Integration of the supply chain

KPMG report on the auto sector says that creation of a single entity for logistics will be a big help, reports P Tharyan.

Autocar Pro News DeskBy Autocar Pro News Desk calendar 28 Feb 2007 Views icon1702 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Integration of the supply chain
As OEMs and component players in India evolve and become more global in nature, there will be a greater need to achieve international standards and emerge as a supplier of choice. These changes will have a significant impact on the auto supply chain.

In a discussion paper titled ‘Indian Automotive Supply Chain’, KPMG, the global accounting and consulting firm, has analysed the key challenges facing different sections of the Indian auto industry, identified areas which need significant attention and identified organisations for service providers who can help auto players in meeting some of them. The Confederation of Indian Industry (CII) helped KPMG in this exercise.

The analysis showed that the most significant challenge identified by automotive players in India is integrating the entire supply chain and managing it as a single entity. The way to meet this would be two-fold: align different stakeholders along the chain (vendors, transporters, distributors and dealers) along common goals and processes, and also integrate and link disparate IT systems used by stakeholders.

Managing inbound logistics remains a key concern for OEMs and component players, driven more by challenges related to reliability of data, lead time and absence of quality logistics players on the upstream side. However, all respondents felt that this was a key area of focus, given the criticality of supply.

KEY CHALLENGE

The second challenge faced by companies is in managing product and part proliferation. Increasing competition in the auto industry has led to significant shrinkage in product lifecycles which necessitates new products or regular upgrades. While this has created a large product portfolio, the other fallout is proliferation of parts driven by the need for common platforms. Common components, therefore, becomes a critical prerequisite. A key role played by product development teams is to identify common parts across models.

Costs, quality and timely delivery continue to be key concerns for players, driven by increasing competition and pressure on margins. Many OEMs have implemented ‘Just in Time supplies in their inbound logistics’. However, according to KPMG India, in cases where this is not accompanied by increased visibility across the supply chain and improved planning, it has only resulted in the burden of inventory getting shifted from OEMs to their Tier 1 vendors. Several strategies are adopted to address key issues. The primary focus of most players is in implementing improved processes and IT systems across the supply chain.

##### NO BENEFITS

As most OEMs and major suppliers have already implemented integrated IT systems, this feedback indicates that they have not been able to leverage the benefits of such systems. This is because business processes have not been streamlined or aligned with the needs of the new IT system.

Vendor/dealer rationalisation is an ongoing exercise by OEMs to reduce costs and tighten supply chain management. However, most respondents agreed that Indian industry has still not evolved into a fully tiered structure where Tier I vendors take on responsibility for modules/subassemblies.The study also indicated that efforts are increasingly being made by OEMs and Tier I vendors to outsource key activities along the supply chain to logistics players, in an effort to reduce costs and increase focus on their customer.

Most OEMs and large Tier I suppliers, it adds, have already outsourced their outbound logistics activities. These include carrying out ‘milk runs’ to collect and deliver parts to OEMs on a daily basis, transferring materials across hubs and warehousing/inventory management. Key logistics player have begun maintaining warehouses close to OEMs’ plants, and supplying materials on JIT basis. Related services provided by large third party logistics service providers include consolidation of materials, packaging, incoming inspection, cleaning etc.

ROLE OF PACKAGING

The fact that both OEMs and suppliers are looking at outsourcing provides significant opportunities for logistics. Packaging is another area that has significant potential for being outsourced, as this is a natural value-add prior to transportation of parts. Most Indian players already have a global presence and are seeking further growth from overseas markets. Managing the global supply chain has become a significant challenge.

Most respondents indicated that exports constitute a key part of their strategy and, the next five years, they expect to nearly double their share of exports especially when they are in the ten percent category. While none of the respondents had more than 40 per cent exports, nearly 29 per cent expect to be there in five years. The Gulf, Europe and North America are the key markets for Indian players. While these will remain important over the next 5-10 years, ASPAC (Asia-Pacific) and Japan will be new hunting grounds.

ACQUISITIONS FOCUS

In addition to exporting, many large suppliers and OEMs have established their presence in other countries. Most of them see acquisitions as a means to get an established customer base, which can be served out of India. The study concludes that as Indian industry matures, the key imperative for players will be to manage global supply chains which will ensureing that the impetus gained over the past few years is sustained. This would impact all stakeholders within the value chain (including OEMs, suppliers, distributors and dealers).
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