The Hindu Business Line : AFL launches logistics solution for auto component sector

AS the D-day for the implementation of value-added tax (VAT) draws near, a question uppermost in the minds of suppliers of auto components spread across many locations is how to reach out to their OEM clients who are concentrated in a few centres in the country.

Their concern stems from the fact that once VAT comes into force from April 1, the in-put tax credit will not be available against the Central sales tax (CST) of 4 per cent paid during inter-State transaction. This will push up the costs, which may not be relished by their OEM clients.

Already, the auto component suppliers are facing continuous pressure from their OEM clients to cut costs and any establishment of own warehouses will require investment, including recurring operating expenses.

In an effort to help the auto component manufacturers keep a tight leash on their costs, the Mumbai-based AFL Private Ltd, which provides integrated supply chain management (SCM) solutions, has launched a VAT-compliant outbound logistics solution (OLS) specifically tailored to meet the requirements of the automobile component manufacturers in the country.

The company expects this facility to help component units to transport goods on stock transfer mode and local invoicing to OEMs in the States where they are located thus providing tax benefits.

Under the VAT formula, input tax credit would be available against tax paid on all purchases. But this would not be available against the CST paid during inter-State transactions.

OEMs, with a view to keeping the costs down, would prefer to source components locally. The auto component manufacturers will have to reduce their costs to remain competitive or open depots in the States where their clients are located so that local invoicing could be made. The advantage of the latter option is that the OEMs could procure from a local supplier and the component manufacturers could move the goods on stock transfer mode.

AFL's OLS seeks to provide to the auto component manufacturers local warehousing facility that would be located close to their client OEMs. The component producers would be saved of the trouble of establishing their own warehouses.

Speaking to Business Line here from Mumbai, Mr Manoj Chandra, Head-Market Development and Brand Communications, AFL, said the major automobile industrial hubs in the country were Pune and nearby areas, Delhi/Gurgaon belt and Chennai and in all these places, AFL has warehousing facilities and it was geared to meet OEM's `just-in-time' inventory requirements.

This benefited both the auto component producers and the OEMs since the inventory levels and the holding period would be kept to the minimum and the component producers did not have to worry about any loss/damage in transit of the goods.

He said the small producers would be particularly benefited since they would be saving 4 per cent CST that would provide a cushion to their margins and would be spared of the logistical problem of locating a warehouse and the cost of operating it.

Apart from auto component sector, the other industries that would benefit by the operations were IT sector (hardware), consumer electronics, telecom etc.

Mr Chandra said the auto component sector accounted for about 7-10 per cent of the revenue earned by AFL and it wanted to step up this income.

The IT (hardware) sector's share was about 40 per cent of its income and AFL wanted to increase it. As the concept of outsourcing picks up, he expected demand for the services offered by AFL to be in greater demand. And VAT will provide the right impetus.

He said AFL has designed the OLS for the auto component sector after a comprehensive study and after consulting experts such as Mr S.M. Kulkarni, Co-Chairman of the Bombay Chamber of Commerce. Since its client list includes the likes of Tata Motors, Sona Koyo Steering Systems, L&T John Deere, MICO and NEI, it understands the needs of the automobile industry.

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