Titan - The Outsourcing Journey

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Outsourcing at Titan Contd...

However, the management had not expected the trouble with employees. To put to rest the employee unrest issues, Desai released a memo stating that, "I want to correct a misapprehension that Titan had inadvertently succeeded in creating that the company was turning to external sources of supply because in-house production is expensive." The Chief Manufacturing Officer of the watch business unit, M.S. Shantharam also tried to put to rest the doubts of the employees, "Whatever we can buy at a cheaper price we will, but not at the cost of underutilization of the factory." He further added, "The message to perform is clear to every employee. The workers are fully apprised of the competitive scenario and they realize the urgency of better productivity." As the employee unrest settled down, Titan began to focus on implementing its decision to outsource. In 1999, the company outsourced close to 1 million movements from suppliers in Hong Kong and China. All the components for the Dash range of children's watches that was launched in July 1999 were outsourced from local and global vendors. Workers at the Hosur plant only assembled these watches. According to Titan sources, new range of watches typically took some time to generate volumes.

Therefore, it was priced on the higher side. By opting for outsourcing, the company could launch the watches for just Rs 250-395. If it had to manufacture the range, it would have had to invest at least Rs 2.5 million just for the machinery to make the moulds for the watches. Similarly, the Fastrack range of digital watches was also priced in the range of Rs 650 to Rs 1500, keeping in mind the target segment - youth in the 15-24 age group. Titan could price the range so attractively because the watches were completely sourced from Hong Kong and Taiwan. Kurien admitted, "We are able to offer the watch at this price only because of the sourcing model." Though the company had initially thought of developing the technology for the watches on its own, it dropped its plans after it realized that the costs involved would be too high for the volumes it was expecting in the initial stages.

However, the outsourcing decision did not indicate in any way that Titan had decided to forego its earlier focus on enhancing operational efficiencies. Titan had also put in place various measures to enhance the productivity of employees and the machinery, including measures to facilitate better buying and negotiating, locate better vendors, locate alternative sources, and salvage non-moving components. Through process reengineering efforts, Titan managed to reduce the overall watch assembly time from 17 days to 10 days today. In addition, surface treatment time i.e. time take for a process to improve the finish of the watches, was reduced from 62 hours to one hour. Titan began working towards reducing its cost of operations with the help of Andersen Consulting through an e-commerce initiative.

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