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From Threads to Trends: Navigating Supply chain Complexity in Apparel Retail

Vector Consulting Group is a management consulting firm which help companies build unique supply chain and operations capabilities that can be leveraged as a competitive advantage in the market. Vector uses the platform of Theory of Constraints solutions and thinking processes for developing these.

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Need for Continuous New Product IntroductionsA good product variety is considered necessary to enable a firm to satisfy the wants and needs of different segments of its consumers and, thus, to increase the probability of completing a sale. The growth and expansion of a company are, therefore, often heavily built on its new products. So, it is very common to come across vision statements such as “We need X% of revenue coming from new products” or marketing teams complaining about “Our product range is too outdated; we need newer products to fuel our growth”. Consequently, most companies continuously launch new products to:&nbsp;<ol><li>Meet dynamic changes in demand: Quickly changing trends and consumer habits leave companies no option except to respect these by offering new products. </li><li>Offset the risk of obsolescence: Evolving technology is making it possible for companies to try and cater to customer demands for ‘smaller-lighter-faster’, thereby leading to a shorter life span of existing products (especially devices) of every firm. </li><li>Earn/protect margins: As a business strategy, companies must run ahead of price competition by differentiating their products and introducing new products that can command better margins. </li><li>Build brand image: Periodically, a company developing new products is likely to have a better reputation and can attract consumers more easily. </li><li>Refresh existing products: New versions of existing products give companies an opportunity to re-introduce and create a buzz around core products and also help to attract new audiences who may be drawn to the new offering though they might have been previously unfamiliar with the original portfolio.&nbsp;</li></ol>Too much of a good thing?When companies are riding a wave of growing sales, all new products are met with a lot of excitement. However, the continuous addition of new products to the company’s portfolio can be an enormous challenge for the supply chain due to two major issues:&nbsp;- Disaggregation of demand<figure class="image"><img style="aspect-ratio:1774/878;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//asset-7merchandisinggrid_1716366657.png" width="1774" height="878"></figure>With companies vying with each other to introduce new products and variants in the market across product categories, including garments, shoes, furniture, consumer durables, automobiles, electronics, books, music, and even some industrial products, there is an explosion of variety that is available to the customers. And, each introduction creates a new niche-based segment. For instance, in wall paints, there are a large number of pinks available; and there could be customers who understand the nuanced differences between them and prefer one pink over the others (Mera wala pink!). This phenomenon can be called “Disaggregation of demand”.&nbsp;Demand disaggregation is leading to the formation of what Chris Anderson in, his book by the same name, calls the “Long Tail” of demand – i.e., in some categories, ~20% of SKUs may cover just about 30%-40% of sales, and the rest of the 60% of sales comes from the addition of small volumes of sale, each from many SKUs, thus creating the long tail of demand. This phenomenon poses several challenges for the supply chain.&nbsp;<figure class="image"><img style="aspect-ratio:3745/1617;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//asset-14merchandisinggrid_1716366676.png" width="3745" height="1617"></figure>&nbsp;- Dilemma posed by products in the decline phase<figure class="image"><img style="aspect-ratio:1670/1119;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//asset-15merchandisinggrid_1716366691.png" width="1670" height="1119"></figure>In addition to the above, the duration or the slope of the product life cycle of each of the SKUs in the market is difficult to foresee or predict accurately. However, it is an irrefutable fact that sales of all products eventually hit a slowdown. When this happens, each of these products (at the declining phase of its lifecycle) is often seen as the culprit for high inventories. An increase in inventory is naturally avoidable. It occupies space in warehouses, locks up cash, and companies have to discount or eventually scrap this inventory. All these lead to profit leakages.&nbsp;This problem has a bigger impact on suppliers who may not only have redundant FG inventory but also would have planned for RM. When products are discontinued, the suppliers are usually left holding huge leftover inventories at their end. This often leads to issues of trust between vendors and companies, and could manifest as supply issues for other items being procured from the same supplier. A huge lose-lose situation for both parties.&nbsp;The Way OutImplementing a Fixed Merchandizing Grid and Fast Replenishment can help companies overcome the conflict posed by variety and help companies maintain a regular influx of new introductions without worrying about inventory going out of hand.&nbsp;How does this work?&nbsp;Defining the Merchandising GridA fixed Merchandising Grid maps the entire product portfolio and limits the range-based parameters that truly matter to the end customer, thus allowing the company to maximise sales without burdening the supply chain.&nbsp;A common mistake companies make is to replicate products based on what the competition is offering or make product variants based on the different parameters/functions the sales team/other stakeholders consider important. For example, fabric designers might add a particular shade of black fabric with a thin blue line to the product portfolio in search of novelty in design. This may or may not reflect the end customers’ true considerations when they make a purchase, especially since the end consumer is not as knowledgeable as the designer about fabrics, shades or print. He may not be able to distinguish this SKU from another with, say, a thin grey line. So, eventually these cannibalise each other’s sales, reducing the volume off-take of both. So, it is very important to have an understanding of the true parameters that are relevant to the end customer.&nbsp;For example, a shoe manufacturer may decide upon the following five parameters to form the merchandising grid:&nbsp;<ul><li>Demographic (e.g., men, women, and kids) </li><li>Occasion of use (e.g., men’s shoes may be formal, semi-formal and casual) </li><li>Style (e.g., men’s formal shoes may be laced-up or brogues) </li><li>Price (e.g., laced up shoes may be offered at &lt;Rs.999; Rs.1000 - Rs.3000; &gt; Rs.3000, etc.) </li><li>Colour (e.g., &lt;999 shoes can be offered in black or tan)&nbsp;</li></ul>After identifying the relevant number of parameters, the company can also decide on the segments of the grid where the company wants to be present. For example, if price is a parameter, the company may choose to be a premium player and ignore the lower price points. Once the relevant grid is defined, the company has to decide what is the number of products that it wants to include in each square of the grid to be able to offer:&nbsp;<ul><li>A relevant choice to the target consumer of each segment </li><li>A variety that does not cannibalise on each other’s sales </li><li>For example, in the case of the above shoe manufacturer, the company can decide that it needs to offer two choices of black, &lt;Rs. 999, lace-up, formal, men’s shoes, to maximize sales opportunities.&nbsp;</li></ul>Once such decisions are made across the various squares of the grid, the existing products of the company have to be mapped against this grid. (Note: If the number of products in the portfolio is too many, rationalize the list based on volume and frequency of sales before taking this step).&nbsp;While there is nothing like a perfect number of ranges to be offered, there will be significant scope to cut down excess range from certain segments. In that case, a judgement has to be made based on sales and other considerations as to which ones in the range the company wants to keep. Very often, such an exercise leads to the realization that the company can do without ~40% of its SKUs. This range is drop frozen and only used for liquidation, without any additional fresh procurement being done. Also, clear gaps of where new products are needed – and which need to be prioritised – will emerge once the grid is finalised. These can be triggered for new product design and development.&nbsp;Steve Jobs’ product strategy matrix for AppleOne of the most successful examples of merchandising grid-based product portfolio control is demonstrated by Apple. Steve Jobs defined Apple’s company computer portfolio strategy by using only two parameters - the kind of user and the portability of the computer; and decided to have only a single product offering in each of these.&nbsp;<figure class="image"><img style="aspect-ratio:1541/669;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//steve-jobs-product-matrix_1716366718.png" width="1541" height="669"></figure>They have extended this strategy for new category introductions as well. This has ensured that Apple’s supply chain is one of the most agile in the industry, if not the world. An old product starts running out of stock within a week of the introduction of a new model that is expected to replace it. The aspirational inventory turns of a whopping 74 (the industry average is 8) enabling Apple to enjoy the industry's highest gross margin and profitability.&nbsp;Most other companies offer a plethora of choices to every possible customer segment, and consequently, their supply chains have become so complicated that they suffer the twin problems of lost sales due to excess inventory of some variants while suffering high inventory and subsequent margin erosion due to discounts on others.&nbsp;By committing to freezing the range as per a defined merchandising grid, companies will protect themselves from the problems associated with demand disaggregation, as they will be limiting the range, not only for production but also for channel partners, distribution, and vendors.&nbsp;Introducing New Products into the GridSince the number of possible slots is frozen, whenever marketing teams take a decision to introduce any new product into this grid, they will also need to decide which product they want to discontinue. Not only that, a discontinuation and liquidation plan for the existing inventory of the product has to be chalked out. Taking these decisions in a systematic and timely manner will allow for a smooth liquidation of the products, even as they are selling in small volumes in the market. This will eliminate issues related to leftover inventory in the supply chain and distribution channel.&nbsp;Reacting to an Emerging Category or Line of BusinessSometimes a new category, not a part of the original merchandising grid, may emerge. For example, an automobile spares company may decide that it wants to be present in the emerging Electric Vehicle (EV) segment. Initially, a new row or column would have to be inserted into the grid. However, over time, some of the older cells that were occupied by increasingly obsolescent products (e.g., Internal Combustion engines, in the example of the automobile company) will eventually disappear as the sales of those products reduce and fall below the economic threshold.&nbsp;In case a company enters a new line of business, this may involve the creation of a new portfolio of products. Therefore, a new grid will be defined on the basis of the buying preferences of the customers of this business. Management of the range in this grid may initially be a strategic call taken by top management and, will, therefore, be different from range management for steady-running categories. However, over the long run, as the business line matures, the grid will be managed the same way as described earlier.&nbsp;ConclusionOnce the merchandising grid rules are implemented in a company, teams working on new product introductions will automatically be more careful in selecting what range they want to push in the market since it involves the decision to discontinue an existing product. This circumspection can improve the probability of the selected products doing well in the market. Moreover, fixing the merchandising grid approach also allows the entire system to focus on the success of the identified range of the company. Experience has shown that when the merchandising grid is used in a pull or replenishment-based supply chain, it can help.&nbsp;<ul><li>release plant capacity by up to ~20%-25% </li><li>reduce inventory across all nodes by ~25% </li><li>improve availability in the market by up to 90%, </li><li>increase overall sales by 20%-30%&nbsp;</li></ul>Therefore, plan carefully, and your new products will bring in the revenues and profitability that you anticipated. Think outside the box, but stay within the grid!&nbsp;

The Merchandising Grid can help release plant capacity by ~20%, reduce inventory by ~25% and increase overall sales by 20%. It helps create a rationalized product portfolio that maximizes sales without burdening the supply chain.

Merchandising Grid: The mechanism for product portfolio management

Need for Continuous New Product IntroductionsA good product variety is considered necessary to enable a firm to satisfy the wants and needs of different segments of its consumers and, thus, to increase the probability of completing a sale. The growth and expansion of a company are, therefore, often heavily built on its new products. So, it is very common to come across vision statements such as “We need X% of revenue coming from new products” or marketing teams complaining about “Our product range is too outdated; we need newer products to fuel our growth”. Consequently, most companies continuously launch new products to:&nbsp;<ol><li>Meet dynamic changes in demand: Quickly changing trends and consumer habits leave companies no option except to respect these by offering new products. </li><li>Offset the risk of obsolescence: Evolving technology is making it possible for companies to try and cater to customer demands for ‘smaller-lighter-faster’, thereby leading to a shorter life span of existing products (especially devices) of every firm. </li><li>Earn/protect margins: As a business strategy, companies must run ahead of price competition by differentiating their products and introducing new products that can command better margins. </li><li>Build brand image: Periodically, a company developing new products is likely to have a better reputation and can attract consumers more easily. </li><li>Refresh existing products: New versions of existing products give companies an opportunity to re-introduce and create a buzz around core products and also help to attract new audiences who may be drawn to the new offering though they might have been previously unfamiliar with the original portfolio.&nbsp;</li></ol>Too much of a good thing?When companies are riding a wave of growing sales, all new products are met with a lot of excitement. However, the continuous addition of new products to the company’s portfolio can be an enormous challenge for the supply chain due to two major issues:&nbsp;- Disaggregation of demand<figure class="image"><img style="aspect-ratio:1774/878;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//asset-7merchandisinggrid_1716366657.png" width="1774" height="878"></figure>With companies vying with each other to introduce new products and variants in the market across product categories, including garments, shoes, furniture, consumer durables, automobiles, electronics, books, music, and even some industrial products, there is an explosion of variety that is available to the customers. And, each introduction creates a new niche-based segment. For instance, in wall paints, there are a large number of pinks available; and there could be customers who understand the nuanced differences between them and prefer one pink over the others (Mera wala pink!). This phenomenon can be called “Disaggregation of demand”.&nbsp;Demand disaggregation is leading to the formation of what Chris Anderson in, his book by the same name, calls the “Long Tail” of demand – i.e., in some categories, ~20% of SKUs may cover just about 30%-40% of sales, and the rest of the 60% of sales comes from the addition of small volumes of sale, each from many SKUs, thus creating the long tail of demand. This phenomenon poses several challenges for the supply chain.&nbsp;<figure class="image"><img style="aspect-ratio:3745/1617;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//asset-14merchandisinggrid_1716366676.png" width="3745" height="1617"></figure>&nbsp;- Dilemma posed by products in the decline phase<figure class="image"><img style="aspect-ratio:1670/1119;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//asset-15merchandisinggrid_1716366691.png" width="1670" height="1119"></figure>In addition to the above, the duration or the slope of the product life cycle of each of the SKUs in the market is difficult to foresee or predict accurately. However, it is an irrefutable fact that sales of all products eventually hit a slowdown. When this happens, each of these products (at the declining phase of its lifecycle) is often seen as the culprit for high inventories. An increase in inventory is naturally avoidable. It occupies space in warehouses, locks up cash, and companies have to discount or eventually scrap this inventory. All these lead to profit leakages.&nbsp;This problem has a bigger impact on suppliers who may not only have redundant FG inventory but also would have planned for RM. When products are discontinued, the suppliers are usually left holding huge leftover inventories at their end. This often leads to issues of trust between vendors and companies, and could manifest as supply issues for other items being procured from the same supplier. A huge lose-lose situation for both parties.&nbsp;The Way OutImplementing a Fixed Merchandizing Grid and Fast Replenishment can help companies overcome the conflict posed by variety and help companies maintain a regular influx of new introductions without worrying about inventory going out of hand.&nbsp;How does this work?&nbsp;Defining the Merchandising GridA fixed Merchandising Grid maps the entire product portfolio and limits the range-based parameters that truly matter to the end customer, thus allowing the company to maximise sales without burdening the supply chain.&nbsp;A common mistake companies make is to replicate products based on what the competition is offering or make product variants based on the different parameters/functions the sales team/other stakeholders consider important. For example, fabric designers might add a particular shade of black fabric with a thin blue line to the product portfolio in search of novelty in design. This may or may not reflect the end customers’ true considerations when they make a purchase, especially since the end consumer is not as knowledgeable as the designer about fabrics, shades or print. He may not be able to distinguish this SKU from another with, say, a thin grey line. So, eventually these cannibalise each other’s sales, reducing the volume off-take of both. So, it is very important to have an understanding of the true parameters that are relevant to the end customer.&nbsp;For example, a shoe manufacturer may decide upon the following five parameters to form the merchandising grid:&nbsp;<ul><li>Demographic (e.g., men, women, and kids) </li><li>Occasion of use (e.g., men’s shoes may be formal, semi-formal and casual) </li><li>Style (e.g., men’s formal shoes may be laced-up or brogues) </li><li>Price (e.g., laced up shoes may be offered at &lt;Rs.999; Rs.1000 - Rs.3000; &gt; Rs.3000, etc.) </li><li>Colour (e.g., &lt;999 shoes can be offered in black or tan)&nbsp;</li></ul>After identifying the relevant number of parameters, the company can also decide on the segments of the grid where the company wants to be present. For example, if price is a parameter, the company may choose to be a premium player and ignore the lower price points. Once the relevant grid is defined, the company has to decide what is the number of products that it wants to include in each square of the grid to be able to offer:&nbsp;<ul><li>A relevant choice to the target consumer of each segment </li><li>A variety that does not cannibalise on each other’s sales </li><li>For example, in the case of the above shoe manufacturer, the company can decide that it needs to offer two choices of black, &lt;Rs. 999, lace-up, formal, men’s shoes, to maximize sales opportunities.&nbsp;</li></ul>Once such decisions are made across the various squares of the grid, the existing products of the company have to be mapped against this grid. (Note: If the number of products in the portfolio is too many, rationalize the list based on volume and frequency of sales before taking this step).&nbsp;While there is nothing like a perfect number of ranges to be offered, there will be significant scope to cut down excess range from certain segments. In that case, a judgement has to be made based on sales and other considerations as to which ones in the range the company wants to keep. Very often, such an exercise leads to the realization that the company can do without ~40% of its SKUs. This range is drop frozen and only used for liquidation, without any additional fresh procurement being done. Also, clear gaps of where new products are needed – and which need to be prioritised – will emerge once the grid is finalised. These can be triggered for new product design and development.&nbsp;Steve Jobs’ product strategy matrix for AppleOne of the most successful examples of merchandising grid-based product portfolio control is demonstrated by Apple. Steve Jobs defined Apple’s company computer portfolio strategy by using only two parameters - the kind of user and the portability of the computer; and decided to have only a single product offering in each of these.&nbsp;<figure class="image"><img style="aspect-ratio:1541/669;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//steve-jobs-product-matrix_1716366718.png" width="1541" height="669"></figure>They have extended this strategy for new category introductions as well. This has ensured that Apple’s supply chain is one of the most agile in the industry, if not the world. An old product starts running out of stock within a week of the introduction of a new model that is expected to replace it. The aspirational inventory turns of a whopping 74 (the industry average is 8) enabling Apple to enjoy the industry's highest gross margin and profitability.&nbsp;Most other companies offer a plethora of choices to every possible customer segment, and consequently, their supply chains have become so complicated that they suffer the twin problems of lost sales due to excess inventory of some variants while suffering high inventory and subsequent margin erosion due to discounts on others.&nbsp;By committing to freezing the range as per a defined merchandising grid, companies will protect themselves from the problems associated with demand disaggregation, as they will be limiting the range, not only for production but also for channel partners, distribution, and vendors.&nbsp;Introducing New Products into the GridSince the number of possible slots is frozen, whenever marketing teams take a decision to introduce any new product into this grid, they will also need to decide which product they want to discontinue. Not only that, a discontinuation and liquidation plan for the existing inventory of the product has to be chalked out. Taking these decisions in a systematic and timely manner will allow for a smooth liquidation of the products, even as they are selling in small volumes in the market. This will eliminate issues related to leftover inventory in the supply chain and distribution channel.&nbsp;Reacting to an Emerging Category or Line of BusinessSometimes a new category, not a part of the original merchandising grid, may emerge. For example, an automobile spares company may decide that it wants to be present in the emerging Electric Vehicle (EV) segment. Initially, a new row or column would have to be inserted into the grid. However, over time, some of the older cells that were occupied by increasingly obsolescent products (e.g., Internal Combustion engines, in the example of the automobile company) will eventually disappear as the sales of those products reduce and fall below the economic threshold.&nbsp;In case a company enters a new line of business, this may involve the creation of a new portfolio of products. Therefore, a new grid will be defined on the basis of the buying preferences of the customers of this business. Management of the range in this grid may initially be a strategic call taken by top management and, will, therefore, be different from range management for steady-running categories. However, over the long run, as the business line matures, the grid will be managed the same way as described earlier.&nbsp;ConclusionOnce the merchandising grid rules are implemented in a company, teams working on new product introductions will automatically be more careful in selecting what range they want to push in the market since it involves the decision to discontinue an existing product. This circumspection can improve the probability of the selected products doing well in the market. Moreover, fixing the merchandising grid approach also allows the entire system to focus on the success of the identified range of the company. Experience has shown that when the merchandising grid is used in a pull or replenishment-based supply chain, it can help.&nbsp;<ul><li>release plant capacity by up to ~20%-25% </li><li>reduce inventory across all nodes by ~25% </li><li>improve availability in the market by up to 90%, </li><li>increase overall sales by 20%-30%&nbsp;</li></ul>Therefore, plan carefully, and your new products will bring in the revenues and profitability that you anticipated. Think outside the box, but stay within the grid!&nbsp;&nbsp;

