chapter vi logistics management in an automobile
TRANSCRIPT
163
CHAPTER VI
LOGISTICS MANAGEMENT IN AN
AUTOMOBILE INDUSTRY - A CASE STUDY
OF ASHOK LEYLAND
The auto industry is one of the key sectors of the Indian economy. The
Industry comprises of automobile and the auto components sectors and
encompasses commercial vehicles, multi-utility vehicles, passenger cars, two
wheelers, three wheelers and related auto components. The industry has been
growing since the opening up of the sector to foreign direct investment (FDI)
in 1993. It has deep forward and backward linkages with the rest of the
economy, and hence, has a strong multiplier effect.
India is a large and diverse country, in which surface transportation is
governed and administered by a large number of agencies, whose objectives
and key result areas do not necessarily coincide. Regulation of traffic is a state
subject, whilst several elements of infrastructure are controlled by the Central
Government. It is also seen that in many places, railways are competing with
road transportation system, even though this is an unequal match. Ideally
these two modes of transportation should complement each other for their
service to the nation.
Auto industry being the driver of economic growth, India is keen to use
it as a level of accelerated growth in the country. During the last decade
164
conscious efforts have been made to fine-tune state policy in a manner that
would help this industry realize its full potential. The automatic approval of
up to 51 percent for foreign investment in priority sectors also included the
automotive industry. Freeing the industry from restrictive environments has
helped it to restructure, absorb newer technologies, align itself to global
developments and realize its potential. It has also significantly increased the
sector’s contribution to overall industrial growth in the country.
Ashok Leyland Limited
Ashok Leyland is the flagship Company of the Hinduja Group with
business interests diverse as transport, energy, chemical & pharmaceuticals,
InfoTech, media and financial services. In 1948, when independent India
was one year old, Ashok Leyland was born with its Head Quarter at Chennai.
It started manufacture of commercial vehicles in 1955, with technology from
and equity participation by Leyland Motors Ltd., UK. With its own Research
& Development base, strengthened by collaborations with international
automotive leaders, the company has established a tradition of technological
leadership and a strong reputation for product reliability. Since then it has
been a major presence in India’s commercial vehicle industry. These years
have been punctuated by a number of technological innovations which went
on to become industry standards. This tradition of technological leadership
was achieved through tie-ups with international technological leaders and
165
through vigorous in-house Research & Development. Ashok Leyland has
reached the present status after passing through various milestones.
In 1987, the overseas holding by LRLIH (Land Rover Leyland
International Holdings Limited) was taken over by a joint venture between the
Hinduja Group, the Non-Resident Indian transnational group of IVECO Fiat
SpA, part of the Fiat Group and Europe’s leading truck manufacturer.
The blueprint prepared for the future reflected the global ambitions of
the company, captured in words: Global Standards, Global Markets. Ashok
Leyland embarked on a major product and process technology up gradation to
world-class standards.
In the journey towards global standards of quality, Ashok Leyland
reached a milestone in 1993 when it became the first in India’s automobile
industry to win the ISO 9002 certification. The more comprehensive ISO
9001 certification came in 1994.
In 1995 Namakkal (Tamil Nadu) Driver Training Center was started in
order to inculcate good driving habits among the driver community. It has
state of the art facilities to enable the drivers’ upgrade their skills.
In 1997, vehicles powered by CNG (Compressed Natural Gas) were
launched first in the country in Delhi. Irizar TVS – A new venture to offer
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fully built passenger vehicle was started in 2001. 2003 was the year with
major up-gradation in technology of engine with tie-up of Hino.
Table 6.1
A Tradition of Technical Leadership
Achievements Year
Fill air brakes 1966
Double Decker buses 1967
Muti-axle trucks 1979
Rear engine buses 1979
Integral buses 1980
Vestibule buses 1992
CNG buses 1997
Hybrid Electic Bus 2002
H-CNG blend engine 2008
Hybrid CNG Pulg-in Bus 2010
Ashok Leyland is the second largest commercial vehicle
manufacturers in India. Ashok Leyland manufactures various ranges of
commercial vehicles and diesel engines. Its current production capacity is
1.5 lakh vehicles per annum. The Company’s annual turnover exceeds US $
1.61 billion.
167
Banks & MFs
5.56%
Body corporate
& others
6.35%
Fis, Insurance
Co, State Govt,
Govt
Companies
13.89%
FIIs
12.68%
Residents
10.54%
Hinduja
Automotive Ltd
50.98%
Figure 6:1: Ashok Leyland Shareholding Pattern (as on 31st March, 2010)
The Company’s product range spans from 7.5 Ton GVW to 49T GTW
in goods transport, from 18 seaters to 80 seaters in passenger transport. Four
out of five metro transport buses in India are from Ashok Leyland. At 60
million a day, Ashok Leyland buses carry more passengers than the Indian
Railways. The Company makes over models in the Light, medium and heavy-
duty vehicle segments with diverse applications in moving people and
material. The Company’s different range of special vehicles serves some very
special customers, some of them are double Decker and vestibule buses, and
these are unique models from Ashok Leyland, tailor-made for high-density
routes. Ashok Leyland vehicles have built a reputation for reliability and
ruggedness.
