Coping With Rationalisation

Updated: Nov 15 2003, 05:30am hrs
The Indian automobile industry is now moving up the faster lane. But this does not always translate into brisk business for the vendors who supply auto components to companies. This is because several leading automobile companies in India are now cutting down on the number of vendors, as it is becoming a logistical nightmare for corporates to deal with a huge supplier base. The implication being that these vendors are losing out on their businesses that was coming from these automobile companies. Along with this erosion in the auto clients, there are also certain other ch-allenges that these vendors ha-ve to confront. For one, automobile companies have raised the quality bar.

This means that companies now expect their suppliers to maintain enhanced systems and quality standards. And the vendors are unable to do so, owing to the frugal scale of operation and other business limitations. Th-is leads to a lot of auto clients deserting these vendors.

Apart from demanding quality standards in production, companies also want the vendors to participate in their marketing activities. This is an expertise that the vendors are unable to deliver, owing to the small size of their businesses and limited people resources.

Increasingly, companies want their suppliers to participate in designing of auto components as per market needs and thereby collaborate in their marketing activities. It calls for a certain level of expertise that the vendors are forced to demonstrate, without which they will not be able to survive, says Dipesh Zaveri, business development manager, Thirdware Solution Ltd. a business consultancy.

In the wake of these new challenges, some of the suppliers like Polybond Ltd are now reinventing their business processes so as to stay afloat in a turbulent market.

Integrated Business Practices
Pune based Polybond Ltd supplies auto components in the domestic market to companies like Telco and Tata Cummins. In the international market the company exports these components to players like BMW and Dalmer Chrysler. But then the business encountered a set of roadblocks. The rationalisation of supplier base was surely a pain area that the entity had to confront. Another area of concern was maintaining high quality manufacturing capabilities, without which it was difficult to receive a favourable trea-tment from clients. Being able to contain the cost of production amidst an in-flated market of raw ma-terials was a gap that the business had to tide over.

And the company undertook a series of remedial measures. To tackle the challenge of vendor rationalisation the company collaborated with Tier-1 manufacturers. This meant that the organisation will supply components to the Tier-1 manufacturer, who will in turn deliver the final set of requirements to the end customer or the client.

For the Tier-1 manufacturer collaborating with this entity made business relevance. This is because they could now source a whole gamut of client requirements through this organisation and several other smaller vendors and then deliver it to the end customer.

The organisation also undertook certain processes like continuous improvement activities which was a part of Kaizen initiatives. And this was implemented at the level of shopfloor. The business also tried to make themselves compatible to ISO standards. There were also certain technological capabilities that were introduced so as to make the Enterprise Resource Planning (ERP) systems more robust. We also tried to audit customer expectations so that e can continuously evolve and grow,says Mr Rathi.

As per this audit expectation initiative, the organisation conducts a monthly review meeting with all the automobile clients. The new range of expectations of these customers are distilled. And catering to the new range of expectations is spun off in to a project. This is then delegated to the employees within the organisation in the form of clearly quantifiable targets.

But the company also had certain other advantages to its side. Automobile companies give their orders only to those businesses that have a proximity to their venture. And to ensure this geographical nearness most of the vendors are forced to set up plants that are close to the clients business. But fortunately Telco which is our major client is just a few kilometers away and opening up plants at various locations was a challenge that we escaped, says Mr Rati.

The Way Forward
But the path ahead is equally daunting. Recently we wanted to bag a business of designing component for Indica. But we never received a pro active response, explains Mr Rati. The reason being that when it comes to designing auto components companies expect the suppliers to have a technical tie up with a global supplier. And polybond was a 100 per cent Indian company.

The reduction in custom duties mean that there will be a lot of players from China Taiwan and other countries who will compete heavily on price. Already there is a heavy pressure for the vendors to have a low cost operation. And this will only get compounded when the market becomes lot more competitive.

Although a new range of actionplan still needs to be evolved, but the company is sure on count: Process improvements that we have undertaken has been able to tide the present realities. When the competition hots up we will implement these processes with an increased rigour, affirms Mr Rathi.

Although they have been able to combat the current range of turbulence to a great extent, but staying alert is surely the watchword for these vendors.