Let’s leapfrog from BS IV to BS VI in three years, the Indian government decided in 2017.&nbsp;‘That’s impossible!’ the auto industry protested. After all, it took Europe nine years to make this same jump! The feat the government was proposing is akin to conquering Mount Everest in one month (most expeditions take at least 2 months), industry experts opined.&nbsp;So, what’s prompting such vehement protests?&nbsp;&nbsp;To answer this, let’s understand the challenges BS VI poses for an auto company, particularly its Research and Development function.&nbsp;Mammoth work content&nbsp;Context&nbsp;Many Indian auto companies operate across multiple product categories (ex: cars, bikes, SUVs, trucks etc.) and have built a large portfolio of engines over time. A regulation such as this one would affect the entire range of their products. This means that converting all these engine models to BS VI before April 2020 is truly a gargantuan task. The sheer work content itself is overwhelming for conversion to BS VI since all engine platforms require independent design, validation and homologation activities. In fact, most companies would not have seen these many engine upgrades in their entire history.&nbsp;ProblemsMost R&amp;D organizations do not have a clear assessment of their capacities. This is mainly due to the high ‘content variability’ and the non-deterministic nature of R&amp;D projects, where each project is different from the previous one. So, the time and effort required to complete a new project may be much different from the previous one and can’t be predicted. This is in sharp contrast to the highly deterministic and repetitive nature of work in operations, where the time taken to process an individual part is known to the last second, and therefore, the hourly capacity of a machine is known fairly accurately.&nbsp;When the R&amp;D department is unclear about how much capacity is enough and the workload is huge, it tends to take on many more projects than can be handled at a time. Overloading causes R&amp;D to stretch its capacity over many projects and try to do all things simultaneously. The downside of this approach is that while a large number of projects get started, and many move a certain distance, none or only a few of them finish within the regulated deadline. In short, the company gets no return for all the effort invested.&nbsp;Steep learning curveContextA huge shift in technology is needed to meet the demands placed by BS VI norms. Most Indian companies haven’t faced a technological transformation of this magnitude, and that, too, requires completion within such a short time period. In itself, the adoption of a new technology is a risky proposition. A hard deadline such as the one set by the government aggravates the situation because of the enormous pressure on resources.&nbsp;ProblemsBut, surprisingly, most managers do not see this pressure of time as a problem. In fact, they revel in reviews based on rhetoric around stiff deadlines, believing this factor to be the only driver of speed and the best way to control the many uncertainties in project environments. This couldn’t be further from the truth. It has been seen that in any design and development process, where the achievement of output depends on the completion of a certain scope of activities, and there is pressure to achieve this output fast, the scope or the process itself gets compromised.&nbsp;Ironically, wherever there is a scope violation to show faster output, the management tends to overlook it either due to a lack of visibility or unwillingness to check. But, such compromises in the fidelity of the design and development process, when not caught upfront, eventually lead to production issues on the plant and quality issues in the field.&nbsp;In regulatory projects like BS VI conversion, where time is short, and the management is on an overdrive to meet timelines, the above undesirable consequences are very likely. With so many engines and vehicles being converted to BS VI with such tight deadlines, companies can quickly lose control of the number of issues being generated owing to process non-conformance.&nbsp;Integration of engine with vehicleContextThe story never ends with the conversion of an engine to BS VI. After the Proof of Concept (POC) of a BS VI engine is complete, there is still a mountain of integrations and validations awaiting to be done with other non-engine sub-systems of the vehicle variants into which the modified engine goes.&nbsp;As an entire portfolio of engines has to be converted to BS VI, the physical compatibility of the modified engines with existing vehicle variants/vehicle BOMs (bill of materials) has to be checked. In the commercial vehicles segment, where customization is common, and vehicle BOMs exist in thousands, this exercise can become overwhelming. Moreover, the functional performance of the overall vehicle with the modified engine cannot be allowed to deteriorate and has to be validated every time an engine is modified.&nbsp;ProblemsModification of each vehicle variant requires contributions from a large number of teams, often working at different locations on different sub-systems. In this process, there may be iterative changes required in the engine as well as non-engine parts and systems.&nbsp;However, when the flow of work is not controlled, it is very easy for engine teams to get lost in the multiplicity of activities to be done on newer engines as they are picked up for POC and iterations coming from variants already under integration check with non-engine teams. When different non-engine teams also pick up integration work based on their individual preferences and conveniences, the synchronization between them suffers, leading to long stoppages in work whenever a team needs help from another. The stoppages cause teams needing help to open up still more work fronts, further worsening the situation.&nbsp;Escalation in vehicle costContextThe biggest challenge by far is the change in pricing dynamics that this initiative will bring about. The overall vehicle BOM cost is expected to increase by at least 5%-10% post-BS VI conversion. This sharp spike can wipe off most of the profits of the company if it does not pass on the cost to its consumers. However, increasing vehicle prices can result in a sudden dip in sales volume, especially in the non-commercial segment, where consumers can postpone their buying decisions.&nbsp;ProblemsMost auto companies are, therefore, apprehensive about the impact of BS VI on sales volumes. A dip is inevitable they say, unless the price increase is ‘justified’ by additional features (and not just by improved emission parameters). But these additional features will not only add incremental costs to the vehicle’s BOM, but they will also take up additional R&amp;D capacity for testing and validation. So, the already stretched R&amp;D capacity would be further burdened, and lead times get longer. Given that there is a full portfolio of engine models and corresponding vehicle variants to be converted to BS VI, this entire process may eventually jeopardize the achievement of BS VI deadlines for many companies.&nbsp;Summary of woesEnormous workload, a highly uncertain environment and dependence on external suppliers of a typical new product development means that the story of most R&amp;D organizations is already one of multiple conflicts playing out at different levels. But these unresolved conflicts are magnified whenever a regulatory tsunami like BS VI hits them with its mammoth work content and aggressive deadlines.&nbsp;What are these conflicts? Let’s list and describe them, specifically in the context of the challenges mentioned in this article.&nbsp;Conflict 1Firstly, a conflict manifests when a large body of work has to be quickly completed - like when the government enforced the BS VI conversion regulation for all engine models.&nbsp;<ul><li>On the one hand, there is a need to ensure full capacity utilization (avoid any starvation in R&amp;D) by loading all resources to the brim.</li><li>On the other hand, there is a need to prevent capacity diversion from important work by carefully controlling the load and identifying work that should not be done.&nbsp;</li></ul>Conflict 2The major shift in technology across numerous engines and models within a restricted timeline creates a conflict between:&nbsp;<ul><li>The need to meet regulatory deadlines by using aggressive timelines to expedite execution and</li><li>The need to prevent compromises in design and development processes from creeping in due to the aggressive timelines (imposed by management through reviews)&nbsp;</li></ul>Conflict 3The coordination required between many teams working on different sub-systems of the same vehicle variant creates a conflict between:&nbsp;<ul><li>Achieving high resource utilization locally in different R&amp;D teams by letting them take up projects in any manner which suits them best individually and</li><li>Achieving close synchronization between different teams required on the same projects by defining an organization-wide rhythm&nbsp;</li></ul>Conflict 4The change in pricing dynamics, and fear of a dip in sales post-BS VI leads to a conflict between:&nbsp;<ul><li>The need to add features in the vehicle to protect sales from dipping post-BS VI, (which in turn can lead to higher lead times and greater risks of not meeting deadlines) and</li><li>The need to protect deadlines by limiting the scope of work to the bare minimum required for BS VI conversion&nbsp;</li></ul>Criteria for successIf we are to resolve all the conflicts listed above, we need to create a solution that resolves multiple paradoxes. In other words, we need to have a solution which:&nbsp;<ul><li>Minimizes starvation in R&amp;D while preventing overloading and its impact (like causing diversion in capacity)</li><li>Removes the pressure of deadlines from the system while ensuring that resources work at maximum speed</li><li>Maximizes overall resource utilization in R&amp;D while improving synchronisation among teams</li><li>Enables addition in project scope in the form of new feature upgrades wherever required to protect sales while ensuring that deadlines are met despite the expansion of the scope.&nbsp;</li></ul>Theory of ConstraintsDo we have a ‘magical’ solution that can resolve all the above paradoxes at the same time? Yes. Adoption of Theory of Constraints (TOC).&nbsp;We all know that the trick behind even astounding acts of magic is a simple diversion. The <a target="_blank" rel="noopener noreferrer" href="https://www.vectorconsulting.in/en/theory-of-constraints/">Theory of Constraints</a> also performs this magic in companies by employing some simple principles of systems thinking. The primary elements of the TOC solution involve the following:&nbsp;<ul><li>Using a good enough assessment of R&amp;D capacity -for limiting projects being worked upon at a time in the R&amp;D pipeline</li><li>A company-wide priority mechanism covering all teams in R&amp;D, parts development, process engineering, and operations to improve synchronisation between individual projects</li><li>Putting a stage-gate mechanism in place to prevent compromises from creeping into the design and development process and</li><li>Managing timelines through high-frequency flow management –changing the focus from chasing deadlines to achieving speed by managing activity completion&nbsp;</li></ul>The end result is shorter lead times (of delivery), higher output and a more agile response to uncertainties that may creep into individual projects.&nbsp;Research and development departments that work on these simple principles are very agile and are not only able to manage their regular R&amp;D work smoothly but are also able to respond competently to sudden regulatory requirements like a quick conversion to BS VI.&nbsp;

In 2017, India wanted to leapfrog from BS IV to BS VI norms - in only three years. How do companies respond to such sudden changes?

The race from BS IV to BS VI: How to win by solving the woes in auto R&D

Let’s leapfrog from BS IV to BS VI in three years, the Indian government decided in 2017.&nbsp;‘That’s impossible!’ the auto industry protested. After all, it took Europe nine years to make this same jump! The feat the government was proposing is akin to conquering Mount Everest in one month (most expeditions take at least 2 months), industry experts opined.&nbsp;<h5>So, what’s prompting such vehement protests?&nbsp;&nbsp;</h5>To answer this, let’s understand the challenges BS VI poses for an auto company, particularly its Research and Development function.&nbsp;<h5>Mammoth work content&nbsp;</h5>Context&nbsp;Many Indian auto companies operate across multiple product categories (ex: cars, bikes, SUVs, trucks etc.) and have built a large portfolio of engines over time. A regulation such as this one would affect the entire range of their products. This means that converting all these engine models to BS VI before April 2020 is truly a gargantuan task. The sheer work content itself is overwhelming for conversion to BS VI since all engine platforms require independent design, validation and homologation activities. In fact, most companies would not have seen these many engine upgrades in their entire history.&nbsp;ProblemsMost R&amp;D organizations do not have a clear assessment of their capacities. This is mainly due to the high ‘content variability’ and the non-deterministic nature of R&amp;D projects, where each project is different from the previous one. So, the time and effort required to complete a new project may be much different from the previous one and can’t be predicted. This is in sharp contrast to the highly deterministic and repetitive nature of work in operations, where the time taken to process an individual part is known to the last second, and therefore, the hourly capacity of a machine is known fairly accurately.&nbsp;When the R&amp;D department is unclear about how much capacity is enough and the workload is huge, it tends to take on many more projects than can be handled at a time. Overloading causes R&amp;D to stretch its capacity over many projects and try to do all things simultaneously. The downside of this approach is that while a large number of projects get started, and many move a certain distance, none or only a few of them finish within the regulated deadline. In short, the company gets no return for all the effort invested.&nbsp;<h5>Steep learning curve</h5>ContextA huge shift in technology is needed to meet the demands placed by BS VI norms. Most Indian companies haven’t faced a technological transformation of this magnitude, and that, too, requires completion within such a short time period. In itself, the adoption of a new technology is a risky proposition. A hard deadline such as the one set by the government aggravates the situation because of the enormous pressure on resources.&nbsp;ProblemsBut, surprisingly, most managers do not see this pressure of time as a problem. In fact, they revel in reviews based on rhetoric around stiff deadlines, believing this factor to be the only driver of speed and the best way to control the many uncertainties in project environments. This couldn’t be further from the truth. It has been seen that in any design and development process, where the achievement of output depends on the completion of a certain scope of activities, and there is pressure to achieve this output fast, the scope or the process itself gets compromised.&nbsp;Ironically, wherever there is a scope violation to show faster output, the management tends to overlook it either due to a lack of visibility or unwillingness to check. But, such compromises in the fidelity of the design and development process, when not caught upfront, eventually lead to production issues on the plant and quality issues in the field.&nbsp;In regulatory projects like BS VI conversion, where time is short, and the management is on an overdrive to meet timelines, the above undesirable consequences are very likely. With so many engines and vehicles being converted to BS VI with such tight deadlines, companies can quickly lose control of the number of issues being generated owing to process non-conformance.&nbsp;<h5>Integration of engine with vehicle</h5>ContextThe story never ends with the conversion of an engine to BS VI. After the Proof of Concept (POC) of a BS VI engine is complete, there is still a mountain of integrations and validations awaiting to be done with other non-engine sub-systems of the vehicle variants into which the modified engine goes.&nbsp;As an entire portfolio of engines has to be converted to BS VI, the physical compatibility of the modified engines with existing vehicle variants/vehicle BOMs (bill of materials) has to be checked. In the commercial vehicles segment, where customization is common, and vehicle BOMs exist in thousands, this exercise can become overwhelming. Moreover, the functional performance of the overall vehicle with the modified engine cannot be allowed to deteriorate and has to be validated every time an engine is modified.&nbsp;<h5>Problems</h5>Modification of each vehicle variant requires contributions from a large number of teams, often working at different locations on different sub-systems. In this process, there may be iterative changes required in the engine as well as non-engine parts and systems.&nbsp;However, when the flow of work is not controlled, it is very easy for engine teams to get lost in the multiplicity of activities to be done on newer engines as they are picked up for POC and iterations coming from variants already under integration check with non-engine teams. When different non-engine teams also pick up integration work based on their individual preferences and conveniences, the synchronization between them suffers, leading to long stoppages in work whenever a team needs help from another. The stoppages cause teams needing help to open up still more work fronts, further worsening the situation.&nbsp;<h5>Escalation in vehicle cost</h5>ContextThe biggest challenge by far is the change in pricing dynamics that this initiative will bring about. The overall vehicle BOM cost is expected to increase by at least 5%-10% post-BS VI conversion. This sharp spike can wipe off most of the profits of the company if it does not pass on the cost to its consumers. However, increasing vehicle prices can result in a sudden dip in sales volume, especially in the non-commercial segment, where consumers can postpone their buying decisions.&nbsp;<h5>Problems</h5>Most auto companies are, therefore, apprehensive about the impact of BS VI on sales volumes. A dip is inevitable they say, unless the price increase is ‘justified’ by additional features (and not just by improved emission parameters). But these additional features will not only add incremental costs to the vehicle’s BOM, but they will also take up additional R&amp;D capacity for testing and validation. So, the already stretched R&amp;D capacity would be further burdened, and lead times get longer. Given that there is a full portfolio of engine models and corresponding vehicle variants to be converted to BS VI, this entire process may eventually jeopardize the achievement of BS VI deadlines for many companies.&nbsp;<h5>Summary of woes</h5>Enormous workload, a highly uncertain environment and dependence on external suppliers of a typical new product development means that the story of most R&amp;D organisations is already one of multiple conflicts playing out at different levels. But these unresolved conflicts are magnified whenever a regulatory tsunami like BS VI hits them with its mammoth work content and aggressive deadlines.&nbsp;What are these conflicts? Let’s list and describe them, specifically in the context of the challenges mentioned in this article.&nbsp;Conflict 1Firstly, a conflict manifests when a large body of work has to be quickly completed - like when the government enforced the BS VI conversion regulation for all engine models.&nbsp;<ul><li>On the one hand, there is a need to ensure full capacity utilization (avoid any starvation in R&amp;D) by loading all resources to the brim.</li><li>On the other hand, there is a need to prevent capacity diversion from important work by carefully controlling the load and identifying work that should not be done.&nbsp;</li></ul>Conflict 2The major shift in technology across numerous engines and models within a restricted timeline creates a conflict between:&nbsp;<ul><li>The need to meet regulatory deadlines by using aggressive timelines to expedite execution and</li><li>The need to prevent compromises in design and development processes from creeping in due to the aggressive timelines (imposed by management through reviews)&nbsp;</li></ul>Conflict 3The coordination required between many teams working on different sub-systems of the same vehicle variant creates a conflict between:&nbsp;<ul><li>Achieving high resource utilization locally in different R&amp;D teams by letting them take up projects in any manner which suits them best individually and</li><li>Achieving close synchronization between different teams required on the same projects by defining an organization-wide rhythm&nbsp;</li></ul>Conflict 4The change in pricing dynamics, and fear of a dip in sales post-BS VI leads to a conflict between:&nbsp;<ul><li>The need to add features in the vehicle to protect sales from dipping post-BS VI, (which in turn can lead to higher lead times and greater risks of not meeting deadlines) and</li><li>The need to protect deadlines by limiting the scope of work to the bare minimum required for BS VI conversion&nbsp;</li></ul><h5>Criteria for success</h5>If we are to resolve all the conflicts listed above, we need to create a solution that resolves multiple paradoxes. In other words, we need to have a solution which:&nbsp;<ul><li>Minimizes starvation in R&amp;D while preventing overloading and its impact (like causing diversion in capacity)</li><li>Removes the pressure of deadlines from the system while ensuring that resources work at maximum speed</li><li>Maximizes overall resource utilization in R&amp;D while improving synchronisation among teams</li><li>Enables addition in project scope in the form of new feature upgrades wherever required to protect sales while ensuring that deadlines are met despite the expansion of the scope.&nbsp;</li></ul><h5>Theory of Constraints</h5>Do we have a ‘magical’ solution that can resolve all the above paradoxes at the same time? Yes. Adoption of Theory of Constraints (TOC).&nbsp;We all know that the trick behind even astounding acts of magic is a simple diversion. The <a target="_blank" rel="noopener noreferrer" href="https://www.vectorconsulting.in/en/theory-of-constraints/">Theory of Constraints</a> also performs this magic in companies by employing some simple principles of systems thinking. The primary elements of the TOC solution involve the following:&nbsp;<ul><li>Using a good enough assessment of R&amp;D capacity -for limiting projects being worked upon at a time in the R&amp;D pipeline</li><li>A company-wide priority mechanism covering all teams in R&amp;D, parts development, process engineering, and operations to improve synchronisation between individual projects</li><li>Putting a stage-gate mechanism in place to prevent compromises from creeping into the design and development process and</li><li>Managing timelines through high-frequency flow management –changing the focus from chasing deadlines to achieving speed by managing activity completion&nbsp;</li></ul>The end result is shorter lead times (of delivery), higher output and a more agile response to uncertainties that may creep into individual projects.&nbsp;Research and development departments that work on these simple principles are very agile and are not only able to manage their regular R&amp;D work smoothly but are also able to respond competently to sudden regulatory requirements like a quick conversion to BS VI.&nbsp;

