Deloitte report highlights lessons from the recession for the Indian automotive component industry
Economic downturn teaches component manufacturers not to trade-off growth for efficiencyDOWNLOAD
New Delhi, 10 February 2010 - The manufacturers might have taken their eyes off their supply chains in their exuberance to create capacity according to a new report by Deloitte Touche Tohmatsu’s (DTT) India Manufacturing Group. In the report, Auto Component Sector Report - Driving out of uncertain times, Deloitte’s senior automotive leaders believe the high growth and the possibility of even more perhaps made the auto component manufacturers strategically rigid and a touch complacent with reference to managing their operations.
“There have been a number of examples where optimism often makes people overlook the shortcomings in their operational or tactical performance. A slow-down actually helps companies focus on important things and conservatism” says Kumar Kandaswami, Manufacturing leader for Deloitte in India.
“In a sector that has high material costs, low value addition and difficulty in making strategic corrections the margin for error is extremely small. We find on most parameters, the difference between the company that is doing well and the one that is not is often not more than 5%” says Kumar. “Under these circumstances and where cost is a huge competitive differentiator, efficiently managing the supply chain should be the single most important activity of the senior management of companies”, he further added.
Kumar believes that “If the industry has to grow and perform to its potential, it has to have manufacturers that will be strong on technology, efficiency and scale. And as a sector, it has to perform at par with other sectors in the stock market.”
The report presents strategic and operational benchmarks for the sector as a whole and for each one of the sub-segments like engine parts, transmission & steering, braking & suspension, electrical parts and other equipment.
“It was evident from the data that we had manufacturers who were unable to make any changes to the customer profile or the product portfolio, given the nature of the sector. This underlines the criticality of the strategic planning and risk intelligence within the sector apart from the need to create strategic flexibility. In every sub-segment, investment went into capacity when the utilization levels were already not so high and the profits coming down. This would mean the sector has to have sustained demand to overcome the excess capacity that has been created even if they are able to achieve higher levels of efficiency in operations” observes Kumar.
“While the automotive sector is rightly reputed to be very good at managing its supply chain, it turned out that the difficult times did not bring the best out of companies” adds Kumar, “In most cases, companies allowed inventory to build up.”
The report suggests a continuum of processes that manufacturers may well do to adopt to enable them manage their enterprises in a manner they are able to grow profitably.
For a copy of Auto Component Sector Report – Driving Out of Uncertain Times, please contact the above mentioned persons.
Notes: Deloitte in India refers to Deloitte Touche Tohmatsu India Private Limited and its affiliate entities in India.
Deloitte Touche Tohmatsu Global Manufacturing Industry Group
The Deloitte Touche Tohmatsu (DTT) Global Manufacturing Industry Group comprises more than 750 member firm partners and 12,000 industry professionals in over 45 countries. The group’s deep industry knowledge, service line expertise, and thought leadership allows it to solve complex business issues with member firm clients in every corner of the globe. Deloitte member firms attract, develop, and retain the very best professionals and instill a set of shared values centered on integrity, value to clients, commitment to each other, and strength from diversity. Deloitte member firms provide professional services to more than 81 percent of the manufacturing companies in the Fortune Global 500®. For more information about the DTT Global Manufacturing Industry Group, please visit www.deloitte.com/manufacturing.
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This press release has been given by Deloitte Touche Tohmatsu India Private Limited (DTTIPL), a Company established under the Indian Companies Act 1956, as amended. DTTIPL is a member firm of Deloitte Touche Tohmatsu.