Redesigning Supply Chain on the Technology Platform
Indian tyre industry is at a crossroads due to the various challenges it is facing after the liberalization of the Indian economy in 1991. It is a technology-driven industry and very much dependent on rubber as the major raw material input to the final product. Firms that have their rubber plantations have a better control on costs and deliveries. There are big players in automotive tyre with technology backup from the world giants. The major players are CEAT, MRF, Apollo, Bridgestone and JK. The industry is highly competitive. Today, brands like CEAT, JK, MRF and RP are very strong in OEM markets. However, Apollo captured the replacement market in the commercial vehicle-segment. On the technology front everyone is trying to bring in radial tyres to Indian markets, as they are being readily accepted by customers due to their advantages.
After the liberalization of the economy, the approach to tyre pricing was driven by market forces instead of the cost-plus-profit formula earlier used by the manufacturers. Due to cutthroat competition organizations were forced to offer a competitive price irrespective of the product cost, which, however, needs to be controlled through some internal mechanism. To remain competitive tyre manufacturing firms started relooking at their business process and costs associated with production and distribution of the product. The major reason was the high cost of operations due to system inefficiencies, higher inventory levels and low productivity of assets. They started looking for ways to improve their efficiencies, effectiveness and productivity in order to sustain growth.
RP was a considerably younger player in tyre manufacturing but had its inefficiencies spilled over from the pre-liberalization era, when the businesses were under government controls, manufacturing capacities were limited due licensing process and manufacturers had government protection. RP being a relatively new company had state-of-the-art manufacturing facilities and very little problem on the manufacturing front. The area of inefficiency was logistics on the distribution side. They felt that the need of the hour is speed in reaching the customer with efficiency and cost-effectiveness. RP decided to go in for a system based on the latest information and communication technologies to enhance coordination across the supply chain so as to reduce cost and increase asset utilization.
RP had taken a strategic decision in the mid-1990s to be a cost-based and customer seihce based differentiator for remaining competitive in the automotive tyre market. They undertook a complete redesign of the existing supply chain and made the coordination of the various activities and linkages of the business process and independent functions. The company decided to go in for the SCM initiative through the change process to work on the open culture. Through SCM they further decided to integrate the procurement, manufacturing and distribution activities of RP using the latest information and communication technology tools for bringing speed in information and inventory flow. As a result of aggressive SCM strategies, the company could boast the achievements mentioned in Table1.
Table 1 SCM initiative achievements
On account of the SCM initiative RP dealers are now assured of supplies per their requirements. 'The inventory level in the distribution channel has drastically reduced to 15/18 days as against 45/50 days earlier. The assets and funds blocked in inventory are now reduced to half. The job for the sales personnel in the field has become easier. Their efforts are now focused more on sales generation than chasing goods at the factory or depots, resulting in a reduction in time spent on non-value-added activities. RP, which was earlier more worried about the customer service level in the competitive environment, now talks about the enhanced customer...