ROLE OF SCM IN AUTOMOTIVE INDUSTRY

According to the Council of Logistics Management Supply Chain Management, “the process of planning, implementing and controlling efficient and cost effective flow of materials, in-process inventory, finished goods and related information from point-of-order to point-of-consumption, for the purpose of conforming to customer requirements as efficiently as possible”.

The automobile industry has undergone significant structural and other changes in the last decade or so. In view of the present globalization, implementation of lean production and the development of modularization have changed the relationships between automobile assemblers (OEMs) and their suppliers, especially those in the first tier. Stiff competition among manufacturers will result in more mergers or acquisitions. The challenges automobile manufacturers and suppliers face include improving quality, meeting cost reduction targets and developing time to market.

All this is driving the organisations towards greater product differentiation using cutting edge R&D, innovative sales and marketing approaches, and increasing focus on boosting efficiencies in manufacturing and supply chain. Hence, in the age of e-business and global outsourcing, supply chain management (SCM) plays a crucial role in many of these areas.

SCM is a best-in-class, high-performance solution which can be utilised by the world's leading automobile manufacturer, logistics and distribution companies, and retailers to blend the demand chain with the supply chain. SCM helps in demand forecasting; taking an order; giving an

accurate promise date; sourcing and manufacturing the right goods; position inventory properly; pick, pack, and efficient transshipment; most importantly, SCM makes a world of difference to the manufacturers by maintaining a minimal finished goods inventory.

Supply chain management flow is divided into:

a) Product flowb) Information flowc) Finance flow

The product flow is nothing but movement of goods from supplier to customers and also in case of any customer returns or service requirements. The information flow covers updating the status of the delivery as well as sharing information between suppliers and manufacturers. The finance flow encompasses credit terms, payment schedules and consignment and title ownership arrangements.

Supply chain management has two types of software—planning application and execution applications. While planning application is utilised to determine the best way to fill the order, execution software determines the physical status of goods, the management of materials and financial information of all parties involved. Rapid surge in global sourcing of auto components has also become a challenge for manufacturers and suppliers although sourcing has reduced the cost of production substantially. Auto component manufacturers and all tiers of the supply chain have immense opportunities to enhance their entire supply chain process with the successful implementation of SCM solution.

BENEFITS OF IT IN SCM

Quicker response – improved professional service Timely product supplies Accurate pricing/discounts Reduction in billing errors – cleaner SOA Simplified and faster payments process Reduction in administration costs for customers/vendors Online information (purchases, sales, inventory, financials) Elimination of reconciliation of accounts/error processing Reduction in accounting cycle times Less duplication of job – utilisation of human-power in value adding roles Reduction in paper flow, data processing, printing, mailing Better warehousing and transportation management Timely and correct asset capitalisation Credit management (customers) Better plant maintenance Easy access to data /information

KEY ISSUES / CHALLENGES

Indian automotive players today face several key challenges in managing their supply chains. While addressing these is critical for success, players were asked to rank the challenges in order of priority.

Based on a survey conducted by KPMG :

The most significant challenge identified by automotive players in India is ‘integrating the entire supply chain’ and managing it as a single integrated entity. While past efforts of OEMs have been focused on streamlining and improving different areas of the supply chain independently, through efforts in dealer management, operations planning, vendor rationalization, IT package implementation etc, it is expected that the linking up of these activities is expected to provide significant benefits to players, as this would involve aligning the entire chain to meet market requirements in the most efficient way.

The key challenge in achieving this would be two-fold – to align the different stakeholders along the chain – vendors, transporters, distributors and dealers – along common goals and processes, and also to integrate and link disparate IT systems used by different stakeholders.

‘Managing inbound logistics’ remains a key concern for OEMs as well as auto component players, driven more by challenges related to reliability of data, lead time and absence of quality logistics players on the upstream side. However, all respondents felt that this was a key area of focus, given the criticality of supply for future growth.

‘Managing product and part proliferation’ is one of the second significant challenges players face. Increasing competition in the Indian automotive industry has led to significant shrinkage in product lifecycles and the need for regular and frequent product up gradation and new product introductions. While this has led to issues of managing a wide product portfolio, a related key

issue is the proliferation of parts/components, driven by the need for providing spare parts for current as well as discontinued models. Respondents across both OEMs as well as auto-components indicated that increasingly the need for common platforms, and hence common parts becoming critical pre-requisite. A key role played by product development teams today is the identification and adoption of common parts and components across models. However all respondents agreed that there was significant scope for improvement in that area.

