Industry 2.0 July 2011

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A 99 MEDIA PUBLICATION

VOLUME 10

ISSUE 11

JULY 2011

JULY 2011 VOL 10 ISSUE 11

COMPETITION

STRATEGY Kent RO distills profits from adversity INDUSTRY 2.0 - TECHNOLOGY MANAGEMENT FOR DECISION MAKERS

OPERATIONS Improving service level agreements TECHNOLOGY Creating standardized reports from data sources

CATALYZES CHANGE Growing costs and shifts demand alter the global chemicals industry

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editorial Vol. 10 | Issue 11 | july 2011

Managing Director: Dr Pramath Raj Sinha Printer & Publisher: Kanak Ghosh Editorial Group Editor: R Giridhar Design Sr. Creative Director: Jayan K Narayanan Art Directors: Binesh Sreedharan & Anil VK Associate Art Director: PC Anoop Visualisers: Prasanth TR & Anil T Chief Designer: N V Baiju Sr. Designers: Joffy Jose, Chander Dange & Sristi Maurya Designers: Suneesh K, Shigil N & Charu Dwivedi Chief Photographer: Subhojit Paul Sr. Photographer: Jiten Gandhi brand management General Manager: Ankur Agarwal Sales & Marketing General Manager - Nabjeet Ganguli (09820060094) National Manager - Events & Special Projects: Mahantesh Godi (09880436623) Assistant Brand Manager: Maulshree Tewari GM (South & West): Vinodh Kaliappan (09740714817) South: Farooq Faniband North: Madhusudan Sinha East: 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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Using Analytics for Smarter Manufacturing

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sk any manufacturing executive what he worries about most, and the answer will be cost—and keeping it under control. With commodity prices again on an upward trend, rising fuel and labor costs this concern is not misplaced, despite the bullish economic environment. Consequently, many manufacturing companies are installing (or upgrading) ERP software to streamline operations, modernizing warehouse management, and improving functions like purchasing and distribution.

The growing use of operational systems is also producing a deluge of data. Managing this data efficiently, and extracting actionable information from it has become the new challenge. A recent study by Ventana Research shows that many mid-sized manufacturers either limit themselves to the analytics that come out of their ERP solution, or to procedures that can be performed in a “quick and dirty” spreadsheet. Unfortunately, spreadsheets are time-consuming to create, error-prone and unreliable. And many manufacturers neither use nor process data that is available from the wide variety of sensors, machines and robotic equipment used in the manufacturing environment.

“Today, analytics can give any manufacturing company, regardless of size, a market edge,” explains Robert Kugel, SVP of research at Ventana. “Whether it is getting a clearer picture of operations, bet-

industry 2.0

R Giridhar editor@industry20.com

ter insight into market demand, or faster alerts when individual products are tracking above or below forecast, companies can use analytics enhance their competitiveness. Without a focused approach to business analytics, they simply won’t have the agility to operate in today’s economy, or have the understanding to optimize performance.”

So, how do you get better analytics?

The first step is to ensure that you have the data. Automate as many of your business processes as feasible. Once you can track purchase requisitions, job cards, orders, material indents, stocks, inventories, etc., on a computer system, data is available for analysis. Organizations that have already implemented an ERP system are usually at this stage, and can benefit from the in-built analytics.

The next step is to consolidate information from different systems and sources.

This is often easier said than done since companies often use legacy or specialized systems for specific activities. However, using the right tools and utilities, it is often feasible to get information into a common data repository. Once you’ve got the information in one place you will need to standardize and clean data. You can also put information from machines and sensors into this repository. Now, you are ready to derive new insights and intelligence—and create a smarter manufacturing environment using a business intelligence tool.

- technology management for decision-makers | july 2011

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contents facilties & operations 42 Debunking SLA myths

Service level agreements (SLAs) should be formulated to achieve meaningful business outcomes for the organization.

48 Digging Out Inefficiencies

Singareni Collieries has streamlined operations with ERP to dramatically improve decision-making.

supply chain & logistics 50 Taking a Financial View of Inventory

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cover story Competition Catalyzes Change

Incumbent leaders in the global chemical industry are facing a host of ambitious challengers that have better access to large markets and lower cost inputs. McKinsey examines the strategies that will be adopted by the players in their quest for domination—and survival.

Cover design: Baiju N.V. Picture courtesy: www.photos.com

information technology 56 4 Steps to an Integrated View

in conversation

A corporate environment built on shared values, supportive behavior and groupbased outcomes is the hallmark of successful organizations.

60 Distilling Profits from Adversity

32

Dow Corning’s CEO Stephanie Burns and CTO Gregg Zank describe successful approaches to product development, and adopting new business models.

opinion

Mahesh Gupta of Kent RO Systems overcame a multitude of hurdles to develop a profitable business from clean water.

65 Contracting the Talent Gap

Using outsourced staff to plug talent gaps and meet temporary needs is gaining acceptance in corporate India.

departments

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Editorial.......................................01

“India is well positioned to have thriving tech centers”

Techwatch.................................. 16

Vivek Wadhwa Senior Research Associate Labor and Worklife Program Harvard Law School

july 2011 | industry 2.0

To generate useful reports from an ERP system you need accurate and complete capture of all transactions.

management & strategy 58 Creating a Winning Culture

2

To effectively manage the largest asset on your balance sheet requires smart strategies, and great attention to detail.

Use our 10 tips to master the problem.

- technology management for decision-makers

Industry Update.......................... 04 Advertisers’ Index...................... 46 Book Review............................... 67 Product Update.......................... 69

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industry update

Employee Performance is New Focus for CEOs

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orporate leaders have set bullish growth targets for 2011, and are demanding significant increases in workforce productivity to meet them, according to new research from global management consultancy Hay Group.

According to the study, firms in India are targeting double-digit growth on average, outstripping the IMF’s economic growth forecast of 8.2 per cent.

Business leaders admit this is a significant challenge, which will demand an unprecedented uplift in productivity from already stretched workforces.

Mitali Bose, BEO Practice Leader, Hay Group India observes, “CEOs have set challenging targets, and are demanding more from their workforces to deliver them—and this needs to be delivered in more complex, dynamic and competitive environment. A fresh approach to managing performance is needed to

deliver the performance uplift promised to shareholders.”

Business leaders in India feel that they need to increase productivity by 6 per cent on average, with the majority (63 per cent) intending to ask even more from their workforces. Meanwhile, about one in three (35 per cent) fear that their employees are already too stretched to deliver current business objectives. Bose comments, “This level of productivity improvement is a lot to ask, especially from employees who have worked hard to help their firms through the financial crisis and then motored their way through the sudden upswing. Business leaders have already used the efficiency and cost optimisation lever. It’s time for them refocus on growth by pulling the performance lever.”

Business leaders in India claim that improving individual performance

Delta’s Rudrapur Plant Gets LEED Certified

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elta India Electronics has successfully achieved LEED certification as “Gold-rated” green building for its Rudrapur plant from the Indian Green Building Council (IGBC).

The LEED certification is an international standards system for green building design based on the U.S. Leadership in Energy & Environmental Design (LEED) system. The Rudrapur plant was built in 2008. Yancey Hai, Vice Chairman and CEO of Delta Electronics says,

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“The LEED certification of the Rudrapur plant not only serves as significant recognition for our green practices, but also demonstrates Delta’s dedication to a sustainable environment.”

The Rudrapur factory consumes 35 percent less energy when compared to a conventional building of the same size. It is designed using energy efficient architecture, natural sky-lighting and ventilation, rain water harvesting and water re-cycling, as well as using eco-friendly building materials.

About 60 percent of the total area of the factory has been kept open and green.

Delta has manufacturing units located in Rudrapur, Gurgaon, and Pondicherry, and two R&D centers. The company’s corporate office in Gurgaon has also applied for a platinum rating in accordance with the guidelines of the U.S. LEED and IGBC standards.

- technology management for decision-makers

is critical to achieving their growth targets. Nearly half (48 per cent) plan to implement more rigorous individual performance management this year. Yet firms in India routinely getting performance management wrong, the study finds. Less than onethird of firms align their performance management to company strategy (31 per cent).

Nine tenths of leaders (91 per cent) in India stress that culture has an important influence on the effectiveness of performance management. Yet only one quarter of firms tailor performance management to company culture and values. “91 per cent of firms in India are failing to align performance management with their strategy and culture and are thus not getting any ROI from their performance management systems,” Bose claims.

GKN Driveline Sets Up Pune Facility

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KN Driveline is continuing to invest in India, and has is setting up a new manufacturing facility for CVJ (constant velocity joint) systems and trans axle solutions in Pune. Ravindra Ojha, managing director says, “The company’s business in India has grown at an annual rate of more than 15 percent over the past five years, and we expect India to remain a high growth market for years to come.”

This Rs 130 crore factory will employ more than 200 people, and is located close to auto majors like Fiat, Volkswagen, General Motors, Tata and Renault.

When fully operational in August 2012, the 8000 square-metre facility will have an annual production capacity of more than 600,000 CVJ Systems. It is also planned for the new facility to manufacture differentials from GKN’s trans axle solutions product range.

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industry update

Tata Steel Creates World’s Largest Solar Module

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n important breakthrough has been achieved at Tata Steel’s Shotton site in North Wales, where a development partnership between the company and Dyesol has produced the world’s largest dye sensitised photovoltaic (PV) module. The module is over 3 metres in length and approximately 1 square meter in area.

The creation of this module has shown the potential, using continuous printing and coating processes, for scaling up the production of steel strips onto which a dye sensitised PV coating has been printed.

Produced as a single length of coated steel rather than separate cells connected together, the breakthrough brings closer to commercial realisation of a manufacturing process that can produce long roofing panels with an integrated dye sensitised PV function.

Dye sensitised PV modules have unique performance characteristics, being particularly tolerant of lower light levels and temperature variations, providing benefits in real-world conditions.

Developing the ability to print the PV

coating directly onto steel roof cladding would enable the modules to be produced in large volumes cost effectively and integrated into building envelopes.

“This marks a milestone as Dyesol brings solar generation into the $400B global building envelope market,” said Marc Thomas, chief executive officer of Dyesol Inc. and general manager of Dyesol’s Global Glass Business. “This project represents a significant transformational step from prototyping one-off devices to a continuous production process.”

Dye solar cell (DSC) technology can best be described as ‘artificial photo-

Hitachi to Collaborate with Hi-Rel Electronics

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apan’s leading electrical equipment manufacturer, Hitachi is discussing an extended business alliance with Hi-Rel Electronics, including investment and creation of a new manufacturing facility to boost the power electronics businesses in India.

The two companies are expected to sign a final agreement by September 2011.

Hitachi has identified India as a one of the key regions where increased demand for power electronics products like medium- to high-voltage inverter drive systems for rolling mills, UPS systems, inverters for solar power generation and wind power generation systems

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is expected. Hi-Rel produces industrialUPS and drive systems, including lowvoltage inverters.

The two companies are looking at fusing Hitachi’s medium- and highvoltage control technologies, advanced manufacturing technologies, experience and expertise in systems integration in large-scale plants, with Hi-Rel’s industrial-use UPS technologies, low-voltage and small- and medium-sized control technologies. The `111 crore Hi-Rel Electronics started commercial production of Low Voltage AC Drives in 1984, and is currently a significant player in the industrial UPS sector.

- technology management for decision-makers

synthesis’ using an electrolyte, a layer of titania (a pigment used in white paints and tooth paste) and ruthenium dye deposited on glass, metal or polymer substrates. Light striking the dye excites electrons which are absorbed by the titania to become an electric current many times stronger than that found in natural photosynthesis in plants. With lower material cost to manufacture and better energy yield in low and diffuse light conditions, DSC promises to make solar generation ubiquitous by incorporating generation into building, auto and industrial materials. The technology can be incorporated into roofs, facades, and window products, eliminating the need to add additional surface area for solar generation. Due to its ability to capture diffuse light, DSC can be used on all sides of a building to generate power.

Sustainable Packaging Market to Grow Rapidly

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ustainable and green packaging is experiencing significant demand from consumers, and is being made possible by advanced packaging technologies. Visiongain calculates that the global market for green packaging is already worth in excess of $100 billion. The market researcher forecasts that rising concerns over environmental hazards, carbon emissions, waste reduction targets specified by different countries, and the trend towards ‘green packaging’ will continue to the boost the market.

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industry update

Tata Elxsi Celebrates World Industrial Design Day

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n 29 June, Tata Elxsi celebrated World Industrial Design Day (WIDD) in Bangalore with the launch of ‘connect D’. The event year focused on how industrial design improves life. A design contest was arranged for students where they had to come up with distinctive packaging concepts.

Connect D aims to strengthen the relations between industry and academia by creating a platform for design stu-

dents to engage with industry experts. It gives students an exposure to the real-life challenges faced by the design industry, and enables them prepare for a career in design. Students from leading design schools including NID, NIFT, IISC, Raffles design and NTFF participated in the event. Anil Sondur, VP at Tata Elxsi says, “We have announced two scholarships one for Industrial design and the other for Visual design.

These would be conferred to design students from premier design schools across the country.”

WIDD is a new global initiative started by The International Council of Societies of Industrial Designers (ICSID) to provide design enthusiasts an opportunity to promote a global understanding of design.

Blue Star Offers Chemical Industry Solutions

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lue Star Infotech (BSIL) is now offering to implement Oracle Applications using Oracle Business Accelerators for the Indian market.

By combining the Oracle E-Business Suite with its domain knowledge of the chemical industry, BSIL aims to reduce ERP implementation costs by 25 to 40 percent, and cut implementation time by 30 to 40 percent for chemical manufacturing companies in India. Oracle Business Accelerators are tools that enable rapid implementation of Oracle Applications and are based on countryand industry-specific best practices and business processes.

“The mid-market segment is keen to evaluate IT solutions that can help them facilitate rapid growth and improve operational efficiencies without disrupting business. The vertically aligned and spe-

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cialized Oracle Business Accelerators will enable us deliver scalable solutions to chemical manufacturing companies in an accelerated time frame, with reduced costs and implementation risks” says Satish Gaonkar, Vice PresidentConsulting, Blue Star Infotech Ltd. ERP implementations in the chemicals industry pose a number of challenges due to their peculiar operational complexities, compliance and regulatory requirements. These are coupled with a higher degree of variety of production processes. By using Oracle’s Process Manufacturing Solution, chemical manufacturers can derive real-time visibility into quality at every production phase, optimize chemical production and formulation optimize inventories based on material shelf life, and automate maintenance of documentation.

- technology management for decision-makers

Geometric Improves Nesting Solution

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eometric has announced the release of NestLib 2011 R2 with the improvements in grid nesting algorithm, and new features to meet advanced cutting requirements. According to the company the upgraded software enables greater material saving through the use of an improved algorithm. It also supports multiple tools for cutting different edges in a part by incorporating different tool compensation in the nested layout. The latest version can also handle piercing data attached to a part while nesting.

The NestLib solution portfolio includes shear nesting for saw parts requiring end-to-end cutting; common punch for parts to be cut using punching machines; leather nesting for leather parts; remnant generation for automatic remnant creation after nesting; tube nesting for tube and pipe cutting; and common cut for nesting adjacent parts such that they share a common flame path.

Sanmar Divests Iron Foundries

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he Sanmar Group has divested its automotive-centric iron foundries in Germany and India to the Bangalore headquartered Dynamatic Group. Some years ago, Sanmar had entered the foundry business with the acquisition of the Erla Foundry in Germany. The subsequent setting up of the unit in India, was a diversification initiative. However, due to attractive opportunities arising in the group’s core areas of chemicals and steel castings in Egypt and USA respectively, have led to a re-evaluation.

The Dynamatic group has a strong presence in the automotive sector, with a footprint both in India and Europe.

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industry update Siemens to Equip Delhi Cargo Service Center

T Momentive Sets Up India Technology Centre

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omentive Performance Materials, is setting up a state-ofthe-art Global Research and Development Centre in Bangalore. The new facility is located on a 2-acre plot in the second phase of Bangalore’s Electronic City, and will initially house 125 associates. Research scientists at the facility will work on products that have applications in personal care, energy, healthcare, electronics, automotive, and construction.

The completion of the Bangalore centre, currently under construction, is anticipated in the first quarter of

2012. Momentive currently has its regional headquarters in Bangalore, with manufacturing and warehousing operations in Chennai. Dr Eric Thaler, Chief Technology Officer for Momentive Performance Materials, said: “We are excited that we will be able to provide a world class facility for our scientists here in Bangalore. They are driving tremendous value for our customers through product innovation and new advanced technology platforms, and this new center will help us attract and retain the top talent needed to continue and accelerate these efforts.”

Smart Grid Investments in Asia-Pac to Rise Steeply

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nergy markets in the Asia Pacific region are experiencing a period of significant growth and development, driven both by expanding electricity demand as well as new opportunities for cleaner and more efficient power generation, transmission, and distribution. According to a new report from Pike Research, investment in smart grid technologies by utilities and governments within the Asia Pacific will rise at a healthy pace over the next several years, and the total smart grid market will increase from $11.9 billion in 2011 to $28.8 billion by 2017.

The market intelligence firm forecasts that cumulative smart grid investment in the region will reach $171.3 billion by 2017.

“Smart grid market drivers differ significantly by country within the Asia

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Pacific region,” says senior analyst Andy Bae. “Chinese market players believe that the construction of a smart grid is a key part of economic growth and enhancing the ability to optimize energy allocation, including the integration of new generation capacity from both renewable and fossil fuel sources. Korea seeks to leverage its technology leadership in the IT and communications space to form an advanced smart grid infrastructure within the country, as well as export smart grid technologies.

Significant and influential smart grid projects are also underway in Australia, India, and the Association of Southeast Asian Nations (ASEAN) region.”

Bae adds that transmission upgrades will be the largest application category within the region, representing over half of total smart grid investments.

