INDUS MOTOR COMPANY

HIGHLIGHTING ISSUE IN
STRATEGIC SOURCING AND
NEGOTOATION IN IMC
[Document subtitle]

Abstract
This report will highlight the background of Indus Motor Company and the issues faced by them
in Procuring, Supplying, Sourcing and negotiating to ensure the smooth supply chain operations

Muhammad Usman Irfan

ERP ID: 10639
INDUS MOTOR

PREAMBLE:

Sourcing is something more than just a purchasing activity. It needs clear strategies and complete
information of not only the customer but the market and suppliers also. There obviously are
some problems faced by every company in its sourcing practices. Issues like lack of inventory,
timely delivery, relationship management, and quality issues etc. are faced almost everywhere,
and so is the case with Indus Motors. An interview has been taken from a sourcing person at
Indus Motor to have a comprehensive understanding of the actual issues faced in sourcing by
Indus Motors.

OBJECTIVE:

The objective of this report is to have a vision of the existent concerns and encounters faced by a
Motor Car company, Indus Motor in its sourcing activities. The purpose of the report is also to
understand how the sourcing persons resolve these issues and what are their sourcing strategies.
Beside that we also suggest where suitable, our own solutions to the problems.

MODE OF OBTAINING INFORMATION:

To understand intensely the actual situation, a qualitative research method, interview has been
taken as our methodology to excerpt the evidence and facts to prepare the report.

BRIEF HISTORY:

The history of the automotive industry, though brief compared with that of many other
industries, has exceptional interest because of its effects on 20th-century history.
 Automotive changed the world during the 20th century, particularly in the United States
and other industrialized nations. From the growth of suburbs to the development of
elaborate road and highway systems, the so-called horseless carriage has forever altered
the modern landscape.
The origin of automotive industry are rooted in the development of gasoline engine in the
1860s and ‘70s, principally in France and Germany.

AN INDUSTRY OVERVIEW

The organizations and activities pertinent with the manufacturing of motor vehicles,
including all the mechanisms and parts, such as engines and bodies, but not including fuel,
tires, and batteries all come under the umbrella of automotive industry.

Passenger automobiles and light buses, including vans, pickups, and sport utility vehicles
are considered as industry’s principal products. Semis including transport trucks, delivery
trucks are considered as commercial vehicles (secondary).
 The automotive industry is one of the hoariest and most profitable industries of Pakistan.
Steel, petroleum and employment are the sectors which have been significantly influenced
by the automotive industry. 179,953 units of cars manufactured and assembled in Pakistan
in 2015, as compare to 136,888 units in 2014.Currently the industry is having a boom
period as all the prominent brands have reported high profits.

. http://pakobserver.net/2016/02/23/pakistan-auto-industry-rides-high/

COMPANY BACKGROUND:
Indus Motor Company came into being in 1989 in Pakistan having a joint venture with House of
Habib and Toyota Motors. Since then the company has been creating and marketing Toyota
vehicles in Pakistan. Kiichiro Toyoda was the initiator of Toyota Motor Corporation. Kiichiro
used the soul of creation and the business base inherited from his father Sakichi Toyoda to
develop the automotive business and the base of today's Toyota Group. In 1929, Kiichiro Toyoda
travelled to US and Europe to examine automobile production and started researching gasoline-
powered engines in 1930. The Japanese government stimulated Toyoda Automatic Loom works
to develop automobile production due to war with China, which required domestic vehicle
production. The first Type A engine was produced by the division in 1934, which was utilized in
first model A1 car in 1935.

In 1937, Toyota Motor Co. was established as an independent company. From 1960, Toyota
began to expand globally with a new research and development facility and a presence in
Thailand. The first Toyota manufactured outdoor Japan was in April 1963, in Australia. From
1963 until 1965, Australia was Toyota's biggest export market. At the end of the decade, Toyota
had acknowledged a worldwide presence, as it had exported its one-millionth unit. Toyota was
considered as the world’s Third largest and Japan’s largest car company by the year 2000. It was
producing 5 million units per annum and dominated 9.8% of the global car market in 1990.

