Supply Chain Management

How Mahindra & Mahindra does IT?

Group 1
01 Manish Aggarwal
03 Mridul Baldi
05 Deepak Chandrasekaran
07 Parikshit Das
12 Padma L. Gonuguntla
15 Suryanshu Goswami

Supply Chain Management

Executive Summary
Continued deregulation and liberalization of the Indian economy have resulted in global
automobile giants entering the Indian market. In the face of international competition from
products with better technologies and proven business processes, Auto Sector (AS) was
compelled to respond with innovative strategies. From a scenario of decades of established
monopoly to a scenario of high customer orientation, it called for a substantial change
throughout the automobile companies. Customers now wanted more product variety,
better quality and immediate delivery. This resulted in increased cost of product
development, marketing and promotions. Working capital also increased substantially due
to higher credit to dealers and higher inventories across the supply chain. This was when the
companies initiated re-engineering of its supply chain.
Some of the re-engineering initiatives included: creating awareness for the need, getting
buy-in, changing the organization structure, re-defining performance measures and rewards
system, changing business processes, 3PL, and frequent re-planning of product schedules.
Thus AS was focused on developing a strategy that could deal with resistance within the
organization rising from fear of uncertainty, loss of authority and inertia. This led to
evolution of simple, visual, transparent yet robust supply chain system called market pullbased SCM system.
The SCM system has been able to increase operating efficiency and reduce inventories.
Subsequently, customer focus became the foundation for designing supply chain initiatives,
with an accent of high-class customer service. Today AS is all set to meet future challenges
and demands and emerge as one of the top sectors in India.
This report talks about the automobile industry in general, with a special focus on the state
of this industry in India. The report mainly focuses on the supply chain management aspect
of automobile industry and explains in detail the drivers, roles and challenges of SCM. Also,
the report talks about the cutting edge information systems which are leveraged to
automate the SCM and is in turn benefits the auto industry.
A major part of this report talks about a real life case, where M&M Farm equipment unit
implemented SCM solution in an elaborate step by step manner. These developments took
place around year 2000 when the organization faced stiff competition from foreign players.
As part of the SCM initiative the company experimented with aspects like organizational
alignment, change management, push and pull strategies, 3-PL implementation etc. It also
tried leveraging powerful IT systems like APO tool from SAP and e-Tracking systems. The
report details the initial situation before SCM, the SCM efforts and the resulting scenario.

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Table of Contents
Automobile Industry An Overview.............................................................................................. 5
Indian Automobile Market .......................................................................................................... 5
Role of SCM in Automotive Industry ............................................................................................. 7
Potential and Market Size of SCM in Indian Automotive Industry .......................................... 8
Challenges in Supply Chain Management ............................................................................... 9
Benefits of IT-enabled SCM..................................................................................................... 10
About Mahindra & Mahindra (M&M) ........................................................................................... 11
M&M Farm Equipment Unit...................................................................................................... 11
Need for SCM Reengineering at M&M ....................................................................................... 12
The Earlier SCM Process......................................................................................................... 12
A new look at SCM ....................................................................................................................... 14
Birth of a Separate SCM Department ..................................................................................... 14
Organizational Alignment ......................................................................................................... 14
Change Management............................................................................................................... 14
Readiness Assessment............................................................................................................ 15
Changing culture of Push-Sales .............................................................................................. 15
Finished Goods-stocks Visibility (IT-connectivity).................................................................. 15
Back-end responsiveness........................................................................................................ 15
Introduction of 3PL/Milkruns ........................................................................................................ 17
3PL Implementation.................................................................................................................. 17
Logistics......................................................................................................................................... 18
Challenge posed by increasing logistics costs....................................................................... 18
Innovative solution to control logistics costs........................................................................... 18
IT-enabled Supply Chain Planning.............................................................................................. 20
Issues with Forecast-based Planning ..................................................................................... 20
Pre-Requisites & Challenges of Pull-system Implementation............................................... 20
Pull-system Implementation......................................................................................................... 22
Pull-based replenishment of finished goods........................................................................... 22
Implementation of Pull - Production Planning ........................................................................ 22
Implementation of Kanban for Pull-based Procurement........................................................ 23
Challenges faced for Kanban Implementation ....................................................................... 23
Implementation of Supplier Initiatives ..................................................................................... 23
e-Tracking of Transportation Vehicles ........................................................................................ 24

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Need for e-Track system.......................................................................................................... 24

Screenshots of eTracking system ................................................................................ 25
e-Track system The right solution ........................................................................................ 25
Benefits from eTracK................................................................................................................ 26
End-to-End IT-enabled Supply Chain ......................................................................................... 27
Changes in Supply Chain Metrics ........................................................................................... 27
Results........................................................................................................................................... 28
Conclusion..................................................................................................................................... 29

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Automobile Industry An Overview

The automotive industry is a key industry in the global economy. Trade in automotive
products accounts for 9.5% of world merchandise trade and 12.9% of world export of
manufacturers. The industry manufactures cars, light trucks and vans, buses and coaches,
medium and heavy trucks, motorcycles and agricultural and forestry tractors and
automotive parts.
Automotive industry is mature with production growth rates in the range of 2.75% to
5.7%and sales growth rates in the range of 0.5% to 3.5% for the past five years. Since
Chinas accession to World Trade Organization (WTO) in 2001, the global automotive
industry has re-energized and initiated many more developments. Increasing purchasing
power in the hands of middle class people in China and India, two of the major countries in
the world with low automobile density, has given hope to an otherwise mature industry.

