Benchmarking Survey on SCM Practices of Auto & Auto Ancillary in India Introduction In todays 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 Cars & Utility Vehicles Tractors Trucks Two Wheelers Electrical Parts Engine Parts Transmission Ancillaries Others

No of Contacts 11 6 3 7 10 12 12 18

Automobile OEMs

Automobile Ancillaries

The sample plan for identification of best practices is as follows Sl. Industry No 1 2 utomobile OEMs Automobile Ancillaries Total Sample Plan 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 Cycle Time Metrics Procurement time 1 (no. of days) Production cycle time 2 (no. of days) 3 Delivery time (no. of days) 4 Total cycle time (no. of days) 5 Cash to cash time (no. of days) 6 Supply chain flexibility (%) Cost Metrics 7 Total supply chain cost 6.6 6.5 3.0 Mean 13.07 3.5 4.5 28.9 41.9 15.3 Median BIC* 10.0 3.0 4.0 27.5 37.5 15.0 1.0 1.0 1.0 10.0 13.0 30.0

8 9 10 11

(% of sales) In-bound transportation cost (% of total supply chain cost) Out-bound transportation cost (% of total supply chain cost) Warehousing cost (% of total supply chain cost) Inventory carrying cost (% of total supply chain cost) % of on-time deliveries % of supplies made as per the quantity ordered % of supply on desired quality Raw materials inventory holding (No. of days) Work in progress inventory holding (No. of days) Finished products inventory holding (No. of days) Inventory turnover

1.7 2.9 1.1 1.9

1.5 3.0 1.0 2.0

0.8 1.0 0.5 0.7

Service Quality Metrics 12 13 14 94.0 97.1 99.6 99.0 100.0 100.0 100.0 100.0 100.0

Asset Metrics 15 16 17 18 12.7 2.3 7.7 22.0 12.5 1.0 2.0 3.0 1.0 1.0

19.0 48.0

Tractors Sl.no.Parameters Cycle Time Metrics 1 2 Production cycle time (no. of days) 3 Delivery time (no. of days) 4 Total cycle time (no. of days) 5 Cash to cash time (no. of days) 6 Supply chain flexibility (%) Cost Metrics 7 8 9 10 11 Total supply chain cost (% of sales) In-bound transportation cost (% of total supply chain cost) Out-bound transportation cost (% of total supply chain cost) Warehousing cost (% of total supply chain cost) Inventory carrying cost (% of total supply chain cost)

*BIC Best in Class Mean Median 6.2 3.8 6.4 30.8 56.3 18.4 7.3 1.6 2.2 1.3 2.2 6.0 3.5 5.0 30.0 52.5 10.0 6.8 1.8 2.5 1.5 2.0 BIC * 3.0 2.0 3.0 15.0 30.0 50.0 1.5 1.0 0.3 0.3 0.5

Service Quality Metrics 12 13 14 % of on-time deliveries % of supplies made as per the quantity ordered % of supply on desired quality Raw materials inventory holding (No. of days) Work in progress inventory holding (No. of days) Finished products inventory holding (No. of days) Inventory turnover 89.3 94.0 99.0 96.6 98.0 100.0 98.8 99.0 100.0

Asset Metrics 15 16 17 18 15.0 15.0 5.0 14.3 5.5 3.0 19.0 30.0 1.0 11.3 12.0 13.0 BIC * 7.0 10.0 3.0 15.0 45.0 20.0

Trucks Sl.no.Parameters Cycle Time Metrics 1 Procurement time (no. of days) 2 Production cycle time (no. of days) 3 Delivery time (no. of days) 4 Total cycle time (no. of days) 5 Cash to cash time (no. of days) 6 Supply chain flexibility (%) 15.0 15.0 20.0 Cost Metrics 7 8 9 10 11 Total supply chain cost (% of sales) In-bound transportation cost (% of total supply chain cost) Out-bound transportation cost (% of total supply chain cost) Warehousing cost (% of total supply chain cost) Inventory carrying cost (% of total supply chain cost) % of on-time deliveries % of supplies made as per the quantity ordered % of supply on desired quality Raw materials inventory 11.7 11.0 9.5 2.5 3.2 3.2 2.2 2.5 2.0 3.0 3.0 3.5 2.0 2.0 2.0 Mean Median 17.3 14.0 9.7 40.0 55.0 15.0 20.0 12.0 5.0 45.0 60.0 15.0

