I

ndia is a vast county, roughly one third the size of theUS, with a $3.4 billion indigenous automotive industrythat includes serious contenders such as Tata, Maruti

and Mahindra & Mahindra. Automotive productionin the region is booming and this is attracting Western

manufacturers.In the last few months Audi has announced its intention

to join Volkswagen stablemate Skoda in the region, and VWis looking for a site to produce vehicles in volume. BMW isplanning to start manufacturing in Chennai by early 2007,building the 3 and 5-series models for local consumption.In addition, Renault has just signed an agreement to buildthe Logan in India in a jointly owned plant with Mahindra &Mahindra, and plans to extend the product line beyond theLogan.

Many foreign carmakers are already there (see illustrationon page 25). One example is Hyundai, which is producingsubstantial volumes (260,440 April OS-Mar 06) and isplanning to increase volumes to 600,000 by the end of2007. It is adding a second plant, which is scheduled forcompletion in October 2007, and half of its volume isearmarked for export.

The commercial vehicle sector is also growing. V.G.Ramakrishnan, Program Manager, Automotive &Transportation Practice, Frost & Sullivan, India says: "Thisyear has been a very good year for the Indian automotiveindustry, we have seen approximately 35-37 per cent growthin the commercial vehicle market and 20-22 per cent growthin the passenger vehicle market - these are the sales figures.India exports around 180,000 units of passenger vehicles ayear and about 15,000 units of commercial vehicles."

Automotive LOGISTICS. January/February 2007

~

The growth in exports of passenger vehicles is thankslargely to Hyundai, which accounts for around 60 percent of them. The Hyundai base in Chennai in the state ofTamil N adu on the east coast of the country, is just one ofthe three big automotive production regions in India. Theother two are Gurgaon, near Delhi and Pune, in the state ofMaharashtra on the west coast. According to Ramakrishnan,Gurgaon accounts for 40-45 per cent of production output,while Pune and Chennai have nearly equal share of the rest.

Local supply baseAs far as suppliers are concerned there are manymultinationals well established in the region. Ramakrishnansays: "When Maruti Suzuki came to India they brought alongtheir key suppliers who set up a base next to the plant - a lotof companies that are current vendors to Suzuki have set upplants here. Delphi and Visteon are here because Ford andGM are here, Federal Mogul is here, Bosch has been heresince 1942. There are a lot of global Tier Ones and Twos here.And now a lot of European suppliers are slowly getting intothe Indian market. The Indian market for components is verysophisticated. There used to be a requirement for companiesto source at least 70 per cent of components locally, so alot of these companies convinced their suppliers to cometo India."

Local sourcing is definitely the aim of the transplantcarmakers. Dr John Chacko, Technical Project Leader ofLogistics for the India project at Volkswagen, says: "The costof importing material is so prohibitive that you will never beable to compete [with the local players] unless you localise.The costs are a combination of customs and logistics costs.

REGIONALFOCUS- INDIA

Northern India's main OEMsDaewoo CarsEicher Tractors

Escorts Tractors/mcycles

HeroHonda McyclesHMT TractorsHonda CarsLTL TractorsLML ScootersMaruti Cars/muvsNewHolland TractorsPTL Tractors

SwarajMazda LCVs

II

Automotive India- the key players

. Gurgaon. Ahmadabad

INDIA

WesternIndia's main OEMs---BajajAuto Scooters/mcycles/3-wheelersBajajTempo Muvs/tractors/lcvs/3WheelersEicher Lcvs/tractorsFiat CarsGm CarsGreaves 3 WheelersGTL Tractors

Kinetic Scooters/mcyclesM & M Tractors/muvsMercedesBenz, Cars

Skoda Cars(Awaited)Tata Trucks/cars/muvs

Vishakh

7apatnam Southern India's main OEMs. HYde

yabad AshokLeyland TrucksFord Cars

Hyundai CarsChenna

,' Mitsubishi Cars

(Madras>. RoyalEnfield Mcycles. ~ fu~

Bangalore TatraUdyog HcvsToyota MuvsTvs-suzuki McyclesVolvo Trucks

- u u -- - - - - uu - - -- - - -- - -- -- - - - - - - - - u - - - - - - -- - - - - - - - - - -- - - - _u u - - - - - - - - - - u - u - - - -- - - - -- u - u -- - - - - - -- - - - u u - - - - - - - - - - - u u u

There is a 12-12.5 per cent duty andthen you have to consider that thelogistics costs are going to be atleast that much again."