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3 myths that derail a transformation program

Can pharmaceutical giants address their unique operational challenges to help them be more flexible on the shop floor, discover hidden capacity, significantly increase output and respond quickly to changing market demands? They can, with a unique 'pull' based approach.

Accelerated pharma manufacturing

<h5>API: Achilles heel of Indian pharma&nbsp;</h5>It’s well known that India is the global leader in Generic Pharma exports (Figure 1). However, the industry has an Achilles heel. It imports as much as 65%–100% of the APIs (Active Pharmaceutical Ingredients)[1], which are critical for manufacturing drugs, including capsules, tablets, etc., from China [2]. Such a high dependency on a single nation, especially one with whom India’s diplomatic relationship is often contentious, brings with it both political and economic risk.&nbsp;<figure class="image"><img style="aspect-ratio:16668/13500;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-3-img-1-01_1733244117.jpg" width="16668" height="13500"></figure><figure class="image"><img style="aspect-ratio:16668/10628;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-3-img-2-01_1733244131.jpg" width="16668" height="10628"></figure>Risk notwithstanding, not only has overall API imports increased over time, India’s API imports from China grew by 28% from Rs. 947 crores in 2025-16 to Rs. 1,150 crores in 2019-20.&nbsp;<figure class="image"><img style="aspect-ratio:16668/13632;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-3-img-3-01_1733244148.jpg" width="16668" height="13632"></figure>At the same time, it must be noted that there are many well-established API players in the country, and India is second only to China as a supplier to the US markets. The companies in the country are holding this position by virtue of some major strengths, including:<figure class="image"><img style="aspect-ratio:16668/16636;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-3-img-4-01_1733244157.jpg" width="16668" height="16636"></figure><ul><li>An established reputation for quality, consistency, regulatory compliance, EHS (Environment, Health &amp; Safety) compliance, as well as a workforce with superior technical skills [4](evidenced in the fact that India holds almost half of the DMFs [5]). </li><li>The legacy proficiency in formulations allows Indian companies to provide end-to-end solutions, like supplying Pellets/Granules or even finished dosage instead of just API.&nbsp;</li></ul>In addition to these advantages, the government has been pushing towards further developing API manufacturing capabilities within India since 2017 [6] and has introduced some schemes to help make this sector more competitive. [7] [8]<figure class="image"><img style="aspect-ratio:16668/12903;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-3-img-5-01_1733244236.jpg" width="16668" height="12903"></figure>However, the country is still way behind China. This is attributed primarily to the fact that while over the years, Chinese firms aggressively forayed into the scaling of API businesses, there was also a simultaneous erosion of interest in the API business from Indian players (read why in the box titled ‘Indian API story’). This has allowed Chinese companies to entrench themselves with many formulation companies. Changing an already established API vendor for a particular drug already being manufactured is a huge hassle (time-consuming approvals are needed) in this rigidly regulated environment. Moreover, since formulation companies in India and globally continuously face price erosion for their products, they are forced to seek their inputs (including API) at low costs. China is able to offer lower prices in many APIs; since production costs in China are, on average, 10% and 20% cheaper [9][10][11]. This allowed Chinese firms to consolidate their markets.&nbsp;<figure class="image"><img style="aspect-ratio:16668/12424;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-3-img-6-01_1733244283.jpg" width="16668" height="12424"></figure>Direction of Solution: A two-pronged strategy to revive Indian API&nbsp;Weaning away formulation companies from their established API partners for blockbuster drugs that are already being manufactured by them is likely to be an uphill task at this stage. So, if Indian pharma companies have to really be competitive and a volume player again in API, the best opportunity for them will be to adopt a double-pronged strategy. For this, API players have to:&nbsp;1. Develop rapid R&amp;D capabilities to establish sustainable vendor relationships for APIs of drugs newly free of patent or for low-competition genericsA good opportunity for creating a market for Indian APIs through the R&amp;D route is presented by the fact that there are a large number of niche, low-competition APIs that can be supplied to the regulated marketsxii. And there is a completely new emerging market for animal health that has very little competition. Most of the APIs in this market are currently made by the innovator companies in their in-house facilities, but there is an increasing trend of third-party sourcing.&nbsp;<figure class="image"><img style="aspect-ratio:16668/11773;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-3-img-7-01_1733244291.jpg" width="16668" height="11773"></figure>Moreover, the next big patent cliff is coming in the next few years. API companies with much shorter R&amp;D lead times than the competition are front runners in developing the targeted APIs, can seed many potential formulation companies and can lock them in supply partnerships as soon as these drugs expire will enjoy a tremendous advantage.&nbsp;However, the challenge will not be over just by establishing partnerships. Over time formulation companies will experience dramatic price erosion in their markets, and so they will expect their API partners to play their part in reducing input costs. So API R&amp;D will have to work on process innovation to identify the route for the lowest cost of production for these molecules at the highest yield. This is necessary to help secure and sustain price competitiveness and, consequently, higher SOB with customers.&nbsp;2. Ensure operational capabilities (quality &amp; reliability of supply) in addition to price competitiveness that can completely offset the Chinese cost advantagexiiiWhile leveraging R&amp;D can help establish a foothold in formulation companies to increase market share over time, it is necessary to take significant steps in operations. This means that manufacturing plants must provide greater value to customers than just price parity with Chinese counterparts. In order to achieve this, Indian API players must offer not only competitive prices and high quality (which India is already known for) but also reliability of supply. This will differentiate Indian API companies and reshape the competitive landscape.However, it must be noted that if these efforts in R&amp;D or Operations require significant additional investment, it will wipe out any hard-won margin and profitability. So, the only viable direction of a solution for API players is to&nbsp;<ul><li>Increase new API molecule filings with much shorter and more competitive development lead times by using the current strength of the R&amp;D team / without additional resourcing. </li><li>Increase tonnage of API output manufactured while also ensuring high reliability of customer orders without any capacity investment or cost increase.&nbsp;</li></ul>While this may sound too ambitious, the good news is that companies are either ignoring or not noticing the huge wastage in R&amp;D and Operations. If we can eliminate them, these objectives can be met.&nbsp;How to enable Rapid R&amp;D1. A vicious mismatch of capacity and loadCurrently, most API R&amp;D facilities in India are highly inconsistent in terms of output every year. Lab development lead times of API itself in many companies are very lengthy, spanning 15-18 (best are at 8-9 months) months, even for a simple molecule. The whole journey till filing can span 26-30 months (in the best case, they can do this in 16-17 months). This situation exists since, in this environment, there is a perennial mismatch experienced between capacity and load.&nbsp;If you examine the workload on expert resources, which are crucial for these projects to progress in the R&amp;D pipeline, it can be seen that they are caught in a vicious loop of time wastage through task elongation, interruptions and bad multi-tasking (see image). Therefore, in spite of the best efforts from all and a lot of stress, projects are delayed, and the company’s ability to be a front runner to market the new API becomes an issue.&nbsp;<figure class="image"><img style="aspect-ratio:16668/8866;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-3-img-8-01_1733244310.jpg" width="16668" height="8866"></figure>2. Changing paradigms to build speedFortunately, there is a way to emerge out of this vicious loop. If the principles discussed below are implemented, it may enable a faster flow of projects in the R&amp;D pipeline:&nbsp;<ul><li>Instead of the current practice of capacity scheduling, limit the WIP of development projects in the system and ensure that a new one is initiated after one of the current projects is completed. This will prevent capacity loss due to interruptions. </li><li>Since work disruption is unavoidable if the full kit of information, materials and approvals is not available beforehand, a separate preparatory team can organize a full kit before a project enters the WIP list. </li><li>Plans go haywire quickly by trying to manage projects using deadlines by triggering multi-tasking when everything becomes urgent. Moreover, using a WIP limit makes it impossible to use predefined date commitments. Therefore, use a common global priority system to ensure sync between teams. </li><li>Use daily management and predefined issue resolution frequency rather than the usual intervention process close to committed dates to enable task completion at the fastest possible pace. </li><li>Eliminate individual task-level buffers and track buffer consumption at the project level vis-à-vis work completion, to get visibility of all the projects in the company’s R&amp;D pipeline and take timely expediting/corrective actions wherever judicious.&nbsp;</li></ul>(For more details, read <a target="_blank" rel="noopener noreferrer" href="https://www.vectorconsulting.in/en/research-and-publication/articles/generic-drug-development-the-prescription-for-success/">Generic drug development: The prescription for success</a>)Once these steps are implemented, a group of 50 chemists and 100 analysts who would, in the earlier way of working, typically give an output of 8-10 projects per year would start delivering 15-18 projects per year! The speed with which projects are completed can be leveraged to establish partnerships early with formulation companies.How to leverage operations for competitive advantage?&nbsp;Similarly, a closer review of current manufacturing practices in this industry will indicate that there are several sources of capacity wastages that result in burgeoning lead times and longer working capital cyclesxiv in API companies. Let's examine the causes of these wastages and why they mostly go unnoticed.&nbsp;Sources of capacity wastage1. Wastage due to starving bottlenecksEach API molecule manufactured needs to take a predefined route of steps for manufacturing, and set-up change tends to be time-consuming. Each route will have its own bottleneck or capacity-constrained resource. Any idle time on these bottlenecks costs the company in terms of reduced output and increased lead time. It will be interesting to note that some of the capacity wastage is created during the planning stage itself. The reasons are as followsStarvation due to month-end skewMost API plants are run with monthly schedules. Output is committed by the plant for a month, and any delay/rework during the month needs to be covered by expediting the last stages of manufacturing at month-end. Often these last stages are non-bottlenecks for a product.&nbsp;In order to deliver volume for the month, manpower is shifted from bottlenecks to non-bottlenecks resulting in starvation at the bottleneck and wastage of capacity.<figure class="image"><img style="aspect-ratio:16668/13224;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-3-img-9-01_1733244321.jpg" width="16668" height="13224"></figure>This manpower shifting prepones the output declaration from the first week of the next month to the last week of the current month, creating a backlog for the next month before it starts. This again puts pressure on production at month-end of the subsequent month-end cycle repeats.Machine efficiency lossesMachine efficiency is at its best if the processes are strictly adhered to and the technical parameters are precisely achieved.&nbsp;However, very often, due to the ageing of machinery and inefficiency of utilities, the necessary parameters are not precisely achieved in the stipulated time. For instance, in spite of following procedures correctly, it may take more time to reach the required temperature during drying.&nbsp;If this can be prevented by continuously tracking to ensure that the machines function at their best, the time saved will be equal to the output earned.&nbsp;While this may sound very simple, such improvement projects are usually overlooked for two reasons. Firstly a consistent demand capacity gap is rarely experienced in planning. This is because annual sales targets are anyway based on estimated capacity based on previous experience (with wastages built-in).Secondly, because of margin pressure, the top management tends to be more focused and drive cost reduction projects than productivity improvement projects.2. Wastage due to planning horizonMonthly production plans are a combination of actual orders and 3-month forecasted orders since most API companies have to serve unregulated markets (transactional deals; difficult to predict) in addition to the regulated markets (more predictable). So, closer to due dates, very often, the order quantity / priorities get changed. So this means that set-ups have to be changed, a few WIP orders have to be set aside, and some other urgent order/s have to be processed. When urgencies of this nature hit an API company, they perceive themselves as short of capacity (pain felt- expediting, sale loss or delay in delivery).&nbsp;However, companies never perceive themselves as having wasted capacity since they almost never have excess of FG inventory (evidence of capacity stealing) in their warehouses (which logically should have been created due to forecast inaccuracy). The reason for this is the buying practice of formulation companies. Since they tend to change their priorities at the last moment, most are amenable to picking up any FG that has been created at their behest or at least adjusting it in the credit terms, and voila – no excess inventory on the books!&nbsp;Interestingly, this is one of many capacity wastages that can be traced to formulation companies.&nbsp;3. Wastage due to ordering practice of formulation companiesBecause of their buying practices, formulation companies (whether captive or otherwise) end up keeping 4 months to 1 year of API inventory in their warehouses. They also trigger orders and replenish when the stock levels fall below a particular, very conservatively calculated, ‘minimum’ level (3-6 months of sale) on an urgent basis. While this stock may be being maintained in the formulation company’s books, stealing the capacity to make this ahead of the required time becomes a source of capacity wastage for the concerned API company. Further, it is inevitable that when there is so much inventory being held some of it will expire and will have to be sent back to the API vendor and repurposed. This becomes an additional source of capacity wastage.&nbsp;Eliminating capacity wastageReducing wastage of capacity due to this heavily buffered ordering practice of formulation companies is possible only if ~100% reliability at shorter lead times can be consistently demonstrated by their API partners. For this, API companies have to abandon the monthly planning approach and instead implement processes in their procurement, quality control and manufacturing that enable the flow. The major steps involved in enabling alignment of capacity to market pull are:&nbsp;<ul><li>Decoupling RM procurement lead time from manufacturing lead time by maintaining stock replenishing based on consumption. This will ensure the high availability of RM at reduced stock levels since forecast errors do not affect it. </li><li>During planning, ensure optimization of product mix for throughput maximization.&nbsp;</li></ul>Implementing these ensures that flow improves and month-end skew is eliminated. Some of the gains from these efficiencies in terms of higher output (30%-40% increase), at lower WIP (~40% reduction)/FG (25%-30% reduction) inventory and shorted working capital cycles can be passed on to the customers to bring better price competitiveness if required.&nbsp;At the same time, the high availability (&gt;90% daily of made-to-stock items) that the new system enables can be leveraged to gain a decisive competitive advantage by offering ready delivery of API to formulation companies. Since formulation companies are also very keen on reducing working capital stuck in the RM, such a reliable vendor who can reliably offer small and frequent off-takes as and when needed will be viewed as God-sent and is sure to gain higher and higher SOB from them over time.&nbsp;Conclusion: API can be done rightxv xviBelow is a simple simulation of how such an Indian API company can stack up against a Chinese API company once it has become an efficient partner to formulation companies. Clearly, profitability can be increased significantly by increasing output from the same capacity and converting this into sales without increasing fixed costs. So if most API companies adopt these practices, India can become a globally competitive API manufacturing hub.&nbsp;<figure class="image"><img style="aspect-ratio:16668/17343;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-3-img-10-01_1733244332.jpg" width="16668" height="17343"></figure><img src="https://qclab.app/wp-content/uploads/2023/07/VCG_API-Article_May-2023.jpg" alt="">An afterthoughtThese steps will surely help the Indian pharma industry re-establish its footprint in the API business. However, it must be added that since more than 75% of India’s KSMs imports originate from Chinaxvii, there is still a significant supply risk. Supply disruptions in KSA may squeeze margins and raise product prices. So, API companies will next need to find ways to strengthen the moat around their business by integrating backwards to KSM and other basic intermediates.&nbsp;How can that be done? That’s another story.&nbsp;&nbsp;&nbsp;&nbsp;

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API manufacturing in India is less attractive than in China. However, by enhancing operational excellence in manufacturing and R&D, India's API industry can unleash its true potential.

