Asian Paints SCM Project
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Transcript of Asian Paints SCM Project
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Critical analysis of Supply
chain and improvements
Feroze Ahmed (415) Yogeshwar Kumar (456)Samir Sethi (419) Vishal Arora (461)
Harsh Mehta (431) Hitesh Thapar (464)
Vibhav Upadhyay (453)
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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
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3
BRAND LEADERSHIP
MODEL:ASIAN PAINTSOVERVIEW: ASIAN PAINTS
India's largest paint company
One of the top ten decorative coatings
companies in the world.
Started by four entrepreneurs,
Champaklal Choksey, ChimanlalChoksi, Suryakant Dani and Arvind
Vakil
Turnover: INR 0.35 million(1945) to
54.3 million(2009)
PM Murthy( MD & CEO)
a) 1942-1967: EvolutionPhase
b) 1967-1982: Extension and
Consolidation Phase
c) 1982-1986:The years ofExcellence
d) 1987-1997:Moving Closer
to the Consumer
e) 1997-1999: Changing rules
of the game
f) 1999- 2007: The new Asian
Paints
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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
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International Operations
5
Caribbean Islands
Barbados, Jamaica,Trinidad & Tobago.
South Pacific
Fiji, Tonga,Vanuatu, Solomon &
Samoa Islands.
South Asia
Bangladesh, Nepal& Sri Lanka.
South East Asia
China, Malaysia,
Singapore &Thailand.
Middle East
Bahrain, Egypt,Oman &
United Arab
Emirates.
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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 is1.2kg/annum
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Industry Analysis: Porters 5 force Model
Existing Rivals
1. Berger
2. GN
3. ICI
4. JNPL
Substitutes1.White cement
2.White wash
3. Brick & stone Structure
Suppliers1.Tio2 Imported,
2.Few suppliers,
3.Availability ofSubstitutes of RM Low
HIGH BARGAININGPOWER
Threat Of New Entrant
1.Growth rate much higher than global so globalplayer may be interested
2. Huge potential to increase per capita consumption.Thus Latent need exists.
3. Companies can erode into APILs industrial marketby forming JVs.
BUYERS1. Decorative: FragmentedMarket. LOW POWER
2. Industrial: Low switchingcosts. Corporate haveHIGH POWER
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Product Categories
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Analysis of Supply Chain
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Elements of Supply chain
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3000 SKUS
RAW MATERIALS
PACKAGING MATERIAL
KEY SUCCESS FACTORS
FLEXIBLE
OPERATIONS
LOWER OUTPUT
TIME
LOW DELIVERY
COST
4 PLANTS
6 RDC
35 JOB WORK
CENTRES
77 DEPOTS
15000 DEALERS500 INDUSTRIAL
CONSUMERS
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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
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Manufacturing
Currently has 4 manufacturing plants in India
Major production is done in its plant and part
of it is done by sub contractors
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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 existingformulations
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
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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
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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
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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
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Inventory Management
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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
*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
Source: http://www.moneycontrol.com/financials/asianpaints/ratios/AP31
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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 discountof 3.5 per cent - discount for perfection in payments.
It was passed on at the end of the year, provided each and every paymentthroughout the year was made within the stipulated time norms.
A cash discountof 5 per cent. This was paid for all outright cash purchases.
