Value chain of bajaj auto (My Second Semester Project On the mentioned topic assigned as the...

Value Chain Of Bajaj AutoAn assignment of Managerial Accounting

By:Ankita BhartiIIBM PatnaPGDM 2012-2014Roll No:005

INCEPTION, GROWTH OF THE COMPANY:• The Bajaj Group was founded in 1926 by Jamnalal Bajaj

and now consists of 27 companies. In 1945, Jamnalal Bajaj had formed M/s Bajaj Trading Corporation Private Limited, the flagship company, to sell imported two-wheelers and three-wheelers.

• The company acquired a license from the government in 1959 to manufacture these vehicles and went public the next year.

• By 1977, the company saw its plant rolling out 100,000 vehicles in a single year. In another nine years, Bajaj Auto could produce 500,000 vehicles in a year.

INCEPTION, GROWTH OF THE COMPANY:

• The present Chairman of the Bajaj group, Rahul Bajaj, took charge of the business in 1965. He was the first licensee for the Indian make of the Italian Vespa scooter. Japanese and Italian scooter companies began entering the Indian market in the early 1980s.

• Although some boasted superior technology and flashier brands, Bajaj Auto had built up several advantages in the previous decades. Its customers liked the durability of the product and its easy maintenance; the company's distributors permeated the country.


• By 1994-95, Bajaj was racing to beat Honda, Suzuki and Kawasaki in the two-wheeler segment internationally. By 1997, Bajaj faced tough competition in the domestic market and its market share stood at 40.5%.

• Under the leadership of Rahul Bajaj, the turnover of Bajaj Auto has gone up from Rs.72 million to Rs.46.16 billion (USD 936 million), its product portfolio has expanded from one to many and the brand has found a global market.

• Bajaj as a brand is well-known across several countries in Latin America, Africa, Middle East, South and South East Asia.


• The company has a network of 498 dealers and over 1,500 authorized service centers and 162 exclusive three-wheeler dealers spread across the country.

• Around 1,400rural outlets have been created in towns with populations of 25,000 and below.

• The current dealer network of Bajaj is servicing all these outlets. Bajaj is convinced that the real impetus of future two-wheeler growth will come from upcountry rural India.

•

INCEPTION, GROWTH OF THE COMPANY:• Bajaj Auto has defined specialist dealerships for rural

markets, called 'Rural Dealerships'.

• During the year 2008-09, twenty new rural dealers became operational.

• Bajaj has identified a segment of customers called 'Pro-bikers', who are knowledgeable about motor-bikes and appreciative of contemporary technology.


• They are trendsetter’s and very choosy about what they ride.

• Hence, Pro-bikers need to be addressed in a meaningful way that goes beyond the product.

• Product/Service line: Bajaj Auto is in the process of setting up a chain of retail stores across the country exclusively for high-end, performance bikes.


• These stores are called “Bajaj Pro-biking".

• Fifty two such stores have been opened across the India. • Catering to demand in this sector requires a strong and

effective distribution network as consumers are more demanding and expect delivery on time.


• Early delivery is a cause of delight for customers.

• With such vast global and Indian rural presence, designing an efficient distribution system becomes a complex task even for a company like Bajaj Auto.

• Lot of time and effort goes into designing a strategy based efficient distribution system.

Key Products: Two Wheelers and Three wheelers

Value Chain Analysis Of Bajaj Auto Suppliers:•Bajaj selects those suppliers who provides

majority of the required raw materials together.

• Bajaj Auto has 198 key suppliers for their raw materials . Some key Suppliers are:

Suppliers MaterialsJBM FramesMRF & Dunlop TiresMinda Locks and Ignition SystemsReinder Headlamps and LightsEndurance Brakes ,clutch and Cast vehiclesVarroc Digital Meter and Plastic parts Max Auto Components Ignition system and switchesSilico Cable Wires and cablesMakino Industry Brake shoes, Brake lining and Clutch Centre

Process of ordering:

• Bajaj follows a systematic process in selecting suppliers and deal with them.

• Production manager of the company study the application received by the suppliers and select proper suppliers as per their requirement.

• The selected suppliers invite for general meeting with the production manager and purchase manager of the company.

• In this meeting they decide conditions and time period of supplying raw materials to the company.

Process of ordering:• Once the contract is signed by both the parties routine work continues.

• Whenever the company required raw material they send e-mail or call the suppliers just three days before requirement in advance.

