India is on the verge of becoming the world’s third-largest auto manufacturer by 2020 but unfortunately, India’s logistics cost as a per cent of sales is at least 30% higher than China mainly because of inefficiencies. The major challenge for Indian supply chain professionals is to build a supply chain that is prepared for long-term growth but at the same time is also lean enough to handle market volatilities.

Increasing competition and narrowing margins have put immense pressure on the OEMs and auto component manufacturers. Let’s take a look at 5 major challenges being faced by Indian automotive industry.

1. Inefficient Capacity Management

Due to a lack of efficient promise management system, it is difficult for OEMs to improve forecast accuracy leading to production losses and line stoppages. High inventory levels are a mark of supply chains that are not optimized. In case of stock outs, OEMs may have to pay astronomical rates for last minute ordering of parts or airlifting critical components to avoid production losses. With hundreds of suppliers and shipments arriving daily, these costs can quickly skyrocket. There are no advance warning tracking a shipment that will show the actual status of parts which could be possibly damaged or late making it possible to avoid such unplanned costs. In such scenarios, it becomes extremely crucial to a have system that gives predictive alerts regarding possible bottlenecks and delays so that effective planning can be made beforehand.

2. Discrete Data Storage and Lack of Transparent Communication

Transparent and real-time collaboration with suppliers as well as customers is one of the most important aspects of an effective supply chain. Often, accurate and timely demand forecasts are not shared with suppliers and customers which leads to uncertainties in planning and manufacturing on the part of the vendors. They make approximate plans which may lead to dangerous shortfalls or unnecessary excesses. The problems due to lack of visibility on the components producer side, on the expected volumes they would need to manufacture are compounded by the lack of visibility on the OEM side in terms of the vendors’ contracted, available and utilized capacities. Apart from the above issues the current communication platforms lack many other important basic aspects like design collaboration and sharing of drawings and specifications. The need of the hour is a common platform that allows OEMs to transparently communicate with their vendors and move to a planning approach from a firefighting one.

3. Managing Customer Expectations

In a fiercely competitive market, a robust distribution network for finished products can often make or break a brand. Even for the well-established players, supply chain teams must work closely with the network of dealers and retailers to ensure visibility over the inventory availability and delivery. In a world where the ‘Amazon’ effect has set a standard for real-time visibility and service, customers are now translating these expectations to all their transactions. At present, dealers are faced with long lead times, unreliable supply schedules and these challenges lead to an unpleasant experience for the end customers. Empowering dealers with trust in the supply chain, pre-emptively informing them of delays as well as quick TATs for orders will allow them to pass these benefits on to their customers and create a superior ‘buying’ experience for the brand

4. Lack of IoT and Automation in the Supply Chain

IoT devices have proved their value in manufacturing processes, however, the penetration of these devices in supply chains remain extremely low. We are seeing the rise of GPS enabled vehicles though even now, the majority of tracking is done through manpower intensive phone communication. Sensors that detect excess vibrations, fluctuations in temperature and a host of other factors should be used in supply chains. These will enable managers to identify potential damages before the shipment reaches them and allow them to make alternative arrangements with enough time to spare. Simple mobile apps can guide trucks within warehouses to their exact parking bays with IoT enable bins and trolleys automatically arriving for the unloading processes. The automotive supply chain in India is heavily reliant on human intervention and the next disruption will be the automation of this aspect of operations

5. Cost Leakages

With rising competition and narrowing margins, leakages eat up profits in an era where organizations simply can’t afford to lose money due to inefficiencies. Within a plant, the turn-around time for vehicles from entering the gate to completing the various checks, unloading and performing reverse logistics is a massive area of concern. Endless queues not only affect the schedules at the warehouse, they lead to higher logistics costs which can be easily avoided. The saving for an OEMs emerges mainly in four major areas: reduction in material costs, increased capacity utilization, lower logistics costs and lower supply chain risks. By deploying a unified system that alerts and predicts ways to avoid such costs and inefficiencies, ultimately leading to lowered cost and increased revenues.

This article is a prologue to our series on automotive supply chains. In the next article, we’ll cover the exact operational and supply chain problems being faced by the Indian automotive players. Stay tuned.

Amit Waila

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