AU TO M OT I V E

Indian Automotive Supply Chain
A Discussion Paper

I N D U ST R I A L M A R K E T S

Printed in India. All rights reserved. . a Swiss cooperative.Table of contents Background Survey Findings Integrating the end-to-end supply chain is the key challenge in the Indian auto industry today 1 2 2 Outsourcing of supply chain activities will increase 5 Need for global supply chain management capabilities becoming significant 7 Focus areas for the future Conclusion 10 12 © 2006 KPMG. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International.

who could assist auto players in meeting some of these challenges. with key players having a significant export contribution today. who contributed to this study. All rights reserved. while participating in a small way. Printed in India. or advice on how to ‘manage risks’. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. For OEMs. OEMs as well as auto component players will evolve further as they become more and more ‘global’ in nature. or assistance in ‘Mergers and Acquisitions’. The last couple of years have seen significant interest from Indian players who are actively looking at exciting markets to enter as well as attractive targets to acquire. and hence the need to diversify out of India. . a Swiss cooperative. We have watched and assisted a number of players. This report contains the results of our analysis including a dip-stick primary survey with supply chain heads of key auto companies. The objective of this study was to analyze the key challenges facing different sections of the Indian auto industry. A natural fall-out of this was the large suppliers who entered the country as part of the ‘follow source’ doctrine. It also seeks to provide answers to some of the key questions related to supply chain management (SCM) facing the industry. © 2006 KPMG. Clearly the need of the hour is for various players to identify key challenges facing the industry and develop strategies to help mitigate these. While the changes have been more visible in the auto component part of the industry. in that a large part of the industry has seen significant changes. accounting for about 4 percent of the Indian economy. Original Equipment Manufacturers (OEMs) too have been undergoing their own set of changes. For auto component players. this would mean the need to achieve global manufacturing standards and emerge as supplier of choice for global companies. KPMG in India has been fortunate enough to see this transformation take place. and identify opportunities for service providers. this would mean rising competition in the domestic market. or advice on ‘tax’. We are grateful to CII for giving us this opportunity and to all respondents. What is interesting about this is its almost democratic nature. whether it was assistance related to their ‘India/ Overseas Strategy’. The last few years have seen greater integration of the Indian industry with its global counterparts. identify areas which need significant attention.Indian Automotive Supply Chain 1 Background The automotive industry is a key contributor to the Indian economy. through its work with key parts of the automotive supply chain. These changes would have a significant impact on the automotive supply chain. The wave of change started with overseas OEMs wanting to enter the country. We hope this document serves as a quick primer for issues facing the Indian automotive supply chain. Going forward.

as part of the run-up to the CII’s AutoSCM 2006. The findings of the primary survey were then supplemented by KPMG’s analysis. Printed in India. across participants from various OEMs. a Swiss cooperative. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. All rights reserved. Leading SCM challenge Integrating the end-to-end supply chain 62% Managing Inbound Logistics/JIT Supplies 15% Managing supply chain costs 15% Managing product/Part Proliferation 8% 0 10 20 30 40 50 60 70 Percentage of respondents Figure 1: Leading SCM challenge faced by Indian automotive sector © 2006 KPMG. While addressing these is critical for success. auto-component players and logistics providers to identify key issues and challenges being faced by them. players were asked to rank the challenges in order of priority. . The conclusions from this exercise have been categorized into three broad areas: • • • Integration of the auto-Supply Chain Role of outsourcing in auto supply chains in India The global auto supply chain – key capabilities required Integrating the end-to-end supply chain is the key challenge in the Indian auto industry today Key issues / challenges Indian automotive players today face several key challenges in managing their supply chains.2 Indian Automotive Supply Chain Survey Findings KPMG conducted a dip-stick study.