Indian Automobile Market

The Indian Automobile Market is expected to grow at a CAGR of 9.5 percent amounting to
Rs. 13,008 million by 2010. The Commercial Vehicle Segment has been contributing to the
automobile market to a great extent. Allowance of 100% FDI in Indian auto industry in 2002
made the industry easily accessible and attractive for the global players. Japanese, Korean,
European, and American OEMs entered the Indian market .Many foreign companies have
been investing in the Indian Automobile Market in various ways such as technology
transfers, joint ventures, strategic alliances, exports, and financial collaborations. The auto
market in India can boast of attractive finance schemes, increasing purchasing power, and
launch of the latest products. Indian 2-wheeler industry is the second largest in Asia after
China. The production of 2-wheelers grew at a CAGR of 14.6% from FY2001 to FY 2006.
Some vital statistics regarding the automobile market in India has been mentioned below:

Two wheelers - 2nd largest in the world

Commercial Vehicle - 4th largest in the world
Passenger car- 11th largest in the world

As such, the Indian automobile market comprises of a wide variety of vehicles such as light,
medium, and heavy commercial vehicles, cars, scooters, mopeds, motor cycles, 3 wheelers,
and multi-utility vehicles such as jeeps and trax.
The modern automobile market in India has been considering key issues in the process of
growth:

Customer care, and not just 'service'

Domestic as well as multinational investments
Searing through cut-throat competition
Road safety
Anti-pollution norms
Coordination with the government to enable advancement

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Used vehicle trade

The future of Indian Automobile market is bright as it looks forward to manufacturing and
implementing new innovations such as electric cars as provided by Reva, alternate fuels like
CNG and LPG, and probably customized Internet automobile orders.
India is aiming for $145 billion in sales for the automotive sector by 2016, accounting for
10% of its economy, from $34 billion in 2006, according to the government's 10-year
Automotive Mission Plan. It is also aiming for 25 million indirect and direct auto sector jobs,
up from current figure of 13 million.

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Role of SCM in Automotive Industry

The automobile industry has undergone significant structural and other changes in the last
decade or so. In view of the present globalisation, implementation of lean production and
the development of modularisation have changed the relationships between automobile
assemblers (OEMs) and their suppliers, especially those in the first tier. Stiff competition
among manufacturers will result in more mergers or acquisitions. The challenges
automobile manufacturers and suppliers face include improving quality, meeting cost
reduction targets and developing time to market.

Global Automobile Market Scenario

All these are driving the organisations towards greater product differentiation using cutting
edge R&D, innovative sales and marketing approaches, and increasing focus on boosting
efficiencies in manufacturing and supply chain. Hence, in the age of e-business and global
outsourcing, supply chain management (SCM) plays a crucial role in many of these areas.
SCM is a best-in-class, high-performance solution which can be utilised by the world's
leading automobile manufacturer, logistics and distribution companies, and retailers to
blend the demand chain with the supply chain. SCM helps in demand forecasting; taking an
order; giving an accurate promise date; sourcing and manufacturing the right goods;
position inventory properly; pick, pack, and efficient trans shipment; most importantly, SCM
makes a world of difference to the manufacturers by maintaining a minimal finished goods
inventory.
Supply chain management flow is divided into:

Product flow
Information flow
Finance flow

The product flow is nothing but movement of goods from supplier to customers and also in
case of any customer returns or service requirements. The information flow covers updating
the status of the delivery as well as sharing information between suppliers and
manufacturers. The finance flow encompasses credit terms, payment schedules and
consignment and title ownership arrangements.

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Supply chain management has two types of software:

Planning application
Execution application

While planning application is utilised to determine the best way to fill the order, execution
software determines the physical status of goods, the management of materials and
financial information of all parties involved.
Rapid surge in global sourcing of auto components has also become a challenge for
manufacturers and suppliers although sourcing has reduced the cost of production
substantially. Auto component manufacturers and all tiers of the supply chain have
immense opportunities to enhance their entire supply chain process with the successful
implementation of SCM solution.