Costs, quality and timely delivery continue to be key concerns for players, driven by increasing competition and pressure on margins. Many OEMs have implemented ‘Just in Time (JIT) supplies in their inbound logistics’. However, in cases where this is not accompanied by increased visibility across the supply chain and improved planning, it has only resulted in the burden of inventory getting shifted from OEMs to their Tier-I vendors.

INTRODUCTION OF ASHOK LEYLAND:

Ashok Leyland is a commercial vehicle manufacturing company based in Chennai, India. Founded in 1948, the company is one of India's leading manufacturers of commercial vehicles, such as trucks and buses, as well as emergency and military vehicles. Operating six plants, Ashok Leyland also makes spare parts and engines for industrial andmarine applications. It sells about 60,000 vehicles and about 7,000 engines annually. It is the second largest commercial vehicle company in India in the medium and heavy commercial vehicle (M&HCV) segment. With passenger transportation options ranging from 19 seaters to 80 seaters, Ashok Leyland is a market leader in the bus segment .

The origin of Ashok Leyland can be traced to the urge for self-reliance, felt by independent India. Pandit Jawaharlal Nehru, India’s first Prime Minister, persuaded Mr Raghunandan Saran, an industrialist, to enter automotive manufacture. The company was established in 1948 as Ashok Motors, to assemble Austin cars. The company’s destiny and name changed soon with equity participation by British Leyland and Ashok Leyland commenced manufacture of commercial vehicles in 1955. Today the company is the flagship of the Hinduja Group, a British-based and Indian originated transnational conglomerate.

Through tie-ups with global technology leaders, supplemented by in-house R&D infrastructure and capabilities, Ashok Leyland has maintained its technological leadership even as it offers the most comprehensive range of model configurations in its class.

Ashok Leyland, one of the largest private companies in the country, had sales over Rs6,000 crore in 2005-06. Ashok Leyland is a part of Hinduja Group. It is also one of the largest automobile and auto component companies in India.

The company offers a world-class range of trucks, buses, special application vehicles and engines, crossing millions more than 40 countries in the world. During 2005-06, the company produced total 65,085 vehicles out of which it has exported 4,879 units. In the 9c domestic market, the company has sold total 56,776 units. The company was facing the huge task of integrating its entire supply chain and at the same time it had to reduce its costs, inventory, and improve customer satisfaction. Rising raw material cost was a serious concern for the company. There had been a steep rise in steel prices and copper prices. Therefore, Ashok Leyland decided to streamline its supply chain process and the company started its SCM project ‘Oscars’ to optimise its supply chain and rationalise its sources.

COMPETITION OF ASHOK LEYLAND WITH OTHER AUTOMOBILE SECTOR

COMPETITION WITH TATA MOTORS:-

Ashok Leyland Ltd. will introduce 15 new truck models as India's biggest truck makers by sales seek to beat growing competition from Tata motors. The new truck models under its new U-Truck platform by March 2011,The trucks will be between 16 tonners and 49 tonners. To Compite with Ashok Leyland Tata motors will also introduce three new heavy trucks in India by March from its Prima range of so-called world trucks.As,we had seen that Ashok Leyland low floor buses giving tide competition to Tata motors low floor buses in Delhi.

PROCESS FLOW CHART OF ASHOK LEYLAND

Purchase of raw material

Components machined

Rough Drilling Finish Washing Boring End Milling Assembly of

Milling Milling Milling Bearing caps

Engine Assembly

Fixing of Cranshaft and Bearing Caps

Fixing of Camshaft

Fixing of Assembly of Fitting of Compressor Fitting of Fitting of

Flywheel Housing Oil Pump Stainer Fitting Oil Coolant Belt

Final Product

CRANKSHAFT:- CRANKSHAFT is attached with a gear and is fixed to the bottom of the cylinder block by bearing caps.

CAMSHAFT:- CAMSHAFT is attached with a timing gear and is fixed in the required space provided in the cylinder block.

