SUPPLY CHAIN INITIATIVES @

ASHOK LEYLAND

Anand Sethuraman 12012,

Ankit Srivastava 12014,
Avik Das 12018,
Bharat Bhusan Patariya12130,
Sumit Kumar Acharya 12108
 Flow of the
Presentation
Ashok Leyland : Company Profile
What was the Problem with Ashok
Leyland?
Planning the Way out
Basic Principles of Project OSCARS
Supply Chain Finance Development
Program at Ashok Leyland
SCM Implementation : Advantage
Ashok Leyland
Conclusion

Ashok Leyland :
Company Prolile
 One of the largest
automobile and auto
component manufacturing
companies in India.
 Part of Hinduja Group.
 Total Revenue US$ 1.4 billion
(2008-09)
 Financials for the year end
December 2010 :
 Sales figures over Rs
7,289.18 crores.
 Net profit over Rs. 333.07
crores



 Product Portfolio
Buses.
Trucks.
Engines.
Defense & Special Vehicles.
 Sells products in more than 40 countries.
 Sells about 60,000 vehicles & 7,000 engines per annum.
 2nd largest in India in the medium and heavy commercial
vehicle (M&HCV) segment with a market share of 28%
(2008–09).
 Market leader in the bus segment.
 In Trucks segment Ashok Leyland primarily concentrates on
16-25 Ton range. However Ashok Leyland has presence in
the entire truck range ie 7.5-49 tons.
 Joint venture with Nissan Motors, Japan would improve its
presence in the Light Commercial Vehicle (LCV) segment
(<7.5 tons).
 What was the
Problem with Ashok
Leyland?
Changing Automotive
Industry Environment
 SCM plays a crucial role for
today’s automobile
companies
The fierce global competition is driving automobile
companies towards greater product differentiation
using cutting edge R&D, innovative sales and
marketing approaches and increasing focus on
boosting efficiencies in manufacturing and supply
chain.

In the age of e-business and global outsourcing, supply
chain management (SCM) plays a crucial role in many
of these areas.


SCM is a best-in-class, high-performance solution which

can be utilized by the world's leading automobile
manufacturer, logistics and distribution companies,
and retailers to blend the demand chain with the
supply chain.
 3 Areas that SCM helps
you to focus on…
 Supply chain management flow is divided into:
ü Product flow
ü Information flow
ü Finance flow


 The product flow is movement of goods from supplier to

customers and also in case of any customer returns or has
service requirements.
 The information flow covers updating the status of the
delivery as well as sharing information between suppliers
and manufacturers.
 The finance flow encompasses credit terms, payment
schedules and consignment and title ownership
arrangements.

 The presentation focuses on how Ashok Leyland implemented and
integrated these practices so as to improve the overall cost
PRE IMPLEMENTATION :
ASHOK LEYLAND SUPPLY
CHAIN

Vendor Pro d u ct D e a le r
M n g t. Life cycl M n g t.
syste m e M n g t. syste m
 PRE IMPLEMENTATION :
1997-98 THE PROBLEM
YEAR
 For Ashok Leyland’s material
cost accounted for nearly
70% of its product cost.


 In 1997-98, AL, recorded a

profit-after-tax (PAT) of Rs.
18.4 cr. on sales of Rs.
2,014.3 cr.

 A look at the previous financial
year's PAT showed that the
profits for 1997-98 had gone
for a severe beating.

 In 1996-97 AL had a PAT of Rs.
124.9 cr. on sales of Rs. 2,
482.5 cr.
 What was going wrong?
With the manufacturing Industry reeling under recession,
the freight generating sectors (manufacturing, mining
and quarrying) saw a steep decline resulting in a
severe downturn of freight volumes.


For Ashok Leyland, whose business was directly

dependent on moving material, goods and people
across distances, this had come as a severe blow.


Ashok Leyland's supply chain had gone haywire under

the recession which had eaten away 17.62% of its
revenues in one year forcing the company to helplessly
allow inventories to build up.


The results were showing on working capital. It had

climbed from 33.34% of sales in 1993-94 to 58.81% of
sales in 1997-98.
 The solution lied in
implementing SCM
initiatives
 Ashok Leyland was facing the huge task of
integrating its entire supply chain and at the
same time it had to reduce its costs, inventory
and improve customer satisfaction.


 Rising raw material cost was a serious concern for

the company. This was mainly triggered by a
steep rise in steel and copper prices.


 Therefore, Ashok Leyland decided to streamline its

supply chain process and the company started its
SCM project ‘OSCARS’ to optimise its supply chain
and rationalise its sources.

