IIM INDORE

SCM PROJECT
OUTSOURCING TREND IN INDIAN
INDUSTRIES
GROUP 6 SECTION A
8/15/2010

In partial fulfillment of the requirements of the course

Suuply Chain Management

ROHIT RAJ| RANDHIR KUMAR | SMRITI RANI| DHEERAJ PRASANTH | HARA PRASAD
PRADHAN| ANU MONAL MINZ| RAJAT KUMAR
 Table of Contents

INDIAN AUTOMOTIVE INDUSTRY..........................................................................................11

SERVICE PARTS LOGISTICS.....................................................................................................12
BAJAJ AUTO.................................................................................................................................13
SUPPLY CHAIN AT BAJAJ AUTO..............................................................................................14
MANAGEMENT OF GLOBAL SUPPLY CHAIN...................................................................14
Spare Parts .................................................................................................................................14
SAP IMPLEMENTATION.........................................................................................................14
Global Level Partnerships .........................................................................................................15
National Level Partnerships ......................................................................................................16
GENERIC CHANNEL...............................................................................................................16
Manufacturing Plant ..................................................................................................................17
Transport & Logistics ................................................................................................................18
EXAMPLE.................................................................................................................................19
CHALLENGES TO SUPPLY CHAIN OUTSOURCING IN INDIA...........................................19
Table of Figures

Figure 1:'Supply Chain Model..............................................................................................................4

Figure 2:Relative importance of different logistics activites................................................................6
Figure 3:Financial improvement from outsourcing..............................................................................7
Figure 4: Success factors in scm outsourcing.......................................................................................8
Figure 5: Services provided by 4pl providers.......................................................................................8
Figure 6:3pl providers in India.............................................................................................................9
Figure 7: Indian Scenario.....................................................................................................................9
Figure 8:LPI scores.............................................................................................................................10
Figure 9: Industry sectors ..................................................................................................................10
Figure 10:Cost of logistics to total sales...........10
Figure 11: Logistics industry size in different sectors........................................................................11
Figure 12: 3pl industry in different sectors.........................................................................................11
Figure 13: Automobiles sales forecast................................................................................................12
Figure 14: Worldwide 3pl and spl revenue.........................................................................................13
Figure 15:Spare parts logistics network of CEVA..............................................................................13
Figure 16: Impact of sap implementation on spare parts logistics in bajaj auto................................15
Figure 17:Distribution network of Bajaj Auto....................................................................................16
Figure 18: Generic distribution channel of Bajaj Auto......................................................................17
Figure 19: Plant capacity at Bajaj Auto plant.....................................................................................18
Figure 20: Retail distribution channel of Bajaj Auto..........................................................................19

EXECUTIVE SUMMARY
The growth prospects of the logistics sector are closely linked to economic growth and foreign
trade. Third-party logistics (3PL) or logistics outsourcing is gaining importance as more and more
corporations across the world, unable to manage their complex supply chains, are outsourcing
logistics activities to the 3PL or logistics service providers. By outsourcing logistics activities,
corporations are able to not only concentrate on their core business operations, but also achieve
cost-efficiency and improve delivery performance and customer satisfaction. Now outsourcing is
seen as a strategic way to align the supply chain with the company direction and to become a
leading-edge practitioner. It is also recognized as a tactical way to better manage service and costs.
Global sourcing is now a competitive requirement of doing business. This perceived survival
imperative has created an extended supply chain, as to distance and time, which has a menu of
supplier and logistics demands. Directing the offshore supply chain, as to costs, performance,
inventory, visibility, collaboration, integration and agility is an imperative for corporate success

Supply chain outsourcing is catching up big in India. Though India lags behind its global developed
peers like USA and China in having logistics cost contributing high 13% of GDP. Indian companies
also lag in outsourcing their supply chain. Only 55% of Indian companies outsource their supply
chain in any form. But Indian supply chain outsourcing industry is experiencing good growth in
recent years. The number of participants in this industry had grown to be more than 600 by year
2009. The 3PL industry has been growing at cumulative average growth rate of 21.4% in the last 5
years. But still there are several challenges to Indian supply chain outsourcing industry.
Unorganized logistics players corner 85% of the Indian logistics market. These unorganized players
don’t pay taxes avoid regulations. Hence they can provide service at cheaper cost. And logistics is
an industry with high costs and wafer thin margins.