For 30 years, Ashok Leyland has remained a pioneer in the design &
development and manufacture of special vehicles for the Armed Forces
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developing a host of modern special application vehicles to address special
needs and offers a logistics solutions for the Armed Forces. Besides, Rapid
Intervention Vehicles and Crash Fire Tenders made by Ashok Leyland are on
the alert at India’s international Airports. Ashok Leyland also makes water
sprinklers, oil field trailer cementing units and dumper trucks. Ashok Leyland
makes 95% of the Marine Engines of the requirement of the country. Ashok
Leyland also manufactures Industrial Engines and a range of products that
meets the varying needs of their customers.
Ashok Leyland has seven group companies as
1). Automotive Coaches & Components Ltd.(ACCL)
2). Lanka Ashok Leyland
3). IndusInd Bank Ltd.
4). Ashok Leyland Project Services Ltd.
5). Hinduja Foundries Ltd.
6). IRRIZAR TVS
7). Gulf Ashley Motors Ltd.
Ashok Leyland has a wide dealer network for sales and for after sales
service. Dealership has the following responsibilities:
• Sales of vehicles
• Service of Vehicles
• Sales of Spare Parts
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Figure 6.2: All-India Marketing Presence
Ashok Leyland has its associate companies operating in project
development, after-chassis products, foundry and overseas vehicle production.
Ashok Leyland has currently 6 manufacturing units in India at the following
locations:
• Ennore, near Chennai – One Unit
• Hosur, near Bangalore – Two Units
• Bhandara, near Nagpur – One Unit
• Alwar in Rajasthan – One unit
• Pantnagar in Uttaranchal – One unit
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Alwar
Bhandara
Hosur-1
Hosur-2
Cab Panel Press Shop
Ennore
Pantnagar
Figure 6.3: Manufacturing Facilities
Ennore is 18 Kms away from Chennai. Ashok Leyland’s (AL) 1st
plant is situated at Ennore. AL manufactures most of their vehicles in this
factory. Vehicles manufactured at all the factories are moved to different
states as per their monthly requirements. AL has assigned transportation of
vehicles to outside agencies to move the vehicles from the production centers
to the Regional Sales Offices (RSO). Ashok Leyland has 24 Regional Sales
Offices in India.
The Heavy Commercial Vehicle market (HCVs) in All India level
dominated by TATA Motors (65%), Ashok Leyland 30% and others (Eicher,
VOLVO, TATRA etc.) 5%. Though All India level Tata Motors hold good
market share, but in South India Ashok Leyland holds a very good market
share.
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Table 6.2
Composition of Sales Details
2008-09 2009-10 % Inc (Dec)
Over 2008-
09
Domestic Civilian
Passenger 16 548 17 217 4
Goods 30 651 40 541 32
Total 47 199 57 758 22
Defence 420 189 (55)
Exports 6 812 5 979 (12)
Total vehicles 54 431 63 926 17
Engines 21 447 19 050 (11)
Spares incl Defence
(Rs Lakhs)
79 969 88 506 10
The share of goods movement by road, rose from 12% in 1950 to 70%
in 2005. In passenger transportation, the jump is equally dramatic: from 25%
to 80%. The current Automobile trend is bullish and the company's market
share stands at over 30% after taking into account of March 2010 sales.
29673
36444
48654
54740
61655
83094 83307
54431
63926
'01-02 '02-03 '03-04 '04-05 '05-06 '06-07 '07-08 '08-09 '09-10
Figure 6.4: Last 10 years Sales details
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Ashok Leyland have implemented the following new projects:
1. Acquired AVIA an Automobile Unit at Czech. Republic
2. Body Building Unit at Ras Al Khaimah
3. Vehicle Production Unit at South Africa (to know the location)
4. ANG Auto Tech, Uttaranchal.
1) Ashok Leyland acquired AVIA Truck business
Ashok Leyland has signed an agreement to acquire the Truck Business
Unit of AVIA a.s. in Prague. M/s AVIA manufacturers 6T to 9T GVW range
of vehicles. This factory has capacity of 20,000 vehicles. This acquisition
would help Ashok Leyland to market international vehicle with capacity of
6T to 9T GVW in Indian and European Market.
2) Ashok Leyland Vehicle Assembly Unit in Ras Al Khaimah, UAE
In the first phase a bus body building unit have already commissioned
at Ras Al Khaimah. In the second phase this would be upgraded to a vehicle
assembly plant for trucks and buses.
This unit with an initial annual capacity for 1,000 buses of
international style and manufacturing quality using Ashok Leyland chassis
and bus body CKD kits sent from India (including Irizar TVS). The facility,
to be built with an initial investment of USD 5 million, will include a state-of-
the-art paint plant for bus bodies. This unit is managed and operated by
Ashok Leyland.
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3) Ashok Leyland Vehicle Production Unit at South Africa
Ashok Leyland will be assembling heavy-duty vehicles in South
Africa. Ashok Leyland proposes to sell 1,000 vehicles in the first year from
its new facility, mainly for South and Central African countries.
Ashok Leyland is planning to outsource some of the parts from AVIA
(new factory), Czechoslovakia and some parts from Indian Unit. The cabins
will be sourced from Ashok Leyland's recently acquired Czechoslovakian
subsidiary AVIA, the transmissions from India and tyres and batteries from
South Africa.
4) Ashok Leyland is in strategic tie-up with ANG, Uttaranchal
Ashok Leyland has entered into another strategic tie-up with ANG
Autotech Private Limited (a subsidiary of ANG Auto Limited) for the
manufacture and supply of tractor-trailers.
