Industry 2.0 March 2011

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ManageMent Splintered supply chains enhance complexities INDUSTRY 2.0 - TECHNOLOGY MANAGEMENT FOR DECISION MAKERS

innoVation Technology is critical to prosperity

Maintaining

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editorial VOl. 10 | IssuE 07 | MArch 2011

Managing Director: Dr Pramath raj sinha Printer & Publisher: Kanak Ghosh Editorial Group Editor: r Giridhar Associate Editor: P K chatterjee Sub-Editor: reshmi Menon dEsign Sr. Creative Director: Jayan K Narayanan Art Director: Binesh sreedharan Associate Art Director: Anil VK Sr. Visualisers: Pc Anoop Chief Designer: N V Baiju Sr. Designers: Prasanth Tr, Anil T, Joffy Jose Anoop Verma, chander Dange & Vinod shinde Designers: sristi Maurya, suneesh K shigil N & charu Dwivedi Chief Photographer: subhojit Paul Photographer: Jiten Gandhi brand managEmEnt General Manager: Nabjeet Ganguli salEs & markEting VP Sales & Marketing: Naveen chand singh (09971794688) National Manager - Sales: Pranav saran (09312685289) National Manager - Events & Special Projects: Mahantesh Godi (09880436623) Assistant Brand Manager: Arpita Ganguli GM South & West: Vinodh Kaliappan (09740714817) Coimbatore: D K Karthikeyan Kolkata: Jayanta Bhattacharya (09331829284) Production & logistics Sr. GM - Operations: shivshankar M hiremath Manager - Operations: rakesh upadhyay Assistant Production Manager: Vilas Mhatre Logistics: MP singh, Mohamed Ansari officE addrEss Nine Dot Nine Interactive Pvt Ltd Kakson house, A & B Wing, 2nd Floor 80 sion Trombay road, Opposite r K studio chembur, Mumbai 400071.

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The Looming Manpower crunch

I

n the last few quarters, the manufacturing industry has rebounded strongly. Order books are full, and production lines are back to regular schedules. However, during the downturn, many industries became cautious about headcounts. They curtailed new recruitments, avoided replacement hiring, reduced perquisites and benefits—and even fired people in a bid to contain costs. New entrants into the workforce found it difficult to get jobs. Employees at companies were dispirited.

Now that the economy is doing well, companies are looking to hire people.

Guess what? Finding and recruiting the right people has become a monumental task. The reasons for this are numerous.

The unskilled workers at the bottom of the pyramid are finding it extremely difficult to survive on marginal wages in our cities, thanks to rampant inflation. They are opting to head back to villages, and work on Government schemes or infrastructure projects. Others are switching jobs for a few rupees more.

At the skilled worker and shop floor level, employers are grappling with a small pool and soaring demand. The traditional sources like the industrial training institutes (ITI) and polytechnics are either not producing enough people of the right kind, or are dreadfully lagging in teaching methods and infrastructure. Industries have to either invest in extensive training and re-training, or hire people from competitors. With industries continuing to

industry 2.0

R Giridhar editor@industry20.com

invest in automation, advanced equipment and software-driven solutions, the need for better-educated and younger employees who can quickly adapt to new concepts and working methods will increase. This will put even more pressure on staffing.

At the top of the pyramid are the highly skilled engineers and managers. They take years to hone and develop, and are the linchpins of modern manufacturing.

Unfortunately, the boom in the service sector has siphoned off many of the brightest and most talented manufacturing and design engineers. Few engineering graduates want to work on the shop floor, or spend years accumulating manufacturing skills. They would rather write software code in comfortable offices, or go on to do MBAs and become consultants. Service industries also offer quicker career growth, better compensation and more perks in the initial years.

As for research and design, the staffing scenario is dismal. Very few companies invest enough in design to attract and retain good talent. With more research units of international manufacturers setting up shop, the war for research talent will continue to intensify.

Indian manufacturers need to collaborate and cooperate to address this ominous manpower shortage. Else, there may be no one left to run the machines.

- technology management for decision-makers | march 2011

1

contents manufacturing technology 32 Tracing MV AC Drives’ Growth Path

Infrastructure and energy sectors are expected to create huge demand for these critical components.

supply chain & logistics 34 Building Supply Chains For The New Age Effective deployment of information technology (IT) improves management.

36 Building The Supply Chain Of The Future

Adapting splintered model instead of the monolithic one helps driving away the complexity.

information technology 42 Staying Alert With The RFID System

24 Maintaining Growth Momentum cover story

Though the Union Budget 2011-12 has not been able to do much to directly satisfy the Indian manufacturing community, there are several indirect boosters that will induce growth to this fast-growing sector.

Overcoming the risk factors of deploying technologies is possible through adopting certain measures.

innovation & success 46 Preparing For A Worldwide Growth

A manufacturing firm achieves significant time and cost saving through software deployment in design process.

48 Developing A Sustainable Alternative

Cover design: Anil T

Digital prototyping helps in optimizing a recycling equipment and demonstrating its potential applications.

management & strategy 50 Clouds, Big Data & Smart Assets

Distributed co-creation of products is gradually gaining popularity in organizations.

22

34

departments Editorial ......................................01 Industry Update......................... 04 Soft Talk ..................................... 12 Technology Update.................... 14 Market Dynamics ...................... 16 Opinion ...................................... 20 Advertisers’ Index ......................47

42 2

march 2011 | industry 2.0

50 - technology management for decision-makers

Product Update ......................... 62

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industry update CRM Software Vendors to See Sunny Days

S

pending on Customer Relationship Management (CRM) software is expected to see the largest increase of all the application software markets worldwide in 2011, reports a recent research survey by Gartner.

In comparing their 2011 fiscal budgets with 2010, 42 per cent of survey respondents indicated that they expect to increase spending on CRM in 2011, compared to 39 per cent on office suites and 36 per cent on Enterprise Resource Planning

Sales Automation Order Processing

RNA

CRM CRM Portals

API & Web Services Knowledge Management

(ERP), which ranked second and third, respectively.

Gartner conducted an expansive primary research survey of more than 1,500 IT leaders of organizations in 40 countries, which concluded in July 2010. The goal of the survey was to determine software spending allocations for IT budgets in 2010 and predictions for 2011. “We are expecting the CRM market to recover gradually as buyer confidence returns and as businesses begin refocusing on growing revenue as opposed to just reducing costs.

Areas of investment are expected to include the online channel; software as a service (SaaS) -based deployments; and technologies enabling

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march 2011 | industry 2.0

customer loyalty management, cross-sell or upsell opportunities, and more-targeted levels of customer service. Along the way we can expect market shifts as acquisition activity escalates, adoption of SaaS grows, and service providers become a more visible force in the market,� says Hai Hong Swinehart, Research Analyst at Gartner.

She further states that buyers of CRM continue to focus on investments that promote customer retention and enhance the customer experience, and they are increasingly interested in technologies Marketing that encourage Automation development of customer comCustomer munities and Support social networks.

SaaS adoption continues to be a Employee key driver. SaaS Support within the CRM industry is expected to exceed Defect Tracking $4 billion in total software revenue in 2014, representing more than 32 per cent of the overall CRM market. Marketing automation remains the market segment with the strongest growth, with the greatest demand coming from campaign and lead management and analytics.

Worldwide application software spending is expected to increase 31 per cent in 2011, up nine per cent from last year, and emerging markets are planning for higher budget growth. Asia Pacific is expected to have the largest increase, at 37 per cent in 2011, up from 14 per cent growth last year, followed by Latin America and Europe, the Middle East and Africa (EMEA) showing an increase of 35 and 27 per cent in 2011, respectively.

- technology management for decision-makers

event update Chemspec India 2011

The exhibition will display latest products, new technologies and services for the agrochemical, dyestuffs, biotechnology, water treatment, cosmetics and healthcare sectors.

Venue: Bombay Exhibition Centre, Mumbai Tel: +91-22-24044477 Date: 14 april to Website: www.chemspecevents.com 15 april 2011

Blech India 2011

The event will showcase sheet metal working products and services.

Venue: Bombay Exhibition Centre, Goregaon, Mumbai Tel: +91-124-4524200 Date: E-mail: blech.india@interads.in 14 april to Website: www.blechindia.com

17 april 2011

World Re-energy tech-2011

The event will include discussions related to energy security and sustainable environment and eco-friendly development.

Venue: Le Meridien, New Delhi Tel: +91-11-24538318 E-mail: dranilgarg@wretc.in Date: Website: www.wretc.in 21 april to 23 april 2011

Southern asia Ports, Logistics and Shipping 2011

The event will help analyse latest global transport and logistics developments in Southern Asia and the impact on global shipping and trade.

Venue: ITC Hotel Park Sheraton and Towers, Chennai Tel: +60-87-426022 E-mail: enquiries@transportevents.com Date: Website: www.transportevents.com 5 May to

6 May 2011

India Machinne tools Show 2011

The event will showcase latest technologies, products and related services for the engineering machinery and machine tools industry.

Venue: Pragati Maidan, New Delhi Tel: + 91-79-26469725 E-mail: info@imtos.com Date: 26 May to Website: www.imtos.com

29 May 2011

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industry update Maersk Offers New Service, Buys New Ships

M

aersk Line has launched a new service from South and East India to North Europe.

The new service, called the ICON service (India Colombo North Europe Service) will have a direct, dedicated and fast coverage from Chennai to North Europe.

The new service will deploy 7x3400 TEU vessels and operate with the port rotation: Chennai – Colombo – Salalah – Zeebrugge – Felixstowe – Rotterdam – Bremerhaven –Salalah – Colombo.

It boasts of carrying special hanging garment containers fitted with hanger beams to ensure that garments arrive in good condition, ready to place directly into retail outlets.

Rizwan Soomar, Managing Director, Maersk Line (India & Sri Lanka) said, “With excellent transit times from Chennai (India) to Felixstowe (UK), this

is a fast product and well suited for all our customers in time sensitive industries like apparel and retail. This also addresses our customers’ long standing demand for a direct product from South India to Europe, which helps in achieving better efficiency in supply chains and reducing overheads for our customers.”

Maersk Line has also signed a contract for 10 of the world’s largest, most efficient container vessels with an option to buy another 20. The vessels will have a capacity of 18,000 TEU, and will be delivered from Korea’s DSME shipyard from 2013 to 2015.

The giant container vessels will be known as Triple-E, based on the three main purposes for their creation, namely—economy of scale, energy efficiency and improved environment-friendliness.

CM Market to Grow

I

ndia has become a prominent destination for the purpose of Contract Manufacturing (CM) of pharma products—due to rising concerns over high production costs. Additionally, pharma giants are looking for convenient and faster transportation of products to the target markets.

Besides, sponsor companies are looking to outsource related services, such as product development, packaging and logistics.

According to a latest research offering from RNCOS , “Indian Contract Manufacturing—A Hot Opportunity”, the contract manufacturing industry in India is expected to grow at a magnificent CAGR of over 45 per cent during 2011-13. Growth will be much higher than the past years as the impacts of the global recession are wearing off from the market.

tyco expands Business In India

T

yco Flow Control has introduced a line of chemical and corrosion resistant composite-bodied valves, under their Keystone brand. The company is also expanding the capabilities of its factory at Halol, north of Mumbai, to produce butterfly valves up to three metres in size.

“India is one of the brightest points in the global economic picture, and the country’s energy and process industries—such as power, oil & gas, chemical, water and mining—are expanding quickly to cater to domestic and international demand,” says I. S. Malhotra, Managing Director, Tyco Valves & Controls India.

The company has been making butterfly valves for many years, based on designs originating overseas. But until recently valve diameters were limited to 2000 mm. “Thermoplastic materials have the advantage of being reusable many times over. They can be heated, fused, injected and hardened again—a real benefit given the importance of sus-

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march 2011 | industry 2.0

- technology management for decision-makers

tainability in the twenty first century,” explains Malhotra.

According to the company sources, the new, larger valves are perfect for applications in process water and wastewater treatment as well as power.

The new Keystone Composeal composite valve line will offer enhanced performance and reliability.

Besides, the new product is also expected to offer lighter weight and unbeatable chemical and corrosion resistance, the valves are designed to withstand the most challenging environments. And they can be delivered with shorter lead times—because the manufacturing process is shorter, and there are no foundry work, no machining and no painting.

Tyco has two manufacturing plants, seven sales offices, one IPO, a joint venture manufacturing plant, a number of design centres, and two service centres that ensure that their products are relevant to meet and satisfy Indian customers.

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industry update German Machine tool Manufacturers anticipate 30 pc Growth

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he German machine tool industry is forecasting a 30-per-cent increase in production output for 2011. “With the return to an anticipated volume of almost 13 billion Euros, we would have caught up on almost all the deleterious effects of the crisis. That is something we could be more than satisfied with,” says Martin Kapp, Chairman of the VDW (German Machine Tool Builders’ Association).

Since the end of 2009, the sector has quarter by quarter achieved double-figure growth in order bookings, primarily driven initially by China, South Korea and India. These nations had quickly shaken off the crisis, had swiftly returned to a growth trajectory, and thus helped progress a rapid recovery of the sector in Germany. “Our industry’s worldwide presence, its high proportion of exports, at two-thirds, and its superlative technological position on the international stage are paying off here”, informs Martin.

Back in August 2010, for the first time in two years, turnover showed a plus. Over the year as a whole, production output still exhibited a small minus of three per cent compared to 2009.

Exports, the machine tool industry’s showcase discipline, at minus one per cent in 2010, were only insignificantly below the preceding year’s figure. For some years now, China has been the biggest market. With a share of around 28 per cent, and further growth of 29 per cent compared to 2009, China buys almost four times as many machine tools as the US in second place.

The machine tool sector was able to respond quickly to the incipient upturn, because during the crisis it had as far as possible held onto its highly

Martin Kapp, Chairman, VDW qualified specialist staff in the core workforce. In December of last year, a total of 63,800 people were employed in the sector. Measured against the peak figure in October 2008, this was a fall of 13 per cent, involving 9,600 lost jobs. Since July of last year, things have been slowly improving. “The flexibility achieved over recent years in terms of human resources deployment has proved immensely beneficial”, says a gratified Martin.

Asians head rankings “Internationally, the crisis has meant a major reshuffling of the machine tool industry”, is how he describes the ongoing situation. Countries like Taiwan, South Korea, Japan and China achieved high double-figure growth rates in 2010. The figure in Europe was a meagre one, with a production output minus of 1 per cent. The USA, too, fell significantly short of actual growth,

with a minus of nine per cent. This put China in front of Japan, Germany, Italy and South Korea at the top of the machine tool production rankings last year for the first time. The USA is in eighth place, with other European countries (Switzerland, Austria and Spain) ranking 7th, 9th and 10th.

For the present juncture, however, Martin sees no immediate threat to the German machine tool industry from the Asians. Ninety per cent of China’s production output comprises simple machines in large numbers for the domestic market. As per a recent VDW study, there is hardly any autonomous technological innovation work being done at present. With a Government plan for restructuring the innovation system, however, the aim is to explicitly encourage innovative initiatives in the corporate environment.

The second major competitor, Japan, predominantly produces standard machines with short lead times. Changes in order bookings are swiftly reflected here in the production output, in both the upturn and downturn phases of the business cycle. Germany, with its high proportion of customised machines and lengthy projects, will be catching up this year, predicts a sanguine Martin.