THE BUSINESS:
Indus Motors has been focusing on variety of vehicle offerings including ‘Corolla’ as a
passenger car, ‘Hilux’ as a light commercial and the ‘Fortuner’ Sports Utility Vehicle etc. The
vehicles are distributed to the end users nationwide through a stark network of 41 independent 3s
dealerships ranged across the country. The company has shown a tremendous growth since its
inception where it started from producing 20 vehicles per day in 1993 and now producing 240
vehicles daily in present. Today Toyota is considered as the largest vehicle producer of the
country and has peculiarity of being the Number 1 brand in Asia. Indus Motor Co. is the
significant tax contributor and GOP exchequer.

Toyota Indus produces 220 cars per day by using approximately 1400 parts which are distributed
every 4 hours on the Just in Time (JIT) inventory system establishing over 100 truck loads of
supplies. More than 1,000 transactions takes place on daily basis between Indus Motors and its
suppliers.

Vision:

“To be the most respected and successful enterprise, delight customers with a wide range of
products and solutions in the automobile industry with the best people and best technology.”

 The most respected.

 The most successful.
 Delighting customers.
 Wide range of products.
 The best people.
 The best technology.

Mission:

Mission of Toyota is to provide safe & sound journey. Toyota is developing various new
technologies from the perspective of energy saving and diversifying energy sources.
Environment has been first and most important issue in priorities of Toyota and working toward
creating a prosperous society and clean world.

Slogan:
ACT#1: Actions, Commitment and Teamwork to become No.1

Ref: http://www.toyota-indus.com/corporate/company-profile/vision-mission

MAJOR PRODUCTS:

Models include:

 Corolla
 Hilux
 Vigo Champ
 Fortuner

Models imported from Japan:

 Camry
 Land Cruiser
 Prado
 RAV4
 Avanza
 Hiace
 Coaster
 Terios
 Prius

https://en.wikipedia.org/wiki/Automotive_industry_in_Pakistan

COROLLA:

Corolla has been one of the best selling cars in the world since 1974 and the major contributor to
the business of Indus Motor. Corolla has gone through various major design changes, delighting
the customers with its innovative designs. Pakistan is considered as the 5th largest nation for the
production of Toyota Corolla Cars in the world. Corolla has been the market leader in terms of
producing 1300cc and higher engines. Toyota is working on introducing New Century vehicle
for the people of new era with more interior space, sporty look and luxury touch.

http://wishstocks.com/2015/04/11/pakistani-toyota-corolla-becomes-the-highest-selling-
corolla-of-asia/
RELATIONSHIP WITH SUPPLIER:

“Toyota helped us dramatically improve our production system. We started by making one
component, and as we improved, [Toyota] rewarded us with orders for more components. Toyota
is our best customer.” —Senior executive, supplier to Ford, GM, Chrysler, and Toyota, July 2001

https://hbr.org/2004/12/building-deep-supplier-relationships

Indus motor has a long term and healthy relationship with its vendors believing in supplier’s
partnership for a profitable business. IMC realizes the fact that in today’s competitive era,
working with your suppliers together for the reduction of cost and improvement of quality is the
need of hour.
 ISSUES FACED BY IMC IN ITS SOURCING PRACTRICES, SOLUTIONS AND
PROPOSED SOLUTIONS

S.No ISSUES FACED IN HOW THEY DEAL PROPOSED WAY

SOURCING

Sometimes ordering of in- We have to do follow-ups In addition of the counter

direct consumable are delayed strongly regarding the critical measure, we should develop a
due to unawareness or limited in-direct consumable. In priority list or a kraljic matrix,
information to the commercial addition, we have to mention so we can prioritize all the
department regarding its the criticality of the item on PR items accordingly.
1.
criticality. As there are large so that it can be expedited.
number of items so they cannot Furthermore, we also have to
remember the critical items by monitor the stocks so that we
name or by PR number. This in can communicate the criticality
result causes the line to the commercial
stoppages.