However, the demand for

just -in -time services is stilllimited. Ramakrishnan

continues: "Toyota is theonly company that has comeanywhere close to just-in-time- it is a very lean operationand they have Mitsui doingtheir logistics for them in a jointventure with TCI [TransportCorporation of India]. Toyotais based about 35km from

Bangalore city."That said, the demand for

more sophisticated services fromLSPs is beginning to change.Dr Chacko reveals that VW is

planning to operate its facilitywith just - in -time and in -sequencerequirements: "Weare trying tofollow the principles that are basicto our industry to be competitive,with less capital just standing around,which is absolutely useless. We plan to implement the just-in-time principles."

Tata Motors is also movi:qg towards a model of production

f that will see supplier parks collocated aroundits news plants and in-sequence just-in-time

delivery of modular assemblies direct toin the line.

f \," Demands on infrastructure

Across India, automotive manufacturers

are ramping up their volumes, bothfor internal consumption and export.Current estimates of additional

volumes are predicting that a millionextra cars will be added in the next

four years, and India will be exportinga million cars a year by 2010. So can the

infrastructure cope?"The straight answer is no," says

Ramakrishnan. "India is drastically slowin terms of putting up the infrastructurecompared to China. That is one of thekey weaknesses that India has got. Whatis likely to happen is that the vehicles thatare being added to the capacity will beprimarily for the export market, similarto what Hyundai is doing."

Dr Chacko sees a serious shortfall in the

infrastructure: "I think the government isgoing to have to do a lot of homework if the

growth rate is going to be realistic as far as the auto industry isconcerned. There is at the moment a big gap in infrastructure

and it is not ,goingto get any smaller, so_t~e}o~ernm~n~ ~

j {\

MV Raja Rao(left) and BB Parekhof Tata Motorsin Pune are trialling the use of 3PLs to supply thepassengercar lines

A,,'om,ti~ LOGISTICS. J'o~"/Febc~" 2fJJ71

REGIONALFOCUS- INDIA8 H-- ------

has to do something."The primary means of transport in India is by road.

According to Ramakrishnan 98 per cent of all the automotivelogistics in India is on road. Rail freight has not really beendeveloped. About 30-40 per cent of all road freight is carriedon the four national highways. The government has varioushighway projects underway (see fact box page 28) but themain one is the Golden Quadrilateral Highway Project, whichaims to join the major cities of Delhi, Chennai, Mumbai andCalcutta with four or six lane highways. The Delhi-Mumbairoad is already complete and the whole project is supposed--- - -- u_-- u --uu _uu uuu_-- u -- -- -- -- -- - - -- -- -- -- ----

"Diesel is heavily subsidised in India sofuel prices not as much of an issue. ... Ifyou don't allow a [free] market economy

then people have no incentive toupgrade to a more fuel efficient means

of transport" - V.G. Ramakrishnan,Frost and Sullivan

---------------------------------------------------------------

to be finished within the next year. However, the cost oftransportation in India is high.

According to Ramakrishnan 13-13.5per cent of GDP islogistics cost: "In the UK that is 8.5-9 per cent. If you lookat the logisticscosts of the transportation market, roadtransport is significant for the auto industry. The averagedistance of a truck journey in India is approx 300km, thatgivesyou an understanding of the inefficiencyhere. You willfind trucks that are 50years old chugging along at 50kmph.Diesel is heavily subsidised in India so fuel prices not asmuch of an issue. ... If you don't allow a [free] marketeconomy then people have no incentive to upgrade to a morefuel efficientmeans of transport."

