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"Pull" Solution for Distribution and Sales

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India’s rural landscape is undergoing a significant transformation, with more people engaging in both commercial farming and a variety of non-agricultural businesses. The rise of digital connectivity in rural India has further fueled entrepreneurial ventures, driving job creation, economic expansion, and higher incomes. This shift has also elevated aspirations and spending patterns. By 2030, rural per capita consumption is projected to increase 4.3 times, surpassing the anticipated 3.5 times growth in urban areas. This trend highlights the growing potential of rural markets for a diverse range of products and services.<figure class="image"><img style="aspect-ratio:16003/9813;" src="https://backend.vectorconsulting.in/storage/editor_uploads//income-distribution-in-rural-and-urban-areas-tale-of-the-tail_1744041947.png" width="16003" height="9813"></figure>Almost all product/service distribution companies are vying to get a piece of the rural pie. Given its immense potential, it would be natural to assume that these companies have already secured a strong foothold in this market. However, the reality tells a different story, making the situation both intriguing and compelling.<figure class="image"><img style="aspect-ratio:16002/10416;" src="https://backend.vectorconsulting.in/storage/editor_uploads//8th-april_1744094042.png" width="16002" height="10416"></figure>Consider this scenario: Even the biggest players in FMCG distribution have directly reached only about 40% of the market. Despite the vast growth potential, large corporations are yet to cover significant portions of the geography. This gap underscores the absence of an effective system to ensure product availability across all relevant retail outlets. Clearly, demand alone isn’t enough—the overall cost of logistics involved, and the level of control required to achieve sustainable service levels at all retail points must also be feasible for companies.&nbsp;<h5>The sustenance worry</h5>Companies have tried mechanisms like frequent order-taking and servicing, which are key to maintaining service levels, but have not yielded encouraging results.&nbsp;Rural retail distribution is particularly challenging due to its dispersed nature and lack of dense retail clusters. These challenges are further compounded by small order sizes per outlet and the time required to collect and fulfill them. Sustaining reasonable service levels often demands a large field sales force and high logistical costs. Recruiting and managing a trained sales force for these markets presents a significant hurdle. While this may not seem significant, it frequently derails rural expansion efforts.&nbsp;To mitigate sales risks, companies typically leverage the existing distribution infrastructure, such as wholesalers or semi-wholesalers, to establish a ‘safe’ product range. However, this approach often comes with trade-offs, particularly in maintaining control over distribution. When leveraging third-party networks, ensuring consistent pricing, timely deliveries, and overall market hygiene becomes difficult. As a result, many companies tap into only a fraction of their potential market, and even when they do, their reach remains inconsistent.&nbsp;Some large distribution companies are experimenting with pilot projects to expand their direct reach into rural markets, achieving a certain level of success.&nbsp;However, for small and medium-sized players, such initiatives pose considerable difficulties due to budget constraints and tight margin structures. The financial feasibility of maintaining a distribution network, along with the operational bandwidth required to manage it effectively, makes direct distribution in rural areas a daunting task. As a result, despite continuous efforts to expand their presence and make their full product portfolio available to rural consumers, sustaining operations in these markets remains a significant challenge for most companies—even after decades in business.&nbsp;This leads to several common challenges in rural or tail-end distribution for consumer product companies:<ul style="list-style-type:disc;"><li>A significant gap between the total number of retailers in a region and those actually being serviced.</li><li>A stagnant or declining number of active retailers (those purchasing at least once a month).</li><li>Limited or stagnant sales across the complete product range.</li><li>Difficulty in recruiting and retaining a trained field sales force.</li></ul>&nbsp;<h5>Zero risk framework ahead</h5>As urban markets reach saturation, companies must overcome longstanding challenges to successfully expand into rural areas. However, this requires a shift away from traditional methods. To succeed, businesses must rethink their go-to-market strategies and develop a fresh sales model. Leveraging advancements in technology and digitalisation—tailored to rural market needs—can help drive this transformation.&nbsp;To design an effective rural distribution model, it is essential to revisit the core requirements of major consumer product companies. Most would ideally seek the following:<ul style="list-style-type:square;"><li>Know Your Retailer (KYR):&nbsp;A continuously updated database of retailer contact details within a given geography.</li><li>Direct distribution access:&nbsp;A system to engage directly with retailers, rather than relying solely on indirect distribution, which often leads to inefficiencies in reach and product availability.</li><li>End-to-end visibility:&nbsp;Full transparency in the distribution process, extending all the way to retailers, allowing companies to take required action whenever needed. Most companies currently have very low visibility of how their markets are serviced by distributors.</li><li>Targeted communication:&nbsp;The ability to engage with individual retailers through customised messaging and initiatives, fostering long-term demand generation and market share growth.</li><li>Cost &amp; service control:&nbsp;A structured approach to managing costs while maintaining high service levels.</li></ul>&nbsp;The only way to achieve this ambitious goal without expanding the sales team is by significantly releasing the capacity of the existing workforce. Sounds unrealistic, right? After all, companies are already struggling to allocate sufficient sales resources for their current markets.&nbsp;Surprisingly, a risk-free, high-yield approach is entirely possible. Here’s how:1. Separate sales from transactionsIf we redefine the true&nbsp;role of sales as acquiring new retail outlets and expanding product range with existing ones, the sales team can be freed from routine transactional tasks. Order-taking, for instance, can be handled more efficiently through a technology-enabled tele-calling system&nbsp;via an order management centre. This "Phygital"&nbsp;(physical + digital) model can manage 150–200 retailers per representative, dramatically increasing outreach without adding personnel. Additionally, this approach provides companies with real-time insights into market trends.&nbsp;2. Refocus the sales team on growthWith transactional duties shifted, the field force can fully concentrate on real sales activities.&nbsp;Instead of merely taking orders, they can function as:<ul style="list-style-type:square;"><li>Brand ambassadors, responsible for securing new outlets and expanding product offerings.</li><li>Problem solvers, addressing retailer concerns and executing targeted marketing activities.</li></ul>&nbsp;By leveraging AI and machine learning, companies can generate route-wise insights&nbsp;and assign targeted sales tasks, ensuring a more strategic and efficient approach to market penetration.&nbsp;3. Drive consistent demand generationWhile the above steps help manage existing market demand, sustained growth&nbsp;requires continuous demand stimulation. Companies must implement loyalty programs&nbsp;for key influencers like retailers, plumbers, and architects to drive engagement and differentiate from competitors. Technology can play a crucial role in facilitating these programs, ensuring lasting brand loyalty.&nbsp;4. Implement without increasing cost per sale – full-service outsourcingAlthough setting up a tele-calling infrastructure and other necessary systems may increase short-term fixed costs, companies can outsource these operations&nbsp;to a Sales-as-a-Service (SaaS) provider&nbsp;with an established infrastructure. This plug-and-play solution offers:<ul style="list-style-type:square;"><li>Pre-trained, on-ground sales teams, enabling rapid expansion into untapped rural markets without added costs or management burden.</li><li>Access to retailer databases, eliminating the need for companies to map new geographies.</li><li>A fully equipped tele-calling system, software suite, dedicated apps, and retail finance support&nbsp;to streamline demand generation and distribution.</li></ul>&nbsp;Key benefits of this model<ul style="list-style-type:square;"><li>No additional capital expenditure for the company.</li><li>Zero disruption to existing sales operations.</li><li>Access to proven strategies and expertise from the service provider.</li><li>Minimal involvement required from senior management to oversee expansion.</li></ul>&nbsp;<h5>Proven success: A real-world example</h5>This approach was successfully implemented by an FMEG company in 11 talukas of rural Maharashtra, yielding:<ul style="list-style-type:disc;"><li>A 569% increase in retail outlets placing monthly orders.</li><li>A 302% surge in overall regional sales.</li></ul>&nbsp;In today’s fast-evolving consumer goods landscape, where traditional markets are reaching saturation, rethinking rural retailing is the key to expanding market share and driving long-term growth.&nbsp;

Tale of the Tail

India’s rural landscape is undergoing a significant transformation, with more people engaging in both commercial farming and a variety of non-agricultural businesses. The rise of digital connectivity in rural India has further fueled entrepreneurial ventures, driving job creation, economic expansion, and higher incomes. This shift has also elevated aspirations and spending patterns. By 2030, rural per capita consumption is projected to increase 4.3 times, surpassing the anticipated 3.5 times growth in urban areas. This trend highlights the growing potential of rural markets for a diverse range of products and services.<figure class="image"><img style="aspect-ratio:16003/9813;" src="https://backend.vectorconsulting.in/storage/editor_uploads//income-distribution-in-rural-and-urban-areas-tale-of-the-tail_1744041947.png" width="16003" height="9813"></figure>Almost all product/service distribution companies are vying to get a piece of the rural pie. Given its immense potential, it would be natural to assume that these companies have already secured a strong foothold in this market. However, the reality tells a different story, making the situation both intriguing and compelling.<figure class="image"><img style="aspect-ratio:16002/10416;" src="https://backend.vectorconsulting.in/storage/editor_uploads//8th-april_1744094009.png" width="16002" height="10416"></figure>Consider this scenario: Even the biggest players in FMCG distribution have directly reached only about 40% of the market. Despite the vast growth potential, large corporations are yet to cover significant portions of the geography. This gap underscores the absence of an effective system to ensure product availability across all relevant retail outlets. Clearly, demand alone isn’t enough—the overall cost of logistics involved, and the level of control required to achieve sustainable service levels at all retail points must also be feasible for companies.&nbsp;<h5>The sustenance worry</h5>Companies have tried mechanisms like frequent order-taking and servicing, which are key to maintaining service levels, but have not yielded encouraging results.&nbsp;Rural retail distribution is particularly challenging due to its dispersed nature and lack of dense retail clusters. These challenges are further compounded by small order sizes per outlet and the time required to collect and fulfill them. Sustaining reasonable service levels often demands a large field sales force and high logistical costs. Recruiting and managing a trained sales force for these markets presents a significant hurdle. While this may not seem significant, it frequently derails rural expansion efforts.&nbsp;To mitigate sales risks, companies typically leverage the existing distribution infrastructure, such as wholesalers or semi-wholesalers, to establish a ‘safe’ product range. However, this approach often comes with trade-offs, particularly in maintaining control over distribution. When leveraging third-party networks, ensuring consistent pricing, timely deliveries, and overall market hygiene becomes difficult. As a result, many companies tap into only a fraction of their potential market, and even when they do, their reach remains inconsistent.&nbsp;Some large distribution companies are experimenting with pilot projects to expand their direct reach into rural markets, achieving a certain level of success.&nbsp;However, for small and medium-sized players, such initiatives pose considerable difficulties due to budget constraints and tight margin structures. The financial feasibility of maintaining a distribution network, along with the operational bandwidth required to manage it effectively, makes direct distribution in rural areas a daunting task. As a result, despite continuous efforts to expand their presence and make their full product portfolio available to rural consumers, sustaining operations in these markets remains a significant challenge for most companies—even after decades in business.&nbsp;This leads to several common challenges in rural or tail-end distribution for consumer product companies:<ul style="list-style-type:disc;"><li>A significant gap between the total number of retailers in a region and those actually being serviced.</li><li>A stagnant or declining number of active retailers (those purchasing at least once a month).</li><li>Limited or stagnant sales across the complete product range.</li><li>Difficulty in recruiting and retaining a trained field sales force.</li></ul>&nbsp;<h5>Zero risk framework ahead</h5>As urban markets reach saturation, companies must overcome longstanding challenges to successfully expand into rural areas. However, this requires a shift away from traditional methods. To succeed, businesses must rethink their go-to-market strategies and develop a fresh sales model. Leveraging advancements in technology and digitalisation—tailored to rural market needs—can help drive this transformation.&nbsp;To design an effective rural distribution model, it is essential to revisit the core requirements of major consumer product companies. Most would ideally seek the following:<ul style="list-style-type:square;"><li>Know Your Retailer (KYR):&nbsp;A continuously updated database of retailer contact details within a given geography.</li><li>Direct distribution access:&nbsp;A system to engage directly with retailers, rather than relying solely on indirect distribution, which often leads to inefficiencies in reach and product availability.</li><li>End-to-end visibility:&nbsp;Full transparency in the distribution process, extending all the way to retailers, allowing companies to take required action whenever needed. Most companies currently have very low visibility of how their markets are serviced by distributors.</li><li>Targeted communication:&nbsp;The ability to engage with individual retailers through customised messaging and initiatives, fostering long-term demand generation and market share growth.</li><li>Cost &amp; service control:&nbsp;A structured approach to managing costs while maintaining high service levels.</li></ul>&nbsp;The only way to achieve this ambitious goal without expanding the sales team is by significantly releasing the capacity of the existing workforce. Sounds unrealistic, right? After all, companies are already struggling to allocate sufficient sales resources for their current markets.&nbsp;Surprisingly, a risk-free, high-yield approach is entirely possible. Here’s how:1. Separate sales from transactionsIf we redefine the true&nbsp;role of sales as acquiring new retail outlets and expanding product range with existing ones, the sales team can be freed from routine transactional tasks. Order-taking, for instance, can be handled more efficiently through a technology-enabled tele-calling system&nbsp;via an order management centre. This "Phygital"&nbsp;(physical + digital) model can manage 150–200 retailers per representative, dramatically increasing outreach without adding personnel. Additionally, this approach provides companies with real-time insights into market trends.&nbsp;2. Refocus the sales team on growthWith transactional duties shifted, the field force can fully concentrate on real sales activities.&nbsp;Instead of merely taking orders, they can function as:<ul style="list-style-type:square;"><li>Brand ambassadors, responsible for securing new outlets and expanding product offerings.</li><li>Problem solvers, addressing retailer concerns and executing targeted marketing activities.</li></ul>&nbsp;By leveraging AI and machine learning, companies can generate route-wise insights&nbsp;and assign targeted sales tasks, ensuring a more strategic and efficient approach to market penetration.&nbsp;3. Drive consistent demand generationWhile the above steps help manage existing market demand, sustained growth&nbsp;requires continuous demand stimulation. Companies must implement loyalty programs&nbsp;for key influencers like retailers, plumbers, and architects to drive engagement and differentiate from competitors. Technology can play a crucial role in facilitating these programs, ensuring lasting brand loyalty.&nbsp;4. Implement without increasing cost per sale – full-service outsourcingAlthough setting up a tele-calling infrastructure and other necessary systems may increase short-term fixed costs, companies can outsource these operations&nbsp;to a Sales-as-a-Service (SaaS) provider&nbsp;with an established infrastructure. This plug-and-play solution offers:<ul style="list-style-type:square;"><li>Pre-trained, on-ground sales teams, enabling rapid expansion into untapped rural markets without added costs or management burden.</li><li>Access to retailer databases, eliminating the need for companies to map new geographies.</li><li>A fully equipped tele-calling system, software suite, dedicated apps, and retail finance support&nbsp;to streamline demand generation and distribution.</li></ul>&nbsp;Key benefits of this model<ul style="list-style-type:square;"><li>No additional capital expenditure for the company.</li><li>Zero disruption to existing sales operations.</li><li>Access to proven strategies and expertise from the service provider.</li><li>Minimal involvement required from senior management to oversee expansion.</li></ul>&nbsp;<h5>Proven success: A real-world example</h5>This approach was successfully implemented by an FMEG company in 11 talukas of rural Maharashtra, yielding:<ul style="list-style-type:disc;"><li>A 569% increase in retail outlets placing monthly orders.</li><li>A 302% surge in overall regional sales.</li></ul>&nbsp;In today’s fast-evolving consumer goods landscape, where traditional markets are reaching saturation, rethinking rural retailing is the key to expanding market share and driving long-term growth.&nbsp;

