Topics

Supply Chain Management (SCM)/ Logistic / Distribution Management

Benchmarking Survey on SCM Practices of Auto & Auto Ancillary in India

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:

Sl. No Industry Category No of Contacts 1 Automobile OEMs Cars & Utility Vehicles Tractors Trucks Two Wheelers 11 6 3 7 2 Automobile Ancillaries Electrical Parts Engine Parts Transmission Ancillaries Others 10 12 12 18 The sample plan for identification of best practices is as follows Sl. No Industry Sample Plan 1 2 utomobile OEMs Automobile Ancillaries Total 11 14 25 Best in Class - Automobile OEMs To identify the best in class among the various parameters, the automobile OEM companies have been grouped into the following categories. • Cars & utility vehicles • Tractors • Trucks • Two wheelers Cars & Utility Vehicles Sl.no. Parameters Mean Median BIC* Cycle Time Metrics       1 Procurement time (no. of days) 13.07 10.0 1.0 2 Production cycle time (no. of days) 3.5 3.0 1.0 3 Delivery time (no. of days) 4.5 4.0 1.0 4 Total cycle time (no. of days) 28.9 27.5 10.0 5 Cash to cash time (no. of days) 41.9 37.5 13.0 6 Supply chain flexibility (%) 15.3 15.0 30.0 Cost Metrics 7 Total supply chain cost (% of sales) 6.6 6.5 3.0 8 In-bound transportation cost (% of total supply chain cost) 1.7 1.5 0.8 9 Out-bound transportation cost (% of total supply chain cost) 2.9 3.0 1.0 10 Warehousing cost (% of total supply chain cost) 1.1 1.0 0.5 11 Inventory carrying cost (% of total supply chain cost) 1.9 2.0 0.7 Service Quality Metrics 12 % of on-time deliveries 94.0 99.0 100.0 13 % of supplies made as per the quantity ordered 97.1 100.0 100.0 14 % of supply on desired quality 99.6 100.0 100.0 Asset Metrics 15 Raw materials inventory holding (No. of days) 12.7 12.5 1.0 16 Work in progress inventory holding (No. of days) 2.3 2.0 1.0 17 Finished products inventory holding (No. of days) 7.7 3.0 1.0 18 Inventory turnover 22.0 19.0 48.0 Tractors *BIC – Best in Class Sl.no. Parameters Mean Median BIC * Cycle Time Metrics       1   6.2 6.0 3.0 2 Production cycle time (no. of days) 3.8 3.5 2.0 3 Delivery time (no. of days) 6.4 5.0 3.0 4 Total cycle time (no. of days) 30.8 30.0 15.0 5 Cash to cash time (no. of days) 56.3 52.5 30.0 6 Supply chain flexibility (%) 18.4 10.0 50.0 Cost Metrics 7 Total supply chain cost (% of sales) 7.3 6.8 1.5 8 In-bound transportation cost (% of total supply chain cost) 1.6 1.8 1.0 9 Out-bound transportation cost (% of total supply chain cost) 2.2 2.5 0.3 10 Warehousing cost (% of total supply chain cost) 1.3 1.5 0.3 11 Inventory carrying cost (% of total supply chain cost) 2.2 2.0 0.5 Service Quality Metrics 12 % of on-time deliveries 89.3 94.0 99.0 13 % of supplies made as per the quantity ordered 96.6 98.0 100.0 14 % of supply on desired quality 98.8 99.0 100.0 Asset Metrics 15 Raw materials inventory holding (No. of days) 15.0 15.0 5.0 16 Work in progress inventory holding (No. of days) 14.3 5.5 3.0 17 Finished products inventory holding (No. of days) 19.0 30.0 1.0 18 Inventory turnover 11.3 12.0 13.0 Trucks Sl.no. Parameters Mean Median BIC * Cycle Time Metrics       1 Procurement time (no. of days) 17.3 20.0 7.0 2 Production cycle time (no. of days) 14.0 12.0 10.0 3 Delivery time (no. of days) 9.7 5.0 3.0 4 Total cycle time (no. of days) 40.0 45.0 15.0 5 Cash to cash time (no. of days) 55.0 60.0 45.0 6 Supply chain flexibility (%) 15.0 15.0 20.0 15.0 15.0 20.0 Cost Metrics 7 Total supply chain cost (% of sales) 11.7 11.0 9.5 8 In-bound transportation cost (% of total supply chain cost) 2.5 2.5 2.0 9 Out-bound transportation cost (% of total supply chain cost) 3.2 3.0 3.0 10 Warehousing cost (% of total supply chain cost) 3.2 3.5 2.0 11 Inventory carrying cost (% of total supply chain cost) 2.2 2.0 2.0 Service Quality Metrics 12 % of on-time deliveries 95.0 95.0 100.0 13 % of supplies made as per the quantity ordered 99.3 100.0 100.0 14 % of supply on desired quality 99.2 99.5 100.0 Asset Metrics 15 Raw materials inventory holding (No. of days) 23.3 15.0 5.0 16 Work in progress inventory holding (No. of days) 7.0 7.0 5.0 17 Finished products inventory holding (No. of days) 9.3 4.0 3.0 18 Inventory turnover 11.0 11.0 20. 2 Wheelers Sl.no. Parameters Mean Median BIC * Cycle Time Metrics       1 Procurement time (no. of days) 9.8 7.0 3.0 2 Production cycle time (no. of days) 6.8 3.0 3.0 3 Delivery time (no. of days) 4.6 3.0 2.0 4 Total cycle time (no. of days) 14.6 12.0 10.0 5 Cash to cash time (no. of days) 30.0 27.5 20.0 6 Supply chain flexibility (%) 15.7 12.0 25.0 Cost Metrics 7 Total supply chain cost (% of sales) 6.6 7.0 4.0 8 In-bound transportation cost (% of total supply chain cost) 2.1 2.0 2.0 9 Out-bound transportation cost (% of total supply chain cost) 2.3 2.5 1.0 10 Warehousing cost (% of total supply chain cost) 1.2 1.0 1.0 11 Inventory carrying cost (% of total supply chain cost) 1.3 1.5 0.5 Service Quality Metrics 12 % of on-time deliveries 94.4 99.8 100.0 13 % of supplies made as per the quantity ordered 98.0 100.0 100.0 14 % of supply on desired quality 99.9 100.0 100.0 Asset Metrics 15 Raw materials inventory holding (No. of days) 21.3 21.5 10.0 16 Work in