Rail privatisationThe rail freight industry in India has recently been openedup to private investment. Since February this year privatecompanies have been granted permission to move railfreight. APL is one of the LSPsthat has secured thepermission to operate this, but Joe Mustan, Director LogisticsIndia - APLLogistics,doesn'tseethe uptakeof rail serviceshappening overnight: "The full impact will only be seen in 12months' time. This is the time it will take the new operatorsto get equipment in place and for the new start-ups to beginachieving load-efficiency. Currently, passenger and bulktransport takes priority and the transport of goods is atthe call of the rail operator. Generally, a 90 TEU volume isrequired for a rail move and, if the volume isn't available, thetrain won't leave. This is expected to continue although theRailwayAdministration is working to provide some leveloftransit guarantee,"

BBParekh, Chief of Strategic Sourcing at Tata Motorsexplains the problems he faces when trying to utilise railtransport: "As far as inbound logistics is concerned rail

AutomotiveLOGISTICS. January/February2007

----

INDIANAUTOMOBILEINDUSTRYPRODUCTION:4 WHEELERS

Total production for year 2005-6 (April to March)

JAPANESE OEM

Maruti Udyog LtdToyota Kirloskar Motor Pvt LtdHonda Siel Cars India Ltd

Swaraj Mazda Ltd

Total

572,09744,97541,36111,946

670,379

EUROPEN OEMSkodaAuto India Pvt Ltd

Daimler Chrysler India Pvt. LtdVolvo India Pvt LtdTatra Trucks India LtdFiat India Pvt Ltd

Total

9,7671,7801,004

125671

13,347

AMERICAN OEMGeneral Motors India Pvt LtdFord India Pvt Ltd

Total

30,68726,946

57,633

KOREAN OEM

Hyundai Motor India Ltd 260,440

INDIAN OEMTata Motors LtdMahindra & Mahindra Ltd

Ashok Leyland LtdForce Motors LtdEicher Motors LtdHindustan Motors Ltd

Total

449,878128,60165,08535,72824,34815,458

719,098

Overall total 1,720,897

datafrom ACMA

transport is used very sparingly because the availability of therails or the loading space is not guaranteed by the railwaysand time slots are not promised by them. At the same timethere is a small amount of the space available on the mailtrain that we utilise at times to cope with urgencies."

Material transported on trucks can take up to three daysto travel from Delhi to Pune, and in emergencies Tata usesspace on the mail trains. "As far as outbound logistics isconcerned, we are trying to use it for the movement ofpassenger vehicles in particular," says Parekh. "But thatagain depends on the availability of the rail trucks. Havingsaid that, we are now talking to the railways and there areindependent service agencies that are coming forward whowill possibly design trailers that are specifically for carryingvehicles. As of today that is not really happening."

Finished vehiclesThe use of rail seems to make more sense for finished vehicletransport, particularly between Delhi and Mumbai. But the

REGIONALFOCUS- INDIAIIndia infrastructure

65,OOOkmof nationalhighway67,OOOkmrailwaylines

7,OOOkmof coastline

Averagespeedof freighttrain 23km/h

Averageeconomicgrowth rate morethan 7 ,per cent 11994-2004and7.6 per cent GDPgrowthin 2005Governmentinfrastructureinitiatives:

(!) Initiativeto creatededicated rail freight corridor- wester4[lfromMumbai to terminusnorth.of Delhi am:heastem,from:Bihar state toterminusnorthof,Delhi.

@ GoldenQuadrilaterallHighwayprojechrunningnOl\tb-west-south-east-north - projectduefor completionwithin a year,j~elhi-Mumbaisectionalreadycomplete.

@ North-south and west east highway schemes

Sources:CIAWorldFactbookand CILT(CharteredInstituteofLogistics andTransport)

use of rail for finished vehicle transport is limited.Anupam Bhatnagar, Vertical Head of Internal business,

Mahindra Logistics says: "The availability of railways needs toimprove, but the ministry has plans to increase the strengthof rail so we will see a migration from use of carriers to rail.Normally you find around a 20 per cent saving over carriers,by rail. When to use the trailer or rail is an interesting choice.It is a question of speed, of delivery versus inventory. Touse rail I need to despatch around 100 vehicles, when I use atruck I despatch around six vehicles, so I have to do a cost-benefit analysis. So while rail may be useful for destinationsthat are far away, anything more than 1,000km is good byrail, anything less is better with carriers; you cannot activate ituntil you have the load."

According to Bhatnagar, the use of rail transport forfinished vehicles should increase in the future, now it is lessthan 5 per cent for Mahindra.

NYK Logistics, based in Gurgaon, is not using rail transportfor finished vehicles yet, but in January this year it signed an

Does India need a dedicated ro-ro port?