Tale of the tail

In today’s dynamic business environment, generating customer interest is only half the battle—fulfilling that demand efficiently is what drives real success. While companies invest heavily in marketing, many overlook the importance of aligning their supply chain to support it. This article highlights how integrating both functions ensures a smooth transition from demand creation to delivery, fostering sustainable growth.&nbsp;<h5>The power of marketing in building demand</h5>At its core, marketing is designed to influence consumer behaviour and create a desire for products. Businesses drive awareness and shape perceptions through&nbsp;advertisements, digital campaigns, promotions, and partnerships. In fact, global advertising spending in 2024 was estimated to surpass $1 trillion, growing at almost 10% over the previous year, demonstrating how critical businesses believe marketing is to their success [1]. Global companies like Nike, Apple, Coca-Cola, and Amazon spend billions annually to maintain their competitive edge, leveraging traditional and modern marketing tactics.&nbsp;Even new-age marketing strategies, like influencer marketing, have taken off with brands like Fenty Beauty in the cosmetics industry, relying heavily on strategic influencer campaigns to create demand. By partnering with influencers, Fenty has boosted awareness and generated demand for new product lines almost immediately upon release.&nbsp;However, while these marketing efforts are vital for creating initial demand, they only increase sales if the company’s supply chain can support the demand. Without a responsive supply chain that can fulfil customer needs quickly and efficiently, all the demand generated can be wasted.&nbsp;<h5>How does the supply chain power the delivery of demand</h5>The supply chain is equally important role in ensuring marketing efforts translate into actual sales. It’s not just about moving products from A to B—it's about having the right product available at the right time in the right quantity. Companies with agile, responsive supply chains and robust inventory management systems can adjust more fluidly to unexpected surges in demand, mitigating stockouts even if the initial supply levels are insufficient. This agility separates effective supply chains from those that collapse under pressure.&nbsp;Supply chain management is not just about cutting costs or improving efficiency - it is about ensuring that it’s available when a customer wants to buy a product.&nbsp;(It is also important to note that not every instance of product unavailability is a supply chain failure. Luxury brands such as Rolex deliberately restrict supply to maintain exclusivity. This intentional scarcity strategy increases consumer desire and drives sales, as limited products often mean higher demand. For example, Rolex’s limited production of specific models results in long waiting lists and a sense of urgency for buyers).&nbsp;<h5>The risk of marketing without supply chain coordination</h5>Consider Company Y, which manufactures high-end kitchen appliances. After launching an extensive ad campaign featuring celebrity endorsements, the company experiences a 30% spike in demand within a short span. However, the supply chain was not prepared for this sudden increase. As a result, many of the best-selling models were sold out within days, and restocking took longer than anticipated. This led to stockouts at key retail outlets, frustrating customers who postponed their purchases or switched to competitors.&nbsp;In such situations, customers, especially those are not particularly loyal to a single brand, are quick to move to alternatives. If we look at the breakdown of customers for any brand, they generally fall into three categories: extremely loyal to the brand, brand agnostic, or loyal to a competitor. The brand-agnostic category tends to be the largest, representing those who will switch quickly based on availability, price, or other factors. This dynamic makes stockouts especially dangerous for companies, as brand-agnostic customers are the easiest to lose.&nbsp;Ultimately, the company could only experience a 10% sales boost instead of capitalising on the increased demand rather than the anticipated 25%.<h6>&nbsp;</h6><h5>Avoiding missteps: Finding the right root cause</h5>It is easy for companies to misdiagnose the issue as one of production capacity and rush to increase manufacturing output. Leadership may invest tens of crores in new machinery or expand facilities, hoping to prevent future stockouts. However, this overlooks the real problem, which is supply chain misalignment. In fact, a well-run supply chain can often handle increased demand without massive investments if it is aligned with the company’s marketing efforts and demand forecasts.&nbsp;Often, improvements in the supply chain pertain to cutting costs, which is usually viewed as a necessity. However, thoughtless measures like increasing batch sizes, capping inventories, or hard-nosed negotiations with suppliers can lead to problems down the line.&nbsp;Rather than reducing costs, the real focus in supply chain improvements is creating agile, flexible systems that can react quickly to changing market requirements.&nbsp;The key is to align the supply chain completely with the market demand.&nbsp;<h5>Building an agile and responsive supply chain</h5>To maximise the benefits of marketing, companies must adopt a demand-driven approach to supply chain management. Traditional forecast-based systems, which rely on predictions, often fail to keep up with real-time shifts in consumer behaviour. On the other hand, demand-driven replenishment systems allow companies to respond quickly to customer demand and minimise stockouts or excess inventory. This replenishment system requires complete subordination to create and maintain a very high availability in all the stocking points.&nbsp;This not only means a change in the traditional mechanism of planning and executing a robust inventory management system, but it may also entail relooking the entire network design for the company. The re-design should be such that it enables the company to be closer to the customers and the points of sales, thereby making the system more responsive to changing market needs.&nbsp;There would also be a need to relook at companies core inventory holding strategy. It is always enticing to hold maximum inventory at the point of maximum variability in demand, i.e., closer to consumption points. However, it is more prudent, to have the bulk of the inventory closer to the source both in terms of cost and responsiveness. This is because-<ul style="list-style-type:square;"><li>The aggregate benefit helps the overall system hold lesser inventory.</li><li>The company will be much better placed to cater to changing requirements of the different child warehouses, thereby reducing the excess and shortages to a great extent and helping in achieving a very high availability%.</li></ul>&nbsp;Our experiences with many clients have shown us that optimising the supply chain to increase availability to nearly 100% can lead to a sales increase of up to 10%-15%. This is achieved while not adding costs in the same ratio, thereby boosting the company's overall profitability. That is the power of building up a world-class supply chain.&nbsp;<h5>Conclusion: Building synergy for growth</h5>The relationship between marketing and supply chain is not a one-way street. Marketing can drive demand, but the business will suffer if the supply chain isn't prepared to meet that demand. On the flip side, even the best supply chain can’t save a company from failure if the marketing isn’t effective at creating demand. Success comes from alignment between the two- recognising that both functions must work in harmony.&nbsp;The key takeaway from all this? Stop viewing the supply chain as just a cost centre- it can be developed into a game-changing enabler of growth, and when aligned with marketing, it is a powerful driver of success for companies.

Explore how aligning marketing efforts with an agile supply chain can turn demand into sales, driving sustainable growth and ensuring businesses meet customer expectations efficiently.

Transforming demand into sales: How supply chain completes the missing link

In today’s dynamic business environment, generating customer interest is only half the battle—fulfilling that demand efficiently is what drives real success. While companies invest heavily in marketing, many overlook the importance of aligning their supply chain to support it. This article highlights how integrating both functions ensures a smooth transition from demand creation to delivery, fostering sustainable growth.&nbsp;<h6>The power of marketing in building demand</h6>At its core, marketing is designed to influence consumer behaviour and create a desire for products. Businesses drive awareness and shape perceptions through&nbsp;advertisements, digital campaigns, promotions, and partnerships. In fact, global advertising spending in 2024 was estimated to surpass $1 trillion, growing at almost 10% over the previous year, demonstrating how critical businesses believe marketing is to their success [1]. Global companies like Nike, Apple, Coca-Cola, and Amazon spend billions annually to maintain their competitive edge, leveraging traditional and modern marketing tactics.&nbsp;Even new-age marketing strategies, like influencer marketing, have taken off with brands like Fenty Beauty in the cosmetics industry, relying heavily on strategic influencer campaigns to create demand. By partnering with influencers, Fenty has boosted awareness and generated demand for new product lines almost immediately upon release.&nbsp;However, while these marketing efforts are vital for creating initial demand, they only increase sales if the company’s supply chain can support the demand. Without a responsive supply chain that can fulfil customer needs quickly and efficiently, all the demand generated can be wasted.&nbsp;<h6>How does the supply chain power the delivery of demand</h6>The supply chain is equally important role in ensuring marketing efforts translate into actual sales. It’s not just about moving products from A to B—it's about having the right product available at the right time in the right quantity. Companies with agile, responsive supply chains and robust inventory management systems can adjust more fluidly to unexpected surges in demand, mitigating stockouts even if the initial supply levels are insufficient. This agility separates effective supply chains from those that collapse under pressure.&nbsp;Supply chain management is not just about cutting costs or improving efficiency - it is about ensuring that it’s available when a customer wants to buy a product.&nbsp;(It is also important to note that not every instance of product unavailability is a supply chain failure. Luxury brands such as Rolex deliberately restrict supply to maintain exclusivity. This intentional scarcity strategy increases consumer desire and drives sales, as limited products often mean higher demand. For example, Rolex’s limited production of specific models results in long waiting lists and a sense of urgency for buyers).&nbsp;<h6>The risk of marketing without supply chain coordination</h6>Consider Company Y, which manufactures high-end kitchen appliances. After launching an extensive ad campaign featuring celebrity endorsements, the company experiences a 30% spike in demand within a short span. However, the supply chain was not prepared for this sudden increase. As a result, many of the best-selling models were sold out within days, and restocking took longer than anticipated. This led to stockouts at key retail outlets, frustrating customers who postponed their purchases or switched to competitors.&nbsp;In such situations, customers, especially those are not particularly loyal to a single brand, are quick to move to alternatives. If we look at the breakdown of customers for any brand, they generally fall into three categories: extremely loyal to the brand, brand agnostic, or loyal to a competitor. The brand-agnostic category tends to be the largest, representing those who will switch quickly based on availability, price, or other factors. This dynamic makes stockouts especially dangerous for companies, as brand-agnostic customers are the easiest to lose.&nbsp;Ultimately, the company could only experience a 10% sales boost instead of capitalising on the increased demand rather than the anticipated 25%.<h6>&nbsp;</h6><h6>Avoiding missteps: Finding the right root cause</h6>It is easy for companies to misdiagnose the issue as one of production capacity and rush to increase manufacturing output. Leadership may invest tens of crores in new machinery or expand facilities, hoping to prevent future stockouts. However, this overlooks the real problem, which is supply chain misalignment. In fact, a well-run supply chain can often handle increased demand without massive investments if it is aligned with the company’s marketing efforts and demand forecasts.&nbsp;Often, improvements in the supply chain pertain to cutting costs, which is usually viewed as a necessity. However, thoughtless measures like increasing batch sizes, capping inventories, or hard-nosed negotiations with suppliers can lead to problems down the line.&nbsp;Rather than reducing costs, the real focus in supply chain improvements is creating agile, flexible systems that can react quickly to changing market requirements.&nbsp;The key is to align the supply chain completely with the market demand.&nbsp;<h6>Building an agile and responsive supply chain</h6>To maximise the benefits of marketing, companies must adopt a demand-driven approach to supply chain management. Traditional forecast-based systems, which rely on predictions, often fail to keep up with real-time shifts in consumer behaviour. On the other hand, demand-driven replenishment systems allow companies to respond quickly to customer demand and minimise stockouts or excess inventory. This replenishment system requires complete subordination to create and maintain a very high availability in all the stocking points.&nbsp;This not only means a change in the traditional mechanism of planning and executing a robust inventory management system, but it may also entail relooking the entire network design for the company. The re-design should be such that it enables the company to be closer to the customers and the points of sales, thereby making the system more responsive to changing market needs.&nbsp;There would also be a need to relook at companies core inventory holding strategy. It is always enticing to hold maximum inventory at the point of maximum variability in demand, i.e., closer to consumption points. However, it is more prudent, to have the bulk of the inventory closer to the source both in terms of cost and responsiveness. This is because-<ul style="list-style-type:square;"><li>The aggregate benefit helps the overall system hold lesser inventory.</li><li>The company will be much better placed to cater to changing requirements of the different child warehouses, thereby reducing the excess and shortages to a great extent and helping in achieving a very high availability%.</li></ul>&nbsp;Our experiences with many clients have shown us that optimising the supply chain to increase availability to nearly 100% can lead to a sales increase of up to 10%-15%. This is achieved while not adding costs in the same ratio, thereby boosting the company's overall profitability. That is the power of building up a world-class supply chain.&nbsp;<h6>Conclusion: Building synergy for growth</h6>The relationship between marketing and supply chain is not a one-way street. Marketing can drive demand, but the business will suffer if the supply chain isn't prepared to meet that demand. On the flip side, even the best supply chain can’t save a company from failure if the marketing isn’t effective at creating demand. Success comes from alignment between the two- recognising that both functions must work in harmony.&nbsp;The key takeaway from all this? Stop viewing the supply chain as just a cost centre- it can be developed into a game-changing enabler of growth, and when aligned with marketing, it is a powerful driver of success for companies.

Discover how to transform demand into sales! Read our blog for actionable tips on supply chain strategies that support marketing success.

An agile supply chain & marketing success drive sales growth | Vector Consulting Group

