The automotive logistics industry has evolved much faster in India compared to logistics in other sectors. Almost all

the players in the industry use 2PL as part of their logistics operations but the need today is to create a optimum

combination of in-house and outsource service components to effectively manage supply chains. However there are

certain significant supply chain complexities which result in operational inefficiencies and in turn to increase in costs.

While India spends around 13-14% of its GDP on logistics, which is higher than what many developed economies

spend, the sector is nearly a decade behind when compared to global logistics industry. Globally productivity

enhancement driven by emergence of intermediaries (3PLs) started in early 1990s. However, in India, penetration of

3PL services which began in the early 2000s is still at a nascent stage.

Factors that will shape the industry in the coming years

Globalisation and Consolidation: - Globalisation of traditional businesses is driving the logistics industry to address

considerations like market expansion, new sources of supply, international trade etc.

a) Increased outsourcing: - Companies are using logistics outsourcing more and more to increase flexibility and

responsive in their supply chain.

b) Security and risk management:- Supply chain security and risk management will be a key area to prevent

disruptions due to factors like weather, labour issues, strikes and labour issues.

c) Technological advancements:- Rapid advancements in supply chain technology enablers will lead to increased

functionality and greater potential to improve performance.

d) Increased customer expectations:- Customers will be moving from tactical transactional based service outsourcing

to solutions which are more strategic in nature and supported by leading edge technology and systems.

Increasing complexity driven by both scale and scope is having a significant impact on the financial performance

of the companies. The complexity in the industry is best understood when viewed in the following context:-

a) Growth of vehicle and subsequent expansion of the auto component industry. This has been driven by the growth

of vehicle production from over 5.3 mn units in 2001 to over 15 mn units in 2013.

b) From a handful of manufacturers in the early 1990s, India now has over 40 manufacturers, over 4000 dealerships,

over 600 component manufacturers in the organised sector itself and over 10000 parts manufacturers in the

unorganised sector that operate in a tier-format spread across the country.

c) For a vehicle manufacturer, around 50000 parts are required at any point of time of which 5000 are fast moving.

The assembly lines require well-coordinated Just-in-Time (JIT) scheduling of auto parts supplies to maintain the

desired flow.

These complexities are resulting in increasing inefficiencies and hence increase in costs. One of the reasons for this

could be the shortening product life-cycles of automobiles and the presence of several market players which has

resulted in the launch of over 100 models and variants in the past two years. This decreases the efficiency of the

chain with companies being forced to increase inventory to make their product portfolio available to the

customers. This therefore requires higher levels of operating efficiencies by logistics service

providers. These challenges of managing the complexity and cost of the automotive logistics is going to increase

given the positive movement of the drivers.

Identifying and Assessing the gaps

The need to optimize logistics cost would increase with vehicle manufacturers planning innovative models for business

like multimodal transport and dealer assembly.

Selecting the LSP: Creating the efficiency base:- Manufacturers often view logistics as a cost center rather than as a

differentiator in the market place. At the heart of the problem is a lack of insight into the real opportunity. As per a

survey, a large number of manufacturers ranked coverage or operating geographies of service providers and fleet

size/infrastructure as very high in their considerations for selecting a LSP. A very few considered nature of service as

important criteria for selecting a LSP. While fleet size/infrastructure is one of the key considerations for selecting an

LSP, the logistics industry is highly fragmented with around 80% of the members having one or two trucks and less

than 10% of the members having more than five trucks.

a) Operational collaboration with LSPs:- Manufacturers rate logistics cost as a major criteria for selecting

LSPs and indicate that LSPs need to focus on cost reduction perhaps reflecting cost pressure on the

DRIVERS OF AUTOMOTIVE LOGISTICS TOP ARTICLE

manufacturers. This strongly indicates that manufacturers should collaborate with LSPs across other areas too

which include inventory management and replenishment and forecasting and demand planning.

b) Barriers to customer service:- Delays in transit and difficulties in scheduling are biggest barriers to customer

service. About 97-98% of automotive freight in India is transported over the road networks that cut across several

states passing through multiple check posts which compound the delay. This coupled with the fact that around

40% of the traffic load is taken by 4% of the national highways contribute to the delays. A very few manufacturers

look to use multiple modes of transportation. Manufacturers plan to have a high reliance on LSPs for value added

services (VAS). Companies are looking to outsource non-traditional logistics requirements such as reverse

logistics, inventory management, order processing, distribution, and labelling and packaging. Although at this

point of time organizations are focusing on areas like cost, fleet size/other infrastructure and operating

geographies. Increased range of services offered by the logistics service providers is one of the significant

requirements of the automotive supply chain.

c) Adoption of technology:- Extensive implementation of ERP and on line order processing followed by CRM is

required by OEMs/component manufacturers. Emerging technologies like RFID are still at a nascent stage. A well

implemented transaction processing system at the manufacturers’ end would increase the visibility and enhance

the performance of processes in areas like inventory management, demand planning and scheduling. This will

drive collaboration between manufacturers and LSPs. LSPs should be investing in technologies like Technology

Management systems (TMS) and Warehouse Management System (WMS)

d) Impact of logistics issue on business:- Outside the uncontrollable factors like poor infrastructure, rising fuel

and real estate prices, technology penetration in the logistics industry is seen as a significant issue affecting

business. Though fuel prices have increased significantly in the past few years, organizations do not seem to offset

fuel prices with higher inventory carrying costs. This could be due to the increasing costs for warehousing. This

may also be due to the fact that logistics costs are around 4% of sales for most companies and transportation costs

account for about 40% of the total logistics costs.

Conclusion

The size and fragmentation in the logistics industry could be reasons behind some of the key issues faced by

manufacturers. High real estate costs, human resource challenges and investments in technology are factors that

would potentially drive consolidation in the industry in India in line with global trends. While the challenges and gaps

are numerous, companies can make strategic and operational investments in processes and technologies that would

enable them to drive continuous improvement across their logistics activities. Manufacturers need to focus on a

collaborative approach to logistics strategy and planning involving the LSPs. From a LSP perspective, technology

implementation has become essential and players should look at better management of resources through information

systems. Finally, as LSPs collaborate, they need to align with the business requirements of OEMs/component

manufacturers and take advantage of the growth opportunities in areas like service parts business where the

manufacturers are planning to improve the level of collaboration with LSPs.