- technology management for decision-makers

he Delhi Cargo Services Center (DCSC) has awarded a contract to Siemens to install state-of-theart cargo handling equipment at the Integrated Cargo Complex in the Delhi International Airport.

Starting with a mechanized handling system, in a span of four years, T1 will be largely automated in its operations with a capacity to handle more than 600,000 MT of cargo annually. The total investment in the MHS will be to the tune of €37 million, out of which the initial order to Siemens is for €27million (approximately `165 crores). This is India’s largest cargo handling system contract.

Siemens will also maintain the system initially for a period of 2 years.

Radharamanan Panicker, Managing Director of DCSC says, “Having reliable and high-performance cargo handling equipment will help us respond to demand and deliver better service to customers.”

OPal AwaRds Polyolefin Projects

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ecnimont S.p.A. has been awarded two turnkey EPC contracts for the implementation of polyolefin plants in Gujarat by ONGC Petro additions Ltd (OPaL).

The two contracts have a total value of about $440 million, and are for the implementation of a 340 Kty Polypropylene Plant and two HD/LLD Swing Polyethylene Plants of 360 Kty capacity each.

The award was an outcome of an International Competitive Bid process. The Ineos’ Innovene PP process will be used for the Polypropylene plant, and the Ineos Innovene G process will be used for the two LL/HD Swing PE plants.

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industry update

Mott MacDonald Bags New Plant Projects

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ujarat Reclaim & Rubber Products has appointed Mott MacDonald to provide engineering, procurement and construction management (EPC) services for a reclaimed rubber manufacturing facility in Perundurai near Erode, Tamilnadu.

The new manufacturing facility will be built on a greenfield site spread over an area of 12.47 acres. It will include a manufacturing block producing butyl reclaimed rubber, a utility block and an infrastructure block comprising an administrative and storage facility as well as a security office. A key task will include providing material

handling solutions for specific sections of the facility that will help to increase the productivity of the plant. The first phase of this project, costing `48 crore is due for completion early next year.

In another deal, Mott MacDonald has been appointed by Eurecat SA Group to help set up a state-of-the-art 2000 ton catalyst regeneration plant in Jhagadia, Gujarat. The facility will include a utility building, main scrubbing system, off gas burner, tank farm, water treatment plant and a storage facility. Eurecat Group is the world leader in ex-situ catalyst regeneration and reprocessing. Catalysts are used

Industrial Uniforms Company Expands Operations “Our service has been received well in India,” says Mika Hartikainen, who is responsible for European and Asian operations for Lindström. “The establishment of an additional service centre in Southern India is part of our operating philosophy: we want to be located close to the customer and know the special needs in that area.” Lindström’s goal is to construct a service network that covers the entire country.

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indström, the Finnish textile services company, has expanded its operations in India by setting up an additional service centre in Hyderabad. Lindström, which began operations in the Indian marketplace in 2007, provides fully outsourced workwear service. The company delivers maintained workwear to the premises of customer companies. It is responsible for the design, procurement, warehousing and final disposal of the clothes.

Over the last five years, Lindström has established a service centre and started workwear service in Mumbai, New Delhi and Chennai.

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- technology management for decision-makers

in the petroleum industry to achieve reaction processes during production of fuels and fuel products. Over time the performance of catalysts is reduced. Performance is restored through temperature and chemical treatment, or regeneration.

Mott MacDonald’s role in the project will involve detailed engineering of a dust collection system and waste gas processing system. The consultancy will also assist the client in procuring the material handling equipment, electrical equipment and environment processing items as well as providing construction management services.

DHL Enhances AsiaPac Air Network

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HL has added three Boeing 747-400 Converted Freighters (BCFs) to its Asia air network to service the Tokyo-Hong Kong, Singapore-Hong Kong, ShanghaiHong Kong routes six days a week.

Operated by Air Hong Kong, a joint venture between Cathay Pacific and DHL, the aircraft have a payload of 100 tonnes each.

Currently, two A300-600 General Freighters (GFs) each with a 45-tonne payload, ply direct routes between Tokyo-Hong Kong and Shanghai-Hong Kong. By September 2011, these two A300-600GFs will be redeployed to service five weekly services between Beijing-Hong Kong and Manila-Hong Kong, replacing two 24-tonne B727-200Fs planes.

“The €100 million investment in three B747-400 BCFs increases our capacity, connectivity and service reliability. It is a significant step up for DHL’s Asia Air Network,” says Jerry Hsu, CEO of DHL Express Asia Pacific. The company is also opening a $175 million North Asia Hub in early 2012 at the Shanghai Pudong International Airport. The 57,000 sqm hub will be built on a total land area of 88,000 sqm.

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industry update

Shell India Rejigs Industrial Lubricants Portfolio

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hell Lubricants India has introduced a new, improved range of industrial and transmission lubricants and greases. The company has also simplified the lubricant selection process. Donald Anderson, Country Head of Lubricants for Shell India Markets explains,“Our endeavour is to provide not just products that work, but also the ones which are technologically sound and meet customer needs in the most efficient manner. We have redesigned the Shell Lubricants range to remove products

with overlapping applications and where technology had been replaced by more advanced formulas.”

To make the transition easy for customers, Shell has created ‘old to new’ conversion tools through new pack labels and product guides. The new nomenclature for lubricants has suffixes to communicate the application and conditions for which the product is suited. The company expects that the changes will reduce the risk of misapplication in factory environments. The revamp exercise has also been used as

SPX to Deliver Feedwater Heaters for Thermal Plants

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S-based SPX Heat Transfer has secured a $25 million contract to supply feedwater heaters and spare parts for three supercritical coal fired power units in India. The contract was awarded by OJSC Power Machines, which has been tasked with the design, engineering, construction and installation of the Barh Phase I projects for NTPC. The three units of Barh Phase I are expected to generate a combined 1,980 MW of power. SPX Heat Transfer will manufacture the feedwater heaters at its main facility located in Oklahoma, USA and ship the units to India. The Barh plant uses supercritical steam generation, with water being converted directly into steam without passing through the boiling phase. The feedwater heating component pre-heats the water, and facilitates a more gradual heat transfer, thus improving the thermodynamic efficiency of the entire system.

Cathay’s New Air Freight Service to Bengaluru

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athay Pacific Airways has extended its air freight network with the launch of a new service to Bengaluru. The twice-weekly service commences in August, and will operate every Monday and Thursday on a Hong Kong-Delhi-Bengaluru-Hong Kong routing. With this new service, operated with a Boeing 747-400F aircraft, Cathay Pacific will become one of the biggest freighter operators in India, with 20 flights a week to, from or through four major commercial cities: Delhi, Mumbai, Chennai and Bengaluru.

For flights into Bengaluru, the airline expects to see strong interest from China and countries in Northeast Asia

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for shipments of computers, computer components, high-value electronic goods, semiconductors and garments. The main markets out of Bengaluru will be Japan and North America, with shipments of auto parts, pharmaceuticals, garments and textiles.

Cathay Pacific also recently boosted cargo ties between India and Europe by launching a twice-weekly direct freighter service from Chennai to Frankfurt. The freighters continue onwards to either Manchester or Brussels, providing access to three European destinations from South India. The airline is also building a HK$5.5 billion cargo terminal at Hong Kong International Airport.

- technology management for decision-makers

an opportunity to standardise packaging to make storage and stacking easier.

The new range is based around tiers, each offering increasingly efficient levels of protection, including: Entry, Mainline, Premium and Advanced. Each set of products is structured around these tiers, including: Tellus (hydraulic oils), Morlina (bearing & circulating oils) Turbo (turbine oils), Heat Transfer Oil (thermic fluid), Omala (gear oils), Corena (compressor oils), Gadus (a range of greases), and Tonna (slideway oils).

Eaton to Acquire German Filtration Systems Provider

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iversified industrial manufacturer Eaton Corp has agreed to acquire E. Begerow GmbH & Co KG. The German company develops and produces innovative filter media and filtration systems for food and beverage, chemical, pharmaceutical and industrial applications.

“We are excited about this opportunity to continue to grow our liquid filtration business,” says William R. VanArsdale, president of Eaton’s Hydraulics Group. “The acquisition of Begerow will enhance our presence in the liquid filtration market and strengthen our current filtration offerings by adding advanced filtration technologies to our portfolio.”

Eaton is a $13.7 billion diversified power management company.

It makes electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; and truck and automotive drivetrain and powertrain systems. E. Begerow GmbH & Co KG employs approximately 270 people worldwide, and had 2010 sales of more than $84 million.

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techwatch

Making Composite Materials to Order

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Picture Courtesy: Melanie Gonick

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team of researchers at MIT has found a way to make complex composite materials whose attributes can be finetuned to give various desirable combinations of properties such as stiffness, strength and resistance to impacts.

The key feature of the new composites is a “co-continuous” structure of two different materials with very different properties, creating a material combining aspects of both. In a co-continuous structure, two interleaved materials each form a kind of three-dimensional lattice whose pieces are fully connected to each other from side to side, front to back, and top to bottom.

The initial objective of the research was to “try to design a material that can absorb energy under extreme loading situations” explains Lifeng Wang, a postdoctoral fellow at MIT who was involved in the project along with Professors Mary Boyce and Edwin Thomas. Such material could be used as shielding for trucks or aircraft, he says: “It could be lightweight and efficient, flexible, not just a solid mantle.”

In most conventional materials—even modern advanced composites—once cracks start to form they tend to propagate through the material, Wang says.

But in the new co-continuous materials, crack propagation is limited within the microstructure, he says, making them highly “damage tolerant” even when subjected to many crack-producing events.

Some existing composite materials, such as carbon-carbon composites that use fibers embedded in another material, can have great strength in the direction parallel to the fibers, but not much strength in other directions. Because of the continuous 3-D structure of the new composites, their strength is nearly equal in all dimensions, Wang says.

Professor Thomas, who is head of MIT’s Department of Materials Science and Engineering, says that in most existing composite materials, the fibers form disordered mass with “zero continuity,” while the other material—

A sample of a co-continuous polymer composite material produced in the MIT lab.

The device in background is used to test the strength of the material. typically a resin that fills the space and then hardens—is continuous and connected in three dimensions. The material that forms the continuous structure “tends to dominate the properties” of the composite, he says. “But when both materials are continuous, you can get benefits that are surprisingly synergistic, not just additive.”

In their experiments, the MIT researchers combined two polymer materials with quite different properties: one that is glass-like, strong but brittle, and another that is rubber-like, not so

strong, but tough and resilient. The result, Thomas says, was a material “that is stiff, strong and tough.”

The researchers designed the new materials through computer simulations, and then made samples that were tested under laboratory conditions. The simulations and the experimental data “agree nicely,” Thomas says. While this initial research focused on tuning the material’s mechanical properties, the same principles could be applied to controlling a material’s electrical, thermal, optical or other properties, the researchers say.

The process could even be used to make materials with “tunable” properties: for example, to allow certain frequencies of phonons—waves of heat or sound—to pass through while blocking others, with the selection of frequencies tuned through changes in mechanical pressure. It could also be used to make materials with shape-memory properties, which could be compressed and then spring back to a specific form.

The next step in the research, Thomas says, is to make co-continuous composites out of pairs of materials whose properties are even more drastically different.

Tapping Titanium’s Colourful Potential

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new, cost-effective process for colouring titanium has been developed by Dr. Gregory Jerkiewicz, a professor in the Department of Chemistry at Queens University, Canada. This process can be used in the manufacture of a variety of products—from sporting equipment to colour-coded nuclear waste containers.

“The new method uses an electrochemical solution to produce coloured titanium, improving on an older, timeconsuming and expensive method where heat was used to develop a coloured layer,” explains Dr. Jerkiewicz.

The technique can be finely tuned to

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produce over 80 different shades of basic colours. In addition, the coloured titanium produced using the new method remains crack-free and stable for many years.

Coloured titanium has the potential to be used in the production of a wide range of everyday objects like spectacle frames, jewelry, golf clubs and high-performance bicycles. Industries including healthcare, aviation and the military could use the technology to create items like colour-coded surgical tools, brightly coloured airplane parts, and stealth submarines made from blue titanium.

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techwatch

Inkjet Printing for Low Cost Solar Cells

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Picture Courtesy: Oregon State University

nkjet printers, a low-cost technology that has revolutionized home and small office printing, may soon be employed to create solar cells.

Engineers at Oregon State University (OSU) have discovered a way, for the first time, to create successful “CIGS” solar devices with inkjet printing. Their work reduces raw material waste by 90 percent, and will significantly lower the

This cross-sectional image from a scanning electron microscope shows the compounds of a new chalcopyrite solar cell created with inkjet printing.

cost of producing solar energy cells. The findings have been published in Solar Energy Materials and Solar Cells, a professional journal, and a patent applied for on the discovery. Further research is needed to increase the efficiency of the cell, but the work could lead to a whole new generation of solar energy technology, the researchers say. Chih-hung Chang, an OSU professor in the School of Chemical, Biological and Environmental Engineering says, “Until now no one had been able to create working CIGS solar devices with inkjet technology.”

Part of the advantage of this approach, Chang said, is a dramatic reduction in wasted material. Instead of depositing chemical compounds on a substrate with a more expensive vapor phase deposition—wasting most of the material in the process—inkjet technology could be used to create precise patterning with very low waste. “Some of the materials for advanced solar cells, such as indium, are relatively expensive,” Chang says. “You can’t really

afford to waste it. The inkjet approach almost eliminates the waste.”

One of the most promising compounds and the focus of the current study is called chalcopyrite, or “CIGS” for the copper, indium, gallium and selenium elements of which it is composed.

CIGS has extraordinary solar efficiency—a layer of chalcopyrite one or two microns thick has the ability to capture the energy from photons about as efficiently as a 50-micron-thick layer made with silicon. The researchers were able to create an ink that could print chalcopyrite with a power conversion efficiency of about 5 percent. The OSU researchers say that with continued research they should be able to achieve an efficiency of about 12 percent, which would make a commercially viable solar cell.

If costs can be reduced enough and other hurdles overcome, it might even be possible to create solar cells that could be built directly into roofing materials, scientists say, opening a huge new potential for solar energy.

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niversity of Illinois (U of I ) engineers have developed a silverinked rollerball pen capable of creating electrical circuits and interconnects on paper, wood and other surfaces. The new pen promises to write whole new chapters in low-cost, flexible and disposable electronics.

While it looks like a typical pen, the ink is a solution of real silver. After writing, the liquid in the ink dries to leave conductive silver pathways—in essence, paper-mounted wires. The ink maintains its conductivity through multiple bends and folds of the paper, enabling devices with great flexibility and conformability.

“Pen-based printing allows one to construct electronic devices ‘on-the-fly,’ ” said Jennifer Lewis, professor of materials science and director of the Frederick

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Seitz Materials Research Laboratory at the U of I. “This is an important step toward enabling desktop manufacturing (or personal fabrication) using very low cost, ubiquitous printing tools.”

Metallic inks have been used in approaches using inkjet printers to fabricate electronic devices, but the pen offers freedom and flexibility to apply ink directly to paper or other rough surfaces instantly, at low cost and without programming. “The key advantage of the pen is that the costly printers and print heads typically required for inkjet or other printing approaches are replaced with an inexpensive, hand-held writing tool,” explains Lewis.

The ability to create freestyle conductive pathways enables new possibilities in art, disposable electronics and folded

- technology management for decision-makers

Picture Courtesy: Bok Yeop Ahn

Silver Pen has the Write Stuff

University of Illinois engineers have developed a pen with conductive silver ink that can write electric circuits and interconnects directly on paper and other surfaces. three-dimensional devices. The researchers also have demonstrated a flexible LED display on paper, conductive text and three-dimensional radio-frequency antennas. Next, the researchers plan to expand the palette of inks to enable penon-paper writing of other electronic and ionically conductive materials.

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techwatch

Creating Cost-Effective Coal-Powered Fuel Cells

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the amount of coal needed to produce a given amount of energy, potentially cutting carbon emissions.

But that would only be possible if the fuel cells could run for long periods of time on coal gas, which now deactivates the anodes after as little as 30 minutes of operation. The carbon removal system developed by the Georgia Tech-led team uses a vapor deposition process to apply barium oxide nanoparticles to the nickelYSZ electrode.

When water vapor introduced into the coal gas stream contacts the barium oxide, it is adsorbed and dissociates into protons and hydroxide (OH) ions.

The hydroxide ions move to the nickel

is deposited at higher temperatures.

However, those operating temperatures require fabrication from special materials that are expensive—and prevent solid oxide fuel cells from being cost-effective for many applications. Reducing the operating temperatures is a research goal, because dropping temperatures to 700 or 750 degrees Celsius would allow the use of much less expensive components for interconnects and other important components. However, until development of the self-cleaning process, reducing the operating temperature meant worsening the coking problem. “Reducing the operating temperature and eliminating the problem of carbon deposition could

Picture Courtesy: Gary Meek

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sing barium oxide nanoparticles, researchers have developed a self-cleaning technique that could allow solid oxide fuel cells to be powered directly by coal gas at operating temperatures as low as 750 degrees Celsius. The technique could provide a cleaner and more efficient alternative to conventional power plants for generating electricity.

Solid oxide fuel cells can operate on a wide variety of fuels, and use hydrocarbons gases directly—without a separate reformer. The fuel cells rely on anodes made from nickel and a ceramic material known as yttria-stabilized zirconia.

Until now, however, carbon-containing fuels such as coal gas or propane could quickly deactivate these Ni-YSZ anodes, clogging them with carbon deposits in a process known as “coking”—especially at lower operating temperatures.

To counter this problem, researchers have developed a technique for growing barium oxide nanostructures on the anodes. These structures adsorb moisture to initiate a water-based chemical reaction that oxidizes the carbon as it forms, keeping the nickel electrode surfaces clean even when carbon-containing fuels are used at low temperatures.

