Supply Chain Process Reengineering

Supply Chain Process ReengineeringAt Mahindra & Mahindra Farm Equipment Sector

Team Members

About the authorHe is a supply chain professional working with M&M from May 2000Mr. Moorjani initiated the SCM journey for FES which includes projects like BPR, Supplier Kanban, 3PL, APO SRM implementation etc.He was the first to implement APO in the FE industry worldwide.

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Satish Moorjani VP-SCM M&M FES (2007)

Introduction

Mahindra Group Rich HistoryM&M started in 1945 as a steel trading company.It is a US $16.2 billion multinational group with more than 155,000 employees inover 100 countries across the globe. Working in about 18 industries with 110 subsidairies1

FES of M&M started in the early1960s The FES of M&M is a leading manufacturer of agriculture tractors4th largest tractor manufacturer in the world(2007)Its manufacturing facilities are located in 4 countries across the globeIndia ChinaUSA Australia2M&M Farm Equipment Sector (FES)

AbstractThis case unfolds the transformation of M&M FES Supply Chain processes from the bottom to enable IT based Pull system.This transformation involved major changes in Organization structure, alignment, Performance management, business process and replenishment system. These initiatives resulted in substantial Reduction of inventory Improvement in CSL Reduction of SCM costs

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Why M&M needed ReengineeringAs the foreign competitors entered the Indian markets, the bar to customer satisfaction raised. Competitors had superior technology and enhanced features which changed customer Expectations.This threatened the supremacy of M&M FES in Indian market. M&M responded by making new products, heavily invested in Marketing and Sales Promotions, Maintained high Inventory.This adversely affected the profitability of the Company

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SCM as it existed(Forecast based)5

Major PitfallsMRP was not efficient and had to be corrected before communicated to suppliersSuppliers would pile up orders to save on their transportation costs.Transit time was high and tracking was non existent.At outbound front damages and shortages were high and stockyards were not equipped to handle major damages.Sales worked on push system.Sales to Dealers were on credit. Due to which A/R and Doubtful Debts were on hike.Total Pipeline stock was around 100 days.

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Existing Model7

Future Model8

Organization AlignmentFromMy DepartmentTo Our Customer9

Change ManagementBefore implementing the change, each part should be ready to accept the change. This philosophy was used by M&M FES.All stakeholders were informed about the change proposal.A plan was made to implement the changeThis implementation involved changes in Performance Management, MOPsPlanning Process Execution ProcessMIS & Communication SystemChange program was owned by respective departments10

Readiness to Change ProcessChanging from Make to stock to Make to Order was required in Production and Supply.Moving from Push Sales to Pull Demand was not easy, and cannot be attained readily.Substantial Stock reduction was required.Also the stock yards required IT connectivity for the visibility of stocks.Backend Responsiveness was the key in this regard.Bulk dispatches by suppliers was a norm. Pull system required supply when required in small quantities frequently.Timelines were not considered ; if truck load was not maximum, frequent deliveries were resisted by suppliers.A win-win solution was required for both supplier and the focal firm.

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3rd Party LogisticsTo create win-win solution 3PL was found to be the right way.For implementing this system at backend; Suppliers clusters were identified and a hub was created for each cluster.For each cluster 3PL were required, capable of handing the route & cluster.3PL at the time was a foreign concept, only one company was found, which did not meet expectationsFES then upgraded their prior transporters and helped them to become 3PL companies.

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Hike in Logistic CostsThe pull system increased the logistics costs but increased transparency and control.Fuel Costs were on a hike which directly impacted logistics cost.Frontend Logistics experienced a cost hike after the introduction of Higher HP model.Only 2 tractors could be transported as apposed to 5 of the previous models.This increased logistic cost and had a major impact on Profit margins as the added costs could not be charged to the customer due to price wars.This required an innovative solution to deal with this condition.13

Measures to control Logistics CostAfter doing every measure to cut freight costs, no other way was found to control cost other then increasing the number of tractors transported/truck.Innovative solution was the only choiceAs a result a process was constructed by which two layers of tractors were mounted on a truck.By applying this on selected routes, transportation cost reduced by 25% to 40%.To achieve two layer loading, tires and other protruding parts were removed This process was withdrawn due to Govt. Excise Duty Exemption but on full tractors transported.14

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Supply Chain PlanningAs number of Plants increased; Supply chain became more complex & there was a need for an IT enabled SCM tool.SAP SCM tool called APO(Advance Planner & Optimizer) was implemented with the help of a SCM consulting firm Bristlecone.APO planned every aspect of the SC from Demand Planning to production Scheduling.The planning cycle time reduced from 7 days to 1 day.16

Pull System Implementation-HurdlesPull system requires stock norms, which could absorb the fluctuations in supply and demand.Visibility of stocks is the requirement in Pull system across the SC.Fixed Planed period previously was 15 days which should be decreased drastically FES planned a phased implementation of the Pull system inside out.

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Pull based Planning Replenishment of FG :Replenishing daily mix requirements was time consuming and creating problemsTherefore an APO deployment tool was implemented for distribution planning This cut the planning time from 6 hours to 1 hour daily.Production Planning :Production Plan was fixed for a month previously this condition cannot be run in case of Pull system. For this reason production Plan was changed bi-weekly to coop up with ever changing demand.Procurement :To ensure actual production as per plan, raw material availability was crucial, for this purpose Supplier Kanban system was implementedKanban triggers were sent electronically to the suppliers website directly

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Considerable Resistance from supplier was noted, in implementation of Kanban.Several initiatives were taken to resolve suppliers concerns.One initiative was implementation of SRM module of SAP.This helped suppliers to gauge their supply schedules, acceptance and Payments.Also helped FES for viewing their ASNs and analyzing their expenditure and Supplier Performance.E-tracking for vehicles was used to predict/decrease transit time, and be aware of any delays before time.19Supplier Relationship Management

Results20

Conclusion21