Rahul Gupta Business Management

XLRI Jamshedpur

SUPPLY CHAIN HUMOUR SUPPLY CHAIN HUMOUR

Automotive Logistics

The automotive industry is one of the largest manufacturing industries of the world catering to one of the most basic

needs of human civilization i.e. transport. As a result the industry has to meet a huge demand from people all over the

world for personal as well as business transport systems such as passenger cars, SUVs, trucks and other heavy and

light weight vehicles. In order to be an efficient producer of such goods, the manufacturing companies need to have an

effective and robust logistics and supply system. The logistics and supply chain department forms the pillar of any

automotive company. However in recent years it has been this department that has been falling short of the required

standards. The problems have been present both in the developed as well as the developing countries. In the developed

countries, the problem has been majorly attributed to the energy crisis. Companies suffered major debt and losses. In

India the situation has been pretty shocking as the leading car manufacturer of the country Maruti Suzuki India Ltd

suffered losses as recent as last year. The recent automotive industry crisis, which lasted for a period of nearly two

years roughly from 2008-2010 showed the ever increasing importance of incorporating innovative and reinforcing

existing efficient supply chain practices.

The current automotive logistics has to deal with a

host of other problems as well. With the ever

increasing number of segments such as hatchback,

sedan, SUVs, pick up vans, two wheelers and

many more, the number of individual components

for each type runs into thousands. Ordering for

supplies of the components as well as

procurement needs a robust supply chain

management system. Moreover the company has

to take care of the maintenance system as well

once the vehicle is sold. The ready availability of

all kinds of parts at all places is a challenge. The

presence of well-equipped warehouses becomes a

necessity in such a scenario especially for a country like with such a vast land area and a huge population with an ever

increasing demand for passenger cars.

JIT and JIS are two of the popular inventory approaches that an automotive company follows. Both are demand

driven models that have proved to be a much better inventory strategy than the forecast driven model. JIT or Just in

Time is a type of supply chain model that meets the real time demands. JIS or Just in Sequence goes step further as it

not only ensures the timely arrival of goods but also the correct sequence that saves valuable resources for the

company. The beauty of this

approach is that there is no

possibility of overstocking of

materials.

Toyota has done a

remarkable job of

understanding the problems

associated with forecasting

and has also implemented a

customer based system of

manufacturing. Depending

upon the order placed by the

customer, the company gets

an exact idea as to how many parts will be required. This is known as a Built to Order approach. The customer places a

request for the kind of vehicle they want, the order is recorded in their database and forwarded to the OEM. All the

necessary parts are then acquired using the JIS and JIT supply chain principles so as to ensure that the assembly line

receives them at the right time and at the right point in an assembly line. Production takes place in batches and after

the final assembly and packaging, the car is transferred to the requested auto dealer where the customer had placed

the order.

As the current scenario of the industry stands, it becomes imperative for the supply chain and logistics to increase

their level of productivity by integrating the aforementioned principles effectively. The need of the hour is to develop

an updated database containing all the information pertaining to the placed order which requires an increase

LOGISTICS AND INVENTORY FOR AUTOMOTIVE SUPPLY CHAINS

investment in IT systems. Also the

customer has to be considered as the

starting point of the supply chain process

ensuring that their demands are met.

Increase in employment of skilled labour

adept at using current machines and

equipment at the assembly line as well as

the warehouses ensures faster pace of

production. Developing a well-defined lean

management system where people,

processes and tools come together to

individually excel leading to the overall

excellence of the system.

Moreover online education and information tools to assist the companies in having an effective lean management

system can prove to be very popular. As mentioned earlier, increase in skilled manpower leads to increase in supply

efficiency and in turn lead to customer satisfaction. However all the above methods also require an extensive

collaboration among the manufacturers. Building an extensive network among the companies such as collaborating

with nearby plants will lead to increased efficiencies where sharing of successful logistical methods and coordination

among service providers will only add to a successful partnership.

Supratik Chakraborty Rahul Pawa

IIFT MBA (IB) 2014-16

Introduction

Supply Chain is the key element of any business operation. The demand of the market today is to have a well-oiled

supply chained management and logistics. Investment in logistics is also heavily dependent on macroeconomic factors

and is more external to any company. During 2004-2009, when Indian economy was at its zenith, demand was all

time high and companies expanded by investing heavily in infrastructure. For automotive companies it meant building

efficient supply chain which included have word class warehouses, excellent transportation network and reliable

delivery times.. The passenger market i.e. LCV,HCV witnessed a huge boom and manufactures had work round the

clock to ensure timely delivery of vehicles. But the flip side of this presents a very sorry picture. As demand reduced

and remains sluggish till today, predominate players like Mahindra, Maruti Suzuki had to adopt different business

models and integrate both outbound and inbound logistics to save on costs.

Automotive Industry

The logistics in Automotive Industry generally revolve around delivering two broad categories

Vehicles – LCV , HCV, Buses etc

Spare Parts

The Industry doles out dozens of products every year and it takes a huge toll on the supply chain network to keep up

with the pace of production. The supply chain is an integral part of the entire manufacturing process of an automotive

player. There are thousands of supplies (Tier-1, Tier-2 and Tier-3) and huge sums of money is spent in procuring

supplies that adds to overall vehicle production costs. Besides domestic suppliers there are thousands of overseas

suppliers ( China, USA) who ship the materials generally through sea.

INDIAN PERSPECTIVE TOP ARTICLE

My experience

I have interned in manufacturing firm in the supply chain department where my project revolved around building an

efficient inbound and outbound transport system for the spare parts division in India_South and India_North regions.

The firm and all its operations were based in Pune. The project involved dealing with the transporters and

understanding their capabilities in serving and delivering the goods. It helped me gaining first-hand knowledge about

the supply chain function particularly logistics department.

Two parameters that are important to both the manufacturer and transporter are transportation cost and lead time.