“This could ultimately be the cleanest, most efficient and cost-effective way of converting coal into electricity,” says Meilin Liu, professor at the School of Materials Science and Engineering, Georgia Institute of Technology. “And by providing an exhaust stream of pure carbon dioxide, this technique could also facilitate carbon sequestration without the separation and purification steps now required for conventional coal-burning power plants.”

Conventional coal-fired electric generating facilities capture just a third of the energy available in the fuel they burn.

Fuel cells can convert significantly more of the energy, approximately 50 percent.

If gas turbines and fuel cells could be combined into hybrid systems, researchers believe they could capture as much as 80 percent of the energy, reducing

Georgia Tech professor Meilin Liu and researcher Mingfei Liu show a button fuel cell used to evaluate a new self-cleaning anode material. The self-cleaning technique could allow fuel cells to be powered by coal gas. surface, where they combine with the carbon atoms being deposited there, forming the intermediate COH. The COH then dissociates into carbon monoxide and hydrogen, which are oxidized to power the fuel cell, ultimately producing carbon dioxide and water. About half of the carbon dioxide is then recirculated back to gasify the coal to coal gas.

Solid oxide fuel cells operate most efficiently at temperatures above 850 degrees Celsius, and much less carbon

- technology management for decision-makers

make solid oxide fuel cells economically competitive,” Liu says.

The forming of the barium oxide structures can be done as part of conventional anode fabrication processes, and would not require additional steps.

The anodes produced in the technique are compatible with standard solid oxide fuel cell systems that are already being developed for commercial electricity generation, home power generation and automotive applications.

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opinion

Bullish on Vivek Wadhwa says today’s entrepreneurs are more tuned in, ambitious and likely to make it work.

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India

he “brain undrain” from the United States to India has been much talked about. Over the past decade, an estimated 100,000 highly-skilled and experienced Indians have come home—to take advantage of the booming economy, or simply be closer to families. Vivek Wadhwa, a well-

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known entrepreneur, academic and researcher, and part of the Labour and Work-life Programme at the Harvard Law School, says the reverse migration is giving way to thriving tech centres in India and throwing up tempting entrepreneurial opportunities.

Not unlike what happened in Silicon Valley, Wadhwa points out.

- technology management for decision-makers

Describe for us the momentum in tech entrepreneurship in India.

How have you seen it evolve over the past decade?

With India’s IT industry in its third decade, there are now hundreds of thousands of highly skilled workers who are reaching middle age. When they were young, they respected their parents’ wishes,

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joined brand-name corporations and built a nest egg of savings.

Now they are yearning to break out on their own and become entrepreneurs. The energy at events like NASSCOM’s Product Enclave is incredible. Five years ago, there were about 100 visitors to such events. You feel the energy in networking groups like Startup Saturday all across the country. Indeed, according to NASSCOM estimates, in 2008, India’s software product revenues had grown from almost nothing a decade earlier to $1.64 billion.

It forecasts that this will grow to $11 billion per year by 2015.

Fortunately, this potential for growth has begun to draw tech workers home. America’s flawed immigration policies have also acted as a catalyst—it didn’t provide enough permanent resident visas for the hundreds of thousands in line, so wait times commonly exceeded a decade.

Those who returned started bringing back the knowledge of western markets and Silicon Valley’s culture of sharing information, mentorship and risk-taking that was lacking in the local ecosystem.

The reverse migration began in the late 1990s and accelerated dramatically in the first decade of the 2000s. My research team’s survey of 153 returnees from the US, who had started businesses in India revealed that more than

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60 per cent considered economic opportunities at home important, 53 per cent were attracted by local markets, and 76 per cent were drawn home by family ties.

The majority, 60 per cent, took pride in contributing to India’s economic development.

With this changing landscape, how have Indian entrepreneurs evolved?

The first generation of start-ups I worked with on my trips to Delhi and Bengaluru a decade

home countries and the US because of their linguistic and cultural know-how and connections with domestic institutions and businesses.

Amar Goel of Komli Media, for example, keeps a foot in both countries. So does Rajeev Mantri who came back from New York to found Navam Capital. Our research found that this was the norm. Those returnees nurture their contacts and keep track of customers and markets, and changing technologies.

Today’s returnee enterepreneurs are able to maintain links with the US. ago were feeble copies of Silicon Valley companies. They lacked knowledge of markets, experience and the depth to create sustainable tech businesses.

A few of these start-ups—like Makemytrip and Indiagames— struggled through the difficulties and achieved successes, but nearly all others failed. There simply weren’t enough mentors and role models to guide the new generation of entrepreneurs.

An advantage today’s returnee entrepreneurs enjoy is the links they are able to maintain with the US. They find themselves uniquely positioned to exploit the economic differences between

How robust is this dawn at what you call “a tech entrepreneurship boom”?

India is positioned well to have its own thriving tech centres.

These will compete and collaborate with Silicon Valley.

I won’t be surprised if the flow of talent increases dramatically over the next decade and Americans start flocking to India to launch their start-ups just the way Indian’s have flocked to Silicon Valley. From 1995-2005, Indians started 15.5 per cent of Silicon Valley’s tech firms. Maybe we’ll see Americans launching an equal number of start-ups in India some day.

industry 2.0

- technology management for decision-makers | july 2011

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opinion

coping with

change Facts & Trivia

Education: DPS R.K Puram, Bhartiya Vidya Bhavan and Delhi University PROFESSIONAL QUALIFICATION: CA – Institute of Chartered Accountants of India FIRST JOB: Asst Manager, Finance at Eicher PREVIOUS JOB: CFO at Escorts PASSIONS: Cars, Traveling

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he role of the CFO has changed far beyond traditional tasks of cost management, risk management, cash flow, reporting and controls that dominated the priority list earlier.

Our role now is broadening far beyond its technical heartland into one that is much more “strategic”.

The financial crisis has accelerated this shift, as CFOs seek a greater understanding of the business to help them make informed judgments on a variety of issues.

For me personally, the following have emerged as the major challenges: Competition—Global players in the automobile sector are coming in with aggressive plans to capture a greater market share here.

The challenge lies in formulation and execution of a business strategy that involves the right products, pricing and technology. This will require employee engagement, optimal capital structure and staying ahead of the game.

july 2011 | industry 2.0

- technology management for decision-makers

Scalability—Given the growth opportunities, business will grow manifold and much faster, therefore there is a need to review the existing processes and arrangements with business partners.

Regulations—The regulatory environment is witnessing a sea change. These include IFRS, Goods and Service Tax, Direct Tax Code and the New Company Law Bill. Emission norms have been changing too, as the government veers towards a clean environment. My challenge here is to assess the implications of regulatory changes and adopt a proactive approach to prepare for them.

Risk management—Businesses are exposed to multiple risks including political events like strikes by trade unions, financial risks and risks arising from changing regulations.

A management-driven risk mitigation mechanism would ensure that key risks are identified and mitigated, protecting the organisation from sudden shocks.

We have taken several initiatives to address the challenges we are facing at Maruti today.

• We recently undertook cost reduction, quality improvement and productivity enhancement drives within the company to ensure good financial health. Challenge 50:30 was a programme where we focussed on and achieved the target of increasing productivity by 50 per cent while reducing costs by 30 per cent.

Another initiative, the Employee Suggestion Scheme, has generated savings of around `155 crore during 2010-11.

• As prior preparation towards the changing regulatory scenario, we have made a thorough assessment of the impact of IFRS, GST and DTC on our business operations.

We are further assessing the likely impact of these on our business partners and want a collaborative approach towards compliance to the new regulations.

• We have a well-defined process of risk identification and mitigation which is monitored at the Board level.

Broadly, these are the challenges that occupy most of my time these days, apart from unforeseen events that may suddenly crop up and need my immediate attention.

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Photograph by: Dipankar Ghosal

Ajay Seth, CFO at Maruti Suzuki India is no stranger to union strikes. But other challenges such as new regulations and risk management strategies need his attention now

Picture Courtesy: www.photos.com

cover story

Competition

Catalyzes High energy prices and the eastward shift in the global economy are changing the formula for success in the chemicals industry. Newcomers must build capabilities, and incumbents must sharpen value propositions. by florian budde 26

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major shift in the competitive landscape of the worldwide chemical industry is under way as new players from oil- and gas-producing countries and the high-growth developing markets of China and India join the industry’s top ranks in sales.

The new players are focussing on resource monetization and economic development, in contrast to the classic shareholder value creating goals that have historically informed the strategies of top players.

Not only are these newcomers playing by different rules, but they are also better placed to benefit from two of the key dynamics driving the industry’s future: control of advantaged feedstocks in a high-oil-price world, and privileged access to the most attractive consumer-growth markets.

While newcomers may be better placed than incumbent chemical companies in Europe, North America, and Japan, the shift creates challenges for both groups. If the newcomers want to establish themselves as industry leaders in the coming decades and fully realize the industry’s wealth-creating and society-supporting potential, they must evolve rapidly. They should move beyond simply monetizing their cost- and market advantaged positions to build capabilities that will put them on more equal footing with incumbents when it comes to management, innovation, and marketing performance. At the same time, to assure continuing success in this new landscape, incumbents must reconsider their position in the industry and adapt their strategies and priorities accordingly. Newcomers and incumbents that can take these steps will be well positioned to ride the global chemical industry’s continuing profitable growth trajectory.

A changed industry

Coming out of the financial crisis and economic slowdown of the past two years, the global chemical industry is seeing major changes. The first relates to energy-price dynamics. The chemical industry is confronting unprecedented hydrocarbon price volatility. In addition, energy prices are significantly higher than they have been for the past two decades—and they are higher than they were coming out of previous recessions. While there is little progress on climate-change regulation, which could add carbon tax–related costs for chemical companies in certain regions, the industry is nevertheless seeing increasingly pronounced divergences in gas and electric power prices among regions. Overall, the degrees of cost advantage and disadvantage among regions have increased.

Second, the economic downturn has highlighted the accelerating shift in the growth of global chemical demand from developed economies to the devel-

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cover story oping world. While demand in Europe and the United States has not returned to pre-crisis levels and seems unlikely to do so until 2012, China’s chemical demand increased by 6.4 percent in 2009 and by over 15 percent in 2010. Meanwhile, new petrochemical capacity in the Middle East continues to expand, while plantclosure announcements have multiplied in Europe, Japan, and the United States. Closely related to this is the third major change—the arrival among the chemical industry’s leadership ranks of companies based in hydrocarbons-producing countries and in large, highgrowth developing markets such as China and India.

The simpler value propositions of the new players are in some ways on a collision course with the value propositions of the traditional players, and the disruptive potential of this development is only gradually coming into view.

The industry’s leading incumbents have operated for the past two decades with similar goals: striving to increase shareholder value based on their technology portfolio and asset base, and making opportunistic excursions from traditional home markets to tap emerg-

Importantly, both groups of newcomers include many government-backed companies. As a result, these companies can invest on a scale that is much greater than even the largest traditional chemicalindustry players. These changes have been building for years, but their importance is hard to overstate. In summary, incumbents that have ridden growth in developed and developing markets are now undercut by powerful new rivals with access to cheap feedstocks and the most attractive growth markets.

The new competitive dynamics pose important questions for both newcomers and incumbents about the steps they must take to assure their continued success. For the newcomers, the choices are arguably more straightforward than for the incumbents, which have large legacy businesses to reposition.

Developing World-class Capabilities

For new producers—whether based in feedstock rich countries or high-growth emerging market countries with low labor costs—market entry has been built on production, taking advantage of their lower cost base

Building a worldwide market

presence will require that newcomers take steps to establish international operations and build up the management skills to run those

operations successfully.

ing-market growth. Whether the companies were based in Europe, North America, Japan, or South Korea has only added nuance to this common approach In contrast, for governments and their production subsidiaries from hydrocarbons-rich countries, chemical manufacturing represents an opportunity to monetize advantaged feedstock resources and build industries that will provide jobs for their rapidly expanding populations—even if it will have a detrimental effect on industry structure and profitability.

For leading companies based in fast-growing major emerging markets, chemical production is seen as a necessity to provide the products needed for continued economic expansion. Lower labor costs in these countries translate into competitive capital-investment and operating costs for these companies, many of which are owned by the state or by families that have close ties to the government. These companies can establish production to capture local market growth, and they are little concerned about any resulting global supplydemand imbalances for the chemicals in question.

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to establish a presence based on price in their export markets. This is a logical approach and a natural entry point. But it tends to result in the commoditization of the market and a strict focus on the lowest price, and it therefore risks destroying a lot of the value that exists in the market for the new entrants as well as for existing players.

There have been numerous examples of competition from new low-cost producers that has reduced prices well below the level that would assure them a foothold in developed markets, in products as varied as polyethylene terephthalate and fluorochemicals. Similarly, Chinese specialty chemical products are often sold in developed markets in North America and Europe on a specification basis through third parties, which means that the Chinese producers are cut off from customers and have limited insights into market dynamics.

As new players build their presence in the industry, they must develop capabilities to sustain their growth and look more ambitiously at the kind of profile they want to create. As a first step, they must establish

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their own R&D and innovation capabilities, which will enable them to offer differentiated products and make them less dependent on incumbents for technology.

Second, new producers must start to build marketing capabilities that will enable them to move beyond selling simply on low price and reap the full economic benefits from their products. They must develop expertise in approaches such as differentiated marketing, transactional pricing and value pricing, and salesforce management. This is a need shared by all new producers, whether they are manufacturing for export, or meeting surging demand in home markets.

Developing these capabilities will help new producers get better returns from their current product range and avoid leaving money on the table from selling at unnecessarily low prices. Doing so will become even more pressing as new producers expand their portfolios to include more sophisticated and higher-valueadded products, from which they will want to extract maximum value.

Becoming worldwide suppliers will require new producers to establish marketing and sales capabilities in developed markets that are sophisticated enough to support this type of product. Many of these products will require a completely different type of sales approach—one that is capable of dealing with product-approval registrations, gaining intimacy with customers’ product-development programs, and getting products specified for these programs.

Third, all of the above moves related to building a worldwide market presence will require that newcomers take steps to establish international operations and—most important—build up the management skills to run those operations successfully. Whether such operations are established through acquisitions or built from scratch, creating and running subsidiaries in overseas locations will be a new challenge for these players’ senior-management teams.

Reappraising Opportunities

Established producers in Europe, Japan, South Korea, and to an extent North America will have to take steps to adapt to lower overall demand-growth rates for chemicals in their home markets. Clearly, there are segments of the industry in mature, developed markets that continue to enjoy good prospects and that are relatively safe in the new competitive landscape. These divide into two main areas, upmarket and down-market, where there will be niches that are relatively impregnable.

The first area is chemical-industry segments in markets that require customer intimacy and a high level of service support. Examples include flavors-andfragrances companies that have developed superior customer insights and exclusive manufacturing knowhow to support customer demands; coating companies

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cover story that manage the painting of automobiles within the production line; leather chemicals, where the producer works closely with luxury-goods makers; and watertreatment and construction chemicals. In all these cases, customer intimacy makes them less vulnerable to inroads from low-cost offshore competitors. The second area is a group of basic chemicals where the low prices mean that importation is not viable; this includes such products as sulfuric acid, hydrogen peroxide, industrial gases, and, to an extent, caustic soda.

These are, and will continue to be, regional markets.

Where incumbents must look especially carefully is at the many market segments between the two poles.

In many of these segments, lower demand growth is likely to translate into the consolidation of players in certain sectors and capacity closures. Producers in Europe, North America, Japan, and South Korea have historically been net exporters of chemicals, but for many product areas, their export cost position will become less and less competitive. They already face cost disadvantages on raw materials and must confront disadvantages on two other scores: incumbents’ domestic

term, this is not always the case in the long run, particularly if incumbents are willing to shut part of their capacity. Imports are rarely able to cover all domestic demand volumes, and for the surviving incumbents that can manufacture domestically at below the cost of imports, this evolution can be positive if it results in a more clearly structured and disciplined market with pricing based on import-price parity.

It is also important to emphasize that across all of their businesses, incumbents must work hard for functional excellence with regard to low-cost operations and lean and effective marketing and sales. In the face of the growing competition from newcomers, incumbents cannot afford any slack in their businesses and must make sure they are top-class operators in all areas.

Riding the Growth Waves

Next, incumbent companies must look beyond their home markets and consider how they can ride the dynamics that are transforming the industry—the rise of chemical production in feedstock-advantaged coun-

Successfully managing the

transition to this lower-growth mode will require that incumbents evaluate their product portfolios and manufacturing footprints. plants are not only in the wrong place to serve emerging growth markets such as China, but they also tend to be older installations that have intrinsically higher costs than the new world-scale production capacity that is being installed in the new growth markets.

Successfully managing the transition to this lower-growth mode will require that incumbents evaluate their product portfolios and manufacturing footprints. They must also decide in which sectors they want to be consolidators, with an eye to becoming the “last man standing,” and in which sectors it would make more sense for them to be among the companies being consolidated.

Companies must bear in mind that as the industry landscape shifts, the relative attractiveness of products will change, with some more vulnerable to the trends in the industry than others. They must look at their portfolios accordingly. Established markets are becoming net importers of a growing range of chemicals, as new feedstockadvantaged producers can profitably serve these markets. While imports frequently lead to lower prices and reduced margins in the short

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tries and the shift in demand growth to emerging markets. Incumbents must ask themselves how they can join up with the new players, whether by establishing a presence in a resource-rich country or by building capacity in China and other high growth markets—or by doing both.

They must then consider what they can do to enhance and maintain their attractiveness as a partner.

Many incumbents operate broad portfolios of businesses; these companies must think about how they can clarify and best articulate the value proposition that they bring to their potential partners. High on any list will be innovation—creating new technologies and products—which has always been a route to profitable growth in the chemical industry and remains an area of strength for incumbent chemical companies. Companies that have technology that is needed by oil-producing countries to use in their new petrochemical plants will be best placed in any contest to participate in joint ventures. And companies with knowhow that is much in demand in rapidly growing emerging markets will be of greater interest

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to those countries’ governments; they are thus better placed to gain access to such markets.

