SAP Customer Success Story

Mahindra & Mahindra

Limited (M&M) imple-
MAHINDRA &
mented mySAP Supply
TM MAHINDRA LIMITED
Chain Management to MAHINDRA & MAHINDRA USES mySAP™ SCM TO
REDUCE INVENTORY BY 30% AND REPLENISHMENT
link all its plants and to LEAD TIMES TO 19 DAYS
help decide which plant
Mahindra & Mahindra Limited (M&M) is an $800 million com-
should make what, when,
pany, employing some 12,000 people. It is the flagship of the
and for which global Mahindra Group, one of the top-ranking private sector compa-
market. The solution nies in India.
enables a pull-based re-
plenishment system that M&M's farm equipment division, which is one of two main
operating divisions, produced approximately 80,000 tractors
optimizes logistics and
in the year 2000. The division's launch of high-performance
manufacturing opera- tractors played a vital role in the mechanization of Indian agri-
tions – which helps M&M culture, directly impacting the lives of some 6 million Indian
improve margins and farmers. It is also the third largest producer of tractors in the
world (measured by units sold) and it exports to the United
reduce costs while
States, where it has an assembly plant, and to several other
enabling it to respond
countries in South Asia and Africa. M&M also plans to enter
quickly to customer several European countries in the near future.
needs. The company ex-
pects to reduce inventory The company has been the market leader in farm equipment
machinery in the highly competitive Indian market since 1986.
by 30% and bring replen-
Just as M&M wants to compete for more global business, inter-
ishment lead times down national competitors want a piece of the Indian business as well.
to 19 days.
“When the Indian market opened in the mid-1990s, the global
players came to India to compete against us,” says Satish
Moorjani, head of supply chain planning at the tractor division.
“We felt that, to really compete and win, we needed to build up
our skills and benchmark our processes against these global
leaders, becoming better than them at managing the business.
That way we would not only compete with them effectively in
the domestic market, but could also challenge them for market
share globally.”
M&M implemented mySAPTM Supply Chain Management
(mySAPTM SCM) to first build on and then improve its business
processes. The SCM project began in 2000.
“Strategically, we had decided to set up assembly/manufacturing
operations at multiple locations. We expected this would
increase the complexity of our supply chain and operations,”
Moorjani says. “We needed a solution that could link all our
plants to provide an integrated view and help us decide which
plant should make what, when, and for which market in order
to optimize total costs and operational efficiency and respond
quickly to customer needs.”
COST REDUCTION – A HIGH PRIORITY
For M&M, cost reduction was crucial. “In this very competitive
market, we have to develop new products, and new variants on
existing products, to compete with world-class offerings,”
Moorjani says. “This entails costs for product development and
promotional incentives. We have to spend more money and at
the same time not increase prices, because of the competition.”
That's where mySAP SCM came in. “The only way to keep our
margins healthy was to reduce costs by minimizing the cost of
production, logistics, working capital [mainly inventory], and
the cost of lost sales,” Moorjani says. “mySAP SCM enables a
pull-based replenishment system that optimizes logistics and
manufacturing operations to improve margins and reduce costs
while enabling quick response to customer needs.”
M&M articulated clear objectives for this global competitiveness
initiative enabled by mySAP SCM: reduce inventories across the
supply chain by aligning the company's business processes for
IT-enabled supply chain management and ensure availability of
tractors as per sales requirement – right model, right place, right
time – at minimum cost.
“Last year, we reduced supply chain inventory by more than 50%.
In the current year, we expect to reduce inventory by another
30%,” Moorjani says. “Replenishment lead times, which include
planning and execution lead times, were around 52 days before
the SCM project began. These times have been reduced consid-
erably, and we expect to reduce them to 19 days or lower with
the full mySAP SCM implementation.”
M&M's gains are not only quantitative. “Strategically, mySAP
SCM enables us to handle more complexity,” Moorjani says.
“The SAP solution allows us to offer more configurations to our
customers, extending our range of product selection for even
stronger global market positioning.”
ONE VENDOR – HIGH LEVEL OF INTEGRATION
M&M had evaluated a stand-alone supply chain solution before
selecting mySAP SCM. “We already had SAP® R/3® as our
foundation and decided it would not be a good long-term
decision to select another vendor's system,” Moorjani says.
“First of all, the stand-alone solution and interfacing would be
more expensive. We also felt that bringing in another vendor
would complicate accountability. We chose SAP because we
wanted an integrated solution and needed to depend on one
vendor.”
During the rollout, M&M took advantage of SAP implementa-
tion tools, which the company credits in part for the project’s
success.
“We used the AcceleratedSAPTM [ASAPTM] methodology,” says
Ashok Pai, project manager for the supply chain project and a
consultant at Mahindra Consulting Limited, M&M's sister com-
pany and the national implementation partner of SAP in India.
“Other success factors included having the right core team and
project sponsor. Our core team was excellent. The team mem-
bers had good business-process knowledge and understood fore-
casting, operations research, and optimization.”
SIGNIFICANT DIVIDENDS THROUGH BUSINESS
PROCESS REENGINEERING
That core team expertise was especially crucial during the
business change project that preceded the implementation.
“We felt our investment would have more value if our business
processes were aligned to a pull-based replenishment system,”
Moorjani says. “This included the rollout of a kanban system
within the factory and the use of third-party logistics service
providers for replenishment of raw material inventories. The
goal was to enable pull-based replenishment of raw materials
from vendors to plants and pull-based replenishment of tractors
from our central plants to our 22 area stockyards. Another goal
was a pull-based replenishment policy for sales to dealers from
our stockyards.”
The business process reengineering effort had a strong Web
component, in anticipation of the mySAP SCM implementation
to follow.
“We established private Web sites for our 400 dealers to collect
sales information and for our 800 suppliers to post mySAP SCM
planning information and material requirements planning
(MRP) schedules,” Moorjani says.
These business process changes alone paid significant dividends.
“We began with dealer stock of 12,000 tractors and company
stock of 7,000 units,” Moorjani says. “The change in business
processes and move to pull-based replenishment allowed us to
reduce dealer stock to 6,000 and company stock to 3,500.”
This makes the anticipated, additional inventory reductions
of 30% even more impressive. “With the mySAP SCM full
implementation, it will be possible to further reduce dealer
inventory from 6,000 to 4,000 tractors and company stock from
3,500 to 2,000 units, while maintaining excellent customer
delivery response times,” Moorjani says.
PULL-BASED SUPPLY CHAIN
M&M followed the business process reengineering with an
implementation of mySAP SCM functionality for demand
planning, supply network planning, and production planning
and detailed scheduling. The implementation went live at
company sites during 2001 and 2002.
Once mySAP SCM demand planning capabilities are fully imple-
mented, tractor dealers will be able to update their own private
Web sites with order information; this information would be
transmitted to M&M headquarters and the nearest regional
branch office. The branch would then replenish the dealer stock
when inventory has been consumed and forward the transaction
to M&M.
“The mySAP SCM deployment function suggests what we need
to dispatch from our central stockyard – near our plants in
Bombay and Nagpur – to the various branch locations: which
model, what quantity, and to which area stockyards,” Moorjani
says. “mySAP SCM initiates backwards planning and schedules
production and sequencing to replenish the pipeline. It also
generates a pull list to replenish raw material stocks.”
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M&M's area offices can update the demand plan on a weekly AT A GLANCE
basis. mySAP SCM can take into account regional demand varia- Software: mySAP Supply Chain Management
tion, using its optimizer capabilities to decide which plants will (SAP Advanced Planner and
®

