Supply chain management in Asian

Paints

Deep Aggarwal 402 Radha Mehta 428 Bhavya Mittal 432 Nishant Sharda 443 Rishikesh Jathar 451 Arpit Garg 458Akshit Amla 464

Introduction

• Started in 1942 by four entrepreneurs:

Champaklal choksey, Chimanlal choksey, Suryakant Dani and Arvind Vakil as

“ASIAN OIL & PAINTS COMPANY.”

• Within three years, their turnover reached 3.5 lacs.

• Started with a strategy “Going to where Consumer is”.

• In 1967, Asian paints became the 10th largest paint company in the world.

Asian Paints- Today

International Operations• Caribbean

Islands

• Barbados,

Jamaica,

Trinidad &

Tobago.

• South Pacific

• Fiji, Tonga,

• Vanuatu,

Solomon &

Samoa Islands.

• South Asia

• Bangladesh, Nepal & Sri

Lanka.

• South East Asia

• China, Malaysi

a, • Singapo

re & Thailan

d.

• Middle East

• Bahrain,

Egypt,• Oman

&• United

Arab Emirat

es.

Paint Industry

Paint industry estimated at Rs. 135bn.

Unorganized sector accounts to 35% of paint market.

Volume growth estimated at 15%.

India’s share in the world paint market is 0.6%.

Per capita consumption of paint in India is 1.2kg/annum.

Product Categories

Supply chain of Asian Paints

Headquarters in Mumbai 4 Factories 18 Processing Centres 350 raw material and intermediate goods suppliers 140 Packing Material Vendors 6 Regional Distribution Centre 72 depots are integrated

Elements of Supply Chain• 3000 SKU’S

• RAW MATER

IALS• PACKAGING

MATERIAL

• KEY SUCCESS FACTORS• FLEXIBLE

OPERATIONS

• LOWER OUTPUT

TIME• LOW DELIVERY

COST

• 4 PLANT

S• 6 RDC• 35

JOB WORK CENTRES

• 77 DEPO

TS• 15000 DEALER

S

• 500 INDUSTR

IAL CONSUM

ERS

Raw material Requirements

• Paint Industry is raw material intensive with RW being 70% of production costs.

• 300 types of raw materials used in manufacturing process

• The most critical ones are • Titanium Dioxide (TiO2) 30 %• Phthalic Anhydride (PAN) 20 %• Pentaerythritol (PENTA) 15 %

Backward Integration• Asian Pain produces PAN and PET

• (35 % of production costs)

• Competitors are importing these parts till now

• Benefits :Backward integrations

– immunizes Asian Paints to the fluctuation in the prices– Material is transferred at low cost to Asian Paints– equips the company with the ability to meet sudden surges in demand– 1/3rd production is sold to other companies. This gives strategic edge

to Asian paints.

Outbound Logistics – Distribution Network

• Four manufacturing facilities are supported by Six Regional Distribution Centers (RDC) and Seventy-seven depots.

• Each RDC and depot is taken by Asian Paints on lease and then further assigned to a C&F Agent.

• Distributing the Asian Paints products to the 14,500 dealers all over the country.

• There are 4 depots of Asian Paints in Mumbai and 73 outside Mumbai.

ANKLESHWAR

PLANT

KASNA

PLANT

PATANCHERU

PLANTBHANDUP

Secunderabad based location

Delhi based location

Bangalore based location

Chennaibased

location

Ahmedabadbased

location

Kolkatabased

location

77DEPOT

CENTRES

ASIAN PAINTS

HEADQUARTERS

MUMBAI

Distribution Network

Movement of paints and hazardous goods including raw materials have a series of safety checks to be adhered to, starting with a material safety data sheet.

All materials transport from factories to the depots is insured through a blanket insurance policy, which fixes a minimum liability for loss, damage, pilferage or leakage upwards of Rs. 10,000.