quality and timely delivery continue to be key concerns for players. driven by the need for providing spare parts for current as well as discontinued models. ‘Managing inbound logistics’ remains a key concern for OEMs as well as auto component players. a Swiss cooperative. it has only resulted in the burden of inventory getting shifted from OEMs to their Tier-I vendors. as this would involve aligning the entire chain to meet market requirements in the most efficient way. Increasing competition in the Indian automotive industry has led to significant shrinkage in product lifecycles and the need for regular and frequent product upgradation and new product introductions. and also to integrate and link disparate IT systems used by different stakeholders. Costs. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. driven by increasing competition and pressure on margins. distributors and dealers – along common goals and processes.Indian Automotive Supply Chain 3 Our analysis revealed that the most significant challenge identified by automotive players in India is ‘integrating the entire supply chain’ and managing it as a single integrated entity. driven more by challenges related to reliability of data. Printed in India. However. vendor rationalization. a related key issue is the proliferation of parts/components. and hence common parts becoming critical pre-requisite. While this has led to issues of managing a wide product portfolio. it is expected that the linking up of these activities is expected to provide significant benefits to players. in cases where this is not accompanied by increased visibility across the supply chain and improved planning. However. All rights reserved. However all respondents agreed that there was significant scope for improvement in that area. Many OEMs have implemented ‘Just In Time (JIT) supplies in their inbound logistics’. through efforts in dealer management. . The key challenge in achieving this would be two-fold – to align the different stakeholders along the chain – vendors. © 2006 KPMG. lead time and absence of quality logistics players on the upstream side. given the criticality of supply for future growth. ‘Managing product and part proliferation’ is one of the second significant challenges players face. all respondents felt that this was a key area of focus. A key role played by product development teams today is the identification and adoption of common parts and components across models. While past efforts of OEMs have been focused on streamlining and improving different areas of the supply chain independently. Respondents across both OEMs as well as auto-components indicated that increasingly the need for common platforms. operations planning. transporters. IT package implementation etc.

A key reason for this. This area is discussed in greater detail in the next section. The study also indicated that increasingly. efforts were being made by many OEMs and Tier-I vendors to ‘outsource’ key activities along the supply chain to logistics players. A number of respondents corroborated this. as companies mature. most respondents agreed that the Indian industry has still not evolved into a fully tierized structure where Tier-I vendors take on responsibility for modules / sub-assemblies. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. In view of the fact that most OEMs and major suppliers have already implemented integrated IT systems (ERP). © 2006 KPMG. However. All rights reserved.4 Indian Automotive Supply Chain Key initiatives to address SCM challenges Several strategies and measures are envisaged by different players to address these key issues. a Swiss cooperative. in an effort to reduce costs and increase focus on their customers and core activities. . their information needs to move beyond the capabilities of a transaction processing system. Leading strategy for SCM challenges Increased Investment in IT and process improvements 38% Vendor/Dealer rationalization 31% Outsourcing to logistics service providers 23% Addressing Infrastructure issues 8% 0 10 20 30 40 Percentage of respondents Figure 2 : Leading strategy to address supply chain challenges In addition to this. is that business processes have not been streamlined or aligned with the needs of the new IT system. ‘Vendor / dealer rationalization’ is an ongoing focus area for OEMs to reduce costs and tighten management of supply chains. which facilitate monitoring of summarized information. Printed in India. The primary focus of most players is on implementing ‘improved processes and IT systems’ across the supply chain. this feedback indicates that they have not been able to leverage the benefits of such systems. and mentioned that they were in advanced stages of implementing decision support systems and dashboards.

These activities include carrying out ‘milk runs’ to collect and deliver parts to OEMs on a daily basis. Outsourced elements in SCM 80 Percentage of respondents 60 77% 40 69% 54% 20 15% 0 Packaging Outbound logistics Warehousing Inbound logistics Figure 3: Increased level of outsourcing in the automotive supply chain The fact that both OEMs and suppliers are looking at outsourcing provides significant opportunities for logistics. cleaning. Printed in India. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. a Swiss cooperative. © 2006 KPMG. All rights reserved. Related services being provided by large third party logistics service providers (3PLs) include consolidation of materials. incoming inspection. and supplying materials on a JIT basis. Key logistics players have started maintaining warehouses in close proximity to OEMs’ plants.Indian Automotive Supply Chain 5 Outsourcing of supply chain activities will increase Implications for OEMs and auto-component players Most OEMs and large Tier-I suppliers have already outsourced their outbound logistics activities. . transferring materials across hubs and warehousing/inventory management. etc. as this is a natural value-add prior to transportation of parts. packaging. Packaging is another area that has significant potential for being outsourced.

