Automobile Industry - a Study on Supply Chain Practices

The changing business conditions of the 21st century has led to companies facing issues ranging from globalisation, economic uncertainty to new technologies and increasing consumer demands. In the automobile industry, as manufacturers design and build vehicles globally, their supply chains become increasingly complex with challenges that often stand in the way of profitability and higher shareholder value such as long order-to-delivery lead times, unreliable production schedules, excess inventory across the supply chain, lengthy demand planning cycles and lack of visibility of suppliers. The effect of the global economic meltdown increased the pressure on automotive executives to make right decisions about their supply chain for better performance. In a highly challenging and competitive environment such as today, where supply chain is a popular tool for improving the organisational competitiveness, an efficient and effective supply chain strategy is a must for automotive manufacturers and their component manufacturers so as to meet changing consumer demands.

INDUSTRY

The Indian automotive components industry‘s annual turnover (for FY 2003) was US$ 6.73 billion. When compared to the global automotive components industry of US $737 billion, the Indian industry dwarfs in size. But, at a compounded growth rate of 20-25 %, the growth in India‘s auto components exports is much faster than that of the domestic market (10-14%). The auto ancillary industry caters to three broad categories of the market:  Original equipment manufacturers (OEM) or vehicle manufacturers, that comprises of 25% total demand  Export Market that comprises primarily of international Tier I suppliers and constitutes 10% of total demand

SEGMENTS

 Engine Parts - Engine assembly, fall into 3 broad categories: core engine parts; fuel delivery system; and others.  Electrical Parts - The main products in this category include starter motors, generators, spark plugs and distributors.  Drive Transmission & Steering Parts- Gears, wheels, steering systems, axles and clutches are the important components in this category.  Suspension & Braking Parts – These include Brakes, Leaf Springs, and Shock Absorbers  Equipment – This includes headlights, Dashboard Instruments  Others - Sheet metal components and plastic molded parts are two of the major components in this category.

MANAGEMENT IN AUTO-INDUSTRY

CHALLENGES

 Fluctuating market demand and rising customer requirements is a key challenge in the automotive industry.  Lengthy demand planning cycles and lack of visibility to supplier, material, and production constraints cause scheduling delays and short-term production changes.

 Recent emphasis on global climate change is increasing pressure on automotive executives to make the right decisions in many areas, including R&D and manufacturing.  High costs, low profit margins are constant challenges faced world auto-industry. Only a handful of established players are consistently delivering satisfactory profits, such as Toyota, Honda, Porsche, and BMW; leading tier-1 suppliers such as Bosch and Denso; and some specialized tier-2 and tier-3 companies such as Elring Klinger and BorgWarner.  General macroeconomic and financial circumstances are not favorable, either.  The cost of energy and raw materials continues to increase due to rising global demand.  Strong fluctuations in exchange and interest rates pose another challenge and are difficult and costly against which to hedge. In this dynamic business environment, a superior supply chain is one critical element to helping automakers differentiate themselves from the competition. In fact, many of trends in the auto industry are reinforcing the need to innovate and redefine supply chain strategies, layouts, and operations.

Domestic car makers are benefiting from new possibilities in outsourcing from low-price, high quality suppliers. In the case of Mahindra and Mahindra, one of India‘s leading producers of commercial vehicles and tractors, For rear axles, the centre bracket was bought in as a casting and machined in-house, but the tubes and shafts were bought in from local suppliers in fully finished form. This permitted unit production costs to be much lower than would have otherwise been possible, and allowed the Mahindra‘s Scorpio to be sold at an ex- dealer price (including air-conditioning and power steering) of 5.5 lakh rupees, which was around 60% of the price anticipated by industry observers. And the sales of the Scorpio have transformed the financial fortunes of Mahindra and Mahindra during the five years since its launch. A critical challenge in supply chain management in the automotive industry is the synchronization of sales and marketing requirements and forecasts with parts flowing in from suppliers. This challenge is tackled by demand management on the front end of the supply chain to be seamlessly linked to material requirements on the back end of the supply chain.

PROGRAMS TO MANAGE

TOTAL ENTERPRISE COST– so as to manage total enterprise costs across product that is on research and development, operations and sales and marketing.

Automotive companies need a global view of demand in a common format to make decisions on capacity management, sourcing and profitable allocation of vehicle and option content.