Under this agreement, ANG Auto is setting up a capacity of 6,000
trailers per annum for Ashok Leyland from its Sitarganj unit (Uttaranchal),
exclusively for Ashok Leyland. ANG will manufacture trailers in technical
collaboration with FUWA Engineering, China, one of the largest
manufacturers of axles in the world.
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ROBUST MODELS FOR LOGISTICS MANAGEMENT SYSTEM
One of the most important aspects of efficient Logistics Management
is Transportation, Inventory, Warehousing and Information Infrastructure.
Logistics can be viewed as a Logistical extension of Transportation and
related areas to achieve an efficient and effective distribution system.
Following quantitative models of Operations Research can be used to
address the decision areas in Logistics Management.
1. Forecasting Models
2. Mathematical Programming Models
a). Location Shifting models
b). Allocation Model
3. Alternatives Analysis Models
Forecasting Models
These models allow prediction of demand based on past data or other
parameters that are independently available. This would enable for a better
planning strategies for the organizations. The researcher made an attempt to
develop a demand forecasting model for Ashok Leyland. Demand forecast of
vehicles in Ashok Leyland is based on the Sales Process system. The Sales
Process is being carried out by Dealer Sales personnel and is closely
monitored by Ashok Leyland Sales team. Based on the sales forecasts given
175
by dealer, the vehicles are being produced. The produced vehicles are moved
to Regional Sales Offices.
Moving average forecasting method
Moving average forecasting method is one of the most commonly used
forecasting methods. It is an extrapolation method which assumes that past
patterns and trends in sales will continue in future months. Thus past data on
sales are used to generate forecasts for vehicle sales during future months.
To do the moving average method, there is a need of choosing N, the
number of periods used to compute moving average.
Choice of N:
To choose N, we need to define a measure of forecast accuracy. For
this purpose, we will use Mean Absolute Deviation (MAD) as the measure of
forecast accuracy.
Before defining the MAD, we need to define the concept of forecast
error. Given a forecast error for the n given observations, xn. We define et to
be the error in our forecast for xt, to be given by
et = xt- (forecast for xt)
The MAD is simply the average of the absolute values of all the ei’s.
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Thus, on the average, it can be said that the forecasts are of that much
quantity per day/week/month.
In this study, we try to forecast next month’s sales as an average of
last N months’ actual sales. We should find out the value of N that will
minimize our Mean Absolute Error (MAE) (obtained by taking the average
of the actual error incurred during each month). MAD is calculated for
N=1,2,3,…60 since past data available are of 60 months.
The forecasting model has been developed using the OFFSET
function in Excel Spreadsheet.
This function helps to pick out a cell range relative to a given location
in the spreadsheet. The syntax of the OFFSET function is as follows:
OFFSET(reference, rows, columns, height, width)
Reference is the reference from which you want to base the offset.
Reference must refer to a cell or range of adjacent cells; otherwise, OFFSET
returns the #VALUE! error value.
Rows is the number of rows, up or down, that you want the upper-left cell to
refer to. Using 5 as the rows argument specifies that the upper-left cell in the
reference is five rows below reference. Rows can be positive (which means
below the starting reference) or negative (which means above the starting
reference).
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Cols is the number of columns, to the left or right, that you want the upper-
left cell of the result to refer to. Using 5 as the cols argument specifies that the
upper-left cell in the reference is five columns to the right of reference. Cols
can be positive (which means to the right of the starting reference) or negative
(which means to the left of the starting reference).
Height is the height, in number of rows that you want the returned reference
to be. Height must be a positive number.
Width is the width, in number of columns that you want the returned
reference to be. Width must be a positive number.
Case 1: PASSENGER SEGMENT
Refer the Sales data of passenger segment given in Appendix II and
consider the work sheet PASSENGER SALES. The data available are from
April’04 to March’09. We have to forecast the demand for April’10 to
March’11.
We begin creating a forecast in month 61, because that is the first
month where 48 months of historical data are available.
Step 1: Set the formula in the cell D62 and copied to C63:C73
= AVERAGE(OFFSET(C62,-$G$3,0,$G$3,1))
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Obtain the average of last G3 months of data.
• C62 ensures that we define our range relative to the cell directly to the
left of the cell where the formula is entered.
• -$G$3 ensures that our range begins G3 rows above the row where the
formula is entered.
• 0 ensures that the offset range will always remain in column B.
• $G$3 ensures that we average the last G3 observations.
• 1 ensures that the OFFSET range includes a single column.
Step 2: Enter the below given formula in E62 and copied to E63:E73 to
compute the absolute value of the error in each month’s forecast (based on a
G3 month moving average)
= ABS(C62-D62)
Step 3: In cell H6 , compute the average of absolute errors (often called as
MAD) with the formula
= AVERAGE(E62:E73)
Step 4: Enter the trial number of periods for the moving average (1-60) in
I7:I66, and in cell J6, enter the MAD with the formula
= H6.
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Step 5: After selecting the table range I6:J65and choosing a one way table
with the column input cell of G3, we find that a 25 month moving average
yields the smallest MAD.
Step 6: We obtain the minimum MAD in cell J67 with the formula
= MIN(J7:J66)
Step 7: Entering in cell H22 the formula
= MATCH(J67, J7:J66,0)
Gives the number of periods (25) yielding the smallest MAD.
The details of the analysis is shown in Table 6.3.
