CHEP revs up to go places for auto

An increased cost-reduction drive by the automotive industry also means more focus on ensuring maximum utilisation of resources and space while reducing production time and damage or loss. CHEP, a leading player in pallet and container pooling globally, sees this as an opportunity to increase its India business. “Selling to an automotive player is a long process. One is actually selling a value proposition that is time-consuming because you are eliminating age-old processes such as the usage of cardboard and wooden box. It takes a while to convince the potential client of the benefits but once that happens, it is a domino effect,” says Pranil Vadgama, president, CHEP India.

At present, business from the automotive sector accounts for around 30 percent of CHEP India’s business. The company wants to take this to 70 percent within a decade. The FMCG sector currently has the lion’s share of business. Globally, the automotive sector contributes to around five percent of CHEP’s revenues and the plan is to double it. Clearly, India will play a key role in this efforts.

Strong growth

CHEP has operations in 50 countries. Its Indian operations, which started in June 2008, grew the fastest among them in 2010 albeit on a relatively small base.

With the automotive industry increasingly shifting Asia-wards, CHEP expects the strong annual growth rate to continue. It has over 140 clients from various sectors in India and hopes the focus by OEMs on controlling costs will give it better opportunity to pitch for business. “For example, some supplier sends his product all the way from Chennai to Gurgaon. A lot of damage takes place in transit. In a process like ours, where there’s pooling and sharing of crates, you can move around the pooling and save. Handling also improves and this translates into cost savings,” adds Vadgama. According to CHEP’s estimates, 35-50 percent of supplier flows are long distance from outside of the state where the OEM is located.

While an OEM may not share its components with another, CHEP’s crates, for example, are used in pooling on the shopfloor and it is possible that they may go to its competitor’s shopfloor as CHEP’s crates are moved in such a way that they always carry components on almost every route they travel. CHEP is, therefore, still “educating” its existing and prospective clients about the advantages of availing its services.

Roger Corns, director, says: “Rather than add another OEM, we focus on getting all the packaging contracts of an OEM. For example, CHEP India would like to get Mahindra & Mahindra's packaging or get Maruti’s entire packaging and similar projects. Our model can be called pooling on a large scale.” CHEP says there are three areas where OEMs seek benefits. The first is cost saving, second is quality improvement that is quality parts delivered without damage, dirt and dust, and the third is on- time delivery. To this end, CHEP supplies crates at the client’s locations within 24 hours, for the period they need them for. This saves the OEM time and cost in terms of investing in crates and resources to maintain them.

Even as the automotive industry is growing at a much lesser-than-expected rate, primarily in the car business, CHEP India is optimistic. Vadgama says, “I think that’s a small process (the slowdown) in the play. I think the industry will grow at 13-15 percent cumulative annual growth rate (CAGR) over the next five years.”