Optimizer [SAP APO] with function-

®

make what and synchronizing the procurement schedules. ality for demand planning, supply
M&M runs supply planning capability based on the changing network planning, and production
planning and detailed scheduling)
demand pattern, with results transmitted to MRP and posted to
the private vendor Web sites. Hardware platform: Two Compaq servers

Operating system: Windows NT

“This way our suppliers can keep up-to-date on likely plant con-
Database: Oracle
sumption,” Moorjani says. “Vendors don't supply based on this
information – the rolling plan only alerts them to what they Number of users: 38
should be prepared for. All material flow from the suppliers is
pull based, triggered by actual consumption at the plant end.”

FULL VISIBILITY INTO SUPPLY CHAIN METRICS

M&M plans to measure crucial metrics as this supply chain oper-
ates. For example, the company will measure production sched-
ule adherence across daily and weekly buckets; inventory at each
node of the supply chain – measured weekly and expressed in
days of expected consumption; pull efficiency – what has actual-
ly been supplied against what was required to be supplied, as per
demand from the central stockyard to the area stockyards, from
the plants to the central stockyard, and from the suppliers to
each plant; and cost per tractor.
“M&M also plans to improve production schedule adherence by
making production plans based on actual material in transit,”
Moorjani says. “We need to know what material is in transit
from the various vendors to our plants and when it is expected
to arrive. We are experimenting with mounting global position-
ing systems [GPS] on the trucks that carry our raw material/
components and interfacing them with mySAP SCM. This way
we can plan our production schedule based on actual material in
transit, rather than on a vendor commitment that may or may
not be fulfilled.”
M&M also wants to enhance its suppliers' Web site. Currently,
information only flows from the company to the supplier in the
form of MRP-derived schedules. In the next phase beginning in
late 2002, information will flow back from the suppliers to
M&M. Every time a supplier makes a dispatch, the information
will be entered onto the Web site and used by mySAP SCM to
confirm the schedule and generate documents in advance of
truck arrival at the gate.
“mySAP SCM is very, very important to Mahindra & Mahindra,”
Moorjani says. “It is normally not possible to handle such a vast
complexity of sourcing, manufacturing, and rapid response to
customer orders across an increasing variety of products.
mySAP SCM is a must. It is an essential solution for us in order
to optimize costs, improve market response times, and enhance
competitiveness.”

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