Project CIS casts a golden eye on LGEIL

LGEIL’s online B2B system has helped it reduce time-to-market and meet its cost innovation targets. Abhinav Singh has the details

According to Arindam Bose, LG has been able to solve the problem of model mix as per regional requirements, which directly contributes to increased sales and contributes immensely to the annual sales turnover, and all this is thanks to CIS

Having established its presence in India in May 1997, LGEIL initially relied upon a manual system that was both tedious and time-consuming. The company found it hard to provide the correct mix of products for India’s diverse regional markets—a particular model that was popular in the east wouldn’t do as well in the north. The other constraint was time. LGEIL had to supply products at the right time to its dealers, for which it needed better control of its supplier network. It also had strict cost innovation targets that had to be met in order to compete successfully in the price-sensitive Indian market. Arindam Bose, head IT, LG Electronics India Limited says, “We felt that we were selling our products at a relatively higher price in India.”

When the company set up its production plant at Noida near Delhi in early 2000, it was dealing with a limited number of suppliers. However, as the company went in for mass production, the number of suppliers with whom the company interacted rose substantially. LGEIL’s personnel ended up spending a considerable amount of time negotiating with suppliers scattered across the country. Worse, there was a mismatch of account declarations with the suppliers. In order to solve such accounting disputes, LGEIL employees had to go and physically meet the supplier.

The hunt for an appropriate package

LG Electronics has a structured IT set-up in the 73 countries where it operates. ERP and supply chain software solutions are often pre-determined. LG Electronics prefers to use in-house solutions such as the LG-EDS-C ERP system. The evaluation process to select an appropriate package for its Indian arm started in September 2000 and lasted for a month. Bose says, “We evaluated Oracle because we have a very strong relationship with it as our in-house ERP system runs on the Oracle database.” After the evaluation exercise, LGEIL finally decided to go in for the its own CIS (Customer Information Services) package.

Standardised systems were too generic

LGEIL found that off-the-shelf SCM packages were too generic and customising them to suit the company’s unique requirements would be a considerable challenge. The CIS package, on the other hand, was already tailor-made. It has two modules—lgesource.com, which addresses suppliers, and lgdealernet.com, which caters to distributors. As the modules are linked to the ERP system, suppliers can access production plans and find out about the amount of physical stock at LGEIL’s Noida manufacturing plant through lgesource.com. The module also helps keep track of quality of goods that arrive at the plant and is updated regarding rejected material. Suppliers are intimated about rejections when they log in. This helps suppliers maintain quality and replenish rejected material at short notice. Bose says, “The supplier is automatically able to know the gap between the production plan and the physical stock of the raw material through lgesource.com. It lets him plan his own production accordingly to meet demand as and when it arises.”

lgdealernet.com lets LGEIL keep tabs on secondary sales, i.e. sales to final customers. Distributors and area managers now enter secondary sales figures into the module on a weekly basis. Area managers also do sales forecasting every month. The module has the ability to calculate the final indent (the requirement of the final product) by subtracting the stock in trade lying with dealers from the sales forecast. The revised final indent then becomes the procurement plan.

Implementing CIS

The implementation exercise began towards the end of 2000 and the demand-side module (lgdealernet.com) was rolled out in two months—by Jan 31, 2001. The final roll-out, which included the supply-side module (lgesource.com) was rolled out by April 2001. The implementation programme also involved pilots where the company assessed the real-time feasibility of the system. The CIS package, which was developed in South Korea, was customised to Indian conditions by the LG Soft India team. A total of 15 people were involved in the exercise. Bose says, “The main challenge for us was to convince suppliers and distributors that they were going to benefit from the package. A lot of training programmes, lasting for a day each, were conducted to motivate them.”

The company spent around Rs 40 lakh to customise the CIS solution to Indian conditions and it incurs Rs 15 lakh towards maintaining and hosting the CIS package. The solution uses an Oracle database that runs on a Sun E420 server, which sits at VSNL Mumbai.

LGEIL reaps CIS’s benefits

Almost all the issues that LGEIL was facing before the CIS implementation have been solved now. In the two years since the implementation took place, LGEIL’s suppliers are able to get faster realisation of their money from the company as everything is online. LGEIL’s communication costs have come down, as its personnel don’t have to repeatedly get in touch with suppliers, as the production plan and requirements are both available online. The decrease in communication costs on account of lgesource.com has resulted in a saving of Rs 5 lakh annually. Productivity increases as a consequence of manpower savings contribute to a saving of another Rs 5 lakh per annum.

Bose says, “We have been able to solve the problem of model mix which we had been facing and have been able to deliver appropriate models as per regional requirements ever since the implementation. This directly contributes to increased sales for the company and contributes immensely to the annual sales turnover.”

Besides this, LGEIL has also been able to meet its cost innovation targets by selling products at a much lower price than before. Lgesource.com has resulted in improving the accuracy of the Branch Rolling Sales Plan, which is estimated to have resulted in savings to the company to the tune of Rs 4.5 crore on an annual basis. It is estimated by LGEIL that the consolidated savings as a result of implementing lgdealernet.com in terms of manpower, transportation, communications and stationary are as high as Rs 1 crore on an annual basis. In addition to this, the reduction in bad debts which is a direct result of the monthly e-confirmation that LGEIL does with its dealers is also estimated to be very high.

e-learning, the next step

The company is conducting a pilot project on e-learning for its distributors and suppliers. As part of the programme, LGEIL aims to build a knowledge sharing relationship with its partners by providing them with information regarding the Unique Selling Points (USPs) of the company’s products. Product presentations and other related information will also be shared with distributors, helping them sell better and thereby boosting product sales. The e-learning project should be up and running across the country by March 2004.

abhinav@expresscomputeronline.com