Potential and Market Size of SCM in Indian Automotive Industry

SCM solution market has been making inroads in India and it is being accepted widely by
many industry sectors in the country, particularly manufacturing and retail where inventory
carrying cost is very high. According to CMIE, over Rs 100,000 crore of industry sector is tied
up due to high inventories. In India, logistics cost is very high as compared to other
developed countries. It forms around 14% of the countrys total GDP. Transportation
accounts for 35%; inventory for 25%; losses for 14%, packaging for 11%; handling and
warehousing for 9%; and others for 6%. Several automobile manufacturers in India have
taken proactive measures to control their logistics cost and improve customer services.
Several measures were undertaken by Indian companies to improve their supply chain.
In India, some of the automobile manufacturing companies have adopted e-sourcing, which
helped them to reorganise the purchasing process and supported the aggregated buying
across business units with the help of Internet-based tools or B2C Internet portals. With the
use of Internet, more global suppliers have participated compared to the traditional
strategic sourcing process. The process reduces time spent on negotiating, accelerates
information gathering and speeds up communication channels among buyers and sellers.
The companies have implemented this e-sourcing for procurement of high-value
commodities. For instance, Tata Motors has saved Rs. 22 crore on transactions worth Rs.
362 crore in 2004. Kirloskar Group saved Rs. 7 crore with reverse auction.
Hence, the essence of SCM solution lies in coordinating the flow of information and goods
between the customers and the network of suppliers, manufacturers and distributors.
Interestingly, there has been a growing trend of realisation of supply chain optimisation in
India; there is no dearth of SCM solutions in the country. Around 70% of Indian software
houses have expertise in SCM. Currently, manufacturing and automotive sectors have been
the leaders in implementing SCM solutions in the country. IT spending by the manufacturing
sector in India, which accounts for 10% of the domestic IT market, is growing between 30 to
40% per annum. The main reasons for this surge in spending on IT by manufacturing
industry are:

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Indian manufacturing companies which are Tier 1 or Tier 2 suppliers to OEMs in India or
abroad want to reduce time-to-market and product life cycles, put pressure on
manufacturers to integrate with OEMs of both India and other MNCs, Tier I suppliers,
sub-contractors and distributors during product development and process
manufacturing.
The manufacturing sector wants to improve operational efficiency and capital
productivity by reducing fixed and variable costs.

Indian IT Industry is growing rapidly and in 2005-06, IT service (excluding ITES) industry
witnessed an excellent growth rate around 30%, out of which software export accounted for
over 75.5% and the domestic market constituted the remaining 24.5%. There is a huge
scope for Indian automobile and auto component manufacturers to reduce their logistics
costs with the implementation of SCM solutions. Proliferation of Internet, in particular has
made the business easier and cheaper for manufacturers to coordinate their business
activities with their suppliers.

Challenges in Supply Chain Management

In view of the diverse business activities, todays supply chain process is very critical for
success in current business scenario. Today, the supply chain managers are facing various
external challenges driven by customer requirements and intense competition. The major
challenges are:

Network Planning: This is one of the most important issues for SCM. Determination of
production requirements and inventory levels at the vendors facility for each product
and development of transportation flows between these facilities to the warehouses in a
best possible way to reduce total production, inventory and transportation costs with
fulfilment of service level requirements.

Supply chain integration and strategic partnering: In SCM, information sharing and
operational planning are crucial for successfully integrated supply chain. But the
challenges are what type of information would be shared, and how this information
will be used, what level of integration is required and what partnership can be
implemented.

IT and Decision Support System: This is another important challenge for SCM. Today,
SCM is driven by the scope and opportunities appearing due to abundance of data and
the savings which can be achieved through efficient analysis of these data. What data
should be transferred with its significance and most importantly, what infrastructure is
required internally and between its partners is very important.

Training: It is important for every company, which is implementing SCM. Companies

must leverage extensive training to their employees, who are going to use the system.
Understanding the market, risk, and spend analysis and applying strategic sourcing
methodologies are important.

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Benefits of IT-enabled SCM

Quicker response improved professional service

o Timely product supplies
o Accurate pricing/discounts
o Reduction in billing errors cleaner SOA
o Simplified and faster payments process
o Reduction in administration costs for customers/vendors
o Online information (purchases, sales, inventory, financials)
o Elimination of reconciliation of accounts/error processing
o Reduction in accounting cycle times
o Less duplication of job utilisation of human-power in value adding roles
o Reduction in paper flow, data processing, printing, mailing
o Better warehousing and transportation management
o Timely and correct asset capitalisation
o Credit management (customers)
o Better plant maintenance
o Easy access to data /information

Benefits to Shareholders
o Accurate and transparent information
o Good controls over receivables
o Better inventory management
o Improved reporting of accounts
o Audit trail
o Branding

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About Mahindra & Mahindra (M&M)

The US $6.7 billion Mahindra Group is among the top 10 industrial houses in India. M&M is
the only Indian company among the top three tractor manufacturers in the world.
Mahindra's Farm Equipment Sector has recently won the Japan Quality Medal, the only
tractor company worldwide to be bestowed this honour. It also holds the distinction of
being the only tractor company worldwide to win the Deming Prize. Mahindra is the market
leader in multi-utility vehicles in India. It made a milestone entry into the passenger car
segment with Logan.
The Group has a leading presence in key sectors of the Indian economy, including the
financial services, trade and logistics, automotive components, information technology,
infrastructure development and After-Market.
With over 62 years of manufacturing experience, the Mahindra Group has built a strong
base in technology, engineering, marketing and distribution which are key to its evolution as
a customer-centric organization. The Group employs over 50,000 people and has several
state-of-the-art facilities in India and overseas.

