Managing Trade Off in Automobile Supply Chains Responsiveness vs Efficiency.

8/10/2019 Managing Trade Off in Automobile Supply Chains Responsiveness vs Efficiency.

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MANAGING TRADE-OFF IN AUTOMOBILE SUPPLY CHAINS -

RESPONSIVENESS Vs EFFICIENCY

Dr. VENKATESHWAR RAO ROKANDLA GANESH MERGU

Professor-Dept. of Business Management Lecturer- Dept. of Business Management

College of Business and Economics College of Business and Economics

Dilla University-Dilla- Ethiopia Dilla University-Dilla- Ethiopia

Email:[email protected] Email:[email protected]

Mobile: +251934717878 Mobile: +251916930028

Abstract

The automobile supply chain can be either responsive or efficient in practice. A responsive

supply chain is distinguished by short production lead-times, low set-up costs, and smallbatch sizes and minimum inventories that allow the responsive firm to adapt quickly to

market demand, but often at a higher unit cost. An efficient supply chain is distinguished by

longer production lead-times, high set-up costs, and larger batch sizes and high volumes of

inventories that allow the efficient firm to produce at a low unit cost, but often at the expense

of market responsiveness. Aftermarket performance is also a key factor in the consumers

choice of vehicle and is a strong driver of brand loyalty. The quality, availability and cost of

service parts are critical components in the consumers product and service experience with

their vehicles. The present article examines the performance of automobile supply chains

with responsive Vs efficiency dimensions.

Key Words: After Market Supply Chain-- Efficient Supply Chain- Responsive Supply

Chain- Stock Levels-Supply Chain Metrics- supply chain Trade-Off.

INTRODUCTION:Supply Chainis theall the necessary activities required for creating and delivering products

and services to customers. Supply chain consists of all parties involved, directly or indirectly,

in fulfilling a customer request. The supply chain includes not only the manufacturers and

suppliers, but also transporters, warehouses, retailers, and even customers themselves. In

general a supply chain is a network of facilities and distribution options that performs the

functions of procurement of materials, transformation of these materials into intermediate and

finished products, and the distribution of these finished products to customers. Supply chainsexist in both service and manufacturing organizations, although the complexity of the chain

may vary greatly from industry to industry and firm to firm. Supply Chain Management is set

of approaches utilized to efficiently integrate suppliers , manufacturers, warehouse ,and

stores, so that merchandise is procured and distributed at right quantities, to right locations

,and at the right time, in order to minimize system wide cost while satisfying service level

requirements.

SUPPLY CHAIN IN AUTOMOBILE INDUSTRY:The supply chain of automotive industry in India is very similar to the supply chain of the

automotive industry in Europe and America. The orders of the industry arise from the bottom

of the supply chain i. e., from the consumers and go through the automakers and climbs upuntil the third tier suppliers. However the products, as channelled in every traditional
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automotive industry, flow from the top of the supply chain to reach the consumers.

Automakers in India are the key to the supply chain and are responsible for the products and

innovation in the industry.

From the past two decades, automobile companies discovered new manufacturing

technologies and strategies that allowed them to reduce the cost and better compete in

different markets. Strategies such as Just-In-Time (JIT), Lean manufacturing, Total QualityManagement (TQM) and others become very popular, and vast quantities of resources were

invested in implementing these strategies. In the last few years, however, it has become clear

that Automobile Companies have reduced manufacturing cost as much as possible, now the

automobile Companies are concentrating on effective Supply Chan Management (SCM) as

the next step to decrease the operational cost and to increase their market share and profits.

RESPONSIVE AND EFFICIENCY OF SUPPLY CHAIN:The responsiveness of supply chains to changing market requirements and their overall

efficiency are important issues in supply chain design and management and therefore

currently receive wide attention in the scientific community as well as in practice.

Responsiveness can be defined as the ability to react purposefully and within anappropriate

time-scale to customer demand or changes in the marketplace, to bring about or maintain

competitive advantage (Holweg, 2005, p. 605). In contrast, a supply chain would be

considered efficient if the focus is on cost reduction and no resources are wasted on non-

value added activities (Naylor, Naim and Berry, 1999, p. 108).