INPUT AND OUTPUT PROCESS

INPUTS:-

Collecting information about the parts of truck and buses,which Ashok Leyland is going to produce.

Production system of Ashok Leyland. Production Strategy of Ashok Leyland(Strategy for HCV and LCV is different .)

PROCESS PLANNING:-

Ashok Leyland select the process for production. Study of new product which Ashok Leyland is going to produce and study of process. Study of Machinery, which is used to produce the product. Ashok Leyland do lot of research for their production process.

OUTPUTS:-

Final product is prepared(Product is with new technology) Hybrid features of new product.

*Hybrid engine. *Hybrid model. *Hybrid technology.

DIAGRAM SHOWING THE LAYOUT AND FLOW OF MATERIAL

There are 3 stages of Frame AssemblingAnd 13 stages of Chassis Assembling.

Stage 1Mounting of side members,Mounting of cross members

Stage 2Mounting of front springRear,rear spring middle.

Stage 3 Fitting of engineMounting.

Stages 4Side members fasteningTo torque limit.

Stage 5

Fitment of FES rear brackets

Passing stage

Checking and Tilting

Stage 1Stage 2Stage 3Stage 4Stage 5 Stage 6Stage 7Stage 8

Stage 9 Stage 10 Stage 11 Stage 12 Stage 13FES DRESSING:-FITTING OF SEATS,

ELECTRICAL WIRING,FLINK VALVE FITTING.

STAGE 1: Radiator mounting brackets, Air tank mounting , Air cleaner mountingbracket, battery mounting bracket, grease nipple fitment, Bellcom lever mounting.

STAGE 2: DC valve mounting, Oil piping, Clutch oil piping, Quick release valvemounting.

STAGE 3: Spring fitment, frame punching

STAGE 4: Silencer fitment, first axle mounting.

STAGE 5: Second axle mounting, slack adjustment

STAGE 6: Fuel piping, Air piping, Air filter mounting, Diesel filter mounting,Steering box mounting.

STAGE 7: Engine mounting, fuel tank mounting, Diesel filter mounting,Steering box mounting.

STAGE 8: Radiator fitment, Radiator supports tightening, Rear lampsfitting,Turbocharger outlet pipe connection and Radiator hose connections.

STAGE 9: Exhaust piping, Shock absorber fitment (front and rear), Batterymounting and connection of circuits, battery casing fitment and secondpropeller shaft mounting.

STAGE 10: Tyre mounting, Maxcut checking.

STAGE 11: FES mounting, Electric fitments (male-female connecting process).

STAGE 12: Bumper fitment, FES wiring, Universal joint (UJ) fitment withsteering handle, ABC fitment and connecting.

STAGE 13: Greasing of joints, nuts, etc., Off track arrangements.

It is known that Ashok Leyland has implemeted one of the most successful supply chain models in the industry. It had introduced the “Supplier development Program” as part of its World-Class Supply Chain Management. Mission Statement of the Company clearly confirms the fact that the fulcrum of their strategy is to maintain good relations with the vendors. "Our Vendors are our valued partners in our business development and we shall work with them in a spirit of mutual co-operation to meet our business objectives."

Supply Chain Management at Ashok Leyland limited, Chennai

* Vendor Development and Strategic Sourcing are handled by Corporate Materials Department (CMD). CMD identifies the vendors, rates the vendors based on feedback received from Supplier Quality Assurance Cell, sends drawings / specifications, calls for quotes with detailed break-up of operation-wise costs, and negotiates the price at which the parts will be supplied.In addition to CMD at Ennore, and the two Units at Hosur, there are Materials Management Departments (MMDs) for scheduling based on unit production plan.

* Vendor Development of Strategic Sources Strategic Sourcing is central to the integrated Materials Management function. Ashok Leyland's policy is to develop a vendor base committed to continuous improvement to meet quality, cost and delivery standards. Ashok Leyland considers its vendors as partners in progress and believes in establishing mutually beneficial relationships. Ashok Leyland provides necessary technical assistance in the form of Project and Production Engineering, to maintain quality levels. In addition, where required, Ashok Leyland also helps vendors financially.