Mighty molecules: Strategies for reclaiming the global API throne

“If a factory is torn down, but the rationality that produced it is left standing, then that rationality will simply produce another factory.” Robert Pirsig, Zen and the art of motorcycle managementWarning letters and their impactAn analysis of the number of warning letters issued by USFDA over the years [1] to pharmaceutical companies across the globe has been increasing over the years.<figure class="image"><img style="aspect-ratio:16668/11669;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-1-01_1733242587.jpg" width="16668" height="11669"></figure>In the warning letter, the FDA makes it clear that the concerned company must correct the problem and provide directions and a timeframe for the company to inform the FDA of their plans for correction. Failure to address the FDA’s concerns can lead to enforcement actions that have significant repercussions as well as product liability exposure. Therefore when a warning letter is received, company employees, especially senior management (who are already very busy), scramble to address it within the stipulated time frame.It is estimated that a single warning letter leads to a loss of approx. 900 man-hours across the hierarchy. This increases exponentially if multiple warning letters are received simultaneously. It has to be noted that this will be at the cost of progress on their routine, ongoing tasks.&nbsp;<figure class="image"><img style="aspect-ratio:16668/10032;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-2-01_1733242600.jpg" width="16668" height="10032"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Estimation-of-time-needed-to-address-a-single-warning-letter.png" alt="">After this marathon, the remediation procedures that FDA expects companies to implement can be even more expensive than complying in the first place. Moreover, there are long-term repercussions in terms losing credibility with regulators - not just the FDA but also other global regulators, leading to increased scrutiny and more inspections. In case of repeat offenders, they often have to pay hefty fines and sign a consent decree of permanent injunction that will bind them to be compliant in perpetuity. All this can impact the company’s business/financial performance, affect company valuations, and reduce the overall reputation.&nbsp;The problemThe major reasons for FDA warning letters are not unknown. About 50% of FDA warning letters pinpoint CAPA (Corrective Action and Preventive Action) failures [2]. CAPA failures also show up year after year in these warning letters. The FDA also clearly indicates FDA that most of these CAPA failures are a failure of root cause analysis.&nbsp;<figure class="image"><img style="aspect-ratio:16668/8279;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-3-01_1733242664.jpg" width="16668" height="8279"></figure>What does not work well?&nbsp;So, over the years, pharma labs have used multiple techniques to identify the root cause so that they can take the necessary actions to improve their quality performance. The popular techniques employed include 5-Whys, Fishbone diagrams, Pareto charts, Failure Mode and Effect Analysis (FMEA), decision trees, and brainstorming.&nbsp;A significant chunk of the results of these analyses tends to point to human or analyst error (~40-55%). Therefore, some of the typical actions companies have taken are adopting digital systems to reduce documentation error, putting in next-generation analytical testing technology, automating a of few of the quality processes, increasing the level of supervision in the lab, increasing the training of analysts and addition of resources to reduce the load on the system.&nbsp;<figure class="image"><img style="aspect-ratio:16668/12347;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-4-01_1733242679.jpg" width="16668" height="12347"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Typical-results-of-analysis-of-sources-of-error.png" alt="">However, experience has shown many of these companies that these steps (always quite expensive in terms of time or money or both), while offering some improvement, do not help sustain high-quality standards consistently. After a while, any improvement that accrued stagnates, or even more perplexingly, when something improves, something else seems to deteriorate. Moreover, FDA has increasingly been criticizing the finding of ‘human error’ as the conclusion of root cause analysis as limited or shallow and has been urging companies to take a deeper look.&nbsp;<figure class="image"><img style="aspect-ratio:16668/10100;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-5-01_1733242692.jpg" width="16668" height="10100"></figure><h5>The real root cause: Cognitive overload</h5><figure class="image"><img style="aspect-ratio:16668/6058;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-6-01_1733242720.jpg" width="16668" height="6058"></figure>A closer study of the testing environment in pharma companies will indicate that the analysts are often under a situation of significant ‘Cognitive Overload’. The analysts have the responsibility to<ul><li>conduct all activities of assigned tests as per the TDS (Test Data Sheet) - i.e. collect glassware and documents, arrange for chemicals and reagents, ensure the validity of all solutions prepared till tests are complete, select appropriate equipment (e.g., column), manage instruments, etc. </li><li>generate an audit trail for which they also have to record the equipment used. </li><li>concurrently record various observations in TDS and maintain a separate checklist to ensure no steps are missed.&nbsp;</li></ul>Skips and misses: All this the analysts have to manage in an eight-hour shift by switching between various stages of testing (instrument setting/monitoring, solution preparation, mobile phase, collecting glassware, checking/arranging resources, etc.) and by trying to take advantage of the natural waiting time in some of these stages. Unfortunately, the human brain finds such a balancing act and this level of multi-tasking very difficult to manage. Therefore, occurrences of inadvertent skips and misses became inevitable.Systemic error masked as human error: In addition to such human errors, testing environments also tend to have systemic errors due to<ul><li>missing information in the SOPs set or because of inadequately documented SOPs.</li><li>a process gap or due to a gap in the testing method</li></ul>However, when faced with a melee of different kinds of problems cropping up daily, it is difficult for managers to correctly infer and assign real causality for these errors. So, in this confusion, even systemic errors are mistaken for human error. This inevitably leads to frequent-finger pointing, stress and inability to take timely corrective actions.<figure class="image"><img style="aspect-ratio:16668/11569;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-7-01_1733242736.jpg" width="16668" height="11569"></figure>Direction of solution:Based on these insights, it is obvious that the only option is to first address the cognitive overload in the system to bring down real manual errors to minimal levels. Then, the systemic errors due to incorrect methods followed, unclear procedures, etc., will become visible, and actions can be taken to rectify them.&nbsp;While this logic is unrefutably simple, implementing a system-wide, counterintuitive solution that can significantly reduce the cognitive load on analysts without sacrificing overall productivity is obviously a huge challenge. The key to this is to release capacity by identifying and eliminating significant wastages in the analyst’s activities. Research by Vector has shown that the level of analyst capacity wastage can be as high as 40% in a typical pharma lab.&nbsp;<figure class="image"><img style="aspect-ratio:16668/18428;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-8-01_1733242750.jpg" width="16668" height="18428"></figure>The ‘flow’ focussed solution that Vector implements to eliminate these wastages and for release capacity serve a dual purpose. On the one hand it enables the released capacity to be used for controlling the loading of analysts, and on the other, it will reset the company’s quality practices to a much higher level of rigour. For instance, improving the STPs (Standard Testing Procedures) by detailing them more thoroughly to remove elements of subjectivity can ensure that a large number of systematic errors are eliminated.&nbsp;<figure class="image"><img style="aspect-ratio:16668/11764;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-9-01_1733242761.jpg" width="16668" height="11764"></figure>A few pioneering companies have implemented this new approach. Within a few months, they could significantly reduce invalid OOS and bring down lab incidents! Some salient details of the results of the implementation achieved with a major multi-national pharma company’s labs in a year are as below:&nbsp;<figure class="image"><img style="aspect-ratio:16668/9607;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-10-01_1733242775.jpg" width="16668" height="9607"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Parameter-and-improvement.png" alt="">If more companies address cognitive overload, which is the true root cause of their quality issues, it can bring down quality-related inconsistencies and keep companies ‘inspection ready’ at all times. With that, one is sure to see a dramatic dip in the warning letters the FDA has to issue.&nbsp;

Many generic pharma companies continue to struggle with high levels of invalid OOS and lab incidents, making them vulnerable to adverse observations from the US FDA. Often, 'analyst error' is cited as the reason, but the real reason is something else.

Getting to the true root of lab quality problems

“If a factory is torn down, but the rationality that produced it is left standing, then that rationality will simply produce another factory.” Robert Pirsig, Zen and the art of motorcycle managementWarning letters and their impactAn analysis of the number of warning letters issued by USFDA over the years [1] to pharmaceutical companies across the globe has been increasing over the years.<figure class="image"><img style="aspect-ratio:16668/11669;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-1-01_1733242587.jpg" width="16668" height="11669"></figure>In the warning letter, the FDA makes it clear that the concerned company must correct the problem and provide directions and a timeframe for the company to inform the FDA of their plans for correction. Failure to address the FDA’s concerns can lead to enforcement actions that have significant repercussions as well as product liability exposure. Therefore when a warning letter is received, company employees, especially senior management (who are already very busy), scramble to address it within the stipulated time frame.It is estimated that a single warning letter leads to a loss of approx. 900 man-hours across the hierarchy. This increases exponentially if multiple warning letters are received simultaneously. It has to be noted that this will be at the cost of progress on their routine, ongoing tasks.&nbsp;<figure class="image"><img style="aspect-ratio:16668/10032;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-2-01_1733242600.jpg" width="16668" height="10032"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Estimation-of-time-needed-to-address-a-single-warning-letter.png" alt="">After this marathon, the remediation procedures that FDA expects companies to implement can be even more expensive than complying in the first place. Moreover, there are long-term repercussions in terms losing credibility with regulators - not just the FDA but also other global regulators, leading to increased scrutiny and more inspections. In case of repeat offenders, they often have to pay hefty fines and sign a consent decree of permanent injunction that will bind them to be compliant in perpetuity. All this can impact the company’s business/financial performance, affect company valuations, and reduce the overall reputation.&nbsp;The problemThe major reasons for FDA warning letters are not unknown. About 50% of FDA warning letters pinpoint CAPA (Corrective Action and Preventive Action) failures [2]. CAPA failures also show up year after year in these warning letters. The FDA also clearly indicates FDA that most of these CAPA failures are a failure of root cause analysis.&nbsp;<figure class="image"><img style="aspect-ratio:16668/8279;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-3-01_1733242664.jpg" width="16668" height="8279"></figure>What does not work well?&nbsp;So, over the years, pharma labs have used multiple techniques to identify the root cause so that they can take the necessary actions to improve their quality performance. The popular techniques employed include 5-Whys, Fishbone diagrams, Pareto charts, Failure Mode and Effect Analysis (FMEA), decision trees, and brainstorming.&nbsp;A significant chunk of the results of these analyses tends to point to human or analyst error (~40-55%). Therefore, some of the typical actions companies have taken are adopting digital systems to reduce documentation error, putting in next-generation analytical testing technology, automating a of few of the quality processes, increasing the level of supervision in the lab, increasing the training of analysts and addition of resources to reduce the load on the system.&nbsp;<figure class="image"><img style="aspect-ratio:16668/12347;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-4-01_1733242679.jpg" width="16668" height="12347"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Typical-results-of-analysis-of-sources-of-error.png" alt="">However, experience has shown many of these companies that these steps (always quite expensive in terms of time or money or both), while offering some improvement, do not help sustain high-quality standards consistently. After a while, any improvement that accrued stagnates, or even more perplexingly, when something improves, something else seems to deteriorate. Moreover, FDA has increasingly been criticizing the finding of ‘human error’ as the conclusion of root cause analysis as limited or shallow and has been urging companies to take a deeper look.&nbsp;<figure class="image"><img style="aspect-ratio:16668/10100;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-5-01_1733242692.jpg" width="16668" height="10100"></figure><h5>The real root cause: Cognitive overload</h5><figure class="image"><img style="aspect-ratio:16668/6058;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-6-01_1733242720.jpg" width="16668" height="6058"></figure>A closer study of the testing environment in pharma companies will indicate that the analysts are often under a situation of significant ‘Cognitive Overload’. The analysts have the responsibility to<ul><li>conduct all activities of assigned tests as per the TDS (Test Data Sheet) - i.e. collect glassware and documents, arrange for chemicals and reagents, ensure the validity of all solutions prepared till tests are complete, select appropriate equipment (e.g., column), manage instruments, etc. </li><li>generate an audit trail for which they also have to record the equipment used. </li><li>concurrently record various observations in TDS and maintain a separate checklist to ensure no steps are missed.&nbsp;</li></ul>Skips and misses: All this the analysts have to manage in an eight-hour shift by switching between various stages of testing (instrument setting/monitoring, solution preparation, mobile phase, collecting glassware, checking/arranging resources, etc.) and by trying to take advantage of the natural waiting time in some of these stages. Unfortunately, the human brain finds such a balancing act and this level of multi-tasking very difficult to manage. Therefore, occurrences of inadvertent skips and misses became inevitable.Systemic error masked as human error: In addition to such human errors, testing environments also tend to have systemic errors due to<ul><li>missing information in the SOPs set or because of inadequately documented SOPs.</li><li>a process gap or due to a gap in the testing method</li></ul>However, when faced with a melee of different kinds of problems cropping up daily, it is difficult for managers to correctly infer and assign real causality for these errors. So, in this confusion, even systemic errors are mistaken for human error. This inevitably leads to frequent-finger pointing, stress and inability to take timely corrective actions.<figure class="image"><img style="aspect-ratio:16668/11569;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-7-01_1733242736.jpg" width="16668" height="11569"></figure>Direction of solution:Based on these insights, it is obvious that the only option is to first address the cognitive overload in the system to bring down real manual errors to minimal levels. Then, the systemic errors due to incorrect methods followed, unclear procedures, etc., will become visible, and actions can be taken to rectify them.&nbsp;While this logic is unrefutably simple, implementing a system-wide, counterintuitive solution that can significantly reduce the cognitive load on analysts without sacrificing overall productivity is obviously a huge challenge. The key to this is to release capacity by identifying and eliminating significant wastages in the analyst’s activities. Research by Vector has shown that the level of analyst capacity wastage can be as high as 40% in a typical pharma lab.&nbsp;<figure class="image"><img style="aspect-ratio:16668/18428;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-8-01_1733242750.jpg" width="16668" height="18428"></figure>The ‘flow’ focussed solution that Vector implements to eliminate these wastages and for release capacity serve a dual purpose. On the one hand it enables the released capacity to be used for controlling the loading of analysts, and on the other, it will reset the company’s quality practices to a much higher level of rigour. For instance, improving the STPs (Standard Testing Procedures) by detailing them more thoroughly to remove elements of subjectivity can ensure that a large number of systematic errors are eliminated.&nbsp;<figure class="image"><img style="aspect-ratio:16668/11764;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-9-01_1733242761.jpg" width="16668" height="11764"></figure>A few pioneering companies have implemented this new approach. Within a few months, they could significantly reduce invalid OOS and bring down lab incidents! Some salient details of the results of the implementation achieved with a major multi-national pharma company’s labs in a year are as below:&nbsp;<figure class="image"><img style="aspect-ratio:16668/9607;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ls-article-1-img-10-01_1733242775.jpg" width="16668" height="9607"></figure><img src="https://qclab.app/wp-content/uploads/2023/06/Parameter-and-improvement.png" alt="">If more companies address cognitive overload, which is the true root cause of their quality issues, it can bring down quality-related inconsistencies and keep companies ‘inspection ready’ at all times. With that, one is sure to see a dramatic dip in the warning letters the FDA has to issue.&nbsp;&nbsp;

How can Indian CROs reduce the number of observations and deviations observed during the studies by 40%-50% and generate the final integrated report 25%-35% faster with the same resources while protecting the quality of reports? Find out