But outlook for the industry is very promising with imminent introduction of GST and Direct Tax
Code by 2011. Right now major problem of national level players is multiplicity of taxes on goods.
Situation is so bad that it is not economical to have a central warehouse because states charge sales
tax on goods where it is sold. So if a good produced is sent to store at one state and sent to different
state then it taxed two times, so upcoming tax reforms are expected to give major boost to logistics
industry of India.

Then in this project we have analysed supply chain outsourcing in automobile industry. Automobile
industry is one of the biggest sectors of Indian economy. India is 7th largest producer and consumer
of automobiles. And in the last concluded month indian automobile sales grew at the rate of 37%
even outstripping the 15% growth achieving by Chinese automobile economy. Spare parts logistics
is very critical for automobile industry. And we have analysed spare parts logistics industry. Then
we have looked at supply chain outsourcing done at various stages of supply chain of Bajaj the 2nd
largest 2 wheeler producer of the country

OBJECTIVES
Objectives of the project were
(1) Analysis of trend in supply chain outsourcing in India
(2) Determination of different providers of different 3pl services in India. And determination of
the services they provide
(3) Analysis of trend of supply chain outsourcing in automobile industry
(4) Analysis of spare parts logistics outsourcing industry
(5) Analysis of supply chain of Bajaj auto and the kind of outsourcing in its supply chain

INTRODUCTION
Outsourcing is having work or an activity done by people who are not employees of the company. It
is not new in logistics. Outsourcing existed before the topic earned a name and became business
chic.

What has evolved with outsourcing is the growth and amount of functions placed with outside firms
and has created new businesses with 4PLs and 3PLs. Initially, the outsourced functions often
represented non-core or non-vital activities or some other determinant where the company did not
want to invest its own resources--capital, people, technology and facilities. Now outsourcing is seen
as a strategic way to align the supply chain with the company direction and to become a leading-
edge practitioner. It is also recognized as a tactical way to better manage service and costs.

There are following types of players in supply chain defined by their role in supply chain
outsourcing:

1PL: A First-party logistics provider (abbreviated 1PL) is a firm or an individual that needs

Figure 1:'Supply Chain Model

to have cargo, freight, goods, produce or merchandise transported from a point A to a point B. The
term first-party logistics provider stands both for the cargo sender and for the cargo receiver.
2PL: A Second-party logistics provider (abbreviated 2PL) is an asset-based carrier, which actually
owns the means of transportation.

4PL: A Fourth-party logistics provider (abbreviated 4PL), lead logistics provider, or 4th Party
Logistics provider, is a consulting firm specialized in logistics, transportation, and supply chain
management. Typical fourth-party logistics providers are Theodore Wille Intertrade (TWI) , CPCS
(CPCS_transcom), Deloitte, WS Logistics, Procurus BMT Limited, Rollins andAccenture.
Accenture described the 4PL as an "integrator that assembles the resources, capabilities, and
technology of its own organization and other organizations to design, supply chain solutions"

