Next Generation Supply Chain for the Emerging Economies: Overriding Local Constraints to Optimize Inventories 2011-01-1251

Automotive manufacturers across the world have experienced the saturation of demand in the mature markets. Foraying into the emerging markets of India and China brings a mix of opportunities and challenges. These economies with 15%+ rising consumer demand, 7%+ rise in per-capita income and a passenger car density less than 1/8 of mature markets, hold promise of sustaining double-digit growth of vehicle sales. But the challenges are immense. Ultra-low margins of OEMs, lack of transportation infrastructure, Low level of maturity of funding operations, fragmented demand, import restrictions and mandatory export obligations pose serious constraints to non-linear growth.

HONDA (Honda Siel Cars India Limited), a subsidiary of Honda Motor Corporation, Japan has developed the next generation supply chain with a strategy cognizant of the global opportunities and the local limitations which such emerging economies present. Honda's vehicle supply chain has added constraints in the form of severe limitations of working capital of dealers, disjointed floor-fund visibility across banking institutions, bottlenecks and time constraints posed by invoice regulations, long transport lead times impacting delivery, seasonal systemic workarounds for demand spikes and quality related production constraints to meet daily model-mix requirements.

In view of the frequent demand shifts and low margins, Honda has developed a push-pull balance between forecast demand and fulfillment operations. Special matrix combination of dealer and vehicle-model were developed to define unique demand replenishment strategies for each class of dealer-model combination. Also an integrated Production planning and demand fulfillment operations allows a progressive stage-wise late-customization, based on the nature of order and the order source. This delayed customization is facilitated by adopting a unique traceability across the entire order-life-cycle and supply chain operations. The supply chain system is a unique blend of top-down and bottom-up dealer allocation model, flexibility in fund-inventory-carrier validation, optimized distribution planning and creation of dealer exchanges to maximize fund utilization, maximize retail sales and optimize inventory.

Though this paper primarily focuses on conditions and situations prevalent in India, as a case-study, but the solutions developed in this case study, would be applicable to similar situations arising in the automotive market in any other emerging economies, such as China, Mexico, Brazil, Argentina, Middle East, S.E. Asia and Eastern Europe.