Incumbents must also think about how the market access that they could provide in their home market could be valuable to new producers. They should consider the best way to make this available. One possibility is to act as a joint-venture partner with a new producer in a way that would enable the incumbent to gradually ramp down its own production.

Finally, incumbents must recognize the strategic choices that they face. What kind of bargaining chips does the company have, and what types of chips might it want to develop? Is it strong enough to stay independent? Should it consider partnerships or alliances?

Does a focus on the Middle East make more sense than a focus on China? And if a company decides to focus on China, should it try to ally with a Chinese player or to establish a greater direct presence in China? Companies must think carefully about how to play their bargaining chips for maximum value creation—these chips cannot be used multiple times.

The global chemical industry has entered a new phase in its evolution, as players from oil producing countries and high-growth developing markets take their places among the industry’s leaders. These new players are focused on resource monetization and economic development—and job creation in particular, in a number of countries—rather than on traditional shareholder value, and they thus play by a different set of rules than do the industry’s traditional leaders.

As a result, the competitive landscape is changing.

Incumbents must recognize the shift under way and adapt, while newcomers should build new capabilities to more fully deploy their strengths in the market.

As the world economy picks up speed after the crisis, senior managers are understandably preoccupied with navigating back to “business as usual.” However, the shifts in the chemical industry landscape have arguably been accelerated by the crisis, as the major emerging economies have recovered faster than the developed ones. As a consequence, the window of opportunity for incumbents to engage with newcomers could close sooner than they might expect. The number of exceptionally resource-advantaged countries is finite, and major emerging markets may pursue a policy of favoring domestic champions. Incumbents should use any momentum gained from recovery in their traditional businesses to advance their positions in the new industry landscape.

Florian Budde is a director in McKinsey’s Frankfurt office, global chair of the chemicals practice, and leader of its Europe, Middle East, and Africa chemicals practice.

This article was originally published in May 2011 on The McKinsey Quarterly, www.mckinseyquarterly.com. Copyright (c) 2011 McKinsey & Company. All rights reserved. Reprinted by permission.

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- technology management for decision-makers | july 2011

31

cover story

Innovation In

Chemicals

Dow Corning’s CEO Stephanie Burns and CTO Gregg Zank talk about successful approaches to new-product and business-model innovation. by bob frei and chris musso

D

ow Corning’s performance in the past decade is one of the more overlooked success stories of the global chemical industry.

Privately held by Dow Chemical and Corning, Dow Corning is the world’s top silicones producer and, through its majority stake in Hemlock Semiconductor Group, the leading maker of polycrystalline silicon (polysilicon), the raw material for computer chips and solar cells. Dow Corning has historically seen steady growth, but in the past six years, its performance has accelerated dramatically, and innovation has played a key role in this.

Dow Corning has always grown by combining a capability in low-cost bulk silicones with leadership in silicon-based specialty chemicals. It continues to follow this approach, with a new large-scale plant in Zhangjiagang, China (a joint venture with Wack-

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er Chemie), which will complement its large-scale plants in the United States and the United Kingdom.

Similarly, in polysilicon, Hemlock Semiconductor is building a new plant in Clarksville, Tennessee, to maintain its capacity and cost lead.

What is new is the acceleration of the company’s sales and earnings trajectory. Part of this is being driven by strong growth in demand in developing markets such as China. Dow Corning’s low-cost manufacturing base puts it in a strong position to serve this demand, but the company is not simply sitting back while it rides that wave. Instead, it has made a significant push in innovation to strengthen its growth momentum. It has drastically redesigned and reenergized its new-product-development approach, and at the same time has emerged as a chemical-industry leader in business-model innovation.

In 2002, in the fading days of the dot-com boom, Dow Corning took a bold gamble when it launched

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Xiameter, a new business model comprising an online-managed, low-cost, no-frills sales channel for its commodity silicones, offering competitive pricing to customers willing to buy in bulk, without research or technical support. Plenty of other chemical companies were dabbling in e-commerce, but none embraced a business model that effectively divided the company’s products into two brands, as in this case, where there was the traditional Dow Corning on the one hand, offering customers specialty silicones backed up by technical support and R&D, and Xiameter on the other.

Dow Corning confirmed the success of the new business model in 2009 when it announced a fivefold increase in the number of products it offers via Xiameter. Meanwhile, sales growth based on new-product innovation has continued to accelerate.

The financial results bear this out. Dow Corning saw sales rise from $2.49 billion in 1995 to $3.37 billion in 2004, when it exited from its nine-year Chapter 11 bankruptcy protection linked to breast-implant liabilities, a compound annual growth rate of 3 percent. Net income rose from $153 million in 1995 to $289 million in 2004. Its sales then rose 62 percent in the next four years, reaching $5.45 billion in 2008, a compound annual growth rate of 13 percent, and its net income increased more than two-and-a-half times to $739 million. After a retreat in 2009, results rebounded strongly in 2010; the company’s sales rose 18 percent to hit $6 billion, and net income increased 45 percent to $866 million, in both cases reaching record levels.

Stephanie Burns, a PhD chemist, has been Dow Corning’s CEO since 2004 and has led these developments. She and Gregg Zank, the company’s chief technology officer and senior vice president, sat down recently at their Midland, Michigan, headquarters with McKinsey’s Bob Frei and Chris Musso to discuss their perspectives on suc- cessful innovation in the chemical industry.

Where does innovation stand among your priorities?

Stephanie Burns: Innovation is definitely one of the very top priorities for the company. It’s our future— it’s the way we’re going to grow. We divide the very substantial growth we have achieved over the past nine years into three categories, and there’s been a major innovation component to all of them. The first is momentum growth, which is directly linked to GDP expansion around the world, and Xiameter has brought us a lot of growth there. The second is penetrating new geographies with our technology, and innovation plays an important role here because we’ll often do formulations that are specific for the geography or employ innovative business models that

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cover story allow us to expand in a particular region. The third category is more traditional, “pure” innovation—new applications and products. All three categories have contributed to growth, with the biggest shares driven by the second and third categories.

How has your approach to innovation changed in the past decade?

Stephanie Burns: Ten years ago, our innovation approach was mostly the traditional, inside-out materials-innovation approach. But we decided that this approach was not working well—we really needed to deliver greater returns from our strategic R&D investments. Reevaluating our approach to innovation has been part of a complete rethink of Dow Corning’s business. Dow Corning has always enjoyed respectable

growth rates across most of its businesses, and for better or worse this led to an attitude in the company that every business is a growth business, and an attitude to R&D spending where everyone gets the same level of investment, and people across the company felt almost entitled to a certain level of investment.

But in the early 2000s, we could see that parts of our portfolio were maturing and becoming less differentiated, and the service-intensive specialty-chemical approach to doing business was no longer wanted by parts of our customer base. Those customers were mainly interested in the most competitive prices for undifferentiated products, backed by reliable supply.

Seeing this and recognizing that there was going to be more of this trend coming was a major driver for us in our design of the Xiameter business model. We

Stephanie Burns Vital statistics Born 1955 Married, with 1 child Education Graduated with a PhD in organic chemistry, with a specialty in organosilicons, in 1982 from Iowa State University

Pursued postdoctoral studies at Université Montpellier 2 Sciences et Techniques, France Career highlights Dow Corning (1983–present) (2006–present) Chairman and (2004–present) chief executive

(1983–94) Positions in laboratory research, product development, science and technology, and business management Fast facts Incoming chairman of the American Chemistry Council

(2003–10) President

Member of the board of GlaxoSmithKline and of the Society for Women’s Health Research

(2000–03) Executive vice president for global operations

Appointed to the US President’s Export Council in 2010

(1997–2000) Director of the electronics and life-sciences businesses and of science and technology for Europe

Named to Forbes.com’s list of the world’s 100 most powerful women

(1994–97) Director of women’s health

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couldn’t treat those more price-sensitive and innovation-insensitive customers the same as our specialty customers. And so we separated our product offering into two brands: the Xiameter brand and the Dow Corning brand.

Gregg Zank: And at the same time, we recognized that we needed to rethink our approach to new-product innovation across all our businesses. To get better returns, we saw that we couldn’t invest in every market the same, but we needed to be selective and choose those innovation areas where we’re going to get the biggest returns and have the biggest impact on the company.

How did you deal with the challenges and cultural issues within the company when making this change?

Stephanie Burns: I think we have been successful in this because we defined a really clear business model—Xiameter—for our undifferentiated business. We have been very clear on what that brand represents and what its goals are for cash generation and contribution to the earnings of the company. That business model is all about efficiency and quality of supply to our customers at a price point that allows them to really be competitive. Customers are not asking for a lot of product innovation in that space, so that would be an area where we are not going to put research dollars, except toward process improvements.

At the same time, we have been very clear on the differentiated side of the company about which areas we wish to invest in and what our customer acceptance and financial expectations are, and we have shifted resources to priority areas.

We had to communicate clearly that it’s just as important to work in area A as area B, and that both are critical to serve our customers. We’re going to create growth in each unit, but they have different mandates and deliverables. It has taken time to get the teams comfortable with this, but now people see the success and so they are buying into it with great commitment. I think that one advantage we have culturally is that we have employees who are extremely creative and willing to try new things, and who do not resist change the way that perhaps they do in some other companies. We’ve worked hard on encouraging the dynamic that it’s healthy to embrace change. It comes down to leadership and clarity of purpose.

This certainly has required changes in behavior.

Take the salespeople in our specialty-chemical business: their job out in the field is to do new business development and work with customers on new areas of growth—it’s not to go in and sell existing products to existing customers with the same application that they’ve sold for the past five years. So, they’ve had a real change in their mandate.

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cover story With our relaunch of Xiameter in 2009, not only did we put more products into Xiameter but we also continued to fine-tune these two business models— Xiameter and specialty-oriented Dow Corning—and add more clarity. We still had some undifferentiated products managed by our specialty business, and by moving them to Xiameter, we have been able to serve our customers with more clarity.

We will do that kind of fine-tuning constantly in the future. A product may currently be managed by our life-sciences business or industrialintermediates business, but as the products mature, we’re going to challenge the business every year: should that be a Dow Corning–branded product or should it be managed by Xiameter? And we’ll move products over as appropriate.

Meanwhile, we are getting new specialty products from our innovation efforts to expand our Dow Corning portfolio that more than offset what is moved to Xiameter.

How do you know when a product should move to Xiameter? What are the challenges and opportunities?

Gregg Zank: It’s not by our definition that a product

The offtake of the large, low-cost plants also goes into our specialty business, where we develop finished, formulated products, and we get a lot more value than just selling the basic intermediates. So the innovation that goes on in our specialty plants that leverages this low-cost position is a wonderful synergy.

And at the same time, there are a lot of innovation challenges posed by the Xiameter side of the business. For instance, how do we get a product line’s cost down to stay competitive and make the right level of return? There’s a lot of energy and excitement going into improving manufacturing and process efficiency, as well as on the business and commercial side. It can be just as exciting as new-product innovation.

What are your thoughts on new-product versus business-model innovation?

Gregg Zank: It’s not black-and-white. The days are gone when you could just make a new product and customers would beat a path to your door. To be successful in the marketplace and establish a sustainable competitive advantage requires a combination of approaches. The key for us is customer intimacy, which guides us as to which levers of innovation we should employ—how much new product and new

The key for us is customer intimacy, which guides us as to which levers of innovation we should employ is no longer differentiated—it’s our customers’ and the marketplace’s. That in turn reinforces the message within the company that we have to embrace this new business model. There are clear signals when a product is in the undifferentiated area. For instance, do we have intellectual property protecting our product, or are there a lot of similar products on offer from the competition? And when we go to visit the customer, are we meeting with the new-business developer or only with the procurement team? That’s a pretty strong signal right there.

Stephanie Burns: But it’s important to recognize that there is a huge opportunity in the Xiameter model, not only in providing customers with reliable supply at a certain price point, but also for the company overall as the low-cost, highly efficient supplier. We are winning at that low-cost game, and we’re going to continue to win. We’ve got fully utilized assets and efficiencies in our manufacturing operations that we believe are the most competitive in the industry.

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technology, how much new solutions, and how much business-model innovation. It’s also important to consider regional differences: mature products in one region may be innovative products in another. At the same time, there may be a need to explore a new business model, packaging, or delivery method, for example, to successfully deploy a product line in a certain region.

Stephanie Burns: In business-model innovation, our big “aha” came with Xiameter. That really opened the door for us to think differently, and we’ve realized that new business models are just as critical for new-product development as they are in the more mature parts of our business. We deployed new ways of working with our partners: for instance, faster prototyping or finding different ways to more quickly establish profitability. And in our polysilicon business, we have implemented new business models designed to ensure that we meet our needs and our customers’ needs.

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Gregg Zank Vital statistics Born 1958 Married, with 2 children

and executive director for specialties and technology

Education Graduated with a PhD in inorganic chemistry in 1985 from the University of Illinois at UrbanaChampaign

(2002–03) Program leader for newbusiness development

Career highlights Dow Corning (1985–present) (2009–present) Senior vice president (2003–present) Chief technology officer

(1985–2002) Positions in research, product development, and new-business management Fast facts Holds 30 patents for innovations including those related to advanced composites, rechargeable batteries, and high tem-

perature thermosetting polymers Reviewer with the National Science Foundation Member of the board of directors of the Michigan Molecular Institute Member of Michigan’s Climate Action Council Recipient of the American Chemical Society’s Earle B. Barnes Award in 2009

How do you steer your new-product innovation approach?

Gregg Zank: We want to focus on areas that are driven by large societal trends and needs in the world—megatrends—because we know those trends are going to drive discontinuities in the marketplace. There are a number of areas we are particularly interested in.

These include health care and personal care, renewable energy, construction, and electronics—where we are looking at the ever-expanding demand for devices and the merger of electronics with other areas such as photonics and biotechnology. And we are watching how megatrends—such as energy scarcity, urbanization, and others—interact with these.

When you’re tied into those discontinuities, it just means the market opportunity is big. You’re not in there fighting tooth and nail using price and other levers for a piece of a limited-size market—instead you’re in a market that is expanding rapidly. Lightemitting diodes (LEDs) are a great example—they’re now showing up in flashlights, displays, traffic lights, and in automobile exteriors and interiors, and they have the potential to keep growing into areas of commercial and residential construction.

Encapsulants for LEDs have been a great success story for us. We started the work in the late 1990s, and it became a new-business program in the early 2000s that was sheltered even though it was not mak-

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ing any money. We backed it because we knew it was going to be a hit. We had key intellectual property; it’s a very enabling technology; and we were ready to go when the market was ready. Our encapsulant business has grown dramatically over the past five years.

We are on the lookout for developments that are truly going to be disruptive and try to tie ourselves to them. We constantly challenge ourselves and refresh that list of the large trends that we should be looking at, and then we ask, how can silicon-based materials provide a solution?

Stephanie Burns: What we’ve been doing over the past four years is to take these megatrends and apply filters that narrow them down to what really could be the opportunity, and identify how best our technology and competencies match that. We’re not just saying there’s a wonderful megatrend out there in the demographic of an aging population and we’re going to invest all our projects against it, but instead, we’re defining where the opportunities are for Dow Corning.

We’ve been improving that process and have started to integrate it across the company.

How does the process work?

Gregg Zank: Our underlying challenge was to improve the way we develop a raw idea into something tangible. The approach we now use is to work very intensively for a highly compressed period of time—10

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cover story to 12 weeks. We will take something as large as the societal impact of an aging population and distill that down with numerous interviews outside the company.

We dedicate a group of employees around the world to undertake a lot of strategic marketing—both technical people, who are in my opinion very good earlystage strategic marketers because they ask a lot of difficult questions, and commercial folks. Then we have weekly meetings to say, what have we learned about this area? It’s got to be a large opportunity, it’s got to get marketplace acceptance within a certain time frame, and it’s got to be something that is not incremental to what we are already doing. We assess the applicability of our scientific tool kit against the opportunity and create an early proposal.

We pressure-test the proposals from the points of view of technology, the market, the supply chain, and whether it will still be a good opportunity if some other external factors change. It is a difficult thing for the team to go through because they want to chase five things and they only have time to get two worked up as full business proposals. But I’m insistent that

was already going on to be part of a mega-trend, and everything becomes a green-energy project or an aging-population project. That’s why we have these filters and say, OK, within the aging population, what are the big things that we think we can have an impact on and that have enough discontinuities and opportunities associated with them to represent a large area of growth for a significant amount of time?

Stephanie Burns: We also have to take some care managing the filtering part of the process—this is the painful part, where you have to let go of ideas early on that you don’t think are a hit and stay focused on the ones that look promising. When we started this process, our people got so enthused by innovation and sustainability and improving our planet, and they were buying in fast and looking at things that we knew were not going to fly. But you’ve got to let them expand the lists of ideas, so that they say, this is new and exciting, and to make sure they’re going along the path with you. You can’t shut it off prematurely; you have to let it run its course.

We pressure -test proposals from the points of view of technology, the market, the supply chain, and whether it will still be a good opportunity if some other external factors change as we go through this, we capture and document all the things that we leave on the side as well, because they may be relevant for some of our other existing businesses. In addition, the process can help us identify markets that are starting to move and make us check if we are in tune with them. Are they on our radar screen, and how are we interacting in the value chain of those markets?

We undertake this process twice a year. In addition to identifying opportunities, it completely energizes the entire company, because there is not only a core team but also a broader team that gets involved because there are Web calls for information, where people can contribute, so everybody is a part of it. We end up with a pretty robust portfolio of initiatives as the process cycle proceeds.

Have any cultural issues emerged with the adoption of the megatrends approach?

Gregg Zank: The danger we have run into is not so much resistance as that everyone reframes what

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- technology management for decision-makers

What are examples of megatrend-linked work?