3PL: A firm that provides multiple logistics services for use by customers. Preferably, these
services are integrated, or "bundled" together, by the provider. Among the services 3PLsprovide are
transportation, warehousing, cross-docking, inventory management, packaging, and freight
forwarding."
There are following four categories of 3PL providers
Standard 3PL provider: this is the most basic form of a 3PL provider. They would perform
activities such as, pick and pack, warehousing, and distribution (business) – the most basic
functions of logistics. For a majority of these firms, the 3PL function is not their main activity.
Service developer: this type of 3PL provider will offer their customers advanced value-added
services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique
security system. A solid IT foundation and a focus on economies of scale and scope will enable this
type of 3PL provider to perform these types of tasks.
The customer adapter: this type of 3PL provider comes in at the request of the customer and
essentially takes over complete control of the company’s logistics activities. The 3PL provider
improves the logistics dramatically, but do not develop a new service. The customer base for this
type of 3PL provider is typically quite small.
The customer developer: this is the highest level that a 3PL provider can attain with respect to its
processes and activities. This occurs when the 3PL provider integrates itself with the customer and
takes over their entire logistics function. These providers will have few customers, but will perform
extensive and detailed tasks for them.

BENEFITS OF OUTSOURCING
Following are typical benefits of supply chain outsourcing;
• Improvement in customer satisfaction
• Improvement in logistics system performance
• Reduction in capital investment in facilities
• Reduction in capital investment in equipment
• Reduction in investment in information technology
• Impact on employee morale
• Reduction in manpower cost
• Improvement in specific logistics function parameters
• Improvement in inventory turnover rates
• Improvement in on-time delivery
• Increasing productivity

EXTENT OF SUPPLY CHAIN OUTSOURCING IN INDIA

A survey was done in India on extent of supply chain outsourcing in India. Following were its
findings:

The responding organizations represented a broad cross-section of the industry including

engineering, chemicals, FMCG, retail, automotive, textiles, metal, pharmaceuticals, trading, and
telecom industries. However, majority of the respondents were from automotive, engineering,
chemicals, metals and FMCG. The respondents include a mix of public sector as well as the private
sector. The responses are markedly better from public limited company, which constituted nearly
63 per cent of the total sample, followed by private limited (34 per cent) and public sector (3 per
cent) organisations (Figure 3). About 44.1 per cent of the total respondents had MNC stake. Of the
respondents with MNC stake 21.57 per cent had stake less than 25, 35.29 per cent had stake
between 26 and 50 per cent, 21.57 per cent had between 51 and 75 per cent and equal percentage
between 75 and 100 per cent.

About 55.4 per cent respondents indicated that their organizations use third party logistics services,
while 44.6 per cent do not currently outsource logistics functions to third party logistics service
providers. Of those organizations currently outsourcing logistics services, 82.3 per cent indicated
that their firms employed the services of more than one logistics service provider. Furthermore, 28.6
per cent of these have been using the services of third party logistics service providers for over three
years. Another 18.8 per cent have been working with third party logistics service providers for 1-3
years. This indicates a relatively low amount of experience with third party logistics service
providers in India as a result of which the concept of outsourcing logistics functions to third party
logistics service providers is still in its nascent stage in India. This is in contrast to studies
conducted in developed countries like North America, Europe, Australia and Singapore.
Out of the total no of respondents, more than half the organizations have already outsourced
logistics activities such as outbound transportation (55.7 per cent), inbound transportation (52.2 per
cent) and custom clearing and forwarding (51.5 per cent). Other logistics activities that have been
outsourced by more than a fourth of the respondents are import and export management (34.5 per
cent), outbound warehousing (33.9 per cent), inbound warehousing (29.5 per cent), labelling and
packing (29 per cent), fleet management and consolidation (28.6 per cent), order picking (27 per
cent) and inventory management (23.5 per cent) indicating that these are the more important
services that are already being outsourced. The logistics functions that are least outsourced include
marketing sales promotion, assembly/installation, selected manufacturing and customer
service/support.
To determine why organizations decide to outsource certain logistics functions, respondents were
asked to indicate the importance of the same set of logistics functions on a five-point Likert scale,
with a score of 1 indicating “not important” and a score of 5 indicating “very important”. The
responses to importance rating and the extent of outsourcing of all logistics functions are presented
in following figure.

