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

163
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

sectors 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 Indias 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

164
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 Europes 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 Indias 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

165
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 Companys annual turnover exceeds US $

1.61 billion.

166
 Hinduja
Automotive Ltd
50.98%

Residents
10.54%
Body corporate
& others
6.35%

Banks & MFs

5.56% Fis, Insurance
FIIs Co, State Govt,
12.68% Govt
Companies
13.89%

Figure 6:1: Ashok Leyland Shareholding Pattern (as on 31st March, 2010)

The Companys 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 Companys 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

167
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 Indias 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

168
 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

169
 Pantnagar

Alwar

Bhandara

Hosur-1
Ennore
Hosur-2

Cab Panel Press Shop

Figure 6.3: Manufacturing Facilities

Ennore is 18 Kms away from Chennai. Ashok Leylands (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.

170
 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 79 969 88 506 10
(Rs Lakhs)

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.

83094 83307

63926
61655
54740 54431
48654

36444
29673

'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

171
 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.

172
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.

173
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

174
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 eis.

175
 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 months 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).

176
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

April04 to March09. We have to forecast the demand for April10 to

March11.

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))

177
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 months 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.

178
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.

179
 Table 6.3
Passenger Vehicle Segment Moving Average Model
Moving Abs # of
Segment Month Passenger
average forecast error 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

180
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

181
 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 Apr1 May1 Jun1 Jul1 Aug1 Se1 Oct1 Nov1 Dec1 Jan1 Feb1 Mar1
t 0 0 0 0 0 0 0 0 0 1 1 1

Passeng
er 109 46 85 36 82 8 17 50 94 2 27 154

Inference:

From the analysis, the data forecasted for the month April10 to

March11 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

182
April04 to March09. We have to forecast the demand for April10 to

March11.

Table 6.5
4 x 2 Haulage Segment Details

Segmen Apr1 May1 Jun1 Jul1 Aug1 Sep1 Oct1 Nov1 Dec1 Jan1 Feb1 Mar1
t 0 0 0 0 0 0 0 0 0 1 1 1

4X2
Haulag 20 25 29 37 43 48 53 58 56 56 61 61
e

Inference:

From the analysis, the forecast data for the month April10 to

March11 of the 4X2 Haulage segment is shown in Table 6.5.

Case 3: 6X2 MAV SEGMENT

The data available are from April04 to March09. We have to forecast

the demand for April10 to March11.

Table 6.6
6 x 2 MAV Segment Details

Apr1 May Jun1 Jul1 Aug1 Sep1 Oct1 Nov1 Dec1 Jan1 Feb1 Mar
Segment 0 10 0 0 0 0 0 0 0 1 1 11

6X2
MAV 22 19 17 18 17 17 14 14 13 13 15 16

Inference:

183
 From the analysis, the forecast data for the month April10 to

March11 of the 6X2 MAV segment is shown in Table 6.6.

184
Case 4: 4X2 TIPPER SEGMENT

The data available are from April04 to March09. We have to forecast

the demand for April10 to March11.

Table 6.7
4 x 2 Tipper Segment Details

Apr May Jun Jul1 Aug Se0 Oct Nov Dec Jan Feb Mar
Segment 10 10 10 0 10 19 10 10 10 11 11 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 April10 to

March11 of the 4X2 TIPPER segment is shown in Table 6.7.

Case 5: 4X2 TRACTOR SEGMENT

The data available are from April04 to March09. We have to forecast

the demand for April10 to March11.

Table 6.8
4 x 2 Tractor Segment Details

Apr May Jun Jul1 Aug Sep1 Oct1 Nov Dec Jan1 Feb Mar
Segment 10 10 10 0 10 0 0 10 10 1 11 11

4X2
Tractor 1 -1 0 0 01 2 2 2 2 2 2 2

Inference:

185
 From the analysis, the forecast data for the month April10 to

March11 of the 4X2 TRACTOR segment is shown in Table 6.8.

Case 6: 6X4 TIPPER SEGMENT

The data available are from April04 to March09. We have to forecast

the demand for April10 to March11.

