 I am Satish Paryanin, working as an assistant professor in Department of Mechanical, Vulture Institute of Technology, Sholab. Today we are discussing the topic called Ancillarization, Learning Outcome. At the end of this session, students will be able to use the concepts of learning, Ancillarization. What are the contents covered? What is Ancillarization? Examples of Ancillarization? What are benefits associated with Ancillarization? What are the problems faced during Ancillarization? And what are the key references used? First of all, we will discuss what does Ancillarization mean? An industrial undertaking which is engaged or is proposed to be engaged in manufacture or production of parts, components, sub-assemblies, tooling or intermediates. Or the rendering of services and undertaking suppliers of renders or proposes to supply or render not less than 50% of its production or services. As the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant, machinery, whether held in on ownership terms or whether held in terms of lease or on higher purchase does not exceed 10 million. This is the definition of Ancillarization. As we move ahead, we will be better understanding the term. Ancillarization and subcontracting in India started simultaneously with the government setting up enterprise almost in all core sectors, manufacturing equipment for defenses, railways, telecommunication, heavy electrical, electronic, chemical, fertilizers, petroleum, petrochemicals, ship and aircraft manufacturing and various other engineering and processing industries. First thing, what does difference between Ancillarization and franchising? Both, the similarity first I will tell you. The similarities of both are used as powerful support tools to increase the business. Now difference, please think it. At least two, three differences you should be able to note it down very clearly. Now as from the above examples, what Ancillarization is this? Railways, defenses, telecommunications or heavy electricals, electronics, chemicals, they are doing Ancillarization. Why they move ahead? Why they go for Ancillarization? They do it from some strategic point of view because everybody cannot have all things in their roof. There are certain cases or certain demand associated where we need to increase our profit or we need to maintain market share. So we go for subcontracting. We go for Ancillarization in that case as we cannot produce specifically this Ancillarization and subcontracting are used in India or any country where the demand suddenly picks up during the seasonal time. I will take one example. The example of crackers. Crackers demand shoot up during the month of April-May in India and during the month of October or November during Diwali. Remaining all other seasons if they are able to do it the production, they can do it on very stable basis. But as the demand shoot up in two months, they cannot full-fledge the demand with their running capacity because sudden for all the big demands, they need to hire more equipments, more infra in terms of machines, in terms of human, in terms of other materials. So they decided many times company as a strategic point of view decides certain by the product category what products they will make, what products they will go for subcontracting Ancillarization. Similarly in defense railways as their long-term projects, they cannot go for each and everything doing in-house. They cannot set up each and everything a big industries where they can manufacture. So generally they go for Ancillarization or subcontracting. Some major examples I will quote it. Large industries in private sectors specifically the telco, tata motors, escorts, ice shear motors, Ashok Leyland, Mahindra and Mahindra these are the examples of auto segments. And some few recently which I've heard is also the examples of Amaraja batteries, excite industries. They have developed a chain of the ancillaries and the major percentage of their components are subcontracted. As we are now these days, these private companies as there is a role they are shifting from the regular fuel vehicles to the electrical vehicles. So this strategy or this strategy is helping them a lot. The private sectors have provided a good base for partnership and subcontracting in India which was done as done by the government PSUs. We can see when there is a phase change or when the product changes or when there is a demand change, these ancillarization can be used. This is the very powerful tool to increase our profits to increase our market shares. Now we will go for certain benefits what are associated with ancillarization. Ancillarization helps to minimize investments of setting up large units as being required as a required production can be sourced at a lower rate with same quality through subcontracting from ancillary unit. Large investment we can say they are in the terms of having a warehouse, having a factory, having a machines, getting humans. So these all are minimized when we go for subcontracting from ancillary units. Now as I said you are given your examples of the crackers also. One more example we can have it specifically if refrigerators, if the TVs in India specifically the demand shoot ups during the festive season and festive season again are in the month of in India, April, May and January, October to January in terms of December. Where the major festivals of Hindus comes as Diwali, then Christians comes as 25th December Christmas, then Pongal is there from South India festival. So these all festivals are from October to January. And typically the other example other thing is April May where we take it the major there is what we say is the temperature is higher in major parts of the country. So refrigeration demand shoots up during that period of time. So only during that period of time whether we should have certain other manufacturing unit where the capacity will be lying idle throughout other months. So this cannot happen. Ancillary units just in time concepts helps the large organization to bring the inventory lower and saves a lot of money. As units are kept at the vendor end, ancillary units subcontracting ends. So the inventory typically is at very lower and they helps to support with just in time concept. Because you are having one big helping hand in front of you. Now sourcing is economical from ancillary units that are normally located near the company. This is one of the big advantages to put down the cost down. Ancillary units work with the parent organization in the process and product development subcontracting. Let us take the example of Mahindra and Mahindra Tata Motors. They work in support with the ancillary unit. Let us say the ancillary units might be Veroq so they can work in with them to support it. So parent organization and ancillary unit organization both work together to bring the product cost down process issues down and to have a better customer satisfaction. Now what are the problems associated with ancillarization? There is a delay in payments put ancillary unit organization is a big trouble. If the parent company is big then ancillary find is difficult to take the legal action. Let us say the Tata Motors is there and then Veroq Industries is there. Veroq Industries is smaller compared to Tata Motors or Tata Group or Mahindra and Mahindra Group. So if there are payment issues which are there, it is find difficult. It is not as easy to get going to legal matters if there is a delay kind of thing. When parent organized revise the specification ancillary units are sometimes not given the expected support for adopting the higher technology. Not given sufficient time to bring changes in the technology to match the parent company. Reason being this is generally done if the engineering routes comes due to some feel-filiar ratio. What can be done? Many times company in house they will do it and they do not inform it or there is a big inventory associated with ancillary units or subcontracting units. So what to do with that? This is a big question with the problem of ancillization. Multiplication of suppliers make the ancillary units operate below break-even point. As a result these units incur losses because of capital unutilization. So these are the problems basically big problems faced by ancillary units. The references used were from NPTEL, DCMSMEGOV.IN and the project management book Project Management and Control by Narendra Singh. Thank you.