 Rationale behind the
Initiative


Hence the main objective was to improve its

supply chain process & make it a cost
effective one i.e., create an Efficient Supply
Chain model such that it could manage to
create a Zone of Strategic Fit to cater to its
supply chain’s low to moderate Implied
Demand Uncertainty.
PLANNING THE WAY
OUT
 'Together We Can' - Beat the
Recession
Ashok Leyland did not seem to succumb to the
'uncertainty gloom' that was playing havoc to its
business environment. It decided to meet the
challenge by re-gearing its systems, be it material
order, procurement, material handling, inventory
control or production. 


 Ashok Leyland conducted exhaustive

brainstorming sessions inviting ideas on cost
cutting.
 Quality Circle teams were formed for this purpose.
 Ashok Leyland took every employee's ideas into
account and figured out a way to keep things
going and reduce production without inflicting
pain.
 The recession saw Ashok Leyland waging a war on
 Basic Principles
of Project OSCARS
 OSCARS I : In-bound
Supply Chain Initiative
 Supplier Partnership
 1. Supplier partnership covers
 engineering and technical support,
 global availability of spares,
 testing capability,
 improved field performance,
 system supplier,
 JIT supplier and
 world class technology.


 2. Partnership gains also include vendor consolidation, continuous

technological up gradation of products without in house investment,
shorter development lead-time, value engineering and cost reduction,
improved field performance, inventory field performance, inventory
efficiency through JIT suppliers and human power rationalisation.


 3. Supplier partnership is also needed to enable processes such as cross

docking an effective way to keep costs low. But implementation issues are
large. A huge percentage of suppliers still used email as their primary
means of order related communication, with telephone and fax coming as
other means of communication. Cross docking requires Advance Shipment
Notifications (ASNs) and barcoded shipping labels.
 Vendor Base
Rationalisation
 Gains from vendor base
T h e fig u re sh o w s h o w A sh o k
reduction includes pricing on
Le yla n d th ro u g h its p ro je ct
volumes, improvement in
“ Oscar Inbound ” went about
quality and reliability, vendor
ra tio n a lisin g its ve n d o r b a se .
continuous improvement
Status 96-97 97-98 98-99 99-00 00-01
programme, tieringfor ease of
fitment- volume buying and Vendor 1017 950 738 612 400
Base
reduction in paper work. ISO/QS 245 281 364 382 400
 certified
Self 210 240 260 290 350
 Vendor base rationalization & certified
cluster formation resulted in vendors
5S adherence-mistake
proofing, process
improvements finally leading
to self certification.
 Supplier Tiering
Ashok Leyland pruned its panel of Direct suppliers
through tiering and system buying.


Under this Ashok Leyland dealt directly with tier one

suppliers who, in turn, were supported by tier two and
tier three suppliers.

 Vendor tierisation program helped in achieving economies of
scale, system buying & creating rationalization of supplier
base.

The benefits of system buying could be illustrated with
the example of the tools kits that accompanied every
vehicle.
Tear down studies and value engineering analyzed the
constitution and composition of a part to prune cost
 Tiering Process leads to
Vendor- Consolidation
Till 1998, Ashok Leyland used to source the 62
components that went into its front-end
structure of its trucks and buses, from 16
suppliers.

But in 2000, one tier-I vendor sourced the
products from the other vendors and supplied
the assembly to the company.


This saved cost and time & helped the vendor

network to become well coordinated with
Ashok Leyland's own manufacturing
operations.
 Just In time (JIT)

 Ashok Leyland focused on

approximate JIT approach for high
value/low volume items and low
cost logistics for low value high
volume items.


 Project OSCARS brought about a few

fundamental changes. The push
system which means let us make
all we can just in case we need.
This system gave way to pull
system which means “make what
the customer needs, when he
needs it”.

 Kanban pull from satellite
warehouses.


 Each stage produced only as much as
 Year wise JIT & LCL
Improvement in Shipment
Status 96 - 97 97 - 98 98 - 99 00 - 01 02-03
JIT % 69 72 74 77 82
of
LCLPO% 5 5 6 7 9
Value
of PO%
MRP 26 23 20 16 9
Value
of PO
Value
Logistics Initiative

C o m p a n y S a vin g 1 . 2 5 cr. p e r a n n u m
 Total Cost Management
Total cost management included various cost
management initiatives, such as –
daily management process,
control,
design,
technology and
capacity.

Total savings was 3% of total operating cost.

