Introduction
In today’s competitive business environment, automobile companies worldwide are shifting their attention towards understanding and implementing extended supply chain management that integrates the product, process and information flows within and across organizational boundaries.
In such a scenario, there is a pertinent need to understand and evaluate existing supply chain metrics followed by Auto and Auto Ancillary Industries in India, and benchmark them with the best practices within the industry to bring in improvements in the existing system.
This study, “Benchmarking survey on Best Supply Chain Management (SCM) Practice of Auto and Auto Ancillary industries in India” seeks to assess the current supply chain metrics (SCM) across various parameters, followed by Auto and Auto ancillary industries, thereafter, identify the leader(s) under each set of parameters and ascertain the best SCM practices employed by the identified leader industries.
The automobile OEM companies have been grouped into the following categories:
• Cars & utility vehicles
• Tractors
• Trucks
• Two wheelers
The auto ancillary industry players have been grouped as per the following classification:
• Engine parts
• Transmission
• Electrical
• Ancillaries others
The study covers all metrics in the extended supply chain of an organization, both inbound and outbound supply chain. For the purpose of identification of leaders, the relevant parameters were categorized under four broad heads, namely,
• Cycle time metrics
• Cost metrics
• Service quality metrics and
• Asset metrics
A sample of 27 Auto OEMs and 51 Auto Ancillaries were met across the country for the identification of the leaders. Having analysed and evaluated the current supply chain practices of the companies surveyed, 11 players among the Auto OEMs and 14 among the Auto Ancillaries players were identified as leaders across different supply chain activities.
The various practices followed by the leader industries were identified and grouped under the following broad heads:
• Strategy
• Marketing
• Procurement
• Manufacturing
• Quality
• Logistics
• Information technology
Based on detailed analysis of the data, the best practices followed by the leaders within each of the categories above, were ascertained.
Key Objectives
• To identify the sub-group of industries under Automobile OEM and Auto ancillaries
• To assess the current supply chain metrics (SCM) followed by Auto and Auto ancillary industries to dentify the leader, under each set of parameters
• To identify the best SCM practices employed by the identified leader Industries
• To submit a detailed report on the above findings
Sample Plan
Identification of Leaders
The no of contacts done across various categories of industries is as below:
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Conclusions
The survey shows that there is a huge performance gap between the best supply chain practitioners and the rest.
What do best in class companies in the automobile industry do?
• As an overall strategy, they outsource their non-core requirements and have integrated their SCM processes
• In marketing they do customer service measurement and demand planning
• When it comes to procurement they do vendor rating and certify their vendors
• As far as manufacturing is considered they have preventive maintenance and product layout
• While In quality they have quality improvement tools and total quality management
• Inventory control and outsourcing of logistics services are followed in Logistics
• In Information technology the best in class companies use ERP and CAD / CAM.
What do best in class companies in the auto ancillary industry do?
• As a overall strategy they outsource their non-core requirements and measure their SCM performance
• In marketing they widely use demand planning and advanced forecasting tools
• When it comes to procurement they do vendor rating and self certify their vendors
• As far as manufacturing is considered they have product layout and do preventative maintenance.
• While In quality they are IS/QS/TS certified and undertake quality improvement of the vendors.
• In logistics they do inventory control and outsource their logistics requirements
• In Information technology they use ERP and CAD / CAM
In general the best in class companies do the following
• View supply chain management as a critical business process and integrate with the business planning process
• Give one executive overall responsibility for the supply chain
• Build a cross functional organization around the supply-chain process
• Have people to conduct monthly supply chain performance reviews
• Involve key suppliers as part of the product development team
• Get certified vendors to deliver material to point of use and use far lesser vendors
Brief Explanation of Metrics
Cycle Time Metrics
1. Procurement Time: It is the number of days that are elapsed from the time when the manufacturer places an order to his supplier to the time when he actually receives the materials.
2. Production Cycle Time: It is the number of days that are elapsed between the receipt of an order from a customer and the completion of the product ready for being shipped to the customer
3. Delivery Time: It is the number of days that elapse from the time when a shipment leaves the manufacturer’s facility to the time when it reaches the customer’s location.
4. Total Cycle Time: It denotes the number of days that elapsed from the time when an order is received from the customer to the time when the payment is received from the customer.
5. Supply chain flexibility: It denotes the ability of the manufacturer to meet the sudden increase in the demand. It is usually denoted as % of the original order.
6. Cash-to-cash cycle time: It refers to the number of days between paying the suppliers for raw materials and getting paid by the customers for the final product. It is calculated by adding inventory days of supply to the days of sales outstanding and subtracting the average payment period for material.
Cost Metrics
7. In-bound transportation cost- It is the cost incurred in transportation of raw materials from the suppliers. It is denoted as a % of total manufacturing cost.
8. Out-bound transportation cost It is the cost involved in the transportation of the finished products to distributors, wholesalers etc. It is denoted as a % of total sales.
9. Warehousing cost The cost incurred in the activities of storing, receiving, picking, and shipment of finished good products. It is referred to as a% of total sales.
10. Inventory carrying cost It denotes the cost involved in holding the inventory on hand. It is given as a % of total sales.
11. Cost of losses & damages This is the cost incurred due to the losses and damages that occur during the transportation of goods, which is given as a %of total sales.
12. Other Costs Other costs incurred may include the cost of insurance, international freight clearance etc.
13. Return inventory cost The costs associated with managing inventory, returned for any of the following reasons: repair, refurbish, excess, obsolescence, End-of-Life, ecological conformance and demonstration
14. Return processing cost The total cost incurred in processing the repairs, refurbished, excess, obsolete and End-of-Life products including replacing products.
Total Supply chain cost It is the sum total of the in-bound transportation cost, out-bound transportation cost, warehousing cost, inventory carrying cost, cost of transit losses and cost of damages.
Service/Quality Metrics
15. % of on-time deliveries: Percentage of times the goods delivered, by the promised time (in right quantity and quality).
16. % of supply made as per the quantity ordered: The amount (% of Value or Volume) of order shipped on the initial shipment verses the amount of total ordered.
17. % of supply on desired quality: Percentage of times the goods delivered in the desired quality to the customers.
Asset Metrics
18. Inventory turnover: Number of times inventory is purchased, sold, and replaced during an accounting period. It is measured by dividing cost of goods sold by average inventory.
19. Raw material inventory holding cost: The cost of keeping raw materials on hand.
20. Work in progress inventory holding cost: The cost of keeping items that are currently used for production on hand.
21. Finished goods inventory: The cost of keeping finished items on hand.