and the ability to integrate these to provide solutions customized for the OEM / supplier. however. . a Swiss cooperative. deep knowledge and skills in planning and project management. All rights reserved. These include kitting / module assembly (as a precursor to JIT supplies). as well as planning and scheduling Implications for logistics service providers Both OEMs and suppliers are unanimous that in the future outsourcing in SCM will grow. It appears that the growth of outsourcing in automotive SCM in future. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. parts and inventory management and also sourcing of parts within India and globally. customized IT capabilities. and logistics service providers will start taking on more complex roles. would be limited only by the capability of logistic players to gear up to deliver these services. © 2006 KPMG. This would emerge as a huge opportunity for these players. relationships with transporters / shipping lines. entering this space would require several strengths and capabilities such as national / Future outsourcing in SCM Module assembly 69% Planning & Scheduling/Inventory management 46% Parts sourcing 46% End to end SCM 38% 0 10 20 30 40 50 60 70 80 Percentage of respondents Figure 4: Future operations which could be outsourced global presence. as well as planning / scheduling. this implies that logistics service providers in future have the potential to take on the entire physical handling / movement of goods in the automotive supply chain.6 Indian Automotive Supply Chain Logistics service providers in future have the potential to take on the entire physical movement of goods in the automotive supply chain. In effect. Printed in India.

Most of the players who have nascent Revenues from exports 50 40 30 12% 44% 38% 34% 22% 25% Today In 5 years 25% 20 10 0 0-10 percent 10-20 percent 20-40 percent more than 40 percent Percent revenues from exports Figure 5: Revenues from exports. © 2006 KPMG. and are looking at further growth from overseas markets. As global OEMs and Tier-Is seek to source more parts. a Swiss cooperative. components and vehicles from India. supply chain for many Indian auto players today extends across several countries. expect to significantly improve and have exports of 10 percent to 20 percent in five years. these players expect to nearly double their share of exports. further over the next five years. All rights reserved. . While none of the respondents had more than 40 percent exports currently.Indian Automotive Supply Chain 7 Need for global SCM capabilities becoming significant While the challenges and imperatives discussed till now have been driven by changes in the domestic automotive market. nearly 29 percent expect to be there in five years. Managing the global supply chain has thus become a significant challenge for Indian automotive players. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. today and five years from now ( <10 percent) exports. Exports are a key part of global strategy Most Indian players already have a global presence. and Indian players seek to leverage this opportunity to increase their global footprint. Printed in India. a more significant trend is the rapid globalization of the Indian auto industry. Most of the respondents indicated that exports constitute a key part of their strategy today.

the Gulf countries. the majority of respondents felt that setting up own operations in other countries is the most preferred option followed by acquisitions and JVs. which can then be served out of India. In our study. ASPAC and Japan are seen as new potential markets for exports. including setting up own ventures. . and multiple stakeholders involved. Several business models have been used by Indian players to venture into other countries. Most suppliers in India see acquisitions as a means to get an established customer base. and maintaining cost competitiveness. The model for each player would depend on the opportunity and their own investment and risk appetite. Different models are possible to address global markets In addition to exporting. The complexity of operations is increased by having to manage longer lead times. more number of stages. acquisitions and joint ventures. higher expectations of customers with regard to quality and delivery. a Swiss cooperative.8 Indian Automotive Supply Chain The majority of respondents felt that setting up own operations in other countries is the most preferred option followed by acquisitions and JVs At present. While these will continue to remain significant over the next 5 – 10 years. © 2006 KPMG. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. Europe and North America are the key markets Indian players are looking at for exports currently. Printed in India. All rights reserved. many large Indian suppliers and OEMs have also established their manufacturing presence in other countries. Business models for global markets Own operations in other countries 62% Acquisition of local players in other countries 54% JVs with local players in other countries 54% Leveraging global parent/ technology partner's operations 31% 0 10 20 30 40 50 60 70 Percentage of respondents Figure6: Business models that are being adopted for global operations Having the right partner – key to success in global markets Managing a global supply chain that spans different countries poses several challenges unique to automotive players in India.