Gregg Zank: One of the problems with the aging population is diseases that make bones brittle. So you can look at ways to protect the human body from falls or ways to better enhance bone growth in aging people.

Since there is research relating bone strength to silica intake, we said, is there a way to help uptake of silicic acid or silica into the body to help bones be less brittle? Another is enhancing aging bodies’ efficiency in absorbing medicinal drugs, and so, is there some way to use silicones to help the uptake of drugs?

Stephanie Burns: We also see megatrends intersect.

For example, one of the trends with an aging population is that baby boomers want to live in their own homes rather than in a nursing home. To take care of them and make sure they’re safe, third parties observe them in their homes, and so there are new electronics applications, as you get to surveillance cameras and sensors. In other words, the electronics megatrend intersects with the aging-population megatrend.

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cover story Dow Corning seems to have shifted its R&D talent strategy to include more than just silicone chemists, hiring physicists, materials scientists, and even industrial designers. How has this new combination changed the innovation problem-solving dynamic?

Gregg Zank: It’s a great new dynamic. When you combine a silicone chemist with a material scientist, a ceramist, and a metallurgist, you get some very robust technology debates, and you get to a good answer—not yet necessarily the right answer—but one you have a lot more confidence in, because you did not just charge down one path.

Stephanie Burns: Here’s an example. We know a lot of our customers buy our materials for the aesthetic properties—the feel, or “hand,” as it’s called, the silky touch, the visual appearance. But we realized that there’s a whole element in how customers make buying decisions that we did not fully understand.

When silicone ends up in a piece of furniture or cookware, we don’t know who these people are who are selecting the product. When a maker of handheld

department. And we’ve deliberately built up a capability we call “application expertise,” where we have scientists who are world-renowned experts in many of our customers’ applications.

In hair care, for example, we have globally respected experts on how to test products on hair, and our personal-care customers recognize and respect these experts’ work.

How much time do you as CEO spend on innovation?

Stephanie Burns: As CEO, I would say around 15 percent on a pure innovation basis, but innovation is part of everything we do, so it is difficult to estimate. I do have a very full understanding of the innovation portfolio, which is on all our major executivemeeting agendas.

What does it mean to have a scientist as CEO? Stephanie Burns: When I am out with R&D folks and teams are bringing projects forward, there’s probably an ease of discussion and a connectivity that takes

There’s a level of research expenditure that must be maintained

even in tough times—it’s not discretionary spending; it’s required. electronic devices looks at silicones, they are looking for the customer experience as well as the electroniccircuitry performance, which we always focused on.

So we brought in an industrial-design engineer who thinks completely differently from a chemist or physicist, and this brings a totally different dynamic to the team’s interactions.

Is being just in silicon chemistry a limitation?

Stephanie Burns: I’d argue our chemistry set is probably more complex than most companies’, and our expertise in that chemistry set allows us to do so many more things. I am constantly amazed at the potential of silicon technology to meet the needs of current and future advanced applications.

I think we are able to build closer and stronger relationships with customers because our siliconbased expertise can be so enabling for them. Take skin-care product makers: they use thousands of different ingredients to make formulations, but the silicone ingredient enables that formulation to perform, and that gives us privileged access to their research

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- technology management for decision-makers

place. The last time I was with our compound semiconductor research team, for instance, I understood exactly what they were doing and the progress they have made in advancing silicon carbide wafer-production technology.

Most important, I think I probably have, compared with a nonscientist, a better understanding that this innovation stuff takes time to come to fruition, and that you’ve got to keep these investments consistent and you cannot flip-flop. Some of our big successes today had their genesis back in the late 1990s. In tough economic times, you’re looking to squeeze anything you can, and innovation is not immune to that, but there’s a level of research expenditure that must be maintained—it’s not discretionary expenditure. It’s required.

Bob Frei (Bob_Frei@McKinsey.com) is a director in McKinsey’s Chicago office, and Chris Musso (Chris_Musso@McKinsey.com) is a principal in the Cleveland office.

This article was originally published in May 2011 on The McKinsey Quarterly, www.mckinseyquarterly.com. Copyright (c) 2011 McKinsey & Company. All rights reserved. Reprinted by permission.

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facilities & operations

Debunking SLA myths

More SLAs are not better, better SLAs are. by steve martin & david borowski

I

Illustration By: Shigil N

t ranks as one of the most common and impactful outsourcing mistakes of the past decade—too many service level agreements (SLAs), designed around the wrong business outcomes, and exceedingly focused on financial remuneration rather than operational remedies.

Whether due to a rush to get an RFP out the door and quickly ink a major deal or underestimating the effort required to design relevant service levels, companies often fail to appropriately link their SLAs to meaningful business results. Instead, they often blanket the outsourcing contract with too many SLAs, based on what “feels important.”

They also rationalise that setting service level targets beyond what is actually needed—and often at unreasonable levels (e.g., 100 percent)—will accelerate the realisation of best-in-class performance, despite any inefficiencies and constraints with existing processes and technology.

While conventional wisdom suggests more is better—e.g., 15 SLAs are better than 10, 20 percent provider fees at risk is better than 15 percent, 99.99 percent

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facilities & operations processing accuracy is better than 99 percent, etc.—the problem with the “more is better” approach is that “more” results in higher costs, dilution of provider focus, and a misalignment between the provider’s incentives and the company’s desired business outcomes.

In fact, this inevitably results in higher fees to ensure performance and to cover the provider’s risk as well as a reasonable probability that, even when SLAs are met, the desired business outcomes are not accomplished. This is because the service levels are diluted with carve-outs based on the actual scope within the provider’s control.

What follows are five myths about SLAs and why companies

protect against “double jeopardy” situations, and prevents misleading performance reporting.

Additionally, if providers are responsible for adhering to too many SLAs, the performance credits associated with a particular service failure may become inconsequential, and therefore provide no performance incentive to the provider (i.e., experiencing a service failure may actually be more cost effective than providing an effective and appropriately resourced solution).

While the “right” number of SLAs generally depends on the scope of services being performed, as a guideline, companies should generally target 6 to 10 credit

Companies should determine whether setting targets in excess of required performance creates any business benefit. pursuing business process or IT outsourcing arrangements need to realise that more isn’t necessarily better. Better is better.

1

The more SLAs, the better overall protection and performance. This is true in

theory, but not in practice.

Ideally, SLAs should be collectively exhaustive but mutually exclusive. Companies should ensure that key business imperatives are addressed by the SLAs so that the provider cannot fail to meet the customer’s expectations without failing to meet at least one of the SLAs. Companies should also avoid multiple SLAs that measure different aspects of the same symptom, e.g., mean time to respond to service failures and mean time to resolve service failures. This helps reduce the number of SLAs, avoids a provider padding its price to

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bearing SLAs for each major outsourced domain.

2

Increasing the provider’s fees at risk creates more incentive for them to perform. It would

seem to reason that having a provider put 20 to 25 percent of their fees at risk for failure to meet SLAs would result in a sharper focus on meeting service levels than putting only 10 percent to 15 percent at risk. This is not the case. Service level credits do not provide equitable compensation for service failures and that shouldn’t be their intent.

Performance credit amounts should be calibrated to cause some impact to provider margins, but targeting excessive credits will almost certainly result in the provider raising its prices to account for the increased resources required to “guarantee” performance targets are met, and the

- technology management for decision-makers

increased financial risk of failure.

Customary financial consequences for failure to meet SLAs depend on the service, but most outsourcing transactions have 10 percent to 15 percent of total fees at risk, with “cap averaging” over all SLAs and for longer periods (i.e., yearly vs. monthly).

3

More stringent SLAs translate into higher provider performance and, thus, better results. Better

availability, faster turnaround times, and 100 percent accuracy will only guarantee one result: higher costs.

Service levels should target the level of service that the company really needs and no more. While compelling providers to commit to service quality metrics in excess of what is actually required by the business might create the perception of better performance and higher value, it inevitably leads to higher costs, particularly for labor intensive processes and their associated metrics (e.g., requirement to complete all, as opposed to only the most critical/ material GL account reconciliations within three days of the end of the month).

Many companies look to outsourcing as an opportunity to accelerate the achievement of best-in-class performance, but fail to recognise that the transition from current performance levels to benchmark levels often requires some level of process optimisation. The existing organisation and processes may not be mature enough to achieve such levels right out of the gate.

Companies should determine whether setting targets in excess of required performance creates any business benefit. If not, don’t require the provider to deliver, and moreover, price, to a gold-plated standard. If there is a meaningful benefit to more

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It’s a product Various Elegant Reliable Technical EXtraction Biggest Manufacturer of

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facilities & operations stringent performance targets, the contract may need to be constructed with provisions that allow the provider to achieve such performance over time, with locked in, planned performance target increases.

4

Hitting the provider with heavy financial penalties is the only real way to get their attention. Financial credits

do provide an incentive for providers to meet performance targets, lest they suffer margin erosion or even the possibility of being financially upside-down on a deal. That said providers have become quite sophisticated in their ability to manage the fees at risk vs. price dynamics, and while certainly not eager to provide credits, accept that some level of financial loss for failure to meet SLAs is acceptable or even likely.

There are several other methods, however, that are equally, if not more effective, in creating incentive for the providers to perform. One is requiring the provider’s executives to meet in person with the company’s executives when performance failure thresholds are hit—and contractually commit to meeting each month until the service levels are consistently met.

Another approach is to require the provider to engage and pay for a third party to assess the causes of the failures, and to develop a plan that the provider must fol-

low to remediate the problems.

Other non-credit bearing remedies/incentives include linking contract renewal and extension options to provider performance, requiring replacement of provider key personnel (at the provider’s cost), and stipulating that the provider perform root cause analysis and produce performance improvement plans to address deficient performance.

5

It is critical to hold providers accountable for the entire end to end process. Ideally,

it would seem desirable to hold outsource providers accountable for meeting metrics for a performance goal related to an end to end business process cycle, e.g., days sales outstanding (DSO) within the order-tocash cycle. However, more often than not, the provider does not have control over the entire business process.

In the case of DSO, the outsource provider may only have responsibility for portions of order-to-cash (e.g., cash applications, credit reviews), and not for example, order generation or invoicing. Excessively broad SLAs also lead to the provider building in broader carve-outs; often times neutralising the applicability of the performance level altogether.

A good rule of thumb is to hold a provider accountable for the timeliness and accuracy of

the dimensions of the process that are within its control. For example, in an accounts payable process, an outsource provider can be held accountable for the accurate data transcription from an invoice to the ERP system or the percentage of invoices entered and either successfully matched or properly routed to the client for resolution within a specified period of time.

While it’s perfectly reasonable to set aggressive performance goals and credit structures for your outsourcing provider, companies should resist the temptation to impose unnecessarily rigid SLAs that drive costs up and result in other unintended consequences without adding commensurate business value.

Companies should invest the time and resources necessary to ensure that the SLA framework and individual SLA metrics are designed to hold the provider accountable and motivate them to perform, rather than inspire them to figure out how to offset the credits through other creative means.

Steve Martin is a partner and David Borowski is a senior associate at Pace Harmon, a third-party outsourcing advisory services firm providing guidance on complex outsourcing and strategic sourcing transactions, process optimisation, and supplier program management.

This article has been reprinted with permission from CIO Update. @ http://www. cioupdate.com. To see more articles regarding IT management best practices, please visit www.cioupdate.com.

Advertiser Index CHEP................................................48-A

Havell’s India.......................... 15, 27-35

S & T Engineers.................................. 45

Diesel ....................................... 9, 50-53

IndiaMart............................................ 39

Schneider.......................................7, 11

EFD Induction..................................... 63

KMT..................................................... 21

SCM PRO....................................... 54-55

Elcon................................................... 43

Mitsubishi..............................................3

Taguetec............................................ IBC

Exxon Mobil.................................IFC, 23

Nokia................................................... 13

Timken India....................................... 17

Guhring India...................................... 25

Omron................................................. 72

Yash Technologies.............................. 49

GW Precision...................................... BC

Power Build......................................... 47

decision-makers 46 july 2011 | industry 2.0 - technology management forPremium HAAS......................................................5 Transmission...................... 19

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facilities & operations

Digging out Inefficiencies For Singareni Collieries, the challenge was to streamline operations at multiple locations for enhanced decision making and business consolidation. by varun aggarwal

M. Sathyanarayana

has used ERP to ensure better control over processes.

COMPANY profile COMPANY Singareni Collieries Company Ltd INDUSTRY Mining REVENUE $1.423 billion EMPLOYEES 70,000 HEADQUARTERS Hyderabad, India

F

or a coal company that has an order book bigger than its production capacity, timely delivery is the key to success.

Singareni Collieries Company Limited (SCCL) currently operates 13 opencast and 42 underground mines in four districts.

The $1.4 billion company is

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one of the largest coal miners in India.

While the company has IT infrastructure in all its branches, the challenge for SCCL was to integrate and streamline operations to enhance decision making and business consolidation.

With either manual or disintegrated systems, there was no

- technology management for decision-makers

central management of information leading to frequent delays in delivery causing financial losses in terms of loss of opportunity.

Integrating Systems

While deploying an ERP to solve the problem may sound easy, the bigg hurdle that lay ahead of the company was its own 70,000

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C Y MK

C Y MK

C Y MK

C Y MK

employees who feared delays in payments with the new system.

The change management process had to be implemented before a formal rollout could take place.

However, this wasn’t the only challenge that had to be dealt with. “Our distributed IT architecture made this difficult,” says M. Sathyanarayana, ERP project manager at SCCL. Manual integration of processes for purchasing, sales and distribution, finance, stores, and payroll resulted in duplicated data entry and paper-based processes that wasted time and caused errors.

To handle these challenges, SCCL chose financial, controlling, materials management, quality management, payroll, and sales and distribution software in the SAP ERP application. Key to this choice were strong SAP references from comparable enterprises in India.

As one of the first public sector companies in India to undertake a large-scale, enterprise resource planning (ERP) implementation, SCCL rented the hardware it needed early in the implementation rather than purchasing it. This minimized procurement delays that are typical in public sector installations. IT employees were thoroughly trained on SAP technologies, and now maintain the software with little external support. Development of specific applications prior to implementing SAP ERP facilitated smooth data migration.

The Benefits

With SAP ERP in place, informa-

tion is more visible throughout the enterprise and available in real time. This, plus an alert framework within the application, has significantly improved decision making. Integrated materials management has given SCCL better control over stock and inventory. “Timely provisioning of spare parts and other items for maintenance, repair, and operations has increased the avail ability of essential equipment and made it easier to meet production targets,” Sathyanarayana explains.

“We have reduced the overall cycle time for sales order processing from months to days, cut the time for settling advance payments made against sales orders, and increased customer satisfaction,” adds N. V. Rajasekher, superintendent engineer for marketing and movement at SCCL. There has also been a significant decrease in the time needed to close annual accounts. Singareni is the first coal company in India to use a SAP solution to generate the balance sheet in the first year the software was implemented.

The company can now manage and control spending at the enterprise level. The new software, which supports 300 to 400 items related to material requirements planning, has significantly reduced the purchase requisition cycle.

Increased integration has also facilitated better procurement policies, encouraged collaboration with suppliers, and significantly reduced stock-outs

Integrated materials management has given SCCL better control over stock and inventory.

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Project Highlights OBJECTIVES ► Provide integrated view of operations at various locations ► Support real-time data capture and processing for supply-chain functions ► Improve inventory visibility ► Reduce paperwork and manual processing ► Streamline payroll process for transferred employees ► Reduce IT maintenance and other costs KEY IMPACTS ► Time to process sales orders—reduced by 50% ► Days to close annual accounts—reduced by 50% ► Time to settle advance payments—reduced by 40% ► Duration of purchase requisition cycle— reduced by 98% ► Time to generate coal bills—reduced by 95% ► Unmanaged spend—reduced by 55%

at plant locations. In addition, paper consumption related to the accounting process has dropped significantly.

“The four SAP modules we’ve added are like the first floor of a building that will help us build many floors in the future,” says M. Sathyanarayana, ERP project manager at SCCL. “Today, SCCL is a truly integrated enterprise. We hope to leverage other functionalities and develop a robust business intelligence platform that will further enhance decision making.” J. V. Dattatreyulu, Director of Operations, SCCL.

Next Step

After reaping the fruits of a successful ERP implementation, the company is planning to implement SAP’s Man maintenance module which is very useful for the coal mining industry. “We are also planning for certain HRM and CRM modules within the next six months or so,” says Sathyanarayana.

industry 2.0

- technology management for decision-makers | july 2011

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Taking a

Financial View of Inventory

Picture courtesy: www.photos.com

supply chain & logistics

Inventory is the largest balance sheet asset in your business. But, if it’s obvious that inventory is so important, why aren’t we more aggressive in dealing with it? Why don’t we do more to liquidate aging inventory? Why don’t we look at how to achieve the optimal balance point between high order fill rate and increased inventory? by curtis barry

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- technology management for decision-makers

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O

wners and senior management need to take a fresh look at their financial approach to measuring and managing inventory. Let us look at a few examples. One of our clients has $550 million in annual sales, 135 stores, and a b-to-b catalog and e-commerce business. We had designed a warehouse which was to last five years. Three years into its life, they called to say they were running out of space. Our analysis of the 17,000 products in inventory showed that 60,000 sq. ft. of the total 350,000 sq. ft. was tied up in obsolete and inactive inventory. This was news to them; their inventory management system did not focus on age of inventory or fast and slow sellers. They did not have a continuing inventory process for liquidating slow moving items. Among those in top management (who did not have experience managing inventory), the feeling was that there really wasn’t such a thing as inventory carrying cost. Their attitude was, “We’ve already paid for the inventory and we own the warehouse outright.” But they didn’t take into account the cost to prematurely expand the warehouse; opportunity costs for doing something else with invested capital; taxes and insurance; and labor to maintain the inventory. All this amounts to a sizable sum.