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Table 6.3
Passenger Vehicle Segment Moving Average Model
Segment Month Passenger Moving
average forecast
Abs
error
# of
periods
Apr-04 1 88 25
May-04 2 86
Jun-04 3 108 MAD 59.0433 # of periods 59.0433
Jul-04 4 86 1 88.58333333
Aug-04 5 125 2 87.29166667
Sep-04 6 143 3 86.22222222
Oct-04 7 91 4 77.625
Nov-04 8 76 5 64.53333333
Dec-04 9 90 6 64.25
Jan-05 10 105 7 63.55952381
Feb-05 11 147 8 63.90625
Mar-05 12 147 9 64.24074074
Apr-05 13 109 10 64.825
May-05 14 134 11 63.78030303
Jun-05 15 114 12 62
Jul-05 16 142 13 59.75
Aug-05 17 157 14 60.39285714
Sep-05 18 126 15 60.39444444
Oct-05 19 43 16 60.83333333
Nov-05 20 54 17 59.10784314
Dec-05 21 71 18 59.73148148
Jan-06 22 118 19 60.14035088
Feb-06 23 127 20 61
Mar-06 24 145 21 60.67063492
Apr-06 25 70 22 60.6780303
May-06 26 103 23 60.08695652
Jun-06 27 108 24 59.44791667
Jul-06 28 111 25 59.04333333
Aug-06 29 113 26 59.70192308
Sep-06 30 126 27 60.10185185
Oct-06 31 125 28 59.91964286
Nov-06 32 60 29 59.38505747
Dec-06 33 49 30 59.45833333
Jan-07 34 74 31 59.7311828
Feb-07 35 163 32 59.59635417
Mar-07 36 132 33 59.63888889
Apr-07 37 70 34 59.94852941
May-07 38 108 35 59.96666667
Jun-07 39 122 36 59.33101852
Jul-07 40 148 37 59.46621622
Aug-07 41 145 38 60.22587719
Sep-07 42 164 39 60.68589744
Oct-07 43 129 40 60.78125
Nov-07 44 121 41 60.60365854
Dec-07 45 81 42 60.45436508
Jan-08 46 126 43 60.44379845
Feb-08 47 127 44 60.94128788
Mar-08 48 171 45 61.62962963
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Apr-08 49 88 46 62.02355072
May-08 50 187 47 62.11879433
Jun-08 51 93 48 61.90277778
Jul-08 52 111 49 61.64115646
Aug-08 53 77 50 61.72333333
Sep-08 54 178 51 62.05882353
Oct-08 55 113 52 62.21955128
Nov-08 56 68 53 62.11320755
Dec-08 57 73 54 61.91512346
Jan-09 58 134 55 61.88636364
Feb-09 59 203 56 62.04613095
Mar-09 60 331 57 62.22660819
Apr-09 61 23 132 109 58 62.23994253
May-09 62 82 128 46 59 62.15960452
Jun-09 63 213 128 85 60 61.975
Jul-09 64 168 132 36 Min 59.04333333
Aug-09 65 216 134 82 Best 25
Sep-09 66 129 137 8
Oct-09 67 153 136 17
Nov-09 68 86 136 50
Dec-09 69 40 134 94
Jan-10 70 129 131 2
Feb-10 71 160 133 27
Mar-10 72 288 134 154
Figure 6.5: Passenger Vehicle Segment Moving Average Model
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Moving average forecasts perform well for a time series that fluctuates
about a constant base level. From the above figure, it appears that the monthly
sales fluctuate about a base level .of 125. More formally, moving average
forecasts work well if
Xt= b+€t
Where b is the base level for the series and €t is the random fluctuation in
period t about the base level.
Case 1: PASSENGER VEHICLES
Table 6.4
Passenger Vehicle Segment Details
Segmen
t Apr’1
0
May’1
0
Jun’1
0
Jul’1
0
Aug’1
0
Se’1
0
Oct’1
0
Nov’1
0
Dec’1
0
Jan’1
1
Feb’1
1
Mar’1
1
Passenger 109 46 85 36 82 8 17 50 94 2 27 154
Inference:
From the analysis, the data forecasted for the month April’10 to
March’11 of the passenger segment is shown in Table 6.4.
Case 2: 4 X 2 HAULAGE SEGMENT
Now let us consider the 4X2 Haulage segment data and consider the
work sheet of Sales Data of 4X2 Haulage. The data available are from
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April’04 to March’09. We have to forecast the demand for April’10 to
March’11.
Table 6.5
4 x 2 Haulage Segment Details
Segmen
t
Apr’1
0
May’1
0
Jun’1
0
Jul’1
0
Aug’1
0
Sep’1
0
Oct’1
0
Nov’1
0
Dec’1
0
Jan’1
1
Feb’1
1
Mar’1
1
4X2 Haulag
e 20 25 29 37 43 48 53 58 56 56 61 61
Inference:
From the analysis, the forecast data for the month April’10 to
March’11 of the 4X2 Haulage segment is shown in Table 6.5.
Case 3: 6X2 MAV SEGMENT
The data available are from April’04 to March’09. We have to forecast
the demand for April’10 to March’11.
Table 6.6
6 x 2 MAV Segment Details
Segment Apr’1
0
May’
10
Jun’1
0
Jul’1
0
Aug’1
0
Sep’1
0
Oct’1
0
Nov’1
0
Dec’1
0
Jan’1
1
Feb’1
1
Mar’
11
6X2 MAV 22 19 17 18 17 17 14 14 13 13 15 16
Inference:
184
From the analysis, the forecast data for the month April’10 to
March’11 of the 6X2 MAV segment is shown in Table 6.6.
