Local Thinking, Global Sourcing

A myriad of documented stories have been done on certain high profile industry sectors like automotive, software, plastics, aeronautics and consumer durables. Some success stories like GE, Ford, GM, Toyota, Sony, Mitsubishi, etc, have been used by various people to talk about implemented management principles.

For instance, the PC sitting on our workstation is a classic example of globalised supply chain. The hard disk and the motherboard are from Taiwan, RAM from China, Intel Processor from Malaysia, CD-ROM from Thailand, monitors from Korea and finally assembled in India. Sourcing from India and back is happening at a frenetic manner but there are very few case studies documented on electrical or electronics industries. There are lot of innovations done by Small and Medium Enterprises (SMEs) which rarely get mentioned. As am from the electrical industry, I will explain the new trends in global sourcing through this model.

When we talk about electrical industry per se, all the new technologies used are an assimilation of ideas and components, since most of them are custom made by a local producer. Suppose I am designing a product today any conceivable component can be sourced here in the local market or from abroad. Earlier if anyone wanted to design a critical component, every component had to be built ourselves. But now the industry structure is such that there are lot of components readily available, which can enable a new design altogether.

For instance, there is a consumer durable firm called Galanz, which manufactures all brands of microwave ovens in the world. The complete manufacturing of the oven happens in its factory in China based on individual brand’s design and requirements. So whether you pick a GE, LG, Electrolux, or a Sharp, all are sourced from the same place. GE is the biggest producer of timers used in the electrical industry, which is produced by a Dutch company based on GE’s designs, which also produces for rest of the world. One such successful venture in India worth mentioning is Videocon, which has established a unit in China with an inhouse design team to develop new products.

So how does one go about building a new product? Start of with acquiring knowledge about different products available in the market and innovate on it. However you need to be a visionary to guess the opportunities opening up in the future. But if you are not, then look at the deficiencies in the available product and improvise on it. The simpler the product, the better the improvisation on safety features. Earlier a typical geyser or a hot plate iron was the simplest machine with no safety features. Today every new product is coming out with better safety features and lot more possibilities.

This is a mathematical model which is generally used for explaining the process of production, sourcing or designing a product. For instance, a product at its initial stage is simple with basic working features and a product with multiple options brings in certain complexities. But these complexities are required to achieve the desired results. However if complexities are less, then it is easy to control the product development at any stage. Complexity can also arise during transportation or handling.

This Global Sourcing Model can be explained in a diagram which has four dimensions.

Quantity: We need to decide what sort of quantity of sourcing we are looking for. Difference: We need to decide what sort of differentiation is possible in the products.

Complexity: Sourcing complexity has to be defined with regard to how many sources, logistics, inventory, etc. Smaller the dimensions, better the control of the production.

Time: This is the most important yet invisible dimension of this diagram.

The co-ordinate of Difference has to be minimum which can be attributed to the ratings of the product. The minimum type of ratings will make working model simpler at initial stage. The co-ordinate of optimum Quantity is applicable for products which are mass produced but not advisable for niche products. So largely, smaller the cube better is the control.

The fourth dimension not visible here is the factor of Time. Initially more time will be required to establish the process for low volume; but with growing knowledge and experience one can improve upon the capability. Experience can only be gained by applying your knowledge on existing products. For e.g. if I am an SME in Peenya, I could get into manufacturing one such product and improvise with best available safety norms. Having done that, you will develop a skill in that specific sector. This completes the triangle where you will start with a small area and increase your capability through knowledge, experience and skill.

We can now look back at enlarging the Risk Cube Diagram and also increase the volume with less time consumption. Interestingly these mathematical models can be applied with certain degree of understanding on various aspects of life! Concluding, reaping the benefits of global sourcing is a long-term prospect that requires a significant amount of organizational resources to sustain.

The author has immense experience in sourcing, manufacturing and developing new products in electrical and electronics industry. Mail at globalsource@businessgyan.com

Issue BG53 Aug05