Critical analysis of Supply chain and improvements
Feroze Ahmed (415) Samir Sethi (419) Harsh Mehta (431) Vibhav Upadhyay (453) Yogeshwar Kumar (456) Vishal Arora (461) Hitesh Thapar (464)
Agenda
Introduction to Asian Paints Paints Industry Elements of supply chain
Manufacturing Distribution Research and Development Forward/Backward Integration
Improvements
Re-engineering supply chain
IT in supply chain
SCM ERP CRM
Improvements
2
BRAND LEADERSHIP MODEL:ASIAN PAINTS
a) 1942-1967: Evolution Phase
b) 1967-1982: Extension and Consolidation Phase
OVERVIEW: ASIAN PAINTS
India's largest paint company One of the top ten decorative coatings companies in the world. Started by four entrepreneurs, Champaklal Choksey, Chimanlal Choksi, Suryakant Dani and Arvind Vakil Turnover: INR 0.35 million(1945) to 54.3 million(2009)
c) 1982-1986:The years of Excellence
d) 1987-1997:Moving Closer to the Consumer e) 1997-1999: Changing rules of the game f) 1999- 2007: The new Asian Paints
PM Murthy( MD & CEO)
Asian Paints Today
Indias largest paint company for nearly four decades Operates in 21 countries with 29 paint mfg. facilities with capacity of 420 mn. Lts/annum Asias third largest paint company and leader in 11 countries
International Operations
Caribbean Islands
Middle East
Barbados, Jamaica, Trinidad & Tobago.
Bahrain, Egypt, Oman & United Arab Emirates.
South Pacific
South East Asia
Fiji, Tonga, Vanuatu, Solomon & Samoa Islands.
South Asia Bangladesh, Nepal & Sri Lanka.
China, Malaysia, Singapore & Thailand.
Paint Industry
Paint industry estimated at Rs. 135bn Unorganized sector accounts to 35% of paint market Volume growth estimated at 15% Indias share in the world paint market is 0.6% Per capita consumption of paint in India is 1.2kg/annum
6
Industry Analysis: Porters 5 force Model
Substitutes
1.White cement 2.White wash 3. Brick & stone Structure
BUYERS 1. Decorative: Fragmented Market. LOW POWER 2. Industrial: Low switching costs. Corporate have HIGH POWER
Existing Rivals
1. Berger 2. GN 3. ICI
4. JNPL
Suppliers
1.Tio2 Imported, 2.Few suppliers, 3.Availability of Substitutes of RM Low HIGH BARGAINING POWER
Threat Of New Entrant
1.Growth rate much higher than global so global player may be interested 2. Huge potential to increase per capita consumption. Thus Latent need exists. 3. Companies can erode into APILs industrial market by forming JVs.
7
Product Categories
Analysis of Supply Chain
Elements of Supply chain
3000 SKUS
KEY SUCCESS FACTORS
FLEXIBLE OPERATIONS
4 PLANTS
6 RDC 35 JOB WORK CENTRES 77 DEPOTS
RAW MATERIALS
LOWER OUTPUT TIME
LOW DELIVERY COST
PACKAGING MATERIAL
15000 DEALERS
500 INDUSTRIAL CONSUMERS
10
Value analysis of Asian Paints
Primary activities
are core activities of a company, which are generally done in house Research and Development Manufacturing Procurement
Secondary activities
are non-core activities of a company, which are generally outsourced
11
Manufacturing
Currently has 4 manufacturing plants in India Major production is done in its plant and part of it is done by sub contractors
12
Research and Development
140 members which include 115 scientists and 7 doctorates Continuous investment in R& D The entire decorative coatings portfolio for the Indian market and for overseas ventures has been developed in-house Department develops new products and improves upon existing formulations It acts as a pillar of support to other functions: Supports Manufacturing
process cycle time reduction improves productivity by alternate / break through processes
Try minimizing waste at the time of generation and also in recycling Aids Marketing in providing technical tools/USPs to demonstrate and push new products
13
Secondary Activities
Transportation Management
The company has outsourced its transport management to Dynamic Logistic Pvt. Ltd.