Printed in India. business relationships and experience in each market to crunch lead times. who has global reach and experience in operating in different markets. They would also be able to identify key risks and provide adequate advice on addressing them. The key requirement perceived is the Leading success factor for global SCM Good logistics service provider with global reach 42% Local Presence 33% Dedicated internal organisation 17% Process / IT capability 8% 0 10 20 30 40 50 Percetage of respondents Figure7: Key factors for success in managing global supply chains need to have a strong logistics service provider. . © 2006 KPMG. All rights reserved. Such players could help to cut down the time for entering the new market significantly.Indian Automotive Supply Chain 9 In our study. to be able to assess the market. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. having a dedicated internal organization to focus completely on the global SCM was identified as another key requirement. While a strong logistics partner is a key requirement. respondents identified several key success factors necessary for managing global supply chains effectively. as they would be able to leverage existing infrastructure. As the challenges and requirements for managing a global supply chain are significantly different from that for domestic market. a Swiss cooperative. many players underscored the need for a local presence in the market addressed. take decisions and leverage / manage local talent.

a Swiss cooperative. However.10 Indian Automotive Supply Chain Focus areas for the future The rapid transformation and globalization of the Indian auto industry has resulted in significant opportunities and challenges for players in managing their supply chains. Many OEMs see significant potential for top-line and bottom–line growth by tapping greater customer value across the product cycle. Several key focus areas have been identified where investments are planned over the next five years. the vendor base could include those in other countries as well. © 2006 KPMG. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. All rights reserved. Leading SCM investment requirement for future 38% Global supply chains Vendor Management 31% Dealer management & distribution 23% mproved planning & process improvements 8% 0 10 20 30 40 Percentage of respondents Figure 8: Investment requirements for future supply chains ‘Dealer management’ is emerging as a significant focus area. vendors would include service providers. as well as parts suppliers. . as OEMs look at global sourcing for parts and services. developing and managing ‘global supply chains’ would be a key focus area over the next five years. in managing their supply chains. Printed in India. in future. As discussed. Also. ‘Vendor management’ would continue to remain the primary focus area for OEMs. as dealers form the primary interface with customers and hence are critical for customer retention and relationship building. Most players are aware of these and have developed strategies for addressing them.

across geographies. work with a strong partner who knows the local market well Continuous focus on process efficiencies 2 3 4 5 6 For logistics players 1 Develop capabilities in areas of material handling and movement.Indian Automotive Supply Chain 11 Key learnings from the study Based on the study. the trends and challenges in automotive SCM in India throws up several imperatives for players in the industry: For OEMs and suppliers 1 Focus on integrating the end-to-end supply chain and improving transparency. . Manage parts proliferation to significantly cut down supply chain complexity Identify and develop relationships with strong logistics service providers – look at opportunities for more outsourcing While addressing global markets. All rights reserved. rather than piece-meal services. Printed in India. a Swiss cooperative. either independently or through tie-ups Look at developing complete solutions for automotive supply chain needs. scheduling and material tracking OEMs and suppliers could look at the service provider as the integrating factor across the supply chain and hence develop processes and sys tems to facilitate providing services across the supply chain 2 3 © 2006 KPMG. This primarily involves process alignment with IT systems Managing inbound supply chain needs additional focus to ensure capabil ity to support growth. This would involve providing knowledge / technology–based services such as planning. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International.

which will play a vital role in ensuring that the impetus gained over the past few years is sustained. All rights reserved. Clearly. a Swiss cooperative. the key imperative for players will be to manage global supply chains. To that end integration of the end-to-end supply chain should be viewed as the biggest imperative for the auto industry along with an all encompassing IT system. players in India will have to remain globally competitive to sustain the levels of growth they have been enjoying over the past few years. This would impact all stakeholders within the value chain (including OEMs. . an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. As the Indian industry matures. suppliers.12 Indian Automotive Supply Chain Conclusion The Indian Automotive industry is currently poised at a stage of transformation with challenges and trends which are unique. Printed in India. distributors and dealers). © 2006 KPMG.

