Logistics Issues in Automotive Sector

The logistics industry in India is evolving rapidly and it is the interplay of infrastructure, technology and new types of service providers that will define whether the industry is able to help its customers reduce their logistics costs and provide effective services (which are also growing). Changing government policies on taxation and regulation of service providers are going to play an important role in this process. Coordination across various government agencies requires approval from multiple ministries and is a road block for multi modal transport in India. At the firm level, the logistics focus is moving towards reducing cycle times in order to add value to their customers. Consequently, better tools and strategies are being sought by firms in order to enhance their decision making. In this paper, we provide a perspective on these issues, outline some of the key challenges with the help of secondary information, and describe some interesting initiatives that some firms & industries are taking to compete through excellence in managing their logistics.
The Indian economy has been growing at an average rate of more than 8 per cent over the last four years (Srinivas, 2006) putting enormous demands on its productive infrastructure. Whether it is the physical infrastructure of road, ports, water, power etc. or the digital infrastructure of broadband networks, telecommunication etc. or the service infrastructure of logistics all are being stretched to perform beyond their capabilities. Interestingly, this is leading to an emergence of innovative practices to allow business and public service to operate at a higher growth rate in an environment where the support systems are getting augmented concurrently. In this paper, we present the status of the evolving logistics sector in India, innovations therein through interesting business models and the challenges that it faces in years to come. Broadly speaking, the Indian logistics sector, as elsewhere, comprises the entire inbound and outbound segments of the manufacturing and service supply chains. Of late, the logistics infrastructure has received lot of attention both from business and industry as well as policy makers. However, the role of managing this infrastructure (or the logistics management regimen) to effectively compete has been slightly under-emphasized. Inadequate logistics infrastructure has an effect of creating bottlenecks in the growth of an economy, the logistics management regimen has the capability of overcoming the disadvantages of the infrastructure in the short run while providing cutting edge competitiveness in the long term. It is here that exist several challenges as well as opportunities for the Indian economy. There are several models that seem to be emerging based on the critical needs of the Indian economy that can stand as viable models for other global economies as well. Chandra and Sastry (2004) have pointed towards two key areas that require attention in managing the logistics chains across the Indian business sectors cost and reliable value add services. Logistics costs (i.e., inventory holding, transportation, warehousing, packaging, losses and related administration costs) have been estimated at 13-14 per cent of Indian GDP which is higher than the 8 per cent of USAs and lower than the 21 per cent of Chinas GDP (Sanyal, 2006a). Service reliability of the logistics industry in emerging markets, like India, has been referred to as slow and requiring high engagement time of the customers, thereby, incurring high indirect variable costs (Dobberstein et. al, 2005). However, the Indian logistics story is one with islands of excellence though there has been a general improvement on almost all parameters. It is this aspect that we explore further in this paper. The paper is organized as follows: the next section gives a brief introduction of

some of the peculiarities of the Indian logistics sector. In section 3 we discuss the determinants of growth in this industry. In section 4 we provide some interesting initiatives that point towards a renewal of the sector. The challenges facing the sector are discussed in the last section. Challenges Ahead Several challenges remain before the Indian logistics sector and its future success will depend on the ability of the industry to overcome these hurdles. Some of these impediments are at the firm level while others are at the policy level. At the policy level, the issues of infrastructure and integration of the nations logistics network remain the two most critical areas that require attention. The growth of infrastructure, since 1991, has been quite extensive (covering a wide geographical area) as well as strategic linking the key industrial, consumption and transshipment centers. However, some imminent weaknesses need be addressed. Movement beyond the golden quadrilateral is required to bring goods from upcountry production sources to main shipment centers. The rate of growth of expressway has to increase. Poor road conditions increase the vehicle turnover, pushing the operating cost and reducing efficiency. National highways are being upgraded but they account for a meager 2 per cent of the total road network. (Sanyal, 2006a). More importantly, due to non-contiguous development of expressways, truck traffic has to frequently move from the expressway on to old national highways and vice-versa. This is inconvenient and is restricting the utilization of the excellent road network that is being developed. The pricing of the toll on these expressways especially for cargo traffic has also been a deterrent to is usage perhaps, one needs to understand the price elasticity of this demand and develop appropriate price packages for heavy and frequent users. Here, the role of transport technology needs to be mentioned as well. Once the cost of manufacturing multi-axle trucks comes down, it will see higher penetration and consequently lower per unit cost of transportation. Volvo is trying to develop this market but the volumes of high capacity truck continues to be low (about 7 per cent of the total truck production, IAESI, 2006-2007). The East & West bulk rail transport corridor will divert some traffic from road provided the secondary movement (i.e., from the nearest station to the plant/warehouse) can be minimized and the issue of security of the goods is addressed adequately. Similarly, river navigation in the North and North-Eastern India can pose useful options for cargo movement in hinterland where road congestion is high. Goods vehicle run only 250-300 km a day in India as compared to 800-1000 km in developed countries (Sanyal, 2006b). Inter-state check posts, surprise checks and unauthorized hold ups on highways (some due to security reasons while others are to

