Foton Motors_Supply Chain_India Strategy_Saurabh Kalra

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Saurabh KalraGlobal Logistics and Supply Chain ManagementApril 2011 batch

S P Jain School of Global Management (Singapore Dubai)

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Why Foton

Number one in China and growing at rapid pace

2020 Development strategy

Becoming one of worlds top vehicle manufacturer

Established strong partnership and joint ventures with globalleaders Cummins; Daimler

Potential growth of automotive sector in India Stupendous!!

Driver for Foton in India Relevant local experience, world

best proven Foton technology and innovative principles

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Industry Analysis Indian Commercial

Vehicle (CV) Indian Commercial Vehicle Industry 4th largest Domestic market - 90%, balance contributed by exports

CV domestic Industry grow at 25% FY14E, 20% FY13E

CV export grow at 30% FY13E Increase in logistics spending and hike in railway freight

good indicators for growth in CV industry

Sources :

1. Karvy Institutional Equities India Research April 2012

2. Avendus, India Equity research Automobiles, Commercial Vehicles, Feb 23. 20123. Care Research Indian Commercial Vehicle Industry September 2011

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Industry Analysis Indian CV (Cont..)

Ashok Leyland, Volvo Eicher, Tata Motors 3 biggest players

Other potential threats M&M and Navistar JV, Swaraj

Mazda

Dominance of top 3 players due to sales and service network

resale value

diversified product portfolio

captive financing abilities CV industry highly dependent on interest rates, fuel prices

and raw material prices

Sources :

1. Karvy Institutional Equities India Research April 2012

2. Avendus, India Equity research Automobiles, Commercial Vehicles, Feb 23. 20123. Care Research Indian Commercial Vehicle Industry September 2011

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Industry Analysis - LCV

LCV mainly due to growing need for last mile transportation

LCV CAGR 19% FY12E FY14E (domestic market)

SCV export CAGR 23% FY12E FY14E

Sources :

1. Karvy Institutional Equities India Research April 2012

2. Avendus, India Equity research Automobiles, Commercial Vehicles,

Feb 23. 2012

3. Care Research Indian Commercial Vehicle Industry September 2011

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Industry Analysis - MHCV

MHCV CAGR - 10% FY13E; 6% FY12E (domestic market)

MHCV flat growth in FY12E due to expiration of Jawaharlal

Nehru National Urban Renewal Mission scheme in Dec 11

and moderation in IIP growth HCV CAGR 13.3% FY12E FY14E (domestic) mainly due

to completion of golden Quadrilateral & North-South-East-

West corridor

Sources :

1. Karvy Institutional Equities India Research April 2012

2. Avendus, India Equity research Automobiles, Commercial Vehicles,

Feb 23. 2012

3. Care Research Indian Commercial Vehicle Industry September 2011

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Foton - Supply Chain Strategy for India

Control of end to end Supply Chain Cost desired

Why : Upsurge in technological developments expected

Results : Higher price and stiff competition

Costs include development costs in case of domesticmanufacturing and import costs in case of imports

Importance of distribution channel:

Product availability

High after sales service levels desired

Some major components in supply chainstrategy discussed in subsequent slides

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Facility Decisions

A test market (e.g. Andhra Pradesh) to be selected for

vehicle sales. spare parts distribution and after sales service

Subsequently, direct retail shop delivery of vehicles from

Pune in selected states Distribution network to be expanded pan India in subsequent

years

Centralized warehouses in major metros like Delhi, Kolkata,

Chennai with increase in volume

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Make/Buy decision

Initially, Engine to be outsourced to domestic/ overseas vendor

Engine to be assembled inhouse in subsequent years

Other components To be bought out

This would result in cost saving, risk sharing and benefits ofleveraging technology developed vendor base

Initially some components to be imported from China,

Indonesia, Pakistan, Kenya

Localization of imported components in subsequent years: Development cost minimized in initial years

Cost savings in later years

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Inventory Decisions

Inventory decisions Tactical and operational

Inventory decisions highly dependent on demand of product,

supply of components, roll out time etc

First year inventory decisions to be based on First year sales forecast

Quick product delivery at customer end

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Export/ Domestic market

Product development and Supply Chain strategy initially to

be based on domestic market

Export considerations in subsequent years

E.g. choice of Mumbai/ Gujarat/ Chennai as a port for exportin later years

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Thank you

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