KPI’s generally revolve around the latter. The objective is to transport goods in an efficient manner so as to avoid

damages incurring minimal cost in timely manner.

How transportation is carried out?

It is imperative for the transporter to acquire the whole business i.e to do end to end delivery from the manufacturer.

This way he can save on costs to transport the goods. For spare parts, transporters generally do a milk run where they

can pick up goods from various vendors(PTL’s) and then take it their centrally located hub. From there they

consolidate goods based on the destination and operate on FTLs( Full truck loads). To send complete units and

sometime urgent goods, the transporters deliver on end to end basis directly from the manufacturing site.

The delivery is dependent on the capability of the transporter. Capability of a transporter can be divided into:

1. Operational capability:

Presence in a particular area

Warehousing facilities

Kind of vehicles ( 1T-40T)

2. Financial capability

Competitive rates for both inbound and outbound transportation

Learning

Manufacturers prefer those transporters that scores well in both the operational and financial fronts. Currently many

manufacturers outsource the logistics completely to a third part vendor (3PL’s) to save financing and operating costs.

15-20% of the transportation can be saved through efficient route planning and deploying best practices. The

transporters lack trained personnel which often comes in the way of achieving the desired performance and the

chances of damaged goods increases. It is desired to provide fundamental quality and technical trainings to all the

personnel involved in transportation, handling, packaging etc.

As I learnt about the logistics division I also got acquainted with the challenges faced on micro and macro scale which I

have listed in the next section.

Challenges

Transportation

The ultimate challenge is to optimizing pickups between a supplier and several manufacturing plants so as to keep

inventory to a minimum level. In India, there are few major players like Mahindra Logistics, TVS logistics that have

wide and an extensive network of trucks and warehouses. They generally offer very competitive rates on different

routes. Then there are local players who have very deep penetration in a particular geography and know the routes

very well. It sometimes becomes advantageous to go with them. Often companies have tie ups with two-three

transporters and optimizes their knowledge of different routes of operation.

Often the suppliers are located outside the country or the vehicles are imported directly. This presents a challenge to

maintain the state of ports in India which currently are in bad shape. Few ports like NPT in Mumbai, Chennai,

Mundra, and Ennor have the capability of handling pure car carriers but the volume they can handle is substantially

low. Also conditions at port with customs clearance needs improvement which at present is a slow and painful process.

Volatility of Oil prices and emergence of new transport corridors pose further challenges to the logistics firms.

Warehousing and 3PL’s

In the complete logistics value chain, warehousing forms a very important link. Warehousing is about 20% of the

whole logistics market. Currently the market is fragmented with mostly unorganized players. Slowly established

players have started developing their own warehouses and are partnering automotive companies to stock their

inventory.

Generally all automotive companies use 2PL or 3PL for a part of their logistics operations. Warehousing is gaining

importance to o reduce storage and lead times for inventory. The auto manufacturing usually happens in few places

has led manufacturers to construct warehouses in strategic locations, which then serves as the central point for

distribution and collection of finished and intermediate products including auto parts. Besides world class

warehousing other value added services such as assembling, pre-delivery inspection, cross-dock facilities,

consolidation and deconsolidation centres, automation and sorting are also provided by 3PL’s to the automakers.

Recently many firms have started building CrossDocks which helps to improve the delivery time and operational

performance of the supply chain. Instead of storing materials and classifying them as inventory Cross Docks improves

the shipping of goods. The goods have to be moved within 24hrs of arrival in the CrossDocks. Small and Big Trucks are

lined up on either side to facilitate transportation.

Impact of Government Policies

The Indian economy is up for a change with the change in the old guard. The economy strongly supported by

increasing FDI, improved market reforms and regulations and growing consumption levels in the country has been the

major driver of the logistics market. Outsourcing of manufacturing activity has been stable for industries such as

automotive. The new government via its policies can pave a way for smooth operations of the auto makers. Some

important areas where the government can play a major role is

Taxation: Introduction of GST by Indian government will be a decisive move especially in the automotive

logistics area. Currently existing complex sales and transport tax system tends to discourage

establishment of centralized distribution centres. To avoid multiple taxes warehoused are established in

various centres across India. Implementation of GST will lead to emergence of few hubs and major players

can adopt a hub and spoke model.

Establishing SEZ’s especially for auto manufacturers usually close to ports to cater to the growing demand

in the automobile sector. The main purpose of these SEZ’s is to help manufacturers set up their own

warehouses or outsource them to 3PL’s.

Way Ahead

The recent government change has been a blessing for India. The world is looking towards India now for innovations

and major driver for growth. As government plans to restart the growth cycle and as demand picks up automotive

industry can again look to brighter numbers. It will add pressure on the logistics and supply chain to deliver but they

have to be ready. There are few ways by which they can equip themselves to be ready for the next dawn:

Adopting advanced IT Applications like Oracle/SAP’s transportation management. Also GPS, EDI RFIQ are

being adopted by leading manufacturers.

Lean Manufacturing at every step to reduce the total lead time and reduce waste. ( example TPS)

Providing technical training to people

Carrying out Resource Optimization- Physical and Labour.

The only progress will come when everybody works together in harmony to create long term relationship and that is

what we call sustainable growth.

Shaurya Gulati XIM, Bhubaneswar

XAVIER INSTITUTE OF MANAGEMENT BHUBANESWAR XAVIER INSTITUTE OF MANAGEMENT BHUBANESWAR

The automotive industry began in the 1890s and is the world’s largest single manufacturing industry. It uses 15

percent of the world’s steel, 40 percent of the world’s rubber and 25 percent of the world’s glass. It also uses 40

percent of the world’s annual oil output. It began with horseless carriages and has now moved to intelligent systems in

which Internet-connected car technologies are present. This is set to cause another revolution in this sector. The

modes of transport that are available all over the world are plentitude but most of these can be classified as roads,

railways, ship transport and aviation. An increase in global passenger demand has been noted in both developed as

well as developing economies. Though the use of bicycles, bikes, coaches, planes etc. has increased but the liking for

cars has made this sector a phoenix, rising from the ashes of 2008 slump. It was dominated by the USA till 1980 when

it was overtaken by Japan later to be defeated by the emerging superpower China in 2009. The entity flow of

automotive producer’s raw materials, components, vehicle and spare parts on steps of automotive purchase,

production, sales etc. constitute automotive logistics. These include inbound logistics of raw materials and

components, garage logistics of production process, sales logistics of vehicle and spare parts logistics, i.e. it includes

object purchasing, transportation, storage, loading and unloading, distribution processing delivery and information

processing. In a larger context, logistics include recycle of waste as well. It is an important composing part of the

automotive enterprises as it helps in reducing the automotive costs. When compared to other logistic activities,