According to him, the requirements for the machine tools themselves are altering. Climate change, with the concomitant necessity to reduce greenhouse gas emissions, is intensifying the focus on sustainability in production operations. The machine tool plays a crucial role in this context. Many companies are joining forces with their vendors to work intensively on developing new solutions for sustainable, efficient production systems.

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industry update DHL Receives Recognition In africa

D

HL has been named the International Freight Forwarder of the Year in Africa at the 2011 STAT Times Awards in Nairobi, Kenya.

The International Award for Excellence in Air Cargo was voted by STAT Times’ readers worldwide.

According to a recent report by the International Air Transport Association (IATA), air freight recovery hit a peak in 2010, followed by a fall in the later months. Only Africa showed year-on-year growth from October to November, affirming its position as one of the twelve emerging ‘hotspots’ in the world, according to the IMF’s World Economic Outlook.

DHL sources inform that with Africa fast revealing a future worth investing in, companies need a partner with first-mover knowledge, expertise and experience. DHL Global Forwarding is the leading service provider in the region’s air freight industry. In 2010, the company saw significant volume growth in Africa in both its regular operations and charter operations connecting all regions with Africa.

Amadou Diallo, CEO, DHL Global Forwarding, Africa and South Asia

DHL receives International Freight Forwarder of the Year award in Africa.

Pacific, says, “DHL has been supporting business in Africa for more than 30 years now and we are set to keep Africa well-connected to the rest of the world while identifying new opportunities in the intra-African market to support the region’s fulfillment of its vast growth potential. The award is a testament to our unparalleled service in Africa and a signal from the market that we are on the right track to meet our customers’ business needs.”

Ceat Calls For Participation In IRta

R

PG Group’s flagship company, CEAT has recently announced the second edition of India Road Transportation Awards 2011 (IRTA 2011). This is an initiative of CEAT to recognize and felicitate the road transport industry’s achievers.

The awards will be held at the regional level, which will then be followed by the national level, and will evaluate fleet owners under the following parameters, Innovation, Impact, Sustainability and Replicability.

Fleet companies and others (CEAT and non-CEAT users) with captive fleet size more than 50 trucks can participate in the IRTA 2011.

Heavy commercial vehicles fleet should be only transporters of materi-

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march 2011 | industry 2.0

als. The entry is free and open to fleet owners across India.

According to the organizer, the objective behind this IRTA is to raise standards by recognizing excellence and making it known to all stakeholders, to create aspiration for the second generation entrepreneurs, to introduce and formalize thought leadership.

Last year IRTA received about 600 entries, from which six winners were selected.

This year the awards will be adjudged for six categories, namely— Operational Excellence, Environment Conservation, Customer Expereince, Personnel Management, Transport Personality of the Year and Youth Entrepreneur or Achiever award.

- technology management for decision-makers

Receiving the award on behalf of DHL, Madhav Thapar, Senior Vice President, Air Freight, Africa and South Asia Pacific, DHL Global Forwarding, said, “DHL offers tailor-made solutions to businesses in Africa with second-to-none access to capacity—thanks to our in-house carrier StarBroker. This award goes to DHL’s strong team in Africa that is dedicated to always ensuring customers are satisfied, service quality is improved and excellence is simply delivered.”

JLR Uses DS Software

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aguar Land Rover (JLR) and Dassault Systèmes (DS) have entered a strategic partnership that formalises future cooperation and collaboration between the two companies. The agreement will see advanced digital 3D simulation and development tools transform Jaguar Land Rover’s product development processes. The two companies will work together to jointly develop industryleading product creation solutions.

JLR will deploy DS’s V6 solutions for Product Lifecycle Management (PLM)— the process that drives and controls all vehicle creation processes—to increase operational efficiency and reduce complexity through enhanced innovation and accelerated development capabilities.

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soft talk

Improving Engineering Process Productivity ity to allow engineers and organizations to streamline critical design processes.

“The tutorials [in Mathcad Prime 1.0] are easy to follow.

Mathcad Prime 1.0 is userfriendly and intuitive,” says Martin Van Wyck, Project Manager, Metallurgical Processing, Bureau Veritas.

enables users to create detailed, professional engineering design documents that include complex calculations quickly and easily, using live standard math notation with text, images and graphs.

Additionally, documents are easy to read and understand by non-Mathcad users, thus supporting effective communication of designs and engineering knowledge across the enterprise.

The Intuitive equation editor, What You See Is What You Get (WYSIWYG), enables users to express problem constraints and solutions in natural math notation allowing users to focus on the calculations and spend less time manipulating the document.

Further, Mathcad’s integration with other PTC products including Creo Elements/Pro (formerly Pro/ENGINEER) and Windchill enables increased productivity, improved process efficiency and better collaboration between individuals and groups, informs PTC. The task-based interface of the product promotes productivity while also enabling users to learn unfamiliar functions or features quickly and easily. Documentcentric calculation environment

“Mathcad Prime 1.0 enables users to focus on solving complex engineering problems with less time spent on formatting design documents. That content is captured in a format that is presentable, so it is much easier to solve the problem and interpret the engineering intent. The result is good design decisions supported by well structured and legible documentation,” says Jake Simpson, Senior General Manager, Mathcad Business Unit, PTC.

The new calculation software from PTC enables engineers to focus on developing engineering calculations rather than formatting design documents.

Mathcad Prime 1.0 enables users to focus on solving complex engineering problems with less time spent on formatting design documents.

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P

TC, the Product Development Company, has launched a new engineering calculation software, viz., the Mathcad Prime 1.0. The new product enables a task-based, document-centric calculations environment that improves personal and engineering process productivity.

The new product combines the capabilities of Mathcad and its open architecture and live mathematical notation functional-

march 2011 | industry 2.0

- technology management for decision-makers

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technology update

Making

Glass Tougher Than Steel A

new metallic glass, a microalloy featuring palladium, a metal with a high ‘bulk-to-shear’ stiffness ratio that counteracts the intrinsic brittleness of glassy materials has been developed. “Because of the high bulk-to-shear modulus ratio of palladium-containing material, the energy needed to form shear bands is much lower than the energy required to turn these shear bands into cracks. The result is that—the glass undergoes extensive plasticity in response to stress, allowing it to bend rather than crack. These results mark the first use of a new strategy for metallic glass fabrication, and we believe we can use it to make glass that will be even stronger and more tough,” informs Robert Ritchie, a materials scientist who led the Berkeley contribution to the research.

In earlier work, the BerkeleyCaltech collaboration fabricated a metallic glass, dubbed ‘DH3,’ in which the propagation of cracks was blocked by the introduction of a second, crystalline phase of the metal. This crystalline phase, which took the form of dendritic patterns permeating the amorphous

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march 2011 | industry 2.0

structure of the glass, erected microstructural barriers to prevent an opened crack from spreading.

In this new work, the collaboration has produced a pure glass material—whose unique chemical composition acts to promote extensive plasticity through the formation of multiple shear bands before the bands turn into cracks.

“Our game now is to try and extend this approach of inducing extensive plasticity prior to fracture to other metallic glasses through changes in composition. The addition of the palladium provides our amorphous material with an unusual capacity for extensive plastic shielding ahead of an opening crack. This promotes a fracture toughness comparable to those of the toughest materials known.

The rare combination of toughness and strength, or damage tolerance, extends beyond the benchmark ranges established by the toughest and strongest materials known.” reveals Ritchie.

The initial samples of the new metallic glass were microalloys of palladium with phosphorous, silicon and germanium that yielded glass rods approximately one mil-

- technology management for decision-makers

Robert Ritchie, a materials scientist who led the Berkeley contribution to the research. limetre in diameter. Adding silver to the mix enabled the Cal Tech researchers to expand the thickness of the glass rods to six millimetres.

The size of the metallic glass is limited by the need to rapidly cool or ‘quench’ the liquid metals for the final amorphous structure.

“The rule of thumb is that to make a metallic glass, we need to have at least five elements—so that when we quench the material, it does not know what crystal structure to form and defaults to amorphous. Traditionally, strength and toughness have been mutually exclusive properties in materials, which makes these new metallic glasses so intellectually exciting.

We are bucking the trend here, and pushing the envelope of the damage tolerance that is accessible to a structural metal,” describes the material scientist.

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Photo by Roy Kaltschmidt, Berkeley Lab Public Affairs

A new type of damage-tolerant metallic glass, demonstrating a strength and toughness beyond that of any known material, has been developed and tested by a collaboration of researchers with the U.S. Department of Energy’s (DOE’s) Lawrence Berkeley National Laboratory (Berkeley Lab) and the California Institute of Technology.

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market dynamics

Picture Courtesy: www.photos.com

Focusing By The Region Is Necessary

Top 10 Original Equipment Manufacturers (OEMs) accounted for $104.3 billion of semiconductor demand in 2010, says Gartner. Top OEMs accounted for one-third of semiconductor vendors’ worldwide chip revenue in 2010.

L

eading-brand companies remained at the centre of the semiconductor world, accounting for $104.3 billion of semiconductors on a design Total Available Market (TAM) basis in 2010—over a third of semiconductor vendors’ worldwide chip revenue—according to Gartner. This was a yearover-year increase of approximately $26.3 billion, up 33.7 per cent from 2009.

Gartner publishes preliminary reports on OEM semiconductor consumption every year. In the

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past, the numbers discussed were based on brand TAM. In 2010, Gartner took the decision to look at the numbers on a design TAM basis, as semiconductor device selections are now done not just by brand companies, but also nonbrand companies. This revision is more suited to the current electronics industry, as design TAM analysis helps companies allocate commercial and design sales resources.

Gartner has begun covering purchasing TAM this year. Purchasing TAM represents the total number of semiconductors actually purchased by a certain electronic equipment manufacturer or in a certain region. This index is useful when semiconductor device vendors consider the sales channel resource allocation.

Eight of the top 10 companies in 2009 remained in the top 10 in 2010. These top 10 companies

- technology management for decision-makers

accounted for a third of all semiconductor demand in 2010—with three companies each from the Americas, Asia/Pacific and Japan and one company from EMEA making up the top 10.

The major growth drivers in 2010 were mobile PCs, smartphones and LCD TVs. PC vendors such as HP, Apple, Dell and Lenovo increased their design TAM greatly in 2010—thanks to strong demand for mobile PCs. Samsung Electronics succeeded in riding the trend of the smartphone boom, while Nokia struggled. Samsung, Sony, Toshiba and Panasonic enjoyed market growth from flat-panel TVs, which saw them accelerate their design TAM. Apple is leading the new competitive landscape of the IT and electronics industry. As a newstyle vertically integrated company, Apple provides hardware, software and services for PCs, smartphones, portable media players and media tablets (the new killer application), while the production is outsourced to Electronics Manufacturing Service (EMS) providers. While its TV business is currently small, it is continuing to invest in the TV market by shipping new Internet Protocol (IP) settop boxes for future growth.

Google also intends to expand its platform business to the TV market, and Gartner believes that the TV service platform market is a key growth segment in the coming years.

“Semiconductor device vendors should closely monitor the changing competition structure of the target market. Do not just listen to the requirements

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of the current market leaders.

Have a dedicated sales team, with business development sales metrics, looking for new market entrants—who will be the nextgeneration market leaders,� advises Masatsune Yamaji, Senior Research Analyst at Gartner.

On a purchasing TAM basis, four of the top 10 companies are so-called contract manufacturers. As more brand companies are increasing their production outsourcing to Original Design Manufacturers (ODMs) and EMS providers, the semiconductor procurement by them has increased year by year. “Judging from purchasing TAM, Asia-Pacific and especially China, offers the greatest opportunities in most of the device and application market segments. It will be difficult for most of the semiconductor device vendors, especially replaceable general-purpose device vendors, to achieve the full design-win benefit without establishing a

Top 10 semiconductor design TAM by company, worldwide Rank Rank 2009 2010

Company

2009 (mn dollars)

2010 (mn dollars)

2009-2010 Growth (%)

2010 Market Share (%)

1

1

HP

12,919

17,058

32.0

5.7

2

2

Samsung Electronics

11,691

15,322

31.1

5.1

4

3

Apple

7,517

12,431

65.4

4.1

3

4

Nokia

11,172

11,696

4.7

3.9

6

5

Dell

7,030

10,426

48.3

3.5

5

6

Sony

7,251

9,304

28.3

3.1

7

7

Toshiba

6,206

8,553

37.8

2.8

8

8

LG

6,077

6,969

14.7

2.3

11

9

Panasonic

3,921

6,762

72.5

2.3

12

10

Lenovo

3,689

5,741

55.6

1.9

Others

150,898

196,054

29.9

65.3

Total

228,371

300,316

31.5

100.0

TAM = total available market

strong distribution network in Asia-Pacific� adds Yamaji. “Semiconductor device vendors must pay attention not only to the design and purchasing TAM by company, but also to that by region. This is the key to

Source: Gartner (January 2011)

avoiding inappropriate sales resource allocation. Semiconductor device vendors must keep an eye on the design-win opportunity in the U.S., while they must establish a strong distribution network in China,� he suggests.

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2.0

- technology management for decision-makers | march 2011

17

opinion

Adapting To Climate Change Climate change impacts and opportunities provide business with rationale for action. A recent PricewaterhouseCoopers (PwC) study supported by UNFCCC, WBCSD and DFID, collected views from over 40 businesses in developed and developing countries on adaptation. It concludes, better representation and engagement of the private sector is needed in policy processes at international and national levels.

Picture Courtesy: www.photos.com

UK Department for International Development (DFID).

It concludes that business has an important role to play in adaptation, and that better engagement of business is needed in the policy-shaping process to harness this. The role of business is not just in preparing its own assets and operations for anticipated climate change, but also providing know how, solutions and resources to the adaptation challenge. This ranges from climate risk assessment, to designing disaster risk management and financing vehicles, and designing and deploying new technologies.

According to Dr. Celine Herweijer, Director, PwC Sustainability and Climate Change, “For business, adaptation is not just a defensive play, to protect business as usual. It is about capitalizing on new opportunities, innovations and markets. That’s often the forgotten story.”

The report highlights that collaboration between Governments and business is crucial to scale up action and investment on adaptation. Richard Gledhill, Head of Climate Change Services at PwC, said, “Traditionally, policymakers and the private sector

The role of business is not just in preparing its own assets and operations for anticipated climate change, but also providing know how, solutions and resources to the adaptation challenge.

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usiness believes that adapting to climate change is no longer an issue for Governments to resolve alone, but they can play a valuable role in advising on what policies would encourage action by business, finds a new study by PwC, launched to mark the Global Business Day at the UN Climate Summit in Cancun.

The PwC study presents the views of a range of businesses, from major multinationals to local enterprises, on adaptation to climate change.

It was conducted in collaboration with the United Nations Framework Convention on Climate Change (UNFCCC) and supported by the World Business Council for Sustainable Development (WBCSD) and the

march 2011 | industry 2.0

- technology management for decision-makers

don’t just sit in different rooms, they speak different languages.

The new enthusiasm that the UNFCCC and the Mexican Government hosts are showing for engaging the private sector will be good for business and good for climate. Business engagement is not a ‘nice to have’, it’s a ‘must have’ in the process.”

Recommendations from the report were released in Cancun at the UN Climate Summit, COP 16.

They call for more business action on adaptation, better representation of business in the international process, and collaboration with Governments in the development of adaptation responses. It covers five key areas: • National planning and implementation of adaptation; • Assessment of risks, impacts and vulnerability and knowledge sharing; • Technology development and transfer; • Disaster risk management and insurance; • Financing adaptation activities.

