CASE STUDY ON ELLORA TIME’S MANUFACTURING WOES

SUBMITTED TO

MR. ANANT PHANI

SUBMITTED BY

ASHISH KUMAR ANNEPU

ROLL NO.-6

DFT- SEMESTER 5

PRODUCTION AND OPERATIONS MANAGEMENT

ABSTRACT

1. Ellora Time Pvt. Ltd. (Ellora), a company based in Gujarat, India, was the world’s

largest manufacturer of clocks.

2. It manufactured calculators, telephones, timepieces and educational toys. Ajanta

and Orpat were closely held Ellora companies with a combined investment of Rs

2 billion.

3. The business was fully financed by the promoters, the Patels, without loans from

banks or financial institutions.

4. The companies, situated in a place called Morbi (near Rajkot in Gujarat),

exported their products to over 60 countries.

5. The products were marketed through a countrywide network of 25,000 dealers

and 180 service stations.

6. In early 2001, Ellora announced it’s shifting of manufacturing base to china

which shocked the corporate world.

7. Inability to cope with imports from China that competed directly with its product

was quoted by the company to be one of core reasons.

8. The company was facing serious problems that seemed to threaten its very

survival.

9. Ellora’s decision attracted immense media attention because it came at a time

when the Indian manufacturing industry faced severe competition from cheap

Chinese imports.

10. Experts speculated the future of Indian manufacturing to be very bleak if more

companies began to follow Ellora’s footsteps.

11. It was clear now that China’s favorable manufacturing environment seemed all

set to result in an exodus of manufacturers from India.

12. Although imports from China had always been trickling in for long time, Indian

markets were flooded with Chinese imports in the late 1990s courtesy the Indian

government removing restrictions on import of electronic goods.

Factors effecting plant location

Selecting the location of a facility is of strategic importance for any

organization as it acts as the basis for determining the production technology

and cost structure.

Location decisions require huge financial investments and non- reversible in

the short term.

The location of the facility affects the way company serves its customers.

The various factors that in general affect the facility locations are as follows:-

Market proximity.

Integration with other parts of the organization.

Availability of labor and skills.

Availability of amenities.

Availability of transport.

Availability of raw materials

Regional regulations.

Expansion opportunity.

Safety requirements.

Site Cost.

Political, Cultural and Economic Situation.

Regional taxes, special grants and import/export barriers.

The way the factors which influenced Ellora’s manufacturing location shifting from

India to China with reasons are below (why- explains its importance, how- explains

its relevance to the case of Ellora):

1. Policy framework providing subsidies for export promotion

Why

To promote industrial operations subsidiaries are

provided as lucrative offer to attract more investments.

How

Exporters in china get around 19-27% cent subsidies and

free trade zones are easy to set up. The ports clear goods

speedily. Whereas in India subsidiaries are at a lesser levels

and clearances from ports take longer time.

2. Infrastructure and service availability

Why

Infrastructure supports the industrial functions and is

an integral part of it.

Various amenities are required to support the

functionality of the facility.

How

China has cheaper power, good roads, and cheaper

transport.

The supply of electricity is faultless and dedicated lines

to industries are provided in case of china whereas in

India many states are facings a power backlogs

Electricity costs Rs 2 per unit in China, less than half the

cost it is available in India, this provides a avenue for a

healthy reduction in operational costs.

3. Working Capital requirement

Why

Working capital refers to the cost incurred for the

purpose of industrial operations.

Lessening the capital requirement proportionately acts

upon the cost of production which implies to the cost of

the product

How

Chinese are known to practice just-in-time inventory.

This lessens the carrying cost, which in case of India is much

more as the raw materials are stocked in advance of at least 3

months.

Factories in China operate on a ‘zero-inventory’ basis which

means the raw material arrives in the morning and the

finished product leaves the factory in the evening.

4. Export and import

Why

Faster clearance of export consignments guarantees

faster flow of products without delays

Erratic delivery schedules on part of the suppliers, delays in

raw material imports being cleared by the ports can result in

incurring unnecessary costs.

How

Customs in China work for 24 hrs ,365 days,while in

India customs works for only 250 days a year

Less number of public holidays in China.

In India due Erratic delivery schedules on part of the

suppliers, delays in raw material imports being cleared by

the ports and legal hassles with the customs, excise and sales

tax officials slow downs the flow of work and increases

costs

5. Labor issues

Why

Labour laws may be misused to sabotage the operations

of a facility

Trade unions are primarily responsible for stalling

operations by strikes/agitations

Work culture within an organization to keep labors

motivation at optimum levels are required.

How

China has cheaper labor costs, a highly regimented labor pool,

fewer public holidays

Workers in China are paid on output targets rather on

their working hour basis as in case of India

This makes labor availability cheaper in China.

Unproductive workers can be dismissed easily if targets

are not met, unlike in India where labor laws make them

a liability on the company.

6. Proximity to raw materials

Why

Spares and raw materials readily available

Less cost on transport.

No unnecessary imports required which helps in exemption

from various taxes involved in the process.

How

Just–in-time practice followed by the Chinese firms have

seen success in saving inventory costs.

This practice not only saves on inventory losses but also

reduces the carrying costs involved with them.

Any spare or material required is readily available and

doesn’t need to be imported as industries are present in

china itself.

7. Taxes and other financial issues

Why

Taxes on various activities such as export and import

have their effects on the cost of the products.

Easy availability of finances acts as a boost for

investment flow in.

How

Finance is easily and cheaply available in China as against

India where arranging finance is a costly and complicated .

China Industrial Bank and China Agriculture Bank not only

sanction loans without much formality; interest rates are as

low as 5.5%. As against this, loans in India cost around 14-

15%.

Tax structure is better in china.

Lesser corruption in the tax and financial process has

brought in a lot of confidence into the investor about

Chinese economy and its functioning bodies unlike its

Indian counter parts. Where a corruption has mainly

been responsible for the entire malady regarding delays

and other hinderences faced due to red tape.

In case of imports of goods from China, goods were

under-invoiced owing to corruption on part of certain

government departments ,thus saving a substantial

amount by evading custom and excise duties.