• Within two days company gets raw materials.

• The payment done after getting the raw materials on the basis of the cash or cheque.

If the suppliers are unable to provide raw materials then Bajaj immediately inform them and getting solution.

Relation with the supplier firm :• Bajaj auto believes in good relationship with its suppliers and

customers.

• The suppliers who supply raw material to the company, Bajaj auto pay them regularly.

• Bajaj also pay advance for bulky consumption.

• During annual day of the company, rewards those suppliers who were with the company for whole year and survive company without any problems.

• The suppliers gets up-to date information on purchase order, contracts and material schedule

Value Chain of Auto Mobile Industry

Inventory policy- • Bajaj auto maintains seven days inventory . Demand

Estimations are based on Panel Regression, which takes into account both time series and cross section variation in data .

• All the Mediators are connected with each other through IT linkage to know exact status of delivery of goods

Manufacturing:• With operations spanning to such vast geographies, managing a

value chain globally becomes more and more complex.

• In countries where Bajaj perceives a strong market potential, they establish a tie up with one major industrial establishment eager to invest in the project.

• This investment may include setting up strategic manufacturing or assembly units, apart from a well-established nation-wide network for marketing , distribution and after sales services.

• These investors who form alliances with Bajaj Auto are termed as “Business Partners”. Bajaj Auto offers a number of services to its business partners

Manufacturing:

They include:

• Training in sales, service and spare parts management based on the Bajaj distribution system

• Active support for setting up manufacturing facilities overseas including transfer of technical know-how

• Assistance in setting up an assembly plant for assembly of vehicles from complete knocked down (CKD) kits

Manufacturing:• Selecting of machinery and equipment and training of

technical personnel, all in a phased manner as required by the regulations in the recipient country

• Active support in setting nation-wide dealer network, also involving identification and recommending suitable partner who would assist the distributor in Business growth

Manufacturing:• Manufacturing locations: Akurdi, Pune, 411035

• This is one of the oldest plants of bajaj auto ltd with production capacity of 0.6 million vehicles/ year. The plant has been closed in order to equip for four wheeler production

Bajaj Nagar, Waluj Aurangabad 431136

• This is second plant with production capacity of 0.86 million/ year. Products manufactured here are Kristal, XCD and platina and commerial GC series.

Manufacturing: Chakan Industrial Area, Chakan , Pune 411501

• This is the biggest plant of bajaj auto Production Capacity of 1.2 million/ year , Product manufactured here are pulsar and avenger and commercial Ge series

Pantnagar , Uttarakhand

• The most advanced plant of bajaj auto .It has Capacity of 0.9 million vehicles per year. Product manufactured here are platina and XCD

Manufacturing:

Manufacturing Overview of Bajaj Auto:

Distribution Channel: Various players involved in the channel design are:

Manufacturing Plants

• Depots

• Carrying & Forward Agent

• Dealers

• Sub Dealers

Distribution Channel:

•Logistics

•Channel Design is dependent on the segmentation that Bajaj have done in the geographicand product category segments.

Infrastructure facilities:• Bajaj Auto Ltd. has well designed infrastructure facilities.

• They highly care of clarity and arrangement.

• The whole plant has divisional area like, offices, operation house, godown, and packing department.

• Bajaj Auto Ltd. l has modern technological machines; from this it can produce products.

• This machinery arranged in operation department systematically.

• The production process is step by step so as per the machinery arranges Bajaj provide all the best facilities to their employees, like parking, canteen, rest room, and also proper working conditions.

• They greatly care of their employees. They pay on monthly basis and also give bonus on special occasions.

Infrastructure facilities:• For distribution bajaj auto uses mix of depots and C&f

agents.

• This is completely dependent on the distance of manufacturing location from dealer point .

• For example due to extensive distance from manufacturing plant from west Bengal to north-east India, there exist a depot in Khadakpur with capacity of housing 800vehicles.

• There are similar depots in Punjab, Rajasthan and southern India.

Depots:

• Setting up depots is a geographical strategy adopted by Bajaj Auto.

• But this does not mean that the company has gone all out to open a large number of depots.

• It has chosen strategic locations.

• The key role played by depots is that they are meant to cater to any sudden rise in demand of vehicles, and to cover the existing geographic span of India.

• When we spoke to the management, they explained to us the reasons behind having a depot in Kharagpur.

• There are two reasons for which Kharagpur was chosen to hold a depot for Bajaj Auto.