progress inventory holding (No. of days) 4.0 2.0 1.0 17 Finished products inventory holding (No. of days) 8.6 1.8 1.0 18 Inventory turnover 13.0 13.0 13.0 Identification of Leaders Based on the feedback from the companies about their supply chain practices, the top three companies for each of the parameters within the different sub categories were listed down. Companies which ranked the maximum number of times among the top 3 for the different parameters were identified as leaders for the respective sub category. The practices were grouped under different heads and respondents across the leader organisations were asked to identify / indicate the practices that they normally undertake. The best practices were identified within the following categories: • Strategy • Marketing • Procurement • Manufacturing • Quality • Logistics • Information Technology The leaders identified belonged to the following industry types: Industry Type Industry Sub Types No of Contacts Automobile       OEMs Cars & Utility Vehicles 4     Tractors 2     Trucks 1     Two Wheelers 4     Sub Total   11 Auto Ancillary Engine Parts 3     Transmission 4     Electrical 3     Ancillaries Others 4     Sub Total   14   Total   25 Best Practices – Auto OEMs Personnel from 11 automobile manufacturers (identified as the leaders in different supply chain metrics) across the country were contacted during this phase of the study. Strategy Practices % of Respondents Outsourcing non core activities 72.7 Integration of SCM Processes 63.6 Benchmarking SCM performance 54.5 SCM Performance measurement 27.3 SCM as business driver 18.2 Base: 11 Of the companies contacted 72 percent of them as a strategy outsource their non-core activities. Only around 18 percent of the companies contacted consider Supply Chain Management as a business driver. Marketing Practices % of Respondents Customer service measurement 90.9 Demand Planning 81.8 Advance Forecasting tools 72.7 Postponement Strategy 18.2 Pull Strategy 18.2 Base: 11 During the survey it was found that 90 percent of the companies were using customer service measurement, while around 81 percent of them were using demand planning. Not many of them contacted were using pull and postponement strategies for marketing. Procurement Practices % of Respondents Vendor Rating 90.9 Self Certified Vendors 81.8 Annual Vendor Meet 72.7 Vendor Managed Inventory 72.7 JIT Suppliers 72.7 Early Supplier Involvement 72.7 MRP Systems 63.6 Strategic Supplier Relationship 54.5 Global Sourcing 54.5 Single Sourcing 54.5 E- Procurement 45.5 Standardization of Similar Parts 45.5 Contract Manufacturing 45.5 Target Costing 45.5 Suppliers Base Relationship 36.4 Aggregate Buying 36.4 Reverse Auctions 18.2 Base: 11 Vendor rating is practiced by around 90 percent of the companies contacted while 80 percent of the companies contacted certify their vendors. Reverse Auctions are yet to find a foothold for procurement and only 18 percent of the companies contacted seem to be using them. Manufacturing Practices % of Respondents Preventive Maintenance 81.8 Product Layout 72.7 Set-up Time Reduction 63.6 Group Technology 45.5 Lean Manufacturing 36.4 Base: 11 During the primary survey it was evident that around 82 percent of the companies contacted were using preventive maintenance. Around 73 percent of the companies contacted were using product layout for manufacturing of the products. Quality Practices % of respondents Quality Improvement Tools 81.8 Total Quality Management 72.7 IS/QS/TS Certification 72.7 Statistical Quality Control 63.6 Self Certification of Products 54.5 Quality Improvement of Vendors 54.5 Failure Mode Effects Analysis 45.5 Quality Function Deployment 36.4 Six Sigma Quality 27.3 Kaizen 27.3 Base: 11 Around 82 percent of the companies contacted use quality improvement tools for improvement of the quality. Total quality management and IS / QS / TS certification are followed by around 73 percent of the companies contacted. Only around 27 percent of the companies contacted seem to use six sigma quality and Kaizen tools for quality improvement. Logistics Practices % of respondents Inventory & Control 90.9 Outsourcing Logistics 81.8 Traffic & Transportation 72.7 Warehousing & Storage 72.7 Tracking and Tracing Systems 54.5 Global Logistics 54.5 E- Logistics 36.4 Reverse Logistics 36.4 Distribution Resource planning Systems 18.2 Milk Run Collections 18.2 Base: 11 During the primary survey it was evident that around 91 percent of the companies contacted were practicing control of inventory. Only around 18 percent of the companies contacted use DRP systems and milk run collections. Information Technology Practices % of respondents ERP Systems 81.8 CAD / CAM 63.6 Web Technology 54.5 Electronic Data Exchange / Fund Transfer 36.4 SCM Software 27.3 Bar- Coding 27.3 CRM Software 18.2 Global Positioning System 18.2 Warehouse Management System 9.1 Base: 11 ERP systems are presently being used by around 82 percent of the companies contacted. New technologies like Radio Frequency Identification & Detection (RFID) are yet to be used by any of the companies contacted.

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.