Figure 2:Relative importance of different logistics activites

The test results clearly explain the variation in outsourcing percentage for logistics
activities by Indian organizations.
.
Importance rating . 4.00. Logistics activities with “high” importance rating include customer
service/support, inventory management and rate negotiations. Less than 25 per cent organizations
have outsourced these activities to 3PL service providers primarily because of the criticality of the
information related to them and the strategic nature of these activities to impact business results.
Organizations using 3PL services for these activities have been working with 3PL service providers
over an extended period of time and rate the effectiveness of performance of top management of
3PL service providers as “high”.
.
Importance rating < 4.00 and . 3.25. Usage of 3PL services is exceptionally high for logistics
activities with a “moderate” importance rating between 4.00 and 3.25. Outbound transportation,
inbound transportation and customer clearing and forwarding are outsourced by maximum
percentage of respondents. Distribution (22.9 per cent), order fulfilment (20.4 per cent) and select
manufacturing (16.4 per cent) require organization-specific strategies from 3PL service providers
and hence score low on outsourcing percentage. Customized solutions at an operating level by 3PL
service providers could provide immense benefits for improving supply chain results for Indian
organizations in these three areas. Increased 3PL services for order picking, order warehousing,
labelling and packaging, import/export management, inbound warehousing, and fleet management
and consolidation depict the increased service offering by 3PL service providers and the growing
confidence in their services by Indian organizations.
.
Importance rating of < 3.25. Currently less than 25 per cent organizations use 3PL services for these
activities because of their “low” importance ratings. However, usage of 3PL services for reverse
logistics shows increasing trends.

Then organizations were asked on their reasons for outsourcing. We get the following results :

Figure 3:Financial improvement from outsourcing

Figure 4: Success factors in scm outsourcing

SERVICES PROVIDED BY OUTSOURCING COMPANIES

Following are services provided by 4PL outsourcing companies:

Figure 5: Services provided by 4pl providers

 SUPPLY CHAIN OUTSOURCING COMPANIES IN INDIA
Following are some of the 3PL's in India:

Multi-Industry/Global FMCG Retail Other

DHL DHL- Safe express Agility Logistics
UPS Exel
SembCorp Gati Total Logistics
FedEx Logistics
Reliance TCI Supply Chain Solutions Transystem Logistics
APL Logistics Logistics
TCI Om Logistics TVS Logistics
Gati Supply
Gati SembCorp Logistics
Menlo Worldwide Om
Logistics
AFL
Logistics
Safexpress
Patel
Logistics
Dynamic
Logistics
Figure 6:3pl providers in India
Following are some of the 4PL's in India:
DHL
Kuehne and Nagel
Redington
Brightstar
Bristleconne

LOGISTICS INDUSTRY SIZE IN INDIA

Logistics in India have always faced the challenges that any industry has in an Emerging Market (or
more appropriately, a developing country). Due to an under-developed and inefficient infrastructure
and related processes, logistics accounts for 13% of India’s GDP, compared to 9% in the US –
leading to higher costs and a loss of competitiveness. For example, freight is around 11% of landed
cost in India versus a global average of 6%. The following table shows how some of the key sub-
functions in logistics have been traditionally handled in India:

SERVICE SOURCE MARKET ENVIRONMENT

Transportation
Warehousing
Freight Forwarding
MIS and other Value-Added
Services
Value Chain Expertise
Figure 7: Indian Scenario
Outsourced Dominated by small trucking
companies and individual
truckers.
Generally In-House Some small external service
providers, typically having
expertise in one service.
Outsourced Small customs brokers and
Clearing/ Forwarding Agents.
In-house Generally held in-house for
exploiting local IT/MIS.
In-house Typically organisation where
not willing to share what is
belived to be sensitive
information.
Companies have tended to outsource individual functions to separate providers, with management
& co-ordination done internally, resulting in high administrative costs and significant inefficiencies.
Also, there have been very few value added services on offer. . A growing Indian economy and its’
place in a globalised market is providing an impetus for change and an opportunity for 3PLs (Third
Party Logistics Providers) to open up their service offers and for 4PL to become close business
partners and consultants bringing competence and expertise to the whole value chain. The 4PL
takes on the ownership to deliver an optimized supply chain to their clients.