Depots: They are as follows:

• Catering to a sudden shooting up of demand- In Bengal itself, it is common knowledge that during the festive season which spans from September to November, there is a huge demand as people spend more on festival extravaganza and it is considered an auspicious time to buy household gadgetry.

• There is a conspicuous rise in the sales of white goods, motor vehicles and jewellery.

Depots:• Reaching the states of the North-East- As per the people at

Bajaj, “We take 15 days to reach the North-East if we go via the carrying and forwarding agent concept.

• Generally bikes reach West Bengal in 7-8 days.

• The bottleneck is the Darjeeling route.

• Hence, came in the concept of a depot whereby we can reach the North-East in the same time, instead of experiencing a lag of almost a week.”

Dimensions for Choosing Depot or Factory Approach

• A dealer needs to consider his order requirements and then come up with an order to place to the regional office.

• If the demand is immediate, he may approach a Depot for the load.

• Else, he has to try to stick to factory load.

• Both of these loads have their own sets of pros and cons

• . We have listed them in the following table depending upon the criteria that are more important to the dealer , he places his order to either the factory or the Depot.

• Generally, orders are placed to the factory but in case of urgent requirement, due to which the lead time reduces considerably, the order is procured from the depot.

Dealers:• Like mentioned above, the company has a network of 498

dealers and over 1,500authorised service centers and 162 exclusive three-wheeler dealers spread across the country.

• Around 1,400 rural outlets have been created in towns with population of 25,000 and below.

• The current dealer network is servicing these outlets. Dealers can be classified under 3 heads.

Dealers:• COCO

These are Company Owned & Company Operated showrooms.

These concepts exists only for Pro-Biking showrooms.

Bajaj Auto has tried showcasing their muscle power in high end biking segment.

The concept has evolved very fast and now there are 52 Pro-Biking showrooms in the country.

The company itself does not take any order from the customer in these showrooms.

The giant dealer of the region who is acting as a logistics partner for the pro-biking concept takes the order on behalf of the company and fulfils the customer requirement.

Dealers:

CODOCodo• These are Company Owned & Dealer Operated

showrooms.

• In case of this concept ,showrooms are owned by the company but the operations in the showroom are managed by the dealer.

• This is generally the case where Bajaj wants to provide the dealer financial benefits considering the high working capital requirement of the company.

Dealers:• DODO

These are Dealer Owned & Dealer Operated.

These dealers are fewer in number because they are generally the giant dealers who are the financial muscle for the company.

In our talks, the management indicated that the top management wants to do away with this concept.

The reason behind this is that the bargaining power increases in the hands of the dealer, which puts the company in a knotty situation.

Transport & Logistics:• This function of distribution is not owned by the

company in any form.

• This is outsourced to the third party vendors.

• The third party here is Transport Corporation of India (TCI) and a few other private vendors.

• The fleet to be transported is custom-designed for Bajaj Auto by the vendor.

Transport & Logistics:

• Key Facts:

There are twenty vendors all across India

• OSL

• Jamuna Transport

• Sumit Transport

Transport & Logistics:• A Transit Insurance Compliance Letter (TICL) is

signed between the two parties

• The local level sub-dealer sometimes gets to decide the last mile logistics, as he can decide to pick up the vehicles himself or have it transported to him.

• Logistics of the vendor is decided by the company.

• Freight charges are built in the product price.

Transport & Logistics:

•Services provided by Bajaj Auto to the dealer

Workshop Training

In a month: •30-40 Mechanics can be trained per dealer

•15-20 Sales personnel can be trained per dealer

New Product Launch

•Information is percolated around a month before the product is to be launched

•The date of launch can be rescheduled in case the current stocks of the dealer are not getting cleared

Key Role & Deliverables• The most important loop that is the outcome of the

dealer management is the feedback loop.

• Using this loop company designs its strategy for different segments.

• Dealer need to fill in the required form provided by the company and update it to the company on monthly basis.

• The three heads under which the feedback is filled are:

Key Role & Deliverables•Monitoring Sheet

•Day wise Summary of Customer Satisfaction Feedback

•Health Card for Monitoring Workshops

Key Role & Deliverables• Bajaj has total of approx 498 dealers 1500

authorized service stations and 1400rural outlets for population of below 25000.

• This function is not owned by bajaj auto in any form.

• This is outsourced to third party vendor.