The automobile supply chain can be either responsive or efficient in practice. A responsive

supply chain is distinguished by short production lead-times, low set-up costs, and small

batch sizes and minimum inventories that allow the responsive firm to adapt quickly to

market demand, but often at a higher unit cost. An efficient supply chain is distinguished bylonger production lead-times, high set-up costs, and larger batch sizes and high volumes of

inventories that allow the efficient firm to produce at a low unit cost, but often at the expense

of market responsiveness.

This article examines practices of Hero Honda and Bajaj Auto by developing metrics related

to inventories of vehicles and spare part and components etc practices in respective

automobile supply chains. The results of above metrics are compared with dimension of

efficiency or responsiveness of supply chain management practices.

OBJECTIVES OF THE STUDY:

More specifically the following are the objectives of the proposed research:

1. To examine the extent of S.C.M practices adopted by the select Two Wheeler

Automobile units.

2. To study the supply chain performance of select Two Wheeler Automobile Units on

S.C.M practices at dealers point.

3. To elicit information from dealers of select Automobile Units on S.C.M policies and

practices to develop supply chain metrics.


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SOURCE OF THE DATA:The present study is based on both primary data and secondary data.

1. Primary Data:

Primary data is collected through administering a pre- tested and structured questionnaire to

the 20 (twenty) dealers and sub-dealers of Hero Honda Motors Limited (Hero Moto Corp)

and Bajaj Auto Limited.2. Secondary Data:Secondary data were collected from various sources like reports from company annual

reports, SIAM, CII, Association of Indian automobile manufacturers, C.S.O and National

Sample Survey etc, and also published data of Automobile Industry Associations, In-House

bulletins, books, research journals. Trademagazines, websites, company portals etc.

3. Sample Design:

The present study is based on survey of 20 dealers of select automobile companies, for these

purpose two different types of dealers i.e. Company Authorized Dealers and Sub-Dealers are

selected from select automobile companies. For the purpose of selecting the sample from

above two categories stratified random sampling method is adapted. The total sample size is

20 (twenty) dealers of Hero Honda and Bajaj Auto companies.

Table -I Sample Design

S.No Category Sample Size

1 Hero Honda Dealers and Sub-Dealers 10

2 Bajaj Auto Dealers and Sub-Dealers 10

Total Sample Size 20

The table-1 indicates dealers data, who are the respondents for the survey. Total 20 dealers

and sub-dealers are participated in this survey. From Hero Honda 10 dealers/sub-dealers and

from Bajaj Auto 10 dealers/sub-dealers is part of the present study.4. Period of Study:

The present survey of Dealers and Sub-Dealers of Hero Honda and Bajaj Auto is restricted to

Telangana region (Karimnagar, Warangal, Nizamabad, Medak and Hydrabad Districts) of

Andrapradesh state in the period of 2011 -2013.

INVENTORY MANAGEMENT IN AUTOMOBILE SUPPLY CHAIN

The inventory exists in the supply chain because of differences between demand and supply.

For an automobile manufacturer its more economical to produce in large lots that afterwards

will be stored for future sale. The automobile dealer has to hold the inventory in order to

satisfy customers demand in time. An important role of inventory is increasing the demandthat can be satisfied by having the product available when the customer wants it.

Inventory has an important role in assuring a companys competition. If a firms competitive

strategy requires a high level of responsiveness, the company can achieve this goal locating

large amounts of inventory near customers. Contrary, a company can use inventory to

become more efficient, reducing costs. Dilemma in case of inventory is between the

responsiveness that results from bigger inventory and the efficiency that results from smaller

inventory.

Inventory levels are affected by customer service expectations, demand uncertainty, and the

flexibility of the supply chain. For products with relatively certain demand and a long product

life, it should be relatively easy to maintain desirable customer service standards even as

inventories are reduced. However, for products characterized by erratic demand, a short life

cycle, or product proliferation, a more responsive supply chain and larger buffer inventories


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may be needed to meet a desired customer service level. The following tables-II,III and IV

represent the data relating to the inventories of Hero Honda and Bajaj with minimum stock

level, maximum stock level and re order level.

