Automotive supply chain makes smart move
Increasing visibility, better collaboration among the partners and innovation in the supply chain is vital for the dynamic sector of automobiles to enhance their competitive edge and meet world class standards.
Twinkle Sahita The automotive industry in India accounts for 7.1 percent of country's Gross Domestic Product (GDP). The industry has attracted Foreign Direct Investment (FDI) worth $15.06 billion during the period April 2000 to March 2016, according to data released by Department of Industrial Policy and Promotion (DIPP).
Auto maker Tata Motors is working to substantially increase its market share in the commercial vehicle segment in South India. Jaguar Land Rover, the UK-based automotive company, plans to manufacture Land Rover SUV (sports utility vehicle) for the local market and as well as for export, most probably at its plant in Pune. Japanese car maker Nissan Motor is in discussion with Government of India to bring electric and hybrid technologies to India as the government plans to reduce air pollution caused by vehicles. Fiat, Italian automobile giant, has announced its plans to start local production at Ranjangoan plant in Pune from the second quarter of next year at the launch of its two SUVs, Jeep Wrangler and Grand Cherokee. MV Agusta, Italy-based premium motorcycle manufacturer, has entered Indian market through a partnership with Pune-based Kinetic group with the launch of three luxury bikes, which will be sold through the ‘Motoroyale’ chain in Pune.
The growing importance of India’s automotive industry can be gauged from the fact that major automobile companies are expanding their footprint in this automobile frontier of the world.
A typical vehicle comprises approximately 20,000 components with about 1000 sub-assemblies or modules. The automotive supply chain includes multitude of Tier 1, 2 and Tier 3 suppliers or manufacturers with many assembly operations and a number of dealerships. Customer demand for varied specific configurations and features add to the high level of response needed from automobile supply chains. The order lead time required by a customer is averaged at four-six weeks in the automobile industry and there is a definite correlation between implementation of Supply Chain Management (SCM) practices and quality and conformance of design. This entire process makes the automotive supply chain complex.
In order to make it simpler, the supply chain is witnessing a major transformation phase with new trends and automation technologies entering the sector. Just like every other sector, efficient supply chain management is increasingly becoming a survival factor for this industry as well.
“Software companies will partner with global automotive OEMs and provide broad project implementation services for electronic modules such as body controls (electronic mirrors, chassis like electronic steering), infotainment, safety and security (airbags), etc. The services provided by IT companies are software design and development, system integration and testing, etc. The increase in embedded systems and electronics in the next generation vehicles is expected to further boost the demand for software services,” says Davidson Jabez, general manager (Material Planning & Logistics), Ford Motor Company. In January this year, Ford India launched new vehicle Endeavour set its state and its rugged off-road capability, exceptional ride quality, and dynamic handling has been chosen to transport Indian Armed Forces on the Sino-India border, a 3,488 kilometre long stretch of the harshest and most difficult to guard, terrain in the world.
What remains equally important like the technology intervention is the collaboration between the partners in the supply chain to bring in flexibility and adaptability in the supply chain.
In order to meet world class standards, Indian automotive OEMs are also slowly realising the importance of aftermarket potential. Given the fact that the aftermarket business creates better margins, aftermarket activities are high on every company’s agenda. Winning market share is far from easy, since it entails significant complexity. Nowadays, large distributors for service parts reduce the cost of managing a complex dealer network across the country. This helps automotive companies to yield even better margins.
“With sales plateauing or showing negligible growth in the developed world, there is growing importance being given to aftermarket business. Customers’ expectations have always been high. Companies earlier saw the aftermarket business as a kind of obligation to provide their customers with spares when it was desperately needed. Then they saw that there was an opportunity to make money and thereby improve service levels. This awareness of course came when competition increased and forced everyone to play on the same level playing field. Automotive manufacturers now don’t mind paying a bit more to ensure that they have a better supply and delivery chain,” says Gautam Dembla, managing director India, Spear- An FM Logistic Company. Bajaj auto, John Deere, Mahindra 2 wheelers, Honeywell, Federal Mogul, Spicer, Hyva, TI Cycles are the clients for Spear Logistics.
FM Logistic- a global MNC has acquired a majority stake in Spear Logistics. FM Logistic has acquired the stake that was held by a private equity fund Ambit in Spear Logistics since 2009. FM Logistic is one of the leading providers in warehousing, transportation and co-packing businesses. The group has exceeded 1 billion euros turnover during its fiscal year 2015-16 and counts today 21,000+ people based in 13 different countries.
