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components industries
C. Sengottuvelu1, and Mohammed Naved Khan2
1
Todays competitive pressures compel companies to continually seek new ways of doing
business. Supply chain management (SCM) is one such area which can provide the companies
with an effective tool to build an advantage no longer resides with the companys own
capabilities, but with the relationships that the firm can forge with their external partners the
customers, the suppliers and other service providers, forming a net work called the supply chain.
If the supply chain is not managed properly then the delivery gets affected resulting in customer
dissatisfaction and hence loss of business. In recent years, supply chain performance
measurement and metrics have received much attention from industry and researchers. The role
of these metrics and measures in the success of a company cannot be overstated because they
affect operational planning and control, tactical and strategic decisions. Performance
measurement and metrics have an important role to play in setting objectives, evaluating
performance, and determining future courses of actions. The process of choosing appropriate
supply chain performance measures is difficult due to the complexity of these supply chains. The
paper presents an overview and evaluation of the performance measured in supply chain models
and also presents a bench marking study in selected automobile Industries. Four types of SCOR
level-I metrics such as cycle time, cost, assets and quality are identified for measuring supply
chain performance measurements. The study was conducted in 20 companies in auto and auto
components industries who have already implemented some of the SCM initiatives in their
organization. Further, statistical analysis was carried out and the industry best-in- class results
were compared for bench marking. Using the current literature and the results of an empirical
study conducted by earlier authors were compared and discussed. Based on key findings,
recommendations were made for implementation.
Keywords: Supply chain management, performance metrics, automobile industries, bench marking.
1.0 INTRODUCTION
Shortened product life cycle, increased competition and high expectations of customers have forced many
leading edge companies to move from physical logistics management to more advanced Supply Chain
Management (SCM).Additionally, in recent years it has been seen that many companies have reduced their
manufacturing cost as much as it is practically possible. Therefore in many cases the only possible way to further
reduce the cost and lead times is with effective SCM.
In addition to cost reduction, the SCM also facilitates customer service, inventories, transportation systems
and whole distribution networks so that organizations are able to meet or even exceed and delight their customers
expectations.
The SCM is the integration of key business process from goods end user through original suppliers, which
provides products, services and information that add value for customers and other stakeholders. The SCM
initiatives could be considered as competitive tool and a cost reduction approach (Ramakrishnan, 2006) .It is also
seen from the literature that Indian companies are yet to leverage the SCM for competitive advantage.
Government of India. In Tamil Nadu alone more than 300 Japanese companies and these tier 1 companies would
need support from tier 2 component makers and other micro, small and medium enterprise (MSME) suppliers.
The metrics that are used in performance measurement and improvement should be those that truly capture
the essence of organizational performance. A measurement system should facilitate the assignment of metrics to
where they would be most appropriate. For effective performance measurement and improvement, measurement
goals must represent organizational goals and metrics selected should reflect a balance between financial and nonfinancial measures that can be related to strategic, tactical and operational level of decision making and control.
(Krajesowski & Ritzman, 2000). Since, what gets measured, gets managed it is inevitable that once such measures
are put in place, management attention will be directed to these key issues (Lapide, 1998). Studies conducted by
researchers / groups earlier viz, Korgaonkar, Shah, IIMM etc, on supply chain performance were compared and
discussed.
3.1 Performance measurements and metrics in SCM
A variety of measurement approaches have been developed, including the following important approaches
as reported in the AMR Research Report (2000). The following approaches are considered as important for
performance measurements:
a)
b)
c)
d)
e)
context. The studies conducted by performance measurement group (1999); Korgaonkar (2000); Gunasekaran, et al.,
(2001); and Shah (2003) were reported in the literature review. The main research findings from these studies were
comparison of metrics of delivery performance, total logistics cost, cash-to-cash cycle time, assets turns, inventory
days of supply, production flexibility inventory carrying cost and cost due losses in general.
