revamping the supply chain.

1. REVAMPING THE SUPPLY CHAIN :
THE ASHOK LEYLAND WAY
BY:
AMARESH NAYAK (18BSP2873)
ARJUNE KARAN (18BSP2917)
KARANDEEP SINGH (18BSP3026)
LAXMI NARAYAN (18BSP3062)

2. INTRODUCTION
 V Ramachandran, deputy general manager, Corporate Buying Cell,
Ashok Leyland (AL), the Chennai based manufacturer of medium and
heavy commercial vehicles was looking for suppliers of some specific
tyres in global market.
 AL used to do reverse auction to reduce its material cost.
 In 1997-98 as manufacturing industry was under recession , there was
severe downturn of freight volumes which led to reduction in profits and
helplessly allowed inventories to build up.
year Sale ( crores) Profit (crores)
1996-97 2482.5 124.9
1997-98 2014.3 18.4

3. ‘TOGETHER WE CAN’- BEAT THE RECESSION
 Re-gearing the systems.
 Brain-storming sessions on cost cutting.
 Tiering its vendor network
 Just In Time ordering system
 Joint improvement programmes with key vendors.
 Corporate materials department and Materials management department.
 Maximise bought-out parts, believed in global sourcing.
 Vendors were considered as partners.

4. REVAMPING THE SUPPLY CHAIN
 AL realised that cost cutting would work only if the supply chain was
smooth.
 AL launched Project OSCARS (Optimising Supply Chain and
Rationalising Sourcing).
 OSCARS identified two methods to reduce costs in inbound supply
chain: reduce material costs and through optimum inventory levels
reduce the inventory carrying costs.

5. SINGLE WINDOW SYSTEM
 The Strategic Sourcing and Corporate Quality Engineering (CQE) teams
jointly formed the single window vendor management agency, bringing
with them specialised commercial and technical knowledge.
 Within the centrally negotiated price and share of business, unit material
functions interacted with the approved panel of vendors to "pull"
materials in line with their production plans.
 For the suppliers, this had created a convenient single-point contact with
AL, for sharing drawings, for negotiating prices and long-term business
volumes, and for assistance and consultancy on quality to management
issues.

6. SUPPLIER TIERING
 AL reduced its panel of direct suppliers through tiering and system
buying.
 Under tiering, it directly dealt with tier-1 suppliers who were supported
by tier-2 and tier-3 suppliers.
 Strategic sourcing aimed at reducing costs for supplier so that the gains
were real, painless and sustainable.
 Tear down studies and value engineering analysed the composition of a
part to reduce costs through substitution, reduction or elimination of
materials without affecting quality and performance.

7. J-I-T APPROACH
 AL focused on JIT approach for high value high volume items and low
cost logistics for low value high volume items.
 Project OSCARS changed the push system to pull system (Rs8.5 crores)
 It classified the main components used by the company along with their
suppliers into category ‘A’ ( 75% of total cost of components),
‘B’(18%), ‘C’(7%).
 AL used to send a JIT card, specifying the part number, quantity and
unloading location to the supplier.
 To reward the vendors, AL looked to give a minimum business of Rs 1
crore to each supplier and provided technological inputs for
troubleshooting on suppliers’ shop floors.

8. OSCARS II
 To revamp the out-bound supply chain.
 Two objectives:
 Improving customer satisfaction and reducing finished goods inventories.
 Reaching improved service levels with optimum pipeline inventory levels
(reducing delivery time).
 Based on customer survey and a study of benchmarks three major parameters
for service level targets were withdrawn:
 Order to delivery time
 Reliability of deliveries
 Availability of order status information

9. TOTAL QUALITY MANAGEMENT
 In 1999, the Hosur plant in Karnataka came out with a new TQM
process.

10.  To understand the customer needs AL adopted 4P programme:
 Probe
 Prioritise
 Plan
 Position
 The cross functional teams worked towards continuous improvement in
products and marketing.
 AL also built a ‘marketing information system’ (MIS) to monitor the
trends and forecast demand from the inputs of dealers and field
executives.

11. THE COMEBACK
 In 1999-2000, AL recorded a net profit of Rs.1.9 crore on sales of
Rs.1092.8 crore, against a Rs.36.7 crore loss for the corresponding
period in 1998-99.
 Raw material costs were down 1-2% and inventories reduced by Rs.300
crore.
 AL sold 37,859 heavy commercial vehicles, 27% more than previous
year.
 AL’s total income Rs.2,611.41 crore was 25% higher than previous year.
 AL’s operating profit was Rs.55 crore, Rs.77 crore more than RS.12
crore operating loss it had made in previous year.

12. QUESTIONS
 Ashok Leyland with an aim to reduce costs improved the in-bound
supply chain through several important strategic revamping measures.
Explain.
 “The revamp of the out-bound supply chain had the twin objectives of
customer satisfaction and reducing finished goods inventories”. Discuss
how AL re-engineered its out-bound supply chain.
 Discuss in brief the quantitative benefits in regard to various measures
of supply chain revamping exercise for AL.

13. THANK YOU !