Now let’s take a look at the Automobile industry in India, which is the tenth largest in the world. In today’s competitive landscape and economic down-turn, automobile companies worldwide are shifting their attention towards understanding & implementing an integrated supply chain. In such a context it is important to understand the current supply chain metrics being followed by the Auto and Auto Ancillary Industries in India.
A recent IIMM (Indian Institute of Materials Management) survey of the supply chain management practices in India revealed the major supply chain practices and metrics being followed. This survey was carried out among 27 Auto and 51 Auto Ancillary companies.
In this context, Automobile companies can be broadly grouped into the following categories:
1. Cars & utility vehicles,
4. Two wheelers
Auto ancillary companies on the other hand, can be grouped into the following:
1. Engine parts
4. Ancillaries others
As in any industry, the four broad supply chain metrics considered were:
1. Cycle-time metrics
2. Cost metrics
3. Service quality metrics
4. Asset metrics
For the first metric i.e. the Cycle-time (measured by the no. of days elapsed from the moment a customer places an order to the moment of receipt of payment) for around 37% of the companies is between 10 - 18 days. For some of the companies (4 percent), it is above 45 days.
In service quality metrics (% of On-Time Deliveries, Supplies made as per the quantity ordered and Supply on desired quality) around 64% of companies have an on time delivery of 95- 100% & around 12% of the companies contacted have an on time delivery of less than 80%.
Asset metrics include aw Materials Inventory Holding (No. of Days), Work in Progress Inventory Holding (No. of Days), Finished Product Inventory Holding (No. of Days) and Inventory Turnover (Times). Results show that around 26% of the companies have a raw material inventory holding of less than 9 days and about 8% of companies have this holding above 28 days.
As the theme of this report suggests, we will primarily be focusing on the cost metrics and dwell on this in detail. The main components of costs in this industry’s supply chain are highlighted below:
1. In-bound transportation cost-
This is the cost of transporting raw materials / products etc from suppliers. It is typically denoted as a % of the total manufacturing costs. Here, for 44% of the companies it was found to be 1-2%.
The break-up is shown in the pie-chart.
2.Out-bound transportation cost -
This is the cost involved in transporting the finished products / services to the distributors / customers, and denoted as a % of total sales.
As indicated in the chart, for majority of the companies the outbound supply chain cost is close to 2-3%.