213-1503-001

October 2013
Astra First Management Program-AMDI

DEWI TAMARA

Astra Motor:
Untangling Credit Sales Control Issues

PT Astra Honda Motor (AHM) was established in June 11, 1971 and previously named PT
Federal Motor. It is a sole distributor of Honda motorcycle and a pioneer in two-wheel in
Indonesia. At that time, PT Federal Motor assembled the parts of the motorcycle which were
imported in completely knock down (CKD) units from Japan. In its first year, the production
was 1500 units, but in the next year it increased to 30 thousand and reached its 35th million
units in 2012. 1

In 1971, Astra International held majority shareholder of AHM. In 2000, PT Federal Motor
and several other subsidiaries were merged into PT Astra Honda Motor and its shares were
divided into 50% ownership with PT Astra International and the remaining owned by Honda
Motor Co. Japan. Until now, motorcycle is the most favorite transportation mode in Indonesia
for its conveniences and affordable price.

In distributing motorcycles, Astra Honda Motor relied on its main dealer, Honda Sales
Operation (HSO, well known as Astra Motor). Astra Motor is one division under Astra
International that is responsible to distribute vehicle products from the manufacturer that
Astra holds its distributorship (ATPM); for example, Daihatsu Sales Operation, Toyota Sales
Operation, Peugeot Sales Operation and BMW Sales Operation. Astra Motor managed its own
brand, Astra Motor and independent dealer. The independent dealer meant that individual
owned a shop and sold Honda motor product.

Until June 2011, Astra Motor established its main dealers in 10 regions and 110 outlets of
sub-dealer, and 411 outlets of independent dealer. The independent dealer held almost 80%
share of Honda motorcycles distribution.

There were two type of buying motorcycle in Indonesia: cash and credit. For purchase
process in cash, the customer came to the dealer and paid directly in cash which afterwards
the customer could carry the motorcycle or the dealer would deliver the motorcycle to the
customer‟s house. In credit-payment type, the dealer would connect the customer with the
finance company; for example FIF, Adira or WOM. Once the customer agreed to purchase a
motorcycle, the finance company would pay the dealer, and the customer installed monthly
payment with interest to the finance company in specific time period; for example, in 3 years.

The process of credit sales, however, was not always smooth and tended to raise concerns
from the management. There were some indications of potential problems which could lead
to serious situation. The problems included unsettled switched clearing finance company,

1
www.astramotor.co.id

Dewi Tamara prepared this case from field sources assisted by Retno Nindya under supervision of BCC. BBS cases are developed
solely as the basis for class discussions. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of
effective or ineffective management

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 213-1503-001 Honda Sales Operation: Untangling Credit
Sales Control Issues

possibility of fake credit request, a lag time of pooling to Astra International Headquarter, and
outstanding Account Receivables (AR) which was not closed directly of Service Office from
Finance Company. Furthermore, there were some crucial problems such as invoice delay from
Astra Motor Branches to Finance Company and unmatched amount and time in the reward
data from Finance Company.

Manufacturing

In the beginning, the first type of Honda motorcycle was S 90 Z with 4-stroke engine with
90cc capacity. The first plant of PT Astra Honda Motor was located in Sunter, North Jakarta
and served as the head office. The second plant was located in Pegangsaan Dua, Kelapa
Gading. The newest third plant, started to operate in 2005, located in area MM 2100 at
Cikarang Barat, Bekasi.

The three plants enabled the company to have annual production capacity of 4.2 million units
of motorcycle. In 2012 the company achieved 35 million motorcycles, the highest obtained in
motorcycle industry in ASEAN.

Now the production had 9 variants from cub type, 9 variants from AT type and 13 variants
from sport type. The engine transmission comprised of manual and automatic.