 Outsourcing
Stores outsourcing covered activities outsourced to
4PL (with integrated 3PL) service providers and
the services are :
 issue accounting, receipt accounting
 documentation,
 reverse logistics for pallets.
 binning & debinning,
 perpetual inventory.


All these services helped to save labour hours

corresponding to 42 man days.
 E-Sourcing
E-sourcing included global benchmarking gain
through
bidding,
identification of cost competitive sources,
introducing best sourcing practices,
increasing efficiencies and minimising costs,
improving bottom line of the value chain.

All these activities have saved 11.5% of total
material cost.

 Reverse Auction
Process
 A unique process used to
reduce material costs.


 Implemented by Mr. V
Ramachandran, DGM,
Corporate Buying Cell, Ashok
Leyland, Chennai office.


 First used for specific tyres for

Heavy Duty trucks.


 Saving Ashok Leyland Rs

14,700 per set of special
tyres.


 Using this technique, Ashok

Leyland saved nearly 70% of
its product cost.
Single Window System
 The Strategic Sourcing and
Corporate Quality
Engineering (CQE) teams
jointly formed the single
window system bringing
with them specialized
commercial and technical
knowledge.


 For the suppliers this had

created a convenient
single-point contact with
Ashok Leyland,
 for sharing drawings,
 for negotiating prices
S u p p lie r
 long -term business
volumes &
OSCARS II : Out-bound
Supply Chain Initiative
Delivering the Customer
Promise
 Expectation 1:
 Delivery in 5 days from
the date of payment for
regular models.
 For multi-axle vehicles
the promised period was 2-4
weeks.


 Expectation 2:
 Age of the vehicle when
delivered would be
maximum of 90 days.

 Tight pipeline inventory
norms were set for
different models and
markets and were met
through a new 3 tier
Plant sales yards acted as national pools to
hold rare models and excess of regional
requirements. The next tier was made up of
the 5 regional stock pools, which ensured
just-in-time supplies to all regional sales
offices.

 Forecasting
To understand customer needs and assimilate the
knowledge, Ashok Leyland adopted ‘4P’ Programme.
 Probe,
 Prioritize,
 Plan
 Position.


This worked in tandem with manufacturing as part of

cross-functional team (CFT). The CFTs worked towards
continuous improvement in product enhancement and
marketing.


Ashok Leyland built a ‘Marketing Information System’

(MIS) to monitor the trends and forecast demand from
the input dealers and field executives.



S u p p ly C h a in F in a n ce
D e v e lo p m e n t
P ro g ra m a t A sh o k
L e y la n d : L u b rica tin g
th e S u p p ly C h a in
w ith L iq u id ity
 Ashok Leyland’s Supply
Chain Finance
 Ashok Leyland general practice : Own dealership for Spares
and Original Equipment Vehicles.

 It follows Just In Time Process, where in Ashok Leyland does
not hold any inventory.


 Its suppliers held the Raw Material inventory and end dealers
held Finished Goods stock, thereby reducing their
profitability and financial health.


 But to improve the value chain of Ashok Leyland there needs

to be an overall improvement of the whole value chain of
Ashok Leyland.


 So Ashok Leyland provides bank credit to dealers and

suppliers to manage their liquidity and financial condition.
 Chain Liquidity
Management

§O ve ra llA L ’ s S u p p ly C h a in is n o w p ro p e rly lu b rica te d w ith C a sh a n d

h e n ce a h e a lth y o n e .
§M a n a g e m e n t o f S u p p ly C h a in fro m a h o listic vie w to m a n a g e S u p p ly
C h a in C o sts, Liq u id ity & im p ro ve R O I
 SCM
Im p le m e n ta tio n :
A d v a n ta g e A sh o k
L e y la n d
Ashok Leyland : Modified
Supply Chain

Ashok Leyland
 The Seven Plus One TQM Method
Source: 'Geared Up', A&M, November 15, 2000.

Rule  Objective  Result

Total Cost Management (TCM) Cut Cost Within a year, operating cost as a percentage
of plant turnover was down by a third.

Value Engineering (VE) Efficient material usage Substantial reduction in the chasis cost.

Cross Functional Teams (CFT) Synergy The very first CFTs resulted in savings of Rs.
18.2 million.
Inventory Management (IM) Better housekeeping Probably the best IM today in the Industry that
has resulted in a lot of saving.

Suggestion Scheme Involve everyone The quick handling of suggestion has resulted
in continuous, suggestions to cut cost and
improve quality.

Shop Investment Programme Monitor and Utilize Fix Operating cost as percent of shop turnover
machines efficiently.