The automotive industry is one in which customers expect more content for less money, and regulators expect more safety, lower emissions and higher fuel economy.

As automobiles incorporate more advanced technologies, the material content of vehicles becomes more varied. Ford has a long history of seeking to use sustainable materials in its products and source from suppliers that demonstrate sustainable business practices, including respect for human rights and the environment. Logistics management aim at strategic coordination of traditional corporate cost centers such as purchasing, manufacturing, transportation, and warehousing so as to recognize functional synergies within the firm to better fulfill customer requirements. A stronger buyer-supplier relationship will enhance performance throughout the chain. Exploitation of the supply chain by the power partner may lead to dissention and under performance, thus hurting the power holder. Likewise, a judicious use of power may serve to benefit the power holder. however, that those firms which seek to lead the race to integrate the supply chain must become exhaustively conscious of their own power and effectively manage this power to support their integration strategy.

BUYER-SUPPLIER RELATIONSHIPS

• Leagile Supply Chain

―Leagile supply chain‖ is coned by combining the concepts of lean and agile supply chain- ―Lean‖ means series of activities or solutions to eliminate waste, reduce non-value added (NVA) operations and improve the value added, while agility seeks to adapt to the changing requirements of customers in time, and make organisations and facilities to become more flexible and responsive to customer’s needs. Leagility is ―a system in which the advantages of leanness and agility are combined‖ by positioning the decoupling point so as to best suit the need for responding to a volatile demand downstream yet providing level schedule upstream from the decoupling.

CASE STUDY- FORD

Ford‘s suppliers are critical allies in helping the Company to achieve success in the marketplace and meet sustainability goals. They promote long-term relationships with suppliers and seek alignment with them on sustainability-related issues such as greenhouse gas emissions management and human rights. Within Ford's Purchasing organization, the Supply Chain Sustainability Department develops and implements strategy for engaging with suppliers on sustainability issues. The group also helps build capability within the Purchasing function to address sustainability issues through routine business processes. Since 2005, Ford has been taking steps to rationalize and streamline its supply base through a strategic supplier strategy called the Aligned Business Framework (ABF). The strategy is designed to create a sustainable business model to increase mutual profitability, improve quality and drive innovation. What it means in practice is that they are working more closely and collaboratively with a smaller number of global strategic suppliers. Ford has approved a total of 102 ABF suppliers, 12 of which are owned by minorities or women.

THE SUPPLY CHAIN OF TOMORROW

In a highly competitive environment, an effective and efficient global supply chain is a must for automotive manufacturers and their suppliers. The industry landscape is exposed to a set of critical challenges and trends that are leading, if not accelerating, the need to fine-tune supply chain strategies and operations even further. The increasing requirement for real-time information and effective communication across the supply network is critical for managing and optimizing the supply chain on a flexible basis, while keeping costs under control. In regard to the ―green‖ challenge, the focus on the environment might reshape this supply chain scenario even more radically. Rising energy costs, regulation concerns,

networks.

REFERENCES

1) Automotive- Indian Automotive Supply Chain- A Discussion Paper by KPMG; 2006 2) Eva Ponce-Cueto et al, A Conceptual Model For Integrating Strategic Supply Management Into The Supply Chain; Int. J. Manufacturing Technology And Management, Vol. 19, Nos. 1/2, 2010 3) I. M. Ambe et al, Strategic Supply Chain Framework For The Automotive Industry; African Journal of Business Management Vol. 4(10), pp. 2110-2120, 18 August, 2010 4) John Paul Macduffie, ―The Global Supply Chain In The World Auto Industry: Role Of The New Mega-Suppliers‖ 2001 Http://Drivingworkforcechange.Org/Reports/Supplychain.Pdf. 5) John Sutton, The Auto-Component Supply Chain In China And India - A Benchmarking Study; London School Of Economics And Political Science February 2004 6) Karthik Balakrishnan et al, Indian Auto Supply Chain At The Cross-Roads; New York 7) Matthias Holweg,― Growing The E-Supply Chain Road Forward;2010 www.automotivecouncil.co.uk 8) Michael Maloni And W.C. Benton, Power Influences In The Supply Chain, June 10, 1999 9) Michael Schwarz, Trends In The Automotive Industry Implications On Supply Chain Management; Cisco White Paper; 2008 10) www.wikipedea.com 11) www.google.co.in 12) Various editions of The Hindu News Paper