The cub types were Revo Fit, Absolute Revo CW, Absolute Revo SW, New Honda Blade S,
New Blade Racing Edition, Supra X 125 CW, Supra X125 SW, Supra X 125 Helm in PGM-FI,
and New Honda Blade R. The AT types were BeAT CW, Vario CW, VArio 125 Techno, VArio
125 CBS Idling Stop, PCX 150, Spacy Helm in PGM-FI, Beat-Fi Combi Braket System, Beat-FI
CW, Beat-FI and Scoopy FI. The sport types were City Sport 1, New Megapro SW, New
Megapro CW, Tiger, CBR250R (Std), CBR250R (Abs) – Black Knight, CBR 150 R, CBR 150R
REpsol Edition, CBR250R (Abs) Repsol Edition, CBR250R (Std) Repsol Edition, CBR 150R
Streetfire, Verza 150 CW, and Verza 150 SW2.

Motorcycle industry absorbed huge manpower in Indonesia. In PT. Astra Honda Motor itself,
the employees reached 18,000. The company was supported by 1,800 dealers, 3,600
workshop and service points which also served as machine shop AHASS (Astra Honda
Authorized Service Station,) along with 7,400 stores of motorcycle parts which ready to serve
millions of Honda motorcycle users nationwide. AHM also created various program that
attracted customers such as safety riding campaign.

The supply chain networks of motorcycle industry acquired hundreds of vendors and
suppliers. The total manpower in the whole chain reached at least 500,000 people.

Astra Motor

Astra Motor as the motorcycle main dealer for AHM in Astra International Group was
responsible to the operation of sales Honda motorcycle, as well as its spare parts and after
sales in some regions in Indonesia. The contribution Astra Motor to Astra Honda Motor
counted 30.4%.

To increase the number of retail sales contribution, Astra Motor targeted to increase the
number of Sales Office (SO) to 133 in 2011. The percentage of direct contribution would
increase to 25,68% and number of credit sales should increase to 213.520 unit (64,6%). It
was equivalent with 134 credit sales/month/SO.

2
www.astramotor.co.id

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Sales Control Issues

Historically, the direct sales of Astra Motor from year 2000 to 2011 showed an increasing
trend. See Exhibit 1 for detail information.

Credit Sales in Astra Motor and Finance Company

The credit sales process in Astra Motor followed the following business process:

1. Buyer paid Astra Motor branch office in advance. Astra Motor received the down
payment and order to survey to leasing company. The survey then sent to Federal
Insurance Finance (FIF). If FIF agreed, then the company will issued approval and
sent the Purchase Order (PO) to Astra Motor.
2. If Sales Operation from FIF did not approve the survey, the advance payment will be
returned to the buyer and the transaction closed (clearing). No sales and account
receivable were recorded both in Astra Motor and FIF.
3. For the approved survey, Astra Motor branch office created pooling request for
motorcycle loans which would be sent to Astra Motor Head Office.
4. Based on the pooling request, Astra International provided the funds to Astra Motor
Head Office which will be dispatched to Astra Motor branch offices based on the
request.
5. When PO has published by the leasing company (FIF) to Astra Motor branch office,
the particular branch sent the motorcycle to the buyer and created the billing to the
leasing company.
6. Leasing company disbursed and confirmed the funds.
7. Astra Motor branch office disbursed into account receivables of the leasing company.
8. Cleared account receivable sent back to Astra Motor Head Office.

See details in Exhibit 2.

The payment process operating procedure concerned of two parties: Astra Motor Head Office
and Finance Company Head Office. For example, Astra Motor Head Office in Jakarta and FIF
Head Office in Jakarta would apply the payment process for Honda motorcycle sales and the
payment.

In this process, Finance Company would start the request of Honda motorcycle payment to
Astra Motor. Astra Motor Head Office would check the system about the request regarding
the customer data, details about last month installment, and the nominal of total invoice. The
data of last month installment was received in the middle of the month. Astra Motor then
delivered the invoice to Finance Company to be paid. Finance Company then made the
payment as per invoice to Astra Motor.

The customers that need the installment information would be Finance company, Astra Motor
branch, Astra Motor Head Office. The buyer of Honda motorcycle also would require the
correct information of monthly installment.

See details in Exhibit 3.

