Supply chain of the automobile industry in Bangladesh
The automobile industry is one of the growing sectors of Bangladesh. Currently, many local automobile assembly companies are competing in the industry. The top automobile companies include IFAD Autos Ltd, Aftab Automobiles, Bangladesh Machine Tools Factory, Niloy-Hero Motors, and Runner Automobiles. Unfortunately, locally assembled cars do not have much of the market share.
In 2020, 82 per cent of the newly registered vehicles were reconditioned and imported, 16 per cent were imported brand new, and only 2 per cent were locally assembled vehicles.
The supply chain management of the automobile industry in Bangladesh is going through a crisis. A severe disruption has arisen in the shipments of vital components as there is a significant shortage of vehicle parts due to the government shutting off LC. To understand the current condition of the automobile industry in Bangladesh, first, we learn how the supply chain for this industry works.
The automobile industry supply chain involves four main steps: 1. Parts Suppliers, 2. Manufacturing, 3. Dealerships, and 4. Customers.
The suppliers in the Automobile industry have three distinct tiers: Tier 1 suppliers refer to companies supplying finished parts built for cars. Tier 2 suppliers make needed parts just like tier one. However, their components are not limited to automobiles only. Tier 3 consists of supplier companies of raw materials that supply them straight into making a car. A complication with one of the supplier tiers can terminate the whole manufacturing process.
The major products of this industry are sedan cars, pickups, vans, sport utility vehicles, tires, automotive exteriors, interiors, engine compartments, and many more. On average, an automobile consists of roughly 30,000 components designed to bring supply chains together for production.
A gearbox, for example, features a driving Shaft, main Shaft, layshaft, gears, bearings, and gear Shift Fork. Overlooking any part of the manufacturing process, for instance, inventory shortages and significant production delays, can be detrimental to the procurement process. It means all car parts must be in the right place at the right time.
Bangladesh has been showing both positive performances in servicing motor vehicles with domestic and imported supplies. The allocation of replacement parts is critical in the automobile industry's supply chain. Important components must be ready for the service providers for quick response to any crisis. Another issue is ensuring that the spare parts comply with the product's standards, lines of work, and design. Otherwise, the work order may alter.
Many customers prefer authentic parts imported from reliable sources. However, the cost is an issue here. Most customers prefer local car components at a cheaper rate. On the other hand, top corporate customers that want authentic and branded products with reliable and long-time warranties demand imported parts even at a higher rate.
Renowned automobile companies in Bangladesh, for instance, Runner Motors, imports spare parts from India in partnership with Volvo-Eicher commercial vehicles. The authenticity of products and efficiency in servicing quality has made their business profitable. As a result, they have gained repeat customers that have found their service reliable.
The overall performance of the automobile industry was remarkable until recently dollar shortage in the Balance of Payment pushed the government of Bangladesh to shut off the letter of credit(LC) issued by banks. As a result, the business of these automobile companies has become less profitable. The cost of import has increased in the absence of LC. Therefore, providing customers with authentic products from foreign business partners has become challenging.
The situation might force some of the companies to shut down their businesses. With the loss of repeat customers, the profit margin will decrease. As a result, businesses may suffer a downfall in the future.
After manufacturing auto components, sending them to local customers on time in Dhaka and other cities becomes challenging. Political instability, the recent pandemic, increased fuel prices, and costs of factors of production are all potential obstacles on this journey. Some other causes, for example, proper quality assurance, current vehicle demand, fixed and variable costs, and ineffective logistic planning, have been responsible for the inefficiency in the supply chain management of the automobile industry in Bangladesh.
Assuring quality and good working order in production ensures customer satisfaction. Walton is one of the first motorcycle manufacturers in Bangladesh. They have consistently brought quality products to their customers and even marketed them outside Bangladesh. Aftab Automobiles Ltd. has also successfully assembled Toyota and Hino vehicles for Bangladesh for a long time. Hanif Paribahan is one good example of a Hino vehicle in Bangladesh.
The demand for the vehicle is influenced highly by consumer trends and preferences. The increased tax rate on automobiles, rise in fuel price, and higher interest rate on private vehicle financing are all responsible for a decline in car customers in Bangladesh. The Sales of automobiles declined to their lowest in 7 years due to covid-19 pandemic.
The amount of tax for vehicles with engines under 1600 CC is 127.16 per cent, 212.20 per cent for engines with engines between 1600 CC and 2000 CC, and for automobiles with engines between 2000 CC and 3000 CC is 442.60 per cent. A decrease in demand for vehicles causes a decline in the supply of factors of production by the producers.
The automobile supply chain management of the domestic market needs proper logistics planning. Logistics is responsible for the entire operation, from receiving client orders to handing them over to them. Failure to arrive on time can result in dissatisfied customers. The top automobile companies in Bangladesh carry better logistics planning than the rest, displayed by their market performance. Factors of production, workers, suppliers, and shipping are the basic fixed and variable costs carried out by almost all automobile manufacturers.
The scarcity of land is another issue for business companies in Bangladesh. When automobile companies lack enough warehouse or storage space, they can hire third-party land providers. The 3rd party companies lease their spaces to businesses to store their parts, products, or materials for later use. It frees up valuable floor space for the business. These services are particularly needed in dense urban centres like Dhaka, Gazipur, and Savar, where land is costly.
For a long-term solution in the supply chain sector, the automobile companies in Bangladesh have to look for a better management plan. Carmakers in Bangladesh can work with local suppliers to shorten supply lines and reduce dependency on foreign materials. It will not only grow import substitution industries but will also become less environmentally hazardous.