Warehousing
does not own warehouses instead they have 90 depots scattered all over the India which are on lease basis
Packaging
The company has 140 packing material vendors
14
Raw Material Requirement
Raw material-intensive ( 70% of total production costs) Critical raw materials used
titanium dioxide (TD) (rutile and anatase grades), phthalic anhydride (PAN) pentaerithrithol (PENTA)
Other raw materials
Castor oil, soyabean oil, linseed oil and mineral turpentine
15
Inventory Management
Demand seasonal in nature, possibility of stock outs
monsoon is a slack season Diwali is peak season high during Pola festival in Maharashtra
16
Inventory Management
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Inventory ratios Inventory Turnover Ratio 7.08 7.95 9.8 8.03 6.88 Average Raw Material Holding 48.61 42.69 33.13 43.11 32.72 Average Finished Goods Held 44.6 42.38 31.72 42.67 45.08 Number of Days In Working Capital* -6.53 -11.29 10.97 1.8 20.24
Source: http://www.moneycontrol.com/financials/asianpaints/ratios/AP31
*Asian Paints has managed a negative working capital due to the following reasons: - It gets immediate payment from its dealers (through its customers) and it does not need to pay its suppliers immediately. Thus, it can manage with negative working capital (in days) and hence can be called as very efficient in working capital management. Days in working capital = DIO+DSO-DPO
17
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
18
Distribution Network
Secunderabad based location
Delhi based location
ANKLESHWAR PLANT
KASNA PLANT
PATANCHERU
77 DEPOT CENTRES
BHANDUP PLANT
ASIAN PAINTS HEADQUARTERS MUMBAI
Bangalore based location
Chennai based location
Kolkata based location
Ahmedabad based location
Outbound Logistics-Distribution Network
Asian paints has 4 manufacturing units and more than 3000 SKUs Four manufacturing facilities are supported by Six Regional Distribution Centers (RDC) and Seventyseven 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 15000 dealers all over the country There are 4 depots of Asian Paints in Mumbai and 73 outside Mumbai
20
Distribution Channels
Fast Moving Goods Slow Moving Goods
Factories/
Manufacturing Plants (4) Depots (77)
Factories (4)
Regional Distribution Centres (6)
Depots (77) Dealers (15000) Dealers (15000)
21
Distribution Strategy
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
22
Implications of 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
23
Implementation of Distribution Strategy
Large network of dealers Established a network of company depots It creates a marketing organization that matched its distribution intensity It successfully resolved the cost-service conflict in distribution Strong commitment to distribution cost control
24
Backward Integration
Asian Pain produces PAN and PENTA
(accounting for 35 % of production costs)
Competitors still importing these parts
Benefits :Backward integrations
immunizes Asian Paints to the fluctuation in the prices material transferred at low cost to Asian Paints equips the company with the ability to meet sudden surges in demand 1/3rd production sold to other companies, giving a strategic edge to Asian paints
25
Concerns
Increasing price of raw materials ; inability to pass on the price increase to customers Competitive pressure 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
26
Improvements by Asian Paints
27
Existing Supply Chain 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
Distribution
Had to maintain inventory levels for all 3000 SKUs Customer choice limited to number of SKUs
Procurement
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
Manufacturing
Manufacture d all the shades (3050 depending on a product line) in all the packs (five to eight packs)
28
Supply Chain Re-Engineering
Objectives: To minimise the amount of inventory that the company was holding so as to deliver the product efficiently and profitably to all its customers To free up some funds locked in inventory management because the company had adopted an aggressive policy of inorganic growth through acquisition
29
IT in Supply Chain
It helps in
demand forecasting, deriving optimal plant, depot and SKU combinations, streamlining vendor relationships, reducing procurement costs and scheduling production processes for individual factories
Asian Paints is the only company in India to
have integrated Supply Chain Management (SCM) Solution from i2 Technologies, and Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) solution from SAP
30
Enabling IT in Distribution
Paint dispensing machines
Altered the production pattern from shades to producing bases Reduced inventory and Eliminated redundancy of stocks Approx. 11000 colour 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