Situational Analysis

As the team in Astra Motor concerned about the problems that arose from the daily
operations regarding the AR clearance in the dealers, the company decided to do some
analysis based from the customer‟s voice and put each issue in several groups of
service/quality issue; reliability (which divided into other two types; timeliness and speed),
accessibility, speed, and timeliness.

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Sales Control Issues

Reliability
The quality issue about reliability identified the switched clearing from finance company that
could lead to possibility of fictitious loan. For example, customer A paid down payment to
Astra Motor dealer and then installed monthly payment to finance company. The confirmation
of clearing was using the paper or hardcopy. The finance company pooled the installment
and disbursed to Astra Motor dealer and said the payment from customer B. The account
receivables from customer B was closed in Astra Motor dealer and customer A were still
opened. During an interview with the ASTRA MOTOR team, the team member commented
about this specific issue and gave a term for it called, “window-dressing.”

“Some people considered it as harmless,” as one of ASTRA MOTOR team members informed,
“However, this was an issue of credibility and reliability we are talking about. A thing such as
„window-dressing‟ was such a no-no in our company‟s policy.”

Reliability Timeliness
Currently, Astra Motor dealer reaches remote areas such as village (or kampong) in regions.
The financial institution in that village was only local bank. When finance company paid the
disbursement to Astra Motor dealer, there would be some delay in 3-4 days. The dealer
should send to Head Office and add the delay to 5-6 days because of time limit transfer in
local bank. “It was a dire situation for us, because this was money we are talking about,”
commented ASTRA MOTOR team. “This kind of unreliability situation was the reason why we
had switched clearing on the first place.” In Astra Motor dealer, and also in head office, the
account receivable would be closed after the payment was received. Due to different region,
the closing of account receivables could not be done in real time.

Reliability Speed
When the account receivables were generated, the finance company would disburse the
additional payment to Astra Motor dealer, such as joint promotion, incentive or others In this
case, Astra Motor dealer and head office could not track the historical payment from the
finance company so that the company could face a possibility of losing interest-bearing
income.

Accessibility
Astra Motor Branches and Head office did not receive the payment clearing data from Finance
Company. The source of data unavailability could be from the delay from finance company,
the usage of hardcopy and high control from finance company in the region. This was, too,
another source of problem of switched clearing which happened in the company.

Speed
Astra Motor stated five days term of payment to finance company after the customer installed
their monthly payment. The finance company paid to Astra Motor dealer through various
banks. The length of transfer day was different within different banks. Within Bank Permata
branches, the delay is 0 day. In this case, the speed of pooling payment and data to Astra
International from non-Permata Bank account was less.

Timeliness
When Astra Motor dealer already delivered the motorcycle to buyer, it should directly send
the invoice to finance company. When the dealer served a lot of request and delivery units to
buyers, they pooled the invoiced at the end of week or even month. Astra Motor dealer could
be late in sending the invoice to Finance Company. Therefore, finance company would
receive the invoice later, and the delay would be extended.

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 213-1503-001 Honda Sales Operation: Untangling Credit
Sales Control Issues

Problem Statement

“There was one interesting factor happened from all the problems within this connection
between Astra Motor and the financing company,” commented the team leader of Astra
Motor team, “it all pooled into one big problem of switched clearing.”
Between August – October 2010, Astra Motor found 174 cases of switched clearing which
happened in the system. In percentage, the number of cases were actually considered as
small; only 0.43%. However, Astra Motor had zero tolerance for any misconduct in their
company. The company‟s concern was the possibility of the misconduct to grow bigger and
eventually harm the whole company if they did not act as soon as possible.

Another concern was the time reliability issue; since the differences of two or three days were
actually could cost money and man-hours within the company. Astra Motor believed that they
could improve the situation better for the good of everybody, both in Astra Motor and their
financing company. “The situation actually could be improved for both of the companies,”
said the team leader of Astra Motor team, “both Astra Motor and the financing company were
actually selling something, and we all had one objective. It would be good if we could speed
things up.”

The pilot project of improving the credit sales was a synergy between Astra Motor and
Federal International Finance (FIF). The FIF contributions of the credit sales in Astra Motor
reached 76.5% in 2010. It meant that the credit sales from FIF were very important number
for Astra Motor. And if Astra Motor could work the cooperation with FIF, there was high
chance that the system could work with other financing companies.

