Indian Automotive Sector – Supply Chain

Challenges & Opportunities

By

Mr. Subir Shah

Senior Consultant, Transportation & Logistics Practice

8th December, 2011

Agenda

Indian Automotive Supply Chain: Current Scenario

Key Opportunities for Improvements

Indian

Automotive

Industry’s Supply

Chains

Challenges &

Opportunities

27.6

48.6

39.1

64.4

0

20

40

60

80

100

120

2010 2015

Auto Components Automobiles

High growth, increasingly competitive sector will put tremendous pressure on Infrastructure by 2015

Ind

ustr

y T

urn

ove

r

($ B

illi

on

)

Total Turnover CAGR (2010-2015) = 11.1%

Product Segment-wise Contribution to Turnover of Automotive Industry, 2010-2015

41.4%

58.6%

43.0%

57.0% 100% = 66.7

100% = 113.0

Share of Auto Components in Overall Industry Turnover is Likely to Increase in the coming years due to

steady rise in sourcing of components from India by Global Automotive Majors

Source: Frost & Sullivan

Supply Chain Flow – Indian Automotive Industry

MANUFACTURING

PLANT

CENTRAL

WAREHOUSE

STATE / REGIONAL

WAREHOUSE

DOMESTIC

DISTRIBUTORS

DOMESTIC

RETAILERS

(Aftermarket)

SUPPLIER

(Sub Assembled

Components)

DOMESTIC

AUTOMOBILE

MANUFACTURERS

FOREIGN

CONSUMERS

(Aftermarket)

CLEARING &

FORWARDING

AGENTS

FOREIGN

DISTRIBUTORS

FOREIGN

AUTOMOBILE

MANUFACTURERS

SUPPLIER

(Raw Materials)

DOMESTIC

CONSUMERS

(Aftermarket)

Need for Efficient Transportation

(Road & Rail)

Need for Robust Port

Infrastructure

Need for GST

Source: Frost & Sullivan

Hyderabad

Chennai

Nagpur

Delhi

Jaipur

Kolkata

Lucknow

Bengaluru

Bhopal

Aurangabad

Kochi

Thiruvananthapuram

Mangalore

Mysore

Coimbatore

Madurai

Ahmedabad

Surat

Vishakhapatnam

Chandigarh

Shimla

Srinagar

Haridwar

Ranchi

Raipur

Patna

Jaisalmer

Bhubaneshwar

Darjeeling Dispur

Gandhinagar

Amritsar

Goa Vijayawada

Gulbarga

Tirupati

Mumbai

Pune

Expected Future Hubs

after GST

Implementation

Current State-level

Distribution Centers

Expected Major

Regional Zones after

GST

With some key game changers getting delayed, there is a need to infuse efficiency into the Supply Chain

The much-awaited DFC The even more-awaited GST

Source: Frost & Sullivan

Bottlenecks in the Infrastructure is a major reason for inefficiencies in Supply Chain

Key Challenges Faced by Users of Logistics Services in the Indian Automotive Industry

Share of End-user Responses Stating the Challenge as Important (%)

70%

63%

50%

43%

43%

35%

78%

76%

75%

0% 20% 40% 60% 80% 100%

Safety of goods during transit and warehousing

Skill and expertise level of labour handling logistics needs

Inability of Service Provider to provide complete multi modal transportation

solution

Slack delivery period and inefficiency of logistics service providers in

adhereing to timelines

Cost of outsourced logistics is high

Logistics service providers are unable to keep up with the evolving volumes

& technical requirements

Lack of sufficient warehousing capacity is a cause of concern

There is a need for integrated supply chain systems, but lack of funds is a

major challenge

Risk of information leak to competitors within the same industry

There is a need to manufacture ways to improve timelines and efficiencies despite the infrastructure

issues

Source: Frost & Sullivan

Agenda

Indian Automotive Supply Chain: Current Scenario

Key Opportunities for Improvements

Indian

Automotive

Industry’s Supply

Chains

Challenges &

Opportunities

1. Collaboration amongst End users

2. Collaboration amongst End users and LSPs

Key Opportunities for Improvements

Don’t waste time on Infrastructure

bashing…You’d rather Collaborate !!

