Productivity is the key challenge

Autocar Pro News DeskBy Autocar Pro News Desk calendar 17 Sep 2012 Views icon1899 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Productivity is the key challenge
Innovative, flashy, cutting-edge technology, mobility solutions and mover of the economy, the automotive industry in India is truly moving towards being globally competitive and close to world class. Significant in its contribution to the GDP, indirect taxes and employment generation, the automotive industry has been in the forefront of leading the visible change in the country and one of the key economic drivers.

Production of vehicles (passenger vehicles, two- and three-wheelers and commercial vehicles) increased by 13.8 percent in 2011-12 (April 2011-March 2012) over the previous year to cross the 20-million mark. Two-wheelers contributed a significant 75.9 percent of the total production; passenger vehicles with 3.1 million had a share of 15.3 percent, commercial vehicles 4.5 percent with production a shade under a million units and three-wheelers contributed 4.3 percent. Industry forecasts estimate the total vehicle production in 2019-20 to reach approximately 44 million units at a compound annual growth rate (CAGR) of 10 percent, driven primarily by growth in two-wheelers and passenger vehicles.

Such volumes not only require good roads for driving pleasure but also an efficient supply chain to deliver these vehicles to customers. With manufacturing capacity primarily located in three locations – the National Capital Region (NCR), the Pune-Sanand belt and the Chennai-Bangalore belt – a true hub-and-spoke model is evolving in managing logistics of the automotive industry.

In 2011, the automotive logistics spend was estimated at $1.4 billion with an estimated growth of 8.5-9 percent. The logistics industry growth will be lower compared to the automotive industry growth due to a cost-reduction drive on the back of further productive improvement. The logistics industry’s revenues are derived from five specific functions that include outbound logistics – one of the larger revenue sources, implant logistics, EXIM – a growing and attractive function, value-added services like Pre Delivery Inspection and spare parts logistics.

Opportunities for logistics companies are increasing as OEMs focus on product development, technology and marketing and look at reliable, efficient and organised logistics service providers (LSPs) to fulfil logistics functions. With current outsourcing on transportation at 95 percent, the potential for growth will occur on rising volumes; LSP gaining share from the unorganised segment and value addition from process improvement including efficiency improvement by usage of multi-modal transportation.

OEMs continue to handle warehousing as an internal function with only about 40 percent of this function outsourced. This opens opportunities for LSPs to gain business through investment in warehouses in strategic markets with higher levels of automation and technology.

In line with the automotive industry, where the market vibrancy is increased with OEMs from various geographies like Europe, the US, Japan and Korea, the automotive logistics industry is also represented by LSPs from these very geographies with OEMs bringing along international LSPs to service India market needs. Many OEMs like Toyota use 3PL service providers, others typically outsource by function while retaining value-added services and warehousing as internal functions.

The key drivers of automotive logistics are interlinked to the growth of the automotive industry. Automotive consumption is forecast to expand on strong growth in income levels and increased affordability. OEM thrust in semi-urban and rural markets is opening up demand opportunities which, on one level, is an opportunity for business potential for LSPs but at the same time creates immense challenges in expanding network to reach far-flung markets in addition to return load availability.

One challenge that will continue to act on LSPs is cost pressure and need to continuously reduce / eliminate waste, improve productivity through process improvements and innovations. The automotive industry will be a demanding customer from an LSP perspective as the focus is on delivering customer satisfaction and delight.

To see through the challenges, the need for collaboration is high and the industry has evolved a collaborative approach of OEMs working along with LSP in sharing outbound transportation assets gaining efficiencies of nearly 35-40 percent in trial runs. Collaboration and innovations will be the hallmark of growth in automotive logistics.
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