Previous

Page - 12

So to understand the inefficiencies caused by the transport system, it is imperative to answer the following question: How much of the total inventory in the supply chain can be attributed to inadequate transport system? Though it is difficult to get specific data, to answer this
question, it may be worthwhile to compare the inventory levels maintained by firms in the same industry, following almost similar practices but one facing problems due to the transportation infrastructure whilst the other does not. Total raw material inventory at Maruti, which has been working at JIT, was 30 days as compared to 3 days at Nissan and one day at Toyota. To understand the impact of these high levels of inventory, just the holding cost of this additional inventory was comparable to the wage bill at Maruti!

The problem gets even more compounded if the firm imports raw materials. In the auto industry, the safety stock for imported items is six times that of domestic items (2 days in certain auto-manufacturers).

It is evident that a fast and a reliable transportation system is a key ingredient to make the lean production system work. So how do firms get around this problem? The answer lies in localization. As an example, in 1997 Maruti found that only local suppliers (those who are within 180 Km or less) are able to deliver frequently and just in time. Only with such suppliers can they expect one or more deliveries per day. So what happens to the non-local part of the supply chain? For the non-local suppliers, the inventory levels increase with the distance from the supplier and this makes it very difficult to apply JIT.

Next

* Contributed by -
Amandeep S. Bedi & Namit Puri,
Indian School of Business (ISB),
Hyderabad.