Commenting on the report Christiana Figueres, Executive Secretary of the UNFCCC, said, “Adaptation to climate change is no longer the exclusive ambit of the public sector. Investment in adaptation makes business sense, due both to the need for companies to climate-proof their operations, as well as to the new business opportunities opening in the area of adaptation. Companies that act on this vision place themselves in the forefront of sustainable entrepreneurship.”

The report found that increased public and private action on adaptation would be central to the effectiveness of any future international framework agreement on climate change.

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opinion

Rising Potential For Automation Systems Market Due to the improving global economy and increasing worldwide consumer demand, energy and commodity metal prices should continue to rise in the long-term, which will result in additional capital and operational expenditures for new and retrofit automation projects, says Craig Resnick, Research Director, ARC Advisory Group. by himanshu shah Picture Courtesy: www.photos.com

As global financial stability is being restored, the automation systems market for discrete industries is expected to grow due to robust investments in the manufacturing and infrastructure industries worldwide.

The onward march of globalization is expected to continue.

Industries have recognized that automation is the key to survival in the global economy.

While investments in industrial automation slowed down during the global recession, this effect was only temporary, as there are crucial factors that will continue to drive the use of automation.

Global automotive manufacturers that set up plants in Asia are held to the same high standards of production and quality—as they are in the developed economies. This will drive increase in demand for more sophisticated automation.

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he automation systems market for discrete industries imploded during the calendar year 2009.

Fortunately, in the second half of 2009, the economic downturn ended and a modest recovery began in both developing and advanced economies as global production and trade started to rebound.

Domestic demand became strong again in emerging and developing economies. Driving the global rebound was the unprecedented amount of policy stimulus. Consequently, the global automation systems market for discrete industries will experience moderate growth during the fiveyear forecast period, according to a new ARC Advisory Group study.

march 2011 | industry 2.0

Increasing demand

Until recently, the world’s middle class was located in Western Europe, North America and Japan.

Now, a new global middle class is rising up from poverty in emerging economies around the world.

The rapidly expanding middle class in Asia, Eastern Europe, and Latin America is creating tremendous consumer demand.

This offers enormous promise for industries that provide their products and services to the burgeoning ranks of new consumers.

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This new middle class is purchasing products across all segments, and more importantly products are tailored to their tastes. The consumption is expected to grow in areas ranging from consumer electronics to automobiles to food and beverages. As a result, a number of industries will benefit, which will generate demand for more automation.

The demand for items such as automobiles has already grown, resulting in new local factories, and increases in capacity at the existing production facilities.

Global automotive manufacturers that set up plants in Asia are held to the same high standards of production and quality—as they are in the developed economies. This will drive increase in demand for more sophisticated automation.

Emerging trends

The market is demanding the Programmable Automation Controller (PAC), a multi-disciplined controller capable of providing real-time logic, motion and process control, in addition to HMI and other functions, on a single platform.

PAC offers one programming and engineering tool as well as one programming language and a single tag database for the complete system.

Diversified suppliers that focus on the infrastructure and process industries are in better shape to withstand this downturn compared to those that focus mostly on some of the discrete industries.

Himanshu Shah is a Senior Analyst and the Principal Author of ARC’s ‘Automation Expenditures for Discrete Industries Worldwide Outlook.’

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Maximum Workpiece Size : 850x600x255mm

cover story

MaintaininG

Growth MoMentuM

Union budget 2011-12 has been built upon the good performance of the current fiscal year’s 8.6 per cent to a projected 9 per cent growth rate. Although the Finance Minister’s reformoriented budget, has not been able to do much to directly satisfy the Indian manufacturing community, there are several indirect boosters that will induce growth to this fast-growing sector.

by p. k. chatterjee

24

march 2011 | industry 2.0

- technology management for decision-makers

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U

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Picture courtesy: Press Information Bureau, India

nion Budget 2011-12 has been presented at a time when—on one hand the country is marching through a high growth trajectory, however, on the other hand it is facing burning challenges like— high inflation, price hikes (especially rising food prices) etc. Although different industrial lobbies had distinct expectations from this budget,—under such circumstances, the country needed a balancing budget addressing all the contemporary issues, and focusing on the ways to accelerate the growth momentum.

Sunil Mehta, Country Head and Chief Executive, AIG India, says, “The budget, as expected, continues to remain focused on growth. However, the delivery mechanism and the Government’s ability to bridge the gap between revenue and expenditure needs to be form and can be the response to the decline in the understood. Implementation, along with effective exgrowth of FDI in the recent past. Also, the proposal ecution of projects and initiatives announced, is most to simplify the refund of Service Tax is very welcritical. To meet the projected growth of 9 per cent, come—given that huge refunds have been stuck up there has to be a time-bound rollout with metrics to in procedural delays. The reiteration of the Governmeasure actual accomplishments. The Government ment to GST is also welcome. Of course, the tabling continues to face challenges on its earlier stated of Constitution Amendment Bill is just a step in this policy changes on Direct Tax Code (DTC), Goods and direction and buy-in of the states will be needed to Services Tax (GST) which it must overcome.” implement this,” he feels.

“It is encouraging to note the Finance Minister’s Among the major criticisms that have so far been (FM’s) efforts to arrest inflation. His desire to have conveyed by different industrial lobbies or individustructures in place to improve agricultural producals, there are—infrastructure, social and education tivity and distribution supply chain is noteworthy. sectors have received the major focus, no effective While the budget speech covered several aspects measures have been planned to curb inflation in relating to governance, we hope that the various immediate future, lack of steps to address the issue building blocks are put in place to allow seamless of crude oil prices, no strong step to design bluegrowth,” adds Sunil. prints to attract FDI (especially) in manufacturing According to Dinesh Kanabar, Deputy CEO and and so on.

Chairman—Tax, KPMG, “The FM presented the Union Focusing on high economic growth, strengthening Budget amidst scepticism over the growth agenda of infrastructure, addressing inflation and giving a boost the Government. It is, therefore, indeed heartening to the farm sector, budget 2011-12 to see the FM devote a good portion that the FM Pranab Mukherjee has of his Budget speech to making a presented—although, has not imcommitment to implementation of mediately been whole-heartedly apthe pending reform initiatives.” preciated by all in the Indian manDinesh says, “The FM did well to ufacturing community, there are commit that the financial sector reseveral steps that he has proposed forms will be taken to their logical this time—are obviously favourconclusion during this session of the able to the Indian manufacturing Parliament. He assured the tabling sector either directly or indirectly. of the provisions for the introduction Contextually, today Logistics and of the additional banking licences to Supply Chain (L&SC) is an integral corporates during this session. He part of the manufacturing sector has also assured the tabling of the considering its direct influence on long pending Companies Billing in the manufacturing world. Thus, any this session of the parliament.”

Sunil Mehta good or bad in this area affects the “The proposal to permit FDI in Country Head and CHief manufacturing sector.

Mutual Funds is a big ticket re- exeCutive, aiG india

industry 2.0

The Union Finance Minister, Pranab Mukherjee leaves North Block for Parliament House to present the General Budget 2011-12, in New Delhi on February 28, 2011.

The Ministers of State of Finance, S.S. Palanimanickam, Namo Narain Meena and other officials of the ministry are also accompanying him.

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25

cover story However, Dilip points out that— all SEZs have been brought under MAT, which may prove to be a dampener. Also, he finds there is no mention of surging global crude oil prices that may fuel inflation further, impact several sectors and upset fiscal management of the Government.

Federation of Indian Chambers of Commerce & Industry (FICCI) has welcomed the budget as a baltakes from apex commerce, anced effort to maintain the growth industry bodies momentum. According to Rajan The Associated Chambers of ComBharti Mittal, President, FICCI, it is merce and Industry of India (AS- DineSh Kanabar a forward-looking budget at a time SOCHAM) has described the pro- deputy Ceo and CHairman— tax, KpmG when the global economy is still posals of this budget as positive looking fragile. and encouraging, which attempt at Rajan finds that in the greater interest of ecoreducing the fiscal deficit down to 5.1 per cent from nomic growth, the FM has avoided the temptation of the earlier estimate of 5.6 per cent for the current raising excise duties, as was widely feared. Several fiscal year and 4.6 per cent for the next. According to positive steps have been taken like maintaining the Dilip Modi, President, ASSOCHAM, it opts for bringdisinvestment target of `40,000 crore for 2011-12, ing more services under the tax net and sets a clear development of mega clusters for labour intensive direction for rolling out the Direct Tax Code from industries such as leather and the possibility of furApril 1, 2012.

We all know, considering the characteristic of domestic consumption in India, growth of the manufacturing sector cannot be thought of—in isolation with other sectors, especially infrastructure and agriculture. Secondly, his will to implement the pending reforms will obviously help the manufacturing sector.

infrastructure status is needed for the whole ‘loGistics’ sector

Vineet agarwal exeCutive dire direCtor transport Corporation of india ((tCi)

26

march 2011 | industry 2.0

The finance minister has announced a slew of measures to boost investment in the infrastructure sector with a view to propel the announced nine per cent growth trajectory by 2012. To enable the development and the flow of funds to the sector, FM has proposed tax-free bonds and has increased the FII limit for investment in corporate bonds. Government’s plan to come up with a comprehensive policy for further developing PPP projects will definitely improve the infrastructure conditions; however, what is currently required is a speedy single window approval system.

The FM has not left out the ‘logistics’ sector, the backbone of the economy, and has set aside `2000 crore for warehousing, mainly in the area of agriculture. Augmentation of storage capacity through private entrepreneurs and warehousing corporations has been fast tracked. Also, to pave way for introduction of the long-awaited GST regime

- technology management for decision-makers

the Constitution Amendment Bill will be presented in the parliament—which will change the status of warehousing that exists today.

We are hoping that GST will be implemented soon, which will replace the cascading effect created by existing indirect taxes.

Providing cold storage chains an infrastructure status is a welcome move—as it will help improve and add infrastructure in this area. The scope of exemptions to improve storage and warehouse specialty for agricultural produce has been further enlarged—giving full exemption of excise duty on air-conditioning equipment and refrigeration panels for cold chain infrastructure. Conveyor belts have been included in the full exemption from excise duty to equipment. The removal of duties on imports of spares for ship owners is also a welcome move as for domestic shipping firms repair costs will go down.

However, the Government should have considered giving the logistics sector an infrastructure status on a whole.”

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BudGet 2011-12—a Boon for ector the clean enerGy sector

hari Kiran ChereDDi manaGinG direCtor sujana enerGy

The Indian Union budget 2011 overall offers good news for clean energy sector to have categorically reduced excise duty and concessional customs duty. While the concessional customs duty of 5 per cent on machinery, instruments, equipment and appliances etc. required for the initial setting up of Solar PV plants and exemption from Central Excise duty on Solar Thermal power generating units is a welcome sign, a much higher percentage was being expected. If India has to emerge as a Green Global leader, the

ther liberalization of FDI policy. The FM has also announced steps for roll out of the GST and DTC. These will create a favourable environment for the corporate sector.

Keeping in view the competitive global business environment, he opines that the corporate tax rate should have been in the vicinity of the global average rate of 24.99 per cent. He also feels that the cascading effect of DDT should have been removed, and instead of increasing the MAT rate to 18.5 per cent from 18 per cent, the FM should have reduced it to 15 per cent.

investor friendliness of the budget

Welcoming the budget 2011-12, the Alliance for US India Business (AUSIB) has rated it as a very investor friendly budget that could help attract more investments into India. AUSIB President Sanjay Puri says, “We are very happy that this budget is high on foreign investments and it has opened doors for investments in infrastructure and equity mutual funds.”

According to AUSIB, the budget will allow foreign investors to invest in infrastructure bonds and also equity mutual funds. This will be very attractive to foreign investors, as also Indian asset management companies—who can expect to see a widening of scope of investors in India. The budget focuses on improving the basic drivers of economic growth such as education, infrastructure and agriculture. It has also tried to keep the fiscal and budgetary deficits under control, which will be important in the long-term growth of the country.

Opining on the budget 2011-12, Chairman Yoginder Singh of Indian Direct Selling Association, says that the budget can be termed as growth oriented, and has taken incre-

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allocated `1000 crores may not be sufficient to see all the plans in place and burgeon.

We are happy to see the Government’s initiative in further helping the efforts of green companies—that are trying to find innovative solutions and bring them into the lives of the common men. The reduced excise duty on LEDs offers Indian manufacturers like Sujana Energy Limited incentives and opportunities to make superior products with lowered costs; and the lowered cost of LEDs will bring more access to green conscious, discerning consumers.”

mental measures to boost investment into housing, infrastructure and social sector. He holds that the reduction on surcharge of domestic companies to 5 from 7.5 per cent will boost the growth of indigenous corporate but will only partially reduce the tax burden of the corporate.

tax reforms in the budget

According to Uday Ved, Head of Tax, KPMG, the FM has presented a good balancing budget. It intends to keep a balancing act of driving growth agenda and keeping fiscal

Dilip MoDi president, assoCHam

et 2011-12— BudGet Quite Balanced The budget has been quite balanced considering the given circumstances. The excise relief of two per cent extended in the previous budgets, was not rolled back, which is a great relief to the industry.

The continued priority to the education sector is appreciable. However, the tax exemption limit increase could have been bolder, which has disappointed the common man.”

DeepaK Jalan manaGinG direCtor LinC pen

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- technology management for decision-makers | march 2011

27

cover story relief and this should act as a weldeficit and inflation under control. come step.”

His announcement of increase in Expressing his view on Goods basic exemption limit from `1.6 to & Services Tax, the KPMG tax ex1.8 lakhs will be a welcome relief pert says, “The FM also wants to to ‘aam admi’ (common citizens) introduce a constitutional amendproviding tax savings of `2,000 ment bill for the introduction of per person.

Goods & Services Tax (GST) in this Pointing at Direct Taxes Code budget session. The GST will also (DTC), he informs, “Reduction of need buy-in from various states surcharge from 7.5 to 5.0 per cent before it is implemented. The imfor companies is a step towards plementation of GST is expected transitioning to new Direct Taxes to further rationalize prices for Code effective from April 1, 2012. final consumers.

Relief of withholding taxes on inKriShna hariharan On the imposition of MAT on terest payments to 5 per cent on president and direCtor of SEZ developers and units, Dinesh infrastructure debt funds by fordanfoss industries of KPMG comments, “It is retroeign investors will facilitate fundgrade as it seeks to impose tax ing in this important sector.” on income received from investments made with a Commenting on Minimum Alternate Tax (MAT), commitment of tax exemption. This is advancing the Uday opines, “Introduction of Minimum Alternate negative impact of the Direct Taxes Code and should Tax at 18.50 per cent on Special Economic Zone have been avoided.”

(SEZ) developers and units is a retrograde step, and However, he appreciates several other budget prowill have adverse impact on the same. Dividends posals, and opines, “The reduction of tax on foreign received from foreign subsidiaries will be taxed at dividends received from subsidiaries of Indian coma reduced rate of 15 per cent compared to a norpanies is a welcome step facilitating eventual imposimal corporate tax rate. This one time relief will help tion of CFC regime. Also, the marginal relief provided Indian corporates repatriate dividends from their to individual tax payers is welcome. The proposal for overseas ventures into India. Similar provision was Infrastructure Bonds of `30,000 crores and the adintroduced by the USA few years back as a one time

welcoMe! infra status to cold storaGe chains

harry lagaD h exeCutive direCtor Gati Ltd.