It was given whenever payments were received within 24 hours of thesupply/invoice. In respect of outstation accounts, the payments have been
made in advance by draft in order to be eligible for the cash discount
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ANKLESHWAR
PLANT
KASNA
PLANT
PATANCHERU
PLANTBHANDUP
Secunderabadbased location
Delhi based
location
Bangalore
based
location
Chennai
based
location
Ahmedabad
based
location
Kolkata
based
location
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DEPOT
CENTRES
ASIAN PAINTSHEADQUARTERS
MUMBAI
Distribution Network
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Outbound Logistics-Distribution
Network
Asian paints has 4 manufacturing units and morethan 3000 SKUs
Four manufacturing facilities are supported by SixRegional Distribution Centers (RDC) and Seventy-seven depots
Each RDC and depot is taken by Asian Paints onlease and then further assigned to a C&F Agent
Distributing the Asian Paints products to the15000 dealers all over the country
There are 4 depots of Asian Paints in Mumbai and73 outside Mumbai
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Distribution Channels
21
Factories/
ManufacturingPlants (4)
Depots (77)
Dealers(15000)
Factories (4)
Regional DistributionCentres (6)
Depots (77)
Dealers(15000)
Fast Moving Goods Slow Moving Goods
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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
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Implications of Distribution Strategy
Going to Individual Consumers Implied WideProduct Range and Complex Distribution
Smaller Packs proliferated the product depth
further Wide product range implied expensive
distribution
Going retail Implied deep involvement inChannel Management
National Marketing necessitated nationwideorganization
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Large network of dealers
Established a network of company depots
It creates a marketing organization thatmatched its distribution intensity
It successfully resolved the cost-service conflict
in distribution
Strong commitment to distribution cost control
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Implementation of Distribution Strategy
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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 surgesin demand
1/3rd production sold to other companies, giving a strategicedge to Asian paints
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Concerns
Increasing price of raw materials ; inability to passon the price increase to customers
Competitive pressure
Movement of paints and hazardous goodsincluding raw materials have a series of safetychecks to be adhered to, starting with a materialsafety data sheet
All materials transport from factories to thedepots is insured through a blanket insurancepolicy, which fixes a minimum liability for loss,damage, pilferage or leakage upwards of Rs.10,000
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Improvements by Asian Paints
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Existing Supply Chain Processes
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Forecasting
The demandpattern wasdifficult topredict even with
the support ofhistoricaldata/trends asconsumerpreferences werechanging fast
Relied on homegrown solutionsfor planning andimplementation
Distribution
Had tomaintaininventorylevels for all
3000 SKUs
Customerchoicelimited tonumber ofSKUs
Procurement
Raw materialscomprise 60%of the valuechain which
requireaccurateforecasts
Constantupdation ofBOM and
Routing calledfor frequentchanges in theprocurementplanningprocess
Manufacturing
Manufactured all theshades (30-50
dependingon a product
line) in allthe packs(five to eight
packs)
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Supply Chain Re-Engineering
Objectives:
To minimise the amount of inventory that thecompany was holding so as to deliver the
product efficiently and profitably to all itscustomers
To free up some funds locked in inventorymanagement because the company hadadopted an aggressive policy of inorganicgrowth through acquisition
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IT in Supply Chain
It helps in
demand forecasting, deriving optimal plant, depotand SKU combinations, streamlining vendor
relationships, reducing procurement costs andscheduling production processes for individualfactories
Asian Paints is the only company in India to
have integrated Supply Chain Management (SCM)Solution from i2 Technologies, and EnterpriseResource Planning (ERP) and CustomerRelationship Management (CRM) solution from SAP
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Enabling IT in Distribution
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Paint dispensing machines
Altered the production pattern from shades toproducing bases
Reduced inventory and Eliminated redundancy ofstocks
Approx. 11000 colour tinting machines includingmultiple machines across some counters
Has helped expand the range of shades for eachproduct category, offering a choice of shades toconsumers in the hundreds
For the retailers it has eliminated the sales loss forwant of range/desired shade
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Enabling IT in Manufacturing
Strategy changed to manufacturing bases thus providingeconomies of scale
Using i2 Master planner to deicide which plant tomanufacture what product depending on
Capacity constraints Environmental constraints
Key raw materials
Helps optimize the process such that least inventory isproduced to maintain the expectations of service andsafety stock
Better planning reduces the number of rush orders
Factory Scheduler used for machine by machine andunit by unit planning of production schedules
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Enabling IT in Procurement
i2s factory planner used to identify the rawmaterial and packing materials and who tosource it from
Also provides the ideal formulations requiredfor manufacturing products
A better materials planning system allows the
company to create more complex paintformulas
Helps select the best vendor andmanufacturing method for any given situation
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Integrated ERP in Asian Paints The only company in India to