Usually during rundown of Production meeting is carried Close monitoring system

models we face some variation
in forecasted production versus
actual production, which have
direct impact on the inventory
cost as the orders are being
2. placed on the basis of
forecasting done by marketing
out on every Sunday, on the
basis of which all the
discrepancies are presented
discussed with higher
management and the final
decision are taken regarding
the production panning which
should be developed in
addition to the meetings on
which all the kit can be
compared as per the actual
production and the forecast
provided by Marketing
 and the inventory cost goes up
and it directly impact our basic
principle of sourcing i.e. Just in
time.
help us to reduce the inventory
cost, as production planning
and stock inventory are
controlled by the same person.
So they take the best decision
which incorporates all the
domains including stock
inventory, production planning
and marketing forecast. So by
doing this inventory cost can
be optimized.

For Parts used in production
especially sheet metal parts
used in weld shop which are
produced locally, we face
quality issues, like the part
3.
fitment is not proper due to
deformation and then we have
to scrap it as it is impacting the
accuracy of complete body
which then had a very
disastrous effect on the
complete quality of shell body.
In addition, it also increases the
cost in two ways:
1 person from the vendor side
is deployed in IMC having a
checking fixture for that parts,
he adjust and repair the part as
per the fixture and hand it over
to production team for use. But
it also effect the stock
inventory and we often reaches
to critical stock inventory
The quality must be built in
instead of reactive approach so
they must push the vendor to
eliminate the defect during
process instead of rectifying or
repairing it.

1. The part is scrapped

which means that the
 cost is incurred but not
utilized.
2. The cost of rework, that
is extra labor cost is
incurred for the same
process.
On Asking about inventory We followed Just in Time This is the right efficient and
management and its issues that theory. That the right things are effective solution to manage
how they manage it. supplied on the right time at the inventory
right place in right quantity.
The complete system was
4.
developed and implemented

It is very time consuming
activity to follow the complete
process for procurement of
small and general goods item.
If we follow the complete
process of RFQ, PNC, PO and
5. receiving for minor or non-
critical item like pen, it will
take a lot of time and effort
which increase the overall cost
of pen plus the transportation
cost of all items get quite high
in case of IMC as it is out of
the city. In addition the
procurement resources (Human
and administration) are wasted
on un productive items in this
To avoid this issue we had Usage of P card can be a good
registered some general good solution, In addition to the
suppliers, to which we have registration of General good
very good relationships and we suppliers.
can order the small items in
one PO by which we can
reduce the transportation cost
plus the administration is also
easy and we have to follow-up
just from one supplier instead
of many.
 case rather than important
items.

We are facing issue in the
ordering of some direct
consumables whenever it
reaches at reorder point, as
every month we have to order
it again and each time it gets
6. critical. So we have to do
firefighting and push the
supplier to arrange the goods
on time so that we can run the
production smoothly.
We integrate the PO with the We must issue a blanket PO
production forecast so that we same as the current process for
can have a clear idea of the other items to avoid this issue.
consumption of these items and
can order them accordingly, in
second stage we started
ordering these items on
frequency of monthly basis
keeping the safety stock

We order to TTC(Toyota We are looking into it but don’t They must try to incorporate
Tsusho Corporation) on fix have any solution yet as we can forex impact in the contract to
quantity basis. In which some not push TTC for any harsh ensure the fairness of contract
time we have to pay high price clause. and win-win situation
when there is a decrease in the
value of PKR as we have to do
7. all the business in yen,
however we cannot have the
benefit of forex impact on cost
basis as we don’t have any
clause in the agreement
regarding forex impact in case
 of items procuring from TTC
as we have a fix price contract.

The main issue which we are For this we have introduced an E ordering, Kanban system are
facing compared to other online system by which the some of the technological tools
Toyota affiliate is the lack of vendor can also see our stock by which we can automate our
technology. We are not using level online and plan supply chain.
the technology or any kind of proactively. Which reduces the
8.
automation in our processes lead time of ordering.
like auto ordering, auto stock
monitoring, production unit
monitoring. All of these factor
lead us to the long lead time
like if the order is done
automatically instead of giving
order by phone or by formal
PO, we can save a lot of time

