Hyundai Motor India Supply Chain Management

Name: Raja Vasu

Indian Automobile Industry: Indian Automobile industry is the ninth largest in the world and Asias fourth largest exporter. Many global players have established their manufacturing plants in India including Ford, GM, Volvo, Mercedes Benz, Fiat, Toyota, BMW, Honda and Volkswagen etc.There are also a number of Indian automobile manufacturing companies including Tata, Maruti, Mahindra and Mahindra etc. Tata Motors has launched the 1 lakh ($2500) car and other car manufacturers are also planning for a similar car in the future. Car sales in India had a CAGR of 13.7% between 2003 and 2010.2.6 million cars were sold in 2009, the sales is expected to reach 5 million by 2015 and more than 9 million by 2020. Indian automobile exports were $4.5 billion in 2009 and car exports are expected to cross $12 billion by 2014. The exports from Indian automobile industry is expected to grow to $40 billion by 2015 and $20 to 25 billion of it will be from export of auto components. Hyundai is the leading exporter in India; exports include cars, engines and other automotive parts. There are many car manufacturers competing with their low cost and fuel efficient vehicles. The competition is further increased with companies like Nissan, Ford and GM making it a hub for their exports. The industry also faces competition from Chinese automobile manufacturers in terms of productivity, cost and technology. Productivity and labor cost has been an important factor to compete with other low cost manufacturing countries. The global recession had an impact on the automobile industry and it is important to keep the manufacturing cost low in order to compete in the global market. Companies like Daimler, Fiat and Nissan have increased their sourcing from India. Nissan has identified India as a low cost manufacturing center for its micra; Volkswagen has planned to manufacture cars based on the polo platform. Hyundai has also planned to increase its sourcing from Indian suppliers for its global operations.

Market share of major players in 2009

Maruti Suzuki Mahindra & Mahindra Hyundai Motor India General Motors India 4% 7% 15% 16% 12% 46% Tata Motors Others

Company Overview: Hyundai Motor India is a wholly owned subsidiary of Hyundai Motor Company. It is the second largest manufacturer and the largest exporter in India. HMIL presently markets 7 models of passenger cars which include Santro, Getz prime, i10, i20, Accent, Verna, Sonata and Tucson. Hyundai Motor India has a fully integrated manufacturing facility with a production capacity of 600000 units per annum. HMIL currently exports to more than 110 countries across EU, Africa, Middle East, Latin America, Asia and Australia. As of December 2010, HMIL has 413 dealerships and 600 authorized service centers in 329 cities across India. In 2010 the sales was 603819 vehicles with approximately 50% of the sales in domestic market and the remaining in export markets. Just in Time production: The production facility has implemented Just in Time practices. Many suppliers are located near the plant in order to support the process, the company also imports from suppliers in different countries. The production includes 55 variants of passenger cars, plant 1, 2 supplies the engine

and transmission parts to the assembly line which has an average production rate of 52 cars per hour. The same assembly line supports the manufacturing of cars for the domestic and overseas markets. The cars for overseas markets have specific part requirements and just in time practices are also implemented for those supplies.

Exports Market share in 2009

Tata Motors M&M Maruti Suzuki 1% 2% 0% Hyundai Motor Others

21%

76%

Production planning: The assembly line needs to have accurate information on the inventory level to maintain the production rate. 60 minute Stoppage in the assembly line at HMIL costs 400000 USD. The production planning process used to be manual and there were number of line stoppages due to non availability of inventory. Production schedules were important to avoid line stoppages, engine and transmission plan was essential. The schedules were important for the vendors to maintain the inventory supply. Manual reports were generated using excel and consolidated to plan the requirements of inventory for the next production cycle. Real time information on the inventory levels was not available, the stock levels were known only by the end of the day. There were shortages of essential parts and only after the daily updates the shortages were known.

In 2008 a new application was developed to share the information online with the vendors and also within the company. The application had AS/400 screens to capture data online and display in the web. PCs and barcode printers were placed along the line. The data was entered every two hours, production and inventory plans were based on the inputs from the line. The application improved the decision making process with availability of information and improved productivity. The application also improved the alignment of vendor supply with the production, reduced the line stoppages and improved the production planning process. Future plan: Hyundai Motor Company has shifted its entire production of Atos Prime to India, it has also set up a $40 million CAD center and the newly launched i10 is manufactured only in India. Hyundai has planned to increase the engine manufacturing capacity by 150000 over the next three years, it has also planned to increase its car manufacturing capacity from 630000 to 670000 by 2011 and launch three new models including an 800cc small car by 2011. Reducing the cost of operation due to line stoppages, reducing the cost in the supply chain are important for overall cost reduction and better pricing of the final product. Productivity improvements, maintaining product quality, low cost through process innovation, technology use and better coordination of the supply chain activities will improve the profitability of the company. Barcodes: Barcodes consists of a series of stripes which has the capacity to hold a lot of information. 2 Dimensional barcodes can hold more than 2 kilobytes of data. The information can be read using scanners. Barcodes are already in use for Vehicle identification numbers and inventory pallets at Hyundai Motor India. The use of barcodes has already been beneficial in various processes and