The proposed Biosecure Act, introduced in the U.S. House of Representatives and a hot topic among Indian pharma companies, bans U.S. federal executive agencies from purchasing any 'biotechnology equipment or service' from 'biotechnology companies of concern.’&nbsp;The Act defines a biotechnology company of concern as one that:<ul style="list-style-type:square;"><li>Operates under foreign adversaries jurisdiction, direction, control, or influence x (including China, Cuba, Iran, North Korea, and Russia).</li><li>Engages in activities such as manufacturing, distributing, providing, or procuring biotechnology equipment or services [1].</li><li>A company that threatens U.S. national security if it:</li></ul><ol style="list-style-type:lower-latin;"><li>Participates in collaborative research with, is backed by, or has connections to a foreign adversary’s military, internal security, or intelligence agencies.</li><li>Supplies multi-omic data acquired through biotechnology tools or services to a foreign adversary's government.</li><li>Collects human multi-omic data using biotechnology tools or services without obtaining explicit and informed consent [2].</li></ol>&nbsp;The primary objective of this legislation is to safeguard U.S. genomic data from potential misuse, and it is being promoted as essential for national security. First, sourcing from major Chinese biotech companies such as BGI Genomics, MGI Tech, Complete Genomics, WuXi AppTec, and WuXi Biologics has been scrutinised.&nbsp;Before delving into the implications of this act, let's first explore the Act’s core focus—biologics and biosimilars.&nbsp;<h5>What are biologics?</h5>With scientific advancements, the precise root causes of diseases can now be identified, allowing for isolating the specific molecule responsible for a condition. This enables the creation of targeted treatment plans focusing on that particular molecule rather than broadly addressing all potential causes. These potential cures are no longer simple chemical compounds but therapeutic proteins with intricate molecular structures derived from living cells or organisms. Such drugs fall under the broader category of biologics. These are different from biosimilars.&nbsp;<h5>What are biosimilars?</h5>Like other chemical formulations (called small molecule drugs), which form the majority of medicines today, biologics are patented. Upon the expiry of the patent, other manufacturers can start developing and selling these under different brand names. However, unlike small molecule drugs, where a generic medicine is almost identical in molecular structure to the original formulation, a redeveloped biologic can never duplicate the original molecule. Even in similar environmental conditions, molecules developed to mimic the action of a biologic are structurally non-identical and are hence called biosimilars. Biosimilars can never truly replace the original biologics. Moreover, the current production capacities are negligible in contrast to market demand. Therefore, the prices of both the original biologics and biosimilars do not erode significantly over time as in the case of small molecule drugs [3].&nbsp;<h5>But how big is this market?</h5>Since 2017, spending on biologics in the U.S. has rapidly increased, growing at a compound annual growth rate (CAGR) of 12.5%. By 2021, the U.S. biologics market was valued at $260 billion, accounting for 46% of the total $568 billion spent on medicines at ex-manufacturer invoice prices. Currently, biologic molecules facing biosimilar competition make up $38 billion in invoice spending. In comparison, an additional $96 billion in the biologics market is either targeted by biosimilars in development or approved but not yet launched [4]. China is significantly contributing to this biosimilar R&amp;D, with 391 biosimilar drugs in the research pipeline making it one of the leading countries in biosimilar research and development.<figure class="image"><img style="aspect-ratio:11113/6317;" src="https://backend.vectorconsulting.in/storage/editor_uploads//artboard-5-copy_1736162074.png" width="11113" height="6317"></figure><h5>Implications of the Act for American buyers</h5>Further, reports claim more than 25% of the biologics sold in the U.S. are produced by CDMOs in China [5] . According to the Biotechnology Innovation Organization, a survey of 124 biopharmaceutical and biotechnology firms that constitute this market, revealed that 79% have at least one agreement or product involving a development or manufacturing organization based in or owned by China [6] .&nbsp;Following its enactment, the Biosecure Act provides seven year for terminating contracts with banned firms. However, the wording of the act has changed significantly over time. A grandfather clause is being considered, which would allow existing contracts with Chinese companies to remain valid until January 1, 2032 [7] .&nbsp;Including or excluding such clauses will compel companies with existing contracts to evaluate the termination provisions in their agreements with biotechnology companies at risk of being designated "of concern." This presents a conflict between early termination costs and the risk of abruptly losing a supply chain partner.&nbsp;<h5>Supply chain implications of the Act for suppliers</h5>The supply chain partners also have their work cut out if the bill is enacted, even if they are not the companies mentioned in the Act or China. They will need to review their supply chains and consider the following actions thoroughly:<ol><li>Identify whether any part of their supply chains depends on biotechnology equipment or services from companies of concern, including their subsidiaries, parent companies, affiliates, and successor entities, especially if they are under the control of foreign adversary governments.</li><li>Assess whether any part of their supply chains relies on biotechnology companies based in North Korea, China, Russia, or Iran, and determine if these entities will likely be labelled as "biotechnology companies of concern."</li></ol>Investigate alternatives for the equipment or services provided by biotechnology companies at risk of being designated as "of concern" and prohibited from receiving federal funds to reduce potential business disruptions [8] [9] .&nbsp;<h5>Challenges (and opportunities) for Indian suppliers</h5>Once the BioSecure Act is enacted, it is expected to create a significant opportunity for Indian companies to expand their presence in the U.S. market, particularly in the biosimilars segment. However, India cannot meet a sudden surge in biosimilar demand in the short term due to the inherently long and complex development process. This is technically impossible unless we are already preparing for such a turn of events. Developing a biosimilar typically takes 8-10 years, requiring significant financial investments — sometimes up to 20 times the cost of producing a chemical drug. This process involves mastering advanced technical skills, establishing clinical trial infrastructure, and adhering to stringent global quality standards.&nbsp;Unlike generic chemical drugs, biosimilars are not identical to the original biologics; they are highly similar but require extensive clinical trials to demonstrate efficacy, safety, and immunogenicity. Additionally, production relies on proprietary cell lines and specialised manufacturing processes developed by the original biological creators. Scaling up such capabilities demands years of preparation, making it nearly impossible to meet a sudden increase in demand without prior investment and infrastructure readiness [10] .&nbsp;Contract manufacturing is the only route left to replace the Chinese supplies and capture the market. WuXi AppTec and WuXi Biologics, amongst other currently banned firms, are primarily CDMO partners for numerous biotechs and pharma,&nbsp;developing up to an estimated&nbsp;10%-25% of biologics used in the U.S. [11] . As a result, U.S. companies are actively pursuing strategies to bridge the potential supply gap, including expanding partnerships with CDMOs in regions not subject to the ban.&nbsp;India is well-positioned to partner with these U.S. companies seeking alternatives to Chinese CDMOs. &nbsp;For the following reasons:<ol><li>Established CDMOs with technical expertise: India's large-molecule CDMO sector, currently accounting for only about 8% of the global market, has demonstrated promising growth driven by its expertise in producing biologics and biosimilars at competitive costs. With USFDA-approved facilities and advanced technical capabilities, Indian CDMOs are well-equipped to scale up production efficiently. Their proven experience with complex biologics development makes them reliable partners for U.S. companies seeking to diversify supply chains amid shifting global dynamics.</li><li>Robust pharmaceutical ecosystem: India has a well-developed pharmaceutical sector with a strong supply chain network, experienced professionals, and research-driven institutions. This ecosystem supports end-to-end biosimilar development, from R&amp;D to large-scale manufacturing.</li><li>Cost-effective manufacturing: India’s relatively lower production and labour costs make it a competitive destination for biosimilar development, offering U.S. companies an opportunity to reduce manufacturing expenses while maintaining high-quality standards [12] .</li></ol>&nbsp;However, existing Indian CDMOs trying to take up business migrating from WuXi AppTec and WuXi Biologics might face these obstacles:&nbsp;<ol><li>Capacity expansion: Meeting the potential demand gap in the market would require significant scaling up. Without sufficient capacity, Indian CDMOs may struggle with timely project execution.</li><li>Regulatory compliance: Frequent inspections and audits by the USFDA and other international regulators can add complexity and require continuous quality upgrades. Indian CDMOs must ensure compliance with evolving global standards to maintain trust.</li><li>Operational integration: Given the long lead times in biologics manufacturing, aligning with U.S. companies’ ongoing projects and delivery timelines can be challenging. Establishing seamless operational processes and project management systems is critical.</li><li>Supply chain management: India must diversify its sources for key raw materials, reducing reliance on China. This involves strengthening partnerships with U.S. and other international suppliers to ensure a steady supply of critical inputs.</li></ol>&nbsp;<h5>Long term strategy</h5>In the long term, India should position itself as a leader in the biologics market, not merely as a fallback option in the China-plus-one strategy. Further, it has to transition from being a CDMO to a developer and innovator. For this, India must address several critical challenges, including:<ol><li>Advanced R&amp;D and innovation: India must invest in early-stage biologics R&amp;D, focusing on proprietary technology platforms and innovative molecules, to become a biosimilar developer and innovator. Collaboration with academia and global research institutions could accelerate progress.</li><li>Manufacturing and quality technology/infrastructure: Indian firms would also need substantial investments to adopt the latest technologies in biologics production. This includes investing in specialised facilities, automation, and quality control systems that meet international standards​.</li><li>Policy and government support: While the Indian government has supported the pharmaceutical sector through initiatives like Pharma Vision 2047 [13] , a stronger push may be needed to boost biosimilars and biologics R&amp;D and manufacturing. This could include higher R&amp;D subsidies, favourable regulations, and the promotion of integrated manufacturing and innovation hubs.</li></ol>&nbsp;Addressing these areas would position India as a global biosimilar leader by enhancing its capacity, innovation potential, and market reach.&nbsp;<h5>BioSecure Act: What if there is no act?</h5>Interestingly, the need for these strategies in India remains critical, even without a bio-secure act. The Indian market, valued at $2 billion, is expected to grow significantly, driven by an increasing shift towards biologics in treatment methodologies. By 2030, the market size will be substantial, with domestic growth alone providing a strong boost.&nbsp;Additionally, the global biosimilars and biologics market is expected to grow significantly in the coming years, with a market value of&nbsp;$520.9 billion in 2024 and $1,060.7 billion by 2034. The market is expected to grow at a compound annual growth rate (CAGR) of 7.6% [14], highlighting a vast market in addition to the U.S.&nbsp;So, while the bio-secure act has generated interest and will act as a growth driver, Indian pharmaceutical companies can thrive by focusing on these essential strategies, even without it [15] [16] [17] .&nbsp;<h5>The way forward</h5>Indian pharma companies already producing biosimilars must start approaching new businesses with a win-win proposition. These are long-term collaborations and need significant bandwidth and investment from both sides. Any failure post-collaboration will lead to financial loss for both the parties.&nbsp;To establish capability in the eyes of the collaborator, a fail-safe environment with smooth supply chain capabilities to ensure the perennial availability of raw materials and packaging materials must be established.&nbsp;Compliance with quality norms must be top-notch historically, and processes to meet global standards must have been established. Implementing good lab practices, including workbench practices, and fool-proof testing methods and ensuring a stress-free environment leads to a significant reduction in QMS events originating from laboratory errors, which, in turn, helps establishing reliability in quality in the eyes of FDA authorities.&nbsp;Last but not least, such an opportunity will require access to clinical trial capabilities and smooth and on-time execution.

The BioSecure Act limits U.S. reliance on Chinese biotech, opening doors for Indian CDMOs in biosimilars. This article explores challenges, opportunities, and strategies for India's pharma sector to capitalise on this shift.

The BioSecure Act  - Opportunity or mirage?

Explore the impact of the BioSecure Act on India's pharmaceutical sector. Opportunity or mirage? Insights from Vector Consulting Group. Read the blog here.

The BioSecure Act: Opportunities and Challenges for India's Pharma sector| Vector Consulting Group

Recap: Maintaining <a target="_blank" rel="noopener noreferrer" href="https://www.vectorconsulting.in/en/research-and-publication/blogs/the-essence-of-managing-operations/">protective capacity (buffers) </a>is essential to ensure stable customer service levels in any operational environment characterised by variability. As utilisation rises, the available free capacity to address unexpected inflow diminishes, inevitably leading to the formation of queues.&nbsp;While experienced operations managers often grasp this intuitively, they may need help to effectively communicate its importance to other departments, particularly those working in an environment focused on maximising utilisation to reduce production costs.The counterargument from the flag-bearers of cost reduction through higher utilisation is that higher utilisation reduces costs (using principles of cost absorption) and thereby increases profits. Another common rhetorical stance is that continuous emphasis on higher utilisation maintains the ‘pressure’ on workers, supposedly driving greater productivity. However, such perspectives often overlook the long-term consequences of excessive utilisation, including reduced service quality, customer dissatisfaction and eventual under-utilisation due to loss of customer orders.The challenge for operations managers lies in articulating the value of protective capacity in a scientifically grounded and compelling way. Without robust explanations, their advocacy for maintaining protective capacity risks being dismissed as a preference for ‘inefficiency’ despite its critical role in ensuring quality service and sustaining customer loyalty over time.This is where Kingman’s equation provides a valuable foundation. It scientifically explains why protective capacity is indispensable for achieving operational stability and organisational growth. By leveraging this principle, managers can advocate for a balanced approach that prioritises both utilisation and stability, ensuring sustainable development and long-term success.<h5>Understanding Kingman’s equation</h5>Kingman’s equation is a foundational concept in queuing theory with a single workstation, which explores how cycle time (the time taken to process work through the single workstation) is affected by utilisation, protective capacity, environmental variability, and processing time. Kingman, a British mathematician, developed the following equation to illustrate this relationship:The formula is as follows.Cycle Time = (V)* (U/(1-U)) *(T)V is the measure of variability in both the arrival time of the job and the processing time or the touch time of a single job in the workstation.V is calculated as (Ca²+Ct²)/2.Ca is the coefficient of variability in arrival time, and Ct is the coefficient of variability in processing time.U is the measure of utilisation.1-U is the level of protective capacity available.T is the touch/processing time.<h5>Key insights and intuition from Kingman's equation</h5><ul><li>Impact of utilisation on cycle time</li></ul>As utilisation increases, U approaches 1 (Utilisation~100%), the slack or protective capacity decreases, and waiting times rise sharply, indicating a more congested system. This means that for a given variability of an environment, the cycle time of an environment can go exponentially high when utilisation crosses a particular threshold.To illustrate in numbers, improving utilisation from 70% - 95% for any environment can lead to the following impact on the variable (U/1-U) of the equation.Let us calculate and seeU/(1-U) at 70% = 0.7/0.3 = 2.33U/(1-U) at 95% = 0.95/0.05 = 19This means an attempt to increase utilisation by 25% can result in waiting time jumping by 800%!&nbsp; Some job shop managers understand this impact more intuitively and manage their system using a monthly planning system. As the month progresses, the cycle starts ballooning towards mid-month. By the end of the month, they will try to throttle further material into the shop and focus on flushing out the excess WIP before allowing the intake in the next month.The graph below gives a visual imagery of the equation. &nbsp;<figure class="image"><img style="aspect-ratio:2500/2500;" src="https://backend.vectorconsulting.in/storage/editor_uploads//figure-1-queue-length-vs-utilisation_1734676216.jpg" width="2500" height="2500"></figure><ul><li>Impact in high variability environment</li></ul>Let’s evaluate the impact of variability on the waiting times – we have both variabilities factored into the equation - Ca is the coefficient of variability of arrival time (inflow), and Ct is the coefficient of variability in processing time (outflow).To check the phenomenon with some numbers, say the variability of an environment has gone up from Month 1 as below.Month 1 - {for Ca = 0.3, Ct =0.4} , the calculated value V = 0.125One of the sources of variability can be changes in product mix with different processing times for the products of the mix. This leads to the coefficient of variability in processing time (outflow) increasing to 0.8.To worsen it further, let’s say one of the products needs an additional inspection step before the process. When the product mix is skewed towards this product, it will induce additional variability in arrival times, and the coefficient of variability of arrival time (inflow) goes up to 0.7.&nbsp;So, in month 2,Month 2 - {for Ca = 0.7, Ct = 0.8}, the calculated value V = 0.565This implies that for the same level of utilisation, the waiting time can jump up to 450% with changes in the variabilities of inflow and outflow.This means that when the product mix changes, even if the planned loading is done at the same level of utilisation, the system can deteriorate drastically for end customers, leading to the loss of customers themselves. Such drastic increases in lead times can lead to much expediting, further increasing the variability and leading to more deterioration.Many textile plants in India face this problem when they change to a "better margin product" with lower volume per product and many variabilities in processing time in crucial work centres like dyeing, weaving and garment stitching. The top management is usually at a total loss for a system collapse, even when loading was done precisely as before. Such changes in product mix and consequent delivery issues can impact output for a period, leading to even drastic reductions in profits. Loss of customers can be an added problem, bringing a company to its knees!&nbsp;Similarly, in new product development environments – with more loading, the level of multitasking upstream of the constraint work centre can be very high, leading to a very high level of uncertainty in the arrival rate to the constraint area. This can drop the system's output and increase the overall cycle time.In some manufacturing environments, high variability in arrival times goes up with high WIP, which can lead to cherry-picking in upstream work centres, leading to arrival time uncertainty to the bottleneck. This is more so in environments with assembly points and de-synch between matching parts. The flow of the parts can add to arrival time variability, further bloating up the cycle time.In environments where the work centre is essentially a human being – a designer, an artist, or a job worker performing non-standard jobs are inherently high-variable in processing times. In a system where these work centres feed to each other (steps in a design process or a job shop), the variability of both arrival and processing becomes very high.In such high variability environments like job shops, ETO, or NPD, the exponential impact of rising waiting times can kick in at a much lower utilisation level than in low-variability (deterministic arrival and processing time) environments.This implies that for a high variability environment, the protective capacity required for stable processing time is even higher than for a low variability environment.<h5>Key insights</h5>Controlling variability reduces the waiting time and improves the service levels:One can conclude from above that reducing the variability of an environment can drastically improve customer service! One can bring things back to normal if one knows what to focus on!In many production systems, we can improve upon the arrival time variabilities and ensure smooth flow by regulating the WIP daily (rather than monthly /quarterly) and having clear priority signals in the system. Further improvement in variability can be achieved by improving the daily availability of raw materials or reducing rework in work centres.In such environments, just by regulating the variabilities, one can prevent the creation of surprise bottlenecks. This, in turn, can not only drastically improve the cycle time but also improve the output.<h5>A small protective capacity can have a dramatic positive impact</h5>In environments where bottleneck resources are skilled manpower and the system is severely congested with long cycle time, offloading a small portion of non-value-adding work from the skilled manpower can dramatically improve the cycle time and output of the system.<figure class="image"><img style="aspect-ratio:10407/2437;" src="https://backend.vectorconsulting.in/storage/editor_uploads//oops_1734676322.png" width="10407" height="2437"></figure>In job shops, it makes sense not to discard old machines in constrained areas. They can add significant value in ensuring the stability of delivery lead times.In many skill-based operations, the attrition rates of the workers can create a destabilising effect on operations from time to time. Such plants need help to grow their business beyond a point. Such companies must investigate ways to arrest attrition or keep excess capacity to account for the attrition.Pharma labs in India usually face huge attrition rates, and plants need help with de-stabilised operations from time to time due to backlog built up in QC labs. Simple steps of releasing the capacity of analysts by removing non-value-adding work or providing help to low-skilled workers to offload routine non-analyst tasks can help maintain stability.<h5>Actual usage &amp; practical implementation</h5>While a valuable tool for analysing queueing dynamics, the Kingman equation is specifically designed for single work centres with variable arrival and processing rates.Even when we model a work centre with multiple resources and try to make the variabilities more deterministic, the effect of exponentially increasing waiting time dampens but still happens nonetheless.<figure class="image"><img style="aspect-ratio:2540/1984;" src="https://backend.vectorconsulting.in/storage/editor_uploads//oops-06_1734676357.png" width="2540" height="1984"></figure><figure class="image"><img style="aspect-ratio:2540/1984;" src="https://backend.vectorconsulting.in/storage/editor_uploads//oops-07_1734676370.png" width="2540" height="1984"></figure>Moreover, the equation currently does not adequately capture the complexities of natural manufacturing environments that often involve multiple interconnected work centres, dependent arrival rates, and varying conditions. Further, advanced simulations or analytical methods are required to accurately calculate critical inflexion points in these environments. These approaches must account for interdependencies and variability across the system. However, their effectiveness often hinges on the availability and accuracy of substantial operational data, which may be challenging to obtain in most environments.Hence, the primary value of the Kingman equations lies not in their direct application for pre-facto calculations but in building an intuitive understanding of an environment, particularly in a post-facto context. Thus, while these equations cannot directly model every environment, continuous daily data collection on protective capacity usage and cycle times can showcase the association between cycle time, variability, and utilization and help pinpoint inflection points essential for effective operational control.ConclusionKingman's equation is a powerful tool for helping operations managers articulate the trade-offs between utilisation and customer service in environments with inherent variability. By understanding and leveraging this equation, managers can advocate for protective capacity as a necessary buffer to maintain quality service, avoid excessive cycle times, and sustain long-term customer relationships. This knowledge empowers them to counter the short-sighted focus on high utilisation, showing that maintaining stability and flexibility often leads to greater long-term profitability and growth.

Learn how maintaining protective capacity ensures operational stability, reduces cycle times, and enhances customer satisfaction. Discover solutions to balance utilisation, variability, and profitability for sustainable growth.