Two other clients for whom we completed inventory assessments face problems typical of many multi-channel companies. The vendor minimums to purchase a particular SKU (Stock Keeping Unit) are high, and the lead time is 18 to 22 weeks. This means

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that the multi-channel company is often pushed into holding high inventory levels, and ending up with overstocks. In most companies, two-thirds of all products either break even or lose money.

New products with no selling history are even riskier; you could be off plus or minus 40 percent.

With all this risk, companies must have an ongoing approach for liquidating slow sellers. At a fourth company, there is a real disconnect between what owners say they think inventory metrics are, and what the actual turns out to be. The bottom line is, there is plenty of room for improvement in how inventory is managed in the multi-channel industry. Here are ten steps that will allow you to deal with inventory more aggressively and make more profit.

1

Get a handle on inventory status and condition. Most companies use

their order management system for inventory control. But top management is not a user of these systems. What they use to monitor inventory status may be a summarized or Excel-based report. Companies need to have a “single version of the truth” for all data: sales, inventory, purchases, stock on hand, etc., including plans and actual.

Additionally, as we work with these inventory systems, we find there are literally dozens of codes describing inventory status and condition. The inventory application needs to have status codes used in reporting that can accurately and helpfully describe inventory status to management (i.e., active product, inactive

product, assigned to liquidation, appears in future promotion, discontinued, etc.). While that might sound basic, in practice it isn’t.

This is the root of a lot difficulty in managing inventory, getting useful reports.

2

Bring the senior management, the CFO and the inventory manager on the same

page. Inventory management is not a clerical activity, but a strategic function. Come to an agreement about which key inventory metrics you can do something about, and how to measure them. Review on a frequent, scheduled basis. There are lots of things you can measure, but many are meaningless. Just by focusing on these inventory metrics, you will see improvement if you can put in place the tactics to improve performance.

3

Analyze age of inventory. Many companies

either cannot report age of inventory, or are less than proactive in dealing with it. What is old inventory to you? For some companies the answer may be 12 to 15 weeks on average; for others, 25 weeks. There are two key points here: Are you as active as you need to be to liquidate slow sellers?

One of our clients said their goal was to turn the inventory at least 4 times annually, up from the current 3.15 turns. But when we talked about how long they carried inventory before they deemed it as old, their response was 20 weeks. This is a classic

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- technology management for decision-makers | july 2011

51

supply chain & logistics example of a small to mid-size company using KPIs (key performance indicators). By choosing to focus on inventory as it hits 20 weeks and older, they may end up doing only 2.6 turns annually.

In order for this client to get 4 turns annually, they need to be concerned with inventory as it hits 11 to 13 weeks on average.

Develop a strategy to liquidate inventory when it is obvious that it is a slow seller, rather than waiting. It is important for companies to both develop long-term strategies and follow up with the actions or tactics needed to

managers don’t have it reported or use it. Think about inventory turnover this way: How many days does it take to get your cash out of inventory? If your turnover on average is 3.0 times annually, then it takes 122 days on the average. If you are a b-to-b company selling wholesale, and the customer negotiates terms that are 60 days, your average for a 3.0 turnover becomes 182 days—almost half a year. Start measuring turns by product and meaningful product categories, and put in place liquidation and purchasing

Develop a strategy to liquidate inventory when it is obvious that it is a slow seller, rather than waiting. achieve them. It is also important to understand the goals, agree to how they will be measured, and report on them regularly.

The second point is, are you assigning inventory carrying costs? As with the managers, in the earlier example, who didn’t think there were such costs because they “owned” the inventory, you must realize that there are costs you incur, including occupancy cost (space and utilities), cost of money or lost opportunity, taxes and insurance, and labor to maintain the inventory.

4

strategies that increase turns and improve profits.

july 2011 | industry 2.0

6

Use fill rates to determine how well you are serving the customer. It

can’t project (either to the end of the month or the sales period) where the stock on hand will come out. To do this you have to update the planned sales, stocks, purchases, etc., with the actual for the month. The inability to do this dynamically means that management loses a timely view of how sales trends affect inventory value.

Free up cash from inventory. Inventory

turnover is an old metric, but it is surprising how many owners and business

52

5

Dynamically project end-of-period inventory. Many companies

- technology management for decision-makers

is important not to forget

the customer in all of this. What are your customers’ expectations for being in stock? Our experience is that with the advent of e-commerce, customers have developed a point–click–deliver mentality. Initial customer order fill rates (the percent of orders shipped complete) provide an inventory view of your customer service, and should be reported weekly. Have you found the optimal balance point between improving fill rates and increasing inventory levels?

7

Take a fresh look at vendor management.

There is no doubt that you need to strengthen vendor relationships; without good relationships there is no business. Being upfront with them and understanding the pressures they are dealing with will build trust. But remember, they need you as much as you need them. Reflect on issues like: Do you have too many vendors? Can you get better pricing, service, etc. from fewer vendors? How financially strong are the vendors?

There should be no sacred cows. Re-negotiate everything: terms, delivery, discounts, prices, etc. Are there alternatives to owning inventory? Examples include consignment inventory, vendor-managed inventory, or vendor drop-shipped inventory.

While some may say, “That won’t work for us,” today you have companies operating in unique ways. It all depends on your type of products. Develop a vendor scorecard. Include cancellations, return rates, gross margin, cost of

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backorders and fill rate by vendor, and purchase orders delivered late. Issue it quarterly, and use it in negotiation.

turnover and gross margin metrics together—gross margin (decimal equivalent) times annual inventory turnover—and report it quarterly. For example, if I give a merchant $1 to buy inventory, 3.0 turns annually in a 50% margin business yields $1.50. But, step it up to 3.25 turns and a 50% margin yields $1.625, or an 8.33% improvement. In terms of days in stock, 3 turns means 122 days while 3.25 turns is 112 days.

Do your vendors and inventory managers see the significance of these measures?

9

Consider cost of back orders versus lost gross margin. Over the

years, we have tracked the cost of back orders in hundreds of studies of catalog and e-commerce companies, and found the typical cost per back ordered unit of merchandise is $7 to $12.

These costs include “Where is my back order?” calls for call center, and second shipping costs, extra dunnage and packing materials, picking, and pack labor for fulfillment. They don’t count lost shipping & processing revenue, lost customer lifetime value, buyer time chasing down back orders, etc.

Companies that do not take back orders may say, “That’s why you shouldn’t take back orders.”

But, do you know how many sales

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Picture courtesy: www.photos.com

8

Use Gross Margin Return On Investment (GMROI). Put inventory

Effective inventory management is the single most important tool to improve customer service and reduce cost

of operation.

you lose? Best sellers that are temporarily out of stock might add 15 to 20 percent more demand. You are passing up sales.

10

Effectiveness of inventory management staff. Given the

financial importance of successfully managing inventory, do you have the right people to achieve good performance?

Historically, purchasing and re-buying inventory have been considered as assistant buyer or clerical tasks. Given the size of merchandise assortments, the complexity of the supply chain

and systems involved, and the number of vendors and purchase orders, doesn’t the effort require more strategic thinking? And finally, do you pay the staff commensurate with what you want them to achieve financially?

Effective inventory management is the single most important tool to improve customer service and reduce cost of operation. You need to have effective strategies to take a financial view of inventory, and manage it profitably.

Curt Barry is president of F. Curtis Barry & Company, a fulfillment consulting firm for catalog, e-commerce, and retail businesses.

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4

information technology

Steps to an

Integrated View

Illustration: shigil N

V

ery few corporations have had the luxury of creating an enterprise reporting system from scratch. More typically, such systems develop by aggregation, with one piece bolted onto another as the company grows organically, makes acquisitions, adds new lines of business and enters new geographic markets.

Of course, as ERP systems extend to support expanding operations, it becomes more and more difficult to standardise reporting. One of the biggest problem areas is found in addressing discrepancies between internal and external reporting demands. These difficulties are

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Along with ERP comes the challenge of standardising reporting. How can corporates arrive at a single, integrated view of essential data? by eric noren

magnified as companies take on increasingly complex external reporting. Demands for comprehensive business unit and geographic segment reporting from organisations such as the International Financial Reporting Standards (IFRS), U.S. GAAP and various tax regimes pull companies toward bolstering their external reporting functions.

At the same time, companies have significant needs in terms of improving internal reporting.

Many companies find barriers such as legacy systems, inconsistently configured platforms or a simple lack of integration across the organisation, block the way to better internal management reporting. These problems stand in the way of greater organisational efficiency, which is a key management objective for companies that have found organic growth hard to come by in recent years. Companies that need the ability to make quick, effective decisions about markets, products, customers and

- technology management for decision-makers

channels find themselves lacking the information to do so.

The real difficulty, however, arises when companies attempt to coordinate external and internal reporting. Disparate systems and disjointed data sources, along with the absence of a consistent view from senior management as to what really drives enterprise growth and profitability lead to redundant and costly efforts to reconcile internal and external reporting. There are a number of reasons why these problems continue to plague companies, despite extensive investment in enterprise reporting and business intelligence capabilities. These include:

1. Companies using the wrong metrics. Research indicates that 70 percent of companies use metrics that lack statistical validity, and only 23 percent of companies with balanced scorecards can prove a link between the scorecards and growth in shareholder value. The lack of precision in metrics not only creates confusion but makes it hard to execute business strategy.

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2. Companies that have too much data to manage. An estimated $40 billion per year is spent on data warehousing applications, with more than 60 percent of that amount spent on cleansing data.

Despite this huge investment, data users find themselves overwhelmed by the amount of data they need to manage. More than 40 percent of employees in a recent survey said they believe that the high volume of data delays important decisions and affects their organisation’s overall ability to make decisions.

3. Companies finding that results are hard to quantify. No more than 12 percent of companies can tie quality measures to positive stock returns.

4. Companies ignoring and under-managing important assets.

Research indicates that a large part of a company’s valuation is attributable to intangibles. A study of 300 buy-side investors—including institutional investors, portfolio managers and research staff—showed that some 50 percent of the allocation decisions made were based on non-financial performance. Companies still, however, fail to act on the need to properly analyse and manage their financial business information.

Of course, enumerating problems is one thing, but developing effective solutions for such problems is quite another. The argument can be made that improving data quality is not an IT process at all; Rather, it can be seen as an integrated enterprise process led by finance. In any case, the finance function defines the data standards and governance structures to ensure that the right data is in the right accounts and dimensions of the business.

From this starting point, corporations can undertake a number of actions to arrive at a single,

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integrated view of essential data.

Here are four steps.

1

The format of the data architecture needs to be designed so that it is easily understood by business stakeholder and decision makers.

Many companies have complex data architecture described in technical terms that is not easily understood by the business. The key here is to focus on the right data structure to deliver the right information to business stakeholders, helping them make the right decisions on business performance. The data architecture should be aligned to the company’s model for accountability

designed to establish a common source of information.

4

Standardisation of the accounting and finance process will enable a consistent approach to recording transactions and allocations and allow the enterprise to efficiently analyse and consolidate data across the organisation.

In our experience, organisations that integrate an enterprise data warehouse with an effective approach to business intelligence and standardised data integration architecture improve their ability to manage and analyse data. A single data warehouse

Consistent and complete preventive controls can help ensure the

right data is captured in the right account at the time of recording the transaction in the system. but should retain the flexibility to efficiently address changes in the company’s business or go-tomarket strategies.

2

Consistent and complete preventive controls can help ensure the right data is captured in the right account at the time of recording the transaction in the system.

This avoids heavy reliance on defective controls and reduces non-value added time spent reconciling or reclassifying data between accounts or dimensions.

3

Companies with have multiple ways of recording data and spend large amounts of time on data aggregation should consider an enterprise data warehouse, a business intelligence approach

can serve the needs of internal and external stakeholders without compromising data quality or accuracy of reporting. Aligning such an architecture to both external financial reporting requirements and to internal business management requirements can allow companies to obtain two views of the truth—the external and the internal perspectives— from a single data source. This, in turn, can provide significant benefits in terms of reducing costs, improving operating efficiency and enhancing the quality of data for analytics to support key business decisions.

Eric Noren is an executive in the Finance & Performance Management service line at Accenture, a global management consulting, technology services and outsourcing company.—This opinion was first published in CIO Insight.

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management & strategy

Creating A

Winning

There are many qualities and skills that that a leader needs to learn to become a great leader. Some of them are rather underrated.

Culture A

month ago, we concluded a global poll of 1000 people of whom 20 per cent were C-suite executives, 20 per cent vice-presidents and 60 per cent mid-level professionals. We polled them on what they believed to be the five most underrated leadership skills. So here were the five skills we identified as being underrated: • Negotiating skills • Managing expectations and performance • Creating a winning culture at work • Winning buy-in • Strategy implementation Now guess which leadership skill topped the poll easily, winning more than half (53%) the votes?

If you guessed creating a winning culture, you were right.

It was followed by, at a distant second place with 22 per cent, managing expectations and performance.

We talk about culture in the workplace all the time. So, what is it that makes it so powerful and effective? There are essentially three reasons why creating a culture that works for your organisation is critical. And I will

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july 2011 | industry 2.0

share what I believe makes a winning culture in a typical office context.

1

Cultures Drive Behaviour

Contrary to popular belief, we become influenced by our peers far more than we would like to think. Cialdini’s work at Arizona University shows that far from being the individual we think we are, we are heavily influenced by what others think and do. This boils down to our innate need to be accepted into a ‘tribe’ or, in this instance, workplace. Having a culture that rewards the right behaviour or approves it, is a powerful motivator. No one likes to be the odd one out. Cultures also can motivate us to work harder, especially when everyone else is doing so. A long-standing joke shared by my clients at Accenture is that when a member of the team is seen leaving the office at 7pm, he or she is often met with the comment, “So, having an early day, are we?” The Accenture culture upholds excellence and hard work.

2

- technology management for decision-makers

It is free

Like it or not, most cultures that are allowed to develop

by david lim

organically cost no direct fee to the company, but can create immensely profitable attitudes that emerge from the culture.

This could be a culture of work excellence or a culture of punctuality. No contrived incentives plan can be as powerful as creating the right kind of culture in the workplace.

My good friend and fellow professional speaker, Ron Kaufman, was best-known as being an expert in customer service. However, as he elevated his expertise and know-how in this area, his company created its proprietary ‘Up! Your Service’ methodology.

It is now creating impact in the area of service culture leadership, a subtle but massively different kind of solution. While customer service training only gets you so far in terms of skills and mindset, creating a culture that makes people want to go the extra mile in servicing their peers, colleagues and customers is a mighty powerful thing.

3

You rarely have to police a culture

Once set up right, there is no need for guidelines, irksome office rules and constant remind-

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ers to let a culture do its work.

You just need to follow certain behaviours and reinforce the key culture messages to keep the culture ticking along. Like a large stone ball, it takes a while to get moving but once it does, the amount of energy to keep it going will be minimal.

So, how do you get around to creating such a winning culture?

A culture is based on a combination of shared values, supportive behaviours and a range of outcomes defined by the group embracing the said culture. A winning culture is one, which aims to beat the competition, champion its product and cause and attract more like-minded people to its ranks.

they also embrace values that work for everyone?

b) Identify: Many people and teams operate on a heliotropic basis—they gravitate, like sunflowers towards the sun, to actions, behaviours and people that they admire. You can identify people in your workplace who are glittering examples of such behaviours. These are your culture champions. Nurture and encourage them to keep repeating those winning habits. These can be as simple as helpfulness, going the extra mile for colleagues, speaking up at meetings and being punctual. Eventually, these habits will spread to others. If you think you can win faster by

their respective ambitions and interests. One, in particular, was interesting. When asked if summitting Mt Everest was important to him, he said: “Yes, it is very important for me to be able to get to the top.” Then he paused, and said, “But more importantly, that one of us gets to the top!”

So even in the short time frame of a two-month long expedition that took a year to plan, a culture of encouraging other teammates to be as, if not more successful than themselves, created a superbly harmonious and collegial atmosphere. Many of that team succeeded in reaching the top, and more than 25 years later, they are all still on exceedingly good terms with each other.

Picture Courtesy: www.photos.com

“Once set up right, there is no need for massive

guidelines, irksome office rules and constant reminders to let a culture do its work.” a) Assess: Look around your workplace and ask yourself if there is a definitive workplace culture. If you do not see one, that could actually be good news, as you may be able to start one. But if you do not start one, one may develop anyway, and it may be one you won’t like. Assess your group’s goals, values and specific observable behaviours that support the team reaching its goal with a set of values you can be comfortable with. A highly driven sales team, for example, may be tempted to champion less than ethical practices and turn a blind eye to corrupting influences in order to reach their goals. Certainly, it is a winning team mindset. But do

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getting people to set ambitious goals for themselves, then ask yourself if your system supports such champions in terms of recognition and rewards. Often it is not even monetary rewards but a kind word by yourself or your peers, that works wonders.

One of my leadership heroes, Sir Chris Bonington, who has led countless mountaineering expeditions, related a striking example of a winning culture. As a guest member of the 1985 Norwegian expedition to Mt Everest, he could observe first hand the attitudes displayed by members of this national team that was attempting the peak for the first time for their country. Each member was interviewed about

c) Celebrate: Take time off with your team after an office win to remind them implicitly or explicitly to keep doing those things that bring victory. Many people I know have left good jobs because the management kept forgetting and failing to recognise those attitudes that brought past success.

If any of you are interested in getting the rest of the results of the global poll we did, contact me and I hope this will help you develop your own winning culture.

David Lim, Founder, Everest Motivation Team, is a leadership and negotiation coach, best-selling author and two-time Mt Everest expedition leader. He can be reached at his blog http://theasiannegotiator. wordpress.com, or david@everestmotivation.com

industry 2.0

- technology management for decision-makers | july 2011

59

management & strategy

Mahesh Gupta

likes to walk the talk when it comes to clean water

Distilling Adversity A story of pure water, innovation, and a technologist who battled the odds.