error reduction in the assembly line. The benefits can be further extended to cost savings by using barcodes for automation and improving the information availability in various systems for better decision making. The use of barcodes can be further extended to areas where there are frequent quality problems. The cost of barcode scanners is around a few hundred dollars and the cost of barcodes is only a few cents. The total cost of using the barcodes will be lower than implementing the RFID system and it can be easily added to the process due to its previous usage in the assembly line. The use of barcodes in the supply chain and integrating with the web system will enable smooth flow of information. The information encoded in the barcodes should be decided based on the requirements of the various stages in the supply chain. The investment in the barcodes and bar code scanners will be beneficial in the long term enabling cost savings, just in time practices and productivity improvements. Automation: The current production planning process can be further improved by using barcodes. The manual entry every two hours is prone to errors and adds a lead time for inventory planning. In order to reduce the lead time barcodes can be used in the vehicle and also shipments from the vendors. Scanners needed to be placed at the side of the assembly lines where the inventory arrives just in time; each lot received from the vendors should be scanned. This will give accurate information on the quantity and the type of inventory available. The assembly line is used for different variants of vehicles, only some of the variants will require certain parts. In order to keep a track of variant and the usage of a particular type of inventory a barcode should be attached to the vehicle while entering the assembly line. The barcode should comprise information on the model type, the variant details and specific features required for the variant. On scanning the barcode the details will be updated in the system. As the vehicle passes through the different stages of

production the inventory usage can be directly calculated by the system. This will give real time information on the use and also on the availability of the inventory. Based on the information the re-ordering of the inventory should be triggered, sharing the information with the suppliers will improve their planning process. All the 25 stations needs to have inventory to avoid the line stoppage, scanning of the barcode before the vehicle enters the assembly line will provide real time information to all the stations. Based on the requirement the stations will have enough time to re-order inventory or reduce the stock levels by postponing the re-ordering process. Automating the entire process may reduce the requirement of last minute changes in the ordering and fitting the parts at the checking station instead of the assembly line. The stock levels can be reduced at the supplier end and thereby the cost can be reduced in the supply chain. Tracking: The system will provide real time information for inventory tracking in all the 25 stations, the shift change can be done smoothly. The inventory requirement for the next shift can be calculated and handling of the just in time inventory will be smoother. The production schedule and the inventory forecast can be done based on real time information. In the case of the inventory from suppliers in foreign countries the requirement of last minute shipping by air can be minimized. The airfreight charges are quite high and altering the production schedule accordingly will facilitate the normal shipping process. The clearing of the shipments and the logistics operation within the country can be handled smoothly. The normal processing time for customs clearance and delivering the goods the following day will be possible. In the case of urgent shipments the lead time in information transfer to the logistics department can be reduced, the entire process can be expedited so that the customs clearance is possible within the office hours. This will enable a smoother handling of the import shipments and delivery within the

same day. The accurate information on the shift or the day of requirement of the inventory will enable the logistics department to reduce the additional charges due to the waiting time before unloading at the company premises. Quality Control: At HMIL the same assembly line is used for variants of different models. The features fitted in the cars depend on the variants and whether it is for domestic or foreign market. This requires the fitting of additional parts in some stations based on the information sheet that comes along with the car. The process is sometimes prone to errors due to the fitting of the wrong part or a part not been fitted to the car. The continuous movement of the line does not facilitate the checking at the same station and there is not enough time to change the wrong part in the same station. Usually the inspection is done in the final part of the assembly line and the changes are done outside the assembly line. This reduces the productivity and increases the chance for errors in the assembly line. In order to reduce the errors the list of frequent errors can be maintained at the checking station. The stations that fit the additional parts for export shipments and station where the type of parts that are usually interchanged can be identified. Scanners should be placed at the important stations, the vendors should be asked to attach barcodes to the parts or to the lot. The worker should be directed to scan the barcode in the vehicle and the barcode in the lot or individual part, the system should be placed near main stations to check whether there is a match between the variant and the part that is to be fitted. In case they do not match the system should show an error, this will make sure that the errors are rectified at the source. The employee needs to be trained to do the scanning and the verification before fitting; this will ensure that it becomes a part of the process. Also this will ensure that the process is done within the time the

