Multiple processes that work in isolation…that is the key challenge in all firms in this industry, from tanneries to large export firms, says a report by PwC

Pricewaterhouse Coopers (PwC) studied the leather clusters in Agra and Chennai in detail and assessed the problems ailing the industry. This study was done for Microsoft under the Project Vikas initiative. The objective of the study was to learn how the leather industry operates on a daily basis, and what could be done to make the various companies in it become more competitive, in which areas could IT be brought in, and in what form, so that the main challenges before the companies could be addressed.

This article captures the findings of the report. PwC studied the various companies in Agra and Chennai engaged in the various leather industry processes and arrived at broad segments of companies. They are

Tannery: Those companies that produce finished leather from wet-blue, and provide it to companies making leather products come in this category. Tannery companies may also be involved in the export of finished leather.

Small to mid-sized product firms: These companies produce shoes and shoe uppers. They either export directly or serve as contractors for large exporters or domestic firms. They source their leather from tanneries.  

Medium to large product firms: These produce a large variety of shoe and non-shoe products. They could have multiple shoe factories with in-house tanneries.

Domestic product firms: These are special to the Agra cluster and make shoes or non-shoe products for the domestic industry. They may have their own brands and may sell through distributors.

The Key Challenges

All the companies, from a tannery to a large leather product firm, face some common challenges. These include uncertain inventory levels, optimising the productivity of manual-intensive processes, and existence of accounting as a completely segregated system with no visibility into how material and stock issues can have an impact on the profitability. However, each segment has some challenges related to its various processes. These issues have been considerably diminishing the competitiveness of the clusters as a whole.

Systems support for production and capacity planning emerged as the key issue for firms in the Chennai and Agra leather clusters. Production planning is not automated in most of the cluster firms which often leads to a non-optimal plan. This is further accentuated by the fact that many of the firms do not have a material management application system which can help to keep track of the raw material available for production. This leads to stock-out problems and in-turn results in production delays.

These firms require regular information flow between their production planning, production execution and materials management regarding idle line capacity and inventory levels at various points in the order execution cycle. This function can be made efficient to a large extent through effective use of IT systems that would facilitate easy information flow across the various business functions.

The trend in the Indian leather export industry is towards increasing number of articles and reduced shipment sizes (number of pairs) per delivery. Newer styles and high variability in raw material usage increases the time and effort for sampling and order finalisation. Customers are also demanding orders to be fulfilled in shorter overall timelines from previous 8-10 weeks to current 6 weeks to 4 weeks. Effective usage of IT can help these firms simplify the sampling process and overcome the challenge of on-time delivery for an increasing number of shipment sizes and variations. 

Key Challenges

How IT can Help

IT can come to the rescue for all these issues, says PwC. Solutions that cater to these issues are the need of the hour, the report says. From the study, PwC concludes how specific types of solutions or customising existing solutions in the market will be able to help the leather industry become far more competitive than it currently is. The solutions for each of these segments are described here.

Tannery Manufacturing Solution

Tanneries could opt for a tannery manufacturing solution. It should be a company-wide solution which integrates sales order management, production, material management and finance. It would be able to handle sampling and order finalisation. It would also help in production planning based on orders and job scheduling. Quality Control (QC) would be handled by recording QC results and by generating reports. Storage and procurement would be better managed through such a system. All the financial transactions, creation of invoices, taxation and documentation, balance sheets, etc, would be maintained by this system.

Basic Leather Product Solution

Small exporters (with revenues up to Rs 10 Crore) and small-to-medium exporters (with revenues up to Rs 50 Crore) make up the majority of the firms in the Chennai and Agra clusters. Most of these firms are currently dependent upon a range of custom developed applications. They are mostly point solutions for material management and production control. They lack the integration of processes that can be achieved through IT.

For these companies, a basic enterprise level leather product solution would work very well. It should integrate key business processes like sales and marketing, production, material management and finance.

Advanced Leather Product Solution

For medium to large companies with mature processes, an advanced leather product solution would be effective. It should be a fully configurable and scalable enterprise level application suite. It should have all modules: Sales and Distribution for sales order management; Production module for production, and material requirement planning and scheduling; Material management module for procurement, inventory and dispatch planning; Finance module that is fully integrated with material management, sales and production. The solution would also have modules for quality management, plant maintenance and human resource management.

Point Solutions

Computer aided design: The leather companies also need to work with computer aided design software to enable their designing processes. Both 2D and 3D versions of such applications are available for the footwear industry.

Quality Testing Applications: A range of application exist which can be effectively be used for quality testing of leather and for capturing other essential characteristics and recording and analysing the same.

Required: A Robust IT Ecosystem

Currently the use of IT is limited to automating specific functional areas which have a restricted impact on the operations. An integrated system that would enable seamless information flow between different functional areas would have a far greater impact on the firms’ operations. This would also provide the necessary platform for firms to scale up their operations.

Many of the key business pain points of the firms in cluster can be addressed through the effective use of IT solutions. However, while implementing solutions would provide immediate benefits, a proper support structure is required for sustaining these gains over the long term. A robust IT ecosystem that can support the adoption of IT in the cluster needs to be nurtured for extracting maximum value out of IT investments.

The adoption of solutions by the firms in the cluster will result in the improvement of the overall maturity of IT penetration in the cluster. But this will be dependent on upon the availability and support from hardware providers, software firms, quality of implementation partners and support services and technical educations which provide education and spread awareness of IT.

                        Adapted from the Leather Clusters ICT Diagnostic study, conducted by PricewaterhouseCoopers under Project Vikas

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