Table 6.9
6 x 4 Tipper Segment Details

Apr May Jun1 Jul1 Aug Sep1 Oct1 Nov Dec1 Jan1 Feb1 Mar
Segment 10 10 0 0 10 0 0 10 0 1 1 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 April10 to

March11 of the 6X4 TIPPER segment is shown in Table 6.9.

Case 7: 6X4 MAV SEGMENT

The data available are from April04 to March09. We have to forecast

the demand for April10 to March11.

Table 6.10
6 x 4 MAV Segment Details

Apr1 May1 Jun1 Jul1 Aug1 Sep1 Oct1 Nov1 Dec1 Jan1 Feb1 Mar
Segment 0 0 0 0 0 0 0 0 0 1 1 11

6X4
MAV 0 0 0 2 0 1 1 2 4 4 1 0

186
Inference:

From the analysis, the forecast data for the month April10 to

March11 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

DEALER
HOSUR - 1 RSO TVS & SONS - TN
SEMBMBKKAM

DEALER
HOSUR - 2 TVS & SONS
RSO HOSUR KERALA

DEALER
ALWAR SUNDARAM MOTORS
RSO TN
ERNAKULAM

BHANDARA

Figure 6.6 : Structure of Warehouse Management of Ashok Leyland

187
 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

188
 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 Proposed
Current Expenses Differences
Location (Ernakulam) Location (Palakkad)
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.

189
 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

190
 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).

191
MODES OF TRANSPORTATION IN ASHOK LEYLAND

Ashok Leylands 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.

192
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 railways 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

September10.

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

193
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)

194
Figure 6.8: Inside view of Modified Goods Wagon (NMG)

Figure 6.9: Specification of Modified Goods Wagon (NMG)

195
 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 Railways NMG Wagon

Al Railways NMG
Reference Al MAV Al Tipper
Tractor 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 September10

MAV Tractor Tipper

No. No.
Location No.
Total of Total Of Total
of Rate Rate Rate
cost veh Cost veh cost
Veh.
. .
25804 2337842 25804 19606 388198
Faridabad 906 /- 4 339 /- 8747556 198 /- 8
11854 11854 179892
Pune 778 /- 9222412 509 /- 6033686 180 9994 0
Bhubanesw 11978 190241
ar 264 11978 3162192 33 /- 395274 206 9235/- 0
194 3576302 88 1517651 58 758331
Total 8 8 1 6 4 8
Source: Ashok Leyland

196
 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

MAV/Tractor/Tippers
No. of
Locations Rate
Vehicles No. of Total No. Total
Per
Per Wagon of Vehicles Cost
Wagon
Wagon
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

197
Inference:

It is found from the study that ASHOK LEYLAND can save

Rs.6390920/- on transportation of their vehicles while utilizing the Railways

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.

198
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

199
 Figure 6.11: Inside view of RO-RO Ship

Figure 6.12: Inside view of RO-RO Ship with Vehicle

200
 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.

201
 ENNORE

HOSUR - 1 RSO
SEMBMBKKAM

HOSUR - 2
RSO HOSUR

ALWAR
RSO
ERNAKULAM

BHANDARA

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

Ernakulam
Factories
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

202
 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

Ernakulam
Factories
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

Hosur
Factories
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

203
 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

Hosur
Factories
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

Sembrambakkam
Factories
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

204
 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

Sembrambakkam
Factories
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 Vogals 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.

205
Passenger Vehicles

Table 6.25
Optimal Transportation Solution for Passenger Vehicles For 2009-10

Passenger
Factories
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.

206
Goods Vehicles

Table 6.26
Optimal Transportation Solution Of Goods Vehicles For 2009-10

Goods
Factories
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.

207
Multi Axle Vehicles

Table 6.27
Optimal Transportation Solution of Multi Axle Vehicles For 2009-10

MAV
Factories
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.

208
 ENNORE

HOSUR - 1 RSO
SEMBMBKKAM

HOSUR - 2
RSO HOSUR

ALWAR
RSO
ERNAKULAM

BHANDARA

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.

209