Logistics Management in Indian Automotive Component Industry

Nitin Gupta
Faculty, Marketing ICFAI Business School Hyderabad

Table 2: Classification of Automotive Components according to ACMA

Product Group Engine Parts Electrical Parts

Products Pistons, Piston Rings, Engine Valves, Carburetors, Fuel Injection Systems Starter Motors and Generators

Drive Transmission Gears, Clutches, Axles and Steering Parts Suspension and Braking Parts Equipment Others Brakes, Leaf Springs, Shock Absorbers Headlights, Dashboard Instruments Sheet Metal Parts, Pressure Die Castings, Tyre Tube Valves and Cores

Share* (%) Some of the Key Players Motor Industries Company, Ucal Fuel Systems, Shriram 23 Pistons, India Pistons, Goetze, IP Rings, Motor Industries Company, Denso, India Nippon 7 Electrical Rico Auto Industries, Sona Koyo Steering Systems, 14 Automotive Axles, GKN Driveshafts, Bharat Gears, Rane (Madras), Clutch Auto, Ceekay Daikin Brakes India, Sundaram-Clayton, Munjal Showa, Gabriel 11 India, Rane Brake Linings, Sundaram Brake Linings, Jamna Auto Premier Instruments & Controls, Lumax, Motherson Sumi 8 Systems 36 Jay Bharat Maruti

Source: ACMA Segmental market shares of the organized sector in FY2003 in rupee terms Compiled by INGRES

Logistics Management practices in leading Indian Automotive Component Manufacturers: * Sundaram Clayton Limited (SCL): Sundaram Clayton uses comprehensive TQM (Total Quality Management) practices that enable it in being a competitive world-class manufacturer in terms of quality, cost and timely delivery of products. SCL uses cellular manufacturing, which gives it the flexibility to respond in tune to customer needs. It does comprehensive integration of the supply chain through implementation of ERP (Enterprise-Wide Resource Planning) programme5. * Bharat Forge Limited (BFL)6 : Bharat Forge has been effectively leveraging information technology as an important tool for reducing costs in the field of logistics management. In 2000-01, the company implemented SAP enterprise resource planning package. Bharat Forge is moving at full speed to build e-commerce applications with SAP as a backbone for BFL legacy systems and other collaborative softwares like SCM (Supply Chain Management), PLM (Product Lifecycle Management), etc. At Bharat Forge, SAP also provides in-built capabilities like CRP (Capacity Resource Planning), BPR (Business Process Re-engineering) and thus offers a powerful link between the entire value chain extending from the customers to the suppliers. The company has also set up an integrated supply chain management system, which enables real-time visibility of material requirement and inventory throughout the value chain, and provides decision support at all stages of operations. It also assists the company in awarding contracts to vendors on current and competitive terms and