In the present study efforts have been made to measure cycle time, cost, quality, and assets metrics from
various segments of white goods industries. The review of literature ranges from the year 1990 to 2008.
4.0 RESEARCH OBJECTIVES
The overall purpose of this research was to measure the supply chain performance in selected industries in
white goods segments, which included refrigerators, air conditioners, washing machines, consumer electronics,
home appliances, and accessories. The objectives are:
i)
To determine and measure performance metrics in the supply chain of white goods segments.
ii) To study and bench mark the supply chain performance metrics
iii) To assess the current supply chain metrics those are followed across various industries in India and
compare the same with best practices in the respective industries.
iv) To compare the Indian practices with that followed globally, wherever possible.
v) To provide inputs on improvements possible in supply chain metrics across various industry verticals.
Research Methodology includes research design and the research procedures followed for conducting the
study. Specifically, this includes the instrument development process, pilot study and pre-testing, data collection and
analysis procedures.
5.1 Research Instrument
The research instrument consisted of a questionnaire that was specially designed for the study. The
questionnaire consisted of 23 statements related to the performance measurement metrics, business profile of the
company, better practices and systems that are followed in the company. The questionnaire was designed with the
inputs from previous studies (Korgaonkar, 2001; Eicher Research group, 2002; Rajashekariah, 2006; Shah, 2003;
Gunasekaran et al., 2001; and Lapide, 2004, 2006). The research instrument was refined on the basis of the feedback
received during the pilot study. After the questionnaire was pilot tested, each question / statement was examined for
its clarity and relevance to the purpose of the research, which resulted in some modifications / deletions in the
questions. To make the questionnaire user-friendly, definition of each metric was enclosed along with the
questionnaire. Statements related to Economic Value Added (EVA), supply chain mapping, Activity Based Costing
(ABC) etc were deleted after the pilot test.
5.2 Sampling Procedure
The population of interest was the entire database of Indian Institute of Materials Management (IIMM),
which is the largest of its kind membership professional body in India. The IIMM database consists of companies of
repute spread all across the country. More than 500 companies registered with them formed the sample frame for the
study. The IIMM database is itself segregated into broad industry types i.e. discrete manufacturing, process
industries and FMCG. Of these, companies representing auto and auto components industries were selected for the
study. This resulted in a sample of 20 companies. The stratified sampling method was adopted for data collection.
5.3 Data Collection Procedure
The researcher then collected the data in various stages through post / courier, email, personal visits and
continuous follow up. In stage one about 30% and stage two about 50% and the remaining 20% in stage three after
repeated reminders and follow up.
Thus, there were 20 usable responses obtained from the selected companies through census method.
Statistical Package for Social Studies (SPSS) was used for conducting statistical analysis.
Segment
Auto and auto components
Samples Size
20
Segment
Auto and auto components
South
11
West
7
North
2
East
-
Total
20
Table 2 shows the geographical location of the sample. A total of 20 companies were contacted across
various locations namely, Chennai, Mumbai, Pune and Noida. All the 20 companies have responded for participation
in the data collection process.
5.5.2 Profile of the respondents
Of the total number of respondents contacted most of the respondents are found to be having more than 15
yrs of experience in production, procurements, logistics, marketing quality and finance areas.
5.5.3 Profile of the responding units
Data collected are for the financial year 2007 08.
Sample size: 20 of the total companies responded, all the companies found to be having a turnover of more
than Rs. 50 Cr.
5.5.4 Profile of the supply chains
a) Heavy auto products Bus, Trailers b) Parts for Tractors, cars & jeeps c) Motor cycles d) Head lamps &
electrical items e) Auto fasteners f) Brake & lining products and g) other auto parts.
5.6 Analysis and interpretation of descriptive statistics
Summary of performance measurements of auto and auto components industries with regard to cycle time,
cost, quality and assets metrics are shown in table 3, 4, 5 and 6. The best-in-class, industry average and maximum
values were computed for analysis.
