Impact of Supply Chain Efficiencies on Working Capital Requirements of Corporates and Their Vendors- A study of Select Auto Companies During 1996-2010

Abstract

Afterthearrival oftheJapanese automotivecompanies inIndia inearly1983,manufacturingpracticesandprocessesinIndian companieshavegradually transformedtoachieveinternationallybest practices.Theintroduction ofeconomicreformsinthecountrypost1991hastenedthepaceofimpr ovementwhichcanbestbeunderstoodonexami ningthechangesintheAutomotivesector.Adoption ofbestproductionpractices haveled tochangesinbusinessmodels whichinturnhavehadamajorimpactontheoperatingcycle.Thishassignificant implication sforworkingcapitalrequirements ofcompaniesand theoperatingcostsinvolved.Changesinoperatingcycle needstobewell understood by bankersproviding workingcapital finance.Inthisstudywe have examinedthe changes inworkingcapitalrequirement sover the period1996-2010in5select majorautomotive manufacturersand 33 of theirvendors/suppliers.Thestudyshows subs tantial reductionin theoperatingcycle of theautomotivecompanies withadoptionofbestinternational practicesand changing businessmodels. These changeshave percolated downtotheir vendors whotoohaveadopted thesebetterpractices and reduced theirworking capital requirements ,though notto thesameextentasthe corporates. Keywords:Supply cliain efficiencies, Gross/Net Working capital cycle , JustinTime, Vendorrationalization,Leanmanufacturing,TotalQuality management, Singlepiece flow.