“Bharat Autoparts” is a profitable Indian SME manufacturing precision engine components in Pune. It currently exports 40% of its output to Germany and the US via air freight from Mumbai, facing high logistics costs and 4-week delivery times. It has secured a large, steady contract from a US auto OEM, demanding cost reduction and 15-day delivery. You are hired to redesign its end-to-end global supply chain network. The goal is a cost-efficient, reliable system that supports this new contract and future growth into the EU, balancing investment with performance. Analyze key decisions and propose an optimized structure.
1. Strategic Objective and Network Goal Setting
The primary strategic objective is to transition from an opportunistic exporter to a strategic global supplier. The network must be redesigned to achieve three core goals:
- Reduce total landed cost for the US OEM contract by at least 20%
- Guarantee a reliable 15-day order-to-delivery cycle to the US.
- Build scalable capacity to support future EU expansion without a full redesign.
The network must shift from a reactive, single-node (Pune plant) model to a proactive, multi-echelon structure that balances service, cost, and flexibility as the foundation for long-term international growth.
2. Facility Location and Role Allocation
The analysis must evaluate establishing additional nodes beyond the Pune plant. Critical options include: a dedicated warehouse near JNPT port for export consolidation; a bonded warehouse or light assembly unit in a US Foreign-Trade Zone (FTZ) to defer duties and enable faster local fulfillment; and a logistics hub in a key EU country like Poland for future EU market access. The decision involves a trade-off between added fixed costs and savings in transportation, duties, and lead times. The Pune facility’s role may shift to focused manufacturing, while offshore nodes handle final packaging, kitting, and rapid distribution.
3. Sourcing, Production, and Capacity Strategy
The component design is stable, but the sourcing of specialty steel and alloys—partly imported—must be analyzed. Should the company dual-source critical raw materials to mitigate geopolitical risk? The production capacity in Pune must be expanded for the new contract. The decision is between adding dedicated lines for the OEM (efficient but inflexible) or flexible, reconfigurable lines (higher cost, better for future product variety). Capacity buffering is also key: should they maintain a strategic inventory buffer of finished goods at the US hub to ensure the 15-day service promise against production or shipping delays?
4. Transportation Mode and Route Optimization
The current air freight model is unsustainable for cost. A multi-modal strategy must be designed: shifting bulk shipments for the US contract via sea freight from JNPT to a US West Coast port (e.g., Los Angeles), then rail/truck to the US hub. For urgent replenishment, retain air freight as a backup. For future EU orders, a consolidated sea-air route via the Middle East (e.g., Dubai) could offer a cost-time balance. This requires partnering with a global 3PL to manage this complex, integrated transportation flow and provide end-to-end visibility and reliability.
5. Inventory Positioning and Policy Formulation
A multi-echelon inventory policy is required. This involves determining what to store, and where: Raw materials in Pune? Finished goods in a JNPT warehouse? Buffer stock in the US FTZ? The policy must calculate cycle stock and safety stock levels at each node using demand and lead time variability data. The goal is to minimize total system inventory holding cost while achieving a target service level (e.g., 99% order fill rate for the US OEM). This likely involves holding higher inventory closer to the customer (US hub) to enable the 15-day promise, justified by the large, steady contract volume.
6. Technology and Partnership Selection
The new network’s success depends on visibility and coordination. The company must select and implement a cloud-based SCM/ERP platform that integrates production planning in Pune with warehouse management at the JNPT and US hubs, and provides the OEM with real-time order tracking. Key partnership decisions include: choosing a 4PL lead logistics provider, selecting a customs broker with FTZ expertise, and potentially partnering with a European 3PL for future expansion. The technology and partners form the digital and operational backbone, enabling the physical network to function as a cohesive, responsive system.
