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Indian Automotive Supply Chains in dire need of realignment: Report

Author Name: Basundhara Choudhury
Post Date: 2021-01-05
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Emerging out of the headwinds of the pandemic, the Indian automotive industry now faces a dire need of realigning their Supply Chains.

The sector will need to take up a bottom-up evaluation of the supply chain architecture and its vulnerabilities against external factors like the pandemic, according to a recent EY India report titled ‘non-linear automotive supply chain — Covid-19 and beyond’, which has thrown light on how the impact has been deep rooted and how the industry has to map out vulnerabilities to change the road ahead.

From procurement planning and supplier management, integrated sales and operations planning, to manufacturing, logistics and distribution, the Indian automotive supply chain and manufacturing segment has been evaluating mid- and long-term impacts that the pandemic has imprinted upon it. This sector has been shifting gears from recovery to growth amid the damage done due to the guelling period post lockdown.

“The Indian automotive supplier base is currently not too diversified for majority of components. This was to drive volume-based price efficiencies. However, this strategy is highly exposed to risks arising from disruptions in geographies that supply key auto components.”

~Vinay Raghunath, Partner and Automotive sector leader, EY India

The report underlines the repercussions of Covid-19 on the Indian automotive supply chain and the resultant inefficiencies. It also highlights focus areas which can improve its performance in the interim and beyond

The Indian automotive industry imports $17.5 billion worth of auto components. Prior to the pandemic, to enforce ‘Make in India’, the government in the Union Budget 2020-21 hiked customs duty on raw materials and inputs imported by domestic manufacturers by 2.5-5%, and completely built units (CBUs) from 30-40% for commercial vehicles other than electric.

In India, logistics costs have traditionally been higher than the neighbouring nations.

The primary challenge for the Indian automotive supply chain would revolve around managing the cost escalation year-on-year, led by rising fuel costs.

OEMs, therefore, need to explore the ability of key suppliers to fulfill orders from alternative locations.

The critical first step would lie in identifying a company’s key direct suppliers and dependencies — both in the supply and the demand side. It requires an in-depth mapping exercise to understand its ability to meet supply requirements and responses during potential risk scenarios.

This will enable the creation of a flexible ecosystem comprising suppliers and distribution partners. Increased and real-time visibility of their networks will result in better preparedness in case of disruptions to specific nodes or routes.

Exploring agile and flexible supply and distribution networks could drastically cut down the risks associated with unpredictability of demand.

Being highly dependent on a lowest cost supplier and minimal inventory might significantly impact the supply chain, as business environment deals with dynamic demand characteristics of the market.

Digitisation of the supply chain will also provide the necessary edge to address the changing needs of customers. There is a need to appropriately evaluate newer variables for designing the optimal supply chain model, basis the possible external scenarios.

“Organisations need to consider an end-to-end risk assessment of their supply chain covering demand and supply risks, operational performance, global trade implications, customer impact and people aspects. These can be followed by simulating crisis scenarios and validating response tactics.”

~Som Kapoor, Partner, Automotive sector, EY India

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