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Facilitating Localization: Most of the auto manufacturers (Maruti in Haryana and Ford in Chennai) have been pushing for localization in the supply chain and negotiating with long distance suppliers to set-up plants in the vicinity. In several instances, incentives like land
subsidy have been given by the government. Maruti and other such firms have invested in such supplier parks in collaboration with the government, e.g., HSIDC park set in Haryana. This creates a network effect with most new manufacturer wanting to set-up facilities in the vicinity.

Interestingly, this has resulted in buyer power of Maruti reducing as the component suppliers have opportunities to increase their customer base.

Radical Transport Solutions: Ford, when it set shop in India in 1999, sourced it components from 45 different suppliers spread across the country. The travel time (length and uncertainty) was further aggravated by lower volumes which Ford earlier had. This led to suppliers shipping infrequently and relying on less than part loads, often leading to unreliable supply times. Ford preferred a single truck shipment which gave benefits of palletization and ease of tracking shipment, thereby reducing variability. Ford went the Walmart route by adapting cross-docking and establishing regional hubs. This resulted in a reduction of variability in supplier lead times as the transportation was now carried not by local private carriers but by value adding logistics solution providers, who could track and monitor shipments. However, like Maruti, Ford has also offered incentives and encouraged its suppliers to set-up shop in the supplier park created in vicinity of its unit.

Vendor Managed Inventory / Warehouses: Some manufacturers have been able to persuade their vendors to set up warehouses, especially for long lead and imported components. However, this approach is not in sync with the "lean" philosophy and the "cost of carrying inventory" is still borne by both the vendor and manufacturers.

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