Majority of the automotive industry participants believe that LSPs should initiate the collaboration in logistics activities, but the contracts given to LSPs are mainly for 1 year

End-user Opinion on Initiation for Collaboration (India),

2011

Source: Frost & Sullivan

LSPs

should

Initiate, 65%

Automobile

Industry

should

Initiate, 35%

Typical Contract Period with Logistics

Service Provider (India), 2011

Share of Total Responses (%)

20%

15%

3%

63%

0% 20% 40% 60% 80% 100%

1 year

2 years

3 years

5 years

Some of the key benefits from Collaboration that have been identified through our research

Source: Frost & Sullivan

End User’s Perspective

• Influencing supplier’s quality

• Secure reliable sources

• Competitive per unit or per head price of purchased item or service

• Improve delivery schedules

• Access to supplier’s new technology

• Reduce internal procurement procedures and costs

• Support JIT initiatives

• Reduce administration procedures and costs (for example, ordering and invoicing)

LSP Perspective

• Secure buyer for product

• Influence customer’s quality

• Support customer’s JIT initiatives

• Improve forecasts of requirements

• Reduce ongoing administration

• Reduce internal sales procedures and costs

• Price improvement

• Influence/gain access to customer’s new technology

Function / Segment Share of End-users Collaborating

Own Initiative or

from LSP Side

a) Transportation

In Domestic Long Haul Transportation 58% LSP

In Domestic Short Haul Transportation 38% LSP

In Domestic LCL Consignments Transportation 13% Own

In International Air Cargo Transportation 28% LSP

In International Ocean Cargo Transportation 28% LSP

b) Warehousing

In National / Central Warehouses 10% LSP

In Regional Warehouses 10% LSP

c) Value Added Logistics Activities

In Packing 10% LSP

In Labeling 10% LSP

In Quality Check 8% Own

In Order Management/Processing 3% LSP

In Customer Service or Support 3% Own

In Vendor Management 3% LSP

In Return Goods Management 3% LSP

In Invoicing and Payment Management 3% LSP

Value Added Logistics is where the true potential lies for Maximizing profits for the industry

Functions where Collaborations with Competitors is Prevalent (India), 2010

Source: Frost & Sullivan

Top 3 expectations of OEMs as well as Component Manufacturers suggest a more Collaborative Engagement with an LSP

Expected Value Added Logistics Services from LSPs

Share of End-user Responses Stating they Need the Service (%)

Source: Frost & Sullivan

57%

29%

35%

10%

18%

12%

43%

51%

71%

0% 20% 40% 60% 80% 100%

Education on GST System and Processes

Support in Process Efficiency Improvement

Support in Process Change/ Modification

Support in Infrastructure Development

New Services due to Post GST Status

Support in Information Systems Integration

Customer Support

Vendor Management

Information Management

Multi-user Yards are the way forward for the industry

OEM (North)

OEM (West)

OEM (South)

Multi-User Yard (West)

Developed AND OR Managed by

LSP

Component Manufacturer

OEM Dealer “A”

Pune

OEM Dealer “B”

Mumbai

OEM Dealer “C”

Nasik

Storage of Finished Vehicles as well as Spares of multiple manufacturers in Multi User Yards

for deliveries on as required basis to dealers in the region

Source: Frost & Sullivan

Primary

Transportation

Secondary

Transportation

WH / Depot

Mgmt.

WH Design

WH & Secondary

Inbound – JIT

Hubbing

Cycle count

Designing

inventory policy

Order processing

Demand Mgmt.

Documentation&

MIS

Kitting

Repacking

Labeling

Inspection &

Quality check

Sales tax & Excise

registration &

Return filing

Banking

transaction

4 PL / Consulting

Logistics audit

Logistics process

design

Logistics

Performance

improvement

projects

Integrated

Logistics services

Transportation Related

Warehouse

Related

Inventory Management

Value Added Services – Physical

& Financial

Solution Development /

Consulting

Collaborative Logistics – Moving up the Value Chain

Source: Frost & Sullivan

Thank You