Developing intuition of flow – Understanding variability, utilisation and cycle times

Recap: Maintaining <a target="_blank" rel="noopener noreferrer" href="https://www.vectorconsulting.in/en/research-and-publication/blogs/the-essence-of-managing-operations/">protective capacity (buffers) </a>is essential to ensure stable customer service levels in any operational environment characterised by variability. As utilisation rises, the available free capacity to address unexpected inflow diminishes, inevitably leading to the formation of queues.&nbsp;While experienced operations managers often grasp this intuitively, they may need help to effectively communicate its importance to other departments, particularly those working in an environment focused on maximising utilisation to reduce production costs.The counterargument from the flag-bearers of cost reduction through higher utilisation is that higher utilisation reduces costs (using principles of cost absorption) and thereby increases profits. Another common rhetorical stance is that continuous emphasis on higher utilisation maintains the ‘pressure’ on workers, supposedly driving greater productivity. However, such perspectives often overlook the long-term consequences of excessive utilisation, including reduced service quality, customer dissatisfaction and eventual under-utilisation due to loss of customer orders.The challenge for operations managers lies in articulating the value of protective capacity in a scientifically grounded and compelling way. Without robust explanations, their advocacy for maintaining protective capacity risks being dismissed as a preference for ‘inefficiency’ despite its critical role in ensuring quality service and sustaining customer loyalty over time.This is where Kingman’s equation provides a valuable foundation. It scientifically explains why protective capacity is indispensable for achieving operational stability and organisational growth. By leveraging this principle, managers can advocate for a balanced approach that prioritises both utilisation and stability, ensuring sustainable development and long-term success.<h5>Understanding Kingman’s equation</h5>Kingman’s equation is a foundational concept in queuing theory with a single workstation, which explores how cycle time (the time taken to process work through the single workstation) is affected by utilisation, protective capacity, environmental variability, and processing time. Kingman, a British mathematician, developed the following equation to illustrate this relationship:The formula is as follows.Cycle Time = (V)* (U/(1-U)) *(T)V is the measure of variability in both the arrival time of the job and the processing time or the touch time of a single job in the workstation.V is calculated as (Ca²+Ct²)/2.Ca is the coefficient of variability in arrival time, and Ct is the coefficient of variability in processing time.U is the measure of utilisation.1-U is the level of protective capacity available.T is the touch/processing time.<h5>Key insights and intuition from Kingman's equation</h5><ul><li>Impact of utilisation on cycle time</li></ul>As utilisation increases, U approaches 1 (Utilisation~100%), the slack or protective capacity decreases, and waiting times rise sharply, indicating a more congested system. This means that for a given variability of an environment, the cycle time of an environment can go exponentially high when utilisation crosses a particular threshold.To illustrate in numbers, improving utilisation from 70% - 95% for any environment can lead to the following impact on the variable (U/1-U) of the equation.Let us calculate and seeU/(1-U) at 70% = 0.7/0.3 = 2.33U/(1-U) at 95% = 0.95/0.05 = 19This means an attempt to increase utilisation by 25% can result in waiting time jumping by 800%!&nbsp; Some job shop managers understand this impact more intuitively and manage their system using a monthly planning system. As the month progresses, the cycle starts ballooning towards mid-month. By the end of the month, they will try to throttle further material into the shop and focus on flushing out the excess WIP before allowing the intake in the next month.The graph below gives a visual imagery of the equation. &nbsp;<figure class="image"><img style="aspect-ratio:2500/2500;" src="https://backend.vectorconsulting.in/storage/editor_uploads//figure-1-queue-length-vs-utilisation_1734676216.jpg" width="2500" height="2500"></figure><ul><li>Impact in high variability environment</li></ul>Let’s evaluate the impact of variability on the waiting times – we have both variabilities factored into the equation - Ca is the coefficient of variability of arrival time (inflow), and Ct is the coefficient of variability in processing time (outflow).To check the phenomenon with some numbers, say the variability of an environment has gone up from Month 1 as below.Month 1 - {for Ca = 0.3, Ct =0.4} , the calculated value V = 0.125One of the sources of variability can be changes in product mix with different processing times for the products of the mix. This leads to the coefficient of variability in processing time (outflow) increasing to 0.8.To worsen it further, let’s say one of the products needs an additional inspection step before the process. When the product mix is skewed towards this product, it will induce additional variability in arrival times, and the coefficient of variability of arrival time (inflow) goes up to 0.7.&nbsp;So, in month 2,Month 2 - {for Ca = 0.7, Ct = 0.8}, the calculated value V = 0.565This implies that for the same level of utilisation, the waiting time can jump up to 450% with changes in the variabilities of inflow and outflow.This means that when the product mix changes, even if the planned loading is done at the same level of utilisation, the system can deteriorate drastically for end customers, leading to the loss of customers themselves. Such drastic increases in lead times can lead to much expediting, further increasing the variability and leading to more deterioration.Many textile plants in India face this problem when they change to a "better margin product" with lower volume per product and many variabilities in processing time in crucial work centres like dyeing, weaving and garment stitching. The top management is usually at a total loss for a system collapse, even when loading was done precisely as before. Such changes in product mix and consequent delivery issues can impact output for a period, leading to even drastic reductions in profits. Loss of customers can be an added problem, bringing a company to its knees!&nbsp;Similarly, in new product development environments – with more loading, the level of multitasking upstream of the constraint work centre can be very high, leading to a very high level of uncertainty in the arrival rate to the constraint area. This can drop the system's output and increase the overall cycle time.In some manufacturing environments, high variability in arrival times goes up with high WIP, which can lead to cherry-picking in upstream work centres, leading to arrival time uncertainty to the bottleneck. This is more so in environments with assembly points and de-synch between matching parts. The flow of the parts can add to arrival time variability, further bloating up the cycle time.In environments where the work centre is essentially a human being – a designer, an artist, or a job worker performing non-standard jobs are inherently high-variable in processing times. In a system where these work centres feed to each other (steps in a design process or a job shop), the variability of both arrival and processing becomes very high.In such high variability environments like job shops, ETO, or NPD, the exponential impact of rising waiting times can kick in at a much lower utilisation level than in low-variability (deterministic arrival and processing time) environments.This implies that for a high variability environment, the protective capacity required for stable processing time is even higher than for a low variability environment.<h5>Key insights</h5>Controlling variability reduces the waiting time and improves the service levels:One can conclude from above that reducing the variability of an environment can drastically improve customer service! One can bring things back to normal if one knows what to focus on!In many production systems, we can improve upon the arrival time variabilities and ensure smooth flow by regulating the WIP daily (rather than monthly /quarterly) and having clear priority signals in the system. Further improvement in variability can be achieved by improving the daily availability of raw materials or reducing rework in work centres.In such environments, just by regulating the variabilities, one can prevent the creation of surprise bottlenecks. This, in turn, can not only drastically improve the cycle time but also improve the output.<h5>A small protective capacity can have a dramatic positive impact</h5>In environments where bottleneck resources are skilled manpower and the system is severely congested with long cycle time, offloading a small portion of non-value-adding work from the skilled manpower can dramatically improve the cycle time and output of the system.<figure class="image"><img style="aspect-ratio:10407/2437;" src="https://backend.vectorconsulting.in/storage/editor_uploads//oops_1734676322.png" width="10407" height="2437"></figure>In job shops, it makes sense not to discard old machines in constrained areas. They can add significant value in ensuring the stability of delivery lead times.In many skill-based operations, the attrition rates of the workers can create a destabilising effect on operations from time to time. Such plants need help to grow their business beyond a point. Such companies must investigate ways to arrest attrition or keep excess capacity to account for the attrition.Pharma labs in India usually face huge attrition rates, and plants need help with de-stabilised operations from time to time due to backlog built up in QC labs. Simple steps of releasing the capacity of analysts by removing non-value-adding work or providing help to low-skilled workers to offload routine non-analyst tasks can help maintain stability.<h5>Actual usage &amp; practical implementation</h5>While a valuable tool for analysing queueing dynamics, the Kingman equation is specifically designed for single work centres with variable arrival and processing rates.Even when we model a work centre with multiple resources and try to make the variabilities more deterministic, the effect of exponentially increasing waiting time dampens but still happens nonetheless.<figure class="image"><img style="aspect-ratio:2540/1984;" src="https://backend.vectorconsulting.in/storage/editor_uploads//oops-06_1734676357.png" width="2540" height="1984"></figure><figure class="image"><img style="aspect-ratio:2540/1984;" src="https://backend.vectorconsulting.in/storage/editor_uploads//oops-07_1734676370.png" width="2540" height="1984"></figure>Moreover, the equation currently does not adequately capture the complexities of natural manufacturing environments that often involve multiple interconnected work centres, dependent arrival rates, and varying conditions. Further, advanced simulations or analytical methods are required to accurately calculate critical inflexion points in these environments. These approaches must account for interdependencies and variability across the system. However, their effectiveness often hinges on the availability and accuracy of substantial operational data, which may be challenging to obtain in most environments.Hence, the primary value of the Kingman equations lies not in their direct application for pre-facto calculations but in building an intuitive understanding of an environment, particularly in a post-facto context. Thus, while these equations cannot directly model every environment, continuous daily data collection on protective capacity usage and cycle times can showcase the association between cycle time, variability, and utilization and help pinpoint inflection points essential for effective operational control.ConclusionKingman's equation is a powerful tool for helping operations managers articulate the trade-offs between utilisation and customer service in environments with inherent variability. By understanding and leveraging this equation, managers can advocate for protective capacity as a necessary buffer to maintain quality service, avoid excessive cycle times, and sustain long-term customer relationships. This knowledge empowers them to counter the short-sighted focus on high utilisation, showing that maintaining stability and flexibility often leads to greater long-term profitability and growth.&nbsp;

Understand flow in manufacturing by exploring variability, utilisation, and cycle times. Insights from Vector Consulting Group to optimise operations. Read more here.

Key Strategies to Enhance Flow in Manufacturing | Vector Consulting Group

The core challenge of all operation environments&nbsp;A hospital managing the flow of patients for a doctor, a part being machined at multiple work centres on a shop floor, or food being prepared and served to customers after passing through various stations in a kitchen - all these scenarios represent operations environments. Regardless of the environment, the essence of operations management in any environment lies in how effectively an organisation can synchronise demand with its available capacity.&nbsp;What makes this job complex is variability, better known as Murphy!&nbsp;Demand, by nature, tends to fluctuate and rarely aligns perfectly with available capacity. For example, a restaurant might experience peak demand beyond its capacity during dinner hours while facing minimal load during other times. Even during peak hours, the volume and mix of orders can vary daily. Similarly, manufacturing plants may encounter unplanned shifts in the product mix and demand spikes over different periods.&nbsp;At the same time, capacity is not a static resource either—it fluctuates based on factors such as the availability of skilled workers, equipment breakdowns, or yield issues.&nbsp;By definition, these fluctuations or variations are not predictable in shorter horizons. However, demand spikes can be smoothened with planned capacity availability on a longer planning horizon. Hence, any plan that appears to synchronise demand and capacity, ideally using average or most likely numbers in an annual/monthly resource budget sheet, can quickly fall apart when faced with real-world challenges in shorter periods.&nbsp;The only way out: Buffers&nbsp;If we go back to basics, the only way to ensure synchronisation despite the variability in demand and capacity is to design buffers in planning.&nbsp;There are three primary buffers available for any operations environment.<ol><li>Capacity Buffer: Part of the available capacity is deliberately left unutilised in planning. Catch-up capacity is available to make up for any temporary backlog due to demand and capacity variation and clear it out sooner, thus enabling rapid synchronisation.</li><li>Inventory Buffer: Designated stocks from where orders can start getting processed or served, dampening the demand variation from impacting capacity and vice-versa.</li><li>Time Buffer: The time the customer has to wait to get his product/service. With more time 'borrowed' from the customer, one can stagger the orders based on the latest available capacity.&nbsp;</li></ol>&nbsp;These buffers are not independent variables. The designated value of one impacts the other two. Hence, understanding their interdependencies is critical to designing these buffers for stable operations.&nbsp;Understanding the dependencies between buffers1. Dependency between capacity and time buffers:&nbsp;Queuing theory tells us that when capacity utilisation approaches 100%, the queues or the lead time grows exponentially. In an environment, a utilisation jump from 90%-95% may lead to a 2X or 3X increase in queue length. In most cases, when utilisation exceeds 80%-85%, the queue starts growing out of control (the queue can be interpreted as a time buffer). This is because when the server is mostly busy, and there is sudden variation upwards of incoming load or increased servicing time for a short time, the queue built up will happen. After all, no spare capacity is available to adequately compensate for the backlog while serving the usually incoming load. In a high variability environment, the exponential function of queuing can kick in much earlier.&nbsp;Figure 1: Queue length v/s Utilisation<figure class="image"><img style="aspect-ratio:2500/2500;" src="https://backend.vectorconsulting.in/storage/editor_uploads//figure-1-queue-length-vs-utilisation_1731663143.jpg" width="2500" height="2500"></figure>(The above curve is governed by the equation: Waiting time = VUT/(1-U), where V is the variability of capacity availability and job arrival, U is utilisation, T is the touch time).&nbsp;The problem is aggravated in multiple work-centre models, as increased queuing can even lead to chaos on the shop floor, impacting the flow of material to the bottleneck machine. This could, in turn, further reduce the plant’s output, leading to more queuing (or time buffer) additions.&nbsp;Project/job shop/manual work environments with shared resources can be high variability environments. Here, an attempt to increase capacity utilisation from 70%-95% may result in a 700 times increase in lead times and eventual loss of orders! A sudden change in product mix for many environments may derail customer servicing, with the same level of capacity loading as in the past. (Textile plants in India face this phenomenon once in a while when they change over to a more ‘profitable’ product mix).&nbsp;2. Dependency between inventory and time buffer:Inventory buffers reduce the lead time of supply to customers if managed well. In a restaurant, if semi-cooked food or key ingredients are processed and stocked, then the lead time to prepare the final dish can be lowered. So, in this case, a stock buffer designated at an appropriate point can reduce the time buffer required to manage operations. However, if demand spikes and the buffer is eliminated, the customer service time will increase, adding to the time buffer used in the case. In a distribution environment, any attempt to reduce inventory in a warehouse that does not cover a reasonable demand during the supply lead time can lead to back orders again, triggering the time buffer and bad service experience by customers.&nbsp;Figure 2: Inventory levels v/s Lead time with on-road inventory (Make-to-Stock environment)<figure class="image"><img style="aspect-ratio:1200/1200;" src="https://backend.vectorconsulting.in/storage/editor_uploads//figure-2-inventory-levels-vs-lead-time-with-on-road-inventorymake-to-stock-environment_1731665359.jpg" width="1200" height="1200"></figure>&nbsp;Organisations that manage inventory by arbitrary targets without understanding the relationship of inventory, lead time of supply and tolerance time of customer demand can unknowingly lose significant sales while trying to save pennies in interest costs. Many can get into a death spiral as reduced sales put further pressure on working capital, forcing one to further manipulate the inventory.&nbsp;&nbsp;3. Dependency between capacity and inventory buffers:&nbsp;While capacity and inventory buffers are directly related to time buffers, they also depend on each other. One cannot build and maintain a desired inventory buffer without an adequate capacity buffer. A work centre with a constrained capacity, where demand exceeds capacity very frequently, will never be able to create an adequate inventory buffer. In a way, the capacity buffer is the fundamental of the three. But ironically, it is also one of the most neglected in design.&nbsp;Figure 3: Inventory levels v/s Capacity utilisation<figure class="image"><img style="aspect-ratio:800/800;" src="https://backend.vectorconsulting.in/storage/editor_uploads//figure-3-inventory-levels-vs-capacity-utilisation_1731665412.jpg" width="800" height="800"></figure>What causes bad design of capacity buffers&nbsp;Whether it is a made-to-finished goods stock company, stocks at an intermediate product level, or a made-to-order, capacity buffer is a must to maintain consistency in lead times experienced by customers. However, designing a capacity buffer in planning implies agreeing on under-utilisation! On the face of it, this looks like a costly affair to which a CFO is less likely to agree. So, it is not unusual for companies to use time buffers more to manage their operations. The time buffer usage also fluctuates across time horizons in many environments, leading to unreliability of deliveries, as customers experience.&nbsp;Figure 4: Lead times experienced by customers for the same service/product<figure class="image"><img style="aspect-ratio:3641/1468;" src="https://backend.vectorconsulting.in/storage/editor_uploads//figure-4-lead-times-experienced-by-customers-for-same-serviceproduct_1731665487.jpg" width="3641" height="1468"></figure>(As shown in the diagram, if the customer experiences Zone 3, it is very likely that the supplier will get the backlash in terms of pricing pressures or lower volumes. At Zone 1, suppliers may enjoy a competitive edge if they stay in that zone perpetually).&nbsp;In many environments, bad customer service, Zone 3, which implies forced usage of unplanned time buffers, is not even visible to companies. This is because flawed metrics are used in internal dashboards.&nbsp;Companies in Zone 3, which uses time buffers erratically, have the most significant negative financial impact in terms of loss of sales and customer dissatisfaction. Since no one signs a cheque for these parameters – it always appears as a ‘subjective’ parameter worth the neglect. Time buffer eventually corrects itself by adding capacity buffers (loss of customer orders and less than desired loading) or inventory buffers (orders fluctuate across periods as customers divert orders to competition while the planned inventory balloons). Ironically, such companies have higher operations costs in the long run as they lose customer leverage. So, such companies return to Zone 1 when underloaded and return to Zone 3 with increased loading. Customers view such suppliers as unreliable and consider them as one of the other options. As a result, these supplier companies do not feel confident of expanding their capacity. Eventually, the ability to grow profitably over the years is greatly jeopardised by bad capacity management decisions both at short-term tactical levels and long-term.&nbsp;&nbsp;The flawed paradigm&nbsp;The mindset of looking at operations with the eyes of cost management comes in the way of managing operations using underlying principles of the science of operations. The cost view is greatly influenced by management sloganeering and fads. Management sloganeering statements like “cut waste and boost efficiency” and buzz words like lean management have greatly aggravated the viewpoint.&nbsp; Interestingly, Toyota—the most famous Lean Management case study—understood the importance of planned or designed capacity buffers. In the peak of the ‘80s and ‘90s, when most car manufacturers in the US suppliers operated on three shifts, Toyota always used two shifts, using the third shift as a way to catch up on production drops or demand spikes during the day. In that sense, Toyota was inefficient! However, the extra hours allowed Toyota to make up for any drop in output on the same day.&nbsp;In India, Fleetguard Filters Pvt. Ltd. also uses the third shift as a ‘protective capacity’. When the third shift is consistently utilised due to spillovers, the company treats it as a trigger to add capacity. This approach to capacity management ensures that the third shift remains available as spare capacity. Fleetguard Filters has ensured high ‘90s availability of products at warehouses, every day for the last two decades—a benchmark in auto spare parts distribution.&nbsp;Inadequate capacity buffers mean that companies in Zone 3 will eventually experience a very high cost of operations.&nbsp;So, it is a myth that capacity buffers increase costs. It doesn’t!&nbsp;How to get there?&nbsp;The starting step should be to create desired capacity and/or inventory buffers in planning with target time buffer performance, which one wants to deliver to end-customers on a perpetual basis. Ideally, the time buffer or the lead time experienced by the customers should be what a customer would tolerate! A good understanding of the customers’ environments helps one understand the damages caused by late delivery and what the customer tolerance time might be.&nbsp;It does not imply that a company must invest in extra capacity or reduce order intake to get started. To get started, one needs to analyse the situation in each case. The various ways can be as follows. If the plant has sources of variability that can be immediately addressed, it makes sense to attack those to create the desired capacity buffers. Few examples are as below -&nbsp;<ul><li>In many plants, limiting the WIP to the needs of the bottleneck machine can reduce the arrival time variability of jobs, significantly reducing not just the waiting time but also releasing the ‘hidden’ capacity of the plant.&nbsp;</li><li>In some badly designed plants, there is inherent high variability of product mix, yet they have automated lines which are tightly coupled with very low WIP. Such plants lose capacity, e.g. many packing lines of pharma plants where primary and secondary packing are tightly coupled with each other. Changeovers and slow-downs in one impact the other. Decoupling such lines or creating space buffers for inventory can release significant capacity.&nbsp;</li><li>In some plants, raw material availability can be a frequent source of wastage. Aligning vendors with win-win arrangements can eliminate waste and create the required buffer capacity.</li></ul>&nbsp;<ul><li>If the bottleneck resources are skilled labour, one can explore ways to eliminate non-value-adding activities to create the desired protective capacity.</li></ul>&nbsp;Once the low-hanging gains of capacity variability are addressed, the buffers can be regularly checked for their adequacy to launch other improvement projects to reduce variability, such as rework, set-up time reduction, and other quality issues. This can help increase the buffer capacity.&nbsp;With released capacity in a made-to-order plant, the capacity loading can be reduced to lower than the peak output while quoting due dates. For a made-to-stock company where orders cannot be staggered, one needs to monitor the usage of the capacity buffer to trigger timely additions to capacity.&nbsp;In some environments, demand variability will still be too high, and the capacity buffer may not be adequate to absorb it fully. In such environments, it makes sense to identify non-strategic markets where the additional time buffer will be used to create the desired capacity buffers for strategic markets. This implies that the non-strategic markets will not experience consistent lead times, even though they may experience a reliable delivery as per the promised longer quoted lead time.&nbsp;In environments where seasonality-implied variability is too high, adding capacity buffers widens the gap between capacity and output during low seasons. Activating or deactivating shifts in season and off-season may not work, whereas activating a shift requires recruiting trained personnel. In such cases, capacity loading during the season can add a time buffer instead of standard lead times to ensure the reliability of deliveries.&nbsp;Paradigm changes in management&nbsp;Realising that capacity buffers are the key to operational excellence and customer service implies a different management approach. It requires an understanding of the following insights:&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp; Buffers provide management bandwidth to help reduce it further:One of the myths followed in many organisations is that a ‘pressure of reduced buffers is a must to drive efficiency’. The assumption is that people at the operating level would innovate to find a way out. However, this creates a fragile system that is more prone to chaos, as it loses the ability to absorb disruptions and maintain smooth operations. When variability remains unmanaged, and buffers are reduced, the system’s ability to adapt is severely compromised. This can lead to a loss of bandwidth and the system’s eventual failure even to implement improvement projects. Many companies are stuck in the status quo in operations because of this faulty approach towards buffer management. The status quo in operations is best revealed in their inventory turns or operational profitability numbers. It fluctuates around the same level for many years. Having capacity buffers first releases the management bandwidth from managing day-to-day chaos. It paves the way for the launch of focused initiatives to reduce capacity buffers in the next phase.&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp; Buffer getting used continuously is an alarm sign:It is important to continuously measure capacity depletion, inventory buffers and time buffer expansion. Organisations should have alarm bells ringing when inventory buffers drop beyond a particular level or capacity utilisation crosses the danger mark. These parameters should be monitored tactically at high frequency, usually daily, to trigger timely actions. They would do everything possible to get the situation back under control.&nbsp;&nbsp;In the vast majority of companies, rarely would a higher-than-usual utilisation number or lower-than-certain inventory trigger alarms. On the contrary, they are likely to be celebrated as being more efficient! It is not a wonder that many companies do not have tight leashes on their operations.&nbsp;Conclusion&nbsp;The delicate act of synchronising demand and capacity lies at the heart of operations management. Buffers - whether in capacity, time, or inventory - are essential tools organisations must use strategically to handle the inevitable variability in demand and capacity. Companies must carefully consider using capacity and inventory buffers to control unplanned time buffer usage. A capacity buffer is the most fundamental of all three buffers, and its design ensures how much of the other two will eventually be used. The key to operational excellence lies in how buffers are designed and managed.