Withvolumesof exportsset to growby staggeringvolumes,~morethanonemillioncars by 2010) manyoperatorsin,Indiasee,theneedfor adedicatedro-roport.Theauto closterof Chennai,Hamgaloreaf;idHosOiris servicedby Chennai.Theal:Jtoclusterof Mumbai,Pune,Nashik,Aurangabad,Delhi-Gurgaonand Peetampuraareserviced!fuYi~umbai-JNPT.

NYK'sClemensKutznersays: "The conditionsat the portsareveryunderdeveloped.Theyare'not yet gearedup for the expor.~of

",,~,q ,cars, not in thesevolumes.Weare~alkingabout.halfa

t>~'" ~. ~ :~i~~t~:~te:~:::~oi~~heemnae:~~~~~~:~~~oebie%tsalready.I thinkthat containershavebeenpushingthecar carriersaway.The increasein containervolumehas

beendramaticand the spaceis reallyrequired'fortheexportbusiness.If Indiawantsto developits exportbusiness,

it definitelyneedsa portdedicatedon the ro-roside."HyundaiIndiahas recentlyaskedfor assistancefrom the Stateof

TamilNaduto establisha dedicatedro-raport.

AutomotiveLOGISTICS. January/February2007

agreement with Concor, (Container Corporation ofIndia) todevelop an end-to-end car transport solution using rail. Thecompany aims to market and offer services for transportingautomobiles using containers on railway tracks. It has alreadydesigned special wagons for transporting vehicles and hasacquired necessary clearance from the Lucknow-basedResearch Designs and Standards Organisation (RDSO).However, the Indian Railways needs to allocate the tracks forthe project, so it is uncertain when this might be available.

Market fragmentationThe infrastructure itself is not the only challenge in India.APL's Joe Mustan, says: "As an operating environmentthe road sector has some problems, but they are notinfrastructure related. The market is fragmented - there area lot of small operators who lease trucks to larger players.OEMs have access to those trucks, but no real control over

them. There are efficiencies that you just can't get becausethere are too many small guys. Second, the interstate

Companies in India have become more open to outsourcing and they are nowfocusing on their core competencies and higher-end activities

- -- - - - - - - - - - - - - - - - - - - - -- - - -- -- - - - - - -- -- h - - - -- - - - -- - -- - - -- - ----

crossings are a big source of inefficiency with potentialwait times of 30 minutes to six hours. The governmentis addressing this, the state and highway authorities andcustoms are trying to minimise the number of documents,

but I don't know(how fast we will see changes happen."Mustan believes that as the demand for more sophisticated

logistics grows, multinational LSPs will start to gain marketshare in India. Currently, APL Logistics acts as a 3PL for somelarge tractor manufacturers. He says: "The majority of themare asking for just-in -time services, some of them are also

asking for vendor managed inventory. [This is] where we getthe information on production from them and work withthe suppliers to pick up the right quantity of supplies andbring them all the way into the plant. While it's the customerwho appoints us as their 3PL provider, it's the supplier whoactually pays us. This is akin to the VMI [Vendor ManagedInventory] model. We are finding that this is what more andmore of the manufacturers are asking us to do. Theyare finding it difficult to deal with a large number of

small suppliers."India can be a difficult market for manufacturers. The

REGIONALFOCUS-INDIA.supplier base is characterised by many small players. Mustansays: "We have instances where we have to pull parts from asupplier's workshop using a hand cart. It can be difficult andcomplicated and more and more manufacturers who used tomanage it themselves now prefer to give it to a 3PL serviceprovider."

The OEMs are looking to large multinational corporations(MNCs) who operate such services in more developedmarkets to replicate these services in India.

Anupam Bhatnagar ofMahindra Logistics also sees thedevelopment of the VMI model: "Until now logistics has beenrun with a warehouse in each state, this is changing to VMI."

Value Added TaxThe tax legislation in India is changing. In 2005thegovernment started rolling out the VAT regime acrossthe states, and, although it is by no means universal, this

state, considering the benefits from tax and levies,willgradually be replaced by a network of warehouses positionedstrategically according to supply chain requirements.

"The changes to the tax regulations should ease the inter-state crossings," says Chauhan.