Automotive Logistics has distinct characteristics of being capital-intensive, technology intensive and knowledge

intensive. Some of the main logistics modes formed are:

1) Vender Zone Mode

2) Lean Logistics Mode Based on JIT

3) Meeting and Parting Mode of High Coordination in Supply Chain

4) Fourth Party Logistics Mode

*AUTOMOTIVE LOGISTICS

Japan has been the boiling pot for all the innovations in the manufacturing methods and the quality control which

helped them achieve the much needed industrial growth post the WW-2 destruction. From lean manufacturing to JIT,

they came up a long way to bring the revolution and show rest of the world a path of production and quality gains. The

victory of allied forces and the hand of industrial revolution behind it caught the attention of Japanese industrialists.

They began studying the American production methods with particular attention to Ford practices and the Statistical

Quality Control. Toyota Motor Company came up with an approach called Toyota Production System (TPS), also

popularly known as Just In Time (JIT). Quality Circle movement and product variety came into play by the learning

from the flaws in the Ford methodology. Toyota has undergone quite some changes since then including other

manufacturers such as Honda, Mitsubishi etc. The present condition of economic pressure has threatened the efficacy

of JIT and lean manufacturing processes and demands cost reduction which is of prime focus for logistics. Four years

since 2008 fiasco of global turmoil, tsunami, recalls, currency shifts that have threatened to sink the ship, literally,

logistics has been the savior in terms of alternative supply and inventory management. Logistics is believed to be a part of the future solutions as well by localizing parts, mitigating supply risk and making the order-to-delivery cycle

faster and more flexible.

THE ASIAN GIANTS’ WORKING: CHINA and JAPAN

*CURRENT SYSTEMS OF AUTOMOTIVE INDUSTRY

Every chain is mainly tied to forecasts in automotive supply chains in most of the automobile companies. Supplies

must be matched with demands from the first chain, the raw material suppliers, to the last chain, the car buyers.

Enterprises are more concerned with global outsourcing which brings risk management into picture. The push for lean

management has created awareness of contingency planning and risk management which are intrinsically linked but

their modus operandi conflicts entirely. Risk management includes eliminating disruptions by figuring out what sort

of buffers can be put in place while lean approach is more about reducing excess inventories and lead times. Lean

approach is still critical to the supply chain but an integrated methodology needs to be put in which should not just

focus on simply enhancing visibility within a warehouse and reducing inventory.

* JIT co-delivery and Lean logistics mode

With the development of China’s economy, holding the second place and improving living condition, automotive

consumption in China increased rapidly making it the largest automobile market. The supply of automotive

components and vehicle logistics has become larger. After it entered the WTO, a plenty of foreign automotive

enterprises swarmed into China and joined the competition of automotive market, bringing huge business

opportunities to the automotive logistics market, and meanwhile brought dramatic challenges to automotive

enterprises and automotive logistics market as well. Some of the main logistics modes of automotive enterprises in

China are:

1) Logistics Integrity Operation Mode Based on self-management

2) Third Party Logistics Mode

3) Co-delivery Mode

4) VMI Logistics Mode

Following lackluster growth in 2011 and 2012, last year saw a return to double-digit vehicle sales and production, with

expansion across the industry around 10% in the first quarter this year. Passenger-vehicle sales in China gained 18

percent last month, beating analysts’ estimates. Wholesale deliveries of cars, multipurpose and sport utility vehicles

climbed to 1.31 million units in February. As deliveries surged, the demand for logistics and growth opportunities have

gone up as well. Government has made it clear to shift the economy towards services and consumptions, with logistics

bound to play an important role. An area of the supply chain that is growing in China currently is rail and multimodal

transport. Though it is still well below the levels than many manufacturers would prefer but according to China

Railway Special Cargo Services – Automobile, a branch of the state-owned railways that handles vehicle logistics in

China, rail volumes expanded some 20% last year to reach 1.2m vehicles, and should reach 1.4m vehicles this year.

There is an ongoing expansion of the rail network, which should reach 120,000km during the current five-year plan.

Rail transport has increased for long distance and international flows while for parts and material are still rare in

China. Shanghai Volkswagen, for example, now uses rail to move material to its factory in Urumqi, in the far northwest

of the country. Others, including Gefco, DB Schenker and Changjiu, are using rail for flows to or from Russia and

Europe.

The main issue currently being faced by China is the lack luster performance of home grown brands. Sales of Chinese-

brand passenger vehicles in the first four months of the year fell 0.1 per cent compared with the year-earlier period to

2.48 million vehicles, according to data released Friday from the China Association of Automobile Manufacturers, a

government-backed industry group. By comparison, China's overall passenger market climbed 10 per cent to 6.48m

vehicles over the same period. Over the same period, foreign brands have posted sizable gains. Volkswagen's two joint

ventures in China sold 1.1m cars in the first four months of this year, up 20 per cent from a year earlier, according to

the auto association. General Motors Co. has seen sales rise 11 per cent to 1.2m vehicles. It’s all happening because of

foreign brands producing cheaper cars, which was once a forte of China. Also rising purchasing power of domestic

consumers is making them brand conscious hence making them take pick foreign brands. The fall of brand

competitiveness locally is also one of the reasons. The removal of foreign automobile brands from the People's

Liberation Army's procurement list may substantially help out Chinese vehicle producers though. Value chain

creation has been made of prime importance with which some companies e.g. Geely has acquired Volvo of Sweden.

