THURSDAY, NOVEMBER 10: BREAKOUT SESSIONS BLOCK 2: 11:10A.M. – 12:10 P.M. Turnaround of a Business through the Transformation of Physical Distribution (PI) Sukumar Narasimhan Senior Vice President Supply Chain Reliance Industries Limited, INDIA
• Background Business • Role • Build-up to the current state • • Current State: effect of the decisions Manufacturing • Physical Distribution function • (PDF) Transportation • Turnaround • • Critical Voice of Customers • Phase 1: Survival (VOC) • Phase 1: Consolidation • Phase 2: Growth • Critical KPIs • Lessons Learnt • The emerging roadmap
• 26 Distributors • Corporate Management across the country Committee for strategic • Field Force under 4 decisions of the Company RMs � � � � Sale By the Pharma Management • Distributor Committee for the business • SCM � � � � Sale To the • Similar matrix structure for Distributor other functions and services Driven by Vision � Mission � (Company Top line) • strategic Direction � • 8 weeks’ inventory on replenishment Organization and Leadership mode ~ 2% cost • Adoption of the TQM concept • Pay on Sale Terms in 1990 with the Channel Focused development of • • 5% margin to the profitable businesses Distributors
• Strained performance of the Division • Concerns even after closure of high cost manufacturing • Mandate � At first the Materials Management function • Subsequently � the Distribution and Planning function • Line management responsibility to implement suggestions • Two-week ratification study by our Canadian counterpart • Suggested I appoint a Consultant for assistance – Not done! • Dove full steam into rapid implementation
• Closure of factory Factory with • Moved people in Warehouse Physical Distribution 23 miles Function (PDF) to HO • Moved products to alternate, small Start of the initiative a year after these warehouse • Manufacturing structural changes had been outsourced to multiple completed parties W/H Manufacturers in 4 miles Maharashtra and Goa – Head Office 110 miles and 350 miles away! Partial direct distribution by them!
From Single site To multiple site Own Mfg. Contract Mfg. From one/Few sources to Multiple sources, multiple multiple destinations destinations Decision to farm out manufacturing to distant Third Party Clear responsibility for Divided responsibility; Manufacturers (TPMs), therefore, resulted in: Dispatch loss of control Goods meant for regions stuck at Origin! Visibility of product Tenuous Coordination movement No issue of Dispatches Payment on production; from TPMs low priority to dispatch
Backlash of the factory closure was significant on PDF: Distributed responsibility for dispatches � smaller loads at • the company warehouse • Transporters refused to place trucks at warehouse for small loads. • Carting Agents were appointed to consolidate loads at our warehouse and deposit them with the transporters. • This led to ↑ transporta�on costs besides consuming �me. • Again, since PDF staff worked out of HO, coordination with warehouse personnel became an additional step • The resultant process put in place was tortuous!
Performance assessment as part of the take-over diagnostic Time-inefficient Dispatch Process study revealed: 1 st Conf. Call to Order from FCI Back Optimal Minimum Lapse time verify Invoice – regions with details 1 2 3 stocks Res. goods was 9 days after we knew stocks 4 Goods to Final Delivered to CA brings were available! Carting invoice carriers documents 5 6 7 Agent released Too many steps in the process Optimistic timelines: Goods were stuck at the 1 = ½ day; 2 to 7 � 1 day each; total Optimal Lapse time = 6 ½ days; add weekends = 7+2 = 9 days Warehouse!
Goods were stuck with the carriers! Non- Inordinate Loads to receipt of Splintered Delays in Carting goods at PDF dispatch Agents regions But this state of affairs was still restricted only to the downstream level Frequent The macro picture of what was hurting More Collection Third small lots dispatches of loads - wave of the Pharmaceutical business was truly per arranged Carriers delays location daunting!
Goods Multiple Pay for stuck at sites Prodn. Origin Goods Goods Divisional stuck at stuck at performance Origin W/H Small Long was severely Freq. Build- Loads Process SDSL up being Goods impaired! Goods stuck at stuck at W/H TPT.