Another issue which we face
was the supplier's capability
and reliability. It often
happened that the suppliers
cannot meet the just in time.
9.
Due to which we have to
increase the safety stock which
in result increase our inventory
holding cost. This also impact
For this we have classified the Following countermeasures
suppliers, there are 3 classes can be taken to avoid this.
known as Class A, class B,
• Multiple suppliers for Class
Class C.
C
Class A suppliers are those
• Cost befit must be given to
who are very reliable on basis
Class A
of quality and suppliability so
we maintain less safety stock
 on the space availability for
ware housing and storage as if
there are large number of
unreliable suppliers then it is
very difficult to manage all the
safety stock in the same place.
This usually happens during
the introduction of new model
as all parts are new for vendors
too, so it takes time to produce
the quality parts 100%
The target was given to us to
reduce the price of packaging,
10.
as at this time the complete
for these suppliers and then • Develop suppliers to ensure
these suppliers are rewarded. quality and sup pliability.
Class B suppliers are those
who are reliable on basis of
quality and suppliability so we
maintain medium level safety
stock for these suppliers
depending on the lead time and
their location.
Class C suppliers ae those
which are not that much
reliable on the basis quality
and suppliability so we
maintain large amount of
safety stock for these suppliers
and if done frequently these are
usually penalized on this un
professional attitude.
This classification help us to
manage the inventory issue and
to finalize their safety stock
We also want to develop green Reusable packaging can be
supply chain system in which used instead of wooden
we can use reusable packing packaging.
 industry is working on cost
cutting so we are also working
on it. We are also working on
different domains like quality
productivity and environment
to compete with over all
industry
We face issue in the stock
maintenance when the parts are
11.
arrived in different quantity
from the vendors e.g. 100 parts
Front Bumpers, 80 Parts Rear
Bumper, so we are limited to
the produce up to the minimum
quantity of the item which we
have low stock like we can
only produce 80 cars.
During the settlement phase we
are facing some delays in the
payment of foreign suppliers
12. due to State Bank of Pakistan,
sometime due to unavailability
of documents and sometime
due to delay from our banks.
This in result the relation ship
issues with the supplier
material, this is an initial
investment but in long run the
price of packaging can be
reduced. Moreover, it also
helps to develop green supply
chain system
To avoid this we have made
crates in which equal quantity
of items can be stored and this
crate cannot be delivered until
it is full
We ensure that all the
document should be submitted
at the time of delivery so that
we can eliminate the delay due
to unavailability of document.
Benefits:
• Low Cost
• Good transportation quality
• Environment Friendly
This is one of the learning
from the interview as we have
to maintain all the parts in
equal quantity to produce
certain amount of goods.
Finance department should
coordinate with state bank to
reduce the lead time of LC
processing and payment
procedure
Conclusion:
Indus Motor Company had a very organized and structured procurement system as compared to
many other companies. We are now starting annual blanket ordering of MSP in-direct consumable
which are usually high consumption. However low consumption indirect or regular items will also
be ordered on six monthly bases that in result reduces the administration cost. In addition, we are
also following JIT with advanced system which reduces the inventory cost. SAP Material
Management module system is also used to manage and monitor all the reorder points however
these reorder points are decided with the help calculations which depends on lead time, reliability
and many other factors of the suppliers.
INTERVIEW QUESTIONS:

1) Supply related issues you face in Pakistan- service/ material sourcing

2) Bottleneck, critical product
3) what countries you import from
4) Buy from local distributor who imports? Why?
5) How do you resolve the problems?
6) Any special method of sourcing? For example request for proposal, open tendering or restricted
tendering?
7) Any product positioning model?
8) Any supplier development program?
9) Do you make Cost vs price analysis
10) For what kinds of products do you use negotiation?
11) Always on time delivery? If not, why?
12) Any penalties you pay for late delivery?
13) Do you use P.card? a form of company charge card that allows goods and services to be
procured without using a traditional purchasing process.
14) Any environmental consideration / regulatory issues?
15) What type of contracts you have? i.e fixed price contracts(agreed on final price, no cost
fluctuation) or Cost reimbursement Contracts (price ceiling),problems you face in your
contracts? Do you feel that the opposite party keeps all the things in its own favor only?
16) Do you ever face quality issues?
17) How do you manage your inventory? Like you keep a huge stock or get the products just in
time?
18) How much flexibility do you provide? if a requirement comes regarding a product which is not
your stock or you have not offered before, would you manage that or say no to the company?