Table II Minimum (Safety Stock) Stock Level at Dealers (Number of Units)

Minimum stocklevel at

Dealers(Number

of units)

Dealer of the Company Total

Hero Honda Bajaj AutoNo. of

RespondentsPercentageNo. of

RespondentsPercentage

No. ofRespondents

Percentage

Below 10 5 50.0 4 40.0 9 45.0

10 to 20 3 30.0 3 30.0 6 30.0

20 to 50 2 20.0 2 20.0 4 20.0

50 to 100 0 .0 1 10.0 1 5.0

Total 10 100.0 10 100.0 20 100.0

Source: Field Survey

The above table-II presents the data relating to the minimum (safety stock) stock level

maintained by Hero Honda and Bajaj Auto dealers at their ware houses or showrooms. For

the purpose of comparison, mean (average safety stock) values and standard deviation is

calculated and presented in the following table-III.

Table -III Average Minimum Stock Level at Dealers (Number of Units)

Dealer of the

CompanyMean N

Std.

DeviationVariance Minimum Maximum

Hero Honda 14.00 10 11.97 143.33Below 10

Vehicles

20 to 50

Vehicles

Bajaj Auto 21.00 10 22.21 493.34Below 10

Vehicles

50 to 100

vehicles

Total 17.50 20 17.73 314.47Below 10

Vehicles

50 to 100

vehicles

As per the results presented in the table-III the average safety stock maintained by Hero

Honda dealers are 14 vehicles at their show rooms, the Bajaj Auto dealers maintaining 21

vehicles as average safety stock at their showrooms. The Bajaj Auto dealers are maintaining

more vehicles as average safety stock than Hero Honda dealers. The safety stock rescues the

dealer in uncertain demand and delays in production schedules and transportation delays,higher level of safety stock enables the dealer to more responsive towards market dynamics,

so it is concluded that Bajaj Auto supply chain is better than Hero Honda supply in respect of

responsiveness with safety stock maintenance. The Hero Honda supply chain is efficient

supply chain as it maintaining low safety stock levels compared with Bajaj Auto dealers.

MAXIMUM STOCK LEVEL AT DEALERS:The amount of inventory which should not be exceeded is called as maximum stock level.

The limit is normally determined after considering storage space of the facilities, how quickly

inventory is sold, cost of insurance on inventory, and the risk of inventory becoming outdated

before it is sold. Dealers maintain maximum inventories in the seasons to meet the customers

demand for vehicles. The below table-IV shows the maximum stock maintained by Hero


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Honda and Bajaj Auto dealers and average maximum inventory of respective companies at

their dealers warehouses.

Table -IV Maximum Stock at Dealer (Number of Units)

Maximum stockat Dealer(Number

of Vehicles)





No. ofRespondents

Percentage

10 to 20 4 40.0 2 20.0 6 30.0

20 to 50 2 20.0 2 20.0 4 20.0

50 to 100 4 40.0 3 30.0 7 35.0

100 to 200 0 .0 2 20.0 2 10.0

200 Above 0 .0 1 10.0 1 5.0

Total 10 100.0 10 100.0 20 100.0


The 40 percent of Hero Honda dealers are maintaining 10 to 20 vehicles as maximum

inventory, the 20 percent of dealers are maintains 20 to 50 vehicles as maximum stock at

their showrooms, and 40 percent of Hero Honda dealers are maintaining 50 to 100 vehicles as

maximum stock at their show rooms.

The 20 per cent of Bajaj Auto dealers maintains 10 to 20 vehicles as maximum stock at their

show rooms; another 20 percent Bajaj Auto dealers maintains 20 to 50 vehicles as maximum

stock. The 30 percent of dealers of Bajaj Auto maintains 50 to 100 vehicles as maximumstock; another 20 percent maintains 100 to 200 vehicles as maximum stock and 10 percent of

dealer having above 200 vehicles as maximum stock at their showrooms.

To compare and ascertain maximum stock levels at dealers point the mean and standard

deviation is calculated and presented in the table-V.

Table -V Average Maximum Stock at Dealer (Number of units)

Dealer of the

CompanyMean N

Std.


