Padmini Motors Ltd – A Lean Supply Chain Through the ‘Just-In-Time’ System

After the liberalization of the Indian economy in 1991, the auto sector was one of the first few industries to face stiff competition from the foreign MNCs, who sought a foothold on Indian soil to tap the fast-growing market. The auto manufacturers lost their government protection umbrella and had no other alternative but to remain competitive by developing cost-based or differential- based competitive strategies. Within the short span of five to six years, the market was flooded with world-class passenger car models and multi-utility vehicles produced in India by the world auto giants such as Ford, Mercedes, Hyundai, Toyota, and others.

1. Company Profile

Padmini Motors Ltd. (PML) was among the old Indian veterans having started manufacturing auto vehicles way back in the 1950s. Its first plant in Mumbai started manufacturing a sturdy vehicle— the jeep—in a single model, to suit the poor road conditions prevailing at that time. Padmini had a virtual monopoly in the jeep market, commanding 85 per cent market share till 1991. After the liberalization the scene changed. It became a buyer’s market rather than a seller’s, which was the situation prevailing prior to 1991. One world-class manufacturer and one old Indian player en­tered the Indian market with a number of multi-utility vehicle models, giving more choices to the Indian customers. In the globalized, privatized and liberalized (GPL) economic environment, Pad- mini lost its monopoly and its share was reduced to 55 per cent. The other two players shared the balance market equally. In the changed competitive environment Padmini observed the following:

• Heightened customer expectations
• Faster new product introduction
• Shortening of product life cycle
• Intense competition for market share

To remain competitive and arrest the declining market share, Padmini adopted both cost- based and differentiation-based marketing strategies. However, for the cost-based strategy Padmini decided to focus on its supply chain to take cost out so as to make the supply chain leaner.

Padmini is currently manufacturing around 60,000 multi-utility vehicles per annum. The prod­uct range covers 150 models. The firm has three main assembly plants, of which two are located in Maharashtra and one in Uttar Pradesh. The assembly plants are supported by four sub-assembly plants exclusively dedicated to engines (two), axle and transmission gears. The firm has a vendor base of over 900 suppliers for 7000 parts. The vendors are located in and around Mumbai, Delhi and Vapi. Padmini is marketing its products through 20 area offices, which control a network of 160 Padmini dealers spread across the country.

Padmini employs a local workforce of about 2000 skilled personnel, intensively trained in their areas of specialization. The company endorses equal opportunities and encourages women’s par­ticipation in the organization’s growth. The company has exports contributing to 10 per cent of its sales turnover. The Padmini products are well accepted by the local and international buyers because of their world-class quality and the backup after-sales service offered by the company to its clients.

2. Paradigm Shift

The company has gained a reputation over the years for its consistent efforts in providing qual­ity products to its clients in a variety of models to suit their requirements. The real efforts started after the liberalization, when the company got the first jolt by way of substantial reduction in its market share in subsequent years. To counter the competition and remain differentiated, the com­pany focused on its supply chain. It adopted the concepts ofJIT based on the “Toyota Production System.”

Traditionally, the company was planning its production on the forecasts based on the customer demand trends observed in the past. The prevailing practices were:

• Monthly requirements of sales based on forecast
• Monthly production plan based on requirements of sales
• Production plan translated into schedules
• Vendor schedules based on production plan
• Frequent changes in production plan due to demand variance
• Corresponding changes in vendor schedules

3. Create Demand Pull

The push system, which was based on forecast, proved wrong due to change in the customer’s taste, demand patterns and competition. The production planned on the basis of forecasts was either inadequate or in excess of the actual demand. This resulted into excessive inventory to meet the desired level of customer service. The products thus manufactured were pushed through the dealer network to sell. To get over this problem the company decided to adopt the principle of “sell one, make one” and go in for the pull system so as to let production be demand-driven rather than forecast-driven. They integrated their distribution, manufacturing and procurement operations by using the latest IT tools and connectivity equipments based on the latest technologies. The firm now had all the supply chain participants connected online with each other, with proper information­sharing security policy. The current practices under the newly introduced pull system are:

• Replenishment action to start from dealers
• Dealers’ sales will be replenished by the Regional Sales Office
• Sales from Regional Sales Office will be replenished with fresh production

The firm had reviewed its product range and regrouped its products into two categories as under:

1. Models (33) contributing to 88 per cent of the company’s sales
2. Models (117) contributing to 12 per cent of the company’s sales.

