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PRODUCTION AND OPERATIONS

MANAGEMENT

CASE STUDY ON ELLORA TIME’S


MANUFACTURING WOES

SUBMITTED TO SUBMITTED BY

MR. ANANT PHANI ASHISH KUMAR


ANNEPU
ROLL NO.-6
DFT- SEMESTER 5
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.