*ENTERPRISE SOLUTION

Companies should remain on the hunt for better systems and solutions from logistics providers. Some of them are

learning from the Japanese model for e.g. Delphi is in the process of rolling out a global transport management system

(TMS) to coordinate its global logistics flows on one platform. The Chinese automotive logistics market may still be

fragmented and inefficient in a number of areas; its improvements and scale are impressive. Along with production

and sales growth, providers are pushing new opportunities beyond China’s borders into Russia and Kazakhstan, while

also eyeing growth across Asia, including in Thailand, Indonesia and Vietnam. And Japan is trying to fulfill The China

Dream.

Abhinav Kishore Paahul Sikand

IIFT MBA (IB) 2014-16

With competition heating up in the automotive space and customers asking for ‘Value for Money’ proposition,

even the big automotive companies these days are at crossroads as to How to increase their chunk of customer market

share given the constraints of ever increasing costs? A very similar situation existed in the late nineties in the tractor

market when the Indian tractor market transited from sellers’ market to buyers’ market. This article deals with the

lessons from the past for current players & How slight changes in the process can reap long term benefits which the

companies can pass on to their customers.

In 1998 Bajaj Tempo, already well established in the motor industry, began tractor production in Pune. In April of the

same year New Holland Tractor (India) Ltd launched production of 70 hp tractors with matching equipment.

John Deere another global player entered the Indian space in late 1998. Advent of these players, shifted the focus away

from Mahindra & Mahindra (M&M), the industry leader till now as the customers started asking for variety, better

quality & immediate delivery. This resulted in increased costs of product development, marketing & promotions.

Working capital also increased substantially due to higher credit to dealers & higher inventories across the supply

chain. Looking at the dented market share, the need for M&M was to reduce costs & Working Capital. In spite of

increased uncertainty of demand, the company also wanted to improve its service level for timely fulfillment of

customer demand. This was when the company initiated re-engineering of its supply chain.

Re-engineering the Supply Chain

M&M aimed at an ambitious project of increasing the responsiveness of the company’s supply chain by ensuring

availability of the right product at right time & simultaneously reducing outbound logistics costs. In case of revamping

the existing supply chain, the solution chosen was implementation of pull-based replenishment process and

implementation of APO,an IT tool from SAP, for supply chain management. Further Pull process was used to

validate the solution & its effectiveness. The pull process is used universally and was started by Toyota.

Considering the industry scenario in the late 90s, adopting this kind of model was a big challenge that M&M had to

face. In case of APO, M&M was the first company to adopt & implement this technology in tractor industry.

Reducing the Outbound Logistics Costs:

M&M already had well established freight movement and hence there wasn’t much opportunity left in reducing the

rates or distance travelled through innovative routing etc. The only option left for the company was to increase the

loadability per truck i.e. increase the number of tractors per shipment and decrease per tractor freight costs. The

company after in testing stages found that there is a scope for placing the tractors on another layer above the existing

tractors. M&M became the first company in Indian tractor space to use dedicated vehicles fitted with steel frames to

place one layer of tractors above the other. The wheels had to be taken out while mounting the tractors for placement

and efficient space utilization within the truck. These steel frames on which tractors are mounted are called SKIDs.

Although, there is a rework because of this placement because of checking of machine both before and after the

placement of tractors on SKIDs, corresponding reduction in per tractor freight cost was to the tune of 30-40%.

Innovations deriving Cost reductions in Tractor Industry: M&M

Implementation of ideas by M&M :

Creating awareness regarding the need of this initiative & changing old mindsets: Timely communication to all the

concerned departments regarding the utility of this initiative was critical in successful implementation of the

same. All concerned departments buy-ins were taken and suggestions were implemented.

Change in business process from ‘push’ to ‘pull’: M&M used to plan its production schedule based on monthly

demands. This had to be changed to a system of plan as per forecast but supply as per ‘pull’. In this scenario it is

very critical to bring down the dealers’ stock levels to reduce skew in demand. To do this stock norms were set for

each model at each stockyard. Replenishment was now done as per the results of gap analysis between actual

stocks & norms set. Changes were also made in planning process also to make the supply chain more responsive.

Now, instead of a fixed production plan for the whole month, company started issuing weekly plans, followed by

day-wise fixed sequence plans. Further, flexibility in the supply chain was enhanced by M&M’s foray into

partnership with 3PL service provider. For certain items, the 3PLs delivered from their warehouse stocks & for

rest, M&M continued their milk run strategy as per the pull demand.

Tangible & Intangible benefits to the company and their relevance in today’s scenario:

Pipeline inventory of tractors with the company & dealers reduced by ¼ of pre-implementations levels of this re-

engineering of supply chain. This released appx. Rs. 300 crores for the company

Due to reduction in pipeline inventory, freshly produced tractors were supplied to customers, which increased

their satisfaction levels

Due to lesser ageing of tractors because of responsive supply chain, inventory holding costs, customer complaints

Change in strategy from ‘push’ to ‘pull’ based resulted in an added benefit of not doling out discounts and schemes

to push their products amidst competition

Due to high responsiveness the inter-stockyard transfers of tractors to meet urgencies created by stock-outs was

reduced

Freight costs reduction of appx. 30% per truck wise basis

The only investment from the company was in terms of steel frames in dedicated vehicles of the company. Pull based

strategy urged C&F agents to make all investments in infrastructure & equipment and have long term contracts with

the company. Innovation in terms of re-engineering and the supply chain & reducing outbound logistics costs changed

the outlook of the whole scenario in tractor industry in India. Global MNCs despite their strong muscle power couldn’t

beat M&M on Indian turf from then on. These innovations are important lessons that companies should constantly try

and reduce their own operational costs because the consumer may not always be ready to bear the cost burden for the

premium products especially in “Value for Money” automotive markets like India.

