Revamping the Supply Chain: The Ashok Leyland Way



Themes: Supply Chain Management
Period : 1992-1998
Organization : Ashok Leyland
Pub Date : 2002
Countries : India
Industry : Automobiles

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Case Code : OPER004
Case Length : 08 Pages
Price: Rs. 200;

Revamping the Supply Chain: The Ashok Leyland Way | Case Study

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At AL, Vendor Development and Strategic Sourcing were handled by Corporate Materials Department (CMD). CMD identified the vendors, rated the vendors based on feedback received from Supplier Quality Assurance Cell, send drawings/specifications, called for quotes with detailed breakup of operation-wise costs, and negotiated the price at which the parts would be supplied. In addition to CMD, there were Materials Management Departments (MMDs) for scheduling based on unit production plan.

AL's purchasing philosophy was to maximize bought-out parts. Over 90% of the parts were bought-out. AL believed in global sourcing. Consistent with its operational needs, AL considered both domestic (Indian) as well as international vendors. Global sourcing was normally resorted to overcome local constraints in the form of technology, quality, capacity or cost effectiveness. AL considered new suppliers for required components, based on Vendors' ability to meet its specification, price and delivery schedules. Vendors were required to have a strong manufacturing base with adequate engineering support for their own product development activities, as needed by the category of product.

AL's policy was to develop a vendor base committed to continuous improvement to meet quality, cost and delivery standards. AL considered its vendors as partners in progress and believed in establishing mutually beneficial relationships. It provided necessary technical assistance in the form of project and production engineering, to maintain quality levels. In addition, where required, it also helped vendors financially. AL's Vendors were expected to have a good quality system. Vendors' quality system had to encompass the following: cost effective process, assured process capability, continuous improvements based on customer feedback, compliance of all statutory/legal/commercial requirements of AL, a stage of development where the Vendor could come under AL's self-certification system, and, traceability - first-in first-out.

AL also placed emphasis on optimizing the inventory and vendors were required to progressively meet "Just-in-Time" requirements. Delivery mode as well as packaging were required to minimize the handling/loading and unloading time. AL preferred a manufacturing/assembly/ support base at close proximity to the production units.

Commenting on the relationship AL shared with its vendors, J.N. Amrolia, executive director, human resources, said, "The close working relationship with the vendors for vendor development program have benefitted us a lot in cost cutting and making the vendors understand the complexities of material handling." This resulted in low inventories all through the chain. He further added, "We stabilised both the inward material flows as well as the outbound material and that saved us a lot on the inventory." In the late 2000, AL's systems were closer to J-I-T with inventories averaging just seven days, down from three weeks in the late 1990s.

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