Certain Issues

FAST MOVING GOOD SLOW MOVING GOODS

Factory (4)

Depots (77)

Dealers (14500)

Factory (4)

Regional Distribution Center (6)

Depots (77)

Dealers (14500)

Distribution Channel

Projected profitability of the proposed location The standing of the dealer in the local market The past records of the dealer (banking and

trading history) The presence of other dealers in the vicinity and

the projected impact on their volumes The competition scenario at the location The distance of the proposed location from the

nearest factory etc.

Conditions

• AP bypassed the bulk buyer segment and went to individual consumers of paints.

• AP went slow on urban areas and concentrated on semi-urban and rural areas.

• AP went retail.• AP went in for an open-door dealer policy.• AP voted for nationwide marketing / distribution

Distribution Strategy

• Going to Individual Consumers Implied Wide Product Range and Complex Distribution

• Smaller Packs proliferated the product depth further

• Wide Product range Implied Expensive distribution

• Going retail Implied Deep Involvement in Channel Management

• National Marketing necessitated nationwide organization

Implications of Distribution Strategy

Inventory Management

Facts:• Lowest inventory cost in industry• Avg inventory level of 28 days sales against

industry avg of 51 days• Translates into 45 % lower inventory costs• Stock of finished goods is only 7% of net sales

half the industry average

Inventory Management

Asian Paints allowed• 15-21 days credit for dealers in major towns• 22-30 days credit dealers in upcountry regions

Incentive schemes to reduce inventory

• A special discount of 3.5 per cent - discount for perfection in payments.

It was passed on at the end of the year, provided each and every payment throughout the year was made within the stipulated time norms.

• A cash discount of 5 per cent. This was paid for all outright cash purchases.

It was given whenever payments were received within 24 hours of the supply/invoice. In respect of outstation accounts, the payments have been

made in advance by draft in order to be eligible for the cash discount

Supply Chain Re-engineering

OBJECTIVE:

• To deliver products efficiently to customers without holding large amount of inventory

• To manage cash cycle to free up funding for aggressive growth by acquisition strategy

Existing Processes

Forecasting

•The demand pattern was difficult to predict even with the support of historical data/trends as consumer preferences were changing fast

•Relied on home grown solutions for planning and implementation

Procuremen

t

•Raw materials comprise 60% of the value chain which require accurate forecasts

•Constant updation of BOM and Routing called for frequent changes in the procurement planning process

Manufacturi

ng

•Manufactured all the shades (30-50 depending on a product line) in all the packs (five to eight packs)

Distribution

•Had to maintain inventory levels for all 3000 SKUs

•Customer choice limited to number of SKUs

Enabling IT across the Supply Chain of Decorative

Paints• Distribution

– Paint dispensing machines• Altered the production pattern from shades to producing

bases• Reduced inventory and Eliminated redundancy of stocks• Approx. 11000 color tinting machines including multiple machines

across some counters• Has helped expand the range of shades for each product category,

offering a choice of shades to consumers in the hundreds. • For the retailers it has eliminated the sales loss for want of

range/desired shade

– i2 distribution planner used to develop distribution schedules based on constraints

Manufacturing Strategy changed to manufacturing bases thus providing

economies of scale

Using i2 Master planner to deicide which plant to manufacture what product depending on Capacity constraints Environmental constraints Key raw materials

Helps optimize the process such that least inventory is produced to maintain the expectations of service and safety stock

Better planning reduces the number of rush orders

Factory Scheduler used for machine by machine and unit by unit planning of production schedules

Improved processes

Procurement

i2’s factory planner used to identify the raw material and packing materials and who to source it from

Also provides the ideal formulations required for manufacturing products

A better materials planning system allows the company to create more complex paint formulas

Helps select the best vendor and manufacturing method for any given situation

Improved processes

Results of Re engineering

Reduced Finished Inventory cycle from 56 days to 30 days

Business is currently 4 times of that before BPR

Increase in the number of shades from 50 to 1300

Achieved an 87-90 percent service levels for SKU sales at the location level

Built a competitive advantage in terms of inventory management

Procurement

Distribution

Manufacturing

• Debt to Equity ratio reduced to 0.5 thus making Asian Paints an almost debt free company

• Provided Asian Paints to aggressive expand in the domestic and foreign markets through acquisitions

Effect on profitability

Thank You