• The third party here is TCI along with some others like OSL, Jamuna transport and Sumit transport.

Key Role & Deliverables• Logistics to the vendor is decided by the company,

transit insurance compliance is signed between the two parties -Freight charges are included in product price.

• Bajaj rides the SAP advantage.

• In year 2000 ‘Project 110 percent’ was launched to spear head Bajaj’s growth in the future.

• Bajaj auto has linked 386 dealers out of 498 and 165 suppliers out of 198 Business information is available to company external community in real time.

Key Role & Deliverables

• The dealers can get real time information, unstructured information like news items, new product releases, dealer discussion group and internal market place.

• On operational activities and also the company can monitor the external members.

Key Role & Deliverables

Order Tracking:

• Taking a daily account of the order received from various dealers and Regional Offices (RO).

• Orders from dealers are punched in by dealer themselves.

• Orders are followed up in the system only if the credit limit is not crossed.

• This credit limit is preset into the system depending upon the dealer and his/her track record.

Packaging:

•Packaging in factory is outsourced to third party vendor. These vendors are generally from the Transport & Logistics partners

Dispatching Goods:

•Goods need to be dispatched via third party vendor TCI. State corporations and other private players are also part of the vendor list

Generating Invoice & Waybill:

•These documents need to be generated and dispatched to the respective dealer.

CUSTOMER DETAILS Types of Customers:

• Bajaj Auto ltd. produces goods by considering the different types of customers. They distribute products in small towns of the country and all over the world. The bikes lights produce as per the current trend of the customers.

• After sales Service: Bajaj Auto ltd. is one of the most accepted products by the customers. With best quality products Bajaj Auto ltd. can survive customers after selling products.

CUSTOMER DETAILS• Customer relation management:

Bajaj Auto ltd. believes in customer satisfaction.

They try to earn consumers trust by providing good quality products and after sales services.

Every two months Bajaj Auto ltd. researches the market and tries to implement the problems.

They also believe in innovation and produce different variety of products with minimum price.

Strategic Implementation of I.T in Bajaj Auto to Maintain It’s competitive Edge Over Others:

•For decades, Bajaj Auto was riding high. The company was enjoying a huge market share and the only way it knew was: by building basic, durable scooters on the platform of ‘value for money.’


•But when the market place changed, Bajaj was late to respond. It became clear that the company could no longer derive big market shares from limited brands and products. Then started the re-structuring of products, channels and the performance management system


•Along with that, the company realised that it had to redesign its IT structure. Bajaj Auto announced the successful “Go Live” of their External Portal Initiative for their sales and service employees, dealers and suppliers.


•SAP’s my SAP Enterprise Portal was implemented simultaneously with the current SAPR/3 ERP implementation.


•. Business information is now available to the company’s external community in real time. This assists in improved decision-making, whether it is to meet customer requirements or to maintain efficiency in supply chain

management.


• The company’s field sales teams get full visibility on all dealer activities while the dealers get real-time access to relevant information on operational activities.


• The dealers and sales employees get information relevant to their respective region and territory by aggregation from the underlying SAP R/3 ERP database. Bajaj has linked 380 out of its 483 dealers through this system. Also connected are 165 out of a total of 200 suppliers.


• The dealer portal, in addition to operating information, provides access to unstructured information like news items, new product releases, new product introduction, dealer discussion groups and internal marketplace.


• The supplier gets up-to-date information on purchase orders and contracts, material schedules, and payment details. Bajaj Auto, in turn, gets invoicing information from suppliers for its automated material receipt system.


• This helps in streamlining the supply chain, optimizing inventories and reducing non-value-adding activities at both ends. Every PC has a hardware lock so that the correct terminal is established and does not travel out of the dealer’s premises


• Bajaj is also planning to extend the IT systems even as it plans to launch a major marketing initiative in rural areas. “As this project gets implemented, we have to see how IT can support it. There is an issue of Internet connectivity.


• But the infrastructure is changing with telecom majors expanding their network as company is focussing in connecting all it’s network with each other through WLL.

Inbound Logistics

(Pay order cycle,

reordering etc)

Operations

(processing ,

machines etc)

Outbound

Logistics (Polyuret

hane, Brakes , steel etc)

Marketing and Sales

(COCO, CODO

etc)

Services (Training

for dealers,

IT implications etc)

Infrastructure Facilities

Human Resources

Technicalities

Procurement

Margin

Margin

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