It was further decided that only FMG would be carried in the buffer stocks, while SMG models will be strictly manufactured against the firm orders. The buffer quantity for replenishment was worked out, considering the following:

• Forecasted average retail sales
• Lead time variable factor (considering logistics slip-ups)
• Demand variable factor (seasonal, short-term and regional pattern)

Thus getting daily orders from the dealers for FMG and SMG models created the demand-pull. With the buffer maintained at the depots, the dealer’s requirements for FMG models were fulfilled within 48 hours from regional offices. The weekly orders (firm) from regional offices were sent to plants on both FMG and SMG models for replenishment.

4. Planning and Scheduling

To support the field requirements, Padmini stressed on the planning and scheduling of the manu­facturing activities. The firms adopted a system of preparing the rolling quarterly sales forecast­ed for planning its manufacturing capacity and resources, and preparing its monthly production plans. The firm makes a clear distinction between the manufacturing planning and scheduling. The planning was for capacity booking and organizing resources, while the scheduling was for resources allocation and actual physical production of the product on the shop floor. From the traditional practice of monthly production schedule, Padmini had shifted to weekly production schedules to meet the replenishment at regional sales offices. The weekly schedules were further refined by the daily replenishment requirement from the regional sales offices, which were further getting the replenishment requirement from the dealers on a daily basis.

5. Flexible Manufacturing

To support the pull system, Padmini had further adopted and implemented the concept of “let demand drive the production” with the objectives of:

• 100 per cent order fulfilment
• Reduction in order-to-delivery time
• Minimum pipeline inventory

To attain these objectives the company had identified four key thrust areas:

1. Manufacturing flexibility
2. Synchronous production of aggregate
3. Increase in the frequency of ordering
4. Speed, frequency and automation of the information processing system

The company invested heavily in the latest IT tools such as EPR and installed SAP for supply chain coordination on a real-time basis. It had gone in for manufacturing flexibility by regrouping its critical assemblies/components into two categories:

1. Stocks
2. Make-to-order

For all the above assemblies and components the delivery lead time was planned every 24 hours. However, the buffers were maintained for FMG assemblies and components, and for SMG it was decided to manufacture the same against actual orders. The firm went in for daily order processing for faster fulfilment of orders as against the weekly order processing earlier. The kanban system was introduced for speedy replenishment at the assembly line from the sub-assembly and components stores.

6. Material System

To support flexible manufacturing, the demand-pull was further extended to vendors. A material system was devised to ensure the availability of all the materials to meet the scheduled production of the sub-assemblies and vehicles with simultaneous reduction in acquisition costs. Padmini used the latest tool for inventory planning and kanban for material scheduling. Over 90 per cent of the material was put on the kanban replenishment system for speed, accuracy and reliability.

Padmini has a wide base of 900 vendors spread across the country. To ensure reliable and speedy deliveries, the entire inbound logistics activities were outsourced to a 3PL firm for trans­portation and storage at various points. The firm divided its vendors into seven zones for its plants. The 3PL firm was responsible for the daily milk run (in each zone) to collect the material as per the schedule, to either send it to the plant warehouse in case of full truckload or keep it at the hub warehouse in the zone until more material arrived to complete a truckload for dispatch to plants.

The limit for stock level at the hub was always one day and daily shipments were planned from the hub to plants with a limitation on transit time (five days, from Delhi to Nashik or other plants) to meet the JIT requirements at the plant.

7. Achievements

As a result of the supply chain initiative, Padmini achieved its strategic objective of cost leadership. The firm’s products are price competitive in the market and command comfortable margins as compared to the competitors. The inventory-related cost is reduced to more than half compared to the cost four years back. The average finished goods inventory level has come down to 5350 in 2002 from 12,500 in 1999. For the differentiation-based objective the firm has a very wide product range of 150 models for the customers to choose from, which is supported by a network of coun­trywide service centres for the after-sales service. With the enhanced service-level backup, the cus­tomer satisfaction level is much above than that of the nearest competitor who commands a market share only half of Padmini. Although the market share of Padmini did not grow, the SCM initiative helped the company to improve its profit margins and customer service.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.