1. Auto SCM 2012 – New Delhi Flexibility in the Supply Chain – Answer to uncertainty ? - Dr.R.Mahadevan India Pistons Chennai – 600011 27-08-2102. 1

2. Indian Auto Industry Long term growth Short term uncertainties 2

3. Long Term Growth 3 3124 912 9700 2350 39.9 113 2011-122020-212010-112020-21 Production in 000’s Production value in billion dollars Vehicle ProductionComponent Industry Passenger vehicle Commercial vehicle CAGR 13%CAGR 11% Source: ACMA

4. Short Term Economic slowdown Disruptions due to - Unexpected labor situation - Infrastructure bottlenecks Exchange rate volatility High cost of capital Uncertainty of GST Implementation EXTERNAL 4

5. Short Term High demand fluctuation Product Mix Variability Cost Pressures in the face of high inflation Disruptions due to unpredictable power supply Shortage of skilled manpower INTERNAL 5

6. Amalgamations group Simpsons & Co Ltd India Pistons Ltd Addison Paints & Chemicals Ltd (Diesel Engines) (Piston, Pin, Rings & Liners) (Paints, Lacquers & Enamels) Tractor and Farm Addison & Co Ltd Bimetal Bearings Ltd. Equipment Ltd(Cutting Tools & M/c tool (Thinwall Bearings) (Tractors)Accessories) IP Pins & Liners Ltd TAFE ACCESS Ltd (Piston Pins & Tools) Amalgamations Repco Ltd. (Farm Equip & (Clutch Assemblies & Driven Accessories) Plates) IP Rings Ltd (Steel Piston Rings) AMCO Batteries LtdAmalgamations Valeo Clutch (Lead-Acid Batteries)Ltd. IPL Engine Components Pvt Ltd (Clutch Assemblies) (Liners) Shardlow India Ltd (Crankshafts & Forgings) Stanadyne Amalgamations Ltd. MAHLE IPL Ltd (Fuel Injection Equipments) (Piston) L.M. Van Moppes Diamond Tools India Ltd. (Diamond Tools)

7. Typical Supply Chain in Indian Auto Industry R.M Supplier Tier1 Supplier Components Supplier End customer Distribution Network OEM’s Subsystem Integration Log. Provider Warehouse Distribution Network End Customer 7 Log.Provider Warehouse e

8. Characteristics of Indian Tier 1 players Majority of Indian tier 1 suppliers:- Are sandwiched between large raw material suppliers and large OEM’s Often partly or fully import raw material requirements Expected to partner vehicle manufacturers in NPD, as well as provide upgraded technology Contribute to cost reduction initiatives AND DEAL WITH UNCERTAINTY while meeting QCD requirements 8

9. What are their strengths ? Strong on quality systems Cost effective manufacturing Capability to deal with small batches Relatively high innovation ability Robust vendor/OEM relationship built over decades Extensively employs outsourced logistics 9

10. What are their weaknesses ? Break-even at a high percentage of capacity utilisation Very little planned spare capacity Shortage of talent – high attrition Shy to invest without firm orders High lead time for model change 10

11. Nature of uncertainty The uncertainty principle (quantum mechanics) In our situation the uncertainty will encompass - volumes - mix - lead-time - service level - packaging and delivery point - end to end cost 11

12. How to tackle uncertainty & be competitive Reduce the level of uncertainty through better demand forecasting using modern techniques Make the entire supply chain more responsive with flexibility and agility 12

13. Because poor SCM leads to Higher Delivery Costs Wastage of Resources Higher Inventory Customer dissatisfaction 13

14. In the Supply Chain Do not think of uncertainty as a threat but as an opportunity to improve agility Improve communication to seemlessly connect all players in the SC Take cost out - not transfer to another player in the chain 14

15. Logistics cost India spends more on Logistics as a percentage of GDP than even developed countries (30% higher) Cost of products goes up by estimated 1.5% to 2% due to poor SCM Compared to China we have a Logistics cost disadvantage of 2.2% adding to our overall un-competitiveness There is scope for a 4 to 7 % cost reduction in Logistics 15

16. What can we do? As Tier1 Component Supplier what can we do to improve responsiveness of our SCM? 16

17. Become more flexible In manufacture: - adopt lean practices incl. JIT mfre, kaizen activities, kanban system, visual management etc. - improve communication down to the last level in the shop floor -plan for spare capacity as a strategy 17

18. Become flexible - contd As an enterprise:- Outsource as much as possible – particularly those areas that are undifferentiated. Outsource knowledge and product not product alone. Optimise pipe-line inventory in collaboration with other links in the SC Transparently share risks as well as rewards Variable cost structures that can be tweaked to demand. Collaborative product development 18

19. Some open questions….. Is there a transparent and open sharing of information between the links in the Supply Chain? In Model changes is there an upfront involvement of vendors as a part of the development team? Do we practice collaborative capacity planning? Have we refined our demand forecasting techniques to reduce uncertainty? 19

20. Open Questions In SCM What should be optimized – Cost? Inventory? Service level? What constitutes cost? Vendor’s actual expenditure or hidden costs as well? SCM is increasing in complexity with Globalization. Are we taking enough steps to create competent manpower? When will GST become a reality? 20

21. Thank you 21