Raman Shridhar Business Management

XLRI Jamshedpur

SUPPLY CHAIN HUMOUR

The automotive world looks like it is evolving into one dominated by a few large global Vehicle Manufacturers with

operations in markets such as China, Brazil, Russia, India and elsewhere integrated into supply chains heavily rooted

in North America, Western Europe and Japan. Providing the logistics systems to support this structure will be the

main challenge and opportunity for automotive logistics service providers from now on. Following the global economic

crisis of 2009, the automotive sector has recovered dramatically, surpassing the levels of demand witnessed before the

crisis. The market is now worth an estimated 60 billion euros annually, rejuvenated by a surge in demand for vehicles

in developing markets, in particular China, as well growth in demand such as in the North American markets. The

continued increase in demand in developing countries has resulted in structural changes in the market and created

significant opportunities for logistics providers. The automotive logistics industry has evolved much faster in India

compared to logistics in other sectors. Almost all the players in the automotive industry use 2PL for a part of their

logistics operations. A trend towards creating a perfect blend of in-house and outsourced service components to

effectively manage supply chains is leading to the emergence of 4PL services.

However, there are significant challenges driven by supply chain complexities resulting in inefficiencies which in turn

lead to cost increases. The challenges of managing complexity and costs for the automotive logistics industry are likely

to increase given the positive movement of the drivers. The logistics planning life cycle of any company should involve

three major stages namely strategic, tactical and operational. At the strategic level sourcing decisions should be made.

At this level things like currency volatility, trading, market development should be analysed then this is passed further

to tactical level where planning for logistics can be done and decisions of strategic level managers can be forwarded to

operational level. Then, at operational level the requirements should be suggested to the logistic providers.

The challenge remains in integrating suppliers in database and providing up to date information. Also, the supplier

base these days is large which should be consolidated otherwise coordination won’t be effective. Companies should

identify their major suppliers and integrate them in planning and designing process. Also, supply chain should be

shortened by identifying closest location for distribution of materials and parts. Introducing fresh faces in operations

and generating ideas to improve the operation can be advantageous rather than having same old faces controlling all

the major areas. Companies should seek to find the country with relatively less costly production possibilities and

lower labour cost. The advancement in technologies and merely the use of RFID technology has made the functioning

effective and smooth with low cost. Better integration of upstream and downstream activities in supply chain along

with technological innovation will drive the automotive companies to reach the peak of success.

Ashutosh Sharma Business Management

XLRI Jamshedpur

CHALLENGES FACED IN SECTOR

SUPPLY CHAIN HUMOUR

India is one of the fastest growing automobile markets in the world, of course discounting the last year, and is

expected to grow at the same or better pace for quite a few more years to come. The fact that all the leading Original

Equipment Manufacturers (Industry’s odd name for a company that outsources its production) have set their camps in

the subcontinent is a proof to it. One more reason why India is a hub or soon to be hub of automobile production

because of the geographical advantage that it enjoys being at the center of all the developing nations of the Asian sub-

continent.

The importance of robust supply chain is to leverage the areas of cost and quality to the fullest. And to me it appears

that Indians understand it the best. The joint family tradition that has been fading in the society in its conventional

area can be seen developing here in the supply chain. Just like a joint family where every member does the job they are

best in, here too each supplier manufactures the part they are best in. This, as in a joint family, leads to reduced cost of

operations and in turn a boon to the ever demanding consumers of the product.

All said, robust supply chain is still a dream for even many of the world’s best companies and getting it right is a

challenge that many want to take. When we talk about automobile logistics, the ideal aim is to only put the badge of

the OEM and outsource everything else. With this kind of vision it becomes important to involve suppliers from the

design stage to the production. This has several advantages like transfer of knowledge, modification of things at lowest

costs and minimum obsolescence.

The current environment in the country doesn’t allow the luxury of using space in a plant to store inventory, also the

cost of inventory has always been a laggard on the financials of a company. The concept of getting things delivered just

at the time of production is trending. It is also known as Just in Time (JIT). It comes with several benefits like less

handling of materials, low cost of inventory and optimum utilization of factory space. The downside to this considering

the condition of Indian roads is in-consistent delivery times leading to erratic production. This has led to in adequate

utilization of the benefits that accrue from the same. There are solutions to it like, while setting up a new plant, we can

have integrated townships which will invariably improve the delivery times. The improvement can be done by

increasing the buffer time of delivery of material from supplier’s plant to the OEM’s plant. Though this will require

some cost but it will be less than the cost incurred while keeping the complete month’s requirement as inventory.

The other things that the OEM’s should invest in is re-usable packaging material. This will be a huge cost and in this

age of quarterly reviews probably a difficult task to undertake. But if we look at the long term benefits of the

investment, I am sure returns are attractive enough to be considered. If the organization invests in packaging material

then it surely will take care to minimize the rejection and maximizing the delivery of as is product. This small step will

lead to reducing the cost of poor quality, which is also in the form of extra work men to rectify the defects in the

vehicles. Indian labour laws are such that in a manufacturing unit there morale, arguably, is of paramount importance,

and better quality of parts will in-turn reduce their work and this will be one of the many intangible benefits of the re-

usable packaging material.

With fickle customer loyalty being the order of the day, a new model that is introduced has to recover its cost as well as

provide enough money for the new products to be developed in as short as 18 months. This is only possible when we

keep the options of underbody and powertrain unchanged across the models. And that is the best thing from the

perspective of logistics. This reduces the complexity of parts to be tracked and delivered. Also since the parts

invariably remain same, so the organization can invest more in its packaging and handling aspects and derive

maximum benefits in the long run.

The physical movement of goods has become a massively complicated affair and more so after so much of

manufacturing has shifted to China, India and other Asian countries. I see a very solid business case for an end-to-end

logistics service provider who would take the responsibilities ranging from delivering the parts from the supplier to

delivering the cars to the end customer. This will free the resources that the OEMs deploy in seemingly non-value

added activities. Also all this while we have discussing about out-sourcing to organizations who are best at doing

things they specialize in, why not logistics too be brought under this purview. I am sure a DHL would any day do the

task well then a VW, as far as logistics is concerned. Transportation of finished goods is primarily done by road which

increases the delivery time as well as the costs, given the rising cost of diesel. It becomes very important that we try to

exploit the resources to the maximum and this brings the idea of specialized rail wagons to the picture. Currently the

rail wagons that are used are either goods carriages or converted from passenger carriages. With proper planning and

INDIAN OEMs and IMPORTANCE OF SUPPLY CHAIN INDUSTRY EXPERT CHOICE

execution the carrying capacity of the carriages can be easily increased by more than 60%, and it has been

demonstrated by Vaxcor, a company that specializes in logistics.

