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, 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 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.
APO (Advanced Planner & Optimizer).
The APO has various modules for different aspects of the supply chain like Demand Planning, Supply Network Planning, Production Planning and
detailed scheduling etc. 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 was a very effective tool that cut down the planning cycle time drastically and
took the sweat out of planning.
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 Ideally M & M should be producing and supplying only those goods which were being demanded by customers. This is what led them to look at the implementation of the Pull- Production system.
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 M & M distribution planning system by finding area/model-wise gaps between actual
stock and Norm and plan dispatches accordingly. Since handling this volume of data and rules manually on daily basis was quite time consuming and managing daily replenishments were becoming a problem, M & M 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:
Instead of making a fixed production plan for the whole month, M & M made a production plan for just 3 days fixed which would enable them to respond to market demand changes at least every 3 days (bi-weekly).
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 supply’s acceptance and payments etc. ,whereas M & M could see their advance shipping notifications for materials in transit (ASNs), and analyze their spends and supplier performances.
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.
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
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.
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.