which reflect a shared knowledge of global and local industries and experience of the Indian business environment. industrial markets. KPMG provides rapid. The firms in India have access to more than 1.700 Indian and expatriate professionals. Bangalore. In India. Hyderabad. consumer markets. As members of the cohesive business unit that serves the Middle East and South Asia (KPMG’s MESA business unit). many of whom are internationally trained. Delhi. . © 2006 KPMG. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. industry focused and technology enabled services. regulations. and Pune. Clients range across five sectors namely financial services. a Swiss cooperative. Tax. they respond to a client service environment by leveraging the resources of a globally aligned organization and providing detailed knowledge of local laws. and infrastructure and government. information. KPMG’s range of services includes Audit.13 Indian Automotive Supply Chain About KPMG KPMG’s member firms in India were established in September 1993. Chennai. communication and entertainment. and Advisory services to over 2. Kolkata. KPMG has offices in India in Mumbai.000 international and national clients. Printed in India. markets and competition. performance-based. All rights reserved.

With 56 offices in India. All rights reserved.000 companies from around 342 national and regional sectoral associations. A facilitator. including SMEs and MNCs and indirect membership of over 98. China. CII serves as a reference point for Indian industry and the international business community.Indian Automotive Supply Chain 14 About Confederation of Indian Industry The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India. CII catalyses change by working closely with government on policy issues. partnering industry and government alike through advisory and consultative processes. Printed in India. USA and institutional partnerships with 240 counterpart organisations in 101 countries. CII is a non-government. 8 overseas in Australia. . enhancing efficiency. competitiveness and expanding business opportunities for industry through a range of specialised services and global linkages. assisting industry identify and execute corporate citizenship programmes. France. It also provides a platform for sectoral consensus building and networking. Founded over 111 years ago. an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International. UK. playing a proactive role in India's development process. industry led and industry managed organisation. © 2006 KPMG. it is India's premier business association. Singapore. Japan. a Swiss cooperative. Austria. Major emphasis is laid on projecting a positive image of business. with a direct membership of over 6000 organisations from the private as well as public sectors. not-for-profit.

com Key contacts KPMG Yezdi Nagporewalla National Industry Director Industrial Markets KPMG House. Merchant Towers Road No. Chennai-600032 Tel: +91 44 42444555 Fax: +91 44 42444 510 www. DLF Corporate Park DLF City. Mumbai 400 013 Tel: +91 22 39896000 Fax: +91 22 39836000 Delhi 4B.Velachery Main Road. there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Floor 6 71 Park Street Kolkata 700 016 Tel: +91 33 22172858 Fax: +91 33 22172868 Pune 703.com Preet Mohan Singh E-mail: pmsingh@kpmg. Senapati Bapat Marg.com CII Institute of Logistics Anuradha Parakkat Director E-mail: anuradha. an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International.411 001 Tel: +91 20 30585764/65 Fax: +91 20 30585775 CII Institute of Logistics Chennai 98/1.parakkat@ciionline. All rights reserved.kpmg.com Ashwin Jacob E-mail: atjacob@kpmg. KPMG and the KPMG logo are registered trademarks of KPMG International. Inner Ring Road Koramangala. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Guindy.ciilogistics. Kamala Mills Compound 448. Banjara Hills Hyderabad 500 034 Tel: +91 40 23350060 Fax: +91 40 23350070 Kolkata Park Plaza. © 2006 KPMG. Phase III Gurgaon 122 002 Tel: +91 124 2549191 Fax: +91 124 2549101 Bangalore Maruthi Info-Tech Centre 11-12/1. a Swiss cooperative.com KPMG in India Mumbai KPMG House.Teynampet Chennai 600 018 Tel: +91 44 24332533 Fax: +91 44 24348856 Hyderabad II Floor. a Swiss cooperative.in. Although we endeavor to provide accurate and timely information.com Arun Krishnan E-mail: arunkrishnan@kpmg. Lower Parel. Kamala Mills Compound 448. Mumbai 400 013 Tel: +91 22 39835101 Fax: +91 22 39836000 E-mail: ynagporewalla@kpmg.org The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Lower Parel. 4. Godrej Castlemaine Bund Garden Pune . Senapati Bapat Marg. Block F. . Bangalore – 560 071 Tel: +91 80 41766000 Fax: +91 80 41766999 Chennai Wescare Towers 16 Cenotaph Road.

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