Logistics still has a lot to improve and innovate. And that is what makes it an exciting area to work in. With

manufacturing processes reaching a point where any breakthrough will take a little more time to come up and be

accepted, Logistics becomes the lever that should be exploited to derive maximum benefits for the customers.

Tarun Bagri Business Management

XLRI Jamshedpur

WHIPPED

The Association at XLRI for Industrial and Operations

Management successfully conducted its ice-breaker for the

junior batch of 2014-16 on 2nd July 2014. A total of about

50 teams that is close to 100 students (each team was made

up of 2 students) participated in the event showing an

improved enthusiasm among the students for Operations.

The event started with the traditional eliminator which is

the Operations Quiz. The Quiz was conducted by AXIOM

Quizmaster, Abhra Basu Ray Chaudhary. Twenty teams

were shortlisted for the final round which was the

traditional BullWhip or the Beer Distribution Game, though

there were some changes done to the rules to further

challenge the Grey cells of the participants. The BullWhip

Game split the 24 teams selected into 6 supply chains, each

with 4 levels, namely, Retailer, Wholesaler, Distributor and Manufacturer. Eight rounds of the game were conducted

with Mr. Ramaswamy Venkatarajan of AXIOM as the main SPOC for the event.

The idea of the game which shows that there is greater demand variability arising out of greater information

asymmetry as one goes upstream in a supply chain was explained through graphs and numbers which were well

understood and appreciated by the teams at the end.

The winning supply chain team (of 8 members) walked away with cash prizes and goodies (Bournville Chocolates were

given as goodies to each member of the team) while the runner-up team received cash prizes. It was thus yet another

successful ice-breaker conducted by AXIOM and much appreciated by the junior batch.

THE SIX SIGMA CERTIFICATION COURSE

The Association at XLRI for Industrial and Operations Management (AXIOM) successfully organized a Six Sigma

Green Belt Certification Course for Operations enthusiasts of the Senior BM batch (2013-15) at XLRI. The course

training was conducted by Mr. Johanan Daniel, the MD and principal Consultant of Juran Academy which is the

Indian arm of the world famous Juran Institute founded by the Father of Modern-day Quality Management, Dr.

Joseph M. Juran himself in 1979. The training was conducted over 3 days from 5th of July to 7th of July 2014.

Twenty XLRI students participated in the training spread over 3 days. The training covered the basics of lean

management and Six Sigma management whilst enlisting the similarities and the differences between the two. The

AXIOM IN ACTION

training included various fun-filled group

activities which were simulation games that

tested the participants’ grasp of the concepts

taught and the ability to apply the same in a

practical scenario.

The training was concluded with a case study that

required the candidates to apply the concepts of

Six Sigma learnt in the form of a case

presentation. The presentation had in attendance

Prof. TAS Vijayaraghavan of the Operations

department of XLRI who appreciated the work

put in by the students. He also stated that clearing

the written test and thereby becoming a ‘Green

Belt Trained’ (the written test was to follow the

case presentation) was the tip of the iceberg. Students needed to take up projects (a compulsory requirement to

become ‘Certified Green Belt’) so that they could have a clearer understanding of practical issues in operations and

thereby apply the Six Sigma concepts to achieve a tangible improvement in operations processes. The training

program thus proved a great success and it has set a precedent for organizing many more such programs in operations

in the future!

AXIOM partners CSCMP in organizing their All India Conference 2014

The Council of Supply Chain Management Professionals (CSCMP) conducted its All India Conference on the 4th and

5th of April 2014 in collaboration with the Association at XLRI for Industrial and Operations Management (AXIOM).

It is to be noted here that XLRI is a member of CSCMP and the first college in Asia to organize a round table of

CSCMP. It is also of importance to note Prof. TAS Vijayaraghavan and Prof. Rajiv Misra of the Operations department

at XLRI are active members and regulars speakers at the conferences conducted by CSCMP. That Mr. Neil Basu, the

Chairman of CSCMP India is an XLRI alumnus is a further indication of the strong bond shared by CSCMP and XLRI.

The event was successfully organized from 4th to 5th of

April 2014 in Westin Garden City, Mumbai. The

students representatives from XLRI were Mr. Pulkit

Gupta , Mr. Ramaswamy V, Mr. Santanu Mallick and

Mr. Abhishek Padhye.

It was a one-of-a-kind conference that offered XLRI

students the opportunity to participate in discussions

on contemporary supply chain issues, and explore the

challenges of and opportunities that exist in world-

class supply chains. It was dream platform to hear

supply chain experts from around the world share their

real world experiences, as well as offer cutting edge

solutions to a wide range of supply chain challenges.

The Key note address was by Dr. Abre Pienaar, CEO, iPlan who explored the effective ways of managing today’s

constantly changing business environment and about how to implement transformational supply chain best practices.

It is also notable that he was the Distinguished service Award recipient of CSCMP for the year 2013.

The event also threw up exciting new technologies that will revolutionize supply chains of the future and gave an in-

depth insight at all the parts that make up a top-performing supply chain. The event thus proved to be a unique

educational and networking event, and AXIOM hopes to make the most for XLRI’s benefit out of this fruitful joint

endeavor with CSCMP.

Given the size of the healthcare industry, the issues related to cost of medical treatments and

quality of delivered care are likely to remain at the forefront of public discourse for the

foreseeable future. Healthcare operations management is the emerging discipline that

integrates quantitative and qualitative aspects of management to determine the most

efficient and optimal methods of supporting patient care delivery. Operations management

helps hospitals and health systems understand and improve labor productivity, reduce

waiting lines, shorten cycle times, and generally improve the patient’s overall experience—all

of which helps to improve the organization’s financial health.

