Mahindra & Mahindra’s chief operating officer, Rajesh Jejuriker (pictured right), believes logistics and ‘demand’ chain management have improved the carmaker’s customer satisfaction ratings. Christopher Ludwig speaks to him and head of supply chain, SK Krishnan (pictured left), about M&M’s groundbreaking order-to-delivery system.
Mahindra & Mahindra, India’s largest producer of utility vehicles and pickup trucks, has not only changed the scope of its supply chain management, putting it at the centre of its production and distribution strategy, it has also renamed it.
For Rajesh Jejuriker, chief operating officer of M&M’s automotive division (and tapped to become its chief executive April 1st), logistics is not only essential to lowering cost and keeping production stable, it is also important to maintaining both vehicle quality and customer satisfaction, particularly at the critical opening stages of the consumer’s relationship with a brand. For that reason Jejuriker prefers to call it “demand chain management” to better reflect how M&M is building its production and distribution network around the customer.
“We really want to be able tell a customer when exactly he can expect a vehicle and then align our production around that,” says Jejuriker.
It’s a philosophy that extends across both inbound and outbound logistics, and has formed the backbone of an orderto- delivery system that the company has developed in recent years called E-enabled Demand Chain Management (eDCM). The principal goal of the system is that, if a customer enters a dealership and wants to buy a vehicle that is not immediately in stock, he will be given a specific date for when he can expect it.
The system, as will be explained later, depends upon visibility and coordination over the manufacturing and transport processes, and the ability of M&M to overcome the infrastructure and supply constraints that a developing market such as India faces every day.
More fundamentally, it is centred on a belief that delivery accuracy and quality are essential to the customer experience. In a sense, this thinking goes against the common industry saying that carmakers do not compete with each other on logistics. In many ways, M&M believes that they do.
“Part of demand chain management and eDCM is the subtlety of the wording, but importantly it reflects how the whole supply chain can support us to get to the top of quality surveys such as JD Power,” says Jejuriker.
M&M takes as its cue a JD Power index for customer satisfaction in which about 50% of the score is related to the delivery process, including the ordering experience (35%) and expectations for delivery (15%). Jejuriker reveals that M&M had been ranked poorly by this survey in the recent past.
“We had not done well because we were still evolving from being a rural-facing company to being a more urban-centric one,” he says. “So we set a goal to be among the top three automotive companies in India [on this customer satisfaction survey].”
M&M has now reached 80% adherence to the dates specified in the system. While in the current JD Power survey it ranks fourth, it is only five points away from the top spot in a tight band of carmakers. “We believe that a lot of the work that we’ve done in this area of logistics and the eDCM has enabled us to make this move,” Jejuriker says.
Logistics ranks high in the management chain
The prominence of logistics and supply chain management (which for simplicity’s sake, this magazine will continue to call by its usual name) is plainly evident in the company’s organisational structure, whereby those functions report directly to Jejuriker rather than to manufacturing or purchasing, as is common among other carmakers. Jejuriker himself has more than 20 years experience, and his career with M&M includes a tenure as vice president of marketing as well as the managing director of Mahindra Renault, M&M’s 51:49 joint-venture with the French carmaker.
Along with its individual function in the company’s organisational chart, supply chain management is part of M&M’s Auto Sector Operating Council (ASOC), a crossfunctional team including the heads of manufacturing, sales, material and IT. The ASOC is responsible for delivering the current year’s business performance. Jejuriker is its chairman. On December 1st 2009, M&M also announced that it would reorganise its automotive and farm equipment sectors into three profit centres, with Jejuriker the chief executive of the automotive sector, effective April 1st 2010.
Leading both the supply chain management division and occupying its seat on the ASOC is senior general manager for supply chain and logistics, SK Krishnan, who joined M&M in 2007 following logistics roles at both OEMs and logistics service providers. Since December 2008, his responsibilities have also included outbound logistics, and he leads the eDCM project as well as the logistics strategy team.
The production and supply network
Part of the reason that logistics is so valued at the company is related to the dispersion of M&M’s production locations and supply chain, which is worth outlining. The company has five plants, with three concentrated in the west of India, one in the north and one central.
Kadivli, close to Mumbai on the west coast, is the company’s oldest plant, assembling pickups and also producing engines, transmissions and axles. Nasik, about 185km northeast from Mumbai, assembles SUVs as well as the Mahindra Renault Logan. Igatpuri, also near to Nasik, is a dedicated engine plant.
