Today, competencies in electronics supply chain management (SCM) are seen as a critical requirement for organisations. In an attempt to understand and evaluate the current SCM scenario across India, Sudeshna Das, senior executive editor and Baishakhi Dutta, business journalist – EFY Group, spoke to Chandrasekhar Chaluwadi, GM – procurement and business development, Intelux Electronics Pvt Ltd and Narayan Kumar J., MD – technical, Sanjay Technologies. The discussion covered subjects like understanding the potential benefits of an effective SCM system, and how such systems can become the critical backbone for the Indian electronics industry.
In today’s world, the long term survival of any business entity is dictated by its efficient supply and delivery processes, for which a good SCM is crucial. This involves the proper synchronisation and coordination of all activities across the entire supply chain network, ranging from suppliers to end customers.
EB: What are the challenges companies face in India with respect to supply chain management?
Chaluwadi: The Indian electronics industry is nearly 40 years old. Unfortunately, even now, Indian manufacturers are still highly dependent on external supplies. We don’t have any manufacturing of electronic components in India. We do have some semiconductor manufacturers, but integrated components like ICs, microcontrollers, MOSFETs, power components, semiconductors, PCBs, laminates, etc, are all still being imported from China and Europe.
Due to the existing government policies, the majority of our imports get delayed, apart from the fact that the policies have also had a very negative impact on local production. Recently, PCB manufacturers in China held back all their supplies, since they shut down their manufacturing units. Because of this, we are facing a shortage of supplies. I think the government should come out with some effective policies that promote the manufacture of components like integrated circuits, semiconductors and various other electronic products.
Kumar: I believe the government should encourage manufacturers so that they start making the basic electronic materials in India. The government should invite large companies from other countries to come to India and manufacture here. There is a major crisis in the availability of raw materials and, hence, in supply chain management in India. Prototyping is one of the first steps in manufacturing. It takes a minimum of 10-12 days for the components to be made abroad, and then they have to be tested and assembled. Only after that do they reach the customers. So the total time taken to deliver the product is around 20-25 days. This problem will only get solved when we start manufacturing raw materials in India.
The background of the companies
Intelux is an electronics manufacturing services (EMS) company that operates across three verticals—lighting, telecom and industrial products. In the lighting sector, Intelux manufactures control gears—electronic ballasts, LED drivers, LED modules, surge protection devices, etc. In the telecom sector, the company plays a vital role in manufacturing power supply management systems, and in the industrial products sector, it manufactures transformers, servo motors as well as static stabilisers and battery chargers.
Sanjay Technologies is also an EMS firm that has been in operation since 2005. The company offers its services in the consumer, industrial and medical electronics sectors, and has the expertise to handle low-cost high-volume, as well as high-cost high-mix production batches.
EB: Currently, only 34 per cent of India’s requirement for passive components is met through indigenous manufacturing. How does this impact manufacturers like you?
Kumar: The government has to focus mainly on the manufacture of the basic raw materials. For example, the copper strips for registers are imported. Such basic materials need to be made in India because importing them is impacting the product’s cost. If we manufacture such materials locally, then the cost of the end products, along with the logistics costs, will go down a lot.
Chaluwadi: In the case of my company, I get the prototypes in four to six weeks. But my customers are not ready to wait so long. To get any electronic component as a sample, the logistics cost is a minimum of
US$ 20. So shipment costs me ₹ 1400, while the actual product costs only ₹ 15. This is how India’s manufacturing base is being gradually damaged. Hence, keeping all such urgencies in mind, effective measures should to be taken to encourage manufacturing in India.
EB: What do you think of mass procurement as a best practice for the Indian electronics industry’s supply chain, given the current demand?
Kumar: There are various state corporations, which buy components in bulk in order to supply local manufacturers according to their needs. The Indian electronics industry needs something of that sort. In certain Indian states with not much government support, most private companies buy the raw materials collectively after negotiating the price, and then they share the consignment according to each company’s needs We need to concentrate on the ‘Make in India’ initiative in the real sense of the term. Meanwhile, the government needs to buy components in bulk and supply them across the country, depending on the requirements. In that way, the logistics costs can come down to a great extent.
EB: Do share some global best practices that Indian electronics manufacturers ought to follow to meet the changing customer demands as well as to have some control over the supply chain.
Chaluwadi: In countries like Taiwan and China, there are particular regions where there’s a concentration of manufacturers. For example, one particular city will be earmarked for the manufacture of plastic components. Apart from this systematic planning, there is major support from the government’s side. Nearly every kind of infrastructure is provided by the government and this helps entrepreneurs to reduce their investments and overhead costs. Such government support helps them to do business more effectively.
So if the manufacturing activities related to one sector are concentrated in one location, it becomes easier for the government to provide the basic infrastructure like warehouses and raw materials at a much cheaper price. The government is undoubtedly playing a very pivotal role in countries like China, Taiwan and South Korea. That is one thing that can be implemented in the Indian context. In India, there is a lot of talent. We just need to promote that talent in the right way. If we can bring about that attitudinal change in the government, then we will be able to do a lot of things in the near future.
Kumar: I agree with this because in most countries there are vertical based manufacturing locations. This helps people to focus on those particular sectors and, hence, promoting the end products becomes easier and much more organised. At the same time, it also helps in getting the appropriate skilled manpower, since every cluster offers common services for the development of a particular sector.
Chaluwadi: Our main problem is that, in India, the unorganised sector is much, much larger than the organised sector. For example, the lighting industry was earlier more of a mechanical oriented sector. But now, there is a much higher level of electronic components being used in this sector, which has caused a serious threat to its very existence. The government needs to think in the right direction and support these industries, so that they don’t become unorganised. If such measures can be taken at the right time, only then can we be on par with international standards and compete globally.
EB: Some of the best tax systems across the world, like in Singapore and New Zealand, use a single GST, but India has opted for a dual GST model. Do you think the change in the tax structure will have a huge impact on electronics supply chain management in India?
Chaluwadi: Definitely, GST is going to impact us a lot. For example, manufacturers like us need to file a range of taxes at present, like excise duty, sales tax, service tax, etc. We also have to maintain a lot of documentation in order to file the returns every month. So instead of such a complicated process, if there is only one single tax, it will help companies since it will reduce our workload as well as cut costs.
Kumar: I believe GST is going to streamline the entire work process and bring about much more clarity. Apart from leading to improvements in quality, capacity expansion and greater flexibility in manufacturing, it will cut costs for companies like ours.
EB: How can the government promote domestic electronics design, develop a diversified electronic components manufacturing base and improve supply chain management, so that imports come down?
Chaluwadi: Component manufacturing is driven by volumes. Targeted growth in demand is expected to create the high volumes that will make manufacturing components in India viable. Like I mentioned earlier, a concentration of manufacturers from particular sectors is required for the smooth execution of procedures. Also, the government needs to invest in areas like infrastructure, the development of skilled manpower and, at the same time, look into the taxation system. If the government gives subsidies on basic infrastructure such as electricity, roads, training institutes, etc, then people will definitely come to India to set up manufacturing plants.
Kumar: In Gujarat and Tamil Nadu, the state governments have already introduced a lot of subsidies for the basic infrastructure. These states have demonstrated that the government has indeed done something fruitful to promote manufacturing in India. Such practices need to spread across the country. Once that happens, there will be no looking back for Indian manufacturing.