Profits from

by shreyasi singh

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- technology management for decision-makers

www.industry20.com

Photograph by : Subhojit Paul Location courtesy: Hotel Radisson MBD, Noida

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ahesh Gupta has created a steady stream of business from the most basic of elements, water. Kent RO Systems, his health products company, revolutionised water purification technology by pioneering residential reverse osmosis (RO) systems in India. Today, Gupta has a `250-crore turnover pool to play with, and `1,000 crore aspirations. But, it’s the huge challenge of bringing clean drinking water to every Indian that gets the scientist in him really excited.

“I’m not a very, very ambitious person,” is how Mahesh Gupta, founder and chairman of Kent RO Systems, begins his story about his Noida-based healthcare products company. It isn’t a claim that’s instantly believable. It certainly doesn’t sit easy on a man who plans to take his product, a revolutionary water purifying system, to every Indian home in the future. Everyone should have the right to clean water, he stresses. But that’s the scientist in him talking—the one that sensed the urgency to build a new kind of water purifier just because the ones sitting in the market didn’t seem to be doing the right kind of cleaning.

The entrepreneur in him, he insists, is far less overreaching.

Gupta confesses that his 12-yearold firm, which generated over 250 crore last fiscal, could possibly have grown much faster had he gone down the private equity and venture capital route. “But I am a first generation entrepreneur. My financial risk-taking capacity is very poor. I can’t borrow money.

It makes me very uncomfortable,” adds the 56-year-old.

Well, it isn’t only money Gupta has problems borrowing. Even with technology, he’d much rather just have his own than “make do” with the options on offer. When his teenaged children,

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Varun and Surbhi, fell prey to jaundice in 1998, Gupta was forced to look for water purifiers for his south Delhi home. He set out to search the market. The stuff sitting on the shelves left him largely unimpressed.

So Gupta, an alumnus of IIT Kanpur, decided to tinker with the technology and flesh out his own ideas. It helped that he was by then running SS Engineering, a petroleum products company, his first entrepreneurial venture after leaving his Indian Oil job.

“It’s my nature to work on new things. Also, I knew how to source components because of my company.”

Five months and almost 1 lakh later, Gupta came up with a purifying system, unique because it worked on the reverse osmosis (RO) system, unlike the chemical based and ultraviolet light purifiers such as Eureka Forbes’ ubiquitous Aquaguard.

The product was ahead of its time but Gupta sensed in it a nugget idea that could play into big market trends—in short, a thriving business. He was definitely barking up the right tree. In a country, where approximately 80 per cent of diseases are caused by water-borne microorganisms and an estimated 80 per cent of urban dwellers do not even purify tap water, the market for water purifiers was bound to be huge. Gupta pushed his product on the market ramp, and switched on the lights of a company that has sold nearly a million units since.

The Clean Brand

Today, as a pioneer of the mineral RO technology, Kent has captured more than 30 per cent of the water purifier market—estimated to be between 1,000 to 2,000 crore—in India, says KPMG Advisory’s Anand Ramanathan. Yet, the maths is meaningless till you

comprehend the science involved, asserts Gupta.

In terms of technology, the Kent model stood apart when it took shape in Gupta’s shop floor.

Market leading purifiers then, and even now, mainly work on the ultraviolet (UV) light principle. Essentially, in these purifiers, water goes through ultraviolet light which attacks the bacteria and kills them, giving users bacteriafree water. As a concerned parent, Gupta knew this wasn’t nearly enough. With greater industrial activity, the ground water had become contaminated with impurities that dissolve in water such as arsenic, rust, pesticides and fluorides, he explains. “Take salt, for example. Or sugar. Once dissolved into water, you can’t see them. The UV light method can’t rid the water of such dissolved substances. I wanted to make a purifier that would remove these.”

In fact, according to the process patent finally awarded to in 2006, Kent models such as Grand, Ultra, Elite and Excel, actually have a robust, three-tier purification system. Water is first passed through a sediment filter, then a carbon filter and ultimately UV light. The sweet spot of Gupta’s system is, however, its ability to contain the good minerals inherent in water even while flushing out the bad elements. “That’s a problem with other RO purifiers, the minerals get washed away.”

Yet, Kent is not just an improved technology to clean water.

It’s also a smart product, says Gupta. He’s meshed into his product design elements of common sense and practicality.

Till his machines came about, most other purifiers came as under-the-counter or over-thecounter appliances like the models popular in western countries.

Gupta thought these models were unsuitable for Indian kitchens where oil and spices were a major

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- technology management for decision-makers | july 2011

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management & strategy part of the cooking routine. Most Indian kitchen counters are wiped several times a day to remove the stickiness and stains caused by the extensive cooking.

Gupta changed all that, installing his purifiers on walls. “It was the first RO to ever be put up on a wall,” he claims proudly.

Yet, instead of winning brownie points for such innovations, Kent struggled to get the attention of customers. “Competition from other companies hasn’t been as much of an issue as resistance from customers to change over to a new technology,” says R.S. Rao, general manager at Kent, and one of the company’s first employees.

Still, sales in the first few years were depressing. Sales executives would struggle to meet even the modest target of five units a month. “People told me I was mad, that I’d be out of business soon, or worse that I was cheating people,” recalls Gupta, who set up his first manufacturing unit in Noida in 2000. “But I didn’t have a social product. I couldn’t make it for less than this.” Rao honestly wonders how Gupta found the positivity to stay the course. “It had to be pure determination and conviction. He couldn’t have withstood the customer’s resistance otherwise.”

It wasn’t easy, Gupta says. “I thought of winding Kent up several

“Honestly, I don’t know how to market. I was just driven by the situation, by common sense. Nobody needs Einstein’s calculations for these things.”

First of all, Kent’s purifiers were prohibitively priced at 21,500 per unit. Adjusted for inflation, that was a little fortune in the late 1990s. To make it worse, rival Eurkea Forbes, which dominated the water purifier market, was selling its Aquaguard at around 4,000. Unless the customer was absolutely convinced, and was actually shown that the water was pure, sales wouldn’t flow in. So, Kent RO’s team of five sales executives held demonstrations in customer’s homes across upmarket neighbourhoods in Delhi. Gupta developed a special kit for the purpose—a TDS Meter to measure the total dissolved solids, and an Electrolyser to show how poor the quality of water was.

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times in the first couple of years.

My petroleum conservation business was doing very well but I’d be spending more time on Kent.

Somehow, I just knew this business would do very well.”

Writing His Own Script

Today, Gupta’s perseverance is paying rich dividends. Kent is a 250-crore company with more than 1,600 employees, and three manufacturing units—working at full capacity—in Roorkee. Its technology has also been validated by UNESCO and certified by stringent world standards like the Water Quality Association and NSF, an international not-for-profit.

It took them eight years, or until 2006, to breach the 25-crore

- technology management for decision-makers

mark. But, in the past five years the company has multiplied 10 times over. “We sold 130,000 units in 2009 and jumped to 180,000 units in 2010. We’ve been growing 40 to 50 per cent every year now,” says Gupta excitedly.

This brisk pace is instantly evident. In April 2011, 23,000 Kent units were sold across their portfolio of nearly 25 products, which now includes other innovative products like ozone-based air and vegetable purifiers, water boosters and water softeners. Within a couple of months, Gupta says, his monthly sales will be leaving the 30,000-mark resolutely behind.

Two reasons have scripted this growth including, Gupta admits, a little bit of finally being at the right place at the right time. According to India Water Purifier Market Outlook 2014, a report by global marketing research and consulting company TechSci Research, the Indian water purifier industry has grown at a 22 per cent CAGR in the past few years. With increasing number of people becoming conscious of the risks of drinking contaminated water, the demand for water purifiers was rising rapidly, the report said. This, in turn, has pushed up sales, especially since 2008.

Right now, it almost seems like an unending opportunity environment with an estimated 80 per cent of urban dwellers having no access to water purifiers yet, says KPMG’s Anand Ramanathan. “Only about 10 per cent of urban India and less than 1 per cent of rural India has been penetrated so far,” adds Ramanathan.

Gupta put Kent within touching distance of those numbers with a marketing genius. In 2005, he realised his technology might be ahead of the curve but his marketing strategy was definitely outdated, at worst, and misplaced, at best. He’d been hoping to transfer the skills he’d picked up while

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establishing SS Engineering, his petroleum products company, to market Kent as well. “Because my experience was in industrial product marketing, I marketed Kent RO like an industrial product,” he laughs.

He didn’t want to tread the direct marketing path which had made Eureka Forbes the household name that it is today. “I always look ahead, never sideways or backwards to see what the competition is doing. I don’t want to learn from their strategy.”

Gupta knew that if he wanted his product to fly, he had to create a brand that consumers would trust and instantly connect with. For this he needed a star, someone who was a parent, to tout and build faith in the product.

In 2005, he convinced Hema Malini, a mother of two daughters, to essay that role. She tested the product out in her Mumbai home for a few months before agreeing.

Because Gupta didn’t have money to make television campaigns with Malini in the first year, they worked on a print launch, moving to the now-famous television advertisement where the actress, wearing outfits in various shades of icy, cool blue, assures you that Kent purifiers give you the “purest water in the world”.

In the following years, Malini’s daughters, Esha and Ahana, were added into this “perfect family” campaign.

Gupta today spends a conservative 12 to 13 per cent of their turnover in branding. “I never liked campaigns designed by my agencies. I made my own campaigns, wrote my own scripts, told the agency to do it like this. We stick to simple statements. I am not selling chocolate. I just want to put it out there, it’s a necessity product.”

“The way he branded was the second innovative thing he did. He invested in creating a brand early on and did it so successfully,” says Chetas Desai, managing director at Ambit Corporate Finance, a leading investment bank, and somebody who’s watched Kent’s growth over the past few years.

Gupta also established a great distribution network, putting Kent machines at large retail outlets like Big Bazaar and white goods stores across the country. Even here, Desai adds, he stayed away from peddling aggressive discount deals and spurious offers. “He wants the consumer to buy, not the dealer to sell. He believes in creating a business proposition to see why somebody should buy his products.”

Gupta waves off such praise in his characteristic, matter-of-fact tone. “Honestly, I don’t know how to market. I was just driven by the situation, by common sense.

Nobody needs Einstein’s calculations to do these things.”

Cost Concern

Of course, now, he hopes to piggybank on these strengths to scale up. But, it’s unlikely to be an easy ride with competition heating up. Apart from market giant Eureka Forbes, global majors such as Philips and Hindu-

It doesn’t get hot. It doesn’t touch the component. So how can a coil heat metal cherry red in a few seconds?

The answer is surprisingly simple: induction exploits the laws of electromagnetism in order to produce heat directly in the workpiece. But what’s really interesting is how heating patterns can be controlled, and how they can be localized and repeated over and over again.

Of course, the technology behind induction heating is rather advanced. But after 50 years in the induction business, we’re experts at making user-friendly solutions.

And at integrating them into existing or planned production lines.

EFD Induction is Europe’s no. 1— and the world’s no. 2— induction company. Our systems are used to harden, temper, braze, weld, anneal, melt, forge, bond, cure and pre- and post-heat. They’re also used to produce plasma.

So whatever your needs, there’s a good chance we can devise a solution. And since we’re present in the US, Europe and Asia, your solution is probably closer than you think. Contact us, let’s see how induction can boost your business.

Putting the smarter heat to smarter use www.industry20.com

industry 2.0

- technology management for decision-makers | july 2011

www.efd-induction.com

63

management & strategy stan Unilever are also looking to increase their share of the pie.

And, a bulk of consumers will enter the purifier market with the hugely economical chemical purifiers, a segment companies like Eureka Forbes and Hindustan Unilever with their brands Aquasure and Pureit—which don’t run on electricity and don’t demand continuous water supply—are tapping aggressively, Ramanathan says. Not surprisingly, these brands have managed a growth rate of 100 per cent per annum.

Moreover, UV purifiers continue to dominate the market with nearly two-thirds of all sales. Here again, Eureka Forbes’ Aquaguard leads resolutely with a nearly 70 per cent market share. Philips’ Intelligent Water Purifier and

himself a hard target—purifiers that cost less than 10,000. The economies of scale have helped him to contain and prune his prices over the last decade.

The goal of a “four digit” pricing might take another two years, by when he should be selling 500,000 units a year, the optimist believes. He’s readying up new manufacturing units in Greater Noida and Noida to hike up production. “You can’t imagine what this can grow to.

People will eventually upgrade to RO machines. People begin by buying a scooter. But, they upgrade to a full transport, a car, don’t they? That’s what will happen here as well.”

Yet, there are other daunting tasks ahead. Kent has received a

“I knew when I began that I was starting with a disadvantage because I wasn’t catering to the bottom of the pyramid.”

Kent’s own UV purifier have much smaller shares. RO purifiers aren’t preferred options mainly because they’re still very expensive. A basic model at Kent, for example, costs 14,500 per unit.

It isn’t a challenge Gupta shies away from discussing. “I knew when I began that I was starting with a disadvantage because I wasn’t catering to the bottom of the pyramid segment which HUL is doing. They are selling millions of units,” he says. “Our biggest challenge today isn’t technology. It is to provide economical solutions.

Everybody deserves clean water but they can’t all afford 14,500 machines.” And for that, he’s set

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lot of flak for indifferent customer service. KPMG’s Ramanathan warns, “The company should significantly concentrate on these issues before expanding.”

Gupta says it does “pain” him to have his servicing standards questioned despite having a wide network—17 centres staffed by 150 people in just the national capital region to handle customer complaints. “Of course, it still continues to be a big challenge,” he admits.

Varun Gupta, Gupta’s 28-yearold son who’s recently joined the company after an MBA from Columbia Business School, says many of these perceptions arise from what continues to be their

- technology management for decision-makers

biggest obstacle—customer education. His father concurs. People don’t realise our water filters are actually a chemical plant in a small appliance, Gupta senior says. And, despite training their distributors and dealers to prepare customers for the fact that sophisticated RO purifiers are high-maintenance, Gupta admits disappointments come in because customers have been misled in the rush to clock a sale. “I tell our distributors that if you have 100 satisfied customers, they’ll bring you another 100. But if you have 100 unhappy customers, they will take away 1,000 potential customers from you by negative word-of-mouth.”

Thinking Big

For now, what Gupta really wants to do is is filter out the “real problems”. “I feel miserable when I see a street vendor selling water to people. What’s the quality of water he’s giving? But for a person standing at a bus stop in this heat, there is not much choice,” laments Gupta. It’s an issue that’s been constantly gnawing at him.

Over the next few years, he wants his company to set up “retail kiosks” where the people can get a glass of clean, chilled water at around a rupee or so.

Gupta says India used to be a country which loved its glass of water. But things have changed with clean water becoming more and more of an oxymoron.

As the taps for clean water ran dry, people turned to packaged water and soft drinks. The situation, asserts Gupta, is unsustainable at the basic level, especially since it’s dramatically grown the plastic industry. “I want to overthrow the plastics industry. That’s my vision. I’m going to do this in the next 2-3 years,” he says.

Little wonder then that we found Gupta’s earlier claims of “slow ambition” doubtful.

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management & strategy

Contracting the

Talent

Gap

Supplementing your workforce with skilled, temporary workers can help overcome hiring and training challenges. by sunaina sehgal

A

hunt for talent isn’t a new problem for India Inc. Talk to business owners and most would say getting bright, committed employees is very often as tough as cracking that business deal. The crunch gets worse when you need to fill temporary positions—to get a new project up and going, readying a new pilot or even scoping out a new market. It’s an opportunity companies like StaffOnContract, which brings together individuals and firms for contractual positions are aiming to fill.

“The trend is here to stay,” says Chetan Indap, CEO and co-founder of the Delhi-based company.

“Large companies don’t want to spend resources on training a newbie. Individuals know that freshers aren’t taken seriously in established brands unless they come with three to five years of experience,” he reveals.

As a trend, sub-contracting was introduced by IT firms in the 1990s when top IT names outsourced projects to smaller vendors to cope with rising wages and attrition. The projects that were outsourced were often limited to commodity skills like designing a specific or specialised software, or customer service. Though IT firms pioneered the concept in India, other industries are now taking advantage.

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- technology management for decision-makers | july 2011

65

management & strategy “By 2015, India will have five million jobs, out of which 20 per cent will be contractual in nature and will be industry agnostic. In 2020, the percentage will increase to 35,” says Indap whose current contractual supply side consists of 600plus SMEs and 2,000-plus independent consultants. He’s at the nascent grade of the curve but is confident the concept will be hot property in a year or two. “It’s worked very well in the West. It will change the entire face of the hiring game in India,” Indap says enthusiastically.

In India, it’s a boon as companies struggle to negotiate a hot job market which has led to unreasonable salary demands and employee terms. In this scenario, it’s more prudent for an established firm to outsource their work rather than bring on somebody full-time who costs the earth. For the many international companies scouting around for deals or looking to set up base in India, contractual staffing is a special bonus. It’s faster, smarter and cheaper to hire local talent till the company gets its processes in place, and knows how to navigate its new environment.

like StaffOnContract they “rent” out their teams, and build goodwill, expertise and experience. “Smaller boutique firms can get their hands on projects and instead of working against them, larger companies find it smart to work with them,” explains Ketan Zaveri, CEO at M-Power Human Resource.

It worked out very well for Blue Chip Computer Consultants, a business consultancy and product development firm. Blue Chip successfully contracted its services to ABM Knowledge Ware, an information technology company providing e-Governance solutions, and killed two birds with one stone. First, it brought in much-needed revenue and added ABM’s illustrious name to its roster of partners and associates.

Some others firms are beginning to see similar advantage. “We get ready made assignments. Plus we now have exposure to new clients every day,” adds Santosh Singh, managing director of Abyss & Horizon Consulting, who has placed his technical resources at several client sites. At Abyss & Horizon, profits have increased and turnover has ramped up by more than 25 per cent. Singh has also got a

“The firm does not have to allocate resources for the interview, training and the induction

of the employee into the company.”