Agile CROs can fly high

New products are vital for the growth of companies. Increased competition from other companies, changing consumer behaviour, advancements in technology, ensuring freshness of product offerings, diversification of risk, etc. are some of the reasons why new products have to be launched.&nbsp;In environments where market dynamics are rapidly changing, a company is considered healthy and growing only if at least 25%-30% of their overall sales is accrued from their new productsi. This is expected to be significantly higher for companies that deal with lifestyle or technology products. So, firms put in a lot of effort into understanding the market and try to continuously develop new products. However, according to research by Clayton Christensen, Harvard Business School Professor and renowned author, over 30,000 new products are introduced into the market every year, and 95% of them failii.<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//1_1712575368.png" width="1000" height="1000"></figure>What is often not realized is that the success of any new product is dependent not only on its ideation and development stage, but also on the way it is launched in the market. Even a revolutionary product can fail. 75% of consumer-packaged goods and retail products fail to reach the minimum sales expectations after launch. And products that start out strong may also have trouble sustaining success.&nbsp;This article will examine the challenges companies face while launching a new product and the tactics needed to ensure that new products of a company have the best opportunity to succeed and sustain in the market.&nbsp;NPL – The ChallengesWhile there could be numerous reasons for products to fail (e.g. legal issues, socio-cultural mismatch, product falls short of claims, etc.), the major cause of failure, for otherwise acceptable new products, tend to be associated with scaling up or rolling out.&nbsp;So, if we did a postmortem of a typical failed product, you are likely to see the following issues:<ul><li>Lack of visibility on the shelves at retail counters: The newly launched product is not getting the right placements (both in terms of quantum and the type of outlet), or after getting the required placements, they are not getting the right visibility. (Note: Products are usually launched with considerable fanfare, ATL/BTL activities to support it. But even if these succeed in catching the customer’s attention, in most cases these customers will not go beyond their regular, known outlets to try and buy this product).</li><li>Customers could not get the product in many places: Even though the product could be placed in relevant retail outlets and made visible, it became unavailable very soon, and the vast majority of customers never got the chance to even see it (let alone buy it)</li><li>Delay in addressing the feedback received from the market: There were pockets of customers giving feedback about the new product/ processes that, if included, could have prevented the demise of the product. However, the company could not act on this in time.</li><li>Customers could not get sufficient product information: Customers did not get a chance to understand how to use the product (a new product category), or the customers did not understand the products’ new features. This led to a loss of interest from consumers.&nbsp;</li></ul>These indicate that if you don’t scale your supply chain quickly, become available consistently, course correct where needed and grab customer loyalty, your product is toast. Further, your competition may launch its own version and walk away with the market. But how can we ensure that these issues don’t happen during/after launch?To identify a solution, we must first understand the nature of new product launches in greater detail.What is the real issue?The most important characteristic of new product launches is that the consumer’s response to the new product is uncertain. Even though the product may have gone through a market research phase, reality is the only true test of consumer willingness to adopt a new product, and there is no trend data available to predict potential sales.&nbsp;<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//2_1712575404.png" width="1000" height="1000"></figure>Because of this, companies are in perpetual dilemma when it comes to launching a new product – ‘Do they take a cautious approach and launch the product in a select few territories, or do they adopt the big bang strategy and launch it across all their POS?’. Both have pros and cons. A smaller launch allows companies to test the trend in demand. Moreover, incorporating any changes to the product or processes without affecting the brand’s reputation is easier if the initial launch is limited. However, a big bang launch means companies can enjoy the first mover advantage in all geographies and increase all sales opportunities before the competition gets an inkling.&nbsp;However, very often, this choice is taken out of the hands of companies. Delays in new product development of the products and the threat of missing the appropriate timing/launch window (could be the beginning of a season, a festival, etc.) result in pressure to launch the product when it is ready across as many territories as possible. The risks of this are easily imaginable, though. The bigger the scale of the launch, the higher the level of uncertainty of demand. The sales team also has to be proportionately bigger to cater to this scale of launch. With very little time available to impart proper training to the sales team, the USP of the product is not effectively communicated to the potential consumer of the product. Moreover, there is very little focus on responding to the feedback provided by the consumers. And, in this rush, the supply chain has also not been equipped to respond to demand fluctuations. This increases the possibility of product shortages in some areas where it is selling well (even though it is available in excess in other parts of the supply chain). Patchy availability of the products eventually puts off consumers. This leads to poor adoption of the product and the company discarding the product as unpopular.&nbsp;Product failures create a vicious cycle for companies – as products fail more often than not, there is greater pressure to develop more new products to ensure the company’s growth! So, finding a way to address these challenges and improve the typical hit ratio of product launches is imperative.&nbsp;<figure class="image"><img style="aspect-ratio:1000/1000;" src="https://new-stage-be.vectorconsulting.in/storage/editor_uploads//3_1712575424.png" width="1000" height="1000"></figure>Direction of SolutionIt is clear that reducing the extent of demand uncertainty during a new product launch will help improve its effectiveness. The best way to reduce uncertainty to have better control over the supply chain/sales team readiness is to launch new products in a phased manner - i.e., stagger the rollout across territories/POS.&nbsp;Ensuring the effectiveness of new product launches&nbsp;Staggering the rollout across territories/POS helps companies take the required steps to ensure the effectiveness of new product launches:&nbsp;<ol><li>Reduces demand uncertainty by testing the product: For this, the territories and POS should be selected in such a manner that there is adequate representation; this will allow the company to check whether the product is working in those areas before a full roll-out. Care also has to be taken to ensure that the product is displayed well (by defining the percentage of capital and space for the new product) and that there is continuous availability of the new product at the POS.</li><li>Align the supply chain in line with expected demand: This is because when the roll-out is phased out:</li><li>Manufacturing capacity can be stepped up slowly and aligned in line with the demand.</li><li>The distribution channel can ensure adequate stocks for display and repeat sales where there are more sales.</li><li>There is now even the possibility to ensure buffer capacity to manage any sudden spike in demand.</li><li>Provide adequate training: With this approach, challenges and overheads related to training will also come down. A relatively smaller sales team to be trained before launch, and so the quality of the training improves, and one can expect improved adherence to your sales strategy, communication guidelines, etc.</li><li>Capacity to analyse and respond to the feedback: In a staggered roll-out, the system has enough capacity to focus on and respond to the feedback provided by the early consumers for both the product and the marketing collaterals. This can help limit the exposure of the product’s issues to a small set of customers, thereby, preventing a negative perception of the new product to a wider audience. One also will have the agility to resolve these issues in a timely manner, resulting in greater customer satisfaction levels with the new product. Collecting and responding to information on marketing collaterals can help align the marketing spends as per market requirements.&nbsp;</li></ol>Next stepsThe learnings gained from one roll-out to be transferred to the next roll-out. And the sales team already trained on the product initially can be utilised to further train other teams in other territories during this scale-up. Thus, the entire sales team will be better trained to communicate the product’s USP/features effectively and help customers adopt the product. Moreover, since the company can implement customer feedback into the product and processes in a timely manner, the brand can quickly gain customer trust and loyalty.&nbsp;When more and more products are launched successfully, the pressure on NPD comes down, and they can work in a more focused manner on a more considered number of new products. This will allow them to help launch products in a timely manner reducing pressure on having to take a big bang approach to new product launches.&nbsp;What to expect?Implement this new product launch strategy and significant improvement in the success ratio of new product launches is virtually guaranteed (at least 30% improvement in the number of hits), and the company can expect ~ 50% increase in the contribution of new products into overall sales. Once consistent availability of the products across all potential outlets continues to be assured, find out how by clicking on this <a target="_blank" rel="noopener noreferrer" href="http://new-stage.vectorconsulting.in/en/research-and-publication/articles/managing-distribution-chain-is-there-a-better-way-than-gazing-the-crystal-ball/">link</a>, the product life of each new product is also expected to improve, accruing more returns for the company.&nbsp;&nbsp;&nbsp;

According to research, ~95% of new product launches fail. How can companies improve the success rate of their new product launches?

Acing new product launches

New products are vital for the growth of companies. Increased competition from other companies, changing consumer behaviour, advancements in technology, ensuring freshness of product offerings, diversification of risk, etc. are some of the reasons why new products have to be launched.&nbsp;In environments where market dynamics are rapidly changing, a company is considered healthy and growing only if at least 25%-30% of their overall sales is accrued from their new productsi. This is expected to be significantly higher for companies that deal with lifestyle or technology products. So, firms put in a lot of effort into understanding the market and try to continuously develop new products. However, according to research by Clayton Christensen, Harvard Business School Professor and renowned author, over 30,000 new products are introduced into the market every year, and 95% of them failii.<figure class="image"><img style="aspect-ratio:4000/3490;" src="https://backend.vectorconsulting.in/storage/editor_uploads//cg-article-1-img1_1733797723.jpg" width="4000" height="3490"></figure>What is often not realized is that the success of any new product is dependent not only on its ideation and development stage, but also on the way it is launched in the market. Even a revolutionary product can fail. 75% of consumer-packaged goods and retail products fail to reach the minimum sales expectations after launch. And products that start out strong may also have trouble sustaining success.&nbsp;This article will examine the challenges companies face while launching a new product and the tactics needed to ensure that new products of a company have the best opportunity to succeed and sustain in the market.&nbsp;NPL – The ChallengesWhile there could be numerous reasons for products to fail (e.g. legal issues, socio-cultural mismatch, product falls short of claims, etc.), the major cause of failure, for otherwise acceptable new products, tend to be associated with scaling up or rolling out.&nbsp;So, if we did a postmortem of a typical failed product, you are likely to see the following issues:<ul><li>Lack of visibility on the shelves at retail counters: The newly launched product is not getting the right placements (both in terms of quantum and the type of outlet), or after getting the required placements, they are not getting the right visibility. (Note: Products are usually launched with considerable fanfare, ATL/BTL activities to support it. But even if these succeed in catching the customer’s attention, in most cases these customers will not go beyond their regular, known outlets to try and buy this product).</li><li>Customers could not get the product in many places: Even though the product could be placed in relevant retail outlets and made visible, it became unavailable very soon, and the vast majority of customers never got the chance to even see it (let alone buy it)</li><li>Delay in addressing the feedback received from the market: There were pockets of customers giving feedback about the new product/ processes that, if included, could have prevented the demise of the product. However, the company could not act on this in time.</li><li>Customers could not get sufficient product information: Customers did not get a chance to understand how to use the product (a new product category), or the customers did not understand the products’ new features. This led to a loss of interest from consumers.&nbsp;</li></ul>These indicate that if you don’t scale your supply chain quickly, become available consistently, course correct where needed and grab customer loyalty, your product is toast. Further, your competition may launch its own version and walk away with the market. But how can we ensure that these issues don’t happen during/after launch?To identify a solution, we must first understand the nature of new product launches in greater detail.What is the real issue?The most important characteristic of new product launches is that the consumer’s response to the new product is uncertain. Even though the product may have gone through a market research phase, reality is the only true test of consumer willingness to adopt a new product, and there is no trend data available to predict potential sales.&nbsp;<figure class="image"><img style="aspect-ratio:4000/3190;" src="https://backend.vectorconsulting.in/storage/editor_uploads//cg-article-1-img-2_1733797733.jpg" width="4000" height="3190"></figure>Because of this, companies are in perpetual dilemma when it comes to launching a new product – ‘Do they take a cautious approach and launch the product in a select few territories, or do they adopt the big bang strategy and launch it across all their POS?’. Both have pros and cons. A smaller launch allows companies to test the trend in demand. Moreover, incorporating any changes to the product or processes without affecting the brand’s reputation is easier if the initial launch is limited. However, a big bang launch means companies can enjoy the first mover advantage in all geographies and increase all sales opportunities before the competition gets an inkling.&nbsp;However, very often, this choice is taken out of the hands of companies. Delays in new product development of the products and the threat of missing the appropriate timing/launch window (could be the beginning of a season, a festival, etc.) result in pressure to launch the product when it is ready across as many territories as possible. The risks of this are easily imaginable, though. The bigger the scale of the launch, the higher the level of uncertainty of demand. The sales team also has to be proportionately bigger to cater to this scale of launch. With very little time available to impart proper training to the sales team, the USP of the product is not effectively communicated to the potential consumer of the product. Moreover, there is very little focus on responding to the feedback provided by the consumers. And, in this rush, the supply chain has also not been equipped to respond to demand fluctuations. This increases the possibility of product shortages in some areas where it is selling well (even though it is available in excess in other parts of the supply chain). Patchy availability of the products eventually puts off consumers. This leads to poor adoption of the product and the company discarding the product as unpopular.&nbsp;Product failures create a vicious cycle for companies – as products fail more often than not, there is greater pressure to develop more new products to ensure the company’s growth! So, finding a way to address these challenges and improve the typical hit ratio of product launches is imperative.&nbsp;<figure class="image"><img style="aspect-ratio:4000/3810;" src="https://backend.vectorconsulting.in/storage/editor_uploads//cg-article-1-img-3_1733797754.jpg" width="4000" height="3810"></figure>Direction of SolutionIt is clear that reducing the extent of demand uncertainty during a new product launch will help improve its effectiveness. The best way to reduce uncertainty to have better control over the supply chain/sales team readiness is to launch new products in a phased manner - i.e., stagger the rollout across territories/POS.&nbsp;Ensuring the effectiveness of new product launches&nbsp;Staggering the rollout across territories/POS helps companies take the required steps to ensure the effectiveness of new product launches:&nbsp;<ol><li>Reduces demand uncertainty by testing the product: For this, the territories and POS should be selected in such a manner that there is adequate representation; this will allow the company to check whether the product is working in those areas before a full roll-out. Care also has to be taken to ensure that the product is displayed well (by defining the percentage of capital and space for the new product) and that there is continuous availability of the new product at the POS.</li><li>Align the supply chain in line with expected demand: This is because when the roll-out is phased out:</li><li>Manufacturing capacity can be stepped up slowly and aligned in line with the demand.</li><li>The distribution channel can ensure adequate stocks for display and repeat sales where there are more sales.</li><li>There is now even the possibility to ensure buffer capacity to manage any sudden spike in demand.</li><li>Provide adequate training: With this approach, challenges and overheads related to training will also come down. A relatively smaller sales team to be trained before launch, and so the quality of the training improves, and one can expect improved adherence to your sales strategy, communication guidelines, etc.</li><li>Capacity to analyse and respond to the feedback: In a staggered roll-out, the system has enough capacity to focus on and respond to the feedback provided by the early consumers for both the product and the marketing collaterals. This can help limit the exposure of the product’s issues to a small set of customers, thereby, preventing a negative perception of the new product to a wider audience. One also will have the agility to resolve these issues in a timely manner, resulting in greater customer satisfaction levels with the new product. Collecting and responding to information on marketing collaterals can help align the marketing spends as per market requirements.&nbsp;</li></ol>Next stepsThe learnings gained from one roll-out to be transferred to the next roll-out. And the sales team already trained on the product initially can be utilised to further train other teams in other territories during this scale-up. Thus, the entire sales team will be better trained to communicate the product’s USP/features effectively and help customers adopt the product. Moreover, since the company can implement customer feedback into the product and processes in a timely manner, the brand can quickly gain customer trust and loyalty.&nbsp;When more and more products are launched successfully, the pressure on NPD comes down, and they can work in a more focused manner on a more considered number of new products. This will allow them to help launch products in a timely manner reducing pressure on having to take a big bang approach to new product launches.&nbsp;What to expect?Implement this new product launch strategy and significant improvement in the success ratio of new product launches is virtually guaranteed (at least 30% improvement in the number of hits), and the company can expect ~ 50% increase in the contribution of new products into overall sales. Once consistent availability of the products across all potential outlets continues to be assured, find out how by clicking on this <a target="_blank" rel="noopener noreferrer" href="http://new-stage.vectorconsulting.in/en/research-and-publication/articles/managing-distribution-chain-is-there-a-better-way-than-gazing-the-crystal-ball/">link</a>, the product life of each new product is also expected to improve, accruing more returns for the company.&nbsp;&nbsp;&nbsp;

