Revamping the Supply Chain: The Ashok Leyland Way

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Revamping the Supply Chain

AL seemed to realize that cost cutting would work only if the supply chain was smooth. Thus, in 1999, AL launched Project OSCARS (Optimising Supply Chain and Rationalising Sourcing). OSCARS identified two methods to reduce costs in the inbound supply chain: reduce material costs and through optimum inventory levels reduce the invisible inventory carrying costs. The basic tenets of OSCARS were: a single strategic sourcing agency at the corporate level with local, unit- level scheduling; smaller, stronger vendor base preference for vendors who had access to technology; and to bring down supply chain costs. Single Window System The Strategic Sourcing and Corporate Quality Engineering (CQE) teams jointly formed the single window vendor management agency, bringing with them specialised commercial and technical knowledge. Within the centrally negotiated price and share of business, unit material functions interacted with the approved panel of vendors to "pull" materials in line with their production plans.

For the suppliers, this had created a convenient single-point contact with AL, for sharing drawings, for negotiating prices and long-term business volumes, and for assistance and consultancy on quality to management issues. This corporate buying seemed to have benefited AL through consolidation of business per supplier and dealing from a position of strength that consolidated volumes.

The starting block was the creation of a company-wide database for the 22,000-plus parts which were matched with suppliers' part numbers. This revealed a picture of fragmented business and differential pricing at units. A classification of the 1,400-odd suppliers, based on business volumes, showed that 18 per cent accounted for 92.5 per cent of the business, while 61 per cent handled just 1.9 per cent. In Phase I, corporate buying covered major suppliers (Rs 10 lakh plus per year). The materials were classified into "packs" (broad groups of similar items) with one representative each from the CMD and the CQE forming a three-legged race team of specialists for each pack.

Supplier Tiering

AL pruned its panel of direct suppliers through tiering and system buying. Under tiering, AL dealt directly with tier-one suppliers who, in turn, were supported by tier-two and tier-three suppliers. The benefits of system buying could be illustrated with the example of the tool kits that accompanied every vehicle. In the late 1990s, six suppliers' spread over Punjab, Faridabad, Bangalore and Chennai used to supply the 15 items, which were assembled in-house. A short supply of 1,000 screwdrivers meant 1,000 numbers of the remaining 14 items in idle inventories. To overcome this problem, AL aimed at a reduction of its supplier base from 1,400 to 750.

Strategic sourcing aimed at reducing costs for the supplier so that the gains were real, painless and sustainable. Tear down studies and value engineering analyzed the constitution and composition of a part to prune costs through substitution, reduction or elimination of materials/sub-assemblies without affecting quality and performance. The cost benefits were shared with the partnering supplier.

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