Hero Honda 43.00 10 28.597 817.77810 to 20

Vehicles

50 to 100

Vehicles

Bajaj Auto 88.0 10 75.065 5634.72210 to 20

Vehicles

200 Vehicles

Above

Total 65.25 20 59.813 3577.56610 to 20

Vehicles

200 Vehicles

Above

The average maximum stock of Hero Honda dealers is 43 vehicles and Bajaj Auto dealers is

88 vehicles, so Bajaj Auto is better in maintaining more vehicles as maximum stock than

Hero Honda. Thus Bajaj Auto is more responsive than Hero Honda. Hero Honda is

minimising its inventory carrying cost, so Hero Honda supply chain is efficient supply chain

than Bajaj Auto.


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RE-ORDER LEVEL:Re-order Level is the level of stock of which a further replenishment order should be placed.

The re-order level is dependent upon the lead-time and the demand during the lead-time. The

below table depicts the re-order level and average re-order levels of Hero Honda and Bajaj

Auto dealers. The table-VI presents the re-order level of dealers of select companies.

Table -VI Re-Order Level (Number of Units)

Re-order

level(Number

of units)


Hero Honda Bajaj Auto No. of


No. of Percentage No. of Percentage

10 to 20 6 60.0 5 50.0 11 55.0

20 to 50 4 40.0 4 40.0 8 40.0

100 to 200 0 .0 1 10.0 1 5.0

Total 10 100.0 10 100.0 20 100.0


To compare re order level of Hero Honda and Bajaj dealers average re order level and

standard deviations are calculated and presented in the table-VII below.

Table -VII Average Re-order level (Number of units)

Dealer of the company Mean N Std. Deviation Variance Minimum Maximum

Hero Honda 23.00 10 10.32 106.6610 to 20Vehicles

20 to 50Vehicles

Bajaj Auto 37.00 10 41.09 1689.1610 to 20Vehicles

100 to 200Vehicles

Total 30.00 20 29.97 898.6210 to 20Vehicles

100 to 200Vehicles

As per the results presented in the table-VII, the Hero Honda dealers average re-order level

is 23 vehicles and Bajaj Auto dealers average re-order level is 37 vehicles, the Bajaj Auto re-

order level is higher than Hero Honda dealers re-order level, so its concluded that Bajaj Auto

supply chain more responsive than Hero Honda and at the same time Hero Honda supply

chain is more efficient than Bajaj Auto supply chain.

AFTERMARKET PERFORMANCE

Aftermarket performance is also a key factor in the consumers choice of vehicle and is a

strong driver of brand loyalty. The quality, availability and cost of service parts are critical

components in the consumers product and service experience with their vehicles.

The automotive aftermarket is attractive because of its continued growth potential. Trends in

vehicle usage and ownership show that there will be an increasing need for spare parts and

service. Spare parts are stocked at each location along the supply chain, and each node

experiences different pain points. It is highly challenging to get the right part to the right

place as quickly as possiblewithout significant over stocking or under stocking.


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Further complicating the spare parts equation for two wheelers manufacturers is the large

increase of models and variants introduced over the past few decades to address virtually

every need and niche. As well, vehicle manufacturers have provided greater variants for the

consumer, with more and more combinations of options for many models. This proliferation

of options and choices has been further compounded with ever-shorter design cycles and the

need for the introduction of even more models for the emerging markets. This has created anexplosion in the numbers of parts in the aftermarket and has dramatically increased the

complexity of parts management.

The automotive spare parts supply chain is vast and highly fragmented. Manufacturers should

work with suppliers and dealers to persuade their consumer base to return for service after the

sale of the vehicle. They should also work to build a base of responsive to customers across

the broad spectrum of channels that consumers use for servicing their vehicles.

The aftermarket supply chain varies company to company, in some cases spare part

manufacturer supplies genuine spare parts to manufacturer of two wheeler , then

manufacturer supply it to their dealers and distributors and authorized service center etc. in

some cases spare part manufacturer also supplies spare parts along with two wheeler

company. There are also spare parts companies which supplies spare parts to dealers, servicecenters and auto mobile retailers without any relation to companies supply chain, this type of

supply chain is called grey market chain.

The following tables-VII to VIII, shows the data related to the availability of spare parts at

dealer, suppliers of spare parts to dealers, stock levels of spares, supply of spare parts to retail

outlets, replenishment method and credit terms of spare parts etc.

