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Ahmed (2012) IRJM - Supply Chain Lessons For The New Millennium-A Case of Micromax Informatics
Ahmed (2012) IRJM - Supply Chain Lessons For The New Millennium-A Case of Micromax Informatics
Abstract
Micromax, an Indian mobile handset manufacturer started operation in Gurgaon (Haryana) as
an embedded software design firm. It moved to reselling PC hardware and finally entered the arena of
handset manufacturing in 2008. In a short span of four years, it has made a name for itself and has
secured the 3rd position in the highly competitive Indian mobile industry making a place for itself in an
industry which was otherwise being reigned by MNCs. It was able to do so solely because of identification
of consumers needs, customization of products, an agile supply chain and a relentless focus on what it
called 360 degree branding-identifying store branding, merchandisers in key retail and channel marketing. This case details Micromaxs operation with a focus on need gap identification, customization
of products, and channel relationship.
Keywords: Need-gap identification, product customization, Triple-A Effect, agility, adaptability,
alignment, 360 degree branding, channel marketing, channel relationship.
1. Introduction:
Achieving supply chain superiority or excellence is within the reach of any company. However,
it requires a vision, as well as the organizational imperative and willingness to invest in the right direction.
A company further needs to understand that supply chain excellence means more than just low cost and
efficiency of operations-it requires an ability to identify demand and respond with innovative products
and services offerings within time. It also means initiating and driving change by collaborating not only
with channel members but also customers across the entire supply chain.
Micromaxs success in the handset industry in a short span of four years (it started operation in
2008) could be attributed to the efficient management of its supply chain. It is quoted to be 12th largest
manufacturer in the world and is in the list of top 25 companies in the global SCM. (AMR Research,
2009). It was able to do so solely because of identification of need gaps, converting these into innovative
product offerings, customization of products, manufacturing efficiency, and other dimensions of value
like customer branding, channel management and building an efficient supply chain.
2. Mobile Handset Industry: A Background:
The handset market is the fastest growing market in the world and India is a burgeoning market
with 10-12 million subscribers being added every month. According to TRAI, market penetration for
wireless phones is at the rate of 49.6% with approximately 584 million users and it is expected that
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Salma Ahmed
mobile density will reach 95% by 2014 (See Table-1). Like many other players Micromax too wanted a
share in the revenue pie. Micromax is Indias third largest mobile handset manufacturer after Nokia and
Samsung. It replaced LG to conquer the third position (Table-2).Currently it holds a market share of 4%
(in unit shipment sale). Micromax sells approximately seven lakh to one million phones every month
and is now selling nearly Rupees One Thousand Five Hundred Crore worth of phones annually.
Micromax is rated as the 12th largest handset manufacturer in the world with 1% share globally by a
report. It has set up 23 domestic offices to cater to the domestic markets needs and also international
offices in Hong Kong, Dubai, USA and Nepal to meet export market needs.
2.1 Micromax-The Indian Innovator:
Micromax Informatics, the Gurgaon (Haryana) based handset mobile manufacturer, started
operation as an embedded software design firm. Its owner was Rajesh Agarwal. He was joined later
by Sumit Arora, Rahul Sharma and Vikas Jain and in 1991 Micromax focused on reselling PC
hardware to brands like Dell, HP and Sony. In 2000 they ventured into marketing of telecom
equipments. They entered the arena of mobile devices with manufacture of mobile handsets in
2008. Their first product Xii was born in 2008. In a short span of four years it has acquired 3rd
position in the Indian mobile industry making a place for itself in an industry which was otherwise
being reigned by MNCs and big names like Nokia, Samsung and LG.
2.2 Micromax has Many Firsts:
Micromax has many firsts to its credit. It introduced the first handset with a thirty day battery, a
handset with dual SIM, handset switching networks (GSM-CDMA), an aspirational querty key pad
handset, to name a few. It became known for its bling phone with Swarovski crystal and vanity
mirror. It has created a name for itself for the slew of innovative products and product features
based on consumer centric designs which was enabled as a result of an exhaustive R&D at its
helm. It set up an R&D facility in India because of availability of quality work force at low costs,
domestic market opportunity, available talent pool, and also a large vendor base.