car is in the station. The need to rework at the final stages can be reduced; quality and productivity can be improved. Implications on the Supply Chain: New product development: The development of a new product is a long term plan, since it takes more than a year to create a new product or re-engineer a car from another country. The process requires a lot of information on the production to calculate the final cost of the vehicle. The information on the total cost of ownership of the inventory and other supplier information are important for new product development. The use of Barcodes in the assembly line to automate the process will reduce the errors and provide accurate information for new product development. The required information for new product development can be encoded in the barcodes; periodic scanning of the barcodes and integrating with a web system will enable decision making process. The real time information can be made available to the design center, the total cost for developing a new product can be accurately calculated at the design stage itself. This will enable decision making on selecting the factory location to build the car, based on the cost for production at HMIL and other Hyundai factories. Sourcing: Hyundai Motor Company is planning to source various components from India. The details of the suppliers and the information on the use of different parts for the variants are required for deciding on sourcing. The total cost of ownership, supplier quality rating and other details are important for decision making. In order to build cars on the same platform the sourcing of auto components is a key for both the Indian subsidiary and the parent company. The cost of

production can be lowered by sourcing the components from the right suppliers and the use of barcodes will enable the decision making process. Operations: The use of barcodes in the assembly line will improve the productivity; the losses due to line stoppages can be reduced. The production schedule gets altered when there is a change in the paint or the body shop. These changes in the processes before the assembly line create fluctuations in the inventory requirement at the various stations. The barcodes that are already in use can be altered to hold additional information. Scanning at the previous shops and integrating with the system will provide sufficient lead time to the engine, transmission and other part assembly stations. Any deviations in the production schedule can be easily checked by the line supervisor at the stations. This will reduce the manual tracking of the production schedule and communicating the information to the assembly line workers. The time available for reordering the inventory will be improved thereby the line stoppages can be reduced. Inbound and outbound logistics: The export promotion policies of the Indian Government requires automobile manufacturers to submit reports on the exports, imported component used in the cars for exports and the duty paid for the clearance. Automation of the process by using barcodes at the point of sale for export shipments and integrating it with the system will expedite the process of revenue realization. The revenue on the export shipments is $40 million per year. The availability of information will reduce the lead time in the preparation of the reports and enable cost savings. The cost can be further reduced by the use of barcodes at the vendor end and integrating with the Hyundai web system, thereby enabling smooth flow of information in the supply chain. The vendor import

details can be easily consolidated and the lead time in the revenue realization can be reduced. The vendor duty drawback reporting is done once in 3 months and there is an additional lead time for processing by the government. The process can be automated in steps by doing an ABC analysis on the major vendors causing delays and requesting them to implement the use of barcodes. Bar-coding can be first implemented at the A category vendors so that the consolidated information can be made available quickly. This will reduce the total lead time and the entire process will be streamlined. Sales and Service: The decision on the pricing of export cars also depends on the revenue realization from the government .Hence quick realization of revenue is important for deciding the price of the next shipment of export cars. Further any changes in the policies and the impact on the revenue can be easily incorporated in the export prices of cars. Barcodes are already used in the export cars; hence the frequent service problems can be consolidated by variant, country level. Integrating the dealer network with the team at the factory will reduce the cost due to service problems and improve the sales in the overseas market. The point of sale data at the company dealership and the authorized dealerships in the overseas market can be made available to the company. The availability of the booking, sales details by model, variant level will be useful for checking with the existing production schedule and reducing the lead time for the shipment of the vehicles. Conclusion: The Indian Automobile industry is highly competitive and is one of the fastest growing sectors. The automobile companies are increasing their capacities and achieving economies of scale, this has increased the viability of low cost cars like the nano. Selecting the right product mix for

assembly line production, adding new products will reduce the cost in the assembly line and improve the performance of the companies. This has been the future plan of many Indian automobile companies. Sourcing of components is also a focus of many global players to position themselves strongly in overseas markets. HMIL has plans to increase capacity in the plant and for increasing the exports from the region. In this scenario developing a fully integrated system for information transfer in supply chain is an important step towards achieving low cost and increasing profitability, the investment in Barcode and the supporting infrastructure will ensure smooth process flow to achieve the goal. The investment can be justified if the cost savings are achieved in various departments using barcodes and the supporting infrastructure. Further, the integration of the supply chain activities will improve the performance of the subsidiary and strengthen the entire organization in the long term. References: www.hyundai.com
Revving up Indian Automotive industry-a perspective Ernst & Young. Web. 2002 http://www.ibef.org/download/Revving_up_Indian_Automotive_perspective.pdf Goswami, Kanika. Hyundai Motors gets more mileage from Real-time Inventory A case study on network management in systems. Web. December 2008. http://www.cio.in/case-study/hyundai-motors-gets-more-mileage-real-time-inventory www.siamindia.com