* Becoming a Vendor to Ashok Leyland is easy, involving just four steps

- Fill the Questionnaire. As this provides the basic inputs required for preliminary study, applicants need to provide as much information as possible.- If Ashok Leyland needs the item you would like to supply, CMD will inform Ashok Leyland's Supplier Quality Assurance Cell (SQA) for an on-site assessment. Otherwise, the Vendor information is stored for future reference. - If SQA approves the vendor, then CMD will send the drawings for SQA cleared components to the Vendor for obtaining a quotation. If, instead of approving the vendor, SQA recommends improvements to facilities, the Vendor is given adequate feedback and a re-survey is undertaken at a mutually agreed future date. - If the Vendor matches Ashok Leyland's expectations in terms of price, quality and delivery, then CMD places a trial order with the Vendor. Both on-line and off-line inspection may be carried out at the time of processing the trial order. Based on the outcome of the trial order, CMD may place the Vendor in the Approved Vendor List.

* Some of the relevant points to note

- Ashok Leyland's Purchasing Philosophy is to maximize bought-out parts. Over 90% of the parts are bought-out.

- Ashok Leyland believes in global sourcing. Consistent with its operational needs, AL would consider both domestic (Indian) as well as international vendors. Global sourcing is normally resorted to overcome local constraints - in the form of technology, quality, capacity or cost effectiveness.

- Ashok Leyland would consider new suppliers for required components, based on Vendors' ability to meet our specification, price and delivery schedules.

- Vendors are required to have a strong manufacturing base with adequate engineering support for their own product development activities, as needed by the category of product, viz Proprietary, Bought Out Finished (BOF), Bought Out Rough (BOR) and Sheet Metal items. Castings and forgings are to be received in fully finished/machined condition, progressively. Ashok Leyland could make available to the vendors necessary technical expertise, wherever possible and needed, particularly with regard to developing the manufacturing process.

- As QS 9000 certified company, Ashok Leyland's Vendors are expected to have a good quality system, meeting ISO 9000 requirements. Ashok Leyland would be willing to help Vendors in the preparation for ISO certification by offering necessary technical guidance.

- Vendors' quality system should encompass, at the minimum Cost effective process, Assured process capability, Continuous improvements based on customer feedback, Compliance of all statutory /legal/ commercial requirements of Ashok Leyland.

- A stage of development where the Vendor can come under Ashok Leyland's self-certification system tractability - first-in first-out basis and Ashok Leyland has established a transparent periodically audited Vendor Rating System. Ashok Leyland places emphasis on optimizing the inventory and Vendors are required to progressively meet "Just-in-Time" requirements. Delivery modes as well as packaging are required to minimize the handling/loading and unloading time.

- Though not a must, Ashok Leyland would prefer a manufacturing / assembly / support base at close proximity to the production units. Ashok Leyland encourages its vendors to participate in their e-servicing project starting fiscal year 2004-05

Facts before implementation of new supply chain

For Ashok Leyland’s material cost accounted for nearly 70% of its product cost.

In 1997-98, AL, recorded a profit-after-tax (PAT) of Rs. 18.4 cr. on sales of Rs. 2,014.3 cr.

A look at the previous financial year's PAT showed that the profits for 1997-98 had gone for a severe beating.

In 1996-97 AL had a PAT of Rs. 124.9 cr. on sales of Rs. 2, 482.5 cr.

With the manufacturing Industry reeling under recession, the freight generating sectors (manufacturing, mining and quarrying) saw a steep decline resulting in a severe downturn of freight volumes.

For Ashok Leyland, whose business was directly dependent on moving material, goods and people across distances, this had come as a severe blow.

PRE IMPLEMENTATION : ASHOK LEYLAND SUPPLY CHAINVendors & SuppliersProcurement, Finance, HRIn Plant processing, R&DFinished Goods Inventory & TrackingSales & Distribution

Product Lifecycle Mngt.

Dealer Mngt. system

Vendor Mngt. system

Ashok Leyland's supply chain had gone haywire under the recession which had eaten away 17.62% of its revenues in one year forcing the company to helplessly allow inventories to build up.

The results were showing on working capital. It had climbed from 33.34% of sales in 1993-94 to 58.81% of sales in 1997-98.