2.3 Micromax Focus-Indian Rural Market:
India is predominantly a rural economy consisting of 6,38,000 villages and it is estimated that
72.2% of the population resides in the rural areas. Therefore, there is a large market to be tapped.
Further, tele-density is close to 80% in metro cities, 70-75% in major urban centers, and only
30-40% in rural markets. Penetration level being low in rural areas, there is immense opportunity
for telecom companies to explore the rural markets. Gradually all the major MNCs are targeting the
potential rural markets in India. Micromax was no exception. However, unlike the MNCs who first
entered the urban market and went into the rural areas on saturation of the urban markets, Micromax
first entered the rural market.
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Salma Ahmed
the cost low all across the value chain, it focused on development of indigenous design and manufacturing
capabilities to achieve higher localization. Till now, it depended upon China and Taiwan to manufacture
their handsets because of better infrastructure, stronger supply chain and cost effective work force. Besides
these advantages, the zero import duty on mobile phones further enabled it to keep its costs low.
However, of late it has set up a plant in Baddi in district Solan in Himachal Pradesh to offer
Indian products to Indian consumers. The major attractions for setting up plant in Baddi were the slew
of tax incentives that the Government provided. These were a 100 per cent outright excise duty exemption
for a period of ten years from the date of commencement of commercial production, 100 per cent
income tax exemption for an initial period of five years and thereafter 30 per cent for companies for a
further period of five years, and capital investment subsidy of 15 per cent on plant and machinery
subject to a ceiling of Rs 30 lakhs. There were many tax incentives provided by the State Government
too, like including a single window clearance for projects.
The company realized that in the fast changing market the need of the hour is to provide new
offering every other day and being responsive to consumers needs was a key to success. It introduced
forty distinct handset models in a short span of four years. Its product portfolio is divided into twelve
product categories. (See Table-3). The factory at Baddi will enable local manufacturing (Indian designs
for the Indian customers), keep costs low, and also help increase (agility) speed to market.
The company has comes up with a range of innovative products. For the company the time to
market is as short as three (3) months (from design to production stage) as compared to eighteen (18)
months by larger players. By responding faster to the market it is able to capture a large market.
It fulfilled the criteria set by Hau Lee of triple-A supply chain of agility, adaptability and alignment.
4. Distribution -Dealer Management/Service Centres - Customer Relationship:
4.1 Distribution Management:
Micromaxs distribution set up consists of super stockists, distributors and retailers.
Today Micromax has 34 super-stockists, 450 distributors, and 55,000 retailers and is selling
more than a million units in a month. It has also set up 150 exclusive stores called experience zones
for the urban market. Its products are also available in all leading mobile stores like Croma, Ezone,
Reliance Webworld, Next, Planet M, Reliance Digital, Tata Indicom, The Mobile Stores, to name a
few. To further increase penetration in India it is bundling with telecom operators like Aircel.
4.2 Dealer Management Strategy:
Micromax realized that for handsets, distribution is the most consequential variable in a
fiercely competitive market and therefore it decided to experiment here. Further, distribution in
rural markets of India has its own problems related to logistics and therefore is more challenging.
Also, in a consumer goods industry the success of a product in the market largely depends upon
Integral Review - A Journal of Management, Vol.5 No.2, Dec.-2012
56
the dealers association with consumers. In other words, it depends upon the interest taken by dealers
to push the product. Therefore it becomes essential to appease the dealers.
Micromax studied the strategy of other handset players in managing their dealer network and gathered that their margins to dealers were as low as 1-2%. Therefore, it offered a much
higher commission (of 5%) to those who were willing to stock Micromax products. This strategy
helped it create awareness and also garner a large share in the market in a short span of 3-4 years.
4.3 Service Centers-Customer Relationship to meet aftersale service needs:
Aftersale service requirement is an essential feature associated with a consumer product
and how successful a consumer good is in the market is also dependent upon the provision the
company has made for meeting the aftersale needs of its consumer. This is a very important strategy
for customer retention. Handsets in particular are products which consumers change and frequency
of upgradation is very high (they upgrade in a short span of time); therefore, it is essential to ensure
that the consumer does not deflect to a different player but upgrade to the next version of the same
brand. Also these are products wherein a need for repair and renewal (overhaul) may arise. Micromax
was conscious of this fact and therefore it provided a stable and convenient platform for meeting
the after sale and service needs of the consumers. It has set up 370 strategically located service
centers in India and one in Nepal and Srilanka. In addition, it has also tied up with five third party
owned, modular (component) service centers which are exclusive to Micromax and provide a full
range of after sale service excluding chip set and printed circuit board (PCB) replacement.