Energy Management Optimize energy loss Overall energy saving. Average power cost
per product reduced by 30.06% without
additional investment.
Plus One Training Training across all levels in the organization.
 And the results followed
In the first half of 1999-2000, AL recorded a net
profit of Rs 1.9 crore on sales of Rs 1,092.8 crore,
against a Rs 36.7 crore loss for the corresponding
period in 1997-98.

In 1999-2000, raw material costs were down 1-2%
and inventories reduced by Rs 300 crore.


Also in 1999-2000, AL sold 37,859 heavy

commercial vehicles (HCVs), 27% more than it
did in 1998-99.

 1999–2000 : The
turnaround year for

Ashok Leyland
Ashok Leyland's total income in 1999-2000, at Rs
2,611.41 cr. was 25% higher than the
corresponding figure for 1997-98.

Its operational profits in 1999-2000 was Rs 55 cr,
Rs.67 cr more than the Rs 12-cr operating loss it
had made in 1997-98.

 Comparative Sales
Performance
 Category 1996 - 97 1999 - 00 % Change
MCV Passenger Production 9723 12226 25.74%
Sales Domestic 10016 11062 10.44%
Sales Exports 748 1131 51.20%

MCV Goods Production 13644 25308 85.49%

Sales Domestic 14204 24312 71.16%
Sales Exports 1320 870 -34.09%

LCV Production 245 510 108.16%

Sales Domestic 468 297 -36.54%
Sales Exports 100 187 87.00%

Total Production 23612 38044 61.12%

Sales Domestic 24688 35671 44.49%
Sales Exports 2168 2188 0.92%
DU PONT Analysis
 ROI Improves
RETURN ON INVESTMENT %
1996 – 97 6.23
1997-98 5 . 18
1998-99 5.82
1999-00 9 . 53
2000-01 10.34
2000-01 11.55

PBIT MARGIN % ASSET TURNOVER FINANCIAL 

LEVERAGE
1996 – 97 6.24 1996 – 97 1.07 1996 – 97 2.17
1997-98 5.75 1997-98 0.9 1997-98 2.14
1998-99 6 1998-99 0.97 1998-99 2
1999-00 7.32 1999-00 1.3 1999-00 1.84
2000-01 7.79 2000-01 1.33 2000-01 1.75
2000-01 8.11 2000-01 1.42 2000-01 1.73
 PBIT Margin Improves
PBIT Margin %
1996 - 97 6.24
1997-98 5 . 75
1998-99 6
1999-00 7 . 32
2000-01 7.79
2000-01 8.11

Gross Margin % Op. Expenses % Depreciation %

1996-97 27.21 1996-97 17.98 1997-19 3.3
1997-98 26 . 1 1997-98 18 . 43 1997-98 3.5
1998-99 26.34 1998-99 18.25 1998-99 3.73
1999-00 26 . 63 1999-00 16 . 59 1999-00 3.17
2000-01 28.54 2000-01 17.73 2000-01 3.39
2000-01 29.31 2000-01 18.21 2000-01 3.62
Ashok Leyland: Share
Price movement

NSE
Ashok Leyland
Conclusion
 Why did it all turn
around for Ashok
Leyland?
This seemed to have been possible due to ;
Øoperational efficiency resulting from strategic
raw material sourcing, with fewer sources
and higher volumes, which cut costs.
Øbetter control over process inputs by
tightening supply chain and inventories.
Øreduced operating expenses through cost
savings on energy, tools, spares and
adoption of preventive maintenance policies.

 But Analysts drive in an
opposite view…
However, analysts felt that the comeback of
Ashok Leyland could be attributed to the
end of the recession.


They cited the example of its main rival,

TELCO, which also registered a 37.5%
growth in sales volumes in 1999-2000.
 Ashok Leyland :
Engineering your
tomorrow….
For Ashok Leyland officials the 'bad years'
between 1997 and 2000 made it pinpoint
its focus on critical issues like cost
reduction, operational improvement, and
market penetration.


As commented, R. Seshasayee, Chairman,

Ashok Leyland,
 “The recession made us hasten the
process of improvement that we had been
working on for some time." 

 References
Ashok Leyland : annualresults0203.pdf
Ashok Leyland : analymeet2002.pdf
IndianAutomotiveSupplyChain.pdf : A Discussion
Paper by KPMG.
Automotive supply chain management in india.pdf :
A discussion paper from ACUA MCG
http://en.wikipedia.org/wiki/Ashok_Leyland
Revamping the Supply Chain: The Ashok Leyland
Way: An Article from
http://www.icmrindia.org/free%20resources/casestudi
http://www.ashokleyland.com/




THANK YOU !