31
Enabling IT in 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
32
Enabling IT in Procurement
i2s 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
33
Integrated ERP in Asian Paints
The only company in India to integrate SCM from i2 & ERP from SAP
Helped Asian Paints in increasing efficiency in business and increase transparent and accurate information across the company and all divisions
ERP System
Covers
Sales and Distribution Business Planning Production Planning Shop Floor Control Logistics
CRM System
Improved Stakeholders Satisfaction
Supplier Portal
Employee Portal
34
CRM in Asian Paints
SAP CRM solution implemented to cater to growing needs of Asian Paints customers Company understands the needs of the customer and take steps to meet these needs In 2006 Asian Paints used SAP CRM infrastructure for developing e-recruitment platform
Allows employment agencies to review opening and upload job candidate information
Customer Relations Management (CRM) tools are being used in Asian Paints Helpline and Home Solutions initiatives
35
Features in CRM in Asian Paints
Following features available on the website under CRM initiative
Chat assistance by online expert to solve queries from 8 am to 8 pm Colourspeak: Helps find best color combination Paint Calculator: if dimensions of interior/exterior given, calculator would work out cost estimate Painting Guide: pre painting, painting and post painting tips
36
Benefits of CRM in Asian Paints
Enhanced customer satisfaction Established direct sales channel to customers Improved financial control Gaining online opinion of the business with optimized information Building relationship with community across 30000 customer sites
37
Other IT Initiatives
Supplier portal including an automated digital document exchange facility that improves the efficiency and effectiveness of interaction with suppliers Setting up of Employee portal Setting up of a disaster recovery site in South India to ensure 24x7 availability of our IT infrastructure
38
Challenges in IT
Controlling all major business processes with a single software architecture in real time Data Migration: Implementation of ERP and transferring legacy data systems into new ERP systems Relative advantage of ERP application has started to diminish as other companies are also implementing and have implemented ERP systems Keeping in tandem with fast changing demands and technology and changing processes
39
Market Share
Company
APIL GNPL Berger Paints ICI Jenson & Nicholson Others
Industrial Market
14.50% 42.50% 14.20% 7.80% 8.10% 12.90%
Decorative Market
37.50% 10% 11.20% 7.80% 5.50% 38%
Identification Of Focus Area of Competitor
APIL
Focus on decorative Paints and complete vacant slots in product range Gain Market share in auto OEM through JV
GNPL
Provide paint shop management services to sell solutions rather than product
BPIL Increase
focus on southern markets in India
ICI Increase
capacities to strengthen presence in fast growing architectural segments
JNIL
Leverage on JV for growth in Industrial segments
SPIL
Consolidate position in architectural paints
SNIL
Consolidate position in Repainting exterior paint market
40
Overall Corporate Strategy: Asian Paints
DISCOVER NEW
Exploit new markets by creating products /services by leveraging existing competencies differently
DEVELOP
Build new competency to Create the Future
MARKET OPPORTUNITIES
DEFEND EXISTING
Defend existing market by strengthening existing competencies
DEEPEN
Build Complementary/new competency to fortify position in Existing Market
EXISTING
Distinctive Competencies
NEW
DEFEND:
Consists of rural and the urban market in which AP is playing. They are a target to many global companies, which are playing in Indian market via Indian arm of their operations like ICI has Berger, Kansai has JN
DEEPEN:
Industrial segment of Indian paint industry where AP has a weak presence. It has a presence in automotive segment but ranks a poor second. It needs to form alliances with foreign players to enter into this segment. It can also look for tie-ups with the company, which have tie-ups with those companies whose daughter arm is operating in India, to lock the account. Its move of taking over Haucoplast is one step in this direction. Their tie-up with PPG has given them a good presence in automotive segment, capturing clients like Santro, GM, Ford etc
DISCOVER:
This forms the basis of fast growth. AP has identified opportunities abroad in developing countries similar to India. To enter into these countries they adopted the process of acquisition.