Outsourcing initiatives

Mahindra Logistics is now operating as an independent 3PL,although it is wholly owned by Mahindra & Mahindra. Butthey have to compete for Manhindra business along withother 3PLs. This strategy of outsourcing the logistics functionis also being adopted by Tata Motors, and will set the patternin years to come. As Bhatnagar observes: "In the last three orfour years the awareness of logistics management is increasinghere. In the last five or six years companies have becomemore open to outsourcing and they are now focusing on theircore competencies, particularly as costs are going up, fuel-- -- - -- -- -- -- -- - - -- -- -- - - - -- - - - - - - - - - - - - - - - - -- - -- - - - - - - -- - - - - -- - -- - - - - - - -- - -- - - - - -- - - - - - - - - -- - - - - - - - - -- -- - - - -- -- -- -- - - - - - - - - - - --

"Wehave instanceswhere we have to pull parts from a supplier's workshopusing a hand cart. It can be difficult and complicated and more and more

manufacturerswho used to manage it themselves now prefer to give it to a 3PLservice provider" - Joe Mustan, APL Logistics

- - -- - - - - - - -- -- - - - - - - - - -- - - - - - -- -- - - - - - - - - - - - - - - - - - - - - - - -- - -- - - - - - - - - - - - - -- - -- - - - - - - -- - - - -- - -- -- - -- -- -- - -- -- -- - - -- -- -- - - -- -- -- - --

Tata Motors is considering using a 3PL tomanage supply on its CV lines in Pune

simplification of taxes will significantly impact on the kind oflogistics services that make sense. Bhatnagar says: "Once VATis in place then vendors don't need to have inventory. Allvendors will bring their inventory to an LSPand we invoiceon behalf of the vendor for the plant only what is requiredin the plant. Plant inventory goes down by 20 per cent. Thevendor is happy too because his product is kept in a properwarehouse. VMI warehouses in India are in a nascent stageright now."

One ofMahindra &Mahindra's engineplants near Bombay is piloting a VMIsystem with Mahindra Logistics:"Bycreating a VMI warehouse we have createdmore space for manufacturing, productioncan go up - even the manpower requiredfor production is being reduced. MahindraLogisticsmanages the VMI warehouse.It also manages line-feed rtght on theassembly line," says Bhatnagar.

Man Singh Chauhan of Menlo Indiaalso believes that the government initiatives of VATimplementation to have uniform tax structure across all statesin India will have a significant impact on the way logistics isorganised today. "This will help in free flow of goods acrossthe state borders, removing the need for stores of inventoryto safeguard against the costly delays at border crossings,"he says. Menlo's automotive work in India is largely in theaftermarket sector, and Chauhan believes that the positioningof the warehouses at strategic locations will help the industryto cut logistics costs and improve service levels to the endcustomer: "That will be the biggest change," he says. "Weareseeing this already."

The old model of positioning the warehouses in a particular

Automotive LOGISTICS.January/February 2007

costs, interest rates, raw material costs such as steel."APL's Mustan sees an increasing role for 3PLsin this

landscape: "I think the multinational automotive 3PLsare going to playa huge role in the next three years. Rightnow there are a large number oflocal players serving theautomotive industry in India, a multinational 3PLcannotbe as efficient as a local player, simply because it may notbe able to reach out to the right kind of2PL partners. But as

the operating environment and taxationchanges, and road infrastructure improvesand transport providers begin investing inbetter equipment - including bigger andmore efficienttrucks- the 3PL services

will be more in demand and really start toadd value. I think there will be a shift in

emphasis from pure cost analysis to valuecreation coming from supply chain processengineering. Reducing inventory levelsand transit time. Today, while everyonespeaks about it, those things are still

second in priority to cost."At the moment, the automotive logistics landscape is still

dominated by small local transport companies (or 2PLs).Mitsui joined forces with locally based TCI to supportToyota and Ramakrishnan explains why: "You really need anIndian partner to work the system over here. You will findmany home-grown companies handling automotive work.On inbound logistics you will find a lot of the componentcompanies using local transport and about 50-60 per cent ofownership of all trucks by single owners." .Look out for the regional report on finished vehicle logistics in India in

the next edition of the FVL supplement in your MarchI April magazine.