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march 2011 | industry 2.0

Definitely, the most important aspect is that the GST is finally being introduced in the Parliament—which means, by next year, we should see the full roll out of this system. This will largely benefit all logistics and transport players as it will revamp the way the Indian logistics market is currently working.

Secondly, we see the announcement of the infra status being awarded to the cold chain as a critical initiative, which would have far reaching impact on our business.

As we have announced to build up our cold chain business and network, this news comes in as a welcome break and will allow us to go out—and aggressively focus on the building up of this business unit.

The ability to now import spares for the shipping industry is also seen as a positive

- technology management for decision-makers

step by us as this will help our shipping division. The current cost of our supply chains in India is almost 13 per cent higher than any other developed nation. This enormous cost can be addressed if there is further liberation of incentives for the transport and logistics sector. Our infrastructure costs are higher than those in developed nations and with the current pricing structures; there is no incentive for companies to warehouse their goods in better facilities and paying higher costs.

The shipping sector needs even more benefits if it has to become a key sector for India. Given India’s vast coastline, this sector should have been given prominence.

Singapore recently announced a policy of reduced taxation and interest rates to support the growth of the shipping sector.”

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BudGet concentrates on tructure reforMinG tax structure

ChriStoph reMunD Ceo, dHL GLobaL forwardinG india

The Union Budget 2011–12 has concentrated on reforming the tax structure with a reduction in surcharge and a peak standard rate of excise and service tax at 10 per cent. The proposed implementation of GST is welcome after the protracted delay and now seems certain by April 2012.

Additionally, the opening of foreign investment into infrastructure projects—where the spends are estimated in the range of $1 trillion over the next five years comes as a short

ditional tax incentive to subscribers up to `20,000 is a step in the right direction—but a lot more needs to be done if this sector is to develop a thrust.”

Budget 2011 and the manufacturing sector

in the arm as this will help improve urban infrastructure and speed up the movement of goods in ports, rail and highways.

The aim to reduce fiscal deficit is a positive one, though it remains to be seen—how it can be brought down from the current rate of 6.3 per cent. Fiscal incentives for investment in cold chain is another welcome announcement from the pharma logistics industry’s perspective. We hope the Government reconsiders charging MAT on SEZ facilities.”

younger generation, it is imperative that the growth in manufacturing sector picks up. We expect to take the share of manufacturing in GDP from about 16 to 25 per cent over a period of ten years. Government will come out with a manufacturing policy, which will bring down the compliance burden on the industry through self-regulation, and help make Indian industry globally competitive.” Although, to some manufacturing people—it is a long-term plan and has nothing to do with the present situation, it is not a bad proposition, but its outcome will definitely depend on adept implementation of the proposals.

Let us now have a look at some benefits that manufacturing industry segments have received directly in the budget 2011-12. Imports of some raw

“The 2011 budget from a manufacturing point of view is positive to the extent that the peak rates of excise duty, customs duty and service tax have been retained at the current levels, which give stability to the industry,” says Krishna Hariharan, President and Director of Danfoss Industries. “However, for specific industries, the rationalisation of excise duties shows marginal increases, which will affect the customers. The reduction in surcharge from 7.5 to 5 per cent is a welcome step, which makes the available cash flow to companies higher,” he adds.

The Danfoss Head feels, “The weighted deduction, where manufacturing companies do R&D with specified Government institutions such as IIT, National laboratory, University has been increased from 175 to 200 per cent is an encouragement for companies to improve their R&D efforts.”

According to him, extension of full exemption from excise duty to air-conditioning equipment and refrigeration panels for cold chain infrastructure is a welcome step for boosting supply chain in the agriculture sector, which will lead the food processing industry to reach its full potential. However, the budget does not give specific thrust to drive the focus of investment to the manufacturing sector.

While presenting the budget, not that the FM did not consider the manufacturing sector at all, this is evidenced by the KriShnaKuMar SriniVaSan proposal of National Manufacturing PolmanaGinG direCtor –truCK icy. He has said, “For sustained growth division - india of GDP and productive employment for eaton Corporation

cleaner enerGy for Mass transit ProMoted oted

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industry 2.0

We welcome the Government’s decision to set up the National Mission for Hybrid and Electric Vehicles to encourage manufacturing and selling of alternative fuel-based vehicles.

Moreover, the cut in excise duty to 5 per cent and exemption of customs and CVDs on imports indicate a clear will to promote clean energy for mass transportation. Our hybrid technology for mass transit was recently introduced in the CWG on TATA buses, while globally, vehicles running on our hybrid systems have already completed 160 million kilometres. We are hopeful that these steps by the Government will pave the way for us to leverage our capabilities in providing cleaner energy for the mass transit.”

- technology management for decision-makers | march 2011

29

cover story manufacturing mobile phones, electronic components, ink-jet and laser-jet printers.

Also, increase of the export duty for iron ore to a flat rate of 20 per cent and reduction of export duty for iron-ore pellets The higher outlay for rural infrastructure to zero per cent will boost Inwill help increase the demand for cement, dian value added exports, and steel, construction materials and equipment save the country’s natural reinvolved in construction activities. Given the increase sources for the domestic manin the automation in F&B manufacturing, the demand ufacturers. Reduction of tax on for automation products and solutions along with mapetcoke and gypsum to 2.5 per chinery will see an increase. Cold chains call for investcent will help the Indian cement in automation systems, thus helping its growth. ment industry in getting raw The automotive companies will go ahead with their materials at a cheaper rate. expansion plans thus calling for investment in plants Products like electric veand new lines. This will create new demand for autohicles, fuel cell, hybrid vemation systems across OEMs and ancillary industries. hicles, kits for hybrid vehicles There will be increased demand for automation sys(developed indigenously), LED tems for rail network management. The expansion will niJu V result in demand for investment in manufacturing of lights, solar modules, crude deputy direCtor, palm stearin (used to make coaches and locomotives besides a slew of infrastrucautomation & eLeCtroniCs same, frost & suLLivan ture systems.” soaps that are environment friendly) and enzyme-based tanning preparations—which help conserve the environment are to get several kinds of supports now. materials are going to cost lesser considering value Manufacturers of power plant equipment for addition in India to manufacture the final products. mega and ultra mega power plants will enjoy excise Some of these raw materials are—raw silk, raw duty exemption. Tax exemption proposal on import of materials used for textiles, chemicals, ferro-alloys spares and capital goods for both the manufacturers and paper manufacturing, technical fiber & yarn, and ship owners will boost the ship building indusstainless steel scrap, raw material for syringe and try. Manufacturers of machinery used in industries needles manufacturing, components and parts for

autoMation industry ndustry Gets iMPetus

BudGet 2011-12—no frill-no thrill

abhiJit roy C Coo, berGer paints

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march 2011 | industry 2.0

Increase in exemption limit of Income Tax is a step in positive direction, as it would buttress the household against runaway inflation, and increase their disposable income—which in turn would boost demand. Special care has been taken about Senior Citizens on tax front, which is praiseworthy.

Decrease in cost of steel would mean the cost push inflation of bigger projects, both realty and infra, would be under control. In fact, this step can give a boost to the overall demand—especially in realty sector.

Exemption of Central Tax on food and related items will somewhat ease pressure on households.

- technology management for decision-makers

Increase in spending in health, agriculture and infrastructure are most welcome.

Auto demand, especially in rural India, can now get a good fillip as there has been no increase in any duties levied on this industry.

However, at the same time it should be mentioned that we would have been happier—had the FM addressed the issues of reforms and unemployment that have been given a go by, as it seems in this budget.

The issue of ‘lack money’ was also not addressed satisfactorily.

Overall we would rate the budget as satisfactory, devoid of any shocks or surprises.

Probably, the best that an FM could do— given the current scenario.”

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revenue neutral BudGet et ndustry for the ceraMic industry

abhiSheK SoMany joint manaGinG direCtor somany CeramiCs

The early introduction of GST is good for the industry—as this will make the industry more competitive fuelling more consumption. Also, it will make us more competitive when compared to the unorganized sector. GST would subsume most of the central and state taxes like excise and sales tax, making rules easier for the industry and other tax payers. The implementation of GST is ex-

pected to further rationalize prices for final consumers.

The standard rate of excise duty has been maintained at 10 per cent which is good at this time as we are looking for a more stable consumption pattern. To put our industry’s standpoint in a nut shell, we were hoping for more focus on fuelling infrastructure and housing—other than that this budget has been revenue neutral for ceramic industry.”

tion started in 1991 by Dr. Manmohan Singh, the then FM.” While replying to the question—did the budget meet the expectations on these fronts? He says, “Well, both yes and no.” “‘Yes’ in the sense that coming in midst of high inflation and global economic chaos and with the crying needs of social and infrastructure sector investments, the FM has done a commendable job of maintaining continuity and channel even higher plan expenditure into these areas,” states Ajay. “‘No’ in the sense that coming at such a critical juncture, the budget fails to bring any path breaking initiatives, it shows certain timidness on the tax front on both direct and indirect taxes areas, for example, the DTC while announced still fails to include all provisions into it, and while there was mention of GST the unfocused area roadmap a number of times, no Summarising the viewpoints that clear timelines still emerges. On we have experienced so far, one custom duty also, once again indithing is very obvious that Budget vidual items have been looked at 2011-12 has some mismatch with for concessions instead of systemic the industries’ expectations. In othimprovement,” he points out. er words, everybody has something aJay Chopra “The biggest challenges that Into cheer on, but nobody is quite Ceo, drive india enterprise dian economy faces today—namely happy. Will we be able to truly grow soLutions Ltd. (diesL) inflation, especially food inflation with these proposals? and the slow speed of infrastructure development Ajay Chopra, CEO, DIESL says, “A budget is an (last year National Highways were constructed at exercise that a Government carries out annually, the rate of only four kms per day as against the tarand at basic level it serves the purpose of outlining get of 20 kms per day) find no concrete solutions how the money that the Government has taken or or action plan in the budget document,” opines the borrowed from us (the tax payers) will get utilized.

DIESL CEO. However, at a bigger level it is a strategy document, According to him, to meet the long-term growth which announces the path that the people who have expectations, the Government would need to address the power to change or bring about change are planthe infrastructural bottlenecks, and expedite key rening to take in the years ahead. It can also be seen forms in areas of tax and labour. If the same is done as a proof of the vision that the Government has for the incredible growth story of Indian economy will future. This year’s budget was even more historic as continue to be witnessed by the world. it comes on completion of two decades of liberalizalike printing and cinematography will also get some benefits from the next fical.

Just consider, in Indian economy where a huge consumer market lies within the country, can infrastructure or agricultural (today’s modernised agricultural systems) developments take place without benefitting the manufacturing sector? FM’s plan of liberalising the existing scheme of interest subvention of one per cent on housing loans up to `15 lakh, allowing total exemption of excise duty on air conditioning and refrigeration systems for cold storage systems, making conveyors used for cold storage, mandis and warehouses tax free, reduction of tax rate from 5 to 2.55 per cent on specified agricultural machinery et al will boost the manufacturing sector towards positive direction.

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manufacturing technology

Tracing

MV AC Drives’ Growth Path Infrastructure and energy sectors will propel the medium voltage (MV) drives’ market growth, suggests a recent ARC report. Almost every world region will experience growth in this segment in 2011 and beyond.

A

s global financial stability is being restored, the medium voltage AC drives market is expected to have steady growth during the forecast period through 2015 due to robust investments in the energy sectors and infrastructure industries worldwide. According to a new ARC Advisory Group

Medium Voltage AC Drives’ Business Worldwide

study, in advanced and emerging economies, infrastructure development will continue as a significant portion of Government stimulus funding directed toward those industries. As the economy continues to recover, globalization will spur more capital investments in various industries, such as oil & gas, water & wastewater, electric power, building automation, and metals & mining, driven by the growing demand for improved infrastructures as well as energy savings.

“The market for medium voltage AC drives will be driven largely by the significant global consumption occurring in the power generation, oil & gas, and metals & mining industries,” says Senior Analyst Himanshu Shah, the principal author of ARC’s “Medium Voltage AC Drives Worldwide Outlook”.

Growth drivers

Globalization has created a growing demand for modern infrastructures, especially in emerging economies. Major investments are underway and more are being planned for airport facilities, railway and public transportation expansions, and new road construction, which are driving demand for products from the metals & mining, cement & glass, and oil & gas industries. Emerging economies know that their

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- technology management for decision-makers

current infrastructures are a major bottleneck for their continuing economic growth. Medium voltage AC drives are one of the critical components for these infrastructure investments and are used extensively in these industries.

With the beginning of the current economic recovery, the globalization environment is expected to resume. The beginnings of a modest recovery in the global economy presents an excellent backdrop for medium voltage AC drives’ market growth.

Regional scenarios

Emerging economies, such as China, India, Brazil and many of the eastern European countries, are facing a scarcity of energy and have inadequate infrastructures, such as water & wastewater facilities, due to their rising middle class and population growth. Most developed countries are facing deteriorating infrastructures, many of which are in critical need of modernization. Under such circumstances, medium voltage AC drives are expected to experience continuing growth in 2011 and beyond.

China’s market has been the fastest growing region due to heavy domestic demand for medium voltage AC drives from many growing industries as well as the state’s energy saving initiatives. The markets in central & eastern Europe, Russia and India are also expected to grow rapidly as a result of ongoing industry expansion in these regions.

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supply chain & logistics

Building

Supply Chains For The New Age

Picture Courtesy: www.photos.com

In the face of several shortcomings and hindrances, while Indian manufacturers are struggling heavily at this moment to timely distribute their products to the users—at the lowest possible cost and within the minimum time, some CIOs are delivering their best to improve the situation through efficient and effective deployment of information technology (IT), in their organizations. Let us see a few exemplary instances. by varun aggarwal and yashvendra singh

A

n ideal situation for a CIO would be to deliver his company’s products to the targeted customer at the right time and price, and be left with zero inventory. This calls for an ideal supply chain, which in turn depends on several factors including a country’s infrastructure.

While CIOs in India cannot do much to improve the overall infrastructure in the country, some of them are trying to make their supply chains as efficient and futuristic as they can. Escorts, for instance, is planning the next level of evolution in its supply chain.

“Collaborative software is the way ahead for supply chains,” says Vipin Kumar, Manager and Head, IT, Escorts. “Manufacturers and distributors want more transparency and insight into each other’s operations—so that they have a better understanding with respect to production, dispatch

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and inventory. The answer to this is deployment of collaborative tools,” he continues. Over the next three years, Escorts plans to put in place a portal though which the vendor and distributors can collaborate.

At JK Tyres & Industries, “The future of Supply Chain Management (SCM) would be a combination of the conventional approach of automation (ERP) and the new approach of collaboration tools,” says SS Sharma, Chief General Manager, IT. Sharma adds, “This integration of the traditional and modern approaches can be facilitated by hand-held devices to provide immediate access to information wherever you are.”

To sustain the customer base as well as profitability, the entire supply chain process at JK Tyres was recently integrated using SAP R/3 modules such as Sales and Distribution and new Dimension SAP modules such as Advance Planning and Optimization.

- technology management for decision-makers

Daya Prakash, Head, IT at LG Electronics says, “Radio Frequency Identification (RFID) as a technology is evolving, and it won’t be late before we see large scale adoption in the years to come. We are already using RFID for tagging high-value items and barcoding the rest.”

“We will also be testing GPS tracking systems and mobility solutions to improve our SCM further,” he says.