Astra Motor – FIF Joint Project

The goals were defined. As the main goal, Astra Motor stated that the number of switched
clearing should be zero, or zero percentage. As the team progressed and defined their
approached, they conducted the project timeline to define the root cause and the solution
with expected time of deliverance (see Exhibit 4).

Goal Statement
The goal statement of the project was to achieve more prudent administrative process and
preventive action of future problems. Astra Motor also would like to achieve 100% accuracy
of financing from Finance Company.

Milestone
In January 2011, the project was discussed internally in Astra Motor first that should come up
with improvement process of clearing monthly installment in the middle of the month. The
next step was to sit together with FIF to propose the solution was done in March 2011. The
testing of the new system would be implemented in the middle of July 2011.

Implementation
The joint team between Astra Motor and FIF decided a united system which could be
accessed directly by Astra Motor and FIF directly as the payment transfer had happened.
There were several alternatives that could be done by the joint team. At first, the team
proposed the possibility of FIF gave the confirmation through softfile and added the date
information on every process in the textfile during payment. Eventually, the team settled on
information exchange in textfile form with FIF in which it already consisted of information
needed to do AR clearing automatically and acknowledge the lead time of credit sales
process. The clearing then transferred to Astra Motor‟s head office account (see Exhibit 5).

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Sales Control Issues

Closing

The indication of problems and also potential problems in credit was able to attract full
attention from the parties involved. The potential problem of unclear clearing could reach the
amount of Rp 180 billion per month. On annual basis, we talked about Rp 2.16 trillion
potential losses.

The problems covered were switched clearing financing from Finance Company, fictive credit
sales, discrepancies pooling to Astra International Head Office, and pending closing Account
Receivables of Finance Company. The potential problems covered were pending invoice to
Finance Company from Astra Motor branches and also different amount and timing of
Incentive Matrix from Finance Company.

As the team finally came up with the solution of joint system between Astra Motor and FIF,
the result of the project was satisfactory. The team finally able repressed the number of
switched clearing into zero case. Not only that, the potential cases of fictive credit sales even
could be tracked easily. Another good outcome which gotten by the company was the fact
that Astra Motor even could paid the sales force‟s incentive as soon as possible, which lead to
high motivation among the sales force.

Meanwhile, on FIF part, the financing company could reduce the number of manual works in
entering bills information. The errors in inputting machine code also could be minimized.

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Sales Control Issues

Exhibits
Exhibit 1. Direct Sales of Astra Motor (2000-2011

Direct Sales Astra Motor (2000-2011)

Source: Company, 2012

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Sales Control Issues

Exhibit 2. Cash Flow and Credit Sales of Product/Service

CASH FLOW AND CREDIT SALES OF PRODUCTS/SERVICE

Funding Pooling

Head Office

Motorcycle Funding Pooling Agent Service

Branch

Down Payment Disbursement Incentive

Customer Finance
Company
Installment

Cash Flow Flow of Product / Service

Source: Company, 2012

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Sales Control Issues

Exhibit 3. Payment Process Incentive Matrix

Source: Company, 2012

Exhibit 4. Milestone of the Credit Sales Improvement

Source: Company, 2012

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Sales Control Issues

Exhibit 5. Improvement of The Clearing System

Source: Company, 2012

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Sales Control Issues

About the Author

Dewi Tamara is a full-time faculty member in School of Accounting and Finance, Bina
Nusantara University, Jakarta. She taught International Finance, Financial Management for
Business, Macroeconomics, Managerial Economics, Intro to Capital Market, and Quantitative
Business Analysis. She has written Bumi Resources Case Study (2009), BII-Maybank
Controversy (2008), Crude Palm Oil (2009), PT Indosat Pricing of Bonds (2010), Jakarta
Future Exchange (2011), PT UTPE (2012). Her academic paper is published in Jurnal
Keuangan dan Perbankan (2010). Prior teaching, she has more than 8 years experience in
Finance in multinational company.

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