Industry
Average
(Mean)
Best in-class
(Minimum)
Sl. No.
Metrics
Maximum
1.
3.0
20.0
56.0
2.
2.0
9.0
45.0
3.
3.0
7.30
16.0
4.
8.0
40.40
104.0
5.
16.0
63.75
96.0
6.
6.0
15.0
28.0*
120
104
96
100
80
63.75
No. of Days & %
56
60
45
40.4
40
28
20
16
20
3
7.3
3
16
8
15
6
0
1
Mean
Maximum
Best in-class
(Minimum)
Industry
Average
(Mean)
Sl. No.
Metrics
Maximum
1.
3.0
6.85
14.0
2.
12.0
24.15
28.0
3.
14.0
25.35
28.0
4.
7.0
12.65
18.0
5.
8.0
11.50
14.0
6.
3.0
5.0
8.0
7.
4.0
5.0
6.0
8.
3.0
5.30
6.0
9.
3.0
4.0
6.0
10.
2.0
4.0
6.0
40
35
28
30
24.15
25
% of TSCC
28
25.35
18
20
14
15
10
14
12
12.65
6.85
14
11.5
8
5
5.36
3
6
3
4
2
0
1
Cost Metrics
Minimum
Mean
Maximum
10
Sl. No.
Metrics
1.
% of on time deliveries
Industry
Average
(Mean)
Maximum*
84.0
93.55
100.00
90.0
96.60
100.00
90.0
97.30
100.00
Best in-class
(Minimum)
100
100
100
100
97.3
96.6
93.55
95
90
90
90
%
85
84
80
75
1
Quality Metrics
Minimum
Mean
Maximum
Industry
Average
(Mean)
Best in-class
(Minimum)
Sl. No.
Metrics
Maximum
1.
2.0
19.05
45.0
2.
3.0
7.15
21.0
3.
2.0
10.80
30.0
4.
6.0
18.20
30.0*
45
45
40
35
30
30
30
25
Days & Turns
20
21
19.05
18.2
15
10.8
10
5
7.15
3
6
2
0
1
Assets Metrics
Minimum
Mean
Maximum
5.6.1.
a.
Procurement time
Of the companies contacted, around 40% of them revealed that the procurement time is usually between 5-8
days. However for some (11%) the procurement is greater than 35 days. For some companies the procurement time is
as low as 4 days.
b)
production cycle time of around 45% of the companies is less than 3 days.
c)
Delivery time
Of the companies contacted, over 60% of them revealed that the delivery time is usually between 3-6 days.
around 30% of the companies reported that their cash to cash cycle time is between 16-60 days.
f)
Cost metrics
Total supply chain (% of sales)
The supply chain cost of over 50% of the companies contacted seems to be around 3-5%. But for around 20%
of the companys total supply chain cost seems to be over 8%. Both inbound and outbound logistics costs together
account for over 50% of the total supply chain cost followed by inventory carrying cost and warehousing cost, which
contribute 13% and 12% of the total supply chain cost respectively.,
5.6.3
Quality metrics
a)
% of on time deliveries
Around 10% of them revealed that every time they deliver the goods to their customer by the promised time is
However, 80% of the cases, the initial shipment carry 90-99% of the total order.
c)
Assets metrics
a)
Inventory holding (Raw Material, Work in-Progress and Finished Goods inventory)
In over 20% of the cases, raw material inventories are held for 3-7 days. In general, work in-progress
inventories are held for 3-7 days in 80% of the cases. However, finished goods inventories, 80% of the cases is less
than 7 days.
b)
Inventory turnover
20% of the companies maintain an inventory turnover of 8-12 turns in the supply chain. Some of the best-in-
class companies they were able to maintain more than 30 turns. More than 50% of the companies are about to meet at
least 20% of demand surge.