This article explores the complexities of operations management, highlighting the critical role of demand-capacity synchronization and buffer strategies (capacity, inventory, and time) to navigate variability and achieve operational excellence

The essence of managing operations

Uncover fundamental principles for effective operations management, focusing on enhancing efficiency and productivity across industries. Dive into expert insights.

Effective Operations Management:  Capacity, Inventory & Time Buffers | Vector Consulting Group

The automotive industry in India is one of the most hotly contested spaces. This is because per capita vehicle ownership in India is still very low, leaving a substantial gap between the potential demand for automotive products and their supply. The Indian passenger car market alone is expected to reach US$ 60 billion by 2027. To thrive in this sector, a typical automotive company must meet three primary needs:<ul><li>Continuously launch newer variants or updates of its current models with high frequency.</li><li>Frequently introduce completely new platforms or brands to address new consumer segments. Interestingly, each of these new platforms or brands will also require their own variants in due course after launch.</li><li>Comply with new regulatory requirements. Undertaking these regulatory projects quickly and promptly is a significant challenge for any automaker since failure to meet them could result in halted production, lost sales, and diminished market share.</li></ul>Meeting all these demands on time without significantly increasing resource investments is the primary challenge for any automotive NPD (New Product Development).This requires consistently high success rates in meeting timelines across various project categories, including regulatory, upgrades, and new platforms.The current wayCurrently, companies in the automotive industry typically follow a conventional approach to ensure timely project completion. They set the project deadline and then work backwards to determine the start date. Historically, the more delays a company has experienced in previous projects, the earlier it tends to initiate work on new projects. This is done in the hope of providing themselves a buffer against future setbacks.Additionally, firms often believe that frequent reviews and proactive monitoring of timelines will help them maintain better control over projects.However, these strategies may exacerbate the problem. Project delays often increase, and companies may compromise on project scope to meet deadlines or face both issues simultaneously.&nbsp;The flawed approach to meeting project timelinesA common misconception is that starting projects earlier leads to faster completion, especially in delayed environments. However, this approach can be counterproductive.To illustrate the problem with this approach, let's consider an environment where projects are habitually delayed, and completion rates could be better, indicating that, on average, projects spend more time in the system. In this context, if we adopt the solution of starting newer projects earlier (to buffer against likely delays), we see a faster influx of new projects into the system while older ones remain stuck. These new projects, in turn, divert the attention and capacity of resources away from existing projects, further slowing down progress. This is especially true in NPD environments where resources are shared across multiple teams. As a result, the slowdown further reduces completion rates and increases the build-up of WIP, perpetuating the cycle.Therefore, the so-called solution becomes counterproductive to the system output.In many organizations, capacity is typically planned by determining the number of skilled personnel or machines required based on the anticipated project load. While this method may work in repetitive production environments, it is not suitable for New Product Development (NPD) environments. The work in NPD is mainly non-repetitive, and each project differs from the others. Output is challenging to predict due to varying project complexity, the expertise of assigned resources, and the level of collaboration among team members. As a result, capacity planning based on predicted output often leads to either overestimating or underestimating resources.When resources are underestimated, they are forced to handle too many projects simultaneously. This leads to resource switching, poor collaboration, delayed issue resolution, and reduced project output. On the other hand, overestimation leads to too few projects, underutilization of resources and a drop in output.The way outThe failure mode in the flawed approach mentioned earlier—where projects are pushed into the system faster to compensate for chronic delays—teaches us an important lesson. It shows that the fundamental determinant of a project's speed isn't how frequently it's reviewed but rather the number of other projects competing for the attention of the same resources at that moment in time. When too many projects are handled simultaneously, the "per-capita" time each resource can dedicate to a project decreases, leading to a drop in project speed.Therefore, a better approach to capacity management in project environments, especially within the automotive industry, is to use the number of ongoing projects to measure capacity. Capacity is the maximum number of projects that can be executed simultaneously without losing speed. Adding more projects beyond this point will slow down the system and reduce output. To maintain system stability, it is essential to keep this number under control.Determining the optimal number of projects to undertake at any given time hinges on the capacity of expert resources to manage multiple projects simultaneously. These experts are often in short supply, and their involvement directly impacts a project's progress and quality. Although identifying the ideal number of concurrent projects may be challenging initially, adjustments can be made over time. In most environments, we typically reduce work-in-progress (WIP) by 70 to 80 percent and maintain it at that level.For instance, the results were remarkable when this approach was implemented at a two-wheeler manufacturing company. Over two years, the number of projects launched annually surged by 500%, and lead times were cut in half. Moreover, the company consistently met regulatory requirements on time, significantly reducing the substantial write-off costs that had previously been a common issue.&nbsp;In the highly competitive Indian automotive industry, balancing innovation, regulatory compliance, and resource management is critical for long-term success. Companies that can effectively manage their New Product Development processes better will be well-positioned to capitalize on the growing demand and navigate the complex challenges that lie ahead.

Explore the transformative approach to automotive NPD with a focus on strategic capacity management. Discover how optimizing project loads can significantly accelerate development times and increase efficiency in the highly competitive automotive industry.

Beyond conventional auto NPD: a smarter approach to managing capacity and timelines

The automotive industry in India is one of the most hotly contested spaces. This is because per capita vehicle ownership in India is still very low, leaving a substantial gap between the potential demand for automotive products and their supply. The Indian passenger car market alone is expected to reach US$ 60 billion by 2027. To thrive in this sector, a typical automotive company must meet three primary needs:<ul><li>Continuously launch newer variants or updates of its current models with high frequency.</li><li>Frequently introduce completely new platforms or brands to address new consumer segments. Interestingly, each of these new platforms or brands will also require their own variants in due course after launch.</li><li>Comply with new regulatory requirements. Undertaking these regulatory projects quickly and promptly is a significant challenge for any automaker since failure to meet them could result in halted production, lost sales, and diminished market share.</li></ul>Meeting all these demands on time without significantly increasing resource investments is the primary challenge for any automotive NPD (New Product Development).This requires consistently high success rates in meeting timelines across various project categories, including regulatory, upgrades, and new platforms.The current wayCurrently, companies in the automotive industry typically follow a conventional approach to ensure timely project completion. They set the project deadline and then work backwards to determine the start date. Historically, the more delays a company has experienced in previous projects, the earlier it tends to initiate work on new projects. This is done in the hope of providing themselves a buffer against future setbacks.Additionally, firms often believe that frequent reviews and proactive monitoring of timelines will help them maintain better control over projects.However, these strategies may exacerbate the problem. Project delays often increase, and companies may compromise on project scope to meet deadlines or face both issues simultaneously.&nbsp;The flawed approach to meeting project timelinesA common misconception is that starting projects earlier leads to faster completion, especially in delayed environments. However, this approach can be counterproductive.To illustrate the problem with this approach, let's consider an environment where projects are habitually delayed, and completion rates could be better, indicating that, on average, projects spend more time in the system. In this context, if we adopt the solution of starting newer projects earlier (to buffer against likely delays), we see a faster influx of new projects into the system while older ones remain stuck. These new projects, in turn, divert the attention and capacity of resources away from existing projects, further slowing down progress. This is especially true in NPD environments where resources are shared across multiple teams. As a result, the slowdown further reduces completion rates and increases the build-up of WIP, perpetuating the cycle.Therefore, the so-called solution becomes counterproductive to the system output.In many organizations, capacity is typically planned by determining the number of skilled personnel or machines required based on the anticipated project load. While this method may work in repetitive production environments, it is not suitable for New Product Development (NPD) environments. The work in NPD is mainly non-repetitive, and each project differs from the others. Output is challenging to predict due to varying project complexity, the expertise of assigned resources, and the level of collaboration among team members. As a result, capacity planning based on predicted output often leads to either overestimating or underestimating resources.When resources are underestimated, they are forced to handle too many projects simultaneously. This leads to resource switching, poor collaboration, delayed issue resolution, and reduced project output. On the other hand, overestimation leads to too few projects, underutilization of resources and a drop in output.The way outThe failure mode in the flawed approach mentioned earlier—where projects are pushed into the system faster to compensate for chronic delays—teaches us an important lesson. It shows that the fundamental determinant of a project's speed isn't how frequently it's reviewed but rather the number of other projects competing for the attention of the same resources at that moment in time. When too many projects are handled simultaneously, the "per-capita" time each resource can dedicate to a project decreases, leading to a drop in project speed.Therefore, a better approach to capacity management in project environments, especially within the automotive industry, is to use the number of ongoing projects to measure capacity. Capacity is the maximum number of projects that can be executed simultaneously without losing speed. Adding more projects beyond this point will slow down the system and reduce output. To maintain system stability, it is essential to keep this number under control.Determining the optimal number of projects to undertake at any given time hinges on the capacity of expert resources to manage multiple projects simultaneously. These experts are often in short supply, and their involvement directly impacts a project's progress and quality. Although identifying the ideal number of concurrent projects may be challenging initially, adjustments can be made over time. In most environments, we typically reduce work-in-progress (WIP) by 70 to 80 percent and maintain it at that level.For instance, the results were remarkable when this approach was implemented at a two-wheeler manufacturing company. Over two years, the number of projects launched annually surged by 500%, and lead times were cut in half. Moreover, the company consistently met regulatory requirements on time, significantly reducing the substantial write-off costs that had previously been a common issue.&nbsp;In the highly competitive Indian automotive industry, balancing innovation, regulatory compliance, and resource management is critical for long-term success. Companies that can effectively manage their New Product Development processes better will be well-positioned to capitalize on the growing demand and navigate the complex challenges that lie ahead.&nbsp;

Discover a more efficient way to manage capacity & timelines in automobile NPD. Insights and strategies by Vector Consulting Group. Read the blog here.

