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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)
Dealer of the Company Total
Hero Honda Bajaj AutoNo. of
RespondentsPercentageNo. of
RespondentsPercentage
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
Source: Field Survey
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.
DeviationVariance Minimum Maximum
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)
Dealer of the Company Total
Hero Honda Bajaj Auto No. of
RespondentsPercentage
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
Source: Field Survey
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
Dealer of the Company Total
Hero Honda Bajaj AutoNo. of
RespondentsPercentage
No. ofRespondents
PercentageNo. of
RespondentsPercentage
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
Source: Field Survey
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
Hero Honda Bajaj AutoNo. of
RespondentsPercentageNo. of
RespondentsPercentage
No. of
RespondentsPercentage
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
Source: Field Survey
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
Hero Honda Bajaj AutoNo. of
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
Source: Field Survey
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
Dealer of the Company Total
Hero Honda Bajaj AutoNo. of
RespondentsPercentage
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
Source: Field Survey
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.
DeviationVariance Minimum Maximum
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
Dealer of the Company Total
Hero Honda Bajaj AutoNo. of
RespondentsPercentage
No. of
RespondentsPercentage
No. of
RespondentsPercentage
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
Source: Field Survey
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.
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