When you think of a tractor in India, one of the frst names that come to your mind is Escorts. Established in 1960, Escorts Agri Machinery Group is one of the oldest and largest agricultural equipment manufacturing companies in the country. It has revenues of over Rs 2000 crore and has over 6500 employees.

The supply chain of the company includes more than 6000 part-supplier combinations with more than 350 suppliers, 33 sales offces and 800 dealers across the country. During the recession, the biggest of companies were forced to relook at their processes and change them where required to unlock working capital. Escorts was no different.

The challenge
When the company frst decided to go for a full fedged supply chain automation, the company’s system was plagued with ineffciencies. This included a supply chain that was based on assumptions and gut feel, which resulted in huge accumulation of inventories, both on the raw material side as well as the fnished goods side. They were producing the wrong model of tractors at the wrong time with high lead times to market.

A lot of cash was locked in inventories, but for a while no-one seemed to mind. When recession set in, it became essential to unlock this capital to keep the wheels of the business in motion. Things that were a norm were suddenly being looked upon as huge bottlenecks in running the business.

In October 2008, the management at Escorts decided to change the way the company was conducting its business. Along with other strategic reforms, the company decided to automate its supply chain and unlock working capital from inventories.

It was a challenging task. Escorts had a huge supplier network, with many offices across the country and a large workforce that had become habituated to working with long lead times and ineffciencies. “Our biggest challenge was to have 150 territory managers and 800 dealers, spread in 32 offces, reach an agreement between themselves on the forecasts they made,” says Aswin Jaikanth, Head of Sales, Escorts AMG.

“There was no visibility on demand from the market and thus production was not tuned to what was needed. This resulted in raw materials stocks piling up as well as an -increase in the inventory of fnished goods,” says Vipin Kumar, Head IT, Escorts AMG.

“The production was driven by shortage lists, gut feel and manual adjustment,” adds Sheetal Oswal, Head, Materials of the company.

Solution
The frst thing that the management did was to get a buying from all the stake holders and make them a part of the supply chain implementation.

A team of 12 people was formed to ensure that the rollout of this project happened without speed-bumps. This team included top managers from materials, sourcing, production, marketing, sales, technology and operations. They were supported by the team from i2 Technologies, a supply chain software solution provider, which set up the supply chain system for the company.

The company was already using i2 for generating supplier schedules. However, the software was only partially implemented and so users were accessing only some of the features of the application.

The earlier system was based on the assumptions of territory managers and production planners who used their experience to make a fortnightly plan. The formula worked pretty well when the company had a small footprint, but, as the company grew, it was diffcult for a small team to remember each and every detail pertaining to 150 territory managers working with 800 dealers based in 32 offces across the country.

To begin with, the sales and marketing teams decided to create a process whereby they could do the forecasting of tractor sales in a more scientifc manner and in a way that both territory managers and dealers agreed upon. “Mismatch of inventory can cause loss of up to 4-5% of sales if you don’t have the right stock at the right dealership at the right time,” says Jaikanth.

The management decided to go for i2 after evaluating various options and giving consideration to their comfort level with the current implementation in the organisation. But before the system was implemented, the IT team had another monster to tackle – connectivity. “We had to roll out an MPLS backbone based network in 32 area offces and seven regional offces. Training of resources and partners was the other challenge that had to be overcome,” says Kumar.

With the IT system in place and all the stakeholders on the same plane, Escorts AMG started the year-long journey of implementing the supply chain tool. Though there were arguments and differences of opinions, the employee and management buy-in ensured that every argument was constructive. All the business units and technology teams worked together for about a year to implement it. “We started the implementation in October 2008 and completed it by December 2009,” says Kumar.

Benefits
The benefts were immediate. With the implementation of the software, the organisation was able to substantially reduce its stock of raw materials and fnished goods inventories. “The savings from reduced raw material inventory costs alone have been over 500 percent of the total cost of implementation of the i2 project. We are able to forecast production in a much better manner,” says Sangeet Oswal, Head Materials, Escorts AMG. "The planning time has also been reduced by 40 percent," he adds.

"The savings were not on the raw materials side alone. Even more cash was unlocked from the fnished goods inventory, which accounts for a huge amount of working capital in the industry. “We were able to unlock 1000-1200 tractors from our fnished goods inventory while giving better service to our dealers and customers,” says Ashok Anantraman, Head Marketing, Escorts Agri.

With each tractor costing approximately Rs 400,000, the value of the inventory unlocked, achieved over a period of 12-18 months, was about Rs. 400 million. The amount was signifcant considering that many companies at that time were raking in huge losses.

The benefts have not just been monetary. The change in process has led to a reduction of the planning cycle from 15 days to 7 days. There is a lot more sense of discipline in the organisation and the stake holders. From a total absence of forecasting culture, “the system has brought about a culture where 150 territory managers and 800 dealers arrive at a consensus on the sales forecasts,” says Jaikanth. “We now have lower inventory costs, but that doesn't mean we are losing on sales. The customer satisfaction levels have also gone up several notches. The quality of tractors is also better since they are reaching the customer fresh from the oven,” adds Anantraman.

While increasing customer satisfaction, “the system has also helped us increase employee productivity by 6-8%,” adds Shailesh Agarwal, Chief of Operation, Escorts Agri.

Shortcomings
As happens with all big implementations, the solution's performance has been less than satisfactory on a few fronts.

“Forecasting is still being polished and it will take four-five more iterations before it is perfected. Nevertheless, we are certainly getting there. Also, we need to work more to customise the system to ft our needs,” says Jaikanth.

The materials planning staff also have some gripes. “Changes in the design of products calls for changes in the product parts, but this mapping is yet to be factored in the system,” says B.D. Mathur, Head Sourcing.

“The planning for spares is also a bit diffcult, since it has to be done using historic data. We are still not fully prepared to handle spikes in demand,” says Kumar.

The way forward
New modules that would enhance the usage of the system are in the works. “The next step is integrating the suppliers in the system by building a two-way communication with them by using a supplier portal,” says Kumar.

“For any organisation, the customer is the focus. For us, the tractors should be available at the right time, in the right number, with the right model, in the right quality and at the correct location. This implementation is a big step in achieving this goal,” says Agarwal.

—geetaj.channana@9dot9.in