Country LPI Score

USA 3.85
Singapore 4.19
China 3.64
India 3.07
UK 3.84
Mexico 2.64
Figure 8:LPI scores
Source : World bank report on trade logistics 2008

Following is the LPI( logistics performance indicator) scores of some select countries. India was
way behind in the rankings in the 30th place, way behind developed countries and China. But it was
best performing country in the countries in low income group.

The major reason for this is under penetration of organized sector in logistics sector in India.
Organized sector contributes to only 10-15% of logistics sector in India. And in the organized sector
only 6% is contributed by 3PL. While in developed countries like Japan 80% of companies
outsource their supply chain. In India only 55% of multinational outsource their supply chain. But
organized logistics is expected to grow at very rapid rate in the country with the imminent opening
of FDI in retail sector.

Figure 9: Industry sectors

Figure 10:Cost of logistics to total sales
Figure 11: Logistics industry size in different sectors
Source: www.scribd.com/doc/28073759/Analysis-of-Indian-Logistics-Sector
Following is size of logistics industry given in different sectors of the economy. We can see from
above that Steel sector is the biggest contributor to logistics industry today. And if we include share
of 3pl sector in these different sectors we get the following distribution of 3PL revenues in India:

Figure 12: 3pl industry in different sectors

SUPPLY CHAIN OUTSOURCING IN AUTOMOTIVE INDUSTRY

INDIAN AUTOMOTIVE INDUSTRY

The Automobile industry in India is the seventh largest in the world with an annual production of
over 2.6 million units in 2009. In 2009, India emerged as Asia's fourth largest exporter of
automobiles, behind Japan, South Korea and Thailand. By 2050, the country is expected to top the
world in car volumes with approximately 611 million vehicles on the nation's roads.
Following economic liberalization in India in 1991, the Indian automotive industry has
demonstrated sustained growth as a result of increased competitiveness and relaxed restrictions.
Several Indian automobile manufacturers such as Tata Motors, Maruti Suzuki and Mahindra and
Mahindra, expanded their domestic and international operations. India's robust economic growth led
to the further expansion of its domestic automobile market which attracted significant India-specific
investment by multinational automobile manufacturers. In February 2009, monthly sales of
passenger cars in India exceeded 100,000 units.

Figure 13: Automobiles sales forecast

SERVICE PARTS LOGISTICS

Service Parts Logistics is one of the key growth areas in the global logistics market. The importance
to manufacturers of after sales service as a product differentiator has developed significantly over
the last decade, as many high tech products have become increasingly commoditised.
At the same time as being required to provide exceptional customer service by maximising ‘up
time’, manufacturers are facing the challenge of reducing inventory levels. If they fail to deliver
world class after sales service they risk devaluing their brand, and losing ground to competitors
which have endorsed the importance of providing a comprehensive, whole-life service.
The need to deliver enhanced levels of customer service (for which they can charge premium
prices), has led many manufacturers to position product parts in close proximity to their clients.
Many sectors - medical technology for example - require service recovery in hours, if not minutes,
due to the criticality of the nature of their business.
From a supply chain perspective, the importance which manufacturers are now placing on the
service side of their business has led to much more stress in the system, as locating parts close to
customers can lead to vastly over-stocking.
How this seeming paradox is reconciled is one of the greatest issues facing the industry. Global
Service Parts Logistics for the High Tech Sector sets out how many companies are going about
meeting this challenge.
Following is the distribution of Service parts logistics in the world
Figure 14: Worldwide 3pl and spl revenue

The biggest share of Service parts logistics comes from Automotive Sector. Following are the main
players in the service parts logistics market in India:
(1)TVS logistics
(2) Reliance logistics
(3) DHL
(4) CEVA