With the global economic situation remaining fluid, cost pressures on the manufacturing companies continue. As supply chain is considered an overhead, streamlining it will directly add to a company’s bottom line.

Those CIOs who have transformed their supply chain into a demand-driven value network, capable of adapting to market trends, have improved their company’s revenues and brand equity. Others have no option but to follow suit.

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supply chain & logistics

Supply C Building The

Getting there means ditching today’s monolithic model in favour of splintered supply chains that dismantle complexity, and using manufacturing networks to hedge uncertainty.

Imaging by: PC Anoop

by yogesh malik, brian ruwadi and alex niemeyer

36

CLAY MODELING BY PC Anoop, Prasanth TR, Sristi Maurya & Joffy Jose PHOTOS BY Subhojit Paul

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- technology management for decision-makers

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Chain Of The Future M

any global supply chains are not equipped to cope with the world we are entering. Most were engineered, some brilliantly, to manage stable, high-volume production by capitalising on labour-arbitrage opportunities available in China and other low-cost countries.

But in future when the relative attractiveness of manufacturing locations changes quickly—along with the ability to produce large volumes economically—such standard approaches can leave companies dangerously exposed.

That future, spurred by a rising tide of global uncertainty and business complexity, is coming sooner than many companies expect. Some of the challenges (turbulent trade and capital flows, for example) represent perennial supply chain worries turbocharged by the recent downturn. Yet other shifts, such as those associated with the developing world’s rising wealth and the emergence of credible

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suppliers from these markets, will have supply chain implications for decades to come. The bottom line for would-be architects of manufacturing and supply chain strategies is a greater risk of making key decisions that become uneconomic as a result of forces beyond your control.

Against this backdrop, a few pioneering supply chain organisations are preparing themselves in two ways. First, they are “splintering” their traditional supply chains into smaller, nimbler ones better prepared to manage higher levels of complexity. Second, they are treating their supply chains as hedges against uncertainty by reconfiguring their manufacturing footprints to weather a range of potential outcomes. A look at how the leaders are preparing today offers insights for other companies hoping to get more from their supply chains in the years to come.

Twin challenges

The stakes couldn’t be higher. “In

our industry,” says Jim Owens, the former chairman and CEO of construction-equipment maker Caterpillar, “the competitor that’s best at managing the supply chain is probably going to be the most successful competitor over time.

It’s a condition of success.” Yet the legacy supply chains of many global companies are ill-prepared for the new environment’s growing uncertainty and complexity.

A more uncertain world

Sixty eight per cent of global executives responding to a recent McKinsey survey said that supply chain risk will increase in the coming five years.

And no wonder: the financial crisis of 2008 dramatically amplified perennial sources of supply chain uncertainty—notably the trajectory of trade and capital flows, as well as currency values—even as the crisis sparked

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37

supply chain & logistics broader worries about the stability of the financial system and the depth and duration of the resulting recession. While many of these sources of uncertainty persist, it’s important to recognise that new, long-term shifts in the global economy will continue to pressure supply chains long after more robust growth returns.

The increasing importance of emerging markets tops the list of these uncertainties. Economic growth there will boost global energy consumption in the coming decade by about one-third. Meanwhile, the voracious appetite of China and other developing countries for such resources as iron ore and agricultural commodities is boosting global prices and making it trickier to configure supply chain assets. Worries about the environment are growing, too, along with uncertainty over the scope and direction of environmental regulation.

These long-term trends have knock-on effects that reinforce

still other sources of uncertainty.

Growth in developing countries contributes to volatility in global currency markets and to protectionist sentiment in the developed world, for example. What’s more, different growth rates across various emerging markets mean that rising labour costs can quickly change the relative attractiveness of manufacturing locations.

This past summer in China, for example, labour disputes—and a spate of worker suicides— contributed to overnight wage increases of 20 per cent or more in some Chinese cities. Bangladesh, Cambodia, and Vietnam experienced similar wage-related strikes and walkouts. Finally, as companies in developing markets increasingly become credible suppliers, deciding which low-cost market to source from becomes more difficult.

Rising complexity

Manufacturing and supply chain planners must also deal with

rising complexity. For many companies, this need means working harder to meet their customers’ increasingly diverse requirements. Mobile-phone makers, for example, introduced 900 more varieties of handsets in 2009 than they did in 2000. Proliferation also affects mature product categories: the number of variants in baked goods, beverages, cereal, and confectionery, for instance, all rose more than 25 per cent a year between 2004 and 2006, and the number of SKUs at some large North American grocers exceeded 100,000 in 2009.

Another uncertainty: Protectionism could change the economics of a supply chain at the stroke of a pen. Our research suggests, for example, that the total landed cost of making assembled mechanical products such as washing machines in a given low-cost country could plausibly swing up to 20 per cent given different tariff scenarios.

Better Visibility Can Help Achieve Higher Efficiency Before Order to forecast

Order

Ship to order

Supply to forecast

After

Order

Component Supplier

march 2011 | industry 2.0

Work in process

Supply to forecast

Component Inventory

- technology management for decision-makers

Assembly

Customer

Infographic by: Sristi Maurya

Order to forecast

38

Customer

Finished good Inventory

Finished good Supplier

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Meanwhile, globalization brings complexities as rising incomes in developing countries make them extremely desirable as markets, not just manufacturing hubs. Efficient distribution in emerging markets requires creativity, since retail formats typically range from modern hypermarkets to subscale mom-andpop stores. In Brazil, for example, Nestlé is experimenting with the use of supermarket barges to sell directly to low-income customers along two tributaries of the Amazon River.

Meeting the challenge

In such a world, the idea that companies can optimise their supply chains once—and for all circumstances and customers—is a fantasy. Recognising this, a few forward-looking companies are preparing in two ways. First, they are splintering their traditional monolithic supply chains into smaller and more flexible ones.

While these new supply chains may rely on the same assets and network resources as the old, they use information very differently—helping companies to embrace complexity while better serving customers.

Second, leading companies treat their supply chains as dynamic hedges against uncertainty by actively and regularly examining—even reconfiguring—their broader supply networks with an eye toward economic conditions five or ten years ahead. In doing so, these companies are building diverse and more resilient portfolios of supply chain assets that will be better suited to thrive in a more uncertain world.

Splintering supply chains: a case study

A US-based consumer durables manufacturer was losing ground to competitors because of problems with its legacy supply chain.

Years before, the company—like many global manufacturers—had sent the lion’s share of its production to China while maintaining a much smaller presence in North America to stay close to the majority of its customers. One legacy of the move: all of its plants, relying on a unified productionplanning process, essentially manufactured the full range of its thousands of products and their many components.

Now, however, increasingly volatile patterns of customer demand, coupled with product proliferation in the form of hundreds of new SKUs each year, were straining the company’s supply chain to

the point where forecasting- and service-related problems were dissatisfying key customers.

In response, the company examined its portfolio of products and components along two dimensions: the volatility of demand for each SKU it sold and the overall volume of SKUs produced per week. Armed with the resulting matrix, the company began rethinking its supply chain configuration.

Ultimately, the company decided to split its one-size-fitsall supply chain into four distinct splinters. For high-volume products with relatively stable demand (less than 10 percent of SKUs but representing the majority of revenues), the company kept the sourcing and production in China. Meanwhile, the facilities in North America became responsible for

From one to many

Splintering monolithic supply chains into smaller, nimbler ones can help tame complexity, save money, and serve customers better. Let’s look at an example.

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Imaging by: PC Anoop

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39

supply chain & logistics producing the rest of the company’s SKUs, including high- and lowvolume ones with volatile demand (assigned to the United States) and low-volume, low-demand-volatility SKUs (divided between the United States and Mexico). Ramping up production in a higher-cost country such as the United States made economic sense even for the low-volume products because the company could get them to market much faster, minimize lost sales, and keep inventories down for many low-volume SKUs. Moreover, the products tended to require more specialized manufacturing processes (in which the highly skilled US workforce excelled) and thus gave the company a chance to differentiate itself in a crowded market.

However, the company didn’t just reallocate production resources. In tandem, it changed its information and planning processes significantly. For the portfolio’s most volatile SKUs (the ones now produced in the United States), the company no longer tried to predict customer demand at all, choosing instead to manufacture directly to customer orders.

Meanwhile, managers at these US plants created a radically simplified forecasting process to account for the remaining products—those with low production runs but more stable demand.

For overseas operations, the company continued to have its Chinese plants

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produce finished goods on the basis of long-run forecasts, as they had done before. The forecasts were now better, though, because planners were no longer trying to account in their models for the “noise” caused by the products with highly volatile demand.

Together, the changes helped the company reduce its sourcing and manufacturing complexity and to lower its cost of goods sold by about 15 per cent. Meanwhile, it improved its service levels and shortened lead times to three days, from an average of ten.

Quality also improved across the company’s full range of products.

How many splinters?

The first question for organisations exploring multiple supply chains is how many are needed.

Answering it requires a close look at the way the supply chain assets that a company uses to manufacture and distribute its products matches up against the strategic aspirations it has for those products and their customers.

This requirement seems obvious, but in practice most companies examine only the second half of the equation in a sophisticated way; they can, for example, readily identify which products they see as leaders on cost, service, innovation, or (most likely) some combination of these. Fewer companies seriously examine the operational trade-offs implicit in such choices, let alone make network decisions based on those trade-offs.

- technology management for decision-makers

Oftentimes, a good place to start is to analyse the volatility of customer demand for a given product line against historical production volumes and to compare the results against the total landed cost for different production locations. This information provides a rough sense of the speed-versus-cost trade-offs and can even suggest locations where supply chain splinters might ultimately be located.

Of course, companies must carefully check these broad-brush analyses against customer needs.

The consumer goods company, for instance, found that packaging innovation was a differentiator for some of its products and thus configured a single production line in the new, lower-cost location to make packaging for several markets quickly. By contrast, in automotive and other assembly-based industries, we find that the customers’ responsiveness and the complexity of individual products are important inputs that help determine where supply chains might be splintered.

Second-order benefits

While dividing a supply chain into splinters may seem complicated, in fact this approach allows companies to reduce complexity and manage it better because operational assets can be focused on tasks they’re best equipped to handle. At the same time, the added visibility that a splintered approach offers into the guts of a supply chain helps senior managers more effectively employ traditional improvement tools that would have been too overwhelming to tackle before.

After the consumer durables maker divided its supply chain into smaller ones, for example, it was able to use formerly impractical postponement approaches (producing closer in time to demand to keep hold-

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ing costs low). The company’s US plants now combined various SKUs into semifinished components that could quickly be assembled into products to meet customer orders. Indeed, the lower inventory costs this move generated partially offset the higher labour costs of the US factories.

Likewise, the global consumerpackaged-goods maker found that after splintering its supply chain, it was more successful at applying lean-management techniques in its plants.

Use your network as a hedge

The advantages that multiple supply chains confer are most valuable if companies view them dynamically, with an eye toward the resiliency of the overall supply chain under a variety of circumstances. Will the various strands of a particular global supply network, for example, still make sense if China’s currency appreciates by 20 percent, oil costs $90 a barrel, and shipping lanes have 25 percent excess capacity? It’s critical for organizations to determine which of the many questions like these are right to ask and to invest energy in understanding the global trends underpinning them.

In fact, we believe that the ability of supply chains to withstand a variety of different scenarios could influence the profitability and even the viability of organizations in the not-toodistant future. In light of this, companies should design their portfolios of manufacturing and supplier networks to minimize the total landed-cost risk under different scenarios. The goal should be identifying a resilient manufacturing and sourcing footprint—even when it’s not necessarily the lowest-cost one today. This approach calls for a significant mindset shift not just

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from operations leaders but also from CEOs and executives across the C-suite.

At the consumer durables manufacturer, for example, senior executives worried that its reliance on China as a hub could become a liability if conditions changed quickly. Consequently, the company’s senior team looked at its cost structure and how that might change over the next five to ten years under a range of global wage- and currency-rate conditions. They also considered how the company could be affected by factors such as swinging commodity prices and logistics costs.

While China remained the most attractive manufacturing option in the short term, Mexico was preferable under several plausible scenarios.

The company determined that while China remained the most attractive manufacturing option in the short term, the risks associated with wage inflation and currency-rate changes were real enough to make Mexico a preferable alternative under several plausible scenarios. Consequently, the company has begun quietly building its supplier base there in anticipation of ramping up its manufacturing presence so that it can quickly flex production between China and Mexico should conditions so dictate.

A North American industrial manufacturer chose to broaden its footprint in Brazil and Mexico to hedge against swings in foreign-exchange rates. In particular, the company invested in spare capacity to make several innovative, high-end components that it had formerly produced only in Europe and the United States because of the advanced machining and engineering required. The investment is helping the company hedge against currency swings by quickly transferring production of the components across its global

network to match economic conditions. Moreover, the arrangement helps it better support its supply partners as they serve important growth markets.

Making these kinds of moves isn’t easy, of course, since any alterations to a company’s supply chain have far-ranging implications throughout the organisation. For starters, such changes require much more cooperation and information sharing across business units than many companies are accustomed to.

Nonetheless, the rewards are worthwhile. By creating more resilient and focused supply chains that can thrive amid heightened uncertainty and complexity, companies will gain significant advantages in the coming years.

Yogesh Malik and Brian Ruwadi are principals in McKinsey’s Cleveland office; Alex Niemeyer is a director in the Miami office.

The authors wish to acknowledge Sebastien Katch for his valuable contributions to this article.

“This article was originally published in January 2011 in McKinsey Quarterly, www. mckinseyquarterly.com. Copyright (c) 2011 McKinsey & Company. All rights reserved.

Reprinted by permission. It was also reprinted by The CTO Forum magazine in February 2011”

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information technology

Staying

Alert RFID System Picture Courtesy: www.iis.fraunhofer.de

Although RFID and wireless technologies have evolved highly, there are several risk factors associated with their deployment.

Here is a guide on how to ensure security and personal privacy when the technologies are in place.

With The

by sanjoy john

R

adio Frequency Identification Device (RFID) refers to a small electronic device—constituting a small chip capable of carrying bytes of data and an antenna. Just as a barcode or magnetic strip on the back of an ATM Card or a credit card, RFID devices provide a unique identification for an object, so when an RFID on a device is scanned it fetches the object’s information and displays it to the user.

The aim of RFID is to create secure personal data in a format that is inaccessible to criminals and anyone—who does not have access to the authorized equipment to read it.

Unlike credit cards and ATM cards that need a swipe through

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a special reader for the bar code to be read—and also need to be placed in a precise position to the scanner, RFID has a significant advantage of working within a

- technology management for decision-makers

few feet of the scanner thus not requiring direct line of sight of the RFID tags to the RFID reader.

RFID readers can interrogate RFID tags faster and the read-

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time is less than 100 milliseconds and a large number of tags can be read at once.

Working of RFID readers

RFID readers have an antenna that emits radio waves. The RFID tag, which is a microchip combined with an antenna in a compact package, picks up signals from RFID reader—and then returns the signal usually with some additional data like unique serial number and other customized information.

Factors impacting RFID systems read-range

and your badge is the one that is ‘credited’ with the access. So, although the possible benefits of RFID look impressive—it has not been universally adopted.

Protecting the ID in the RFID

Technology is reaching new heights—but according to Moore’s law, technology is ever evolving and all it takes is 18 months for a new technology to get extinct.

