Satish Moorjani, Vice President- SCM

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

Synopsis The supply chain processes at Mahindra & Mahindra Ltds 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 SAPs 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 engineering

SCM

Re-

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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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 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 re-engineering 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 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 (companys plus Dealers) 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.

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 debottleneck 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.

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.

Readiness changes

for

Process

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 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. FG-stocks (IT-connectivity) Visibility

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

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 prerequisite. 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

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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 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. 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 Planning

Supply

Chain

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.

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 rawmaterials and production capacities but it wasnt 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 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 make what is required by the market and a system of pulling from suppliers, materials

Issues with Planning

Forecast-based

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,

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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.

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.

Road map for Implementation

Pull-system Implementation of Production Planning Pull-

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 finished goods

of

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

Although we implemented the process of Pull-based replenishment of tractors, in the absence of Pull-based production system availability of the right modelmix 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 barcoded 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
Spline shaft Bearing - Timken

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 sides 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 Initiatives

of

Supplier

Kanban Implementation

After Kanban Implementation Before Kanban implementation.

Kanbans impact on stock levels

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
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suppliers could see their supply schedules, status of their supplys 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 Vehicles of transportation

Shown below are the snapshots of the e-track screens displaying the trajectory and the data table.

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 its 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. Changes Metrics in Supply Chain

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.

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--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.

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 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.

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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