Following is the typical supply chain network of CEVA in India

Figure 15:Spare parts logistics network of CEVA

BAJAJ AUTO

Bajaj Auto was founded in 1945.It is India's second largest two wheeler manufacturer and the
world's 4th largest two and three-wheeler manufacturer. It is based in Pune. with plants in Akurdi
and Chakan (Pune), Waluj and Pantnagar in Uttaranchal Currently It holds a market share of 22%
over all two wheeler industry and a phenomenon 71% share in 125- 250 cc category. It has a joint
venture with Kawasaki and 31.72 % stake in Australian based company KTM

SUPPLY CHAIN AT BAJAJ AUTO

MANAGEMENT OF GLOBAL SUPPLY CHAIN

With operations spanning to such vast geographies, managing a supply chain globally becomes
more and more complex. In countries where Bajaj perceives a strong market potential, they
establish a tie up with one major industrial establishment eager to invest in the project. This
investment may include setting up strategic manufacturing or assembly units, apart from a well-
established nation-wide network for marketing, distribution and after sales services. These investors
who form alliances with Bajaj Auto are termed as “Business Partners”.
Bajaj Auto offers a number of services to its business partners. They include:
• Training in sales, service and spare parts management based on the Bajaj distribution system
• Active support for setting up manufacturing facilities overseas including transfer of
technical know-how
• Assistance in setting up an assembly plant for assembly of vehicles from complete knocked
down (CKD) kits
• Selecting of machinery and equipment and training of technical personnel, all in a phased
manner as required by the regulations in the recipient country

SPARE PARTS

Automobiles need periodic replacement of parts. Not surprisingly therefore, spare parts comprise a
profitable business for major automobile manufacturers. The objectives of the spare parts business
of Bajaj Auto are to perform an effective role in supporting new vehicle sales, maintain ‘vehicle
goodwill’ across different geographies, makes and consumer groups, and contribute to the bottom-
line.
Challenge: To make the company’s spare parts available in not just the authorised service centres
but also the private garages and spare part shops that dot the country. This is a high volume, credit
intensive business that requires mastery over the supply of heterogeneous products.

Solution: In 2004-05, Bajaj Auto created a separate channel exclusively for distribution of spare
parts. Today, the channel has 73 distributors, who cater directly to over 15,000 retail shops across
the country. This channel now accounts for sales of over 70% of total spare parts of Bajaj Auto Ltd.
Other 30% is distributed via the distribution channel of the bike itself.

SAP IMPLEMENTATION

Bajaj Auto ltd. is India’s largest manufacturer of two- and three-wheeler vehicles. Spare parts
distribution, critical to the servicing of the vehicles, is handled through a network of 400 dealers
and
15 distributors. Spare parts are distributed from four warehouses that are strategically located across
the country. The process that bajaj Auto was using to manage the supply of spare parts across the
distribution network was inefficient, did not produce accurate results, and was unsuitable for the
increasing complexities of distribution. to keep track of its safety stock, amounting to over 14,000
different items, the company was using a cumbersome manual process that was neither timely nor
accurate. And lack of visibility of order status resulted in inventory problems at sales outlets
because needed items didn’t always get priority during packing and shipping. This combination of
problems affected service level in the marketplace, leading to customer dissatisfaction. At the same
time, high inventory levels at the warehouses meant increased amounts of non moving stock, which
had an impact on the dealers’ working capital.
So Bajaj Auto implemented “Go Live” of their External Portal Initiative for their sales and
service employees, dealers and suppliers. SAP’s mySAP Enterprise Portal was implemented
simultaneously with the current SAP R/3 ERP implementation. Business information is available to
the company’s external community in real time. This assists in improved decision-making, whether
it is to meet customer requirements or to maintain efficiency in supply chain management. The
company’s field sales teams get full visibility on all dealer activities while the dealers get real-time
access to relevant information on operational activities. The dealers and sales employees get
information relevant to their respective region and territory by aggregation from the underlying SAP
R/3 ERP database. Bajaj has linked 380 out of its 483 dealers through this system. Also connected
are 165 out of a total of 200 suppliers. The dealer portal, in addition to operating information,
provides access to unstructured information like news items, new product releases, new product
introduction, dealer discussion groups and internal marketplace. The supplier gets up-to-date
information on purchase orders and contracts, material schedules, and payment details. Bajaj Auto,
in turn, gets invoicing information from suppliers for its automated material receipt system. This
helps in streamlining the supply chain, optimising inventories and reducing non-value-adding
activities at both ends.