Table -VIII Availability of Genuine Spares and Components

Availabilityof GenuineSpares and

Components




No. ofRespondents

PercentageNo. of


Yes 9 90.0 10 100.0 19 95.0

No 1 10.0 0 .0 1 5.0

Total 10 100.0 10 100.0 20 100.0


The above table-VII represents the data relating to availability of genuine spare parts and

components at Hero Honda and Bajaj Auto dealers showrooms. The 90 percent of Hero

Honda dealers said that, the genuine spares and components are available at their show

rooms, 10 percent of Hero Honda dealers said that genuine spares and components are not

available with them. Whereas 100 percent Bajaj Auto dealers said that genuine spare parts

and components are available in their showrooms.

Comparatively Bajaj Auto supply chain is better than Hero Honda supply chain in making

genuine spare parts available at dealers point and also more responsive than Hero Honda in

terms of spare parts availability.


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Table -IX Suppliers of Spares Parts

Suppliers ofSpares Parts

Dealer of the company Total




No. of


Company 6 60.0 10 100.0 16 80.0

Spare PartsManufacturer

3 30.0 0 .0 3 15.0

Third Party 1 10.0 0 .0 1 5.0

Total 10 100.0 10 100.0 20 100.0


The above table-IX shows about spare parts supplier to Hero Honda and Bajaj Auto dealers.

The 60 percent of Hero Honda dealers are sourcing spare parts from company, the 30 percent

of dealers getting their spare parts from spare parts manufacturer directly and the 10 percent

of Hero Honda dealers depending on third party supplier for their spare parts requirements.

In case of Bajaj Auto dealers, all the dealers (100 percent) sourcing their spare parts directly

from company. The Bajaj Auto supply chain perfectly meeting the requirements of spare

parts at dealer point by its supply chain, then Hero Honda supply chain.

Table -X Stock Level of Spares, Components and Accessories (In Rupees)

Average

Stock

Level

(In Lakhs

of Rupees)

Dealer of the company Total


Respondents PercentageNo. ofRespondents

Percentage No. ofRespondents

Percentage

1- 5 3 30.0 4 40.0 7 35.0

5 - 10 1 10.0 3 30.0 4 20.0

Above 10 6 60.0 3 30.0 9 45.0

Total 10 100.0 10 100.0 20 100.0


To compare Hero Honda and Bajaj Auto dealers spare parts stock levels the mean and

standard deviation is calculated and shown in the table-XI.

Table -XI Average Stock Level of Spares, Components and Accessories

Dealer of the Mean(in N Std. Variance Minimum Maximum

Hero Honda 8.90 10 4.254 18.100 1 to 5 Above 10

Bajaj Auto 7.20 10 3.967 15.733 1 to 5 Above 10

Total 8.05 20 4.097 16.787 1 to 5 Above 10

The Hero Honda mean value is 8.9 lakhs and Bajaj Auto mean value is 7.20 lakhs, so it can

be concluded that Hero Honda dealers are maintaining high levels of spares inventory than

Bajaj Auto dealers spares inventory. The Hero Honda spare parts supply chain is responsive

supply chain than Bajaj Auto.


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Table -XII Rating of Supply of Spare Parts, Components and Accessories

Rating of

supply of

spare parts,

components

andaccessories




No. ofRespondents

Percentage No. ofRespondents

Percentage

Very Poor 1 10.0 0 .0 1 5.0

Average 0 .0 1 10.0 1 5.0

Good 7 70.0 6 60.0 13 65.0

Excellent 2 20.0 3 30.0 5 25.0

Total 10 100.0 10 100.0 20 100.0


The above table-XII presents the data of rating of Hero Honda and Bajaj Auto dealers on

supply of spare parts and components by their respective supply chains. The 10 percent ofHero Honda dealers rated spare parts supply as Poor, 70 percent dealers rated as Good and 20

percent of Hero Honda dealers rated as Excellent. The 10 percent of Bajaj Auto dealers rated

spare parts supply by their company as Average, 60 percent dealers rated it as Good and 30

percent of Bajaj Auto dealers rated spare parts supply as Excellent.

