Peer-to-Peer

ERP @ MTR

MTR Foods has been able to simplify its supply chain and increase its bottom-line growth. Akhtar Pasha narrates how it did it

MTR Foods has been grappling with the intricacies of managing its supply chain to generate a profitable rate of growth. Among the top-five processed food manufacturing companies in the country, the company has seven diverse businesses—ready-to-eat foods, instant foods, ice-cream, meal accompaniments, frozen foods, spices & masalas, and vermicelli—and 200 products in all. The company also exports its products to the US, Canada, Europe and Australia.

Manual systems

The raw material required for each plant is unique. Maintaining quality while managing such a complex supply chain that involves everything from the selection of products to sending out the finished products was difficult.

Says B G Shenoy, the company’s head of finance, “For instant food, we have 600 raw materials to source.” As the company is in the processed foods industry, it cannot buy the raw materials that are required in bulk in advance. “In the pre-SAP period we used to buy 65 percent of our annual raw material requirement in the agricultural season to get the best of the yield, which would lead to our working capital getting locked up. Some percentage of this raw material used to spoil, and had to be discounted leading to a clear input cost loss. Similarly, for our vermicelli production, we used to source 12,000 tonnes of ‘chiroti suji’ from 40 different suppliers as far away as Uttar Pradesh, Madhya Pradesh and Haryana,” adds Shenoy. The first challenge was to ensure a steady and transparent supply chain since inefficiencies and delays in supplies are common and natural in agricultural commodity markets, leading to spiralling costs.

The process that was

Everything was done in Excel. From the bill of material onwards, the issuing of bills, input/output entry and cost analysis were compiled manually. Since data entry was done lot-by-lot and batch-by-batch, it was a time-consuming task and the process was prone to errors. Recalls Shenoy, “Because of the manual paper-based entry system, a lot of paper bills used to land up in the finance department where they were consolidated. Reporting (accounting) was possible only after a month.” Data that had been keyed in or printed during the first fifteen days of a particular month was not available. Daily reports for analysing raw material procured vis-à-vis profitability—which was desirable—remained a dream. The management did not get even preliminary data for making decisions.

MTR Foods was using many legacy applications that had been developed in-house. For example, for accounting they used Tally, for purchase orders and inventory a FoxPro package. The lack of control and check mechanisms allowed anybody to alter data and goods receipt notes. Production flow and warehousing was also handled by a FoxPro application. None of these applications was linked, and duplicate entries flourished whenever there was a transfer of materials from one plant to the other.

The company wanted to maintain its CAGR of 30 percent, and set an internal target of touching Rs 500 crore by 2007. To achieve this it need to grow even faster, at 50 percent. But cranking up production called for increased spending on its supply chain. The natural corollary was that an ERP package was the need of the hour. After four months of evaluating popular MNC ERP systems, MTR zeroed in on SAP in 2002 because it permitted online updating using VPN as against a competing product that required additional investment in a VSAT network. SAP’s solution was also found to be more economical, and its release of patches was faster.

In March 2003, the company settled on SAP R/3 Enterprise Version 4.7. Five key modules were to be deployed: production planning, material management, quality assurance, sales & distribution, and financial accounting. Shenoy says, “Instead of customising R/3 which would have required us to make a further investment, we decided to re-engineer our business processes to suit the R/3 package.” For instance, purchase negotiations used to be conducted at the Bangalore head office; this activity was shifted to the plant. The release of payments (invoicing and verification) was done at the plant; this task was shifted to the head office. The process re-engineering to suit R/3 led to a smooth deployment, with L&T Infotech as the implementation partner. The apex steering committee identified ten key functional heads for training, who, in turn, trained fifty other users. In August 2003, MTR went live with SAP R/3 and cut out the parallel processing (legacy applications).

akhtar@expresscomputeronline.com