185
Case 4: 4X2 TIPPER SEGMENT
The data available are from April’04 to March’09. We have to forecast
the demand for April’10 to March’11.
Table 6.7
4 x 2 Tipper Segment Details
Segment Apr’
10
May’
10
Jun’
10
Jul’1
0
Aug’
10
Se’0
19
Oct’
10
Nov’
10
Dec’
10
Jan’
11
Feb’
11
Mar’
11
4X2 TIPPER 4 3 3 5 8 8 8 8 7 9 14 17
Inference:
From the analysis, the forecast data for the month April’10 to
March’11 of the 4X2 TIPPER segment is shown in Table 6.7.
Case 5: 4X2 TRACTOR SEGMENT
The data available are from April’04 to March’09. We have to forecast
the demand for April’10 to March’11.
Table 6.8
4 x 2 Tractor Segment Details
Segment Apr’
10 May’
10 Jun’10
Jul’10
Aug’10
Sep’10
Oct’10
Nov’10
Dec’10
Jan’11
Feb’11
Mar’11
4X2 Tractor 1 -1 0 0 01 2 2 2 2 2 2 2
Inference:
186
From the analysis, the forecast data for the month April’10 to
March’11 of the 4X2 TRACTOR segment is shown in Table 6.8.
Case 6: 6X4 TIPPER SEGMENT
The data available are from April’04 to March’09. We have to forecast
the demand for April’10 to March’11.
Table 6.9
6 x 4 Tipper Segment Details
Segment
Apr’
10
May’
10
Jun’1
0
Jul’1
0
Aug’
10
Sep’1
0
Oct’1
0
Nov’
10
Dec’1
0
Jan’1
1
Feb’1
1
Mar’
11
6X4 Tipper 5 5 5 5 5 5 5 5 5 5 5 5
Inference:
From the analysis, the forecast data for the month April’10 to
March’11 of the 6X4 TIPPER segment is shown in Table 6.9.
Case 7: 6X4 MAV SEGMENT
The data available are from April’04 to March’09. We have to forecast
the demand for April’10 to March’11.
Table 6.10
6 x 4 MAV Segment Details
Segment Apr’1
0
May1
’0
Jun’1
0
Jul’1
0
Aug’1
0
Sep’1
0
Oct’1
0
Nov’1
0
Dec’1
0
Jan’1
1
Feb’1
1
Mar’
11
6X4 MAV 0 0 0 2 0 1 1 2 4 4 1 0
187
Inference:
From the analysis, the forecast data for the month April’10 to
March’11 of the 6X4 MAV segment is shown in Table 6.10.
WARE HOUSE MANAGEMENT OF ASHOK LEYLAND
Ashok Leyland has 24 Warehouses in PAN-INDIA basis and they
name it as Regional Sales Offices (RSO). In south India they have 5
warehouses located one each in Kerala, Karnataka, Andhra Pradesh and two
are in Tamil Nadu. These RSOs are used for storing and delivery finished
goods (vehicles) to dealers and direct customers. Regional Sales Offices are
located at strategic areas. Fig 6.6.
ENNORE
HOSUR - 1
HOSUR - 2
ALWAR
DEALER TVS & SONS - TN
RSO
SEMBMBKKAM
BHANDARA
RSO HOSUR
RSO ERNAKULAM
DEALER TVS & SONS
KERALA
DEALER SUNDARAM MOTORS
TN
Figure 6.6 : Structure of Warehouse Management of Ashok Leyland
188
Most of the Regional Sales Offices are on rental basis. A case study on
Regional Sales Office Ernakulam has been conducted regarding the expenses
for maintaining an RSO.
Table 6.11
Current Level Expenses at Regional Sales Office Ernakulam
CURRENT LOCATION(Ernakulam) Current Expenses
Discrepancy Amount (Rs.)
Rent 175000.00
Security Charges 150000.00
Electricity Charges 10000.00
Telephone Charges 5000.00
Additional Manpower 10000.00
Misc. Expenses 20000.00
Monthly Total 370000.00
Annual Total expenses excluding AL Manpower 4440000.00
Source: Ashok Leyland
OPTIMAL WAREHOUSING POLICY FOR ASHOK LEYLAND
Location Shifting models
This model help in planning the optimal location of plants or
warehouses considering the inbound and outbound Transportation cost and
infrastructure cost at the locations.
90% of the Kerala vehicles are produced from their factories situated in
Tamil Nadu are entering Kerala through Palakkad (via Valayar), it is most
suitable to relocate the RSO from Ernakulam to Palakkad. The following are
189
the perceived advantages. If this is implemented transit time of 5 hrs can
be saved for each vehicles.
A study on relocation of Regional Sales Office Ernakulam has been
carried and the details are given in the table below. From the table it is clear
that the present level of their expenses for maintaining a Regional Sales
Office at Cochin is higher than that of an expenses at a proposed Regional
Sales Office at Palakkad.
Table 6.12
RSO Expenses Working Details as on 01.11.2010
Current
Location (Ernakulam) Current Expenses
Proposed
Location (Palakkad) Differences
Descripancy Amount (Rs.) Amount (Rs.) Amont(Rs.)
