Ceramic Tiles is one of the few Indian industries having a very high growth potential. This is due to the rapid changes in lifestyles and tastes of the people during the last 10 years. Tiles (wall and flooring) have been accepted as lifestyle products and are used for the interior decoration of houses. From the traditional use of tiles for flooring, their application has extended to decorating and smartening walls. Earlier, this usage of tiles was restricted to the walls of toilets and bathrooms. It has now extended to the kitchen, bedroom and drawing halls too. For flooring application, there are a variety of products available in the market that are competing with ceramic tiles. However, the ceramic tiles industry in India is growing at a rate of 12-15 per cent due to rapid changes in buyers’ lifestyles and tastes, and also because these tiles are a better substitute for mosaic tiles, which are traditionally used for flooring application.
In India per capita consumption of tiles is 0.1 sq m as against 0.2 sq m in China and 3.5 sq m in the developed countries like Spain, Italy, UK and the United States. India accounts for 2 per cent of the world’s ceramic tiles production capacity (5.5 X 109 sq m), while China accounts for 37 per cent followed by Italy and Spain with 16 per cent each. Asia accounts for 41 per cent of the world’s ceramic tiles production, while it accounts for only 13 per cent of the world’s consumption as against 52 per cent in all European countries together. India exports 10 per cent of its ceramic tiles production, which accounts for 0.05 per cent of world exports. The total ceramic tiles market in India is estimated at INR 14,000 million, which is 10 per cent of the total tiles (mosaic, marble, granite, stone and synthetic together) market in India. The ceramic tile industry in India is highly competitive, having many players both from the organized and the unorganized sectors. The share of the unorganized sector is to the tune of 35-40 per cent. The major players in the organized sector are Johnson, Kajaria, Somany, Bell, Peddar, Orient and Spartek, which are national brands having technology tie-ups with Italian manufacturers. The capacity utilization in the Industry is 80-85 per cent. The analysis of the ceramic tiles industry in India through the five-force competition model of Porter is revealed in Figure 24.19.1.
This industry is pegged with excess capacity and intense competition, particularly from the unorganized sector with 30-40 per cent cheaper prices. The industry profitability has decreased over the years due to the bargaining power of buyers and new entrants in the industry. The threat from substitutes is low as these products cater to the low-end market. The high-end market has different buying criteria.
In such industry environment, Dora Tiles started its operations in India way back in the 1990s and established its first manufacturing plant in Gujarat in the organized sector, with a manufacturing capacity of 50,000 sq m per annum. The plant being located in the backward area, the firm was exempted from paying sales tax (tax holiday) for five years on the sales processed for these products. The plant manufactures both wall and floor tiles and has two dedicated production lines for each of these product categories. Dora had purchased technology from one of the leading Italian tiles manufacturer. The company started marketing its products through a dealer network.
However, institutional sales were directly negotiated through the company’s own sales force. Dora had a sales growth of 20–25 per cent in the fi rst fi ve years of operation. They could achieve a market share of 6 per cent in 1995. Due to growth in the ceramic tiles market and the growing demand for Dora products, the company in 1996 invested INR 500 million on a new plant in Karnataka. The plant was equipped with the latest technology involving the dry process of manufacturing ceramic tiles. This technology was being used for the fi rst time in India and had distinct advantages such as faster production cycle, lower rejections and lower input cost, as water, which is a major ingredient in the wet process, is eliminated.
The new plant was fully operational in 1995 with a 50,000 sq m tiles manufacturing capacity. This plant was fully dedicated to fl oor tiles. Being located in the backward area, the plant had the advantages of tax exemption on sales tax and tax holiday on income tax. Due to the tax exemption, Dora had the price advantage over the products of other organized sector manufacturers. All these years the company’s focus was mainly on institutional selling to contractors, corporate sector and projects. They never seriously thought of the retail sector, which was growing faster and the other players had already started focusing on this sector. After the tax exemption period was over in 2001, Dora lost its price advantage over the competitors and started feeling the effect due to loss in market share, which had reached 11 per cent in 2001.
To counter the situation, the company identifi ed the following key success factors, which could help them to increase the market share and achieve the targeted growth.
