principles drive the tools and techniques of
the TPS and Toyota’s management.
The 14 principles have been divided into
four sections:
1. Long-Term Philosophy
2. The Right Process Will Produce the
Right Results
3. Add Value to the Organization by
Developing Your People and
Partners
4. Continuously Solving Root Problems
Drives Organizational Learning
Toyota Way principles would lead to shortterm
and unsustainable jumps in the
performance measures.
Part 3 focuses on how other organizations
can use these principles and study TPS to
bring improvements in their own businesses.
A separate section has been devoted for the
application of the Toyota Way to services
industries.
The terminology surrounding lean processes
and tools have been widely used over the
decade, but “The Toyota Way” suggests that
most of the usage has been misleading or at
least incomplete. Besides, Dr. Liker has laid
emphasis on the application and success of
Toyota’s principles in the services industry,
which is highly relevant given the boom in
this sector in the last two decades. The
Toyota Way is an eye-opener for any
manager or management student and has the
potential to turn around the way one thinks
of business.
The above sections also display the base of
their respective principles. Using a variety of
TPS tools while following only a few of the
QUICK FACT
Long before Detroit became renowned for the production of automobiles, the city had earned a
national reputation for the manufacturing of cigars and chewing tobacco. Tobacco companies
were among the city's leading employers at the turn of the twentieth century, employing more
than 10,000 people. In the mid-1920s, it was estimated that 210 million cigars and 14 million
pounds of chewing tobacco were produced in Detroit each year.
32
NOVEMBER 2012

Crossword
Across
1. Type of manufacturing in which the entire production process working together in harmony to
achieve the goals of the firm.
3. The production of large amounts of standardized products on production lines.
7. Describes the amount of production scheduled against a plant or machine
8. Production type in which manufacturing is done by hand with or without the aid of tools.
10. Referring to a system to notify workers of a quality or process problem
11. Integrative philosophy of management for continuously improving the quality of products
and processes.
12. Opposite of Process Manufacturing
13. The opposite of Just in Time manufacturing(Short form).
15. An integrated set of activities designed to achieve production using minimal inventories
18. Branch of manufacturing that is associated with formulas and manufacturing recipes.
33
NOVEMBER 2012

19. A manufacturing system in which there is some amount of flexibility that allows the system
to react in the case of changes, whether predicted or unpredicted.
20. An inventory control system; it is a scheduling system that helps determine what to produce,
when to produce it, and how much to produce.
21. A modern economic and social system based on industrial mass production
Down
1. A map of the path taken by a specific product as it travels down the value stream in a massproduction
organization
2. The unavailability of a quantity of component needed to manufacture a works order.
4. Also known as Deming circle
5. Time required for a machine to produce different part
6. What automobile company did the lean production philosophy originate from?
9. It is a "do-it-now" approach to continuous improvement.
13. A production strategy that strives to improve a business return on investment by reducing inprocess
inventory and associated carrying costs
14. A manufacturing approach in which equipment and workstations are arranged to facilitate
small-lot, continuous-flow production.
16. Father of Statistical Quality Control (last name)
17. A method of creating a clean and orderly workplace that exposes waste and errors.
QUICK FACT
It took Henry Ford's Motor Company seven years to manufacture 1 million
Automobiles. One hundred thirty-two working days after this figure was
reached (in 1924), the company had made 9 million more cars.
34
NOVEMBER 2012

Solution to Crossword
Team Strive
35
NOVEMBER 2012

Operations and Supply Chain Club
Indian Institute of Management Raipur
GEC Campus, Old Dhamtari Road, Sejbahar
Raipur 492015, India
Email: opep@iimraipur.ac.in
Blog: http://opepiimraipur.blogspot.in/
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NOVEMBER 2012