Outbond logistics in automobile industry

Abstract

The automobile space in India has witnessed tremendous growth over the last decade and the trend is expected to strengthen in the future. The CAGR for the entire automobile sector in India for the period 2001-02 to 2005-06 has been nearly 14%. The passenger car segment alone has grown by 16% p.a. in the same period and is expected to expand by about 13% annually for the next 7 years. The commercial vehicle segment is expected to double in the next 3 years. Though this presents an optimistic picture for the industry, it also poses serious questions about the scalability of the supporting logistics infrastructure. The growth in the automotive sector necessitates a comparable expansion of the infrastructure for outbound logistics. However, the required investment has not been forthcoming. In the light of uncertainty regarding future growth, vendors have been unwilling to make the long term commitment to this effect. A major challenge facing the manufactures is to encourage vendor participation in building up the requisite facilities to support the growing industry. There is an increasing move towards low cost cars in India. Given the existing logistics model, transportation forms about 5% of the cost of the cars in the lowest price segment. With the advent of the low cost cars, this would become a significantly higher percentage (nearly 10-15%) of the cost of the automobile. The reduction of this cost becomes crucial to the profitability of the low cost car. This lends a new dimension to the logistics problem outlined earlier. In this context, it becomes increasingly important to arrive at a workable solution to increase investment in logistics infrastructure while reducing the overall transportation costs.