Joint Commission International (JCI) is an organization that works to improve patient safety and quality of health care in the international community by offering education, publications, advisory services, and international accreditation and certification. In more than 100 countries, JCI partners with hospitals, clinics, and academic medical centers; health systems and agencies; government ministries; academia; and international advocates to promote rigorous standards of care and to provide solutions for achieving peak performance. The Operations Department at Indraprastha Apollo Hospitals, New Delhi, coordinating the activities of six departments under it, viz., Biomedical Engineering, Fire, Security, Food & Beverages, Engineering and Housekeeping, had undertaken various initiatives to improve the quality of services and reduce the costs involved in delivering the services. Such activities had to be properly documented, initiatives had to be highlighted and data had to be collected from different sources to measure their quantitative and qualitative benefits and the costs incurred. This is precisely the objective with which this storyboards preparation project was carried out and completed after consultation and brainstorming with the Heads of respective departments. The project led to a proper record for the departments involved, regarding their functioning and initiatives, which were used for explanation during JCI surveying and can be used in future as well." P.S. So the project was basically a documentation for a very important JCI audit, which was conducted in May. The project was completed satisfactorily, so they provided a Certificate of Appreciation and Project Completion Bonus, as per the contract clause. No PPO Policy.

Punit Gupta Business Management

XLRI Jamshedpur

I was part of the Integrated Demand Forecasting (IDF) team for my entire

tenure of the project. There were 3 broad aspects to my project. The first was

that the forecast models that Flipkart was using were giving huge errors. My

first task was to do a Root Cause Analysis for the reason behind the same.

Since all models were built on R platform I had to learn R as soon as possible

and I did so in the first couple of weeks.

Apart from debugging certain errors in the code, essentially the data was being read in the reverse time order meaning the earliest observations were given more weightage during forecasting, there were other conceptual issues with the model. Flipkart only used regression for products that went out of stock and restricted their independent variables set to a fixed set of variables even if some of these were insignificant. They also used double and triple exponential smoothing models but the decision to select which of the 3 forecast will be the final one was rule based which I felt should have some sort of a weighted average of the 3 forecasts with weights being determined dynamically based on historical sales. The second part of my project was to propose which forecast bucket (buckets of 7, 14, 21 and 28 days were formed by clubbing together daily sales) was most accurate. An empirical testing of about 1000 major products revealed that 7 and 14 day buckets were the most stable and gave relatively the most accurate forecasts. Also, I found that forecasts used to happen way beyond the permissible horizon, as in; using a 7 day bucket forecasts for next 2 months were generated. This meant forecasting 8 data (7*8 ≈ 2 months) which was another reason for low accuracy. The number of forecast steps should not be more than 2-3 to have high reliability and no major planning/activities should be done on any further forecasts that are available. The third step was to build a new forecast model. I realized that regression was giving the more accurate forecast. However, it was capturing dependence but was not capturing the time series component which manifested itself in

INTERN GYAAN

high autocorrelation of residuals. This was also one of the reasons for Flipkart to fix its set of independent variables so that autocorrelation was controlled. I researched and found that there is a Dynamic regression model which is nothing but a regression model where the errors follow an ARIMA model (auto-regressive integrated moving average model) and the residual from this ARIMA model satisfies the required regression assumptions. In the process of fitting the residual ARIMA model, the regression co-efficients get modified. The final dynamic regression was tested was on a sample of 100 products and across different time horizons and it was found that the model increased the forecast accuracy by 20-25%. The model is currently being extensively tested by the IDF team on multiple scenarios for more than 10,000 products and if found appropriate will form the baseline forecast for all products!

Ramaswamy Venkatarajan Business Management

XLRI Jamshedpur

Project 1: Reduction of service lead times by reducing lead times in raw

materials. Project 2: Studying the VMI process of a certain supplier and

improvements if any. Product: Dulux Paints Location: Thane

Project 1

Define stage: This process needs the definition of the problem. To define the

problem one of the first steps is to go through the process and identify the

critical materials. The critical materials are generally the materials which are costly, have a high demand and have

longer lead times. On the basis of this the materials that are critical need to be identified. Here the individual product

cannot be studies since the constituents cannot be obtained. This is because to know the constituents one would need

to know the recipe of the product which is a proprietary data and cannot be divulged. Therefore the materials were

considered for all the products and their usage was based on the production of all the products. The materials were

then identified based on the data of the fourth quarter of the financial year 13-14.The Pareto of the materials was then

made and the products were sorted out on the basis of the demand. The purchase orders of the top five products were

then collected and the receipt data was also collected for the same. Considering the agreed lead time with the vendors

and the actual lead times that the vendors are able to give the critical vendor has been identified. In the define stage

the Voice of the customer i.e. is the plant personnel was considered as well since they are the final customer of the

product. The voice of customers was based on the parameters of quality, information sharing and timeliness of

supplies. The questions were asked for the relevant details of the product.

Measure Stage: This stage involved the measurement of lead times of the materials. Here an attempt was made to

assign the causes of order defaults.

Analysis stage: This stage would include the discussions with the buyer group and the concerned vendors so as gain

the insights of the issues associated with the ordering and needs of the suppliers in the whole process.

Improvement Stage: The improvement stage would use the data of the measure stage and analyse stage to come up

with suggestion so as to reduce lead time for the material.

Project 2 The purpose here was to study the vendor managed inventory of a certain vendor and to find ways to reduce

inventory at the plant’s end. Here the daily demand pattern, the lead times, variation in lead times, and ordering

process was studied. This was done to estimate the required safety stock to be maintained. The effect of seasonality

was also considered to find ways to reduce safety stocks.

Saurabh Singh Gaur Business Management

XLRI Jamshedpur

Faculty Advisors

Prof. Rajiv Misra Prof. TAS Vijayaraghavan

Prof. Trishit Bandyopadhyay Prof. Dipankar Bose

Prof. Dilbag S. Broca Prof. B.K. Mangaraj

Prof. T. Gangopadhyay Prof. Abhishek Chakraborty

Junior Team AXIOM

Japsowin Kaur Megha Garg Rudrath Kaul Himanshu Raghuvanshi

Shirish Pathak Tarun Bagri Aniket Upadhyaya

Senior Team AXIOM

.

Suhas Kini Abhra Basu Amol Khavaskar Ramaswamy V Pulkit Gupta Saurabh Gaur