Right now, unsurprisingly, as is expected from new trends, rules are sketchy. In fact, the very definition of “contractual staffing”, used loosely and interchangeably with temporary staffing and freelancing. Unlike temporary staffing where low level blue-collar workers are hired for a period of three months, people hired under contractual staffing may work in a company for a period of six to 12 months. Plus, these are specialists with credentials and experience.

For companies, the cost benefits are substantial, sometimes to the tune of 25 per cent. “The firm does not have to allocate resources for the interview, training and the induction of the employee into the company,” explains Indap. Costs like severance pay, provident fund and medical insurance are also saved.

The concept isn’t limited to individual staffing though. Full project teams can be deployed at client locations at one go. Often, these are teams leased out by smaller companies. It offers them an unprecedented, networking opportunity when through agents

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- technology management for decision-makers

chance to work with marquee names such as Larsen & Toubro, CTS, Accenture and Datamatics.

Of course, these examples are only a trickle right now. StaffOnContract’s Indap wants to give things a push but there is a lot that needs to be sorted out.

“The adoption of such a concept in other industries is slow,” admits Indap.

“There is always a hitch. It’s difficult to trust a team member who isn’t in-house. And, there are worries about quality and integrity,” admits Singh. Maya Basak, a human resource manager at Games2Win, an online gaming platform, says she definitely didn’t strike gold. Online platforms like StaffOnContract don’t yet offer much choice, she says. “We needed people on a contractual basis and posted the openings online. We got mostly irrelevant responses,” says she.

Indap says companies need to get imaginative about the possibilities. They can sub-contract to not-for-profits and build some goodwill in the process. “It’s great for their image and a positive way to give back.”

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book review

Adapt, or perish by shreyasi singh

G

rand visions, detailed plans by experts and gurus with an infallible solution are outdated, says Tim Harford, who writes the immensely popular “The Undercover Economist” column for the Financial Times. In his new book, Adapt: Why Success Always Starts With Failure, Harford says individuals and organisations must continuously improvise rather than obsessively plan. An adaptive trial-anderror method is the only way to tackle issues in a world that has become far too unpredictable and complex for ready-made solutions, argues Harford.

We spoke to him to find out how we can all learn to do this.

What is the main context for this book?

The book explores how complex problems are solved, from business innovation, climate change, the war on terror to the financial crisis. While looking at these issues and interviewing the people involved in solving them, I found the same themes emerg-

ing again and again: trial and error is a vital part of problem solving in a complex world. We need to experiment and risk failure—this is something we find difficult, both personally and on an institutional level.

Can you recall for us trigger points, inspirations to begin writing?

There were many. One was chatting on a beach with, of all people, the president of Virgin Galactic. I told him I was interested in exploring how innovation prizes work—the Virgin Galactic project having emerged as a result of a famous innovation prize, the Ansari X Prize. He told me that the Spitfire—a crucial fighter aircraft during the Second World War—was also the result of an innovation prize. So I looked into it and the Spitfire became a key part of the book.

On another occasion I wanted to write about a terrible industrial accident that had triggered a small financial crisis in insurance markets. My sister is a safety engineer and she was able to give me a reading list about Piper Alpha, Chernobyl, Bhopal and

Publisher: Farrar, Straus & Giroux Price: $27

other industrial disasters. As I studied them—with their mixture of negligence, fraud and sheer bad luck—I came to realise that accidents in these complex, tightly-coupled systems were a very good parallel for the financial crisis. I spoke to several leading safety experts who were convinced that their insights on managing failure could have helped to prevent the financial crisis. It was a serendipitous discovery—but that’s very much in line with the message of the book. A lot of good things happen by accident.

Enterprising!

T

Publisher: Penguin-Viking Price: `499

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he Buck Stops here is an engaging account of the entrepreneural journey of the author Ashutish Garg, while building Guardian Pharmacy, India’s fastest growing pharmacy retail chain, as well as the transition he made from being the MD of a top MNC to an entrepreneur. Garg writes about how he became an entrepreneur by implementing the best practices he learnt as a manager.

In fact Garg’s life epitomises the phrase ‘The Buck Stops Here’, made famous by former US President Harry Truman. The book blends the rich and

industry 2.0

varied experience of the author, highlighting tye joys, frustrations, successes and failures. From being chastised by his boss who said: “when I call you, I expect to drop all other calls an speak to me immediately,” to his son asking him: “How can you build a business waiting for people to fall sick?”

The book is full of anecdotes and lessons from real life that will guide and prepare the reader to recognise hidden opportunities and identify dead ends on the road to building a new business that can be scaled up into a nationwide business.

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book review new release

A book on Jugaad

Bookshelf

I

n From Jugaad to Systematic Innovation: The Challenges for India, Rishikesha T Krishnan, a professor of crporate stategy and policy and the Jamuna Raghavan Chair professor at IIMB draws on social, cultural, political, economic and managerial arguments to explain the paradox of why India is unable to be the source of major innovations on a sustained basis, even though it has highly skilled talent.

Publisher: The Utpreraka Foundation Price: `400

Manufacturing Processes for Design Professionals

by Rob Thompson Price: $95.00 Hardcover: 528 pages Publisher: Thames & Hudson

Handbook of Hot-dip Galvanization

by Peter Maass, Peter Peissker & Christine Ahner Price: $115.00 Hardcover: 494 pages Publisher: Wiley-VCH

Apparel Production Terms and Processes

by Janace Bubonia Price: $86.50 Paperback: 416 pages Publisher: Fairchild Publications

Fundamentals of Modern Manufacturing

by Mikell P. Groover Price: $146.00 Hardcover: 1024 pages Publisher: Wiley

Food Engineering

by Brendan C. Siegler Price: $165.00 Hardcover: 423 pages Publisher: Nova Science Publications

Survival Strategies in Hyperinflation

by Nyasha Kaseke & Samuel Mujeri Gumbe Price: $71.00 Paperback: 56 pages Publisher: Lap Lambert Academic Publishing

other releases

Sealed with a Six

W

as 2011 the best World Cup of all time? You wouldn’t find too many arguing against it.

Claims that the tournament served to revive the one-day international format aren’t far off the mark.

The favourites weren’t overwhelmingly favoured, and though they did make it to the title, they didn’t coast to it. The tournament also provided the cherry on the career cake of India’s best-loved cricketer, Sachin Tendulkar. This book attempts to recapture the magic.

Publisher: Hachette India Price: `599

The Winning Way: Learnings From Sport For Managers

W

hat do sporting champions do differently? Two former IIMA graduates, sports commentator and writer Harsha Bhogle and advertising and communication consultant Anita Bhogle dig into examples from sport to see how they can benefit managers. For the Bhogles, this book marks the completion of 300 successful corporate workshops of comnpany that they run.

Publisher: Westland And Tranquebar Press Price: `200

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- technology management for decision-makers

www.industry20.com

product update Arc Detection Circuit

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KVM Extenders

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epperl+Fuchs has launched Division 2 KVM extenders, consisting of a small transmitter and receiver unit. The extenders allow computers and servers to be positioned in a single centralized location away from any environmental hazards. It enables users to send keyboard, video and touch screen or mouse signals over distances up to 1300 ft. (400 m). The extenders act as an electronic extension cord that enables users to keep their PC hardware in a safe area, while sending signals to remote hazardous areas.

The affordability of desktop PCs, with their speed and enhanced graphics, provide plant operators with greater control and higher performance for less capital as compared to PLC-based control interfaces. An operator workstation on the plant floor helps reduce inefficiencies, and operators can make informed process or control decisions.

The product requires no setup, configuration or special software to operate. They are available in three versions VGA-to-Cat 5, DVI-to-Cat 5, and DVI-to-Fibre Optic.

Pepperl+Fuchs Tel: +1-330-4860002 Website: www.pepperl-fuchs.us

Spectrometer

T

ational Semiconductor has introduced the SolarMagic arc detection reference design to detect hazardous DC arc faults in photovoltaic (PV) systems.

In PV systems, intermittent connections or insulation deterioration (faults) can cause DC circuits to generate arcs of considerable energy. The arc, reaching temperatures of over 3,000 degrees C, poses safety risks to surrounding infrastructure and personnel. The new arc detection reference design includes analog front end ICs and multi-band dynamic filtering (MBDF) firmware. Together, they detect the arc fault condition and provide an alert to shutdown system power, extinguishing the arc.

The product features three highly integrated ICs. The SM73201MM 16-bit, 50 to 250 kSPS, differential input, micropower ADC digitizes the arc signal after the AFE gain and filtering stage, and sends the digital signal to the microcontroller. The SM73308MG low offset, low noise, RRO operational amplifier provides the Vref mid-point for the arc-detect AFE. The SM73307MM dual precision, 17 MHz, low noise, CMOS input amplifier provides gain and filtering of the arc signature signal.

National Semiconductor Tel: +1-800-2729959 Website: www.national.com

Thermoplastic Elastomers

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tar Thermoplastics has introduced a new line of thermoplastic elastomers (TPEs) that mould. The new products are sold under the StarPrene name. High flow versions of the product are available. These are easier to colour and provide better tensile strength and elongation. There is no need to dry the material before processing.

The new products are available in numerous stock grades, and are suitable for consumer and industrial products, automotive parts, appliances, electrical products, healthcare and packaging goods and construction components.

These elastomers are resistant to many acids, bases and aqueous solutions, and enable various processing options which include injection molding and extrusion. All grades are available in small and large quantities.

hermo Fisher Scientific has added new features to its ion trap mass spectrometer with the introduction of its dual-pressure linear ion trap system, the Velos Pro. With Trap-Higher Energy Collision Dissociation (HCD), the Velos Pro mass spectrometer expands the applicability of ion trap workflows. The new product is also available in combination with Orbitrap technology.

The product is suitable for quantitative proteomics applications. As Trap-HCD produces high ion intensities at low masses, a standalone ion trap can be used for quantitation with isobarically labeled peptides, including applications requiring tandem mass tags (TMT).

For qualitative proteomics, Trap-HCD fragmentation provides sequence coverage and sequence assignment and post-translational modification (PTM) identification. For small molecule applications such as metabolism studies, the Velos Pro ion trap offers a qualitative and quantitative workflow in a single flexible system.

wyer Instruments has developed the 3ABVH 3-WAY brass ball valve that functions as a hand lever ball valve for commercial and general use. It is also suitable for manual valve shut off in hot and cold water systems. The device features PTFE seats and seals for leak-free operation, and a blowout-proof stem for safety.

Valve body, end caps, ball, and stem are made of brass. The ISO 5211 mounting pad facilitates direct mounting of pneumatic and electric actuators.

Thermo Fisher Scientific Tel: +1-781-6221000 Website: www.thermofisher.com

Dwyer Instruments Tel: +1-800-8729141 Website: www.dwyer-inst.com

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Star Thermoplastics Tel: +1-708-3431100 Website: www.starthermoplastics.com

Ball Valve

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product update Manifold System

Sound Checker

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asTest has launched FasCal manifold system for pressure calibration. The new product supports connections up to four different devices at the same time and accommodates a wide variety of fitting configurations.

The system is made of stainless steel and allows any FasCal connector—for both male and female applications—to be mounted on the manifold without the use of tape or wrenches. CalMate connectors for leak-tight connections to sanitary devices can also be mounted on the manifold.

The system is rated up to 10,000 psi, with individual connectors determining the maximum overall system pressure rating.

The manifold is equipped with a main seal that presses against the test piece through an internal piston action. This helps automatically seal with minimum pressure, and provides repeatable leak-tight connections. The wrench-free connectors minimize wear from repeated threading and unthreading between devices being tested and eliminate ingress of debris from tape sealant.

Up to four devices can be calibrated at the same time and swapping the port configurations is accomplished in a very short time. The system is suitable for testing and calibration laboratories in which the number of connections-and variety of fitting configurations made each day require the use of productivity tools. The unit is 15.5 x 6.0 x 2.0 inches (length x width x height). A small through diameter—where pressure enters and moves through the manifold bar—is designed for minimal displacement.

The system can be used for liquid and gas calibration in a variety of industries, such as aerospace, petrochemical, pharmaceutical, food and beverage, power generation, water and wastewater and industrial manufacturing.

FasTest Tel: +1-800-4442373 Website: www.fastestinc.com

Accelerometers

oepel Electronic has introduced SoundChecker, a system for acoustic and impact sound analyses. The SoundChecker consists of a measurement data collecting unit, structure-borne sound sensors, and software which can be run on a PC with a USB interface.

The USB data acquisition module enables sound signal detection from 5 Hz to 22 kHz. Due to the high 24-bit resolution the module is suitable for investigating acoustic and mechanical vibrations. The product has an integrated power supply (IEPE/ICP conformal), which facilitates direct connection of structure-borne sound sensors.

The bundled software enables simple parameterisation of specific impact and airborne sound. The product can be synchronised and controlled via a common communication interface. Users can also install the software in parallel to their own applications to analyze impact sounds.

Goepel Electronics Tel: +1-512-5023010 Website: www.goepel.com

Potting Compound

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remco Products has developed Aremco-Bond 2315, a high temperature, thermally conductive, epoxy-potting compound. The product is suitable for electrical and electronic potting applications to 185°C. The material is a low viscosity, black-pigmented compound which features high thermal conductivity, good electrical insulation, and low shrinkage after cure.

The compound has a high flexural strength of 12,300 psi, and its electrical properties include volume resistivity of 1.0 x 1015, dielectric strength of 480 volts/mil, and dielectric constant of 4.7 at 1 kHz. It is also resistant to acids, alkalis, organic fluids and salts.

The product is mixed in a ratio of 100 parts resin to 25 parts hardener by weight. Mixed viscosity is 3,000 cps, and the pot life for a 100 gram mass is greater than eight hours at room temperature. The product is useful for potting and encapsulating densely packaged power supplies, rectifiers, integrated circuits, thick film hybrid devices, digital-analog converters, oscillators, amplifiers, relays, transformers and semiconductors.

The unit is supplied in easy-to-mix pint, quart and gallon kits.

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easurement Specialties has launched model 8032-01 accelerometer for machine monitoring applications.

The new product features stainless steel housing and an integral cable with moulded strain relief.

The internally shielded 8032-01 is easily stud mounted and offers reverse wiring protection to prevent installation errors. Its ingress protection rating of IP67 facilitates use in harsh environments.

The unit is available in a ±50 or ±500g configuration, features shock limits of 5000 ±g, non-linearity of ±1 per cent, low warm up time <2 seconds and frequency response to 12kHz. The device uses a ceramic sensing element in compression mode and is available with an NIST traceable amplitude calibration at 100 Hz. The unit is designed for standard 2 to10 mA current excitation with a compliance voltage of 18 to 30 Vdc. Measurement Specialties Tel: +1-757-7661500 Website: www.meas-spec.com

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Aremco Products Tel: +1-845-2680039 Website: www.aremco.com

Magnetic Filter

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agnetic Products has introduced Eco-Mag, a highintensity magnetic filter that improves filtration efficiency. The new product employs neodymium rare earth magnets to remove ferrous and para-magnetic contamination from fluids, and is effective with machine tool oils, coolants and hydraulic fluid machinery systems.

The unit does not use filter consumables. Removed contaminants can be recycled, eliminating disposal costs. The product is useful for any industry that uses fluids.

Magnetic Products Tel: +1-248-8875600 Website: www.mpimagnet.com

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UHPLC System

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hermo Fisher Scientific has introduced a split-free, nano-flow UHPLC system. The new product, viz., EASY-nLC 1000 is the newest addition to the EASY-nLC family of nano-LC products. The new product facilitates separation of biomolecules such as proteins and peptides, at ultra-high pressures.

The instrument is easy-to-use and integrates with the complete range of mass spectrometry (MS) systems from the company.

The product uses shorter gradients on 50 µm UHPLC columns with 1.9 µm beads. It provides higher pressure ratings, along with independent and simultaneous variations of bead size and column length. The product operates on the Xcalibur software platform.

The higher operating pressure range of the unit shortens analytical cycles and accelerates sample loading and column re-equilibrations.

The product features split-free, nano-flow capability that provides retention-time reproducibility (below 0.4 percent RSD), even for complex samples.

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iagara Meters has introduced ForceMeter that uses strain gauge technology to sense the force of the fluid in the flow stream.

The product has an integrated display, which offers an easy-to-read, 2 line display for flow rate and total. The unit has an all-welded construction and does not include any frictional moving parts.

The product is suitable for applications including water, compressed air and super-heated saturated steam. The unit is HART compliant and approved for hazardous locations.

riatek has launched two new monitors for laboratories, hospitals, educational institutions and correctional facilities. The new products, viz., HMS1650-LITE fume hood monitor and the FMS1650-LITE room pressure monitor, provide core monitoring capabilities.

The units are easy to install and set up. Both units utilize the same full colour and programmable touch screens as their networkable brethren and provide ‘at a glance’ information quickly and easily. Intuitive coloured backgrounds communicate the overall state, and whether the space being monitored is safe for use.

Each system uses sensitive and accurate sensors. The HMS1650-LITE fume hood monitor is accurate to within +/- 2 feet per minute, while the FMS1650-LITE measures to 0.0001-inch WC and is accurate to within +/- 0.5 per cent of full span. If either unit falls outside of allowable limits, a visual and audible alarm alerts users.

The HMS1650-LITE fume hood monitor is available as a surface mounted system while the FMS1650-LITE is offered as either a surface mounted or a stainless steel mounted unit.

Both the units are packaged with a digital sensor.

Niagara Meters Tel: +1-800-7789242 Website: www.forcemeter.com.

Triatek Tel: +1-770-2421922 Website: www.triatek.com

Thermo Scientific Tel: +1-800-5324752 Website: www.thermoscientific.com/easylc.

Fluid Meter

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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