Service Quality Metrics 12 13 14 15 95.0 95.0 100.0 99.3 100.0100.0 99.2 99.5 100.0 23.3 15.0 5.0

Asset Metrics

16 17 18

holding (No. of days) Work in progress inventory holding (No. of days) Finished products inventory holding (No. of days) Inventory turnover

7.0 7.0 5.0 9.3 4.0 3.0 11.0 11.0 20. BIC * 3.0 3.0 2.0 10.0 20.0 25.0

2 Wheelers Sl.no.Parameters Cycle Time Metrics 1 Procurement time (no. of days) 2 Production cycle time (no. of days) 3 Delivery time (no. of days) 4 Total cycle time (no. of days) 5 Cash to cash time (no. of days) 6 Supply chain flexibility (%) Cost Metrics 7 8 9 10 11 Total supply chain cost (% of sales) In-bound transportation cost (% of total supply chain cost) Out-bound transportation cost (% of total supply chain cost) Warehousing cost (% of total supply chain cost) Inventory carrying cost (% of total supply chain cost) % of on-time deliveries % of supplies made as per the quantity ordered % of supply on desired quality Raw materials inventory holding (No. of days) Work in progress inventory holding (No. of days) Finished products inventory holding (No. of days) Inventory turnover 6.6 7.0 4.0 2.1 2.0 2.0 2.3 2.5 1.0 1.2 1.0 1.0 1.3 1.5 0.5 Mean Median 9.8 6.8 4.6 14.6 30.0 15.7 7.0 3.0 3.0 12.0 27.5 12.0

Service Quality Metrics 12 13 14 94.499.8 100.0 98.0100.0100.0 99.9100.0100.0

Asset Metrics 15 16 17 18 21.3 21.5 10.0 4.0 2.0 1.0 8.6 1.8 1.0 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 Automobile OEMs Industry Sub Types No of Contacts

Auto Ancillary

Cars & Utility Vehicles 4 Tractors 2 Trucks 1 Two Wheelers 4 Sub Total Engine Parts 3 Transmission 4 Electrical 3 Ancillaries Others 4 Sub Total Total

11

14 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 Outsourcing non core activities Integration of SCM Processes Benchmarking SCM performance SCM Performance measurement % of Respondents 72.7 63.6 54.5 27.3

SCM as business driver Base: 11

18.2

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 Customer service measurement Demand Planning Advance Forecasting tools Postponement Strategy Pull Strategy 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 Vendor Rating Self Certified Vendors Annual Vendor Meet Vendor Managed Inventory JIT Suppliers Early Supplier Involvement MRP Systems Strategic Supplier Relationship Global Sourcing Single Sourcing E- Procurement Standardization of Similar Parts Contract Manufacturing Target Costing Suppliers Base Relationship Aggregate Buying Reverse Auctions % of Respondents 90.9 81.8 72.7 72.7 72.7 72.7 63.6 54.5 54.5 54.5 45.5 45.5 45.5 45.5 36.4 36.4 18.2 % of Respondents 90.9 81.8 72.7 18.2 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 Preventive Maintenance Product Layout Set-up Time Reduction Group Technology Lean Manufacturing 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 Quality Improvement Tools Total Quality Management IS/QS/TS Certification Statistical Quality Control Self Certification of Products Quality Improvement of Vendors Failure Mode Effects Analysis Quality Function Deployment Six Sigma Quality Kaizen 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 Inventory & Control Outsourcing Logistics Traffic & Transportation % of respondents 90.9 81.8 72.7 % of respondents 81.8 72.7 72.7 63.6 54.5 54.5 45.5 36.4 27.3 27.3 % of Respondents 81.8 72.7 63.6 45.5 36.4

Warehousing & Storage Tracking and Tracing Systems Global Logistics E- Logistics Reverse Logistics Distribution Resource planning Systems Milk Run Collections Base: 11

72.7 54.5 54.5 36.4 36.4 18.2 18.2

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 ERP Systems CAD / CAM Web Technology Electronic Data Exchange / Fund Transfer SCM Software Bar- Coding CRM Software Global Positioning System Warehouse Management System % of respondents 81.8 63.6 54.5 36.4 27.3 27.3 18.2 18.2 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 manufacturers facility to the time when it reaches the customers 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, outbound 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. http://soundcloud.com/djshadowdubai/tracks?page=6