Supply Chain Performance and Profitability in Indian Automobile Industry: Evidence of Segmental Difference

Abstract

The automobile industry is broadly categorized into three segments—commercial vehicles, passenger vehicles and two/three-wheelers. The automobile supply chain is complex, as this includes raw material suppliers, component manufacturers, sub assemblers, final assemblers, different distribution channels, networks and end consumers. This demands a robust supply chain that can integrate all these links for cost efficiency and profitability. The objectives of this article are to find segmental differences in the supply chain performance of the Indian automobile industry and to quantify the impact of supply chain performance on the overall profitability of the firms across the segments.

This article measures the performance of the supply chain of Indian automobile industry segments integrating supply chain financial metrics and supply chain operations reference key performance indicators (SCOR KPIs) through a 10-year timeline. The results are compared across segments to identify unique performance features, if any, using ANOVA. A panel data fixed effect model (least square dummy variable [LSDV]) is constructed to establish the relationship between supply chain performance and profitability and to understand whether the identified supply chain performance variables have any significant impact on profitability across the segments.

This article has evidenced that though the supply chain of two/three-wheelers segment is performing better in fixed asset and inventory turnover it is more impacted by distribution inefficiency. The supply chain of the commercial-vehicles segment is impacted more by excess fixed assets, distribution inefficiency and poor inventory turnover. Although inventory turnover of passenger-vehicles segment is better than that of the commercial vehicles, the supply chain fixed assets remain a concern for this segment. Across the industry segments, the profitability of the segment is more impacted by poor distribution efficiency compared to fixed assets and inventory turnover.

This article contributes towards finding key segmental supply chain performance features of the Indian automobile industry and building a panel data fixed effect model by integrating supply chain performance indicators with the profitability of the firms across the segments. This model can contribute towards effective decision-making in the automobile supply chain.