paper scm re engineering at mahindra

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The 2007 BPC World Conference Proceedings

© Business Process Council

Satish Moorjani, Vice President- SCM

Supply Chain Process Re-engineering at Mahindra & Mahindra (Farm Equipment Sector)

Synopsis

The supply chain processes at Mahindra & Mahindra Ltd’s Farm equipment sector

were re-engineered and transformed at the grass root level to enable an IT-enabled

pull-based supply chain. This transformation, spearheaded by the author, involved a

series of changes covering the organization structure, alignments, performance

measurement systems and Business process changes like pull-based production and

replenishment system (based on actual demand pull instead of being Forecast-based),

Kanban. 3PL/Milkruns, transportation innovation and IT initiatives like the

implementation of SAP’s APO, SRM, e-tracking etc. These initiatives resulted in

substantial reduction in inventories, improvement in service levels, and reduction of

SCM costs apart from substantial increase in the satisfaction of customers, suppliers

and employees, despite increased challenges due to production and capacity

constraints due to doubling of Sales in the last few years.

Key words: satish moorjani, Mahindra, Supply chain, Bristlecone, APO, SAP, SRM,

Kanban, 3PL

Mahindra & Mahindra Ltd is a part of

the Indian USD 4 billion “Mahindra”

group. The Farm Equipment Sector of

M&M is a leading manufacturer of

agricultural tractors (4th Largest in the

world). Its manufacturing facilities are

located in India (4 Plants), China, USA

and Australia.

Need for SCM Re-engineering Around the turn of the century when

the global giants like John Deere, Ford

New Holland etc started making

inroads in the Indian Market, it was

realized that we cannot take our

supremacy in the Indian market for

granted. Global giants with deep

pockets, superior technology and

features changed customer

expectations and standards. We

responded by ramping up our New

Product Development, investing

heavily in Marketing and sales

promotion, and maintaining higher

inventories for a larger variety of

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The 2007 BPC World Conference Proceedings, 30 Nov – 01 Dec 2007


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 our

investments and costs which adversely

affected our 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 our customers. That was the

beginning of our SCM journey.

SCM, as it existed earlier Marketing Dept gave monthly sales

forecasts to Manufacturing Dept which

produced as per forecast and made the

tractors available to Marketing ex-

plant 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 re-engineering done

earlier, the organization was re-

organized 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 SAP-R/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 e-mail 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 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

(company’s plus Dealer’s) was around

100 days. Accounts receivables were

very high and doubtful debts were on

the increase.

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Focus on SCM

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,

and 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 dept’s 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.

Readiness for Process changes An assessment was made on our

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 we were not

ready to make the transition as yet.

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Changing culture of Push-Sales We had accumulated huge stocks in

the pipeline especially with our dealers

as a result of “Push Sales” in the past.

Unless these stocks were brought down

to reasonable levels, we realized there

would be no ‘Pull” demand. 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 company’s 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.

FG-stocks Visibility (IT-connectivity)

To be able to replenish stocks norms at

our stockyards, we required on-line

visibility of stocks. Although we had

implemented SAP ERP in all our

plants, all our sales offices were not

yet connected, which was a pre-

requisite. That was done in parallel

when we were reducing our pipeline

stocks. We could then see our stocks at

our 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 we had shortages.

If we were to implement a 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 we could

achieve the level of responsiveness

from supplier without increasing costs.

Introduction of 3PL/Milkruns

As a first step towards the solution for

the above we 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. We also

decided to outsource the logistics

operations to third party logistics

service providers who could handle the

operations more efficiently than we

could.

To implement this system for inbound

logistics, we first identified our

supplier clusters and decided on a hub

for each cluster. Then for each cluster

we appointed a 3PL who had the

requisite strengths for handling that

cluster and route. An operating process

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was made for the 3PL and agreement

entered into with them for adhering to

the process and achieving specified

KPIs.

3PL Implementation Challenges The first challenge was to identify

suitable 3PL companies. At the time

we 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. We

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

our market demand had dropped due to

overall industry slowdown and we

were under pressure to keep costs

down. So the only option was to

upgrade some our existing transporters

to 3PL operators through training and

facilities up gradation. It was a slower

process but kept our 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 de-

consolidated 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.

Challenge posed by increasing logistics costs

Diesel prices were increasing at a fast

rate which directly impacted our

logistics cost. Further, our company

had introduced a new, higher HP

model, which was much longer than

the existing models. We used to

dispatch our 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 our outbound freight costs

immensely. Considering the market

downturn and increased competition,

we could not pass on the freight

increase to our customers, which put

tremendous pressure on our margins.

Therefore we had to find a solution

whereby we could control our

transportation costs without affecting

our transportation efficiencies.

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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

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, we had to

think out of the box. As a result we

came up with a new process of loading

the tractors in two layers instead of

one. (Please see pictures below of

‘Before’ and ‘After’ the process

change)

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 we

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. We saved 4%

octroi on the parts which were not

fitted before dispatch and therefore not

brought into the plant. (Unfortunately

we had to discontinue this practice

after the Govt. announced Excise duty

eemption on tractors, but refused to

exempt tractors dispatched without

wheels from payment of excise duty )

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

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Mumbai plant, the supply chain

became far more complex and there

was a need for an IT-enabled SCM

tool.