- Products Features
- Variety and new designs with speed to reach the market
- Types of fi nish and look of the product
- Sample distribution
- Retail Network
- Sales force strength
- No. of dealers/retailers
- Logistics network
- Efficiency and effectiveness of logistics
- Product Focus
- Wall tiles (less competition and increased usage trends)
- Operational Focus
- Working capital management
- Capacity utilization
- Production flexibility
- Process rejection controls
- Cost Structure
- Freight cost (both in- and out-bound)
- Fixed cost reduction
- Brand Awareness
- Through low cost options
Dora had the technology edge over its rivals and also the cost and quality advantage over similar products available in the markets. The firm decided to focus on the marketing and distribution side. They slowly expanded their marketing network to 40 branches, 20 depots, 1000 dealers and over 3500 retailers. Dora was the first tile manufacturing company in India to introduce the depot concept. Traditionally, manufacturers dispatched their material directly to dealers, who had the responsibility of maintaining the warehouse. With the depot system, Dora could supply the product (in varieties) much faster than its rivals. As the dealer has a limited capacity to stock in terms of SKUs and the quantity, the customer requirements of quantity and variety can be met through the depots by maintaining adequate stocks in each SKU, numbering 225 in all. The order cycle had now come down to 48 hours compared to over two weeks earlier. The company installed the Distribution Requirement Planning (DRP) software and invested in online connectivity of all depots with branches and the factories.
The locations of depots were selected based on the potential sales in the area, number of dealers to cover and the distances for deliveries. Dora had totally outsourced the depot operation to C&F agents, who were selected on the basis of their experience, financial standing, infrastructure facility, office automation and technical expertise. The depots were responsible for order processing, order execution, collection, sample distribution and report generation. The performance evaluation criteria were based on quality of the work, minimum errors, average time frame for order execution, inventory, and outstanding payment norms. The DRP system was linked to the Enterprise Resource Planning (ERP) system installed in the plant to take care of the production and procurement planning.
The movement of primary freight from plants to depots is the company’s responsibility, while the dealer has to pay for the secondary transportation, which is covered in the MRP.
Currently, Dora spends 2.25 per cent of its sales on the logistics operation. The inventory level had come down to 25 days as against 40-45 days earlier. The payment outstanding is 45 days, which is lower than the industry average of 60-65 days. The order cycle time has been reduced to 48 hours due to faster communication and the shorter new design planning and execution cycle. Dora has a separate “new product design” department that studies the market trends and interacts with customers and channel members regularly. The samples are prepared in the pilot plants dedicated for new design and sent to the field for feedback. The company introduces on an average 8-12 new designs per month in the market.
Dora has engaged two 3PL firms (one for each factory) for primary transportation of goods from the factories to the depots. They have a dedicated fleet of vehicles for transportation of tiles. Based on the production and demand trends, the dispatch schedules are planned at least a week in advance to avoid delays and waiting. Dora has standardized three different box sizes for packaging of 8″X12″, 12″X12″ and 16″X16″ size tiles. The boxes are designed to accommodate 16 tiles. For safe transportation, each corrugated box is strapped and 48 boxes are unitized on the pallet with shrink-wrapping to avoid movement of individual boxes during transit. Ten pallets, each with 48 boxes, cover the entire volume of the 9-tonne truck. The loading and unloading of the pallets is done with the forklifts available at factories and depots.
The Logistical Information System collects and analyzes the information, and generates the following reports for the depots, branches, HO and factory:
- Daily order acknowledgement
- Order acknowledged for the month and also to-date
- Depot sales on daily basis
- Depot sales for month and to-date
- Payment collection on daily basis and to-date
- Payment collection for month to date
- Reports on customer rejects, wrong dispatches, damages, short supplies, wrong invoices, and so on
- Transit time for lorry from factory to depot
Looking at the changing market scenario, Dora had recognized the need for changing the traditional role of the distribution channel to the one required for achieving total customer satisfaction. This new role is necessary not only for growth but also for survival as well.
Looking at the pace of changes taking place due to globalization of businesses and the ever increasing customer expectations from suppliers in the competitive markets, Dora management has visualized the following trends that will be observed in the tiles industry in the next few years:
- More tiling options
- Quality a sine qua non
- Merging of product and services
- A very large number of players (direct imports)
- Margins under pressure
- Customization for segments
- Demanding with respect to product range, delivery time, after-sales service
- One-stop solution for aesthetics and home beautification
- Power shift to retail chain
- More knowledgeable about the products and services
- Opting for do-it-yourself kits
- Customized product and service requirements
- Looking for one-stop solutions
The Dora management has already taken some initiatives on the change process to meet the ensuing challenges and sustain growth in the dynamic business environment.
Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.