Rent 175000.00 75000.00 100000.00
Security Charges 150000.00 100000.00 50000.00
Electricity Charges 10000.00 7000.00 3000.00
Telephone Charges 5000.00 3000.00 2000.00
Additional Manpower 10000.00 10000.00 0.00
Misc. Expenses 20000.00 15000.00 5000.00
Monthly Total 370000.00 210000.00 160000.00
Annual Total 4440000.00 2520000.00 19,20,000.00
Source: Ashok Leyland
Net annual savings of Rs.19,20,000/- per year on Rental, Security and
other misc. expenses alone if RSO is shifted from Ernakulam to Palakkad.
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Table 6.13
Annual Savings by AL on Transportation Charges
Saving on Diesel 34,43,508.00
Saving on Driver Bata 7,66,800.00
Saving on Return Train Fare 1,33,200.00
Total Savings 43,43,508.00
Source: Ashok Leyland.
A detailed analysis has been carried out based on the current structure
of operation
1. Monthly average arrival of vehicles at RSO Ernakulam 300 nos.
2. Distance between Palakkad and Ernakulam – 140 Kms.
3. Diesel required for 140 Kms. (average 6 Kms./Ltr.) = 23.33 Ltrs.
4. Average Monthly Diesel Cost for 140 Kms.= (Rs.41.00/-
ltr.x23.33x300 = Rs.2,86,959.00
5. Average diesel cost for an year = 2,86,959.00X12 = Rs.34,43,508.00
6. Average annual Driver Bata – 1 day [Palghat-Ernakulam] = Rs.213/-
x300x12=Rs.7,66,800.00
7. Annual Return Train fare due to lesser distance [Palakkad-Ernakulam]
= Rs.37/-X300X12 = Rs.1,33,200.00
191
Table 6.14
Total annual savings by Ashok Leyland if
Regional Sales Office is shifted from Ernakulam to Palakkad
Diesel expenses 34,43,508.00
Driver Bata 7,66,800.00
Return Train Fare 1,33,200.00
RSO Rent 12,00,000.00
Security 6,00,000.00
Electricity 36,000.00
Telephone 24,000.00
Misc. expenses 60,000.00
Total 62,63,508.00
Source: Ashok Leyland
Table 6.14 shows that Ashok Leyland can save an amount of
Rs.62,63,508.00, if their RSO is re-located to Palakkad from Ernakulam.
Apart from the above cost saving, the following additional benefits are
also available, if RSO is relocated to Palakkad:
• Chassis reaches Ashok Leyland RSO 5 hrs. early.
• Lesser chance of accidents.
• Chassis can be brought early hrs to avoid detention of vehicles due to
Harthal /Bandh Day.
• One day interest can be saved on the cost of the finished goods (cost of
inventory).
192
MODES OF TRANSPORTATION IN ASHOK LEYLAND
Ashok Leyland’s Finished Goods (Vehicles) movements.
Ashok Leyland has 6 manufacturing units, after producing the
vehicles; it is moved to Sales Yard within the factory premises. Vehicles are
being manufactured based on the firm requirement given by dealership to
Ashok Leyland Area Managers. These Area Managers will provide their total
requirement to Regional Managers and Regional Managers will sum-up their
requirement to Marketing Head quarter. Marketing HQ will plan the
consolidated model-wise and segment-wise total requirement and give to
production. Production team produces the vehicle and sends to Sales Yard
after clearing the necessary Excise Duty elements.
Once the vehicles are arrived at Sales Yard, it will be under the control
of Distribution and Invoicing division. Distribution and invoicing team will
move the vehicles to each RSOs based on their requirement.
Ashok Leyland has 12 authorized Transport Contractors. These
transport contractors have almost 3000 experienced drivers to drive Heavy
Commercial Vehicles. Ashok Leyland Distribution and Invoicing team will
handover vehicles from Sales Yard of each factory to these transport
Contractors who in turn will move the vehicles to the destinations where it is
required.
193
Basic Issues in Transportation
• Higher transportation cost
• Delayed delivery
• Poor fit and finish of vehicle
• Wear and Tear of vehicle parts
• Poor Driver availability
• Poor customer satisfaction
Researcher has initiated to overcome the above issues while applying
an alternate mode of transportation. In this scenario the researcher has
envisaged utilizing railway’s coach for transporting the chassis for long
distance. A study has been carried out while accounting the actual movement
of three different types of vehicles to three locations from Tamil Nadu during
September’10.
ALTERNATIVE MODE OF TRANSPORTATION FOR ASHOK
LEYLAND
Alternatives Analysis
This model proposes the identification of alternatives across the
criteria to arrive the best choice.
As far as transport infrastructure is concerned, most freight movement
in India takes place through Road and Rail. Pipe line transportation is
194
beginning to grow. Water transportation which is quiet insignificant, is not
exploited as much as it could be. Air Transportation is used for high value
commodities. In the area of exports and imports, water and air form the major
means of transportation.
RAILWAYS NEWLY MODIFIED GOODS WAGON
Here we consider the alternate mode through railways. Indian
Railways has introduced a new class of vehicle for the automobile traffic
namely, Newly Modified Goods wagon (NMG). It is a modified passenger
sleeper coach developed by removing all the berth and seat structures. A
model of NMG is shown in the figure 6.7, 6.8 and 6.9.
Figure 6.7: Outward view of Newly Modified Goods Wagon (NMG)
195
Figure 6.8: Inside view of Modified Goods Wagon (NMG)
Figure 6.9: Specification of Modified Goods Wagon (NMG)
196
COMPARISON OF RAIL AND ROAD MODES OF
TRANSPORTATION
A comparative study of Rail and Road transportation modes is made.