Insights in automobile NPD | Vector Consulting Group

Spare Parts: A Critical Component for Success&nbsp;In the competitive automotive industry, after-sales service plays a crucial role in determining a brand's success. Central to this service is the availability of genuine spare parts. As the landscape evolves, Original Equipment Manufacturers (OEMs) face an increasing challenge in managing a proliferating array of spare parts, driven by several factors.&nbsp;1. Expanding Product PortfoliosAs competition intensifies, OEMs are expanding their product lines to attract and retain customers. Over the last five decades, the number of players in the two-wheeler and passenger car segments has surged dramatically. In the 1970s, there were only 3 two-wheeler and 3 passenger car companies. By the 2010s, this number had increased to over 15 two-wheeler and 25 passenger car companies, including new tech-based entrants [1]. This strategy, while beneficial for sales, leads to a proliferation of spare parts that need to be managed throughout the vehicle lifecycle.Simultaneously, the number of passenger car models offered by OEMs has increased significantly. In the 1990s, each OEM offered 3-5 models. By the 2000s, this number had grown to 10-15 models per OEM, including various body types and segments. In the 2020s, each OEM offers over 25 models, including multiple variants and electric vehicles [2]. This expansion results in a complex array of spare parts to manage.2. Regulatory and Environmental PressuresThe regulatory landscape is also becoming more stringent. For example, the transition to BS-VI standards in India required significant upgrades to engine components, exhaust systems, and after-treatment devices. This shift necessitated stocking both BS-IV and BS-VI compliant parts, increasing inventory complexity and costs. According to our research, OEM spare parts inventory in the supply chain, both for aftermarket and production, as a percentage of annual turnover has risen to about 7-15% [3] post-migration to BS-VI. As BS-IV parts become obsolete, efficient phasing out while maintaining adequate stocks of BS-VI parts is essential.3. Unpredictable DemandOEMs face the challenge of managing a ‘long tail’ of infrequently demanded parts. To prevent stockouts and respond promptly to Vehicle-Off-Road (VOR) situations, companies maintain an average of 30-90 days' worth of spare parts inventory [4] in their distribution channels. Studies have shown that a substantial portion of these parts consists of infrequently demanded items [5], which complicates accurate demand forecasting.&nbsp;<figure class="image"><img style="aspect-ratio:6358/3250;" src="https://backend.vectorconsulting.in/storage/editor_uploads//4sep_1725513897.jpg" width="6358" height="3250"></figure>4. Unreliable SupplySupply chains involving multiple tiers of suppliers across regions are susceptible to disruptions. Events such as the COVID-19 pandemic, geopolitical tensions, and natural disasters have repeatedly disrupted the Indian auto supply chain. For instance, the COVID-19 pandemic alone caused a 16% decline in automotive production due to supply chain disruptions [6]. Other significant events include the 2021 chip shortage, which resulted in a production shortfall of millions of vehicles globally [7].&nbsp;Net Impact on Companies1. Supply Chain Conflict&nbsp;Balancing the need for high availability of parts with the costs of holding inventory is a persistent challenge. Excess inventory leads to increased holding costs, while insufficient inventory results in stockouts, lost sales, VOR situations, service delays, and customer dissatisfaction.&nbsp;2. Distribution ChallengesMany OEMs distribute auto components through dealerships and a network of distributors and small retailers.&nbsp;Dealership issues: Dealerships maintain significant inventory to ensure prompt service, but availability against job cards often averages between 78%-80% [8], with urgent VOR orders incurring high air freight costs. This impacts customer retention, leading to leakages from the dealer network. Research indicates that urgent air freight costs can be 4 to 5 times higher [9] than standard freight costs in such circumstances.&nbsp;Aftermarket distributors’ pain: Distributors, often small businessmen, face challenges in maintaining inventory levels due to capital constraints and slow-moving stock. This affects their ROI and ability to restock, impacting the last-mile availability of components. Studies show that distributors' stock rotation speed deteriorates due to the inherently slow-moving nature of many auto components <a href="#_edn3">[10]</a>, affecting their working capital and business sustainability.Moving Forward: Transitioning to a Consumption-Based Inventory SystemShifting from forecast-based monthly planning (S&amp;OP) to a consumption-based system with small, frequent inventory movements can significantly address these challenges, benefiting all supply chain stakeholders—from vendors and companies to distribution partners. This strategy leverages strategic buffers at key locations to build a high availability with low inventory supply chain. The process involves three key steps:1. Establish BuffersTo mitigate variability in the supply chain, including both demand and supply fluctuations for all the numerous parts, it is crucial to set up buffers at carefully chosen points, such as central warehouses (CWHs) and supplier nodes, based on frequency and quantity of off-take. These buffers allow for inventory replenishment based on actual consumption rather than rigid forecasts. By adopting a pull-based approach, suppliers can respond to daily inventory depletions, ensuring a more responsive and adaptable supply chain.&nbsp;2. Implement an Execution-Based Priority SystemManaging demand and capacity fluctuations effectively requires an execution-based priority system. This system sets target inventory levels and uses, for example, a colour-coded priority scheme (e.g., red for high priority, yellow for medium priority, and green for low priority) to signal production and dispatch priorities. This enables swift and efficient responses to changing demand patterns, minimising the risk of overreacting to fluctuations.&nbsp;3. Adapt Buffer Norms with market InsightsContinuously adapting buffer norms based on sales rates and other intelligent insights is crucial. The same colour-based system can be used to adjust inventory norms—raising them when sales exceed supply and preparing for anticipated sales changes. This method, supported by comprehensive IT infrastructure, enhances transparency by tracking priority zones and dynamically adjusting buffer norms based on real-time demand data.&nbsp;BenefitsThe advantage of adopting this approach is that inventory in the supply chain adapts dynamically to economic cycles, seasonal changes, and other demand and supply variabilities. The benefits include higher availability at central warehouses (95%-99%), reduced inventory levels (25%-30%), and lower warehousing and logistics costs (10%-15%) [11].&nbsp;Shifting to such a system can also solve issues for both dealerships and distributors by ensuring high availability (95%-99%) at reduced inventory levels (25%) and significantly increasing spare parts sales (20%) [12] for them.&nbsp;See case studies [13] [14] [15] from leading OEMs, which show how adopting pull-based systems not only enhances part availability but also reduces lead times and improves overall supply chain efficiency.&nbsp;

Discover how OEMs can streamline spare parts management in the automotive industry. Our platform offers solutions to tackle inventory complexity, high holding costs, and ensure high availability, reducing costs and enhancing customer satisfaction.

Solving OEMs’ chronic spare parts management puzzle

Spare Parts: A Critical Component for Success&nbsp;In the competitive automotive industry, after-sales service plays a crucial role in determining a brand's success. Central to this service is the availability of genuine spare parts. As the landscape evolves, Original Equipment Manufacturers (OEMs) face an increasing challenge in managing a proliferating array of spare parts, driven by several factors.&nbsp;1. Expanding Product PortfoliosAs competition intensifies, OEMs are expanding their product lines to attract and retain customers. Over the last five decades, the number of players in the two-wheeler and passenger car segments has surged dramatically. In the 1970s, there were only 3 two-wheeler and 3 passenger car companies. By the 2010s, this number had increased to over 15 two-wheeler and 25 passenger car companies, including new tech-based entrants [1]. This strategy, while beneficial for sales, leads to a proliferation of spare parts that need to be managed throughout the vehicle lifecycle.Simultaneously, the number of passenger car models offered by OEMs has increased significantly. In the 1990s, each OEM offered 3-5 models. By the 2000s, this number had grown to 10-15 models per OEM, including various body types and segments. In the 2020s, each OEM offers over 25 models, including multiple variants and electric vehicles [2]. This expansion results in a complex array of spare parts to manage.2. Regulatory and Environmental PressuresThe regulatory landscape is also becoming more stringent. For example, the transition to BS-VI standards in India required significant upgrades to engine components, exhaust systems, and after-treatment devices. This shift necessitated stocking both BS-IV and BS-VI compliant parts, increasing inventory complexity and costs. According to our research, OEM spare parts inventory in the supply chain, both for aftermarket and production, as a percentage of annual turnover has risen to about 7-15% [3] post-migration to BS-VI. As BS-IV parts become obsolete, efficient phasing out while maintaining adequate stocks of BS-VI parts is essential.3. Unpredictable DemandOEMs face the challenge of managing a ‘long tail’ of infrequently demanded parts. To prevent stockouts and respond promptly to Vehicle-Off-Road (VOR) situations, companies maintain an average of 30-90 days' worth of spare parts inventory [4] in their distribution channels. Studies have shown that a substantial portion of these parts consists of infrequently demanded items [5], which complicates accurate demand forecasting.&nbsp;<figure class="image"><img style="aspect-ratio:6358/3250;" src="https://backend.vectorconsulting.in/storage/editor_uploads//4sep_1725513897.jpg" width="6358" height="3250"></figure>4. Unreliable SupplySupply chains involving multiple tiers of suppliers across regions are susceptible to disruptions. Events such as the COVID-19 pandemic, geopolitical tensions, and natural disasters have repeatedly disrupted the Indian auto supply chain. For instance, the COVID-19 pandemic alone caused a 16% decline in automotive production due to supply chain disruptions [6]. Other significant events include the 2021 chip shortage, which resulted in a production shortfall of millions of vehicles globally [7].&nbsp;Net Impact on Companies1. Supply Chain Conflict&nbsp;Balancing the need for high availability of parts with the costs of holding inventory is a persistent challenge. Excess inventory leads to increased holding costs, while insufficient inventory results in stockouts, lost sales, VOR situations, service delays, and customer dissatisfaction.&nbsp;2. Distribution ChallengesMany OEMs distribute auto components through dealerships and a network of distributors and small retailers.&nbsp;Dealership issues: Dealerships maintain significant inventory to ensure prompt service, but availability against job cards often averages between 78%-80% [8], with urgent VOR orders incurring high air freight costs. This impacts customer retention, leading to leakages from the dealer network. Research indicates that urgent air freight costs can be 4 to 5 times higher [9] than standard freight costs in such circumstances.&nbsp;Aftermarket distributors’ pain: Distributors, often small businessmen, face challenges in maintaining inventory levels due to capital constraints and slow-moving stock. This affects their ROI and ability to restock, impacting the last-mile availability of components. Studies show that distributors' stock rotation speed deteriorates due to the inherently slow-moving nature of many auto components <a href="#_edn3">[10]</a>, affecting their working capital and business sustainability.Moving Forward: Transitioning to a Consumption-Based Inventory SystemShifting from forecast-based monthly planning (S&amp;OP) to a consumption-based system with small, frequent inventory movements can significantly address these challenges, benefiting all supply chain stakeholders—from vendors and companies to distribution partners. This strategy leverages strategic buffers at key locations to build a high availability with low inventory supply chain. The process involves three key steps:1. Establish BuffersTo mitigate variability in the supply chain, including both demand and supply fluctuations for all the numerous parts, it is crucial to set up buffers at carefully chosen points, such as central warehouses (CWHs) and supplier nodes, based on frequency and quantity of off-take. These buffers allow for inventory replenishment based on actual consumption rather than rigid forecasts. By adopting a pull-based approach, suppliers can respond to daily inventory depletions, ensuring a more responsive and adaptable supply chain.&nbsp;2. Implement an Execution-Based Priority SystemManaging demand and capacity fluctuations effectively requires an execution-based priority system. This system sets target inventory levels and uses, for example, a colour-coded priority scheme (e.g., red for high priority, yellow for medium priority, and green for low priority) to signal production and dispatch priorities. This enables swift and efficient responses to changing demand patterns, minimising the risk of overreacting to fluctuations.&nbsp;3. Adapt Buffer Norms with market InsightsContinuously adapting buffer norms based on sales rates and other intelligent insights is crucial. The same colour-based system can be used to adjust inventory norms—raising them when sales exceed supply and preparing for anticipated sales changes. This method, supported by comprehensive IT infrastructure, enhances transparency by tracking priority zones and dynamically adjusting buffer norms based on real-time demand data.&nbsp;BenefitsThe advantage of adopting this approach is that inventory in the supply chain adapts dynamically to economic cycles, seasonal changes, and other demand and supply variabilities. The benefits include higher availability at central warehouses (95%-99%), reduced inventory levels (25%-30%), and lower warehousing and logistics costs (10%-15%) [11].&nbsp;Shifting to such a system can also solve issues for both dealerships and distributors by ensuring high availability (95%-99%) at reduced inventory levels (25%) and significantly increasing spare parts sales (20%) [12] for them.&nbsp;See case studies [13] [14] [15] from leading OEMs, which show how adopting pull-based systems not only enhances part availability but also reduces lead times and improves overall supply chain efficiency.

Solve the chronic spare parts management challenge for auto OEMs. Insights & strategies from Vector Consulting Group. Read the blog here.

Inventory Strategies for Auto OEM Spare Parts | Vector Consulting Group

Despite significant technological advancements, supply chains still face long-standing challenges which have persisted for decades. Chronic issues such as excess inventory, obsolescence, lost sales, and subpar On-Time In-Full (OTIF) performance continue to undermine a company's profitability.&nbsp;Many organisations recognise that these challenges largely stem from the uncertainty and variability of demand forecasting. Substantial time and resources have been invested to eliminate this uncertainty by improving prediction accuracy. However, despite so many efforts and technological advancements, most companies still need to achieve accurate forecasts and grapple with the same chronic issues stated above.&nbsp;This leads us to question, "How can we effectively address these issues? Regardless of technological progress, are we destined to grapple with these challenges indefinitely?" The answer is no.&nbsp;The key is accepting that variabilities in demand and supply are inherent and can not be eliminated or even predicted with accuracy but can be effectively managed by protecting the customer and supply chain with 'shock absorbers'.Shock Absorbers and Replenishment Time&nbsp;‘Shock Absorbers’ refer to buffers regarding stock levels for each SKU at any given node or point within the supply chain. These buffers are designed to safeguard the node from uncertainties, whether from variability in demand or fluctuations in supply or delivery of materials from production facilities. These buffers aim to ensure that the system maintains the appropriate inventory at the right location (node) and at the right time.&nbsp;Buffers offer organisations several key advantages:&nbsp;<ul><li>They ensure that lead times for each SKU, from order placement to delivery, consistently fall within the customer's tolerance levels, thereby directly improving OTIF and service level metrics.</li><li>They enhance cost-effectiveness by reducing overall inventory levels across the system, maintaining optimal stock at each node, and minimizing transit costs associated with stock unavailability.</li><li>They boost profitability by facilitating higher inventory turnover.</li></ul>The next logical question is, "How are these buffers calculated?" The buffers at each node are determined by taking into account four key parameters:<ol><li>Level of Consumption</li><li>Variability in Consumption</li><li>Replenishment Time</li><li>Variability in Replenishment</li></ol>It is crucial to realise that Replenishment Lead Time (RLT) is the most critical parameter out of all these four factors as it impacts all other three. The more the Replenishment Lead Time, the higher the level of consumption and the more variability in demand and supply chain interruptions the system is exposed to.&nbsp;The other way around, while demand is largely beyond a company's control, shorter supply lead times reduce the exposure of nodes to absolute demand, minimise demand variation, and lower the variability in supply time. Therefore, the shorter the lead time, the smaller the buffers required at each node. This ensured that inventory in the system remained in control.&nbsp;How to manage buffers: Replenishment<ol><li>Decide buffers for each node and SKUs</li><li>The consumption of the buffer will fluctuate</li><li>Replenish the buffers to ensure availability</li></ol><figure class="image"><img style="aspect-ratio:904/276;" src="https://backend.vectorconsulting.in/storage/editor_uploads//image_1725275782.png" width="904" height="276"></figure>The goal should be to prevent any node from falling below a predetermined threshold, beyond which the risk of experiencing a loss of sales increases significantly.Replenishment priority :Stock buffers for different SKUs are divided into 5 distinct zones:1. Black: complete stockout; buffer is 100% penetrated/depleted2. Red: close to stockout; buffer is 67% penetrated/depleted3. Yellow: buffer is 33% penetrated/depleted4. Green: recently replenished; buffer is 0% penetrated/depleted5. White: stock level above the required bufferBased on the penetration levels of buffers for any SKU at a given node, the organisation can prioritise replenishment dispatches, ensuring that materials are dispatched appropriately without diverting to nodes where there is no immediate requirement. This approach allows the organisation to send the correct items to the suitable locations or nodes in the right quantities, thereby minimising the risk of sales loss at any node for a particular SKU.&nbsp;Once we have decided each SKU-node combination into different colour bands, prioritising is simple: use the sequence: Black – Red – Yellow – Green.&nbsp;Stop additional despatches to SKU – the white band node and prepare a liquidation plan as we have excess 'buffers' for this SKU – node combination.&nbsp;Dynamic Buffer Management (DBM)However, we know that actual consumption and penetration levels fluctuate over time, necessitating dynamic adjustments to buffers in response to changes in demand. Operating without these dynamic adjustments would result in the chronic issues mentioned in this article. This process is known as Dynamic Buffer Management (DBM), ensuring dynamic adjustment to buffer levels at each location. This leads us to the question: "How do we dynamically adjust the buffers?"Buffer levels are adjusted based on the SKUs' buffer penetration levels at any node over time:<ol><li>If it is in the red zone for more than 1 RLT period, increase the buffer level by 33%.</li><li>If it is in the green zone for more than 2 RLT periods, decrease the buffer level by 33%.&nbsp;</li></ol>Implementation Steps<figure class="image"><img style="aspect-ratio:904/276;" src="https://backend.vectorconsulting.in/storage/editor_uploads//image_1725275910.png" width="904" height="276"></figure><ol><li>Define inventory buffers at nodes: Set inventory buffer levels based on maximum consumption within the replenishment lead time, accounting for variability.</li><li>Reduce Replenishment Lead Time (RLT): Aim to reduce replenishment lead time to lower inventory buffer requirements.</li><li>Supply only what is consumed: Ensure that nodes receive only the quantities consumed and no more.</li><li>Prevent stockouts at warehouses: Implement a colour priority system (Black/Red/ Yellow/Green) to manage stock levels and prevent stockouts.</li><li>Order Daily Replenish Frequently (ODRF): Adopt a daily ordering and frequent replenishment strategy to maintain optimal inventory levels.</li><li>Dynamic buffer management: Ensure buffers are adjusted periodically to align with the changing patterns of supply and demand&nbsp;</li></ol>SummaryIn conclusion, avoid forecast-driven inventory creation and movement to optimize your supply chain. Instead, embrace end-to-end pull replenishment enabled by intelligent decoupling using dynamic buffers. This shift can lead to greater flexibility and enhanced responsiveness to customer needs while keeping the inventory optimum based on actual consumption.