&nbsp;<h5>The dilemma of the CEO of a real estate major</h5>Mr. Mahindra Kumar, CEO of Blu Homes, a major residential real estate company in India, was facing a dilemma. He was under pressure to quickly improve the internal rate of return (IRR) of his projects. The problem was “how”.&nbsp;Even before the pandemic dealt a painful blow, the pressure on the real estate sector was evident to all [1]. Post-2013, sales of Blu Homes had stalled, unsold inventory had piled up, and the Internal Rate of Return (IRR) from the projects had dropped from 18%-21% realised between 2007-11 to 13%-17%; moreover, the debt burden had more than trebled over the same period.&nbsp;The good news, however, was that his company had emerged whole from the COVID phase. Much of the inventory could be sold even during this time because of government subsidy support [2]. Post-COVID the company was now achieving YoY sales growth of 68%. Over the past two years Tier 2 and Tier 3 cities had emerged as hot spots for them, and they were setting unprecedented sales benchmarks.&nbsp;Despite the global economic slowdown, this positive momentum was expected to continue, and the sector is projected to grow to one trillion US dollars by 2030 (see figure below [3]).&nbsp;<figure class="image"><img style="aspect-ratio:16668/11858;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-1-01_1732343241.jpg" width="16668" height="11858"></figure>What more, there was a prevailing demand-supply gap in all segments (see figure below [4]).&nbsp;<figure class="image"><img style="aspect-ratio:16668/12757;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-1_1732343548.jpg" width="16668" height="12757"></figure>Naturally, the board of Blu Homes saw this as a clear opportunity to mop up this demand, recoup the business, put its profits on a growth trajectory and offer healthier returns. The threat was always there that if the company continued to only make IRR to the tune of 13-17% in its projects, investors might pull out. So, the pressure was now on Mr. Mahindra Kumar to ensure a significant jump in IRR. However, he was not sure how. For improving IRR, it was not enough to improve sales; in addition, Blu Homes must ensure that, while delivering each project, they&nbsp;1. Reduce costs and improve margins&nbsp;2. Improve cash flow by faster billing&nbsp;The key to both of these is primarily the timely completion of projects. If projects are finished on time as planned, customers can be billed faster, and un-budgeted expenses due to project elongation can be avoided.&nbsp;The irony was that Blu Homes has ALWAYS delivered projects on or before the promised deadlines (protected by the Real Estate Regulatory Authority - RERA). However, the company rarely met the targeted IRR in these projects, even during the ‘good times’. And this was not only true for Blu Homes - it is an industry-wide phenomenon!&nbsp;To understand why this happens, one needs to understand how companies in this unique environment typically function.&nbsp;The typical way of project management in a real estate projectProjects in the Real Estate industry in India start off with three due/completion dates! Strange, but true. With the government bringing in RERA laws that impose stringent penalties on developers for delays in finishing projects, the industry has come up with RERA due dates, which are significantly buffered to avoid being penalised [5]. Another due date is the internally budgeted due date, which, if met, meets the IRR targets set by the developer. The third due date, which is ‘informally’ promised to end customers, is somewhere in between these two.&nbsp;So, why does the industry use these 3 due dates? The reason is that real estate is an industry plagued with project delays and unfulfilled promises. Recent research has indicated that, despite conservative and buffered dates, as many as 500,000 Homes worth Rs. 4.48 lakh crores are stuck in just seven micro markets of India [6].&nbsp;<figure class="image"><img style="aspect-ratio:16668/18669;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-2-01-01_1732343964.jpg" width="16668" height="18669"></figure>With such delays being the norm rather than the exception, developers know that they have to buffer any external commitment in order to maintain their reputation and gain or maintain market share.Why should there be delays, one may ask?If you ask any developer about delays, you will be met with a laundry list of reasons, most of them pointing to some external agency and hence, unavoidable. Interestingly, each of the agencies involved has its own reasons related to the developer or other agencies.&nbsp;<figure class="image"><img style="aspect-ratio:1600/1600;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//typical-reasons-for-delay-according-to-different-stakeholders_1750951303.jpeg" width="1600" height="1600"></figure>However, delays in most real estate projects follow an interesting storyline.The real cause of delays in real estate projectsThe lifecycle of a typical real estate project can be categorised into three key stages&nbsp;1. Pre-Construction: This stage involves the completion of all activities required before the commercial launch of the project, including:&nbsp;<ul><li>Business case approvals and land deal finalisation</li><li>Detailed design completion and issuance of goods for construction drawings to start construction</li><li>Project RERA approval and other necessary statutory approvals to start construction</li><li>Set-up of sales office/mock-up units for customer visits&nbsp;</li></ul>2. Core &amp; Shell: This stage involves the construction of buildings’ RCC frame and internal partition walls for the units. Typically, most developers engage a dedicated contractor to work on the Core and Shell.&nbsp;3. Finishing: This includes all work till the final handover of units to end customers. Plastering, waterproofing, flooring/tiling, electrical works, firefighting equipment installation, plumbing, painting, putting up doors &amp; windows, railings etc. are typical activities executed inside the residential units, in the corridors, common areas, shafts and utilities. Assessing delays in different stages of the project indicates that severe delays start to manifest in the finishing stage of the project.&nbsp;<figure class="image"><img style="aspect-ratio:16668/13746;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-4-01-01-01_1732344963.jpg" width="16668" height="13746"></figure>While Core &amp; Shell works are typically executed by a single specialized agency/contractor, what differentiates the finishing stage from the upstream stages are the following facts:&nbsp;<ul><li>Multiple specialised agencies: Finishing work needs intervention of multiple specialised agencies/sub-contractors in the limited space of a floor/apartment/unit</li><li>Inter-dependent activities: Activities to be performed by each specialised agency are dependent on clean front hand-over by another specialised agency or agencies. Moreover, technical dependencies are such that most finishing agencies have to visit a work-front multiple times. For e.g., the plastering contractor completes the plaster for maximum wall area in the first pass but re-visits the wall for final plastering after floor skirting and door/windows installation is completed</li><li>Volume-based contracts: For all specialised agencies, billing is based on the volume of work executed with a small percentage withheld as retention amount and linked to final completion and handover to the developer.&nbsp;</li></ul>Given the above realities of the real estate environment, agencies cherry-pick high billing activities in each work front in order to maximise billing to support its working capital requirements. Often, high effort and low billing value activities are missed out/delayed, leading to unclean front handover [8] to the next specialised agencies. Downstream agencies, despite unclean handovers, will start working on the front in order to utilise their resources and maximise their billing.&nbsp;However, given the unclean handovers, agencies face multiple interruptions in completing the fronts. And when there are interruptions, two things happen: a) it increases the overall lead time for completion of that front and creates a higher waiting time for the next agency to start work and b) the labour (of the agency facing interruption) may become idle. So, in order to utilise their resources fully, often the contractors are forced to start working on whatever is available wherever it is available (preferably with high billing), again with partial preparation. When this behaviour cascades across all processes involved, we end up having multiple contractors engaged in the same work area without having a clean handover six from one agency to the next. This chaotic way of functioning results, many times, in quality compromise.&nbsp;Inevitably, these quality problems come back to bite you in the form of snag lists or punch points. Now, contractors are reluctant to mobilise manpower for such activities. As mentioned earlier, they tend to prefer higher billing activities in new work fronts over handling the snag list, which may require high labour hours but yield lower billing. Therefore, very often, the company has to persuade the contractors by agreeing to higher hourly rates to get these snag list points closed. In this process, not only does the developer end up paying twice for the same work, but also suffers as the elapsed time for each work front closure elongates.&nbsp;<figure class="image"><img style="aspect-ratio:16668/19082;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-5-01-1-01-01_1732344935.jpg" width="16668" height="19082"></figure>The way outAs we have seen, when incomplete work fronts are handed over to the next stage, this leads to wastages in the form of rework, cost increases and leads to significant delays. Therefore, the only way to break out of this vicious loop is to make sure that clean handovers happen between two functions/contactors/agencies at all times. Since the pressure to maximise billing forces incomplete handovers, the only solution is for every agency to complete all their activities as per plan or earlier (i.e. in the shortest possible time). The question is, how do we ensure this?&nbsp;To resolve this conundrum, let’s examine, the key elements required to execute the project in the shortest possible time. The answer is quite intuitive. If the project has all the material needed, tools, clearances etc required to complete it (a full kit) and is resourced with adequate manpower in the right mix and quantity, work can progress without any interruptions or stoppages. No surprises here, right?&nbsp;Now, if we wait for the full kit to be formed for the entire project or a large phase of the project before starting it, the time to complete the full kit will be so significant that it will surely delay the project and be extremely wasteful in terms of resources. On the other hand, if we plan for full kitting of too small a phase of the project, this will lead to chaos as the work will progress faster than the time to arrange the full kit for that phase. Consequently, the pressure of time will again force the next phase to start without the completion of an earlier phase-back to the vicious loop.&nbsp;The answer lies somewhere in between. Based on project size and type, a part of the project, a ‘work bundle’ has to be identified in such a way that allows for adequate time to arrange the full kit and at the same time allows fast/clean handover to the next function. What next?&nbsp;The flow modelFor these work bundles to be completed quickly and in order to ensure clean handovers to happen between every stage a flow model needs to be used. What is a flow model? Think of a manufacturing shop, where there is input of raw materials and this input flows through the shopfloor, being processed at different workstations, and comes out as finished goods. All this happens in a rhythm. The flow model in real estate project management mimics this – a work bundle flows in, is processed by resources and a completed work bundle is passed on to the next set of resources. When all the work bundles flow through and are completed one after the other, the project gets completed.&nbsp;For this flow to work on a project site, it requires a set of execution rules to be defined. However, before doing that, some understanding is needed with respect to technical dependencies between agencies and the amount of natural interruption [9] happening in the course of the project. Functions [10] that are executed by various agencies can be classified into two types. One type, called the Primary function, has a high touch time for tasks and low natural interruptions. The second called the Secondary function, has low touch time and high natural interruptions. A combination of primary and secondary functions (and the resources responsible for completing these) is termed a Cluster. The flow line planned in any real estate project will consist of several such clusters laid out in a sequence, based on their technical dependencies.In order to ensure fast and clean completion, a work bundle should be taken up for working by a cluster only if the entry criteria, consisting of full kit, maximum resourcing, closure of earlier work bundle and any other pre-defined item, is met. Similarly, a work bundle is considered closed only if a pre-defined exit criteria is met. Further, the number of work bundles to be taken up depends on resourcing- i.e. the WIP of work fronts or work bundles is limited based on available capacity to prevent bad multi-tasking and consequent task time elongation. Once started, a cluster can go to the next work bundle only after completing one work bundle from the current WIP. This is called the One Out-One In rule in project management. In order to ensure that work does not start without full kits, a bank of full kits for subsequent work bundles must be made ready for a cluster to work on.&nbsp;Once these rules are in place, the flow model will work, in rhythm, and the project will progress according to this rhythm. The only thing that can upset this rhythm is the delay in resolving issues/problems that occur during execution. Generally, an issue remains unresolved only if it requires cross-functional intervention or escalation to someone with higher authority. If resolution does not happen quickly, the elapsed time to close work bundles will increase and that will in turn result in violations of all the flow model rules. Subsequently, the entire system may disintegrate into the earlier chaos.&nbsp;To make sure issues are resolved quickly and protect the flow of work bundles, a system of High Frequency Management (HFM) can be fixed for all stakeholders across or within functions, or hierarchies. If these HFM meetings are at a set pre-defined time and conducted at rhythmic intervals, it will allow stakeholders to be available to resolve issues quickly.&nbsp;When resources work on restricted work fronts, without being idle, with full-kit and when any issue that crops up during the execution of work is being resolved in an aggressively fast manner, the flow of work rapidly increases. With clean handovers, rework and snag lists also reduce significantly.&nbsp;The overall resultThe CEO of Blu Homes is a happy man these days. After implementing the flow model, lead times to handover possession to customers had dramatically come down by about 25% to 30%. Importantly, the company is now able to consistently adhere to budgeted due dates in its projects or finish earlier. This led to a dramatic improvement in IRR to the tune of 4%-6.5% in their projects.&nbsp;The table below illustrates how IRR improves significantly with just this reduction in lead time.<figure class="image"><img style="aspect-ratio:16668/16527;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-6-01-01_1732344916.jpg" width="16668" height="16527"></figure>As seen in the above example, most Blu Homes projects are of around 3-year (34-month) duration. As can be seen in the table, compared to a typical project execution of theirs from the past, projects in which the Flow Model of project management is employed show significant gains in time at major milestones. With the implementation of the flow line and a full kit process in central functions, to align material, drawing and approval requirements for the sites, projects could gain around three months compared to their earlier way of working while completing the core and shell activities. A further gain of another quarter or so could be made by implementing entry-exit criteria for every agency to ensure a clean handover during the pre-finishing and finishing activity. This was because the number of iterations required by an agency to complete a work bundle came down. Similar benefits of early finish by about a quarter were realised during the finishing phase as well.&nbsp;In addition to protecting the company's profitability, the Flow Model of project management also ensures that the working capital turns of the contractors and vendors improve a win-win-win scenario. However, what thrilled Mr. Mahindra Kumar most was that the new way of project execution yielded not only operational and financial benefits but also simultaneously de-stressed project execution for his whole team and helped build a company environment where work-life balance was good, and employee satisfaction was reflected in the significantly reduced attrition rate.&nbsp;

Using the Flow Model of Project management in residential real estate projects, companies can increase IRR from 17% -21%.

Steps to ensure excellent IRR in real estate projects

&nbsp;<h5>The dilemma of the CEO of a real estate major</h5>Mr. Mahindra Kumar, CEO of Blu Homes, a major residential real estate company in India, was facing a dilemma. He was under pressure to quickly improve the internal rate of return (IRR) of his projects. The problem was “how”.&nbsp;Even before the pandemic dealt a painful blow, the pressure on the real estate sector was evident to all [1]. Post-2013, sales of Blu Homes had stalled, unsold inventory had piled up, and the Internal Rate of Return (IRR) from the projects had dropped from 18%-21% realised between 2007-11 to 13%-17%; moreover, the debt burden had more than trebled over the same period.&nbsp;The good news, however, was that his company had emerged whole from the COVID phase. Much of the inventory could be sold even during this time because of government subsidy support [2]. Post-COVID the company was now achieving YoY sales growth of 68%. Over the past two years Tier 2 and Tier 3 cities had emerged as hot spots for them, and they were setting unprecedented sales benchmarks.&nbsp;Despite the global economic slowdown, this positive momentum was expected to continue, and the sector is projected to grow to one trillion US dollars by 2030 (see figure below [3]).&nbsp;<figure class="image"><img style="aspect-ratio:16668/11858;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-1-01_1732343241.jpg" width="16668" height="11858"></figure>What more, there was a prevailing demand-supply gap in all segments (see figure below [4]).&nbsp;<figure class="image"><img style="aspect-ratio:16668/12757;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-1_1732343548.jpg" width="16668" height="12757"></figure>Naturally, the board of Blu Homes saw this as a clear opportunity to mop up this demand, recoup the business, put its profits on a growth trajectory and offer healthier returns. The threat was always there that if the company continued to only make IRR to the tune of 13-17% in its projects, investors might pull out. So, the pressure was now on Mr. Mahindra Kumar to ensure a significant jump in IRR. However, he was not sure how. For improving IRR, it was not enough to improve sales; in addition, Blu Homes must ensure that, while delivering each project, they&nbsp;1. Reduce costs and improve margins&nbsp;2. Improve cash flow by faster billing&nbsp;The key to both of these is primarily the timely completion of projects. If projects are finished on time as planned, customers can be billed faster, and un-budgeted expenses due to project elongation can be avoided.&nbsp;The irony was that Blu Homes has ALWAYS delivered projects on or before the promised deadlines (protected by the Real Estate Regulatory Authority - RERA). However, the company rarely met the targeted IRR in these projects, even during the ‘good times’. And this was not only true for Blu Homes - it is an industry-wide phenomenon!&nbsp;To understand why this happens, one needs to understand how companies in this unique environment typically function.&nbsp;The typical way of project management in a real estate projectProjects in the Real Estate industry in India start off with three due/completion dates! Strange, but true. With the government bringing in RERA laws that impose stringent penalties on developers for delays in finishing projects, the industry has come up with RERA due dates, which are significantly buffered to avoid being penalised [5]. Another due date is the internally budgeted due date, which, if met, meets the IRR targets set by the developer. The third due date, which is ‘informally’ promised to end customers, is somewhere in between these two.&nbsp;So, why does the industry use these 3 due dates? The reason is that real estate is an industry plagued with project delays and unfulfilled promises. Recent research has indicated that, despite conservative and buffered dates, as many as 500,000 Homes worth Rs. 4.48 lakh crores are stuck in just seven micro markets of India [6].&nbsp;<figure class="image"><img style="aspect-ratio:16668/18669;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-2-01-01_1732343964.jpg" width="16668" height="18669"></figure>With such delays being the norm rather than the exception, developers know that they have to buffer any external commitment in order to maintain their reputation and gain or maintain market share.Why should there be delays, one may ask?If you ask any developer about delays, you will be met with a laundry list of reasons, most of them pointing to some external agency and hence, unavoidable. Interestingly, each of the agencies involved has its own reasons related to the developer or other agencies.&nbsp;<figure class="image"><img style="aspect-ratio:1600/1600;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//typical-reasons-for-delay-according-to-different-stakeholders_1750951303.jpeg" width="1600" height="1600"></figure>However, delays in most real estate projects follow an interesting storyline.The real cause of delays in real estate projectsThe lifecycle of a typical real estate project can be categorised into three key stages&nbsp;1. Pre-Construction: This stage involves the completion of all activities required before the commercial launch of the project, including:&nbsp;<ul><li>Business case approvals and land deal finalisation</li><li>Detailed design completion and issuance of goods for construction drawings to start construction</li><li>Project RERA approval and other necessary statutory approvals to start construction</li><li>Set-up of sales office/mock-up units for customer visits&nbsp;</li></ul>2. Core &amp; Shell: This stage involves the construction of buildings’ RCC frame and internal partition walls for the units. Typically, most developers engage a dedicated contractor to work on the Core and Shell.&nbsp;3. Finishing: This includes all work till the final handover of units to end customers. Plastering, waterproofing, flooring/tiling, electrical works, firefighting equipment installation, plumbing, painting, putting up doors &amp; windows, railings etc. are typical activities executed inside the residential units, in the corridors, common areas, shafts and utilities. Assessing delays in different stages of the project indicates that severe delays start to manifest in the finishing stage of the project.&nbsp;<figure class="image"><img style="aspect-ratio:16668/13746;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-4-01-01-01_1732344963.jpg" width="16668" height="13746"></figure>While Core &amp; Shell works are typically executed by a single specialized agency/contractor, what differentiates the finishing stage from the upstream stages are the following facts:&nbsp;<ul><li>Multiple specialised agencies: Finishing work needs intervention of multiple specialised agencies/sub-contractors in the limited space of a floor/apartment/unit</li><li>Inter-dependent activities: Activities to be performed by each specialised agency are dependent on clean front hand-over by another specialised agency or agencies. Moreover, technical dependencies are such that most finishing agencies have to visit a work-front multiple times. For e.g., the plastering contractor completes the plaster for maximum wall area in the first pass but re-visits the wall for final plastering after floor skirting and door/windows installation is completed</li><li>Volume-based contracts: For all specialised agencies, billing is based on the volume of work executed with a small percentage withheld as retention amount and linked to final completion and handover to the developer.&nbsp;</li></ul>Given the above realities of the real estate environment, agencies cherry-pick high billing activities in each work front in order to maximise billing to support its working capital requirements. Often, high effort and low billing value activities are missed out/delayed, leading to unclean front handover [8] to the next specialised agencies. Downstream agencies, despite unclean handovers, will start working on the front in order to utilise their resources and maximise their billing.&nbsp;However, given the unclean handovers, agencies face multiple interruptions in completing the fronts. And when there are interruptions, two things happen: a) it increases the overall lead time for completion of that front and creates a higher waiting time for the next agency to start work and b) the labour (of the agency facing interruption) may become idle. So, in order to utilise their resources fully, often the contractors are forced to start working on whatever is available wherever it is available (preferably with high billing), again with partial preparation. When this behaviour cascades across all processes involved, we end up having multiple contractors engaged in the same work area without having a clean handover six from one agency to the next. This chaotic way of functioning results, many times, in quality compromise.&nbsp;Inevitably, these quality problems come back to bite you in the form of snag lists or punch points. Now, contractors are reluctant to mobilise manpower for such activities. As mentioned earlier, they tend to prefer higher billing activities in new work fronts over handling the snag list, which may require high labour hours but yield lower billing. Therefore, very often, the company has to persuade the contractors by agreeing to higher hourly rates to get these snag list points closed. In this process, not only does the developer end up paying twice for the same work, but also suffers as the elapsed time for each work front closure elongates.&nbsp;<figure class="image"><img style="aspect-ratio:16668/19082;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-5-01-1-01-01_1732344935.jpg" width="16668" height="19082"></figure>The way outAs we have seen, when incomplete work fronts are handed over to the next stage, this leads to wastages in the form of rework, cost increases and leads to significant delays. Therefore, the only way to break out of this vicious loop is to make sure that clean handovers happen between two functions/contactors/agencies at all times. Since the pressure to maximise billing forces incomplete handovers, the only solution is for every agency to complete all their activities as per plan or earlier (i.e. in the shortest possible time). The question is, how do we ensure this?&nbsp;To resolve this conundrum, let’s examine, the key elements required to execute the project in the shortest possible time. The answer is quite intuitive. If the project has all the material needed, tools, clearances etc required to complete it (a full kit) and is resourced with adequate manpower in the right mix and quantity, work can progress without any interruptions or stoppages. No surprises here, right?&nbsp;Now, if we wait for the full kit to be formed for the entire project or a large phase of the project before starting it, the time to complete the full kit will be so significant that it will surely delay the project and be extremely wasteful in terms of resources. On the other hand, if we plan for full kitting of too small a phase of the project, this will lead to chaos as the work will progress faster than the time to arrange the full kit for that phase. Consequently, the pressure of time will again force the next phase to start without the completion of an earlier phase-back to the vicious loop.&nbsp;The answer lies somewhere in between. Based on project size and type, a part of the project, a ‘work bundle’ has to be identified in such a way that allows for adequate time to arrange the full kit and at the same time allows fast/clean handover to the next function. What next?&nbsp;The flow modelFor these work bundles to be completed quickly and in order to ensure clean handovers to happen between every stage a flow model needs to be used. What is a flow model? Think of a manufacturing shop, where there is input of raw materials and this input flows through the shopfloor, being processed at different workstations, and comes out as finished goods. All this happens in a rhythm. The flow model in real estate project management mimics this – a work bundle flows in, is processed by resources and a completed work bundle is passed on to the next set of resources. When all the work bundles flow through and are completed one after the other, the project gets completed.&nbsp;For this flow to work on a project site, it requires a set of execution rules to be defined. However, before doing that, some understanding is needed with respect to technical dependencies between agencies and the amount of natural interruption [9] happening in the course of the project. Functions [10] that are executed by various agencies can be classified into two types. One type, called the Primary function, has a high touch time for tasks and low natural interruptions. The second called the Secondary function, has low touch time and high natural interruptions. A combination of primary and secondary functions (and the resources responsible for completing these) is termed a Cluster. The flow line planned in any real estate project will consist of several such clusters laid out in a sequence, based on their technical dependencies.In order to ensure fast and clean completion, a work bundle should be taken up for working by a cluster only if the entry criteria, consisting of full kit, maximum resourcing, closure of earlier work bundle and any other pre-defined item, is met. Similarly, a work bundle is considered closed only if a pre-defined exit criteria is met. Further, the number of work bundles to be taken up depends on resourcing- i.e. the WIP of work fronts or work bundles is limited based on available capacity to prevent bad multi-tasking and consequent task time elongation. Once started, a cluster can go to the next work bundle only after completing one work bundle from the current WIP. This is called the One Out-One In rule in project management. In order to ensure that work does not start without full kits, a bank of full kits for subsequent work bundles must be made ready for a cluster to work on.&nbsp;Once these rules are in place, the flow model will work, in rhythm, and the project will progress according to this rhythm. The only thing that can upset this rhythm is the delay in resolving issues/problems that occur during execution. Generally, an issue remains unresolved only if it requires cross-functional intervention or escalation to someone with higher authority. If resolution does not happen quickly, the elapsed time to close work bundles will increase and that will in turn result in violations of all the flow model rules. Subsequently, the entire system may disintegrate into the earlier chaos.&nbsp;To make sure issues are resolved quickly and protect the flow of work bundles, a system of High Frequency Management (HFM) can be fixed for all stakeholders across or within functions, or hierarchies. If these HFM meetings are at a set pre-defined time and conducted at rhythmic intervals, it will allow stakeholders to be available to resolve issues quickly.&nbsp;When resources work on restricted work fronts, without being idle, with full-kit and when any issue that crops up during the execution of work is being resolved in an aggressively fast manner, the flow of work rapidly increases. With clean handovers, rework and snag lists also reduce significantly.&nbsp;The overall resultThe CEO of Blu Homes is a happy man these days. After implementing the flow model, lead times to handover possession to customers had dramatically come down by about 25% to 30%. Importantly, the company is now able to consistently adhere to budgeted due dates in its projects or finish earlier. This led to a dramatic improvement in IRR to the tune of 4%-6.5% in their projects.&nbsp;The table below illustrates how IRR improves significantly with just this reduction in lead time.<figure class="image"><img style="aspect-ratio:16668/16527;" src="https://backend.vectorconsulting.in/storage/editor_uploads//ec-article-1-img-6-01-01_1732344916.jpg" width="16668" height="16527"></figure>As seen in the above example, most Blu Homes projects are of around 3-year (34-month) duration. As can be seen in the table, compared to a typical project execution of theirs from the past, projects in which the Flow Model of project management is employed show significant gains in time at major milestones. With the implementation of the flow line and a full kit process in central functions, to align material, drawing and approval requirements for the sites, projects could gain around three months compared to their earlier way of working while completing the core and shell activities. A further gain of another quarter or so could be made by implementing entry-exit criteria for every agency to ensure a clean handover during the pre-finishing and finishing activity. This was because the number of iterations required by an agency to complete a work bundle came down. Similar benefits of early finish by about a quarter were realised during the finishing phase as well.&nbsp;In addition to protecting the company's profitability, the Flow Model of project management also ensures that the working capital turns of the contractors and vendors improve a win-win-win scenario. However, what thrilled Mr. Mahindra Kumar most was that the new way of project execution yielded not only operational and financial benefits but also simultaneously de-stressed project execution for his whole team and helped build a company environment where work-life balance was good, and employee satisfaction was reflected in the significantly reduced attrition rate.&nbsp;&nbsp;&nbsp;&nbsp;