Sales PAT0

500

1000

1500

2000

25002482.5

124.9

2014.3

18.4

1996-971997-98

Solution lied in implementing supply chain initiatives

Ashok Leyland was facing the huge task of integrating its entire supply chain and at the same time it had to reduce its costs, inventory and improve customer satisfaction.

Rising raw material cost was a serious concern for the company. This was mainly triggered by a steep rise in steel and copper prices. Therefore, Ashok Leyland decided to streamline its supply chain process and the company started its SCM project ‘OSCARS’ to optimise its supply chain and rationalise its sources. Hence the main objective was to improve its supply chain process & make it a cost effective one i.e., create an Efficient Supply Chain model such that it could manage to create a Zone of Strategic Fit to cater to its supply chain’s low to moderate Implied Demand Uncertainty.

IN-BOUND SUPPLY CHAIN

Ashok Leyland did not seem to succumb to the 'uncertainty gloom' that was playing havoc to its business environment. It decided to meet the challenge by re-gearing its systems, be it material order, procurement, material handling, inventory control or production. 

Ashok Leyland conducted exhaustive brainstorming sessions inviting ideas on cost cutting.

Quality Circle teams were formed for this purpose.

Ashok Leyland took every employee's ideas into account and figured out a way to keep things going and reduce production without inflicting pain.

The recession saw Ashok Leyland waging a war on wastage and inefficiency.

To reduce costs and to improve the in-bound supply chain Ashok Leyland introduced The Project "OSCARS” (optimising supply chain and rationalising sourcing), which includes supplier partnership, vendor base rationalisation, supply tiers, inventory optimisation through JIT, total cost management, logistics initiatives-sourcing and global sourcing. The OSCARS project identified two main methods of reducing costs in the inbound supply chain – reduce material costs and through optimum inventory level, reduce the invisible inventory carrying costs.

The basic principal of OSCARS was:

a) Supplier partnership

Supplier partnership covers engineering and technical support, global availability of spares, testing capability, improved field performance, system supplier, JIT suppliers and world class technology. Partnership gains include vendor consolidation, continuous technological up gradation of products without in house investment, shorter development lead-time, value engineering and cost reduction, improved field performance, inventory field performance, inventory

efficiency through JIT suppliers and human power rationalisation. Supplier partnership is also needed to enable processes such as cross docking an effective way to keep costs low. But implementation issues are large. A huge percentage of suppliers still used email as their primary means of order related communication, with telephone and fax coming as other means of communication. Cross docking requires Advance Shipment Notifications (ASNs) and barcoded shipping labels. Ashok Leyland through its supplier partnership program was able to achieve all these potential benefits.

b) Vendor base rationalisationGains from source reduction includes pricing on volumes, improvement in quality and reliability, vendor improvement programme for continuous improvement, tiering for ease of fitment- system buying and reduction in paper work. Vendor base rationalization & cluster formation resulted in 5S adherence-mistake proofing, process improvements finally leading to self certification.

Status 96-97

97-98

98-99

99-

00 00-01

VendorBase

1017

950 738 612 400

ISO/QScertified

245 281 364 382 400

Selfcertifiedvendors

210 240 260 290 350

The figure shows how Ashok Leyland through its project “Oscar Inbound” went about rationalising its vendor base.

c) Single Window System The Strategic Sourcing and Corporate Quality Engineering (CQE) teams jointly formed the single window system bringing with them specialized commercial and technical knowledge. For the suppliers this had created a convenient single-point contact with AL, for sharing drawings, for negotiating prices and long –term business volumes and consultancy on quality to management issues.

d) Supplier TieringAL pruned its panel of Direct suppliers through tiering and system buying. Under this AL dealt directly with tier one suppliers who, in turn, were supported by tier two and tier three suppliers. Vendor tierisation program helped in achieving economies of scale, system buying & creating rationalization of supplier base.The benefits of system buying could be illustrated with the example of the tools kits that accompanied every vehicle. Tear down studies and value engineering analyzed the constitution and composition of a part to prune cost through substitution, reduction or elimination of materials/ sub-assemblies without affecting quality and performance.

e) Just In time(JIT)

AL focused on JIT approach for high value/high volume items and low cost logistics for low value high volume items. Project OSCARS brought about a few fundamental changes. The push system which means let us make all we can just in case we need. This system given a way to pull system which means “make what the customer needs, when he needs it” Each stage produced only as much as the next stage needed. This resulted in savings of Rs 8.50 crore a year and a lean supply chain.

