PRODUCTION AND OPERATIONS

MANAGEMENT

CASE STUDY ON ELLORA TIME’S

MANUFACTURING WOES

SUBMITTED BY
SUBMITTED TO
ASHISH KUMAR
MR. ANANT PHANI
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.