Micromax has also established a service factory in Delhi which provides a range of
services including chipset and PCB replacement services. The service factory support the modular
(component) service centers and ASCs by supplying the necessary inventory and supporting
technical teams to reduce turnaround times.
Micromax offers toll free telephone numbers for complaint registration. It also provides onsite
service in most of the Indian cities and two hundred Micromax touch points exist which are
product support engineers and covering 150 Indian cities.At present the company operates through more
than 400 service centers operational in about 250 cities and is looking at increasing the number to 700.
4.4 Faster Cycle Stock:
The company has an efficient and agile supply chain. It does not offer credit to its
channel partners. Instead the distributors have to complete an online bank transfer to Micromax.
Also it pays its distributors in every three days enabling inventory replenishment twice a week.
The company therefore is not faced with dead inventory (inventory that does not push off the
shelf), or resort to periodic schemes to push products, or even deal with issues of price protection.
The forecasts are also therefore more accurate.
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Salma Ahmed
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product launches. Further it supported its efforts with an efficient manufacturing system, agile and
responsive supply chain, consumer branding and effective dealer and consumer management strategies.
Learnings and Implication for the mobile handset manufacturers:
Learning-1:
As the world of handset manufacturing is gradually moving towards a higher degree of
specialization and innovation; core technological capability is a pre-requisite for competitive
advantage.
Learning-2:
Mobile handsets though functional products fulfilling a basic need should be treated
like innovative products, and therefore companies should build a responsive and agile supply chain.
Focus should be on minimizing stock outs and at the same time reducing chances of obsolete stocks
and markdowns. Therefore they should use modular designs and postpone manufacture to be more
responsive to the market.
Learning-3:
But in todays fast paced world, where change takes place in nano seconds, it becomes
increasingly difficult to compete only on product functionality and innovative product features. The
first mover advantage is transient (very short lived). Therefore, only focusing on the product and
attaining manufacturing efficiency would not do. Organiations need to look for more sustainable
strategies. The players need to look beyond core product and focus on complementary assetslike supply chain efficiency, brand equity, and relationship management with customers as well
as dealers to emerge a winner.
* Strategy Analytics tracks worlds thirty largest handset vendors on a quarterly basis.
References:
1.
Fisher L Marshall, (Mar-Apr 1997), What is the Right Supply Chain for your product?
2.
Lee L Hau, (2004), The Triple-A Supply Chain, Harvard Business Review
3.
Li Cai Feng, (2009), Management Science and Engineering vol.3, No. 2, Agile Supply Chains:
Competing in Volatile Markets
4.
Stalk Goerge (Jul-Aug.1998), Time Next Source of Competitive Advantage, HBR..
5.
The Indian Telecom Industry, (Oct.2010) Market and Competitive Scenerio, Marketing
Mastermind p-54-58
6.
www.businessandeconomy.org/micromaxs_quest_for_the 2nd_spot
7.
www.business_today/micromax_launces_dubai_operation
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Salma Ahmed
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
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Penetration
Mobile Subscription
FY 2005
05.0%
054.00 (million)
FY 2006
07.5%
083.00
FY 2007
09.7%
109.00
FY 2008
11.7%
134.00
Mar 09
18.2%
148.77
Company
Rupees(Crores)
1.
Gravity
Nokia
12,929
2.
Universal Remote
Samsung
5,720
3.
Gaming
Micromax
2,289
4.
3-G
RIM
1,950
5.
Marathon Battery
LG
1,210
6.
Multi-Media
G FIVE
1,326
7.
Querty
Karbonn
1,004
8.
Smart Phone
Spice
920
9.
Dual Sim
Maxx Mobile
745
10.
Utility
Sony Ericsson
690
11.
Android
12.
Touch Screen
61