Explore effective strategies to overcome fashion retail's supply chain issues, enhancing efficiency and boosting return on investment.

Fashion forward: Navigating supply chain challenges in apparel retail

Facing inventory challenges during peak seasons? Discover practical, proven strategies to manage seasonal demand, improve forecast accuracy, and optimise supply chains for better availability, lower costs, and higher profitability.

Managing inventory through seasonal fluctuations

As summer approaches, demand for air conditioners, lighter clothing, and refreshing beverages sees a noticeable rise. Clothing retailers introduce breezy summer collections in late spring, while beverage companies promote ice creams, iced teas and tropical fruit juices to match the season. Thus, the purchase patterns shift from those products favoured during the winter months. This cyclical shift in consumer purchasing behaviour, known as seasonality, refers to predictable demand fluctuations that, while varying in magnitude, are certain to occur.&nbsp;Seasonality can be categorized into Technical and Man-Made Seasonality. Technical seasonality arises from natural factors like weather, driving demand for products such as woollen clothing in winter or air conditioners in summer. Man-made seasonality tends to be shorter compared to technical seasonality and stems from events like festivals or promotions, such as Diwali or Black Friday which trigger spending spikes.<h5>&nbsp;</h5><h5>Why is it difficult to manage seasonality?</h5>Demand fluctuations larger than capacity: Managing seasonality, irrespective of the type of seasonality, is challenging because, while fluctuations in demand are expected, the magnitude of those fluctuations is much larger than any fluctuations experienced during non-seasons. For example, certain products, like air conditioners/refrigerators can experience sales surges of over 20% during peak periods, such as summer or Diwali. This demand surge is often much more than the company's production capacity for the same period due to capacity limitations, lead times, and supply chain constraints.<figure class="image"><img style="aspect-ratio:3989/3050;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1745586381.png" width="3989" height="3050"></figure>Inaccurate forecasts: Since, manufacturing all required items during the sales season itself is often impractical, companies have no choice but to forecast expected sales and produce goods in advance to ensure availability when demand peaks. However, demand is influenced by external factors such as consumer preferences, economic conditions, competitive actions, and unforeseen events. So, no forecasting method can perfectly predict demand fluctuations, making it impossible exactly estimate how much to manufacture.The inherent inaccuracy of forecasts can be aggravated by supply chain and other conflicts:Poor data accuracy: In addition to using POS data, using outdated, incomplete, or incorrect data can further undermine forecast reliability. Without accurate data, predictions may not reflect real demand.Limited communication and data sharing: Limited communication and data sharing among supply chain stakeholders can result in fragmented or inconsistent information. When departments or partners aren’t aligned, forecasting worsens.Differing departmental goals and alignment: Departments often have differing goals, which can lead to disagreements in the forecasting process. Misalignment between sales, marketing, and operations, for instance, can create conflicting priorities and deteriorating forecasts.Accounting for in season fluctuations: Forecasting challenges are not limited to initial predictions. As the season unfolds, it becomes increasingly difficult to incorporate fluctuations into demand forecasts. For example, a milder winter reduces the need for heavy jackets, while a harsher winter increases the demand for insulated clothing. Navigating a season can be akin to steering through ever-changing seas.&nbsp;<h5>Impact of inaccurate forecasts</h5>Inaccurate forecasting and the fact that real-time corrections are tough, considering the lead times involved, make it difficult for companies to plan production, inventory, and supply chain operations effectively. This significantly impacts companies in various ways:Rushed production: To meet seasonal demand, companies often push for overtime or expedite production, leading to increased labor and operational costs, as well as potential compromises in quality.Supply chain bottlenecks: Sourcing additional raw materials or components on short notice can be difficult or expensive. These supply chain challenges may cause delays, preventing companies from meeting demand on time.Stockouts and lost sales: Despite efforts to scale up production, the company may still fall short of meeting full demand, leading to stockouts, missed sales, and dissatisfied customers during a crucial revenue window. In a last-minute scramble to mitigate this, companies often resort to costly expediting measures such as inter-store or inter-depot transfers.When demand goes unmet despite best efforts, frustrated customers are forced to look elsewhere. For example, if a store runs out of a popular smartphone model, shoppers may turn to competitors, not only causing immediate revenue loss but also risking long-term customer attrition. The potential for future sales is also jeopardised.<figure class="image"><img style="aspect-ratio:3989/1876;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1745586306.png" width="3989" height="1876"></figure>Excess stock: In trying to meet potential demand, often with an optimistic approach, companies may overproduce, leading to surplus inventory once the season ends. This excess stock ties up working capital and storage space, resulting in financial strain.<figure class="image"><img style="aspect-ratio:3996/1876;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1745586257.png" width="3996" height="1876"></figure>Margin erosion: In addition to costly expediting measures to prevent stockouts, businesses often resort to heavy discounting to liquidate excess inventory. This also leads to margin erosion. This is because while this approach helps clear stock, it comes at the expense of profitability and reduces full-price sell-through rates, ultimately impacting future sales strategies and brand positioning.<figure class="image"><img style="aspect-ratio:3988/2641;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1745586195.png" width="3988" height="2641"></figure><h5>Accurate forecast – an oxymoron</h5>Since the problem is inaccurate forecast, working towards an accurate forecast- possibly Artificial Intelligence enabled, may seem like the ideal solution.&nbsp; But the question arises: “Can forecasts ever truly be accurate?” Currently, despite significant investments in advanced tools, forecasts remain far from perfectly reliable. However, steps can be taken to minimise inaccuracies. To achieve this, we can leverage some of the inherent characteristics of forecasts and enhance supply chain reliability.<h5>Characteristics of forecasts</h5>1.&nbsp;&nbsp;&nbsp;&nbsp; Forecast variability: Typically, companies rely on POS data to create forecasts. However, forecast accuracy is poorest at the point of sale but improves as we move upstream toward production. Aggregate forecasts, which compile data from multiple sources, are typically more reliable, as these data points tend to balance out individual variations, resulting in a more stable and predictable overall demand pattern.<figure class="image"><img style="aspect-ratio:3996/1969;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1745586101.png" width="3996" height="1969"></figure>2.&nbsp;&nbsp;&nbsp;&nbsp; Reliability of forecasts by SKU types: Although slow-moving SKUs (tail products) are challenging to forecast accurately due to their unpredictable demand, fast-moving items offer more reliable forecasts thanks to their consistent sales patterns.3.&nbsp;&nbsp;&nbsp;&nbsp; Impact of replenishment lead times: Accurate forecasting is often more challenging over longer horizons. Shorter lead times or horizons, however, generally yield more precise forecasts because they depend on recent, reliable data, reducing uncertainties. Longer lead times require assumptions about various external factors such as competitor activities and market trends, which heightens the probability of forecast errors due to the increasing uncertainty over time.By leveraging these characteristics of forecasts, we can minimize the impact of forecast inaccuracies and build a supply chain that ensures product availability despite seasonal fluctuations.&nbsp;<h5>Key solution elements</h5>Build agility: Creating such an efficient supply chain means that firstly that there must be a way to reduce replenishment lead times, or the speed at which items are restocked so that the forecast horizon can be shortened. Moreover, when lead times are reduced, the minimum inventory to be held at various nodes in the network for every SKU will be reduced, enabling the stocking of an increased range of items in the supply chain for the same working capital. This will improve availability of items without burdening any part of the supply chain with additional investment.Setting inventory limits: First step can be to set inventory limits for each SKU at various stocking points, at the different geographic points. Shipments can be halted when these limits are breached. This enables early detection of demand or market changes and prevents overstocking. At the same time, production and replenishment can prioritize high-risk SKUs to avoid stockouts. Dynamically adjusting these inventory limits to reflect changing demand patterns ensures the supply chain remains efficient, responsive, and aligned with market needs, maintaining product availability at every point.Pull based inventory movement: When, in addition to the above step, a ‘pull’ system is adopted in the supply chain to respond to daily consumption triggers, it minimizes the response lag from plants to real-time demand signals. Furthermore, by maintaining most inventory at aggregate levels, such as plant warehouses, the company ensures that most of the stock is positioned where demand variability is lowest while also effectively decoupling supply lead time from replenishment time. This system enables the company to respond with agility to daily demand across diverse geographies while keeping overall stock levels minimal.&nbsp;Season build up: Despite supply chain agility forecast-based inventory buildup for seasonal demand is inevitable and therefore inherently prone to errors. So, proactive measures in the S&amp;OP must be implemented to minimize the impact of forecast uncertainty.<figure class="image"><img style="aspect-ratio:4001/1999;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1745585994.png" width="4001" height="1999"></figure>How much to make: Firstly, as part of the S&amp;OP process, companies should leverage aggregated forecasts to capture overall demand trends. This approach is more effective than POS-based forecasting or sales-driven inventory positioning, which often leads to stock imbalances. While demand will naturally fluctuate across SKUs and timeframes, combining aggregated forecasting with inventory held at aggregated levels and replenishment based on actual consumption helps optimize stock distribution across the network, reducing variability and enhancing supply chain stability.When to start making: It is also logical to schedule the production of forecasted inventory as close to the season as possible. This approach allows for better sales estimates (shorter forecast horizon) while minimizing the tying up of working capital for longer than necessary. But it should also allow for some time buffer of at least one replenishment lead time to catch up in case uncertainty hits. Let’s take a simple example to see how this can work. Let’s say a plant has a rated capacity of 1,000 air conditioners (A/Cs) per month and typical consumption is 700 units, leaving a spare capacity of 300 units, the company can plan accordingly. If peak demand in April is expected to reach 1,600 units, the plant can produce the additional 600 units required for the season by March (assuming one month as the RLT) utilizing its spare capacity to manufacture 300 units per month in the two months leading up to March. The inventory limits of what the plant can make can be increased slowly. This will allow the supply chain to react smoothly and not create RM unavailability (due to inadequate sourcing time) or urgencies in production.<figure class="image"><img style="aspect-ratio:3998/1485;" src="https://web-assets.vectorconsulting.in/storage/editor_uploads//image_1745585939.png" width="3998" height="1485"></figure>Which SKUs to make: To reduce inventory risk while ensuring availability after the buildup, it is also useful to classify SKUs into categories – runners (fast movers; top 80% of sales), Repeaters and Laggards (slow movers; lowest 10% sales), and create the season build up strategy based on that. Since its known that the runners will continue selling well even after season, there is very little risk if these are built up in excess. So, extending the earlier example, if a company is manufacturing many types of A/Cs, this company can confidently manufacture the runner A/Cs using the spare capacity. This means that the company will have to make very few of these items during the season and the entire available capacity can be dedicated to the repeaters and laggards based on actual consumption from the market.Ramp down: At the end of the season, inventory limits—temporarily exceeded to meet peak demand—must be reinstated. To achieve this, production ramp-down should begin one replenishment lead time before the season's expected close. Just as ramp-up was managed through gradual increases, ramp-down should be executed through controlled reductions to prevent supply chain disruptions. This approach ensures a smooth transition back to pre-season operational levels, maintaining stability and efficiency.Automated decision making: All the decisions needed to ensure the supply chain responds and adapts to daily consumption signals (both before and during the season), as well as the steps required for seasonal build-up and ramp-down, can be automated. This automation ensures meticulous execution, preventing delays in raw material sourcing and manufacturing.&nbsp;<h5>Conclusion</h5>Poor seasonal management can lead to substantial financial losses. Companies typically face margin erosion of up to 10%-40%, depending on category and extent of inventory mismatch due to excess stock liquidations and a 5%-30% revenue loss from stockouts during peak demand periods. Adopting a pull-based supply chain with inventory limits that dynamically adjust by sensing demand not only mitigates the inherent inaccuracies of traditional forecasting but also aligns supply chain operations with actual market conditions, leading to improved availability and reduced working capital requirements. Furthermore, by implementing the suggested processes for seasonal build-up and ramp-down, companies can better navigate large known demand fluctuations with agility, maintain excellent product availability, and capitalise on market opportunities more effectively, ultimately enhancing their profitability.&nbsp;&nbsp;

The saga of why Indian generic industry is currently caught in an unexpected dilemma and what they can do about it.

A pharmaceutical odyssey

Vector has developed bespoke solutions for equipment manufacturing or custom manufacturing companies to help them identify and address constraints in operations, sales, spares &amp; services, or new product development that limit consistent sales and profit growth.&nbsp;Working with companies like Laxmi Machine Works (LMW), Godrej Material Handling, RPG Raychem, Kirloskar Oil Engines Ltd. Bajaj Electricals (Luminaries Division), amongst many others, Vector has helped clients bring about excellence in equipment delivery, turbo-charge their sales &amp; business development efforts and set new benchmarks in after-sales services.&nbsp;

An equipment manufacturing or custom manufacturing company’s ability to grow its sales and profits consistently is limited by constraints in the following areas like Operations, Sales, Spares and Services and New Product Development:

Consulting Services for Equipment Manufacturing Companies

Analyses of top custom manufacturing companies, including manufacturers of capital goods and custom manufacturers of machinery and equipment, which design a product and make to order, show that only a handful have realized healthy sales, profits & ROI in the last decade.

BA industries

Equipment Manufacturing BA

industries

Equipment Manufacturing

Vector’s unique solutions for auto OEMs and auto components manufacturers help them overcome constraints that hinder their organizational performance in new product development, manufacturing, distribution and sales.&nbsp;Over the years, Vector has worked with companies like Tata Motors – Commercial Vehicles (Spare Parts &amp; Services Division), Ashok Leyland, International Tractors Ltd. (Sonalika Tractors), Fleetguard Filters, JK Fenner (India) Ltd., TVS Motors and Royal Enfield to set new industry benchmarks in operational performance in different areas of business.