Wireless technology between computers is certainly one of the most appreciated and used technology globally. It enables connection between two or more devices wirelessly for data sharing purposes, and is being used by millions of people around

RFIDs do come with potential vulnerabilities, using which fraudsters may be able to copy RFID tags on identity documents. Although these can only be readable at a short distance by automated readers, it is still possible to apply radio frequencies from further afield in order to capture the data.

Increasing use of RFID devices on company badges is also of an increasing concern. An appropri-

Wireless technology

Picture Courtesy: www.themajorlearn.info

• Frequency for identification • Antenna gain

vastly improve your business processes—but with every piece of technology there is always a downside. You need to be aware of the challenges that your business can face.

Radio-frequency identification chips (often called RFID tags) are passive, inductively powered chips that are used for many applications, from replacing bar codes on supermarket products to identifying lost dogs and cats. Their small size and low cost make them ideal for tracking objects, animals and people. However, the ease with which RFID tags can be tracked opens the door to invading people’s privacy.

• Placement of the tag on the object to be identified It is easy to get carried away with thoughts of how an installation of RFID systems could

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ate RF field will cause the RFID chip in the badge to transmit the stored data to whoever activates it. This information can then be stored and replayed to company scanners, allowing intruders to access the company premises

the world with the help of various devices—such as personal computers, laptops, PDAs, printers, cameras, gaming devices, mp3 players etc. More and more gadgets are coming with built in feature of wireless technology.

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information technology Free wireless communication in coffee shops and airports entices a lot of people. Home users adopt wireless technology to a great extent in today’s world.

Replacing wired connections with wireless internet connection could make your computer prone to a free ride by an intruder on the internet with a wireless enabled computer or laptop, which could be in the range of your wireless point. Along with the free internet benefit, unsecured file sharing with unsecured network can create disasters.

Home wireless security

Public wireless security

Public access points (frequently called hot spots) are often insecure. Some steps (given next) you should consider taking

Picture Courtesy: www.schreiner-group.com

While using a wireless router or access point to create a home network, you trade wired connectivity for connectivity delivered via a radio signal. Unless you secure this signal, strangers can piggyback on your internet connection; monitor your online

activity or access files on your hard drive. By taking the following actions, you can help secure your wireless home network against these threats.

• Change the default system ID of your wireless access point or router.

• Change the default password for your system.

• Turn off identifier broadcasting.

• Encrypt wireless communications. (WPA-based encryption offers better protection than WEP-based encryption.)

• Use your router’s built-in firewall to restrict access to your network.

• Keep your wireless system patched and up to date.

before connecting to a public access point.

• Watch what you do online.

Avoid a. Online banking b. Online shopping c. Sending email from public access points d. Disable file sharing • Use a virtual private network (VPN) if possible • Avoid using passwords and providing personal information to websites • Encrypt your files • Be aware of your surroundings—someone might be surfing your data through your shoulders.

Wireless technology has a number of key business benefits

• Increased efficiency—Faster transfer of information • Better coverage—To access office networks, extra cables or adaptors are not required anymore • Flexibility—Direct access to corporate data from customer sites or home • Cost savings—wireless networks are easier and cheaper to install.

Certain drawbacks associated with the use of wireless networks

R

FID technology has firmly established itself in the logistics sector. But its use on metallic surfaces in particular continues to pose a major challenge. When the RFID labels are directly attached to metal, readability drops nearly to zero.

Schreiner LogiData solves this problem with a spacer made of a special foam.

Their ((rfid))-Foam label separates the RFID antenna from the metallic substrate by means of a spacer, and thus enables trouble-free read or write operations. The spacer consists of high-grade industrial foam and is durable and resistant. The RFID label itself has an adhesive area that enables direct attachment to a metallic surface.

• Security—Wireless transmission is more vulnerable to attack by unauthorized users.

• Installation problems—Where other sources of radio signals are present—interference could be suffered. This could lead to poor communication, or in extreme cases, loss of wireless communication altogether.

• Coverage—Getting consistent coverage can be difficult at times, leading to no signal.

Sanjoy John is an Associate Consultant for Information Security Management at Mahindra SSG.

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innovation & success

Preparing For A Worldwide Growth

While SAN Engineering & Locomotive was targeting to grow industries in India and abroad, they looked for a solution to improve their design process to ensure faster delivery of products. The company chose to use SolidEdge, which improved their locomotive design process to a great extent, and they achieved substantial time and cost saving with quality enhancement.

S

AN Engineering & Locomotive designs and manufactures locomotives for multiple industries within India’s burgeoning economy. To date, the company has designed, built and commissoned more than 900 locomotives for Indian core sector industries including Indian Railways. These locomotives are primarily used for shunting operations, such as hauling heavy loads over difficult terrain.

required in power generation, cement, port, refineries, steel plants and others.

In keeping with its strategy of delivering customized locomotives and special rail vehicles, the company’s engineering staff was charged with implementing a design process that was able to meet the unique and technically demanding requirements of each of its customers— while at the same time enabling the company to earn a reasonable return each time it delivered a finished product. In other words, like all companies that provide custom-designed products, SAN needed to walk the thin and challenging line of providing a speciality deliverable at a reasonable cost.

Migrating from 2D to 3D design SAN specializes in delivering custom-designed locomotives to meet the site-specific requirements of its industrial customers.

Typically, these powerful locomotives range in size from 25 to 1600 kW ( kilowatts), and are specially designed to haul maximum loads like those

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To address this demanding challenge, SAN’s engineers realized that they needed to re-evaluate their design process to see whether the latest CAD and CAE technology could provide them with the flexibilty that they needed to deal with the varieties inherent in their business. In essence, SAN wanted to rethink the

- technology management for decision-makers

way it designed a unique product for each of its customers.

The company’s design group started by using Siemens PLM Software’s Solid Edge software on several smaller projects. The early results were encouraging and prompted the company to move forward and fully implement Solid Edge as the CAD and CAE solutions for its new 3D design process.

However, before doing this, the company wanted to make certain that all of its engineers, as well as its senior executives, were trained on the new software.

After the training was complete, SAN began to implement its process innovations in earnest.

One of the most important innovations was to establish a standard practice for design and drafting. More specifically, the company wanted to use standard parts for the bought-out items

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and hardware that were used in its customed locomotives. The goal here was to enable all of the company’s engineers to use a systematic design methodology that minmized the needs for newly designed components or parts.

Another important innovation was the use of standardized design templates that would streamline the practice of custom design

and drafting. SK Ramachandra, Associate Vice President of Research and Development at SAN Engineering, explains, “The intent was to enable the company’s designers to follow a standard design method that would enable them to eliminate the ambiguity associated with reading, using and modifying design models or drawings that had been created by other engineers earlier in the custom-design process.”

Results with the new software

The company’s new design process, driven by Solid Edge, ena bled SAN’s engineers to see how their designs would behave in assembly and in operation early in the product development cycle— before resources and physical investments were expended.

“Solid Edge is especially adept at enabling designers to assess the behaviour of rigid parts, adjustable parts, rigid assembly and adjustable assembly functionality,” says Ramachandra.

3D modeling helps the engineering team to detect the interferences between parts, locate the design’s faults and easily correct the model before its related drawing is released.

Just as importantly, even though time is spent performing the 3D modeling, drafting time is reduced almost by half since Solid Edge is able to automatically generate 2D drawings from 3D models. In addition, the opportunity to re-use these models and assemblies in other projects has enabled the company to drastically reduce its design times.

The company also benefits because generated drawings are highly accurate—and because

the revision manager and link management tools of Solid Edge enable the engineering team to manage their assemblies and drawings much more efficiently.

Similarly, Solid Edge facilitates automatic bill of material generation, which helps speed up the drafting process while ensuring that no component is left without itemization. This also reduces the time required for checking.

“We are quite pleased with the advantages that Solid Edge has afforded us. These advantages have given us an exceptionally improved development process, and have persuaded us to implement all of our locomotive design activities on the Solid Edge 3D platform,” says Ramachandra.

Advertiser index Busy Infotech ..................................................... IFC

Hannover ............................................................ 17

Powerbuild ......................................................... 21

CHEP ...................................................................9

Havells .................................................................5

S & T Engineers ...................................................23

Dsonic ................................................................63

Indiamart ........................................................... 11

Taegutec ............................................................IBC

Elcon ..................................................................33

Mahindra Navistar ................................................7

Vodafone .......................................................18-19

GW Precison .......................................................BC

industry 2.0 - technology management for decision-makers | march 2011 Mitsubishi ............................................................3

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innovation & success

Developing A Sustainable Alternative A Dutch clean-tech company has introduced an innovative plastics recycling technique to bring sustainable building materials to market.

E

Stephen Eastwood CEO, Echotect

Robert ‘Buzz’ Kross, Senior Vice President, Autodesk Manufacturing Industry Group

chotect, a Dutch cleantech company, had to design and optimize its technology to offer a cost-effective, recyclable and environmentally sustainable alternative to engineered stone.

Combining quartz, marble and other aggregates with recycled polyethylene terephthalate (PET), the technology has resulted in a product that is almost indistinguishable from natural stone, but the material is non-porous and 100 per cent recyclable.

The Company is the result of a joint initiative between the research laboratories of Shell and the commercial acumen of its venture capital arm, Kenda Capital.

After five years of development and investment, the new technology is expected to revolutionize the engineered stone market, providing manufacturers and consumers with

an eco-friendly alternative which meets the performance characteristics of traditional products.

How did the company do it?

Echotect used Autodesk Inventor software to design and engineer equipment that converts shredded PET bottles into durable and sustainable materials. The company relied on AutoCAD P&ID software to create, modify and manage piping and instrumentation diagrams in the recycling plant, while deploying Autodesk Vault was essential to maintain design and engineering documentation of the project lifecycle. Autodesk Showcase software also enabled Echotect to create photorealistic 3D visualizations of how custom modules of their recycling equipment will fit into customer buildings and sites.

The Autodesk Clean Tech Partner Program—which provides software for emerging clean tech companies in North America and Europe—enabled Echotect to combine Digital Prototyping technology with AutoCAD-based P&ID design to bring its innova-

tive recycling process to market more rapidly and achieve competitive advantage.

“We are delighted to be part of the Autodesk Clean Tech Partner Program as digital prototyping was of great importance to us in optimizing our recycling equipment and demonstrating the potential applications in various markets. Autodesk Inventor and AutoCAD P&ID helped us design, manage and modify real-time improvements to our equipment and plant, enabling us to focus on providing a high-quality finished product—while reducing time to market,” says Stephen Eastwood, CEO of Echotect.

“Echotect’s alternative approach to plastic recycling has positive implications for many regions that face a growing post-consumer waste problem.

The company is a model of how advantageous Digital Prototyping can be—to drive innovation, while saving time and money,” says Robert ‘Buzz’ Kross, Senior Vice President, Autodesk Manufacturing Industry Group.

Designing Metal Mirrors For CSP Systems

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ommercial Concentrating Solar Power (CSP) systems installed to date mostly use glass mirrors to reflect and concentrate sunlight onto receivers—that collect the solar energy and convert it to heat. This thermal energy can then be used to produce utility scale electricity via a steam turbine.

Alcoa and National Renewable Energy Lab (NRIL, US) are testing an innovative CSP system using highly-reflective aluminium mirrors. These mirrors are more durable and environment-friendly than fragile glass-based mirrors.

The Alcoa design solution enables high-volume manufacturing techniques

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to lower installation costs, also its monolithic structure enables a simple ‘drop-inplace’ collector for easy installation. The Alcoa design includes sheet, extrusions and fasteners.

The new Alcoa CSP design is expected to leverage Alcoa’s materials and technology leadership to lower the cost of CSP trough systems. “We understand the end-customers’ need to lower the capital investment in these systems in order to lower the cost of energy. After listening to numerous industry experts, our multi-faceted team combined its materials knowledge with design, manufacturing and engineered finishes capabili-

- technology management for decision-makers

ties to develop a system solution that enables manufacturers to more easily scale up to meet the growing demand for this solar technology,” says Dr. Eric F. M. Winter, Alcoa’s Director of Development Laboratories.

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management & strategy

Clouds, Big dAtA And smArt Assets Advancing technologies and their swift adoption are upending traditional business models.

Senior executives need to think strategically about how to prepare their organizations for the challenging new environment.

Ten Tech-enabled Business Trends To Watch by jacques bughin, michael chui and james manyika

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wo-and-a-half years ago, we described eight technology-enabled business trends that were profoundly reshaping strategy across a wide swath of industries. We showed how the combined effects of emerging Internet technologies, increased computing power and fast, pervasive digital communications were spawning new ways to manage

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talent and assets as well as new thinking about organizational structures.

Since then, the technology landscape has continued to evolve rapidly. Facebook, in just over two short years, has quintupled in size to a network that touches more than 500 million users. More than 4 billion people around the world now use cell phones,

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and for 450 million of those people the Web is a fully mobile experience. The ways information technologies are deployed are changing too, as new developments such as virtualization and cloud computing reallocate technology costs and usage patterns while creating new ways for individuals to consume goods and services and for entrepreneurs and enterprises to dream up viable business models. The dizzying pace of change has affected our original eight trends, which have continued to spread (though often at a more rapid pace than we anticipated), morph in unexpected ways, and grow in number to an even ten.

The rapidly shifting technology environment raises serious questions for executives about how to help their companies capitalize on the transformation under way. Exploiting these trends typically doesn’t fall to any one executive—and as change accelerates, the odds of missing a beat rise significantly. For senior executives, therefore, merely understanding the ten trends outlined here isn’t enough. They also need to think strategically about how to adapt management and organizational structures to meet these new demands.

For the first six trends, which can be applied across an enterprise, it will be important to assign the responsibility for identifying the specific implications of each issue to functional groups and business units.

The impact of these six trends—distributed cocreation, networks as organizations, deeper collaboration, the Internet of Things, experimentation with big data, and wiring for a sustainable world—often will vary considerably in different parts of the organization and should be managed accordingly. But local accountability won’t be sufficient. Because some of the most powerful applications of these trends will cut across

traditional organizational boundaries, senior leaders should catalyze regular collisions among teams in different corners of the company that are wrestling with similar issues.

Three of the trends—anything-as-a-service, multisided business models, and innovation from the bottom of the pyramid—augur far-reaching changes in the business environment that could require radical shifts in strategy. CEOs and their immediate senior teams need to grapple with these issues; otherwise it will be too difficult to generate the interdisciplinary, enterprise-wide insights needed to exploit these trends fully.

Once opportunities start emerging, senior executives also need to turn their organizations into laboratories capable of quickly testing and learning on a small scale and then expand successes quickly. And finally the tenth trend, using technology to improve communities and generate societal benefits by linking citizens, requires action by not just senior business executives but also leaders in Government, non-Governmental organizations and citizens.

Across the board, the stakes are high. Consider the results of a recent McKinsey Quarterly survey of global executives on the impact of participatory Web 2.0 technologies (such as social networks, wikis, and microblogs) on management and performance. The survey found that deploying these technologies to create networked organizations that foster innovative collaboration among employees, customers and business partners is highly correlated with market share gains.

That’s just one example of how these trends transcend technology and provide a map of the terrain for creating value and competing effectively in these challenging and uncertain times.

DistributeD cocreation moves into the mainstream

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and support to those who need help. The most significant contributors become visible to the community by showing the number of questions they have answered and the number of ‘thanks’ they have received from other users. By our estimates, when customer communities handle an issue, the per-contact cost can be as low as 10 per cent of the cost to resolve the issue through traditional call centers.