integrate SCM from i2 & ERP fromSAP Helped Asian Paints in increasing
efficiency in business and increasetransparent and accurateinformation across the companyand all divisions
Covers Sales and Distribution
Business Planning
Production Planning
Shop Floor Control
Logistics
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ImprovedStakeholdersSatisfaction
ERP
System
Supplier
Portal
Employee
Portal
CRM
System
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CRM in Asian Paints
SAP CRM solution implemented to cater togrowing 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 arebeing used in Asian Paints Helpline and HomeSolutions initiatives
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Features in CRM in Asian Paints
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Chat assistance by online expert tosolve queries from 8 am to 8 pm
Colourspeak: Helps find best colorcombination
Paint Calculator: if dimensions ofinterior/exterior given, calculatorwould work out cost estimate
Painting Guide: pre painting, paintingand post painting tips
Followingfeatures
availableon the
website
under CRMinitiative
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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 across30000 customer sites
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Other IT Initiatives
Supplier portal including an automated digital
document exchange facility that improves the
efficiency and effectiveness of interaction with
suppliers
Setting up ofEmployee portal
Setting up of a disaster recovery site in South
India to ensure 24x7 availability of our IT
infrastructure
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Challenges in IT
Controlling all major business processes with asingle software architecture in real time
Data Migration: Implementation of ERP and
transferring legacy data systems into new ERPsystems
Relative advantage of ERP application has startedto diminish as other companies are also
implementing and have implemented ERP systems Keeping in tandem with fast changing demands
and technology and changing processes
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Market ShareCompany Industrial Market Decorative Market
APIL 14.50% 37.50%
GNPL 42.50% 10%
Berger Paints 14.20% 11.20%
ICI 7.80% 7.80%
Jenson & Nicholson 8.10% 5.50%
Others 12.90% 38%
APIL GNPL BPIL ICI JNIL SPIL SNIL
Focus on
decorative
Paints andcomplete
vacant slots in
product range
Gain Market
share in auto
OEM through
JV
Provide
paint shop
managementservices to
sell solutions
rather than
product
Increasefocus on
southernmarkets in
India
Increasecapacities to
strengthenpresence in
fast growing
architectural
segments
Leverage on
JV for growth
in Industrialsegments
Consolidate
position in
architecturalpaints
Consolidate
position in
Repaintingexterior
paint market
Identification Of Focus Area of Competitor
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Overall Corporate Strategy: Asian Paints
Exploit new markets by
creating products /services
by leveraging
existing competencies
differently
Build new competency to Create theFuture
Defend existing market bystrengthening existing competencies
DISCOVERDEVELOP
DEFEND DEEPEN
Build Complementary/newcompetency to fortify position in
Existing Market
MARKET
OPPORTUNITIES
Distinctive Competencies
NEW
EXISTING
EXISTING NEW
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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 marketvia 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 likeSantro, GM, Ford etc
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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.
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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.
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Business Strategy: Urban MarketIndustry is characterized by the presence of intermediaries who have a very high
influencing poweron the purchase decisions of the consumer, especially in the
urban areas.Asian Paints strategy for acquiring higher product demand could be three
pronged.
1. Use these intermediaries for initiating demand: The intermediaries (the
painters, contractors, designers, decorators etc.) could be used as a marketing arm
of the company.
2. 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.
3. 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.
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Business Strategy: Rural Market
Rural segment not mature enough to appreciateservice related offerings
Strategy should be product related.
Customer up gradation strategy should beadopted. It should be Implemented in two parts.
1. The penetration of the rural segment have to beachieved by offering a basic product well tailoredto match the low willingness to pay of the ruralconsumer.
2. After basic penetration levels have been achievedthe rural consumer can be offered a higher range of products with a view to up grading theconsumers.
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Other Initiatives
Product innovation helped Asian Paints service the entire area ofdecorative coatings
Has been able to provide products across the price spectrum in eachsegment
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 levelof inventory
Asian paints has at its finger tips information about every dealerincluding pattern of off takes, orders, payment and growth whichhelps in responding to specific schemes and improving the sales ofthe specific SKUs they target
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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
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Environmental Initiatives
The companys plants have the ISO 14001 certifications forenvironment management standards.
Four of its plants received the Sword of Honour by the British SafetyCouncil
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
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Social Initiatives
The company, through the Ankleshwar IndustrialDevelopment 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 rainwater harvesting
Initiated a process of building a Total Water
Management Education Centre at its facility
Navjyoti Eye Care Camp' was held with the objective oferadicating cataract problem
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