Auto & Auto Components
Organisations dealing with producing and distributing automobiles / spare parts available to the point of purchase can have an ongoing challenge or a constraint in one of the following areas:
When there is a market upswing in the automobile sector, it is not surprising to find that the production plans of auto plants, whether an automobile plant or in a tier I component plant, quickly become unstable. In spite of the best efforts of the purchase managers to expedite, the plant’s production schedules may not be stable even for a day and at times even for a shift due to lack of complete kits of parts to be assembled as per the planned schedule. So, during the course of the month WIP of incomplete kits balloon; and at the month end when more kits are completed, it drops with a huge spike in last week dispatches. This continuous struggle to complete kits during the month and the huge skew at the month end leads to significant wastage of capacity and prevents auto and auto part companies from exploiting the full potential of their plants.
In this situation the stronger player in the supply-chain (usually OEMs) tends to force the weaker players (usually vendors or dealers) to keep high inventory in their books and warehouses, while trying to enjoy the benefits of low inventory. This Win-Lose approach eventually deteriorates into Lose and Lose when the assembly plants of the dominant player get into frequent rescheduling due unavailability of parts from vendor warehouses because the inventory at the component vendors too are mostly mismatched – large excess in many SKUs while shortages in others. Rescheduling is also forced during economic downturns, when there is a ballooning of inventory at dealers. These corrections usually have a significant lag (about 6-7 months) and leads to a bull whip effect and inventory goes haywire for everyone in the supply chain.
Find out more about how both OEMs and Vendors can ensure stability of plants while increasing plant output and reliability linkKnow More
- Near 100% availability of parts and finished goods, on a daily basis
- Reduction in overall lead-time (and work in progress) by around 30% to 50%
- Increase in on-time delivery performance to more than 95% as per the originally committed dates
- Increase in output of plants by around 25% to 40%
- Reduction in overall inventory by 10-20%
- Improved cash-to-cash cycle
Vehicle Distribution (for OEMs)
Most auto OEMs in India tend to be exposed to a wide fluctuation in demand at a SKU level. Unlike in the days of Henry Ford, nowadays automobile companies offer a large variety to customers. Competition activity and norm changes also necessitate new product introductions at a faster rate than ever. Since dealers stock as per forecasts and OEM prescribed sales targets for this large range of SKUS, each dealer would have very high finished goods stock tying up space and cash in his warehouse. But, in spite of the high inventory, some popular models quickly become stocked out (loss of sale) while many slow models (e.g. demand may have shifted to new variants) have to be discounted (loss of margin). Quaintly, what is stocked out at one dealer may be in excess at another!
Questioning the need for the huge inventories that dealers are forced to maintain, can provide the direction for a win-win solution for both OEMs and dealers.
For more information on how to ensure near 100% availability at less than half the inventory.Know More
- Improvement of availability to near 100%
- Reduction in overall inventory days/ Reduction of overall inventories in the supply chain by about 50 percent
- Reduction in dealer inventory by about 50 percent
- Eliminate or reduce need for Inventory liquidation sales
- Increase dealer ROI to 60 to 80%
Spares and Services
An automobile Original Equipment Manufacturers’ (OEM) spares business has to ensure delivery of spares to the customers at point of requirement in shortest possible time since poor service experience is known to negatively impact vehicle sales of a company. But ensuring spares availability is a major challenge due to the enormous variety of parts involved across the portfolio of the OEM’s vehicles. To complicate things further, some of these parts are needed very infrequently. Consequently, whenever OEMs try to improve spares availability, the cash tied up in slow moving inventory balloons! So, most OEMs in India struggle with trying to ensure parts availability while ensuring financial viability.
Many OEMs and OES’s also distribute parts in the aftermarket through a network of distributers, and small retailers. The stock movement in the channel based on forecasts and targets creates its own challenges. Most of distributors in the market are small businessmen who find it difficult to invest large sums as capital. When many parts are inherently slow moving, the speed at which stock rotates deteriorates because the channel partner is exposed to a smaller demand and highly variable demand in a restricted geography. This impacts their ROI, and their ability to restock when items are sold out. So, the daily working capital woes of a distributer forces him to restrict his business and many tend to service only a limited number of retailers (usually larger retailers) who he perceives as low credit risk. These conditions adversely impact the last mile availability of parts.
The long tail of infrequently demanded parts pose a major challenge.Know More
- Enhance availability of parts at the point of service/retail to near 100% on a daily basis
- Reduce inventory in the overall supply chain by around 25%
- Increase sales of spares by more than 20%
- Reduce as much as 50% in Turn Around Time (TAT) at OEM service centers
- Increase on time performance of OEM service to more than 90%
Research & Development
In most auto R&D departments, addition of resources does not kept pace with increase in load. Enormous workload, the high uncertainty of the environment and the heavy dependence on external suppliers makes the task of new product development in auto companies very challenging. The process is riddled with rework, delays in production stabilization, and delays in launch. Even after launch, quality issues are not uncommon. Elevated stress levels of engineers are also a serious concern!
Know more about how to escape from the chronic delays and poor output that auto R&D tends to find itself in.Know More
- Reduce project lead-time by 33-50%
- Increase output by 30-50% without additional resources
- Clear visibility and control over progress of projects
- Reduced rework & Improved quality of output
- Rapid production stabilization
- Reduced stress on people and other resources
Is your inventory profile skewed on the wrong side – too much at a point where there is minimal aggregation and too less at the point of highest aggregation?’
To do a detailed diagnostic on your company, take this testKnow More
Using the principle of pull-replenishment of the Theory of Constraints, Vector has helped many organisations like Tata Motors CVBU, Fleetguard Filters etc to build agile operations and seamless distribution.
A ten-year journey of excellence: Fleetguard Filters Ltd
Indicators Remark No. Of SKUs Increased from 300 to 650 Overall Inventory Reduced by 67% Receivables Reduced by 75% Daily availability at distributors Now 99% Stock levels at Distributors Reduced from 45 to less than 15 days ROI of distributors Over 80% (Same Margin) No of retailers covered Increased 7 times
The firm implemented Theory Of Constraints company-wide to achieve phenomenal improvements in financial and operational performance. This video describes their journey of excellence which won them several national and international recognitions.
Transforming the spares supply chain: Tata Motors Spares CVBU
Indicators Remark Daily Availability (Central Warehouse) Increased to 94% Inventory Days Reduced by 15% Daily Availability (Dealers Warehouses) Improved to 93% Service Dealer sales growth Improved to 11% (stagnant earlier) Service Distributor sales growth Improved to 23%
The company harnessed the power of Theory Of Constraints in order to build agility and excellence in its service by transforming its large and highly complex supply chain network from a forecasting based system to pull replenishment. The company discusses this journey and its remarkable results in this video
We have partnered with some of the major names in the auto &auto components industry to create and implement radical solutions which have helped redefine industry benchmarks. These include:
YVS Vijay KumarCEO, Mahindra First Choice Services
“TOC operations processes were implemented to cut down service lead-times. Our turn around times have dropped by more than 50 percent, our on-time performance is in the 90s.”.Know More