ensures better execution of contracts. Majority of the company's suppliers have been logged into its supply chain and with Bharat Forge e-enabled with its customers, the company has a real time total demand management system in place. A virtual private marketplace has been created for Bharat Forge through which the company engages in e-procurement and reverse auctions. The company has already started selling scrap online. * Exide Industries Limited: Exide has eight manufacturing plants producing world class products. Exide factories are located strategically around the country to provide logistic support for its production of over five million batteries per annum 7 . Exide's R&D is engaged in projects embracing process technology aimed at improving the product quality & consistency, production efficiency and material utilization 8. Exide employees Total Quality Management programme in its office and factories to set higher standards for itself at every step of its "customer-service route". "Zero-error" benchmarking, and delivering quality orientation throughout operations has led Exide to get the coveted DIN ISO 9001 certification by RWTUV of Germany 9. * Sundaram Fasteners Ltd. (SFL): SFL makes just-in-time (JIT) supplies for various Original equipment manufacturers (OEMs) through out the country 10. It has an effective Inventory Management system. Currently, in order to enhance its logistics management; and with the aim of achieving high quality and low cost in its operations, it is using Total Productive Maintenance program (TPM), which was initiated in 1995 in consultation with JIPM (Japan Institute of Plant Maintenance)11. * Shriram Automotive Products Ltd: This Company has tried to improve its logistics management by establishing, implementing and maintaining a quality system in accordance with the requirements of ISO 9002. It tries to adhere to customer delivery schedules through adequate planning and monitoring and tries to bring down nonconformities by strictly monitoring the effectiveness of corrective and preventive measures12. * India Pistons Ltd (IPL): India Pistons Limited strives to maintain a comprehensive system of professional logistics management designed to identify possible defects right from the initial phases of development, hence, preventing problems that could potentially cost the organization dear. In all IPL locations, systems & procedures based on TPM, TQM and Lean Manufacturing are used to ensure that Quality levels are on par with the best in the world. All its plants are QS 9000 certified 13. * Premier Instruments & Controls Limited (Pricol): As a part of its logistics management policy, Pricol gives lot of emphasis on procurement quality through systematic vendor development, quality plan, vendor upgradation through Vendor Center of Excellence, process capability, vendor quality audit, inspection and training 14 . * Lumax Industries: Lumax became an ISO 9002 certified company in 1995, attained its QS 9000 certification in the year 1998 and achieved the ISO/TS 16949: 2002 and ISO 14001 in 2003. Lumax is aiming for continual improvement of manufacturing processes with emphasis on consistent quality and cost effectiveness15. * Sona Koyo: Sona Koyo is moving on the path of Total Quality Management (TQM) by developing its core competence and aligning objectives at all levels to realize synergy in its operations. It has adopted Total Productive Maintenance (TPM) to improve performance through the philosophy of prevention of accidents16. All these measures help it to have a robust logistics management system. * Munjal Showa: Munjal Showa is a TS-16949 & ISO 14001 company which aims at

providing highest customer satisfaction, cost competitiveness, continuous improvement, on-time delivery of products and direct on-line system by having an enviable logistics management system17. Besides the firms that have been mentioned above, other major automotive component manufacturers like Rico Auto, Sumi Motherson, Cluth Auto etc. too realize the importance of stringent inventory management and delivery requirement and hence have their own state of the art logistics management systems in place.