Following are the details:
Table 6.15
Dimensions of Ashok Leyland Vehicles And Railway’s NMG Wagon
Reference Al MAV Al
Tractor Al Tipper
Railways NMG
Wagon
Length 9335mm 5679mm 5942mm 21000mm
Breadth 2432mm 2432mm 2432mm 2900mm
Height 1800mm 1800mm 1800mm 2200mm
Source: Ashok Leyland, MAV = Multi Axle Vehicle
Table 6.16
Details of Road
Transportation Expenses of AL during September’10
Location
MAV Tractor Tipper
No.
of
Veh.
Rate Total
cost
No. of
veh
.
Rate Total
Cost
No. Of
veh
.
Rate Total
cost
Faridabad 906 25804/-
23378424 339
25804/- 8747556 198
19606/-
3881988
Pune 778 11854/- 9222412 509
11854/- 6033686 180 9994
1798920
Bhubaneswar 264 11978 3162192 33
11978/- 395274 206 9235/-
1902410
Total 1948
35763028
881
15176516
584
7583318
Source: Ashok Leyland
197
From the above, it is clear that Ashok Leyland has spent
Rs.5,85,22,862/- towards transportation of 3413 vehicles to the above three
locations during September 2010.
Table 6.17
Proposed Expenses of Rail Transportation Mode
Locations
MAV/Tractor/Tippers
Rate
Per
Wagon
No. of
Vehicles
Per
Wagon
No. of
Wagon
Total No.
of Vehicles
Total
Cost
Faridabad 50036/- 3 588 1443 29421168
Pune 29523/- 3 562 1467 16591926
Bhubaneswar 31869 3 192 503 6118848
Total 1342 3413 52131942
Source: Southern Railway
Given below is the summary of cost working based on the freight rate
of railways. Table 6.18 shows the net earning to Ashok Leyland if 3413
vehicle were transported through railways during September 2010.
Table 6.18
Summary of Results (Alternate Mode of Transport)
Reference Amount IN Rs.
Cost of road transport 58522862.00
Cost of rail transport 52131942.00
Net Earning if rail Transportation implemented 63,90,920.00
Source: Ashok Leyland & Southern Railway
198
Inference:
It is found from the study that ASHOK LEYLAND can save
Rs.6390920/- on transportation of their vehicles while utilizing the Railway’s
NMG coaches for moving the vehicles. Ashok Leyland has delivered around
41338 vehicles during the last 6 months and surely Ashok Leyland could
have made a massive savings on transportation if they have opted to
transport the vehicles through NMG of Railways. End price of product
(vehicles) to end users are arrived while calculating fixed cost, variable cost,
cost of raw materials, labor, transportation expenses etc. If ASHOK
LEYLAND is able to reduce transportation cost while utilizing Rail Transport
where ever possible, the retail price of vehicles can be reduced to that extend,
which ultimately would be benefitted to the end users, which leads growth to
the rural population and to the nation.
Apart from the above savings, the following most important
advantages are also observed, while using the Rail Transport mode:
1. Fuel is very precious and can be saved in large quantities which means
saving to the nation and to the world
2. Fastest mode of transport
3. Reduce wear and tear of vehicle parts
4. Accident free transport
5. Railways carry out more business and make more profits which would
be ultimately benefitted to our nation.
199
OTHER POTENTIAL MODES OF TRANSPORTATION
Inland Transport through RO-RO Ship
In addition to the above study, an investigation of transportation
through ship has been carried out. At present Ships are used only for
international operations. The researcher interviewed Captains of Roll On
Roll Off Ships (RO RO) and Officials of Ships doing international operations
and a possibility of Inland transportation was discussed.
Figure 6.10: Outside view of RO-RO Ship
200
Figure 6.11: Inside view of RO-RO Ship
Figure 6.12: Inside view of RO-RO Ship with Vehicle
201
Figure 6.13: Specification of RO-RO Ship
OPTIMAL TRANSPORTATION MODEL FOR ASHOK LEYLAND
A study has been conducted to reduce the transportation cost of Ashok
Leyland Chassis movement from their production centers to their Regional
Sales Offices.
Ashok Leyland manufactures vehicles at their manufacturing locations
and these vehicles are transported to their twenty-four Regional Sales Offices
located at different parts of the country through the road by their authorized
transporters. Since the study is conducted in South India, the researcher has
considered five factories viz. Ennore. Hosur – I, Hosur- II, Bhandara and
Alwar and three RSOs viz. RSO Sembrambakkam, RSO Hosur and RSO
Ernakulam.
202
ENNORE
HOSUR - 1
HOSUR - 2
ALWAR
RSO
SEMBMBKKAM
BHANDARA
RSO HOSUR
RSO ERNAKULAM
Figure 6.14: Current Structure of Ashok Leyland Vehicle
Transportation
RSO Ernakulam
The following table shows the details of demand of various vehicles at
RSO Ernakulam during 2009-10
Table 6.19
Demand of Vehicles at RSO Ernakulam during 2009-10
Factories Ernakulam
Pass 4x2 HAULG MAV Total
ENNORE 1258 73 19 1350
H1 58 309 73 440
H2 28 32 27 87
ALWAR 11 1 0 12
BHANDARA 0 0 0 0
TOTAL 1355 415 119 1889
Source: Ashok Leyland
203
The following table shows the details of transportation cost of various
vehicles transported from different factories to RSO Ernakulam during
2009-2010.