To find out the opinion of the respondents rating on supply of spare parts and components,

the five point likert rating scale is applied, the responses ranged from 5 to 1. The total scores

for each variable were obtained by multiplying frequencies with the range of responses and

summing them up. The table 13 presents the data relating to opinion of the customers towards

the service centre facilities of respective two wheeler companies. In order to find out the total

score obtained by respondents, the opinion given by respondents Excellent, Good, Average,

Poor and Very Poor are multiplied by 5,4,3,2 and 1 respectively. The calculated results are

presented in below table-XIII.

Table -XIII

Rating of Supply of Spare Parts, Components and Accessories

(5 Point Likert Rating Scale Method)

Dealer of the

CompanyMean Rank N

Std.


Hero Honda 3.902nd

10 1.101 1.211Very

PoorExcellent

Bajaj Auto 4.20 1st 10 .632 .400 Average Excellent

Total 4.05 20 .887 .787Very

PoorExcellent

The Hero Honda mean value of spare parts rating is 3.90 and Bajaj Auto mean value is 4.20,

the Hero Honda scored 2nd rank, whereas Bajaj Auto scored 1st rank, so its concluded that

Bajaj Auto is better than Hero Honda in overall spare parts and components supply and it is

efficient in spare parts supply chain.


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Table-XIV

Supplying Spares, Components and Accessories to Local Automobile Stores

Supplying

toAutomobile

stores




No. of


No. of


Yes 6 60.0 4 40.0 10 50.0

No 4 40.0 6 60.0 10 50.0

Total 10 100.0 10 100.0 20 100.0


The above table-XIV depicts the data relating to the supply of spare parts and components to

local automobile spare parts retailers by Hero Honda and Bajaj Auto dealers. The 60 percent

of Hero Honda dealers are supplying spare parts and components to local automobile spare

parts retailers and 40 percent of Hero Honda dealers not supplying spare parts to local spare

parts retailers. Whereas the 40 percent Bajaj Auto dealers supplying spare parts to local

automobile spare parts retailers, and the 60 percent of Bajaj Auto dealers are not supplying

spare parts and components to local spare parts retailers.

The spare parts of two wheelers should be available at dealers, authorized service center and

local automobile spare parts retailers, so that customers can find genuine spares and

components at ease, to make spares and components available and to prevent grey market, the

dealers should supply spares to local spare parts retailers. Bajaj Auto dealers spare parts

supply chain is better than Hero Honda spares supply chain in supplying spare parts to localspare parts retailers.

CONCLUSION:The present article examined supply chain performance metrics by using dealers responses

and converted these responses into supply chain performance metrics. The results of survey

indicating both the two wheeler major companies are striving for excellence in supply chain

metrics. Providing the right degree of responsiveness and having an efficient supply chain at

the same time is a goal that is hard to achieve and that typically involves trade-off decisions

by management, since increased responsiveness can be perceived to come at the expense of

reduced efficiency, and vice versa. However, there may be strategies, such as revised

planning approaches, that restructure supply chain processes to achieve both goals at thesame time and enable a supply chain to be responsive and efficient simultaneously. . Both

Hero Honda and Bajaj Auto Supply chains are striving to maintain a trade-off between

responsiveness and efficiency at dealers decoupling point in supply chain.


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REFERENCES:1. David Simchi-Levi, Philip Kaminsky and Edith Simchi-levi Designing and

Managing the Supply ChainTata McGraw-Hill Publication, New Delhi-2004.

2. Donald J. Bowersox and David J. Closs Logistical Management-The Integrated

supply chain process, Tata McGraw-Hill Publication-2008.3. Holweg, M. (2005). The three dimensions of responsiveness,International Journal

of Operations & Production Management,25/7, pp. 603622.

4. Naylor, J.B., Naim, M.M. and Berry, D. (1999). Leagility: Integrating the lean and

agile manufacturing paradigms in the total supply chain,International Journal of

Production Economics, 62, pp. 107118.

5. Sunil Chopra and Peter Meindl, Supply Chain Management-Strategy, Planning and

Operation,Pearson Prentice Hall, New Delhi-2009.

Managing Trade Off in Automobile Supply Chains Responsiveness vs Efficiency.

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