Resultant end state dynamics • RMs had lost faith in PDF On a WYSWYG mode! • • Their time was consumed in follow-up for goods • Little time for Sales Calls for ↑ product prescrip�ons • Sale was severely impacted • The regions needed more material to make the numbers • Another vicious cycle in the whirlpool set into motion again!
Resultant end state dynamics Ultimate end result: • Clock rate of invoicing the distributors was an alarming 25 Nos/month, especially when on replenishment Receivables were hitting 90 + days, mounting to INR 250 • million; interest burden ~ 30 million @ 12% CoC. My initial days felt like this! • Errors in invoicing was at almost 50% , with one or another discrepancy in either the product, its batch number or price. • Stock inaccuracy unattended for the last three years!
Rapid Transform implementation Successful partial Transform the total Survival 3 months the PDF Next 6 months Significant results in implementation Progress chain Process 3 months structurally
• Got the SD LAN Factory with Rationale for the changes: software to work as a Warehouse standalone system • Servicing requirements of sales was to be on replenishment • Moved PDF executives • Degenerated to requisition from regions due to the from HO to Warehouse unreliable PDF process • Took Physical Stock of • PDF Process change therefore became primordial all products • Planned for dispatches to reach 8 weeks’ target stock at all locations No questions now; W/H review after 3 months; People acute pressure from To replenishment from parent Co. Head Office knee jerk moves PDF people to be where stocks are!
1 st Conf. Call to Order from FCI Back The deed and the fruits: Inform verify Invoice – Plan weekly Assemble regions with details regions & 1 2 3 • Physical Stocks taken to identify a starting point stocks Res. goods dispatches Goods distributors • Weekly requirements derived and shipments planned Goods to Final Carting Agent eliminated, carriers informed one day before • Delivered to CA brings Carting invoice • Assembled goods before truck arrival - completed Invoicing carriers documents 5 6 7 Agent released • Dismantled all documentation except Plan and the Invoice 3 Goods on Call • We dropped to 4 invoices/distributor/month : < 110 hours the way! Carriers invoices/month against 650; errors eliminated • Reliability of goods receipt on time ↑ drama�cally > 97% Follow-up for non-receipt/non-delivery virtually eliminated • • Released time for more productive work – Stock reconciliation Institute a scientific “Replenishment” • Corrected errors of past 3 years - stock accuracy to 100%! model of distribution • Receivables dropped by INR 90 million ~ 0.9% margin improvement!
Warehouse in • Having demonstrated closed factory the advantage of a Even this move proved • “Central” Warehouse, we transitory as we later learnt! were now running short • Disposal of the real estate of ergonomic space in meant we needed to move the current facility. out! • We thus moved back to Pressure yet again, since the • the Warehouse in the earlier warehouse was not closed factory premises serving the purpose • Only Executive staff W/H adequately! allowed – reduction from 12 to 5 people! So what choices did we • Head Office • The balance people have? redeployed Getting to ‘Best Practices’
Warehouse in • We redesigned the closed factory existing warehouse to better international standards • After completion of all renovation, we moved back to the warehouse within the city! • We had brought in time bound deliveries to W/H Distributors while reducing transportation Head Office costs by 12% - Lower freight through load consolidation! Meeting company goals
• This led to only partial implementation of In Phase 2, we wished to leverage the lead Transit time recommendations: time reduction gained 25 to reduce Distributor 22 • Only Institutional Sales terms 20 Margin by 1% rationalized. 15 • More time sensitive transportation not 10 In addition to the Distributors, adopted. 7 Marketing too felt pressured Hence, further inventory reduction was • 5 since they had to sell more for not targeted. the same level of top line 0 commitment to our parent • And therefore, margin reduction was not Before After company! implemented.
No way Sir; we have already achieved so What’s your take on much! this revised PDF Although convinced the revised process was far process? Will you more effective, staff in PDF too felt the pressure revert to the earlier one? for performance! In the Indian scenario, such sentiments rule, yet they are never explicitly stated!
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