The Hindu Business Line : Logistics — a gear for auto industry to cut costs

The Indian economy is on an upsurge and the auto sector has a key role to play in its growth. It is one of the core sectors of the economy, which has forward and backward linkages with several key segments. It therefore has a strong multiplier effect and is capable of being the driver of economic growth.

Having contributed 5 per cent (during 2005-06) to GDP and nearly 5 per cent to the total industrial output, the automotive sector has become a significant contributor to the exchequer. The auto sector's turnover in India is $10 billion with the auto-component segment alone contributing $2.7 billion.

India produces high-quality auto-ancillaries that are used as original components for vehicles by leading international and domestic automobile manufacturers. Overall, the sector has grown impressively to carve out a 7 per cent share of the global market.

The Indian automobile industry today boasts of being the second largest two-wheeler manufacturer in the world, the country is home to the world's largest motorcycle manufacturer, the second largest tractor maker, the f ifth largest commercial vehicle manufacturer in the world and fourth largest car market in Asia.

Role of logistics

Over the last few years, automobile companies have increasingly realised the importance of logistics as a tool for competitive advantage. For long, the Indian logistics sector remained at a nascent stage due to inadequacies in infrastructure, lack of regulation, unfavourable taxation regime and so on.

However, over the last few years, there has been a sea change in the approach. The logistics sector has evolved from basic transportation to include total supply chain management.

This change has played an important role in ensuring the success of the automobile industry in India.

This end-to-end approach involves providing assistance for purchasing, production planning, order processing and fulfilment, inventory management, transportation, distribution and customer service etc.

With increasing competition, more and more companies have started outsourcing supply-chain management to specialists to cut down costs.

In today's competitive business environment, automobile companies worldwide are shifting focus to understanding and implementing extended supply chain management systems that integrates product, process and information flows within and across organisational boundaries.

Streamlining supply chains

Leading automobile companies now rigorously follow the concepts of pull against push, and just-in-time to improve the efficiency of supply chain. Recognising this need, some of the leading supply chain solution providers specialise in offering state-of-the-art warehousing and inventory management services based on JIT and FIFO. These include inventory management, C&F/distribution, hub management, order processing, material handling and cross docking, web enabled warehouse and inventory management software.

Besides the basic movement of raw materials, parts and finished goods, it is also imperative for auto companies to customise services to their diverse needs. It is this service function that differentiates one supply chain provider from another.

Advantages — Cutting costs, efficiency

Time-bound delivery and safety are the two most critical aspects of managing supply chains of automobile companies that would also reduce logistics costs considerably.

With the inclusion of functions such as OEM solutions, line feeding, spares distribution, CBU (completely built unit) distribution, reverse logistics, customised fleet, warehousing and inventory management by supply chain solution providers, automobile companies have been able to improve the overall efficiency.

This has not only led to significant reduction in working capital requirements and maintaining an inventory of dealers but also helped in building brand image and goodwill for the companies

Role of technology

It is also important to function in a hi-tech environment so as to improve information flow, both internal and external.

Therefore it is vital to develop and adopt new technologies to enhance overall customer experience. Some of the technological aspects of a successful SCM module include key account management, MIS as per requirement, vehicle and material Web-based tracking systems, transit warehousing, customised security solutions, Netrack (via the Internet), and M-Track (via the mobile phone) facilities.

(The author is Executive Director of TCIL.)

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