DEVELOP:
Paint industry is primarily a product-oriented industry up till now. Huge potential exists in the service side also. Introduction of color-world, providing service in painting and interior decoration etc are steps taken to acquire the whole chain and becoming full service provider. Need to Ensure value-adding services are possible. These can be integrated to provide an umbrella service. .Constant reminders to the customers to repaint, or upgrade.
Business Strategy: Asian Paints
AP has acquired short-term competitive advantages by using its distribution strength and logistical efficiency in order to raise the Cost of doing business for all its competitors to attain this advantage. The advantage is short-lived and ultimately imitable. Moreover, AP has established such an extensive network that getting incremental advantage would be very difficult. Futuristic approach should be gaining competitive advantage through channel control or occupying mind space.
Business Strategy: Urban Market
1. Industry is characterized by the presence of intermediaries who have a very high influencing power on the purchase decisions of the consumer, especially in the urban areas. Asian Paints strategy for acquiring higher product demand could be three pronged. Use these intermediaries for initiating demand: The intermediaries (the painters, contractors, designers, decorators etc.) could be used as a marketing arm of the company. Occupy part of the intermediary space and try to sideline other intermediaries: Asian Paints should open a service arm, which would provide the services provided by the existing intermediaries in the market. Being present in different seditions of the value delivery system and having a strong brand equity in the Paints market would give AP the credibility to operate a strong service arm. The service based strategy of AP could have two different approaches The first approach would entail creating a service arm that can cater to a large market The second one would necessitate the creation of a well-qualified service arm which is capable of providing value-added services. AP can follow both these approaches and cater to different market segments. The value-addition services arm would cater to the premium end of the market who have a very high willingness to pay and the other bundling services arm would cater to the demands of the masses. AP could try to reduce the power of the intermediary by increasing the Pull for the product. The role of the influencer could be drastically reduced by increasing the power of the end-consumer. AP can achieve this by establishing a strong brand name for its brands.
45
2.
3.
Business Strategy: Rural Market
1. Rural segment not mature enough to appreciate service related offerings Strategy should be product related. Customer up gradation strategy should be adopted. It should be Implemented in two parts. The penetration of the rural segment have to be achieved by offering a basic product well tailored to match the low willingness to pay of the rural consumer. After basic penetration levels have been achieved the rural consumer can be offered a higher range of products with a view to up grading the consumers.
2.
46
Other Initiatives
Product innovation helped Asian Paints service the entire area of decorative coatings Has been able to provide products across the price spectrum in each segment Improved manufacturing capability resulted in postponement of capital expenditure thereby improving financial position By investing into tinting machines, it can respond to demand immediately By expanding the dealer base to enhance penetration at same level of inventory Asian paints has at its finger tips information about every dealer including pattern of off takes, orders, payment and growth which helps in responding to specific schemes and improving the sales of the specific SKUs they target
47
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
48
Environmental Initiatives
The companys plants have the ISO 14001 certifications for environment management standards. Four of its plants received the Sword of Honour by the British Safety Council Have installed effluent treatment and reverse osmosis facilities. Colour World Dealer Tinting Up gradation of Material Handling and Storage Facilities Up gradation of Process Technology Use of Natural Gas as Fuel Solvent Recovery Plants Improved Incinerating Systems Reverse Osmosis Rain Water Harvesting Scheme
49
Social Initiatives
The company, through the Ankleshwar Industrial Development Society has helped setting up the school "Shree Gattu Vidyalaya", which has nearly 2500 students Provides basic sanitation facilities like Toilets & Urinals and availability of potable drinking water to villages First corporate in Mumbai to implement at its manufacturing facility a cost-effective model of rain water harvesting Initiated a process of building a Total Water Management Education Centre at its facility Navjyoti Eye Care Camp' was held with the objective of eradicating cataract problem
50
51