Following were advantages realized from SAP implementation

Operational Benefts of SAP implementation to spare parts logistics at Bajaj Auto
Indicator
Key Performance Impact
+35% to
Spare parts availability 40%
40%
forecasting accuracy in domestic market
productivity of production planning 80%
controllers
+45% to
Service level to export market 70%
greatly
inventory obsolescence rate reduced
Figure 16: Impact of sap implementation on spare parts logistics in bajaj auto

GLOBAL LEVEL PARTNERSHIPS

In order to cater to a widespread network of dealers, distribution is a challenge for Bajaj Auto. Here
the concept of “business partners” comes in. Bajaj has tried leveraging the existing distribution
network of the “business partner” in the country where the partner is present. Bajaj Auto has also
set up assembling units in few of the continental hubs. These continental hubs act as goods
receivers from the manufacturing units of Bajaj in India. The logistics for this is outsourced to third
party vendors like Maersk Sealand, P&O Nedloyd and APL.

Figure 17:Distribution network of Bajaj Auto

NATIONAL LEVEL PARTNERSHIPS

There is an exisisting generic channel which is used for segmentation of this category of two-
wheelers and three wheelers.

GENERIC CHANNEL
Figure 18: Generic distribution channel of Bajaj Auto
The physical flow of goods takes place from the factory to either the depot or to the carrying
and forwarding agent, depending upon the geographic distance and the location of the Depot. The
transport & logistics for this is outsourced to third party vendors which are under Transport
Corporation of India (TCI). Depending upon the demand these goods have, they flow from Depot or
the C&F agent to the dealer and their network. In case of high profile dealers, the dealer can
himself take the physical delivery of goods directly from the manufacturing plant. The dealer, at
the last juncture, caters ASC, RSO, Sub Dealer & its own branch

MANUFACTURING PLANT

Bajaj Auto’s vehicle manufacturing capacity currently stands at 3.96 million units — comprising
3.6 million two-wheelers and 360,000 three-wheelers. The newest plant at Pantnagar (Uttarakhand)
has a capacity to produce 900,000 two-wheelers.
Figure 19: Plant capacity at Bajaj Auto plant

The company’s first plant at Akurdi which was a vehicle assembly unit was shut down in
September 2007. The reason for doing so was the higher cost of manufacturing, which placed this
location at a disadvantageous position compared to the other facilities.

TRANSPORT & LOGISTICS

This function of distribution is not owned by the company in any form. This is outsourced in toto to
the third party vendors. The third party here is Transport Corporation of India (TCI) and a few other
private vendors. The fleet to be transported is custom-designed for Bajaj Auto by the vendor.

Key Facts

• There are twenty vendors all across India

o OSL
o Jamuna Transport
o Sumit Transport
• A Transit Insurance Compliance Letter(TICL) is signed between the two parties
• The local level sub-dealer sometimes gets to decide the last mile logistics, as he can decide
to pick up the vehicles himself or have it transported to him
• Logistics of the vendor is decided by the company
• Freight charge is built-in in the product price
EXAMPLE

Figure 20: Retail distribution channel of Bajaj Auto

TCI looks after the packaging of the bike from the manufacturing unit to its delivery upto the
warehouse of the dealer or to the depot, as required. In the above example, one truck or a single
factory load can carry either 43 premium bikes or 53 general bikes. Depending upon the product
mix ordered by the dealer, the truck is loaded. It can then either go to the dealer’s warehouse
directly or to the depot, as depicted in the generic channel. From the depot, these bikes are loaded in
smaller fleet and distributed to the respective dealer. In this case, the fleet size is 28 premium bikes
or 35 general bikes. This load is termed as Depot Load.