Zaheerabad, in central India 135km from Hyderabad, builds utility vehicles, three wheelers, light commercial vehicles and buses. Finally, Hardidwar, in the north of the country 250km above New Delhi, builds mostly three wheelers.
M&M is also completing a sixth plant for medium-andheavy- commercial vehicles, SUVs and light transport vehicles in Chakan, near Pune, with joint venture partner Navistar.
Global operations are still in early days, with CKD assembly plants in Egypt and Brazil managed by local partners.
About 60% of M&M’s suppliers are in the western area of India, in the Mumbai-Pune-Nasik region, and located within 100-150km from its assembly plants. There is also a hub of suppliers in the north and in the Chennai region in the southeast. Krishnan adds that while most of the supply base is in India, there is a network of about 25 suppliers spread across south-east Asia and Europe from which parts are imported for high-end models. There is also a higher amount of European content for the Logan, sourced from Renault’s international logistics network. M&M itself imports items such as airbags, electronic control units and sensors. M&M’s second and third tier suppliers also import raw material and sub-components.
As outlined above, M&M builds a large amount of components in-house, including powertrain, transmissions and axles at the Kadivli and Igatpuri plants. “To optimise our manufacturing, we concentrate our axle and transmission production in these two plants and support the other plants with regular transport,” says Krishnan. “That is where logistics and supply-chain performance play a critical role.”
The concentration of suppliers means that M&M has been able to introduce a growing amount of just-in-time delivery of components. Seats are delivered on an hourly basis, for example, while there is also JIT for tyre-and-wheel assembly, body stamped parts, chassis and other major aggregates.
As M&M’s production has become more varied, the number of stock keeping units is around 19,000, while vehicle variations are 800, up to 3,000 when one includes different colours. M&M manages the mix by balancing manufacturing between bespoke vehicles and what it calls runners, which are built in higher stock, based on forecasted colour trends.
M&M’s built-to-order vehicles include four-wheel drive SUVs, among other specific vehicles. “These vehicles are not held in stock by dealers and so it is very important that they know exactly when they can get it,” Jejuriker says.
The complexity of M&M’s supply chain extends to its outbound logistics. The company operates a dual outbound supply system, with some products invoiced and transported directly to dealers, while less specialised and faster moving products are delivered to one of 22 state-level stockyards throughout the country.
For logistics, M&M has outsourced activities to Mahindra Logistics, another member of the larger Mahindra Group conglomerate. But the relationship remains one of customer and service provider, according to Jejuriker, with contracts on specified terms and market rates. Mahindra Logistics is not completely dedicated to M&M and has business with other OEMs in India. It manages all of M&M’s domestic logistics for inbound and outbound with an asset-light business model.
For operations such as kitting, repacking and sub-assembly, M&M’s operations are currently kept in-house.
Connecting dealers and production
As Jejuriker points out, the evolution of the M&M product range is what necessitated the shift to a customer-based orderto- delivery programme. Originally a maker of army vehicles, M&M later evolved to sell Jeeps, light commercial vehicles and agricultural equipment (the farm equipment is part of another division and not under Jejuriker’s responsibility).
More recently, it has aggressively rolled out a range of utility vehicles and pickups, such as the Scorpio and, released earlier in 2009, the Xylo. It also launched the Logan (together with Renault) in 2007, but sales of this vehicle have been below expectations and fallen significantly in 2009.
Models such as the three mentioned tend to be more specialised, with more variation, and are rarely held in dealer stocks to customer specification. They are usually shipped direct to dealer, and it is here that the eDCM is largely in place. The crux of this SAP-driven system is that it links the dealer order to each link of the supply chain and production process. Dealers are given a specified date of arrival as well as full disclosure of stock and transit information.
“The system consolidates the customer order with vehicle numbers and variants, and we then take that order and it gets routed through our sales planning and strategy, which is then linked into our manufacturing process,” says Krishnan.
From there, Krishnan says, M&M maps the constraints in terms of manufacturing capacity of the plants and material constraints from the suppliers. Based on those factors, a manufacturing schedule is generated. Throughout, the eDCM notifies Krishnan’s team as to whether the order is on schedule before that information is then passed onto the dealer. “The system ensures a two-way relationship from the order-todelivery stage,” says Krishnan.