Explore how dynamic buffers and pull replenishment strategies can effectively manage supply chain variabilities, enhancing profitability by reducing inventory costs and improving On-Time-In-Full (OTIF) performance.

Coping with supply chain issues using the Replenishment System (Pull over Push)

Despite significant technological advancements, supply chains still face long-standing challenges which have persisted for decades. Chronic issues such as excess inventory, obsolescence, lost sales, and subpar On-Time In-Full (OTIF) performance continue to undermine a company's profitability.&nbsp;Many organisations recognise that these challenges largely stem from the uncertainty and variability of demand forecasting. Substantial time and resources have been invested to eliminate this uncertainty by improving prediction accuracy. However, despite so many efforts and technological advancements, most companies still need to achieve accurate forecasts and grapple with the same chronic issues stated above.&nbsp;This leads us to question, "How can we effectively address these issues? Regardless of technological progress, are we destined to grapple with these challenges indefinitely?" The answer is no.&nbsp;The key is accepting that variabilities in demand and supply are inherent and can not be eliminated or even predicted with accuracy but can be effectively managed by protecting the customer and supply chain with 'shock absorbers'.Shock Absorbers and Replenishment Time&nbsp;‘Shock Absorbers’ refer to buffers regarding stock levels for each SKU at any given node or point within the supply chain. These buffers are designed to safeguard the node from uncertainties, whether from variability in demand or fluctuations in supply or delivery of materials from production facilities. These buffers aim to ensure that the system maintains the appropriate inventory at the right location (node) and at the right time.&nbsp;Buffers offer organisations several key advantages:&nbsp;<ul><li>They ensure that lead times for each SKU, from order placement to delivery, consistently fall within the customer's tolerance levels, thereby directly improving OTIF and service level metrics.</li><li>They enhance cost-effectiveness by reducing overall inventory levels across the system, maintaining optimal stock at each node, and minimizing transit costs associated with stock unavailability.</li><li>They boost profitability by facilitating higher inventory turnover.</li></ul>The next logical question is, "How are these buffers calculated?" The buffers at each node are determined by taking into account four key parameters:<ol><li>Level of Consumption</li><li>Variability in Consumption</li><li>Replenishment Time</li><li>Variability in Replenishment</li></ol>It is crucial to realise that Replenishment Lead Time (RLT) is the most critical parameter out of all these four factors as it impacts all other three. The more the Replenishment Lead Time, the higher the level of consumption and the more variability in demand and supply chain interruptions the system is exposed to.&nbsp;The other way around, while demand is largely beyond a company's control, shorter supply lead times reduce the exposure of nodes to absolute demand, minimise demand variation, and lower the variability in supply time. Therefore, the shorter the lead time, the smaller the buffers required at each node. This ensured that inventory in the system remained in control.&nbsp;How to manage buffers: Replenishment<ol><li>Decide buffers for each node and SKUs</li><li>The consumption of the buffer will fluctuate</li><li>Replenish the buffers to ensure availability</li></ol><figure class="image"><img style="aspect-ratio:904/276;" src="https://backend.vectorconsulting.in/storage/editor_uploads//image_1725275782.png" width="904" height="276"></figure>The goal should be to prevent any node from falling below a predetermined threshold, beyond which the risk of experiencing a loss of sales increases significantly.Replenishment priority :Stock buffers for different SKUs are divided into 5 distinct zones:1. Black: complete stockout; buffer is 100% penetrated/depleted2. Red: close to stockout; buffer is 67% penetrated/depleted3. Yellow: buffer is 33% penetrated/depleted4. Green: recently replenished; buffer is 0% penetrated/depleted5. White: stock level above the required bufferBased on the penetration levels of buffers for any SKU at a given node, the organisation can prioritise replenishment dispatches, ensuring that materials are dispatched appropriately without diverting to nodes where there is no immediate requirement. This approach allows the organisation to send the correct items to the suitable locations or nodes in the right quantities, thereby minimising the risk of sales loss at any node for a particular SKU.&nbsp;Once we have decided each SKU-node combination into different colour bands, prioritising is simple: use the sequence: Black – Red – Yellow – Green.&nbsp;Stop additional despatches to SKU – the white band node and prepare a liquidation plan as we have excess 'buffers' for this SKU – node combination.&nbsp;Dynamic Buffer Management (DBM)However, we know that actual consumption and penetration levels fluctuate over time, necessitating dynamic adjustments to buffers in response to changes in demand. Operating without these dynamic adjustments would result in the chronic issues mentioned in this article. This process is known as Dynamic Buffer Management (DBM), ensuring dynamic adjustment to buffer levels at each location. This leads us to the question: "How do we dynamically adjust the buffers?"Buffer levels are adjusted based on the SKUs' buffer penetration levels at any node over time:<ol><li>If it is in the red zone for more than 1 RLT period, increase the buffer level by 33%.</li><li>If it is in the green zone for more than 2 RLT periods, decrease the buffer level by 33%.&nbsp;</li></ol>Implementation Steps<figure class="image"><img style="aspect-ratio:904/276;" src="https://backend.vectorconsulting.in/storage/editor_uploads//image_1725275910.png" width="904" height="276"></figure><ol><li>Define inventory buffers at nodes: Set inventory buffer levels based on maximum consumption within the replenishment lead time, accounting for variability.</li><li>Reduce Replenishment Lead Time (RLT): Aim to reduce replenishment lead time to lower inventory buffer requirements.</li><li>Supply only what is consumed: Ensure that nodes receive only the quantities consumed and no more.</li><li>Prevent stockouts at warehouses: Implement a colour priority system (Black/Red/ Yellow/Green) to manage stock levels and prevent stockouts.</li><li>Order Daily Replenish Frequently (ODRF): Adopt a daily ordering and frequent replenishment strategy to maintain optimal inventory levels.</li><li>Dynamic buffer management: Ensure buffers are adjusted periodically to align with the changing patterns of supply and demand&nbsp;</li></ol>SummaryIn conclusion, avoid forecast-driven inventory creation and movement to optimize your supply chain. Instead, embrace end-to-end pull replenishment enabled by intelligent decoupling using dynamic buffers. This shift can lead to greater flexibility and enhanced responsiveness to customer needs while keeping the inventory optimum based on actual consumption.&nbsp;&nbsp;

Learn how the replenishment pull system can resolve supply chain challenges, enhance efficiency and reduce disruptions. Read the blog here.

Optimise Supply Chain Replenishment for Better Inventory Control | Vector Consulting Group

With its rigid hierarchies and top-down decision-making, the traditional workplace model is increasingly showing its cracks. Employees today crave autonomy, purpose, and a sense of ownership.&nbsp;Today, employees want not only to be heard but also to have their say in how the company is run. They want to be a lot more empowered than the generations before them.&nbsp;&nbsp;At Vector, we believe that people walk into the office to give their best, provided the right environment exists. This belief, combined with a ‘first principles’ approach to decisions and systems led us to the following principles, which shape our processes and culture:<ul style="list-style-type:square;"><li>Logic as the cornerstone</li><li>No rat race</li><li>Empowerment to decide</li></ul>&nbsp;<h5>Logic as the cornerstone</h5>At Vector, every decision is grounded in logic. We empower our employees to question decisions and engage in the decision-making process. This not only fosters a strong sense of ownership but also ensures that everyone at Vector can and does call a spade a spade.&nbsp;Questioning isn’t just encouraged; it’s expected. On the face of it, it appears like a recipe for chaos, but it has led to some innovative solutions for us. Yes, at times, we do get into a dead-lock for decision-making when reasoning is not enough to overcome the uncertainty of the environment; that is when we agree to do a pilot and then take a final decision after gathering all desired information from the pilot. We are also known to reverse decisions immediately if they are found to be incorrect.<h5>&nbsp;</h5><h5>No rat race</h5>We do not give up on individuals based on performance; their only competition is the person they were yesterday. We don’t do bell curves or stack rankings. Growth is personal, self-driven and supported, not pushed. By design, we focus on the inputs required to get to the desired state and not on the desired state itself. When an individual is stuck, we go out of our way to remove obstacles for the person and detail out what the individual needs to do better. As long as everyone is on a continuous improvement path in terms of their capabilities, we all stand to gain. The system is delicately designed to make everyone move up the capability curve.&nbsp;<h5>Empowerment to decide</h5>We place a lot of emphasis on empowering individuals to make decisions. Whether it’s taking leave, claiming expenses, requesting a rating, or seeking a promotion, individuals are empowered to decide when and how to proceed. This empowerment comes with the responsibility to make balanced decisions. Additionally, rating and promotion requests require evidence of skill progress for a valid claim to be accepted.&nbsp;Principles in action: Below are some examples of how these principles play out at the firm:&nbsp;&nbsp;<h5>Freedom in day-to-day operations</h5>These principles create an environment where freedom and responsibility go hand in hand. For example, in the case of leave management, we realised that the absence of a leave policy is better than having one. A leave policy typically defines the number of leaves you can take in a year (let’s say X) along with mechanisms to take them (CL, PL, SL, etc.). Whether you need less or more, every employee will gravitate towards X. Painting everyone with the same brush compels all employees to play the ‘leave’ game, maximising CL/PL utilisation. The inherent belief of this model is that employees will always be on leave unless leaves are regulated. In an age where a high degree of accountability resides with every employee, this antiquated method proves to be both ineffective and untrustworthy for managing work and time off.&nbsp;At Vector, we believe the best person to decide when and how to take leaves, as well as how many leaves to take, is the individual themselves. Regulating and monitoring leaves does not tie in with our ethos of 'Inherent Goodness of People' and we have stood by this belief right from our inception in 2006. Vectorians, therefore, manage their own time, ensuring that their absence doesn’t impact their work.&nbsp;Similarly, we don’t have an expense approval process. Expense claims are directly processed by the finance department without prior approval, relying on the trust that expenses will reflect the company’s best interests. We have had very few instances of anyone abusing these freedoms. Those are exceptions and are treated as such.&nbsp;<h5>Culture &amp; decision making</h5>Our decision-making process is another way that these values and our culture are expressed. Important decisions about the company (regarding people or otherwise) need to have a compelling case for the problem as well as agreement on the solution by an audit committee of 16 senior members. The decision needs to stand the scrutiny of this committee, and the scrutiny is based on the unique way we think and work (first principles, systems thinking). Questioning and open debate are encouraged until the committee is convinced about the right course of action. Not even the founders are capable of acting alone while making decisions.&nbsp;Even after the Audit Committee approves decisions, decisions come to employees with a full view of the problem that it is solving, so Vectorians are able to appreciate the problem and the solution in their entirety. Despite all of this, concerns about decisions are still encouraged to be voiced, and corrective actions are taken on valid issues.&nbsp;<h5>Inclusive approach to growth</h5>Our unique 'Belt' system, which is inspired by Tae-kwon-do, helps us bypass the traditional phenomenon of a bell curve and a finite number of opportunities for growth. It also outlines the progression of an individual from a white belt to a black belt as a completely skill-based journey. Skills for each belt are clearly defined along with steps to acquire these skills. Our highest ratings are achievable only on significant progress on these skills, thereby incentivising employees to invest in themselves through the various learning, mentoring and exposure opportunities available at the firm.&nbsp;&nbsp;In this system, when an individual moves up in the hierarchy, it is also decided by the individual themselves. Claims for promotion are put forward by consultants; if their argument is backed up by evidence of skill closures, it is accepted.&nbsp;To ensure that all our bright B-school hires get the right input to grow within the organisation, we have put in place a mentoring program. As a part of it, each consultant is paired with a mentor for each skill, who guides their learning via discussions and real-world applications on projects. Additionally, we also ensure that our consultants sharpen their skills by self-learning and practising via mock sessions.&nbsp;&nbsp;<h5>The Vector Way</h5>As a result of our unique approach to people management, we have crafted a unique culture within the firm. We like to call this ‘The Vector Way’. This is possibly a significant contributing factor to our score of 93% on Vector being a ‘Great Place to Work’. Our attrition too stood at 7% last year, whereas the average attrition rate for the management consulting industry is around 20%.&nbsp;We invest heavily to maintain ‘The Vector Way’. We have multiple formal and informal feedback systems to detect culture-glitches. Our various forums allow employees to voice concerns, which are taken seriously and acted upon promptly. This open communication helps us maintain our culture and address any issues effectively.&nbsp; Our unique solutions and implementation expertise, coupled with our strong culture, truly differentiate us from the competition.&nbsp;&nbsp;

Breaking away from traditional workplace models, Vector embraces a bold approach where empowering individual choice, logic-driven questioning and focus on inputs are key elements of the culture. Discover how a unique work culture is revolutionizing and setting new industry standards. Explore ‘The Vector Way’ to learn more.

How ‘first principles’ thinking has disrupted traditional people practices at Vector Consulting Group

