Managing cost escalation is key challenge to Indian auto supply chain: EY report

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The key challenge for the Indian automotive supply chain would be to manage the cost escalation year-on-year, driven by rising fuel costs. Original equipment manufacturers (OEMs), therefore, need to explore the ability of key suppliers to fulfil orders from alternative locations, said a report on Monday.

Traditionally, logistics costs in India have been comparatively higher than its other neighbouring nations. The Indian auto industry needs to deploy crisis management, governance and supply chain intelligence, it said.

According to an EY India report titled ‘Non-linear automotive supply chain – Covid-19 and beyond’, the Indian automotive supply chain and manufacturing segment has been evaluating mid- and long-term impacts of Covid-19.

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These include procurement planning and supplier management, integrated sales and operations planning, manufacturing, logistics and distribution. The report recommends a bottom-up evaluation of the supply chain architecture and its vulnerabilities against external factors like the pandemic.

The critical first step would be to identify a company’s key direct suppliers and dependencies, both on the supply and the demand sides. It requires an in-depth mapping exercise to understand its ability to meet supply requirements and responses during potential risk scenarios.

This will enable the creation of a flexible ecosystem comprising suppliers and distribution partners. Increased and real-time visibility of their networks will result in better preparedness in case of disruptions to specific nodes or routes.

“The Indian automotive supplier base is currently not too diversified for the majority of components. This was to drive volume-based price efficiencies. However, this strategy is highly exposed to risks arising from disruptions in geographies that supply key auto components,” Vinay Raghunath, Partner and Automotive Sector Leader, EY India, said.

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The report also highlighted the impact of Covid-19 on the Indian automotive supply chain’s inherent inefficiencies. It outlines focus areas which could help its performance in the interim and beyond. The Indian automotive industry imports $17.5 billion worth of auto components.

Before the pandemic, to enforce ‘Make in India’, the government in the Union Budget 2020-21 had hiked customs duty on raw materials and inputs imported by domestic manufacturers by 2.5-5 per cent, and completely built units (CBUs) from 30-40 per cent for commercial vehicles other than electric.



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