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n the past few years, the ability to organize communities of Web participants to develop, market and support products and services has moved from the margins of business practice to the mainstream. Wikipedia and a handful of opensource software developers were the pioneers. But in signs of the steady march forward, 70 per cent of the executives we recently surveyed said that their companies regularly created value through Web communities. Similarly, more than 68 million bloggers post reviews and recommendations about products and services.

Intuit is among the companies that use the Web to extend their reach and lower the cost of serving customers. For example, it hosts customer support communities for its financial and tax return products, where more experienced customers give advice

Companies created value through web communities.

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management & strategy Other companies are extending their reach by using the Web for word-of-mouth marketing. P&G’s Vocalpoint network of influential mothers is a leading example. Mothers share their experiences using P&G’s new products with members of their social circle, typically 20 to 25 moms. In markets where Vocalpoint influencers are active, product revenues have reached twice those without a Vocalpoint network.

Facebook has marshaled its community for product development. The leading social network recently recruited 300,000 users to translate its site into 70 languages—the translation for its Frenchlanguage site took just one day. The community

continues to translate updates and new modules.

Yet for every success in tapping communities to create value, there are still many failures. Some companies neglect the up-front research needed to identify potential participants who have the right skill sets and will be motivated to participate over the longer term. Since cocreation is a two-way process, companies must also provide feedback to stimulate continuing participation and commitment. Getting incentives right is important as well: cocreators often value reputation more than money.

Finally, an organization must gain a high level of trust within a Web community to earn the engagement of top participants.

making the network the organization

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Picture Courtesy: www.photos.com

n earlier research, we noted that the Web was starting to force open the boundaries of organizations, allowing non-employees to offer their expertise in novel ways. We called this phenomenon ‘tapping into a world of talent.’ Now many companies are pushing substantially beyond that starting point,

Using socialnetwork analysis, a company mapped information flows and knowledge resources among its worldwide staff.

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building and managing flexible networks that extend across internal and often even external borders. The recession underscored the value of such flexibility in managing volatility. We believe that the more porous, networked organizations of the future will need to organize work around critical tasks rather than moulding it to constraints imposed by corporate structures.

At one global energy services company, geographic and business unit boundaries prevented managers

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from accessing the best talent across the organization to solve clients’ technical problems. Help desks supported engineers, for example, but rarely provided creative solutions for the most difficult issues.

Using social-network analysis, the company mapped information flows and knowledge resources among its worldwide staff. The analysis identified several bottlenecks but also pointed to a set of solutions.

Using Web technologies to expand access to experts around the world, the company set up new innovation communities across siloed business units. These networks have helped speed up service delivery while improving quality by 48 per cent, according to company surveys.

Dow Chemical set up its own social network to help managers identify the talent they need to execute projects across different business units and functions.

To broaden the pool of talent, Dow has even extended the network to include former employees, such as retirees. Other companies are using networks to tap external talent pools. These networks include online labour markets (such as Amazon.com’s Mechanical Turk) and contest services (such as Innocentive and Zooppa) that help solve business problems.

Management orthodoxies still prevent most companies from leveraging talent beyond full-time employees who are tied to existing organizational structures. But adhering to these orthodoxies limits a company’s ability to tackle increasingly complex challenges. Pilot programmes that connect individuals across organizational boundaries are a good way to experiment with new models, but incentive structures must be overhauled and role models established to make these programmes succeed. In the longer term, networked organizations will focus on the orchestration of tasks rather than the ‘ownership’ of workers.

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collaboration at scale

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cross many economies, the number of people who undertake knowledge work has grown much more quickly than the number of production or transactions workers. Knowledge workers typically are paid more than others, so increasing their productivity is critical. As a result, there is broad interest in collaboration technologies that promise to improve these workers’ efficiency and effectiveness. While the body of knowledge around the best use of such technologies is still developing, a number of companies have conducted experiments, as we see in the rapid growth rates of video and Web conferencing, expected to top 20 per cent annually during the next few years.

At one high-tech enterprise, the sales force became a crucible for testing collaboration tools. The company’s sales model relied on extensive travel, which had led to high costs, burned-out employees, and difficulty in scaling operations. The leadership therefore decided to deploy collaboration tools (including video conferencing and shared electronic workspaces, which allow people in different locations to work with the same document simultaneously), and it reinforced the changes with a sharp reduction in travel budgets. The savings on travel were four times the company’s technology investment. Customer contacts per salesperson rose by 45 per cent, while 80 per cent of the sales staff reported higher productivity and a better lifestyle.

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In another instance, the US intelligence community made wikis, documents and blogs available to analysts across agencies (with appropriate security controls, of course). The result was a greater exchange of information within and among agencies and faster access to expertise in the intelligence community. Engineering company Bechtel established a centralized, open-collaboration database of design and engineering information to support global projects. Engineers starting new ones found that the database, which contained up to 25 per cent of the material they needed, lowered launch costs and sped up times to completion.

Despite such successes, many companies err in the belief that technology by itself will foster increased collaboration. For technology to be effective, organizations first need a better understanding of how knowledge work actually takes place. A good starting point is to map the informal pathways through which information travels, how employees interact and where wasteful bottlenecks lie.

In the longer term, collaboration will be a vital component of what has been termed ‘organizational capital.’ The next leap forward in the productivity of knowledge workers will come from interactive technologies combined with complementary investments in process innovations and training. Strategic choices, such as whether to extend collaboration networks to customers and suppliers, will be important.

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There is broad interest in collaboration technologies that promise to improve knowledge workers’ efficiency.

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Picture Courtesy: Argonne National Laboratory

management & strategy

the growing ‘internet of things’ Nuclear engineer Yung Liu, with Argonne National Laboratory examines data on his laptop from the radio frequency identification device developed at the laboratory.

The technology allows users not only track nuclear materials, but also remotely monitor environmental and physical conditions such as temperature and humidity.

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he adoption of RFID (Radio Frequency Identification) and related technologies was the basis of a trend we first recognized as ‘expanding the frontiers of automation.’ But these methods are rudimentary compared with what emerges when assets themselves become elements of an information system, with the ability to capture, compute, communicate and collaborate around information—something that has come to be known as the ‘Internet of Things.’

Embedded with sensors, actuators and communications capabilities, such objects will soon be able to absorb and transmit information on a massive scale and, in some cases, to adapt and react to changes in the environment automatically. These ‘smart’ assets can make processes more efficient, give products new capabilities and spark novel business models.

Auto insurers in Europe and the United States are testing these waters with offers to install sensors in customers’ vehicles. The result is new pricing models that base charges for risk on driving behaviour rather than on a driver’s demographic characteristics.

Luxury-auto manufacturers are equipping vehicles

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with networked sensors that can automatically take evasive action when accidents are about to happen.

In medicine, sensors embedded in or worn by patients continuously report changes in health conditions to physicians, who can adjust treatments when necessary. Sensors in manufacturing lines for products as diverse as computer chips and pulp and paper take detailed readings on process conditions and automatically make adjustments to reduce waste, downtime and costly human interventions.

As standards for safety and interoperability begin to emerge, some core technologies for the Internet of Things are becoming more widely available. The range of possible applications and their business impact have yet to be fully explored, however. Applications that improve process and energy efficiency may be good starting points for trials, since the number of successful installations in these areas is growing.

For more complex applications, however, laboratory experiments, small-scale pilots, and partnerships with early technology adopters may be more fruitful, less risky approaches.

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experimentation anD big Data

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ould the enterprise become a full-time laboratory? What if you could analyze every transaction, capture insights from every customer interaction, and didn’t have to wait for months to get data from the field? What if . . . ? Data are flooding in at rates never seen before—doubling every 18 months—as a result of greater access to customer data from public, proprietary and purchased sources, as well as new information gathered from Web communities and newly deployed smart assets. These trends are broadly known as ‘big data.’ Technology for capturing and analyzing information is widely available at ever-lower price points. But many companies are taking data use to new levels, using IT to

ability to marshal customer data has kept Tesco, for example, in the ranks of leading UK grocers. This brick-and-mortar retailer gathers transaction data on its ten million customers through a loyalty card program. It then uses the information to analyze new business opportunities—for example, how to create the most effective promotions for specific customer segments—and to inform decisions on pricing, promotions and shelf allocation. The online grocer Fresh Direct shrinks reaction times even further: it adjusts prices and promotions daily or even more frequently, based on data feeds from online transactions, visits by consumers to its Web site, and customer service interactions. Other companies too are mining data

support rigorous, constant business experimentation that guides decisions and to test new products, business models and innovations in customer experience.

In some cases, the new approaches help companies make decisions in real time. This trend has the potential to drive a radical transformation in research, innovation and marketing.

Web-based companies, such as Amazon.com, eBay and Google, have been early leaders, testing factors that drive performance—from where to place buttons on a Web page to the sequence of content displayed—to determine what will increase sales and user engagement. Financial institutions are active experimenters as well. Capital One, which was early to the game, continues to refine its methods for segmenting credit card customers and for tailoring products to individual risk profiles. According to Nigel Morris, one of Capital One’s cofounders, the company’s multifunctional teams of financial analysts, IT specialists, and marketers conduct more than 65,000 tests each year, experimenting with combinations of market segments and new products.

Companies selling physical products are also using big data for rigorous experimentation. The

from social networks in real time. Ford Motor, PepsiCo and Southwest Airlines, for instance, analyze consumer postings about them on social-media sites such as Facebook and Twitter to gauge the immediate impact of their marketing campaigns and to understand how consumer sentiment about their brands is changing.

Using experimentation and big data as essential components of management decision making requires new capabilities, as well as organizational and cultural change. Most companies are far from accessing all the available data. Some haven’t even mastered the technologies needed to capture and analyze the valuable information they can access. More commonly, they don’t have the right talent and processes to design experiments and extract business value from big data, which require changes in the way many executives now make decisions: trusting instincts and experience over experimentation and rigorous analysis. To get managers at all echelons to accept the value of experimentation, senior leaders must buy into a ‘test and learn’ mind-set and then serve as role models for their teams.

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Data are flooding in at rates never seen before. Some haven’t even mastered the technologies needed to capture and analyze the valuable information they can access.

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management & strategy

wiring for a sustainable worlD Information technology’s share of the world’s environmental footprint is growing.

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ven as regulatory frameworks continue to evolve, environmental stewardship and sustainability clearly are C-level agenda topics.

What’s more, sustainability is fast becoming an important corporate-performance metric—one that stakeholders, outside influencers and even financial markets have begun to track. Information technology plays a dual role in this debate: it is both a significant source of environmental emissions and a key enabler of many strategies to mitigate environmental damage. At present, information technology’s share of the world’s envi-

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- technology management for decision-makers

ronmental footprint is growing because of the everincreasing demand for IT capacity and services.

Electricity produced to power the world’s data centers generates greenhouse gases on the scale of countries such as Argentina or the Netherlands and these emissions could increase fourfold by 2020.

McKinsey research has shown, however, that the use of IT in areas such as smart power grids, efficient buildings and better logistics planning could eliminate five times the carbon emissions that the IT industry produces.

Companies are now taking the first steps to reduce the environmental impact of their IT. For instance, businesses are adopting ‘green data center’ technologies to reduce sharply the energy demand of the ever-multiplying numbers of servers needed to cope with data generated by trends such as distributed cocreation and the Internet of Things (described earlier in this article). Such technologies include virtualization software (which enables the more efficient allocation of software across servers) to decrease the number of servers needed for operations, the cooling of data centers with ambient air to cut energy consumption, and inexpensive, renewable hydroelectric power (which of course requires locating data centers in places where it is available).

Meanwhile, IT manufacturers are organizing programmes to collect and recycle hazardous electronics, diverting them from the waste stream.

IT’s bigger role, however, lies in its ability to reduce environmental stress from broader corporate and economic activities. In a significant push, for example, utilities around the world are deploying smart meters that can help customers shift electricity usage away from peak periods and thereby reduce the amount of power generated by inefficient and costly peak-load facilities. Smart grids can also improve the efficiency of the transmission and distribution of energy and, when coupled with energy storage facilities, could store electricity generated by renewable-energy technologies, such as solar and wind. Likewise, smart buildings embedded with IT that monitors and optimizes energy use could be one of the most important ways of reducing energy consumption in developed economies. And powerful analytic software that improves logistics and routing for planes, trains and trucks is already reducing the transportation industry’s environmental footprint.

Within the enterprise, both leaders and key functional players must understand sustainability’s growing importance to broader goals. Management systems that build the constant improvement of resource use into an organization’s processes and strategies will raise its standing with external stakeholders while also helping the bottom line.

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imagining anything as a service

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echnology now enables companies to monitor, measure, customize and bill for asset use at a much more fine-grained level than ever before. Asset owners can therefore create services around what have traditionally been sold as products. Businessto-business (B2B) customers like these service offerings because they allow companies to purchase units of a service and to account for them as a variable cost rather than undertake large capital investments. Consumers also like this ‘paying only for what you use’ model, which helps them avoid large expenditures, as well as the hassles of buying and maintaining a product.

In the IT industry, the growth of ‘cloud computing’ (accessing computer resources provided through networks rather than running software or storing data on a local computer) exemplifies this shift. Consumer acceptance of Web-based cloud services for everything from e-mail to video is of course becoming universal, and companies are following suit. Software as a service (SaaS), which enables organizations to access services such as customer relationship management, is growing at a 17 per cent annual rate. The biotechnology company Genentech, for example, uses Google Apps for e-mail and to create documents and spreadsheets, bypassing capital investments in servers and software licenses. This development has created a wave of computing capabilities delivered as a service, including infrastructure, platform, applications and content. And vendors are competing, with innovation and new business models, to match the needs of different customers.

Beyond the IT industry, many urban consumers are drawn to the idea of buying transportation services by the hour rather than purchasing autos.

City CarShare and ZipCar were first movers in this market, but established car rental companies, spurred by annual growth rates of 25 per cent, are also entering it. Similarly, jet engine manufacturers have made physical assets a platform for delivering units of thrust billed as a service.

A number of companies are employing technology to market salable services from business capabilities they first developed for their own purposes.

That’s a trend we previously described as ‘unbundled production.’ More deals are unfolding as companies move to disaggregate and make money from corporate value chains. British Airways and GE, for instance, have spun off their successful businessprocess-outsourcing businesses, based in India, as separate corporations.

Business leaders should be alert to opportunities for transforming product offerings into services, because their competitors will undoubtedly be exploring these avenues. In this disruptive view of assets, physical and intellectual capital combine to create platforms for a new array of service offerings.

But innovating in services, where the end user is an integral part of the system, requires a mind-set fundamentally different from the one involved in designing products.

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Consumer acceptance of Web-based cloud services for everything from e-mail to video is of course becoming universal, and companies are following suit.

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management & strategy

Multisided business models create value through interactions among multiple players rather than traditional one-onone transactions or information exchanges.

the age of the multisiDeD business moDel

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ultisided business models create value through interactions among multiple players rather than traditional one-on-one transactions or information exchanges. In the media industry, advertising is a classic example of how these models work. Newspapers, magazines and television stations offer content to their audiences while generating a significant portion of their revenues from third parties: advertisers. Other revenue, often through subscriptions, comes directly from consumers. More recently, this advertising-supported model has proliferated on the Internet, underwriting Web content sites, as well as services such as search and e-mail (See trend number seven, ‘Imagining anything as a service,’ earlier in this article). It is now spreading to new markets, such as enterprise software: Spice-

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works offers IT-management applications to 950,000 users at no cost, while it collects advertising from B2B companies that want access to IT professionals.