M&M Farm Equipment Unit

The Mahindra Group's Farm Equipment Sector has a significant presence across six
continents. It is among the top five tractor brands in the world, with its own state-of-the-art
plants in India, USA, China and Australia, and a capacity to produce 1,50,000 tractors a year.
The Group has a network of 800 dealers world-wide.
In the domestic business, the Farm Equipment Sector has had an unparalleled market
leadership for the last 25 years. It is the largest producer of tractors in India. M&M recently
consolidated it position as the leader of the Indian tractor industry when it acquired 43%
stake in Punjab Tractors, the owner of the leading Swaraj brand of tractors.
The international operations of the Farm Equipment Sector are spread across six continents.
It has state-of-the-art manufacturing plants in India, USA, China and Australia.
Mahindra Gujarat Tractor, acquired by M&M from the Government of Gujarat in 1999, is
the oldest running tractor unit in the country. The Mahindra Group has a 60% stake and the
balance 40% is with the Government of Gujarat.

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Need for SCM Reengineering at M&M

Around the turn of the century when the global giants like John Deere, FordNew Holland etc
started making inroads in the Indian Market, it was realized that M&M cannot take their
supremacy in the Indian market for granted. Global giants with deep pockets, superior
technology and features changed customer expectations and standards. M&M responded
by doing the following:

Ramping up their new product development

Investing heavily in marketing and sales promotion
Maintaining higher inventories for a larger variety of models so as not to lose sales
(customers were no longer willing to wait- they had many alternatives, readily available)

This led to substantial increases in investments and costs which adversely affected cash flow
and margins. Having already achieved in-house efficiencies through BPR in manufacturing, it
was now time to look outside - at the entire supply chain to drive cost reduction and value
creation for customers. That was the beginning of SCM journey.

The Earlier SCM Process

Marketing Dept gave monthly sales forecasts to Manufacturing Dept which produced as per
forecast and made the tractors available to Marketing explant and Marketing was
responsible for Outbound logistics i.e. dispatch of the tractors from plants to the stockyards
and thereafter to the dealers. There were 2 plants at that time at Mumbai and Nagpur (2
more got added subsequently at Rudrapur and Jaipur for avail of tax incentives).
While production planning was done centrally, production scheduling and material
procurement for each plant was done by the respective plant head. (As per the BPR reengineering done earlier, the organization was reorganized and separate self-sufficient
modules were made for each aggregate like Engine, Transmission and tractor, which
scheduled and procured materials for itself). However, vendor selection, development, rate
negotiation, and capacity contracts were done by a central Sourcing Dept.
The plants planned and produced tractors as per plant-wise fortnightly dispatch
requirements (based on sales forecasts) given by Marketing to Manufacturing by 15th of the
previous month. Production plans based on dispatch plans were run through MRP in SAPR/3 once monthly to generate supplier schedules.
However, results were not accurate therefore had to be corrected by buyers before they
were downloaded into excel sheets, and communicated to the suppliers by phone, fax or email which took 4 to 5 days for around 600 suppliers. Suppliers tended to lump supplies to
save on transportation costs. There were far too many transporters with business volumes
which were not attractive enough to get their commitment and interest. Thereby transit
times were high and varied a lot and tracking was non-existent.
On the outbound logistics front there were high level of damages and shortages during
transit and each stockyard was equipped for managing minor repairs and touch-up painting

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before delivery. Right model availability at the right place was a major issue. Sales operated
on a push system with forced billing to dealers to achieve top-line targets. Most of the sales
to dealers were on credit as a result most of the high stock with dealers was paid for by our
company. Total pipeline stock (companys plus Dealers) was around 100 days. Accounts
receivables were very high and doubtful debts were on the increase.

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A new look at SCM

Given the challenges faced by M&M Farm Equipment Unit, the unit took a fresh look at the
supply chain and started making dramatic changes. Some of these changes at the highlevel are listed below.

Birth of a Separate SCM Department

Different departments of the company were handling different parts of the supply chain
e.g.:

Out bound logistics was handled by Marketing

Production planning was under Manufacturing
Materials and Inbound Logistics was the responsibility of the Sourcing dept.