Table 6.20
Transportation Expenses Per Vehicle w.e.f.02.07.2009
Factories Ernakulam
Pass 4X2 HAULG MAV
ENNORE 5150 4725 6078
H1 4375 4024 5138
H2 4375 4024 5138
ALWAR 18850 17231 0
BHANDARA 0 0 0
Source: Ashok Leyland
RSO Hosur
The following table shows the details of demand of various vehicles at
RSO Hosur during 2009-10
Table 6.21
Demand of Vehicles at RSO Hosur during 2009-10
Factories Hosur
PASS 4X2 HAULG MAV Total
ENNORE 20 4780 4 4804
H1 145 910 1162 2217
H2 0 136 1427 1563
ALWAR 0 14 0 14
BHANDARA 7 2 0 9
TOTAL 172 5842 2593 8607
Source: Ashok Leyland
204
The following table shows the details of transportation cost of various
vehicles transported from different factories to RSO Hosur during 2009-10
Table 6.22
Transportation Expenses per Vehicle w.e.f.02.07.2009
Factories Hosur
Pass 4X2 HAULG MAV
ENNORE 2726 2534 3143
H1 840 790 949
H2 0 790 949
ALWAR 0 15303 0
BHANDARA 9138 8386 0
Source: Ashok Leyland
RSO Sembrambakkam
The following table shows the details of demand of various vehicles at
RSO Ernakulam during 2009-10
Table 6.23
Demand of Vehicles at RSO Sembrambakkam during 2009-10
Factories Sembrambakkam
Pass 4X2 HAULG MAV Total
ENNORE 2918 917 1468 5303
H1 22 289 608 919
H2 5 3 849 857
ALWAR 1 27 22 50
BHANDARA 3 4 0 7
TOTAL 2949 1240 2947 7136
Source: Ashok Leyland
205
The following table shows the details of transportation cost of various
vehicles transported from different factories to RSO Sembrambakkam during
2009-10
Table 6.24
Transportation expenses per Vehicle w.e.f.02.07.2009
Factories Sembrambakkam
Pass 4X2HAULG MAV
ENNORE 840 790 949
H1 2726 2530 3154
H2 2726 2530 3154
ALWAR 18418 16820 21906
BHANDARA 9729 8913 11510
Source: Ashok Leyland
APPLICATION OF OPTIMAL TRANSPORTATION MODEL
The above data was analyzed using Vogal’s Approximation Method
for finding Initial Basic Feasible solution and MODI METHOD was applied
for finding the Optimal Transportation Policy for the movement of Ashok
Leyland vehicles from the five factories to the three RSOs.
206
Passenger Vehicles
Table 6.25
Optimal Transportation Solution for Passenger Vehicles For 2009-10
Factories Passenger
Ernakulam Hosur Sembrambakkam Total
ENNORE 1247 0 2949 4196
H1 86 139 0 225
H2 0 33 0 33
ALWAR 12 0 0 12
BHANDARA 10 0 0 10
TOTAL 1355 172 2949 4476
Source: Ashok Leyland
Inference:
It has been inferred that the Optimum Transportation Expenses will be
Rs.97,68,950/- for transportation of vehicles from the factories to the RSOs,
whereas, the current total transportation expense is Rs.1,22,73,323/-. This
results a net saving of Rs.25,04,373/- for Ashok Leyland by implementing the
Optimal Transportation Policy.
207
Goods Vehicles
Table 6.26
Optimal Transportation Solution Of Goods Vehicles For 2009-10
Factories Goods
Ernakulam Hosur Sembrambakkam Total
ENNORE 373 4157 1240 5770
H1 0 1508 0 1508
H2 0 171 0 171
ALWAR 42 0 0 42
BHANDARA 0 6 0 6
TOTAL 415 5842 1240 7497
Source: Ashok Leyland
Inference:
It has been inferred that the Optimum Transportation Expenses will be
Rs.1,53,76,291/- for transportation of vehicles from the factories to the RSOs,
whereas, the current total transportation expense is Rs.1,68,57,196/-. This
results a net saving of Rs.14,80,905/- for Ashok Leyland by implementing the
Optimal Transportation Policy.
208
Multi Axle Vehicles
Table 6.27
Optimal Transportation Solution of Multi Axle Vehicles For 2009-10
Factories MAV
Ernakulam Hosur Sembrambakkm Total
ENNORE 0 0 1491 1491
H1 0 1843 0 1843
H2 97 750 1456 2303
ALWAR 22 0 0 22
BHANDARA 0 0 0 0
TOTAL 119 2593 2947 5659
Source: Ashok Leyland
Inference:
It has been inferred that the Optimum Transportation Expenses will be
Rs.94,58,730/- for transportation of vehicles from the factories to the RSOs,
whereas, the current total transportation expense is Rs.1,23,92,711/-. This
results a net saving of Rs.29,33,981/- for Ashok Leyland by implementing the
Optimal Transportation Policy.
209
ENNORE
HOSUR - 1
HOSUR - 2
ALWAR
RSO
SEMBMBKKAM
BHANDARA
RSO HOSUR
RSO ERNAKULAM
Figure 6.15: Optimal Transportation Model for Ashok Leyland
Please refer figure 6.15 were it is clear that the researcher has applied a
suitable transportation model for implementing Ashok Leyland vehicle
movement.