Warehousing plays a key role in spare part distribution. Every vehicle manufacturer knows the importance of aftermarket service. Dealers demand overnight, if not same day delivery. To provide the necessary quality of aftermarket service, a well-organised and managed warehouse with the right amount of inventory in the right place at all times is a must.
“Spear uses technology within its material handling and processing systems at various warehouses based on its customer requirements. The warehouses are designed with customers’ requirements and will in all likelihood be a dedicated facility. There are huge complexities that have to be considered in designing such facilities such as storage systems, material handling, warehouse management software, number of transactions to be handled, their inventory levels, turnaround, dwell time etc. etc. Depending on the size of market, each customer would need to think of his distribution centre structures. A luxury carmaker for instance may need a DC in say Mumbai that can meet its dealer’s requirements as they would be located primarily in Tier 1 cities and concentrated in the West, North and South. A commercial vehicle maker would need a hub and spoke model or a regional DC model with at least four DC’s across the country,” explains Dembla.
What remains key to service parts business is availability of part at the right time at right place. Service promise to the dealer is the main driver. To switch from say a two day dispatch from DC to next day, warehouse needs to change its way of functioning.
“In our warehouses we were earlier picking by dealer order. This required us to go to same storage locations multiple times in a day. Imagine the manpower that was needed for this. We could not sustain such a model and provide a next-day delivery, so we switched to batch or lot picking, with the batch broken down on the workstations into individual orders. Such examples helped us to reduce our order cut-off time. It helped reduce errors in picking, manpower and costs dramatically,” says Dembla.
Warehouse Management System (WMS) also plays key role, right from receiving consignments to faster and more accurate put away and picks. For instance, optimisation of pick and put away paths for picking and put away help warehouses function more efficiently and at lower costs.
“To achieve economies of scale for one of our customers, we consolidated a warehouse (for 8 divisions). Some of their bigger dealers, who were ordering from various divisions, were getting eight different shipments at a time. Keeping track of so many orders was a challenge for the customer and his dealers. By consolidation, we reduced the number of shipments and number of cases to dealers. There was also a considerable saving in distribution costs as a consequence. We implemented bar code systems at our warehouses with the help of WMS. This gave us better speed and accuracy in processing orders. Our dealers get information on contents of each box at the time of dispatch. Such steps help us work in close partnership with our customer,” says Dembla.
The role of supply chain managers should also increase to cover end-to-end visibility functions, risk management, product design and customer management.
Market fluctuations, environmental regulations, policy changes, capacity issues, customer’s swing on brand loyalty are some of the challenges in the automotive supply chain.
The way ahead The industry should slowly start responding to the need of customisation by the consumers. “Reducing the feature development life cycle and faster implementation through product ionization can help the companies respond to the customisation requirements. Most of the customisation can be leveraged through expertise of Software companies, thereby, it can be delivered to customer at their ease,” adds Jabez.
The much discussed GST is slated to have major impact on the logistics sector paving the way for fewer and larger distribution centres.
“To offer GST ready solutions, we are planning to set up multi-client facilities across the country starting with state of the art multi-client facilities at Bhiwandi, near Mumbai and Gurgaon. Each of these warehouses will be of a minimum of 200,000 square feet and equipped with state of the art infrastructure and Mechanised Handling Equipment (MHEs),” informs Dembla.
The Indian automotive sector has the potential to generate up to $300 billion in annual revenue by 2026.
Government schemes such as a favourable tax regime and enhancing R&D capabilities especially related to hybrid car technologies and fuel-cell development and infrastructure are necessary to encourage the progressive induction of reliable, affordable and efficient electric and hybrid vehicles in the country.
Nitin Gadkari, Minister of Road Transport, Highways & Shipping has announced plans to set up a separate independent Department for Transport, comprising of experts from the automobile sector to resolve issues such as those related to fuel technology, motor body specifications and fuel emissions, apart from exports.
Government of India aims to make automobiles manufacturing the main driver of ‘Make in India’ initiative, as it expects passenger vehicles market to triple to 9.4 million units by 2026, as highlighted in the Auto Mission Plan (AMP) 2016-26.