As a result, if the customer requirements were not met, very often marketing dept. would
blame Production, who would blame Sourcing etc. So the first step in the journey was to set
up a SCM dept which would have under its control all the functions of SCM, namely
Planning, Logistics, Materials and be fully accountable for meeting the customer
requirements. That gave birth to the SCM dept. The formation of the SCM dept (it was
called SCPC- Supply Chain Planning & Control Dept) was also a signal from the CEO to the
organization that the company was serious about focusing on SCM. Of course the full SCM
organization was rolled out in phases, but the direction and intent was quite clear.

Organizational Alignment
Similarly, the rest of the organization was also required to be aligned for SCM. The various
departments which had hitherto worked as independent silos separated by walls were now
required to work in unison and stretch themselves, and maybe make up for some other
depts failures also. This required a huge shift in the mindsets of the department employees
- a change from My Dept to Our Customer.

Change Management
To bring about a change in the mindsets of the people (internal and external to the
company) across the supply chain, it was necessary to get their buy-in and involvement for
making the change. This was done through communication at all levels, explaining the
necessity for the change and the benefits to them. SCM games like the Beer Game were
also played with them to illustrate the benefits when all SC members work in unison, with
transparency and a common goal, which is the end customer.
A plan was made for implementing the change at all levels which involved changes in MOPs
(measures of performance), Performance management system, Planning process, Execution
process, MIS and communication system, etc. The change programme was owned by
respective departments to make the change easier. However to de-bottleneck obstacles and
give impetus to the change process given the resistance to change, a high level steering
committee was set up which met fortnightly initially and thereafter monthly to drive the
change programme.

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Readiness Assessment
An assessment was made on readiness to move from the existing system of Forecast based
production and supply to a Pull-based production and Supply system, however, it was
found that the organization was not ready to make the transition as yet.

Changing culture of Push-Sales

M&M had accumulated huge stocks in the pipeline especially with its dealers as a result of
Push Sales in the past. Unless these stocks were brought down to reasonable levels, there
would be no Pull demand.

A Typical Push System Resulting in Bullwhip Effect

Therefore a top-down policy was put in place and performance metrics were redefined to
discourage push-sales and increase the focus on reducing dealer inventories. This was a
slow process since all said and done the companys results were based on sales to dealers
and not sales from dealers; and therefore drastic reductions in a short period could not be
expected. It took around two years to bring down the pipeline stocks to a reasonable level.

Finished Goods-stocks Visibility (IT-connectivity)

To be able to replenish stocks norms at stockyards, it required on-line visibility of stocks.
Although the company had implemented SAP ERP in all plants, all sales offices were not yet
connected, which was a prerequisite. That was done in parallel while reducing pipeline
stocks. It could then see stocks at its stockyards in the system.

Back-end responsiveness
Material was supplied by over 600 suppliers through a multitude of transporters against
monthly schedules. Each supplier tried to minimize his freight cost by making bulk
dispatches for the full month supply in one lot and at times even more than the schedules.
Time schedules were also not adhered to due to delays in building a full truck load. And
therefore, despite high inventories M&M had shortages. If the company was to implement a

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pull system, suppliers would have to supply only what was required, whenever required,
based on actual consumption and that would mean frequent supplies of small quantities
each time. That would have meant not only increased cost of transportation but would have
also demanded increased level of responsiveness on part of the supplier; which was resisted
by the suppliers. Therefore the challenge was to find a win-win solution whereby it could
achieve the level of responsiveness from supplier without increasing costs.
Other than these high-level, organization wide changes, M&M also made some fundamental
technical changes to their supply chain management systems. A few of these important
changes are highlighted in the next few sections.

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Introduction of 3PL/Milkruns
As a first step towards the solution for the above M&M decided to implement a system of a
transport vehicle collecting small lots daily or on alternate days from suppliers and
consolidating the loads to make a full truck load so that transportation cost remains in
control by ensuring full capacity utilization for the long haul vehicles. It also decided to
outsource the logistics operations to third party logistics service providers who could handle
the operations more efficiently than it could. To implement this system for inbound
logistics, the company first identified its supplier clusters and decided on a hub for each
cluster. Then for each cluster it appointed a 3PL who had the requisite strengths for
handling that cluster and route. An operating process was made for the 3PL and agreement
entered into with them for adhering to the process and achieving specified KPIs.

3PL Implementation
The first challenge was to identify suitable 3PL companies. At the time M&M started this
initiative there were only a few foreign 3PL companies, who had past 3PL experience
overseas but not in India. In India they were still in the process of finding their feet. M&M
tried one but the experiment failed because they did not have their own assets and relied
on associates who let them down in peak demand periods. Also they were expensive. At
that time market demand had dropped due to overall industry slowdown and M&M was
under pressure to keep costs down. So the only option was to upgrade some existing
transporters to 3PL operators through training and facilities up gradation. It was a slower
process but kept the costs under control and ensured continuity.
As per the process established some items were brought directly to plants but some were
taken first to a warehouse where they were deconsolidated and supplied as per daily pull
requirements to the plants. Therefore the next challenge was to convince the suppliers to
bear the extra costs that they would have to incur due to extra costs of warehousing as well
as multiple loading and unloading activities involved due to warehousing. This required
considerable effort in reaching out to suppliers and proving to them that the extra costs
would offset other invisible costs and provide greater transparency and control.