We offer consulting services to organizations engaged in manufacturing and distribution of automobiles or auto components. Our consulting methodology focuses on identifying the leverage point of an organization for intervention.

Auto OEMs & Auto Components Consulting Services

Auto OEMs, auto part manufacturers and auto aftermarket players constantly struggle with the auto industry's highly cyclical nature, i.e. an economic boom is generally accompanied by high sales, while sales usually suffer during economic downturns.

Auto and Auto Components

Vector’s unique solutions for auto OEMs and auto components manufacturers help them overcome constraints that hinder their organizational performance in new product development, manufacturing, distribution and sales.&nbsp;&nbsp;Over the years, Vector has worked with companies like Tata Motors – Commercial Vehicles (Spare Parts &amp; Services Division), Ashok Leyland, International Tractors Ltd. (Sonalika Tractors), Fleetguard Filters, JK Fenner (India) Ltd., TVS Motors and Royal Enfield to set new industry benchmarks in operational performance in different areas of business.

Vector’s Consumer Goods &amp; Retail consulting practice offers expertise to consumer-packaged goods (CPG) companies involved in the distribution and retail of their products. These strategies help expand market range and reach, create market pull through influencers, and enhance overall supply chain and distribution efficiencies.&nbsp;With path-breaking solutions in Sales &amp; Distribution, New Product Development, Inventory Planning, and CRM programs, Vector has delivered significant business results for companies such as Bajaj Electricals (Consumer Products), VIP Industries Ltd., Godrej Interio, Polycab, Pidilite, Godrej Security Solutions, and many more.

Organizations producing, distributing, and making products available at retail points can be consumer goods companies or consumer packaged goods companies (CPG). Such companies could develop a constraint in areas like Internal Operations and Distribution, External Distribution, Sales Bandwidth, Retail Operations and New Product Development.

Consumer Goods & Retail Consulting Services

Much as they may wish otherwise, most Indian consumer good companies find that they have no consistent “Reach” into almost 65% of the country’s population (especially in rural, rur-ban areas) since they believe that this spread out population would be ‘cost inefficient’ to service.

Industries

Consumer Goods & Retail

Textile manufacturers, garment manufacturing firms or fashion garment retailers could develop a constraint in Operations, Sales, Retail operations or Sampling. Vector’s Textile &amp; Garments consulting practice offers unique solutions to help these organizations to overcome these constraints in in Operations, Sales, or Sampling management. The firm has collaborated with Blackberrys, Westside Retail, Arvind Fashions, and Raymond’s, among others, to enhance their On-Time-In-Full (OTIF) performance, ensure high availability at the retail store level, and reduce overall inventory and working capital deployed in the business. Some of these clients have set new industry benchmarks.

Companies in this domain are export houses which undertake garment manufacturing for large retailers as per fabric or garment designs given to them. They could also be fashion retailers who design, source and sell garments under their own brands in addition to selling other garment company brands. These two types of companies (textile manufacturers or fashion garment retailers) can develop a constraint in Operations, Sales, Retail operations or in Sampling.

Textile and Garments

Traditionally, India’s textile businesses enjoyed lower labor costs and significant government support (capital subsidy, duty drawbacks etc.) However, things have changed in recent years, and the industry is now losing its edge to countries such as Bangladesh and Vietnam! Find out how Indian companies can regain their superiority in the global markets

Textile & Garments

Vector’s Engineering &amp; Construction consulting practice, offers tailored solutions for Engineering, Procurement and Construction (EPC) companies, enabling them to identify and address constraints in project execution and operations that may hinder their sales growth and profitability.&nbsp;By implementing a unique Flow Management approach in its consulting assignments for construction projects, Vector has enabled clients such as Skipper Ltd., Bajaj Electricals (Engineering &amp; Projects Division), Godrej (Electricals &amp; Electronics Division), Tata BlueScope Steel Ltd., and KEI Industries Ltd. to complete projects ahead of schedule while increasing the number of projects executed within the company's allocated operating expenses.

An Engineering and Construction (EPC) company’s ability to grow and sustain sales and profits is limited by constraints in Project Management and Sales.

Consulting Services for Engineering and Construction Businesses

The growth of project organizations dealing with turnkey projects involving engineering, procurement and site construction has slowed down despite healthy demand because they operate in a highly uncertain environment (ROW issues, bureaucratic hurdles, etc.) Find out how companies can not only manage but also flourish in spite of these challenges.

Engineering & Construction

Vector’s pharmaceutical consulting practice offers solutions for organizations involved in pharmaceutical research &amp; development (R&amp;D), production, export, and distribution of medicines helping them address ongoing challenges or constraints in operations, R&amp;D, distribution, or the management of QC labs.&nbsp;Vector’s innovative solutions have helped Ajanta Pharma, Lupin, and Strides resolve their lab quality issues, reduce R&amp;D lead time and improve delivery performance while enhancing the productivity of resources.

Organisations working in the area of life sciences, especially those dealing with research, development, production, export or distribution of pharmaceutical drugs and formulations, can have an ongoing challenge or a constraint in Operations, Research & Development or in Distribution to International Warehouses.

Life Sciences

While the pharmaceutical industry faces many unique challenges, the fairly healthy gross margins this industry enjoys have made it possible for businesses to thrive during good times and remain viable even through tough times. However, with unprecedented and increasing competition, business complexity, velocity and volatility of markets, companies are now struggling with stressed supply chains, profit erosion, and continuously lowering returns.

Industries we work in

Discover how India's manufacturing future hinges not just on policy reforms, but a management revolution—where workers become partners, trust drives performance, and inclusive leadership builds global competitiveness.

From impossible to possible: Rethinking management to unlock India’s manufacturing might

Discover why 88% of auto component manufacturers struggle with R&D capacity. Explore the hidden challenges, industry implications, and strategic solutions that could drive innovation and competitiveness in the sector.

88% auto component players face R&D capacity constraints

India’s shift to electric vehicles is slowing down—not because of missing technology, but due to poor planning, weak coordination, and supplier struggles. What’s going wrong, and how can it change?

EV plans face 24-month delay as OEMs, suppliers hit R&D, execution limits

Despite bold EV ambitions, India’s auto industry is stalling—held back not by technology, but by deep execution gaps. What’s causing the delays, and can the industry course-correct in time?

Indian Auto industry needs to fix execution gaps to succeed in next decade: Report

India’s EV shift is stalling—not due to lack of tech or vision, but because of deep-rooted coordination issues within the auto industry. What’s really slowing down the transition?

India’s EV transition slowed by poor coordination, not lack of tech or vision: Study

A new report uncovers hidden execution gaps threatening the future of India’s auto industry. As the EV shift accelerates, can automakers and suppliers adapt in time to stay ahead?

Indian auto industry needs to fix execution gaps to succeed in next decade - Report

A new study reveals why India’s auto industry risks falling behind in the EV race—highlighting internal execution gaps, struggling suppliers, and the urgent need to rethink traditional ways of working.

Indian auto sector must bridge execution gaps to drive future growth: Report

As the global EV race accelerates, India’s auto industry is hitting internal roadblocks. From supplier strain to legacy system drag—what’s really slowing down the shift, and who can fix it?

EV race hits a speed bump: Why India’s auto makers are struggling to shift gears

India’s EV dreams aren’t stalling due to lack of innovation—but due to a hidden execution crisis. What’s breaking down inside auto factories and supplier networks, and who’s poised to fix it?

Execution gridlock threatens India’s EV ambitions, says Vector study

Discover how hidden inefficiencies in pharma labs are quietly impacting innovation—and the surprising way of automation is transforming productivity, reducing errors, and reshaping the future of drug development.

Indian pharma works to offset hidden inefficiencies in R&D automating repetitive tasks

India’s proposed ‘Zero for Zero’ tariff strategy could boost exports without formal FTAs, but its steel industry must embrace urgent green reforms to stay competitive in evolving global markets.

‘Zero for Zero’ tariff strategy: India’s green steel industry at crossroads

Accelerate automotive innovation by mastering complexity. Discover how leading OEMs cut delays, boost throughput, and outpace competitors—without added resources—by transforming product development and supply chains into streamlined, high-impact engines of growth.

Vector Consulting Group turns complexity into clarity for faster market entry

Walmart turns to India’s garment hub to outsmart tariffs—but behind buzzing machines lies a silent crisis. Can Tiruppur’s factories meet soaring U.S. demand, or will labor woes unravel the opportunity?

Walmart turns to India to avoid high tariffs, but garment workers scarce

A landmark UK-India trade deal is set to transform key industries—from luxury cars to premium spirits. Explore how tariff cuts could reshape global trade dynamics and shift market power.

JLR, Diageo among winners as UK-India sign model trade deal

Despite digital disruption, offline retail remains the backbone of profitability and consumer trust in India’s dynamic retail landscape, driven by innovation, operational efficiency, and evolving consumer behavior.

Offline retail remains remunerative in a disruptive online world: Experts at PRC 2025

The article explores how Devyani International is adapting its fast-food offerings to suit Indian tastes, staying competitive as food delivery platforms reshape the quick-service restaurant landscape.

This KFC, Pizza Hut franchisee thinks biryani is the next big thing in fast food

Discover how shifting from traditional project management to flow-based execution can eliminate delays, boost efficiency, and transform infrastructure development—ensuring faster, cost-effective, and high-quality project delivery.

Breaking the cycle of infrastructure delays: A fresh perspective

This article talks about Vector’s solution for auto manufacturing and how it focuses on making the system more responsive to market dynamics. It also highlights the benefits to auto OEMs and tier-1 component manufacturers.

How Vector Consulting Group enables agility in auto manufacturing

This new article highlights how adopting a flexible demand driven manufacturing approach can help auto OEMs and component manufacturers stream line operations respond to market faster and reduce inventory

News article on auto manufacturing solution by Vector Consulting Group

This article highlights the rapid transformation of the fashion industry, exploring the challenges of slow supply chains and how brands can adapt with agile practices, real-time tracking, and smarter decision-making.

Rethinking fashion industry agility: The shift towards faster, smarter supply chains

The article explores the challenges pharmaceutical companies face in balancing quality control (QC) metrics, such as Turnaround Time (TAT) and efficiency, while addressing delays in order fulfilment and ensuring compliance.

Why quality control gets blamed for order delays - and how to fix it

The article in ET Pharma talks about the challenges pharmaceutical companies face in balancing quality control (QC) metrics, such as Turnaround Time (TAT) and efficiency, while addressing delays in order fulfilment and ensuring compliance.

News article on the reasons behind delays in pharma QC and how they can be addressed

Fashion retailers in India are embracing faster collection cycles, launching new styles monthly, driven by consumer demand and supported by tech-driven manufacturing solutions, shortening timelines and boosting efficiency in the industry.

Fashion seasons get shorter: Cut, stitch & sell in a month

Discover how optimising India's pharma distribution system with a demand-driven approach can improve stockist efficiency, reduce costs, and ensure seamless medicine availability, benefiting pharma companies, stockists, and patients alike.

Revamping multi-tier distribution: Ensuring consistent availability for India’s pharma growth

Struggling with inventory mismatches and deep discounts? Discover how real-time stock adjustments and streamlined supply chains can cut lead times, reduce markdowns, and maximise full-price sell-through for better profitability.

Apparel discounts are often, not custom-made

Pharma labs face persistent errors due to cognitive overload and systemic inefficiencies, leading to FDA violations. Explore strategies to address these root causes and enhance lab quality, compliance, and operational efficiency.

Moving beyond surface fixes in lab quality

Reducing stockists’ inventory while ensuring nimble supplies can plug medicine distribution gaps, doubling pharma profits. Our study reveals how smarter distribution unlocks growth by enhancing availability and minimising losses.

Reduce stockists inventory, ensure supplies to plug medicine distribution gaps: report

Explore how India’s pharma industry, a leader in affordable healthcare, is confronting challenges that threaten its global dominance. Dive into the article for key insights and answers to these pressing issues.

Can Indian pharma reclaim the top spot in generic pharma?

India's fast fashion market is surging with 30-40% growth in 2024, projected to hit $50 billion by FY31. Learn how brands can transform their supply chains with AI-driven forecasting, agile inventory management, and tailored strategies for diverse product lifecycles to minimise risks and unlock massive expansion opportunities.

Conquering fast fashion's challenges with smarter supply chain solutions

Conquering Fast Fashion's Challenges with Smarter Supply Chain Solutions

Discover how to transform your B2B sales with streamlined processes, centralised support teams, and strategic role divisions, enhancing productivity, customer service, and long-term growth while tackling sales inefficiencies.

Elevating sales: More selling capacity at the same cost

The article highlights how Vector has expanded its summer internship program, hiring 21 top interns from prestigious B-schools by offering hands-on experience and career growth.

Vector Consulting Group hires 21 interns from IIM, XLRI

Learn how Indian fashion retailers can optimise inventory using BI tools like VectorFLOW and streamline stock management, enhance forecasting, reduce markdowns, and improve profitability through real-time allocation and automated replenishment.

Smart solutions for inventory challenges in Indian fashion retail

Discover how Zepto can boost operating margins and retention rates by improving Average Order Value (AOV). Mohammad Malik Rafi, shares insights on dark store operations and q-commerce platform strategies.

Zepto tries SuperSaver in additional locations

The article highlights a look at industry requirements and selection criteria of management graduates, provides insights into what top industry recruiters look for in management graduates.

A look at industry requirements and selection criteria of management graduates

Explore how specialized expert teams play a pivotal role in enhancing pharmaceutical quality control (QC) by tailoring solutions that align with stringent safety and efficacy standards, minimizing human errors and technical gaps, and ensuring smoother regulatory approvals and operational success.

Navigating regulatory challenges: The role of experts in reducing QC testing errors

The Indian pharma industry faces shrinking profit margins and rising challenges. The article highlights the need for innovation and operational excellence in manufacturing, quality control, and R&D to ensure sustainable growth.

Navigating the changing pharma landscape with innovation

The article highlights the Indian pharma's need for a strategic shift from Inspection Readiness to Perpetual Regulatory Readiness to address US FDA's safety and quality concerns in the industry.

Indian pharma working to transition from ‘Inspection Readiness’ to ‘Perpetual Regulatory Readiness’

Uncover strategic insights into how Indian pharmaceutical companies can enhance agility and cost efficiency to navigate the volatile US generics market. The analysis reveals potential strategies for boosting operational speed, ensuring quality, and accelerating R&D to maintain a competitive edge in the global generics landscape.

Time to revamp India's generic pharma

The article highlights the overcoming project delays by transitioning from traditional project management practices to a flow management approach. It underscores the critical role of effective stakeholder collaboration, token-based prioritization, optimal resource allocation, and thorough preparation in enhancing project speed and reducing delays caused by coordination challenges.

Overcoming delays in large infrastructure projects

NBMCW

Mixed signals from the US generics market—such as price erosion and occasional escalations—cause pharma companies to shift between growth and cost-cutting. This white paper proposes a radical solution to make pharma operations—manufacturing, quality, and R&D—more agile, helping companies adapt and thrive in the face of uncertainty.

US-focussed drugmakers need dynamic, even daily, forecasting, says report

The article outlines strategies to tackle challenges in real estate project management, highlighting high demand but reduced IRR due to delays and budget overruns.

Strategies for overcoming challenges in real estate project management

In the article published in ET Auto, Sumit Sharma explains how a pull-based system with strategic buffers can revolutionize automotive supply chains, ensuring better efficiency and stronger dealer partnerships.

Managing bullwhip: How to solve auto OEM dealer inventory challenge

The interview captures Kiran’s viewpoint on how Vector is redefining the management consulting by challenging the prevailing norms/systems in the industry and how we, with our unique approach have brought in a fresh perspective to the way management consulting should be approached.

Consulting industry often shrouded in opacity, ripe for a fresh approach: Vector Consulting’s Kiran Kothekar

Discover how refining Standard Operating Procedures can truly prevent accidents in critical industries. Dive into our analysis and expert insights for effective SOP management.

SOPs and their effectiveness in the prevention of accidents

Discover how Flow Management transforms CAPEX project efficiency and ROI in India offering vital strategies for optimization.

Uncertainty is the only certainty in the world of projects, says Anantha Keerthi, Partner, Vector Consulting Group

Discover how India's auto OEMs master minimal inventories, balancing JIT efficiency with supply chain stability for improved availability and productivity.

The lean inventory illusion: A closer look at India's auto supply chains

Discover the intricacies of the pharmaceutical supply chain, where global ties shape availability and crises reveal the urgency for resilience. As technology and nearshoring redefine the landscape, we probe the balance of supply, demand, and regulation. Stay ahead with our in-depth analysis.

Lives depend on the success of the life sciences supply chain

Discover India's rural transformation: Rising digitalization spurs economic growth and entrepreneurial ventures, poised to eclipse urban consumption by 2030. Unveil the potential for market expansion in our detailed analysis.

Rural India’s economic shift: Digital drive spurs growth

The article discusses the growth covering the pharma industry masks entrenched supply chain conflicts. The dilemma of ensuring agility to meet changing demand without escalating costs threatens the industry's very foundation.

Unlocking pharma manufacturing agility: Innovations for reliability, flexibility, and growth

Explore how the Interim Budget 2024-25 is transforming infrastructure with accelerated highway projects and innovative solutions to critical challenges.

Highway projects have witnessed relatively good speed ever since the government began securing at least 80% to 90% of ROW land

The article delves into the transformative role of Agile Clinical Research Organizations (CROs) are pivotal in reshaping industry outcomes, transitioning to valued partners with strategies to boost productivity and satisfaction.

Revolutionizing outcomes: Agile CROs lead the way

Leverage your ERP systems with a business-centric approach. Avoid fragmented implementations and costly overhauls. Our method integrates tailored solutions into existing ERPs, enhancing efficiency and ROI. Learn how our approach has successfully transformed numerous organizations' operational efficiency.

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