We 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, we

implemented APO and configured it

for our operations

Twice a month we 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 we could ill afford. In our

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 wasn’t the best way for us to respond

to demand. Ideally we should be

producing and supplying only those

goods which were being demanded by

customers. This is what led us to look

at the implementation of the Pull-

Production 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 make what is

required by the market and a system of

pulling from suppliers, materials

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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 pull-based 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.

Road map for Pull-system Implementation Considering the degree of challenge

for changing the processes of internal

and external entities across the supply

chain, we decided to address the

changes in a phased manner.

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 our distribution

planning system by finding

area/model-wise gaps between actual

stock and Norm and plan dispatches

accordingly. However since we 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, we 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 we 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 per pull requirement

was an issue obviously, as mentioned

before. So the next step was to change

our production planning system.

Instead of making a fixed production

plan for the whole month, we had to

make a production plan for just 3 days

fixed which would enable us to

respond to market demand changes at

least every 3 days (bi-weekly). So the

system adopted was that on every

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Tuesday and Friday, we 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, we

had to ensure that we 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

Kanban’s impact on stock levels

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 us.

Suppliers felt that the system would

benefit only us and not them since the

uncertainness of our requirements

would increase their inventories, lower

their asset utilization and hike costs .

Therefore, to address their concerns,

we embarked on a communication

drive whereby we held “Supplier

Kanban Meets” with suppliers in each

supplier cluster and explained the

process and how it would benefit them

too. We addressed their fears by

agreeing to systems that were fair and

square. Subsequently we signed up

agreements which specified each side’s

role and responsibility to make the

system work smoothly. We also

offered our 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, we

implemented the SRM module of

SAP. On the SRM supplier website

Kanban

Implementation

After Kanban

Implementation

Before Kanban

implementation.

Spline shaft Bearing - Timken

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suppliers could see their supply

schedules, status of their supply’s

acceptance and payments etc. ,

whereas we could see their advance

shipping notifications for materials in

transit (ASNs), and analyze our

spends and supplier performances.

e-Tracking of transportation Vehicles

In a lean environment production

planning is often done considering

materials which are in transit.

Therefore it becomes necessary to

track the transport vehicles to know

whether the materials would be

received as assumed for the planning.

In case a vehicle is not able to make it

on time, then it should be known in

advance so that it is possible to make

necessary changes in the production

schedules to avoid loss of production

capacity.

We therefore implemented e-tracking

for vehicles used for carrying critical

materials .

A GSM based tracking system was

implemented whereby we could get

tracking information via the internet.

We could not only trace the location of

the vehicle but also get information on

its past trajectory and data on it’s entry

time, exit time and idle time for each

city traversed. This information was

analyzed to find reasons for delays and

actions were taken to reduce transit

times .It also made the drivers aware

that they were being watched which

itself reduced un-necessary

delays/stopovers and improved transit

time performance.

Shown below are the snapshots of the

e-track screens displaying the

trajectory and the data table.

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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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 in enabled through

websites interfacing with SAP ERP

system.

Results

The company’s 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 re-

engineering, 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 fulfillment 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.

Conclusions

With increased globalization and

increased competition and demand

uncertainty most 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-à-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 Chain’s

performance on those metrics.

About the author

The author is Satish Moorjani, Vice –

President (SCM). He is a B.Tech from

I.I.T, Delhi with a PGDM from I .I.M

,Calcutta , with 30 years of rich

experience in a variety of industries

and functions like Automotive, FMCG,

Industrial, International Trading, and

Projects, etc

As the Head/VP of the Supply Chain

function of M&M (farm equipment

sector), he spearheaded their SCM

journey which included initiatives like

Change management, Business

Processes re-engineering, alignment of

performance metrics across the supply

chain etc. Lean Initiatives

implemented by him include “Pull

Production”, “Supplier Kanban”,”3PL”

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and an innovative solution to reduce

logistics cost. His IT initiatives

included implementation of APO,

SRM, e-Tracking of vehicles etc.

Incidentally, he was the first to

implement APO in their industry

world-wide, and his success story was

posted by SAP on their website for

over three years. Coming from a

Deming company which has recently

won the JQM (Japan Quality Medal)

award, he is fairly well exposed to

TQM practices.

Notable amongst his earlier

achievements in other fields are – the

turnaround of “Kinetic Honda Motor

Ltd’, due to an innovative marketing

strategy (which included creation of 2

Guinness records) as their head of

Marketing. He was also responsible for

launch of “Baskin-Robbins “ice cream

manufacturing and distribution in

India.

He also has considerable international

exposure and has traveled across 35

countries and has worked overseas on

two occasions for a total period of 4

years. Recently he attended a one

month course in “Global Leadership”

at the “Carnegie Mellon University” in

Pittsburg, USA

The work done by him in SCM has

been quoted in a few books on SCM.

He is also a frequent speaker at SCM

forums and seminars.

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paper scm re engineering at mahindra

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