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Logistics
Logistics was another area where M&M needed to focus, owing to constantly changing
products and rising costs.

Challenge posed by increasing logistics costs

Diesel prices were increasing at a fast rate which directly impacted logistics cost. Further,
the company had introduced a new, higher HP model, which was much longer than the
existing models. The company used to dispatch its tractors mounted sideways on open
trucks as shown below fitting 5 or 7 per truck depending on the size of the truck.
However the new bigger
tractor if mounted in
the same fashion would
jut out so much that it
was not feasible to
transport
in
that
manner due to RTO
restrictions.
It had to be therefore
accommodated
lengthwise along the
bed length. This meant that only 2 new tractors could be accommodated per truck instead
of 5 of the existing models. By doing so, the cost of transportation of the new models was
going to be double of the existing model. This fact coupled with the increase in diesel costs,
threatened to increase outbound freight costs immensely. Considering the market
downturn and increased competition, M&M could not pass on the freight increase to
customers, which put tremendous pressure on margins. Therefore it had to find a solution
whereby it could control transportation costs without affecting transportation efficiencies.

Innovative solution to control logistics costs

After doing what best could be done for reducing freight rates by initiative like
negotiations, reducing the total transportation miles (by making and supplying tractors from
the nearest plant, using APO)etc, costs were still high for comfort.
The only thing that
remained to be done
was to increase the no
of tractors transported
per truck. Considering
that all trucks were as
it is being loaded fully
to utilize the pay load
capacity of the trucks,

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it had to think out of the box. As a result M&M came up with a new process of loading the
tractors in two layers instead of one. Due to this change the transportation cost per tractor
could be reduced from 25% to 40% on the routes where implemented, depending upon the
distance and volume on that route. To achieve this two layer loading it had to remove the
tyres and other protruding parts of the tractors which were then fitted at the destination
stockyards. In addition to the transportation cost saving, there was also considerable saving
of octroi for tractors dispatched from Mumbai plant. M&M saved 4% octroi on the parts
which were not fitted before dispatch and therefore not brought into the plant.
(Unfortunately it had to discontinue this practice after the Govt. announced Excise duty
exemption on tractors, but refused to exempt tractors dispatched without wheels from
payment of excise duty).

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IT-enabled Supply Chain Planning

Earlier, the plant in Mumbai was the main manufacturing location accounting for majority of
production. The one in Nagpur produced the rest. With the down turn in the tractor
industry and pressures on costs to maintain profitability, the company started
manufacturing at other remote locations where there were tax incentives available. Thus
with 2 new plants coming up in Jaipur and Rudrapur which depended heavily on supply of
intermediate products from Mumbai plant, the supply chain became far more complex and
there was a need for an IT-enabled SCM tool. M&M therefore implemented the SCM tool of
SAP called APO (Advanced Planner & Optimizer).
The complex planning which took one week could be done in a day with APO. The APO has
various modules for different aspects of the supply chain like Demand Planning, Supply
Network Planning, Production Planning and detailed scheduling etc. So with the help of
Bristlecone, which specializes in SCM consultancy, M&M implemented APO and
configured it for operations. Twice a month it took an APO run. APO considered the model
wise demand from each geography and considering the production capacity and costs, and
model specific capacity and material constraints, generated a Plant-wise, Model-wise, Day
wise Production Plan that would meet the demand at least cost. It would also generate
schedule of material supplies from suppliers to plants as well as from one plant to another.
It was a very effective tool that cut down the planning cycle time drastically and took the
sweat out of planning. Marketing could enter the demand straight into APO.

Issues with Forecast-based Planning

The input to APO was the area-wise, model-wise, week-wise sales forecasts. Earlier, sales
forecasts were quite reliable and producing as per forecasts did not pose much problem.
However, with the market downturn and increased competition, it became more and more
difficult to forecast reasonably accurately. Producing and supplying to area stockyards as
per forecast resulted in excess stocks in some places where actual sales were much lower
than forecasts and at other places where actual sales were much higher than forecasts,
there were stock outs. In such cases stocks had to be rushed from one stockyard to
another resulting in increased transportation costs which could be ill afforded.
In this kind of industry where lead times for components were high, forecasts were no
doubt essential for giving suppliers the visibility to plan for their raw materials and
production capacities but it wasnt the best way for M&M to respond to demand. Ideally it
should be producing and supplying only those goods which were being demanded by
customers. This is what led the company to look at the implementation of the pullproduction system.