With its rigid hierarchies and top-down decision-making, the traditional workplace model is increasingly showing its cracks. Employees today crave autonomy, purpose, and a sense of ownership.&nbsp;Today, employees want not only to be heard but also to have their say in how the company is run. They want to be a lot more empowered than the generations before them.&nbsp;At Vector, we believe that people walk into the office to give their best, provided the right environment exists. This belief, combined with a ‘first principles’ approach to decisions and systems led us to the following principles, which shape our processes and culture:<ul style="list-style-type:square;"><li>Logic as the cornerstone</li><li>No rat race</li><li>Empowerment to decide</li></ul>&nbsp;<h5>Logic as the cornerstone</h5>At Vector, every decision is grounded in logic. We empower our employees to question decisions and engage in the decision-making process. This not only fosters a strong sense of ownership but also ensures that everyone at Vector can and does call a spade a spade.&nbsp;Questioning isn’t just encouraged; it’s expected. On the face of it, it appears like a recipe for chaos, but it has led to some innovative solutions for us. Yes, at times, we do get into a dead-lock for decision-making when reasoning is not enough to overcome the uncertainty of the environment; that is when we agree to do a pilot and then take a final decision after gathering all desired information from the pilot. We are also known to reverse decisions immediately if they are found to be incorrect.<h5>&nbsp;</h5><h5>No rat race</h5>We do not give up on individuals based on performance; their only competition is the person they were yesterday. We don’t do bell curves or stack rankings. Growth is personal, self-driven and supported, not pushed. By design, we focus on the inputs required to get to the desired state and not on the desired state itself. When an individual is stuck, we go out of our way to remove obstacles for the person and detail out what the individual needs to do better. As long as everyone is on a continuous improvement path in terms of their capabilities, we all stand to gain. The system is delicately designed to make everyone move up the capability curve.&nbsp;<h5>Empowerment to decide</h5>We place a lot of emphasis on empowering individuals to make decisions. Whether it’s taking leave, claiming expenses, requesting a rating, or seeking a promotion, individuals are empowered to decide when and how to proceed. This empowerment comes with the responsibility to make balanced decisions. Additionally, rating and promotion requests require evidence of skill progress for a valid claim to be accepted.&nbsp;Principles in action: Below are some examples of how these principles play out at the firm:&nbsp;&nbsp;<h5>Freedom in day-to-day operations</h5>These principles create an environment where freedom and responsibility go hand in hand. For example, in the case of leave management, we realised that the absence of a leave policy is better than having one. A leave policy typically defines the number of leaves you can take in a year (let’s say X) along with mechanisms to take them (CL, PL, SL, etc.). Whether you need less or more, every employee will gravitate towards X. Painting everyone with the same brush compels all employees to play the ‘leave’ game, maximising CL/PL utilisation. The inherent belief of this model is that employees will always be on leave unless leaves are regulated. In an age where a high degree of accountability resides with every employee, this antiquated method proves to be both ineffective and untrustworthy for managing work and time off.&nbsp;At Vector, we believe the best person to decide when and how to take leaves, as well as how many leaves to take, is the individual themselves. Regulating and monitoring leaves does not tie in with our ethos of 'Inherent Goodness of People' and we have stood by this belief right from our inception in 2006. Vectorians, therefore, manage their own time, ensuring that their absence doesn’t impact their work.&nbsp;Similarly, we don’t have an expense approval process. Expense claims are directly processed by the finance department without prior approval, relying on the trust that expenses will reflect the company’s best interests. We have had very few instances of anyone abusing these freedoms. Those are exceptions and are treated as such.&nbsp;<h5>Culture &amp; decision making</h5>Our decision-making process is another way that these values and our culture are expressed. Important decisions about the company (regarding people or otherwise) need to have a compelling case for the problem as well as agreement on the solution by an audit committee of 16 senior members. The decision needs to stand the scrutiny of this committee, and the scrutiny is based on the unique way we think and work (first principles, systems thinking). Questioning and open debate are encouraged until the committee is convinced about the right course of action. Not even the founders are capable of acting alone while making decisions.&nbsp;Even after the Audit Committee approves decisions, decisions come to employees with a full view of the problem that it is solving, so Vectorians are able to appreciate the problem and the solution in their entirety. Despite all of this, concerns about decisions are still encouraged to be voiced, and corrective actions are taken on valid issues.&nbsp;<h5>Inclusive approach to growth</h5>Our unique 'Belt' system, which is inspired by Tae-kwon-do, helps us bypass the traditional phenomenon of a bell curve and a finite number of opportunities for growth. It also outlines the progression of an individual from a white belt to a black belt as a completely skill-based journey. Skills for each belt are clearly defined along with steps to acquire these skills. Our highest ratings are achievable only on significant progress on these skills, thereby incentivising employees to invest in themselves through the various learning, mentoring and exposure opportunities available at the firm.&nbsp;&nbsp;In this system, when an individual moves up in the hierarchy, it is also decided by the individual themselves. Claims for promotion are put forward by consultants; if their argument is backed up by evidence of skill closures, it is accepted.&nbsp;To ensure that all our bright B-school hires get the right input to grow within the organisation, we have put in place a mentoring program. As a part of it, each consultant is paired with a mentor for each skill, who guides their learning via discussions and real-world applications on projects. Additionally, we also ensure that our consultants sharpen their skills by self-learning and practising via mock sessions.&nbsp;&nbsp;<h5>The Vector Way</h5>As a result of our unique approach to people management, we have crafted a unique culture within the firm. We like to call this ‘The Vector Way’. This is possibly a significant contributing factor to our score of 93% on Vector being a ‘Great Place to Work’. Our attrition too stood at 7% last year, whereas the average attrition rate for the management consulting industry is around 20%.&nbsp;We invest heavily to maintain ‘The Vector Way’. We have multiple formal and informal feedback systems to detect culture-glitches. Our various forums allow employees to voice concerns, which are taken seriously and acted upon promptly. This open communication helps us maintain our culture and address any issues effectively.&nbsp; Our unique solutions and implementation expertise, coupled with our strong culture, truly differentiate us from the competition.&nbsp;&nbsp;&nbsp;

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HR Practices using First Principles Thinking | Vector Consulting Group

The suggestion of a 70 to 90-hour workweek has sparked significant debate, but the focus is fundamentally misplaced. Most discussions have centred around the negative effects of long work hours, criticising management for their insensitivity towards employee well-being. There is no denying that long working hours encroach on employees' personal and family time, leading to numerous negative effects. Beyond work, young parents juggle responsibilities such as childcare, elder care, and household chores.Yet. consider environments where individuals willingly stretch and work long hours yet remain happy and others where fewer hours yield higher output without stress. The difference lies not in the hours themselves but in the conditions that foster higher output and motivation or in other words high employee engagement levels. If we understand the conditions that drive these exceptional outcomes and behaviours, we can replicate them in any setting. While environments may differ, human behavioural patterns remain universal.The key question: Why do some people happily work long hours?Instead of debating how many hours people should work, we should examine environments where individuals willingly stretch their limits yet remain engaged and fulfilled. Consider a project team involved in a satellite launch, a group building a stadium for a grand opening, or a team working tirelessly to meet a major product launch deadline, a startup where the entire team work tirelessly. In all these scenarios, a shared sense of purpose drives individuals to contribute beyond their usual expectations, fostering a collective commitment to success. They aren’t just clocking in time, they are part of something meaningful, a mission that fuels their motivation.A strong sense of purpose drives individuals whether promoters, top management, or employees, to contribute beyond expectations. Every job, regardless of level, holds the potential to be meaningful.At work, two key factors create a sense of achievement:<ol style="list-style-type:lower-latin;"><li>Successfully completing a task, only when the task is inherently value-adding.</li><li>Innovating or adding value to ongoing work, or in other words being part of a high-impact improvement projects</li></ol>In the absence of a connection to a larger purpose, people may still not complain if the work hours are exactly to the official limits.So, when do people complain about long work hours?They start complaining when they have to face the following two conditions<ul style="list-style-type:square;"><li>Feeling forced to compensate for someone else’s shortcomings or held accountable for outcomes they don’t control</li><li>Chronic overstretching</li></ul>1. Feeling forced to compensateWork environments plagued by constant task arrival delays, prolonged waiting, urgent escalations, frequent interruptions and a lot of avoidable rework violate the feeling of doing something meaningful.When employees feel they have not created anything meaningful within the time given, productivity declines and frustration builds. &nbsp;After all, no one finds satisfaction in being unproductive.In such environments, the real issue with extended work hours isn’t just the extra effort, it’s the stress that comes from feeling forced to compensate for someone else’s shortcomings.Consider these scenarios:<ul style="list-style-type:disc;"><li>If the sourcing team prioritises the lowest cost without considering quality, the execution team may struggle with rework and service failures.</li><li>When the design team delivers incomplete outputs, the development team is burdened with unnecessary rework.</li></ul>2. Chronic overloadOccasionally stretching to meet commitments is a normal part of work. But when employees are consistently overloaded, the real issue isn’t just the workload, it’s the chronic stress that comes with it. Persistent overburdening of employees is a clear sign of flawed capacity planning. This is especially true in fields where human expertise determines output, such as engineering, software development, and project-based industries.In these environments, experience and skill levels dictate capacity. Yet, constant firefighting wastes capacity and makes leaders&nbsp; believe that they have not got adequate returns from invested capacity. When capacity is not added &nbsp;employees feel overwhelmed and overloaded.These disconnected viewpoints on capacities between top management and the operating team make it difficult to resolve the issue. Many leaders believe the issue is that resources are not 'stretching enough,' while the operating team feels burnt out. Without clear visibility into workload distribution and capacity loading, organisations risk staying with the issue of the perpetuation of workplace stress.The real issue is productivity, not work hoursThe workplace challenges described above are not isolated issues, they are symptoms of a deeper problem: poor productivity. Poor productivity is a chronic problem in the vast majority of organisations across sectors.In low-productivity environments, even working 70 to 90 hours per week may not be enough to achieve the desired output. The solution isn’t to stretch hours, it’s to improve productivity.The ongoing debate over longer work hours assumes that productivity is fixed, and nothing can be done about it.Organisations can address this by fostering two key conditions in the workplace:1) The state of flow – the productivity sweet spotPeak productivity occurs when employees work in a&nbsp;"state of flow"—a work environment designed for deep focus and free from unnecessary disruptions. This means:<ul style="list-style-type:disc;"><li>Minimising interruptions</li><li>Taking on fewer tasks at a time and completing them before starting new ones</li><li>Prioritising task completion over multitasking</li><li>Ensuring clean handovers between employees and across functions</li></ul>When employees operate in this state, they deliver their best output in the shortest possible time.2) Eliminating the blame cultureA culture that focuses on assigning blame instead of identifying root problems stifles productivity. Shifting the focus from&nbsp;"Who is at fault?"&nbsp;to&nbsp;"What is the problem?"&nbsp;fosters collaboration, problem-solving, and continuous improvement.Productivity over hoursNumerous studies and real-world experiments have shown that reengineering workflow practices and then reducing work hours leads to not just happy employees but also better business outcomes. There is no conflict if one approaches the problem by reengineering workflow practices to make it productive.A classic example is&nbsp;Henry Ford's introduction of the eight-hour workday in 1926, which was well-enabled by the assembly line way of working. Despite reducing weekly hours from 48 to 40, productivity increased because workers were more rested, they made fewer mistakes, and produced more per hour.ENPRO Industries Pvt. Ltd. is an Indian company engaged in the design and manufacture of&nbsp;mechanical fluid systems&nbsp;and&nbsp;process equipment&nbsp;for a variety of applications. By reengineering workflow practices right from order inflow till order fulfilment, the company could drastically cut the execution time of orders by 50%-60%, eliminated the output skew from the shop, and reduced the design revisions by &gt; 60%. As a result, sales went up by 47%, Inventory turns improved by 50%. This huge leap in productivity gains allowed the team to transition to a five-day workweek instead of stretching to six days a week.The key takeaway isn’t about reducing or increasing work hours, it’s about&nbsp;creating conditions that drive productivity. Instead of debating hours, organisations should ask:<ul style="list-style-type:disc;"><li>How can we help employees achieve a state of flow?</li><li>How can we eliminate the blame culture to foster better collaboration?</li></ul>By focusing on these, companies can unlock true efficiency without the unnecessary strain of longer hours.

Problem: The debate on long work hours misses the real issue—poor productivity. Employees complain when they are forced to compensate for inefficiencies with extra work hours or, if not, end up overloaded and stressed. Simply reducing or increasing hours does not address the core problem.&nbsp;Solution:&nbsp;Rather than fixating on work hours, organisations should focus on fostering high-productivity environments where employees can achieve a state of flow—defined by deep focus, minimal disruptions, and seamless handovers. Moreover, they should replace blame-driven meetings with daily reviews, enabling management to help teams overcome obstacles that hinder the swift progression of tasks.&nbsp;Benefits:&nbsp;In such an environment, not only does productivity improve, but employees also feel more engaged and less stressed. The outcome? Happier teams, stronger business performance, and sustainable growth—achieving more with less time. Focus on fixing productivity, not work hours.&nbsp;

Key Takeaways

Do long work hours really kill productivity, or is there a deeper problem? Discover why some thrive in high-stretch environments while others burn out—and what truly drives efficiency.

70 to 90-hour workweek: A misguided debate

The suggestion of a 70 to 90-hour workweek has sparked significant debate, but the focus is fundamentally misplaced. Most discussions have centred around the negative effects of long work hours, criticising management for their insensitivity towards employee well-being. There is no denying that long working hours encroach on employees' personal and family time, leading to numerous negative effects. Beyond work, young parents juggle responsibilities such as childcare, elder care, and household chores.Yet. consider environments where individuals willingly stretch and work long hours yet remain happy and others where fewer hours yield higher output without stress. The difference lies not in the hours themselves but in the conditions that foster higher output and motivation or in other words high employee engagement levels. If we understand the conditions that drive these exceptional outcomes and behaviours, we can replicate them in any setting. While environments may differ, human behavioural patterns remain universal.The key question: Why do some people happily work long hours?Instead of debating how many hours people should work, we should examine environments where individuals willingly stretch their limits yet remain engaged and fulfilled. Consider a project team involved in a satellite launch, a group building a stadium for a grand opening, or a team working tirelessly to meet a major product launch deadline, a startup where the entire team work tirelessly. In all these scenarios, a shared sense of purpose drives individuals to contribute beyond their usual expectations, fostering a collective commitment to success. They aren’t just clocking in time, they are part of something meaningful, a mission that fuels their motivation.A strong sense of purpose drives individuals whether promoters, top management, or employees, to contribute beyond expectations. Every job, regardless of level, holds the potential to be meaningful.At work, two key factors create a sense of achievement:<ol style="list-style-type:lower-latin;"><li>Successfully completing a task, only when the task is inherently value-adding.</li><li>Innovating or adding value to ongoing work, or in other words being part of a high-impact improvement projects</li></ol>In the absence of a connection to a larger purpose, people may still not complain if the work hours are exactly to the official limits.So, when do people complain about long work hours?They start complaining when they have to face the following two conditions<ul style="list-style-type:square;"><li>Feeling forced to compensate for someone else’s shortcomings or held accountable for outcomes they don’t control</li><li>Chronic overstretching</li></ul>1. Feeling forced to compensateWork environments plagued by constant task arrival delays, prolonged waiting, urgent escalations, frequent interruptions and a lot of avoidable rework violate the feeling of doing something meaningful.When employees feel they have not created anything meaningful within the time given, productivity declines and frustration builds. &nbsp;After all, no one finds satisfaction in being unproductive.In such environments, the real issue with extended work hours isn’t just the extra effort, it’s the stress that comes from feeling forced to compensate for someone else’s shortcomings.Consider these scenarios:<ul style="list-style-type:disc;"><li>If the sourcing team prioritises the lowest cost without considering quality, the execution team may struggle with rework and service failures.</li><li>When the design team delivers incomplete outputs, the development team is burdened with unnecessary rework.</li></ul>2. Chronic overloadOccasionally stretching to meet commitments is a normal part of work. But when employees are consistently overloaded, the real issue isn’t just the workload, it’s the chronic stress that comes with it. Persistent overburdening of employees is a clear sign of flawed capacity planning. This is especially true in fields where human expertise determines output, such as engineering, software development, and project-based industries.In these environments, experience and skill levels dictate capacity. Yet, constant firefighting wastes capacity and makes leaders&nbsp; believe that they have not got adequate returns from invested capacity. When capacity is not added &nbsp;employees feel overwhelmed and overloaded.These disconnected viewpoints on capacities between top management and the operating team make it difficult to resolve the issue. Many leaders believe the issue is that resources are not 'stretching enough,' while the operating team feels burnt out. Without clear visibility into workload distribution and capacity loading, organisations risk staying with the issue of the perpetuation of workplace stress.The real issue is productivity, not work hoursThe workplace challenges described above are not isolated issues, they are symptoms of a deeper problem: poor productivity. Poor productivity is a chronic problem in the vast majority of organisations across sectors.In low-productivity environments, even working 70 to 90 hours per week may not be enough to achieve the desired output. The solution isn’t to stretch hours, it’s to improve productivity.The ongoing debate over longer work hours assumes that productivity is fixed, and nothing can be done about it.Organisations can address this by fostering two key conditions in the workplace:1) The state of flow – the productivity sweet spotPeak productivity occurs when employees work in a&nbsp;"state of flow"—a work environment designed for deep focus and free from unnecessary disruptions. This means:<ul style="list-style-type:disc;"><li>Minimising interruptions</li><li>Taking on fewer tasks at a time and completing them before starting new ones</li><li>Prioritising task completion over multitasking</li><li>Ensuring clean handovers between employees and across functions</li></ul>When employees operate in this state, they deliver their best output in the shortest possible time.2) Eliminating the blame cultureA culture that focuses on assigning blame instead of identifying root problems stifles productivity. Shifting the focus from&nbsp;"Who is at fault?"&nbsp;to&nbsp;"What is the problem?"&nbsp;fosters collaboration, problem-solving, and continuous improvement.Productivity over hoursNumerous studies and real-world experiments have shown that reengineering workflow practices and then reducing work hours leads to not just happy employees but also better business outcomes. There is no conflict if one approaches the problem by reengineering workflow practices to make it productive.A classic example is&nbsp;Henry Ford's introduction of the eight-hour workday in 1926, which was well-enabled by the assembly line way of working. Despite reducing weekly hours from 48 to 40, productivity increased because workers were more rested, they made fewer mistakes, and produced more per hour.ENPRO Industries Pvt. Ltd. is an Indian company engaged in the design and manufacture of&nbsp;mechanical fluid systems&nbsp;and&nbsp;process equipment&nbsp;for a variety of applications. By reengineering workflow practices right from order inflow till order fulfilment, the company could drastically cut the execution time of orders by 50%-60%, eliminated the output skew from the shop, and reduced the design revisions by &gt; 60%. As a result, sales went up by 47%, Inventory turns improved by 50%. This huge leap in productivity gains allowed the team to transition to a five-day workweek instead of stretching to six days a week.The key takeaway isn’t about reducing or increasing work hours, it’s about&nbsp;creating conditions that drive productivity. Instead of debating hours, organisations should ask:<ul style="list-style-type:disc;"><li>How can we help employees achieve a state of flow?</li><li>How can we eliminate the blame culture to foster better collaboration?</li></ul>By focusing on these, companies can unlock true efficiency without the unnecessary strain of longer hours.&nbsp;

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