f) Total cost management Total cost management included various cost management initiatives, such as daily management process, control, design, technology and capacity. Total savings was 3% of total operating cost.

g) Logistics initiativeThese initiatives included transport based rationalisation, enhancement of truckload, space and route optimisation, which has benefited the company by saving its transportation cost.

h) E-sourcing E-sourcing included global benchmarking gain through bidding, identification of cost competitive sources, introducing best sourcing practices, increasing efficiencies and minimising costs, improving bottom line of the value chain. All these activities have saved 11.5% of total material cost.

OUTBOUND SUPPLY CHAIN

A customer survey and a study of benchmarks had come out with three major parameters for service level targets which are Order to delivery time, Reliability of deliveries and Availability of order status information. The customers could expect delivery in 5 days from the date of

Reduction in Transportation

Cost

Transport Mode

Transporter-based

Rationalisation

Truckload & Space

Optimization

Enhancement of Truck turnaround

Transport Route Route Optimization

payment for regular models for multi-axled vehicles the promised period was two -four weeks. The second promise was that the age of the vehicle when delivered would be maximum of 90 days. Tight pipeline inventory norms were set for different models and markets and were met through a new three tier distribution network.

Plant sales yards acted as national pools to hold rare models and excess of regional requirements. The next tier was made up of the five regional stock pools, which ensured just-in-time supplies to all regional sales offices. To understand customer needs and assimilate the knowledge, AL adopted ‘4P’ Programme. Probe, Prioritize, Plan and Position. This worked in tandem with manufacturing as part of cross-functional team (CFT). The CFTs worked towards continuous improvement in the products and marketing. AL also built a ‘marketing information system’ (MIS) to monitor the trends and forecast demand from the input dealers and field executives.

Ashok Leyland’s Supply Chain Finance - Ashok Leyland general practice: Own dealership for Spares and Original Equipment Vehicles. It follows Just In Time Process, where in Ashok Leyland does not hold any inventory. Its suppliers held the Raw Material inventory and end dealers held Finished Goods stock, thereby reducing their profitability and financial health. But to improve the value chain of Ashok Leyland there needs to be an overall improvement of the whole value chain of Ashok Leyland. So Ashok Leyland provides bank credit to dealers and suppliers to manage their liquidity and financial condition.

I CAN PROVIDE FINANCIAL ANALYSIS ALSO, TELL ME IF REQUIRED. DIDN’T INCLUDE ALL THAT PRESENTLY.

Supply chain – modified

Product of Ashok Leyland:- as exhibits -----

1:-Buses

Leaders in the Indian bus market, offering unique models such as CNG, Double Decker and Vestibule bus.

2:-Trucks:-Pioneers in multi axle trucks and tractor-trailers.

3:- Engines:-Diesel engines for Industrial, Genset and Marine applications, in collaboration with technology leaders.

4:- Defense & Special:- Largest provider of logistic vehicles to the Indian army.

CUSTOMER BASE AND SEGMENTATION

Ashok Leyland, over five decades in the transport solution industry,offering a world class range of trucks, buses, special application vehicles, and engines, touching millions across 40 countries world wide. Ashok Leyland has a loyal customer base.

Ashok Leyland is Brand name under the flagship of hinduja group. To sell is to know your customers. Ashok Leyland has built-up a data base of 130,000 customers. The information captures the business nuances of the customers and shows Ashok Leyland precisely where and how the customer would use trucks. The company today knows much more about its customers today than earlier.

Ashok Leyland has a large customer base for public transport buses,commercial vehicles, defense and special vehicles for special purpose.it caters to different class of society which includes individual buyer,industrial buyer,government buyer and defense also.

Segmentation of Ashok Leyland can be done on the basis of it’s user:-Segmentation

Industrial user Defense user

Public user Government user

INDUSTRIAL USER:- Industrial user includes transporters, logistics company, coal and mining industry and other industries etc.

PUBLIC USER:-Public user includes individual or passenger transport .

GOVERNMENT USER:- Government user include state and central transport like DTC,UPSRTC and other.

DEFENSE USER:- Defense user include Indian army trucks, tanks and transport buses.