Pre-Requisites & Challenges of Pull-system Implementation

Operating a pull-system essentially involves making robust stock norms, which can absorb
the variations in supply and demand, and then frequently checking the gap between actual
stocks against norms, and producing to replenish the gap. To operate such a system requires
visibility of stocks across the supply chain, a process of scheduling production frequently to

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make what is required by the market and a system of pulling from suppliers, materials
required based on actual consumption as required and whenever required.
Considering that at the SKU level there can be wide variations in the demand on day to day
basis, it demands a high degree of flexibility in distribution, production, procurement and
planning. Period of fixing of production plans needs to be reduced drastically, and
processes of distribution of finished goods and procurement need to be changed to pullbased processes which are a challenge in terms of change management. Convincing and
enabling suppliers to respond to varying requirements at short notice (instead of fixed
schedules for the month, which they prefer due to their own reasons) is also a challenge.

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Pull-system Implementation
Considering the degree of challenge for changing the processes of internal and external
entities across the supply chain, M&M decided to address the changes in a phased manner.

Push vs Pull-based supply chain model

Pull-based replenishment of finished goods

This required fixing stock norms scientifically at area/model level, taking into consideration
the lead times, demand variability and supply reliability. The stocks in each area were visible
on-line. So what was required was to change distribution planning system by finding
area/model-wise gaps between actual stock and norm and plan dispatches accordingly.
However since the company had not implemented Pull-production as yet, stocks were not
always available as per pull-requirement and therefore there was a need to allocate
insufficiently available stocks fairly as per certain rules and priorities. Since handling this
volume of data and rules manually on daily basis was quite time consuming and managing
daily replenishments were becoming a problem, it implemented the Deployment tool of
APO with the help of Bristlecone. The Deployment module of APO was fed with stock norms
and it drew info of stocks from SAP and allocated as per rules configured in the module.
Distribution planning time was cut down to one hour instead of 6 hours manually, daily.

Implementation of Pull - Production Planning

Although M&M implemented the process of pull-based replenishment of tractors, in the
absence of pull-based production system availability of the right model mix of tractors as

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per pull requirement was an issue obviously, as mentioned before. So the next step was to
change production planning system. Instead of making a fixed production plan for the whole
month, it had to make a production plan for just 3 days fixed which would enable to
respond to market demand changes at least every 3 days (bi-weekly). So the system
adopted was that on every Tuesday and Friday, it planned production for 3 days at a time.

Implementation of Kanban for Pull-based Procurement

To ensure actual production as per the pull-based production plan made, M&M had to
ensure that it had available the necessary raw materials and components required for the
plan. Since the model-mix of the pull requirement varied substantially, supplier Kanban
system was implemented to ensure material availability as per changing material
requirement. Kanban size and number of Kanbans were decided scientifically and Kanban
triggers were sent to suppliers electronically for dispatch of materials as per Kanban triggers
Further, considering the large number of parts and varieties typical of the automotive
industry, it was found that generating such large number of triggers manually for sending by
email was consuming lot of time which delayed triggers. Therefore a system of e-triggers
generated by swiping bar-coded Kanban cards was implemented. Also the triggers were
sent to the supplier website directly rather than through e-mails. Also changes were made
in the SAP configuration.

Challenges faced for Kanban Implementation

As expected, there was considerable resistance from suppliers for supplying in small lots as
per Kanban triggers, as and when required by. Suppliers felt that the system would benefit
only M&M and not them since the uncertainness of requirements would increase their
inventories, lower their asset utilization and hike costs.
Therefore, to address their concerns, M&M embarked on a communication drive whereby it
held Supplier Kanban Meets with suppliers in each supplier cluster and explained the
process and how it would benefit them too. The company addressed their fears by agreeing
to systems that were fair and square. Subsequently it signed up agreements which specified
each sides role and responsibility to make the system work smoothly. It also offered its
services to help them in changing their production processes and systems to increase their
supply responsiveness and flexibility. Monitoring and control systems were also put in place
for continuous improvement in the Kanban system.

Implementation of Supplier Initiatives

In a lean environment, dependability, reliability and commitment of suppliers assume
greater importance. This led to rationalization of suppliers base. Further, to bridge the
communication gap with suppliers, M&M implemented the SRM module of SAP. On the
SRM supplier website suppliers could see their supply schedules, status of their supplys
acceptance and payments etc. , whereas M&M could see its advance shipping notifications
for materials in transit (ASNs), and analyze spends and supplier performances.

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e-Tracking of Transportation Vehicles

Need for e-Track system
The major problems encountered by the supply chain, which led to the deployment for eTracking system were:

Despatches delayed due to non-availability of trucks on time.

Absence of information on the expected time of arrival of the trucks leads to anxiety and
improper planning.
Exact information on the current location of the trucks and status of deliveries not
known as the information provided by the transporters are often unreliable.
In-transit idle time of the trucks not known due to which deliveries are delayed.