Beyond progress in customer satisfaction surveys, the system has also helped M&M’s supply chain management gain recognition from its peers. In September, M&M won an award based on studies from AC Nielsen, a market research firm, for automotive supply chain excellence among all of the OEMs operating in India. M&M was also recognised by SAP, which provides the IT systems for the eDCM, as the most successful example of the system’s application in India.
Growing demand strains supply chain
Such customer focus has also become essential to a company that is growing at a fast pace. The first seven months of the financial calendar starting in April showed impressive 21% growth, to more than 178,000 units, including 105% growth in November off the low levels of the year before. While M&M’s tiny number of exports remains 28% down, recent months have seen a sharp increase, albeit from very low levels. Market share in the utility market sector in India has increased to more 65%, with the pickup market at more than 83%.
The higher-than-expected results, which have come during India’s quick rebound in the wake of the financial crisis, have necessitated flexibility in M&M’s production and logistics.
“In the early quarter of the year, after deciding that ‘cash is king’ and we should bring down our inventory levels, we suddenly had to ramp up the whole supply chain at a very aggressive pace,” says Jejuriker.
A sign that M&M was able to manage this increase well is that it avoided a large increase in emergency freight spending for inbound logistics in the period. According to Krishnan, premium freight spending has remained well within 2% of the total freight spend, including detention (the amount trucks charge for delays in loading at the plant).
But the question remains as to whether the company has been held back even more by limits of production and logistics capacity. The darker days at the end of 2008 meant few companies looked ahead toward investing, and so there is a notable lack in transport capacity for some stages in the supply chain, particularly outbound trucking and trailers, Krishnan reveals. It has meant the company also needed to pay some “incentives”, in his words, to move vehicles faster.
Others in the supply base have been caught off guard as well, and overall Jejuriker estimates that M&M is at least 15-20% under supplied, which means that communicating any delays in the supply chain to customers via the eDCM is an important part of customer relations today.
Calculating the hidden costs of logistics
The next target for the eDCM includes both increasing schedule adherence to 90%, as well as rolling out the programme to link with supplier production. “We have embarked on integrating the supplier schedule with eDCM, but the full benefit will only come when the supplier’s production is also fully linked to our plant’s production,” says Krishnan. “We expect by next year to integrate this fully.”
But the system faces a number of challenges in achieving these goals aside from the capacity constraints caused by the market’s growth. Among the biggest is India’s infrastructure, which is poor not only for road and rail, but also lacks sufficient warehousing and cross-docks. Such logistics facilities would be especially necessary to consolidate parts on a quick, rolling basis if M&M is successful in better linking the supply base to its manufacturing.
There also remain bureaucratic and regulatory challenges. “Some states in India have a very anachronistic system of road permits, which you have to provide before you can send goods there,” says Jejuriker. “Sometimes you cannot make an outbound dispatch because of a lack of the permit.”
While problems such as infrastructure and the above will be persistent in India for some time, M&M is currently tackling the problems by improving its IT systems and tracking its logistics provider’s performance.
“What we are trying to do is map our supplier base and then do an analysis of the specific inbound problems,” says Jejuriker. “We are attempting to calculate trade offs between the amount of inventory that we hold versus the probability of supply problems.”
Jejuriker and Krishnan are also looking more carefully at ways to better measure logistics cost and risk. While the company calculates total costs through its IT functions, Jejuriker admits that the company currently has better visibility at the plant level than it does across its wider network. The goal, he says, is to make logistics a directly attributable cost to a specific vehicle. While for outbound this is fairly straightforward – costs can be seen per vehicle moved – for inbound it is more difficult because of the amount of material and transport shared across different models.
“We are trying to evolve cost management to a better level of finesse,” says Jejuriker. “For example, we want to be able to determine the implication for freight costs of turnaround time for loading a truck.
“There are many hidden costs in logistics and we want to understand them more carefully and then share them with the transporters,” he adds.
According to Krishnan, this level of analysis is going to be used to help transporters improve service as well. M&M is studying ways to balance its supply and production better across its plants in different locations in India to create a more balanced network of regional production.
“In this way we can ensure that a logistics provider’s return load is guaranteed, and it will make it more interesting for the LSP to provide a dedicated vehicle for our services,” he says.
Taking such an approach to logistics cost and trade lanes is certain to benefit M&M, particularly in the long run, as the company and its competitors build more cars in India. And by targeting better customer satisfaction with its logistics, and concentrating responsibility right at the top of management with Jejuriker, M&M should be able to call supply chain management whatever it likes.