5.6.5 Other findings
Indian auto and auto component industries are fiercely competitive on a global basis in terms of price,
technology, design or time-to-market. And everything is subject to intense competition in the Indian auto industry. In
such a scenario, companies with the most efficient supply chain wins in the market.
Faced with the necessity of operating a cost-effective supply chain manufacturers know what they must do to
compete reduce inventory carrying costs, improve operational efficiency, reduce stock outs, forge tighter relationships
with 3PL service provides and shorten order-to cash cycles with their channel partners.
In the case of total cycle time metrics, there is ample scope for reducing the total cycle time and cash to cash
cycle time. The difference between a best in class figure (which stands at around 8 days) and the industry average
(seem to be around 41 days) is quite significant.
There is a lot of scope for improvement in the existing way of working of the auto and auto components
industries especially with regard to cycle time, logistics cost and quality management.
Performance measurement group (1999) reported the following findings. Delivery performance 85-95%,
total logistics cost 3-13%, cash to-cash cycle time 28-80 days, and asset turns 8-19 turns.
b.
Korgaonkar (2001) has reported his findings as under: Total logistics in the country is estimated at 4.5% of
sales. The average inventory turns is 4.5 per year. Over 50% of the inventories are of raw materials. Nearly,
60% of logistics cost is in transportation (35%) and inventory carrying cost (25%), ware house cost (9%)
and cost due to losses (14%)
Shah (2003) has reported the following findings: Delivery performance to committed date 95% best, total
logistics cost 3-8%, warranty and return processing costs not available. Cash-to-cash cycle time 28-46 days, and net
asset turns 12-19 turns.
The previous research major findings were compared with the present study as shown in Table 7.
Table 7 Summary of major findings of previous and present studies
Metrics
Delivery performance (%)
Total logistics cost (% of
sales/TSCC)
Cash-to-cash cycle time (days)
Assets turns
Inventory days of supply
Supply Chain flexibility (%)
Inventory carrying cost(% of
TSCC)
Cost due to losses
NA Not available
Performance measurement
Group (1999)
85-95%
3-13%
Korgaonkar,
(2001)
81 97%
4-50%
Shah
(2003)
90-95%
3-8%
Sengottuvelu
(2008)
85 - 100%
26 45%
28-80
8-19
22-55
20-30
NA
24-66
4-5
81
NA
25%
28-46
12-19
22-38
NA
NA
16 96
6 30
2-45
6 28%
8-14%
NA
14%
NA
3-8%
7.0 CONCLUSIONS
In the global auto and auto components industry, bench marking has become an important tool to help
companies compare and contrast their performance with others, identify performance gaps and share best practices.
It is clear that the companies are taking a strategic interest in issues of supply chain managements. Organizations are
seeking to achieve competitive advantage through closer and more collaborative relations, alliances, JV and
acquisitions that enhance and support the supply chain performance to extend possible.
Faced with the necessity of operating a cost effective supply chain, manufactures know what they must do
to compete : reduce inventory carrying costs, improve operational efficiency, reduce stock outs, forge tighter
relationships with third-party service providers and shorten order-to-cash cycle with their channel partners.
8.0. KEY RECOMMENDATIONS
i.
It is seen from the findings that the companies sourced inputs from suppliers nearby their operations could
perform better. Their supply chain efficiency is higher compared to others.
ii.
The companies that are implemented e-Initiatives like Electronic Data Interchange, e-Procurement, &
process integration such as Enterprise Resource Planning have achieved superior supply chain
performance.
iii.
The companies used IT tools such as Global Positioning Systems; Radio Frequency Identification etc in
their supply chain could achieve superior performance compared to others.
iv.
The companies adopted forward and backward integration as business strategy could perform better than
others in terms of cycle time, cost, assets management, supply chain flexibility etc,
v.
Linking the supply chain metrics to financial Key Performance Indicators (KPI) is essentially important to
improve the supply chain efficiency.
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