CEAT- Redesigning Supply Chain System

CEAT top management, together with McKinsey, undertook a complete redesigning of their supply chain. It was advised first to make use of IT in CEAT for reducing costs and increasing utilization of assets. Second, supply chain management (SCM) should come out of the marketing shadow and take its place as a strategic change initiator and an independent function. The key factors responsible for this change were:

Placing logistics division and the link between manufacturing and marketing; Continuous flow of information for reducing delays and ensuring 100 per cent reliability; Availability of right product and the right place at the right time and quantity; Implementation of SCM down the line for providing effective services; Understanding the markets and customers (3000 dealers, Original Equipment Manufactures

(OEMs) and exports); Detailed planning of the distribution system from multiple factories and warehouses; Identifying factors for correction through stringent measurement tools.

CEAT designed a measurement system (for dealers and depots) according to which if 100 units were sold in a month, the minimum stock to be held would be 4 units a day. If, at any time in any of the selling locations, the stock falls below 4 units a day, it would be captured as a sale lost. To begin with, the organization had a 22 per cent ‘sales lost’ percentage due to stock outs. The present aim is to reach 5 per cent of ‘sales lost’. Days of finished goods inventory, originally at 52 days are being brought down to a desired level of 25 days.

In each of the cases, a very simple measurement tool- CLIP (committed line item production)- was introduced. A monitoring system also has the advantage of making the transporter more accountable, particularly at the time of negotiating a yearly contract. All information regarding transporter’s performance is shared with him at CEAT.

The other initiatives included putting up of a; ‘pull’ system, production planning based on sales requirements from the selling locations, inventory norms based on demand variations, transit time and load frequency, developing an IT system to record and send sales information Stock Keeping Unit-wise (SKU) daily to the Carrying and Forwarding Agents (CFA), District Distribution Centers (DDC), and Factory. Replenishment of daily-based transit time monitoring system was also put in place. Thus, the revived logistics supply chain system was created to provide ready information to enable the dealers to know when they would get the stocks.

As a result finished goods inventory reduced from 52 to 25 days, sales lost opportunity reduced from 22 to 5 per cent, factory compliance reduced to <24 per cent from >75 per cent, dispatch time reduced from (up to) seven days to <24 hours, transit delay reduced from 75 to 5 per cent and sales skew reduced from 75 per cent (week 4) to 42 per cent (week 4).

The final learning were, use technology for speed in information processing and dissemination, make your operations flexible and reliable, channel your resources for maximum leverage serve the end user,

attack the inventories as Non Performing Assets (NPAs) and apply tactical solutions to changing situations.

REVIEW QUESTIONS

1. What measures were initiated by the CEAT to overcome the supply chain problems?2. Why logistics was the major focus for redesigning the CEAT supply chain?3. How CEAT’s logistics programs differed for serving different market segments?

NOTE:

Inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods