Auto companies need to map vulnerabilities, realign supply chains to meet challenges: Report
With the provider base of a majority of parts within the Indian auto trade not diversified, the report — Non-linear automotive supply chain – COVID-19 and Beyond — mentioned the affect of the worldwide well being disaster on the trade has been deep-rooted.
Commenting on the findings of the report, EY India Partner and Automotive Sector Leader Vinay Raghunath mentioned: “The Indian automotive supplier base is currently not too diversified for the 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.”
Stating that the affect of COVID-19 on the trade has been “been deep-rooted” the report really helpful “a bottom-up evaluation of the supply chain architecture and its vulnerabilities against external factors like the pandemic”.
“Automotive firms will need to map vulnerabilities and realign their supply chains to meet current challenges,” EY India mentioned.
The sector’s dependency on imports — USD 17.5 billion price of auto parts — has additionally performed an element in escalating the challenges of the sector due to larger prices.
“Before 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 2.5 per cent -5 per cent, and completely built units (CBUs) from 30 per cent- 40 per cent for commercial vehicles other than electric,” EY India mentioned.
Traditionally, logistics prices in India have been comparatively larger than its different neighbouring nations.
“The key challenge for the Indian automotive supply chain would be to manage the cost escalation year-on-year, driven by rising fuel costs. OEMs, therefore, need to explore the ability of key suppliers to fulfil orders from alternative locations,” it added.
Stating that the Indian auto trade wants to deploy disaster administration, governance and supply chain intelligence, the report additionally mentioned the crucial first step could be to establish an organization’s key direct suppliers and dependencies – each within the supply and the demand aspect.
“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,” it added.
The report additionally mentioned exploring agile and versatile supply and distribution networks might drastically scale back the dangers related to the unpredictability of demand.
“Being highly dependent on the lowest cost supplier and minimal inventory might significantly impact the supply chain, as the business environment deals with dynamic demand characteristics of the market,” it mentioned, including there’s a need to appropriately consider newer variables for designing the optimum supply chain mannequin, foundation the attainable exterior situations.