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Screenshots of eTracking system

e-Track system The right solution

In pursuit of this objective, after analysing the performance of various companies offering
vehicle tracking services, M&M enlisted eLogistics pvt Ltd, Chennai to install eTracK devices
in their trucks. Initial order was to install eTracK devices in 200 trucks of 12 transporters in
the first phase and thereafter to extend it into the entire fleet. Majority of the trucks
earmarked for vehicle tracking were in Mumbai Rudrapur route as this was a painful route
identified by logistics managers for managing supply chain activities. eLogistics installed
around 150 devices and the servicing requirements were managed by their service
engineers at Mumbai and Rudrapur along with their alliance partner, TVS Electronics Ltd at
various locations.
Online Vehicle location reports were provided every 2 hrs and status reports were sent on a
daily and weekly basis. M&M has been given access online to eTracK application software
wherein they can log in with a secured Username and Password and track the current
location of their trucks anytime. The weekly productivity reports comprises of the reliability
of the system, distance travelled between trips, average speed of trucks, number of kms
travelled by each truck, idle time and unscheduled halts.

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Benefits from eTracK

M&M has derived immense benefits by employing eTracK system in their trucks which has
enabled them to solve major supply chain related problems. M&M has been actively
involved in providing inputs regarding eTracK which has helped eLogistics in developing
eTracK v3.0 with much more advanced features. We have been involved in beta testing of
eTracK v3.0 and as regular eTracK users, are very satisfied with the enhanced features in
v3.0 contends Sandeep Patil, FES Supply Chain Manager. The following are the major
benefits accrued out of eTracK system:

Real-time information on the location of trucks for estimating the arrival time and
despatch planning Idle time reduction through constant monitoring of vehicles
Improved productivity by reduction in turnaround time
Reduction in in-transit inventory
Reduced anxiety levels in managing supplies

The valuable information in weekly updates from eLogistics is being incorporated in MIS
reports and helps M&M to measure many of the critical performance parameters of the
supply chain department. The new version of eTracK web-based software application
provides almost 5000 locations plotted in the digital map with multiple layers and other
user-friendly features like enabling customer to change username and Password, generate
trip-based MIS reports, display of distance between trips on the map etc M&M has
unequivocally expressed their satisfaction in the services offered by eLogistics and has
decided to extend the system for their entire fleet. The success in supporting M&Ms
endeavour to transform the supply chain function keeps eLogistics on a strong footing to
extend eTracK system to other manufacturing companies in India.

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End-to-End IT-enabled Supply Chain

The supply chain at M&M, FES has been IT-enabled from End-to-End. The supply chain
information flow is enabled with SAP ERP and supply chain planning has been enabled by
and SAP- APO. Communications with external partners is enabled through websites
interfacing with SAP ERP system.

Changes in Supply Chain Metrics

Earlier the Supply Chain performance was measured based on producing and dispatching as
per weekly forecasts. However, the performance metric was changed to Daily model-wise
availability at stockyards and SCM had to ensure that there were no stock outs irrespective
of the changes in demand Vs forecast. Along the supply chain also each node was
measured based on fulfilling the needs of the next node.

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Results
The companys sales doubled in the last 4 years. However, despite tremendous increase in
the product varieties, demand uncertainty, and increased supply constraints, right time,
right product availability was maintained which helped in taking advantage of sales
opportunities to increase sales and market share. Prior to the supply chain reengineering, in
season months, when sales are 50% higher than the annual average sales, there used to be
tremendous follow up from Sales and chaos in operations.
However, after implementing the process changes, during the season months there was
negligible follow up and operations were smooth. Further there was substantial reduction in
inventories and increase in service levels. Overall demand fulfilment lead times end to end
(from Dealer Reqt to Supply to Dealer) was reduced from 51 days earlier to around 22
days, a majority part of it being the physical transportation time (from suppliers to Plants
and from plants to dealers) reduction of which has limitations.

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Conclusion
Indian automobile and auto components industry is on a roll and there is an immense scope
for management for enhancing the supply chain of the sector. India has become a
favourable destination for foreign companies to establish their facilities and form alliances
with domestic companies. Low cost of manufacturing and conducive government support
have been the major drivers for foreign companies investing in India.
According to Planning Commission of India, Indian automobile industry is expected to grow
at CAGR of 15% over the next five years. The Indian economy is now gaining momentum in
the world of free trade and liberal movements of goods and services between countries.
Therefore, efficiency in supply will be critical for Indias automobile success. With increased
globalization and increased competition and demand uncertainty most automobile
companies face the challenge of making their supply chains more nimble, responsive,
reliable and cost-efficient for taking advantage of the ever reducing windows of
opportunities.
Companies need to continuously assess the power of their supply chains honestly and
critically vis--vis their competitors and make changes to make them more and more
effective. And to know when it is time to sharpen the saw, there needs to be in place an
effective set of metrics and a system for measuring the supply chains performance on those
metrics.

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