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Cluster Manuf

Cluster Manuf

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Published by Emmanuel Briscoe

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Published by: Emmanuel Briscoe on Dec 30, 2012
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Cluster Manufacturing:A Supply Chain Perspective 
Cognizant 20-20 Insights
Executive Summary
Supply chain management clusters are geographicconcentrations of three or more companiesdirectly involved in the upstream and downstreamows of products, services, nances and/orinformation from a source to a customer. Clustersextend downstream to channels and customers,as well as laterally to manufacturers of comple-mentary products. They also extend to companiesin industries related by skills, technologies orcommon inputs.Clusters exhibit some common characteristics:physical proximity; complementary core compe-tencies; activity base; collective growth potential;competitive position; and industrial organizationand coordinating mechanisms.Clusters offer many benets to member compa-nies:Resources are concentrated in an area, creat-1.ing the opportunity to streamline and shortensupply chains.Geographic proximity greatly reduces supply2.chain complexity.Interdependence and mutual trust is height-3.ened between companies that are members ofthe same supply chain. Research by Noordew-ier
and others establishes that relationalelements such as long-term orientation amongcluster companies directly improves performancein buyer-seller relationships. Greater interdepen-dence also increases mutual trust, strengthenscommitment levels and reduces conict.Productivity is increased, through faster access4.to customers and suppliers, faster access tospecialized information and better networksupport for supply chains.It is easier to motivate and measure the per-5.formance of supply chain partners.Visibility is greater, due to obvious communi-6.cation advantages.Flexibility is increased when partners of a7.supply chain exist in the same cluster.Risk of failure is greatly reduced, due to focus8.and alignment of efforts of all the partners inthe supply chain.Information is shared more quickly and ef-9.ciently. Players in a cluster are likely to gainknowledge of new business opportunitiesmore quickly.Gaps in products and services are identied10.earlier.Feedback loops are shorter, allowing for faster11.modication of supply chains, which results insignicant cost savings.cognizant 20-20 insights|january 2011
Figure 1 offers a broad framework of the mannerin which clusters benet member companies byimproving their supply chains.
Existing clusters may be further classied intotwo types. They include value chain clusters andlabor pool clusters.
Value Chain Clusters:
Value chains are essen-tially groups of businesses that buy and sellfrom each other (e.g., hospitals and pharmacies,auto manufacturers and parts suppliers, etc.).Although the benets of value chain clusters arebased primarily on the proximity of companiesand not direct cooperation, proximity itselfallows for simplied, low-cost supply chains andcan be instrumental in implementing JIT (justin time) systems. Value chain clusters can bedivided into the following subtypes:
Marshallian District:
This type is basedmainly on studies of European clusters andconsists of groups of SMEs (small and mediumenterprises) cooperating with each other toachieve economies of scale for supply chainsand infrastructure. Silicon Valley is a primeexample of an urban Marshallian District. 
Hub and Spoke:
Groups of large companiessurrounded by and interacting with a num-ber of smaller outts. 
Simple groupings of large,branch-plant-type entities form satelliteclusters. These clusters are mainly found inrural areas. 
These are large public ornon-prot entities and related outts suchas supply and service rms. They dependon political support for their needs (e.g.,SEEPZ, Mumbai, Cyberabad /Hi-Tech City,Hyderabad).Figure 2 offers a summary of value chain clusters.Risks associated with value chain clusters includethe following:Companies can become overly dependent
on SMEs for raw materials. If SMEs default,cognizant 20-20 insights
Cluster Advantages
Cluster CharacteristicsImproved Supply Chain
Physical ProximityCore CompetenciesRelationshipsIntegrated Behaviorand ProcessesSharing of Informationand RisksMaintain Long TermRelationships
• Identical Goal• Cooperation• Aligned Focus
Figure 2
Cluster TypeCharacteristicso Member FirmsIntra-clusterInterdependenciesProspects orEmployment
Small and medium-sized lo-cally owned frmsSubstantial inter-company trade andcollaboration; strong institutional supportDependent on synergies andeconomies provided by cluster
Hub and Spoke
One or several large frmswith numerous smallersuppliers and service frmsCooperation between large (hub) compa-nies and their smaller suppliers (spokes),using the terms o the hubsDependent on growthprospects o large (hub)companies
Satellite Platorms
Medium- and large-sizedbranch plantsMinimum inter-company tradeand networkingDependent on ability to recruitand retain branch plants
Large public or non-proftentity and related supplyingand service frmsRestricted to purchase-salerelationships between publicentity and suppliersDependent on region’s abilityto expand political supportor public acility
Value Chain Clusters at a Glance
Figure 1
the primary cluster player carries a greaterrisk of brand dilution.Sometimes, one SME is responsible for one
type of raw material. This can lead to a mo-nopolistic setting, wherein the SME can applysupplier power over the parent company.Lack of competition can lead to inefcien-
cies on the part of the SMEs.It is very easy for SMEs to function as closed
units and ignore global developments.
Labor Pool Clusters:
These clusters arebased on occupational categories. Companieswith similar types of occupations and workerskills can draw from a larger pool of potentialemployees. A major advantage of this type ofcluster is that it helps reduce employee searchcosts. For example, software manufacturersand more traditional manufacturers may bothrequire similar skills, such as in the case ofsoftware developers. The close proximity ofthese companies attracts these occupationsto the area of multiple job opportunities. Thistype of cluster helps increase the productivityof all workers in that region. Some examplesof labor pool clusters are distribution, tourism,technological parks, industrial parks, airlinetransport, etc.Some of the risks associated with labor poolclusters are:Since the companies are eyeing a similar
labor pool, an excessively competitive em-ployment environment may ensue.Since the labor demand is very high, labor
may be able to yield its power over em-ployers.The labor wage rate might be high in these
clusters, again because the demand is high.This might lead to a major discrepancy inwage rates of labor across regions.In general terms, regardless of the type ofcluster to which a company belongs, clustermanufacturing may expose the membercompanies to the following signicant risks:Cluster members may fail to establish close
rapport with others belonging to the samesupply chain and with customers, whichmay defeat the purpose of the cluster.Cluster members may strive to maximize
return on investment individually at everystage.Over-reliance on current best practices
within the cluster may strangle innovation.Long-term relationships may cause part-
ners to be excessively dependent on eachother.If cluster members fail to redene their own
goals and objectives to suit the cluster en-vironment, the supply chain within the clus-ter may not function smoothly.Cluster members may become complacent
and ignore the importance of the constantdevelopment of resources within the cluster.It is imperative for cluster members to ob-
tain regular updates on developments inrelevant industries outside their cluster.
The Impact of Cluster on Risk
To better understand the impact of a cluster onthe risk proles of SME and parent manufactur-ers, we have considered an example of an “autocognizant 20-20 insights
Impact o cluster on reducing risk o supply chain
Summary of Findings of Risk Model
Figure 3
Risk Profling o SME (Example: Avtec)
Engine PartsTransmissionSteeringBodySuspensionBrakingElectricalAccessoriesAverage RPNRisk Priority Number(RPN) without Cluster16228836181287228818126Risk Priority Number(RPN) with Cluster632483249616368180
Risk Profling o Parent Manuacturers (Example: Bajaj Auto)
Engine PartsTransmissionSteeringBodySuspensionBrakingElectricalAccessoriesAverage RPNRisk Priority Number(RPN) without Cluster1458972642326481224402Risk Priority Number(RPN) with Cluster32416264416728882

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