CHALLENGES TO SUPPLY CHAIN OUTSOURCING IN INDIA

Following are internal challenges to supply chain outsourcing in India

• Strategic
– Management buy-in
– Cultural fit
– Scope of outsourcing
• Organizational
– Restructuring organization
– Re-deploying existing resources
– Anticipating quantum and timing of change
 – Managing change
• Operational
– Reengineering existing processes in view of outsourcing strategy
– Framing KPIs/ SLAs both for internal resources and for external agencies
– Implementing processes across the organization and initiating MIS generation
– Measuring performance and benefits of outsourcing
Following are challenges in vendor selection
• Selection Challenges
– Ability to understand and assess customer’s requirement
– Project management and roll-out capabilities
– Framing appropriate performance measurement system
– Information technology integration and interface
– IT and communication infrastructure upgradation
– Managing relationship with customers/ vendors/ authorities/ employees
– Developing short-term and long-term infrastructure
– Developing strong intra-country dependable distribution service
Following are external challenges
– Optimizing within infrastructure constraints
• Poor road conditions
• Lack of dependable communication infrastructu
• Real estate hurdles
– Managing multiple government authorities
• Sales tax authority
• Octroi Authorities/ Entry Tax Authorities
• Local bodies (Gram Panchayats, etc.)
– Understanding and adopting laws of land
• Entry Tax
• Excise Laws
• Octroi rules
• Other documentation like permits, etc.

CONCLUSION

Logistics is one the most important and integral part of any organisations strategy and function.
When the logistical process is carried out accurately then not only the company reduces the
production cost but also improves the efficiency and customer satisfaction. Overall logistics
management is very important for today’s highly competitive and cut- throat corporate world.
Third-party logistics or 3PL is growing around the world as more and more corporations prefer
to outsource their logistics operations to the 3PL or logistics service providers. The 3PL market
in India is still in its infancy and is highly fragmented. However, there is a high potential for
growth of the market, which was evident from the survey of the Indian logistics service
providers. The respondents held the poor infrastructure and the lack of awareness and trust
among the Indian firms responsible for the low growth of 3PL in India so far. However, more
and more Indian firms are becoming aware of the benefits of 3PL and outsourcing a part or
whole of their logistics-related activities to the service providers. With respect to developing the
infrastructure, the Indian Government has already taken some initiatives, which may be
facilitated by allowing private investments in this sector. The Government should identify
investments in infrastructure that will lead to the growth of 3PL, as one of the thrust areas as this
would not only contribute to the GDP, but also generate employment. The policies and
procedures also have to be simplified to speed up the process of service delivery

Nevertheless outlook for supply chain outsourcing is still very rosy in India. Govt. is doing the
reforms. Logistics sector has 100% FDI allowed so several foreign companies are entering India.
Just 3-4 months ago Hitachi entered into logistics industry of India by acquiring an Indian firm.

REFERENCES

(1) www.wikipedia.com
(2) www.ibef.org
(3) 3PL practices: an Indian perspective B. S. Sahay and Ramneesh Mohan
(4) Indian Auto Supply Chain at the cross-roads Karthik Balakrishnan, Ananth Iyer, Sridhar
Seshadri, Anshul Sheopuri
(5) Strategies for Enhancing Competitiveness of Indian Auto Component Industries Dr.
Kamala TN Prof. Doreswamy AG
(6) A Survey of the Third-Party Logistics (3PL) Service Providers in India by Subrata Mitra,
IIM Calcutta Working paper series
(7) Bajaj Auto, annual report 2009-10, annual report 2008-9
(8) www.scribd.com/doc/28073759/Analysis-of-Indian-Logistics-Sector
(9) Bajaj auto Simplifying Spare parts planning and distribution from http:\\download.sap.com
(10) http://www.frost.com/prod/servlet/market-insight-top.pag?docid=74102578