establish the authenticity of the cargo as declared) create bottlenecks. Entry taxes into cities for goods also create procedural bottlenecks. The Motor Vehicles Act and the Motor Transport Workers Act that regulate driver licensing, loading norms etc. and duty hours of drivers respectively require modification to address the quality of services in this sector (Raghuram and Shah, 2003). Similarly, while the regional permits that allow a truck to ply between certain states come at a lower cost (as compared to a national permit), it limits the flexibility of truckers to convert opportunities. Indian logistics market remains fragmented on these counts and the national market (as well as service) does not appear as one integrated entity. Harmonization of taxes, procedures and policies across States is required to facilitate a seamless flow of goods and services. For instance, if there was a nation-wide broadband logistics IT-network then a trucker starting in Chennai (in the southern Indian State of Tamilnadu) could file all the papers in Chennai, get all inspections done there and move without interruptions to say, Jammu (in the northern Indian Sate of Jammu & Kashmir) . Each state entry point could have access to those papers and they could flag the truck through their check-post as it reached there with no stoppages or delays. Today, it could take anywhere from half hour to few hours to get papers and goods inspected at each check post. The later could be taken care of by having sealed container carriers. Changes in process technology are needed to increase the effectiveness and responsiveness of the transport network. In privatizing the operations of container traffic through rails, new entrants are expected to face serious problems. Because of limited manufacturing capacity for producing wagons, these firms will have to import wagons at high cost. Huge investments in storage capacities near railway stations will also add to their cost (Bhatt, 2006). All these factors will increase the entry barriers for the private operators. Moreover, the tariff structure and revenue sharing is still a hindrance for public-private partnership projects to succeed in infrastructure development. While the use of IT for logistics management is increasing, it is largely limited to large size firms. This represents an opportunity to further improve the decision making abilities across the supply chain and reduce costs further. For instance, order processing and delivery status are two areas that reflect a certain weakness in servicing (Chandra & Sastry, 2004). With the growth of the IT sector in India, these are clearly areas that can
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gain from the IT sectors engagement. For example, manufacturing firms can collaborate with the extensive network of call centers for managing order processing and actual integration of order servicing with the physical supply chain. Similarly, there is a role for emergence of a segment (e.g., a service provider) in the logistics chain that manages dispatch information and performs delivery tracking across manufacturers for their customers. Similarly, only a few thousand vehicles out of a total of several millions have tracking system (Sanyal, 2006a). Truck manufacturers could integrate the tracking technology in its products and IT servicing firms could provide information service on highways tracking movement of vehicles. This would provide information to distribution firms and help track both the consignment as well as the truck better. As of now, the best service is the one provided by Reliance Connect at their petrol pumps on the highways where truckers stop by and call their firms to inform them of there whereabouts. Such service providers become very valuable to tiny and small trucking companies that proliferate the logistics industry and who do not have the wherewithal to either install or operate their own IT systems. As the concentration in the industry increases, the need to manage larger number of trucks, routes, warehouses and customers will require decision support systems that perform dynamic planning & scheduling. As observed by Chandra and Sastry (2004), the IT base is indeed low and firms need to compete on the basis of real logistics costs instead of clever accounting practices before the sector will see increased IT penetration. As the need to have visibility in the supply chain increases, better technology applications will also appear. Another area that will see tremendous growth is outsourcing of logistics service. While logistics outsourcing has been in existence for several decades, it was limited to transportation and warehousing. Post-liberalization, the country has seen outsourcing of value add services like freight forwarding, fleet management, import/export and customs clearance, order fulfillment, consulting services like distribution network planning etc. These are early years for the 3PL service providers and a recent survey cites lack of trust and awareness as the key hurdles to its growth (Mitra, 2005). Service tax on outsourced cost and the requirement to establish multiple warehousing facilities in order to avoid double taxation (and thereby lose the advantage of scale economies with fewer warehouses) were also found to undermine the 3PL business (Mitra, 2005). According to this survey, most of the 3PL service providers offer limited services. In future, their role as coordinators will require that they offer a wider menu of value add services. They also
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have the potential of integrating SME channels through a variety of logistics services and technology across a network of small producers. The logistics industry is evolving rapidly and it is the interplay of infrastructure, technology and new types of service providers that will define whether the industry is able to help its customers reduce their logistics costs and provide effective service. Changing government policies on taxation and regulation of service providers will also play an important role in this process. Coordination across various government agencies require approval from multiple ministries and is a road block for multi modal transport in India (e.g., ports, roads, railways, container freight operations etc. are all managed by different ministries in the Government of India (Sanjai, 2006b)). At the firm level, the logistics focus will have to move towards reducing cycle times in order to add value to their customers. These are few of the issues one need to take account before the logistics industry can boom significantly in India.
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The Logistics Sector in India: Overview and Challenges