Technology is propagating new, equally powerful forms of multisided business models. In some information businesses, for example, data gathered from one set of users generate revenue when the business charges a separate set of customers for information services based on that data. Take Sermo, an online community of physicians who join (free of charge) to pose questions to other members, participate in discussion groups and read medical articles. Third parties such as pharmaceutical companies, health care organizations, financial institutions and Government bodies pay for access to the anonymous interactions and polls of Sermo’s members.

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As more people migrate to online activities, network effects can magnify the value of multisided business models. The ‘freemium’ model is a case in point: a group of customers gets free services supported by those who pay a premium for special use.

Flickr (online storage of photos), Pandora (online music) and Skype (online communication) not only use this kind of cross-subsidization but also demonstrate the leveraging effect of networks—the greater the number of free users, the more valuable the service becomes for all customers. Pandora harnesses the massive amounts of data from its free users to refine its music recommendations.

All Flickr users benefit from a larger photo-posting community, all Skype members from an expanded universe of people with whom to connect.

Other companies find that when their core business is part of a network, valuable data (sometimes called ‘exhaust data’) are generated as a by-product. MasterCard, for instance, has built an advisory unit based on data the company gathers from its

core credit card business: it analyzes consumer purchasing patterns and sells aggregated findings to merchants and others that want a better reading on buying trends. CHEP, a logistics-services provider, captures data on a significant portion of the transportation volume of the fastest-moving consumer goods and is now building a transportation-management business to take advantage of this visibility.

Not all companies, of course, could benefit from multisided models. But for those that can, a good starting point for testing them is to take inventory of all the data in a company’s businesses (including data flowing from customer interactions) and then ask, ‘Who might find this information valuable?’ Another provocative thought: ‘What would happen if we provided our product or service free of charge?’ or—more important, perhaps—’What if a competitor did so?’ The responses should provide indications of the opportunities for disruption, as well as of vulnerabilities.

innovating from the bottom of the pyramiD

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he adoption of technology is a global phenomenon, and the intensity of its usage is particularly impressive in emerging markets. Our research has shown that disruptive business models arise when technology combines with extreme market conditions, such as customer demand for very low price points, poor infrastructure, hard-to-access suppliers, and low cost curves for talent. With an economic recovery beginning to take hold in some parts of the world, high rates of growth have resumed in many developing nations, and we’re seeing companies built around the new models emerging as global players. Many multinationals, meanwhile, are only starting to think about developing markets as wellsprings of technology-enabled innovation rather than as traditional manufacturing hubs.

In parts of rural Africa, for instance, traditional retail-banking models have difficulty taking root.

Consumers have low incomes and often lack the standard documentation (such as ID cards or even addresses) required to open bank accounts. But Safaricom, a telecom provider, offers banking services to eight million Africans through its M-PESA mobile-phone service (M stands for ‘mobile,’ pesa is Swahili for ‘money’). Safaricom allows a network

Hundreds of companies are now appearing on the global scene from emerging markets.

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management & strategy of shops and gas stations that sell telecommunications airtime to load virtual cash onto cell phones as well.

In China, another technology-based model brings order to the vast, highly dispersed strata of smaller manufacturing facilities. Many small businesses around the world have difficulty finding Chinese manufacturers to meet specific needs. Some of these manufacturers are located in remote areas, and their capabilities can vary widely. Alibaba, China’s leading B2B exchange, with more than 30 million members, helps members share data on their manufacturing services with potential customers and handles online payments and other transactions. Its network, in effect, offers Chinese manufacturing capacity as a service, enabling small businesses anywhere in the world to identify suppliers quickly and scale up rapidly to meet demand.

Hundreds of companies are now appearing on the global scene from emerging markets, with offerings ranging from a low-cost bespoke tutoring service to the remote monitoring of sophisticated air-conditioning systems around the world. For most global incumbents, these represent a new type of competitor: they are not only challenging the dominant players’ growth plans in developing markets but also exporting their extreme models to developed ones.

To respond, global players must plug into the local networks of entrepreneurs, fast-growing businesses, suppliers, investors, and influencers spawning such disruptions. Some global companies, such as GE, are locating research centers in these cauldrons of creativity to spur their own innovations there. Others, such as Philips and SAP, are now investing in local companies to nurture new, innovative products for export that complement their core businesses.

proDucing public gooD on the griD

Creative public policies, like ‘wired’ cities, ease socio-economic strains.

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he role of Governments in shaping global economic policy will expand in coming years.

Technology will be an important factor in this evolution by facilitating the creation of new types of public goods while helping to manage them more effectively. This last trend is broad in scope and draws upon many of the other trends described above.

Take the challenges of rising urbanization. About half of the world’s people now live in urban areas,

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and that share is projected to rise to 70 per cent by 2050. Creative public policies that incorporate new technologies could help ease the economic and social strains of population density. ‘Wired’ cities might be one approach. London, Singapore and Stockholm have used smart assets to manage traffic congestion in their urban cores, and many cities throughout the world are deploying these technologies to improve the reliability and predictability of mass-transit systems. Sensors in buses and trains provide transportation planners with real-time status reports to optimize routing and give riders tools to adjust their commuting plans.

Similarly, networked smart water grids will be critical to address the need for clean water. Embedded sensors can not only ensure that the water flowing through systems is uncontaminated and safe to drink but also sense leaks. And effective metering and billing for water ensures that the appropriate incentives are in place for efficient usage.

Technology can also improve the delivery and effectiveness of many public services. Law-enforcement agencies are using smart assets—video cameras and data analytics—to create maps that define high-crime zones and direct additional police

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resources to them. Cloud computing and collaboration technologies can improve educational services, giving young and adult students alike access to lowcost content, online instructors and communities of fellow learners. Through the Web, Governments are improving access to many other services, such as tax filing, vehicle registration, benefits administration and employment services. Public policy also stands to become more transparent and effective— thanks to a number of new open-data initiatives.

At the UK Website FixMyStreet.com, for example, citizens report, view and discuss local problems, such as graffiti and the illegal dumping of waste, and interact with local officials who provide updates on actions to solve them.

Exploiting technology’s full potential in the public sphere means reimagining the way public goods are created, delivered and managed. Setting out a bold vision for what a wired, smart community could accomplish is a starting point for setting strategy. Put-

ting that vision in place requires forward-thinking yet prudent leadership that sets milestones, adopts flexible test-and-learn methods, and measures success. Inertia hobbles many public organizations, so leaders must craft incentives tailored to public projects and embrace novel, unfamiliar collaborations among Governments, technology providers, other businesses, non-Governmental organizations and citizens.

The pace of technology and business change will only accelerate, and the impact of the trends above will broaden and deepen. For some organizations, they will unlock significant competitive advantages; for others, dealing with the disruption they bring will be a major challenge. Our broad message is that organizations should incorporate an understanding of the trends into their strategic thinking to help identify new market opportunities, invent new ways of doing business, and compete with an ever-growing number of innovative rivals.

Jacques Bughin is a Director in McKinsey’s Brussels office. Michael Chui is a Senior Fellow of the McKinsey Global Institute. James Manyika is a Director in the San Francisco office and a Director of the McKinsey Global Institute. The authors wish to acknowledge the important contributions of their colleague Angela Hung Byers. This article was first published in August 2010 on The McKinsey Quarterly Web site, www. mckinseyquarterly.com. Copyright © 2010 McKinsey & Company. All rights reserved. Reprinted by permission.

Form iV Statement of ownership and other particulars about the publication, INDUSTRY 2.0 TECHNOLOGY MANAGEMENT FOR DECISION-MAKERS as per Rule 8 1. Place of publication

Nine Dot Nine Interactive Pvt. Ltd. Plot No.725, GES, Shirvane, Nerul, Navi Mumbai-400706

2. Periodicity of its publication

Monthly

3. Printer’s name Nationality (a) Whether a citizen of India? (b) If a foreigner, the country of origin Address

Kanak Ghosh Indian Yes N.A. Plot No.725, GES, Shirvane, Nerul, Navi Mumbai-400706

4. Publisher’s name Nationality (a) Whether a citizen of India? (b) If a foreigner, the country of origin Address

Kanak Ghosh Indian Yes N.A. Plot No.725, GES, Shirvane, Nerul, Navi Mumbai-400706

5. Editor’s name Nationality (a) Whether a citizen of India? (b) If a foreigner, the country of origin Address

Anuradha Das Mathur Indian Yes N.A. Plot No.725, GES, Shirvane, Nerul, Navi Mumbai-400706

6. Names and addresses of individuals who own the newspaper and partners or shareholders holding more than one per cent of the total capital

Nine Dot Nine Mediaworx Pvt Ltd. N-154 Panchsheel Park, New Delhi 110017.

I, Kanak Ghosh hereby declare that the particulars given above are true to the best of my knowledge and belief.

Dated : Ist March, 2011

www.industry20.com

industry 2.0

Sd/(Signature of Publisher)

- technology management for decision-makers | march 2011

61

product update Refrigeration Compressor

T

ecumseh Products India has launched a new AE2 compressor for the global commercial refrigeration market.

The new product is expected to support traditional HFC refrigerants, viz., R134a and R404A. The unit is optimized for hydrocarbon refrigerants such as R290 (propane) and R600a (isobutene). According to the company, this is significant as hydrocarbon refrigerants are expected to be authorized for use in commercial and residential US applications in the near future—due to approval of the Significant New Alternatives Policy (SNAP) by the US Environmental Protection Agency (EPA).

The new compressor assists heat transfer by using up to 25 per cent less oil than the first generation AE. Besides, it also helps reduce the potential for vibration-induced metal fatigue.

The small envelope size of the product provides capacities for customers who have compact applications with limited space availability.

Tecumseh Products Company Tel: +1-800-2113427 E-mail: technical.service@tecumseh.com

Linear Motor Stage

A

erotech has introduced a linear motor stage providing nanometer-level performance in a large travel format. The new product, viz., ANT95-L crossed-roller-bearing stage, uses direct-drive technology to achieve resolution of 1 nm, repeatability of ±50 nm and accuracy of ±250 nm. The product is available in 25 mm, 50 mm, 75 mm and 100 mm travel models.

The machine helps processes such as direct-writing, laser micromachining, inspection, wafer scribing, spectroscopy and optical delay lines. It has research and manufacturing applications in laser processing, photonics, medical devices, semiconductors and data storage.

The direct-drive technology is non-cogging and non-contact. Anti-creep crossed-roller bearings allow ultra-precision (1 nm) incremental moves to be accomplished repeatably and reliably, with <1 nm in-position stability.

ANT95-L stages are available in X, XY, XYZ and many other combinations for singleor multi-axis positioning. Universal base mounting patterns allow use in a wide range of configurations.

Aerotech Tel: +1-412-9637470 Website: www.aerotech.com

Waterjet Cutting System

F

low International Corporation has introduced latest advances in waterjet technology. The company has launched the Mach 4 cutting system that combines Flow’s HyperJet pump, rated at 94,000 psi and Dynamic Waterjet XD, high-precision flat stock and 3D cutting technology. This combination is expected to improve part cycle time and accuracy.

Flow had introduced Dynamic Waterjet in 2001, and now with the Dynamic XD, the company is bringing that technology to bevel cutting and 3D parts. The new development is expected to facilitate manufacturers to accurately cut a wide variety of intricate designs.

Flow International Tel: +1-253-8503500 E-mail: tfabian@flowcorp.com

Vertical Moulding Machine

D

ISA India has launched a vertical moulding machine by name DISA 030. The new machine has been jointly developed by Indian and Danish engineering and R&D teams in India.

The design of the product is based on simple mechanical functions and is expected to fulfill reasonable demands for precision and wear resistance.

DISA India Tel: +91-80-40201400 E-mail: bangalore@noricangroup.com

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product update HandPunch 3000

Vessel Manager System

ngersoll Rand’s security technologies division has launched HandPunch 3000, a biometric security solution under its Schlage brand. The new product, Schlage HandPunch 3000, provides door access solutions and concurrently records time and attendance.

The machine with its advanced and multiple features finds use in commercial establishments for accurate recording of time and attendance data. The product is also applicable for small to large enterprise companies.

The features of the product include—user can be verified in less than one second after analyzing over 31,000 points of hand geometry.

The machine helps carry out over 90 distinct measurements. It also enables standalone unit or multi-unit connections and can be integrated with other applications for authentication.

The unit provides easy data collection and management. In addition to verifying that ‘you are you’ at an organization from one to many locations, the product also meets the special needs of computerised time and attendance systems.

The machine defines 64 different employee schedules to restrict the times that an employee can punch and reduces the unauthorised overtime as well as early ‘in’ punches.

and Instruments International has launched a new system that monitors temperature change over the entire surface of molten metal ladles.

According to the company, the new Vessel Manager’s software and hardware helps assure plant safety by warning of potential break-outs and provides trending data to establish efficient re-lining schedules.

The system is designed for steel mills, copper smelters and other molten metal processes. The product comprises multiple thermal imaging cameras positioned to view the entire exterior surface of a molten metal ladle. Temperature information is collected each time the ladle passes a measurement station, allowing assessment of the extent and distribution of wear to the lining. The system’s software creates actionable records for each ladle.

Besides, the product also helps prevent two serious problems—accurate statistical measurement of lining wear that allows managers to set realistic relining schedules, reducing both the cost of too-frequent maintenance and the risk of break-outs, while constant measurement of temperature changes helps identify ladles that are threatening to fail earlier than predicted, sounding an alarm and lessening risk of plant damage and worker injury.

By identifying the exact location of unexpected hot spots in a particular ladle, the system allows some partial re-linings to extend the life of the ladle.

Land Instruments International is a unit of Ametek.

I

L

Land Instruments International Tel: +91-80-67823232 E-mail: ravi.m@ametek.com

Ingersoll Rand Security Technologies Tel: +91-22-61540500 E-mail: info_stindia@irco.com

Image Sensor

B

anner Engineering has introduced an image sensor offering enhanced recognition, communication and rapid changeover capabilities. The new product, viz., iVu Plus TG sensor, is capable of saving up to 30 inspections. The machine monitors labels, parts and packaging for type, size, orientation, shape and location.

The sensor has a colour touch-screen display and on-board memory, which facilitates easy installation and application setup without connection to a PC. Ethernet communication helps ensure compatibility with most industrial systems.

In addition, the new product has a sort sensor that helps recognize up to ten different patterns within the same inspection. Applications for this new capability include identifying parts on a production line and ensuring that all required parts are present in a package.

Other functions included in the unit comprise area

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sensor to ensure that some features are present on a part, blemish sensor to detect flaws such as scratches or colour variation and match sensor to verify that a pattern, shape or part is identical to a reference.

The other features of the product include integrated lighting, adjustable focus lenses, automatic exposure control and high speed processing.

The sensor’s housing is rated to IP67 for use in harsh environments.

The product is suitable for industry applications such as packaging, material handling, robotics, assembly, automotive, food processing, pharmaceutical, electronics, metalworking and plastics.

Banner Engineering India Tel: +91-20-66405624 E-mail: salesindia@bannerengineering.com Website: www.bannerengineering.co.in

www.industry20.com

TaeguTec India P Ltd. Plot Nos.119 & 120, Bommasandra Industrial Area, Phase 4, Bangalore 560 099, India Tel: +91-80-2783-9111 E-mail: sales@taegutec-india.com http://www.taegutec-india.com

R.N.I. No. MAH ENG/2001/4796 Tech/MH/MR/SOUTH-127/2006-08