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Tata Motors supes up operations

With rapid growth in both its domestic and international business, the vehicle manufacturer wanted to introduce a slew of products to cater to burgeoning demand. With a supplier relationship system that lacked transparency, accountability and was unable to scale—it was time for a change. Implementing a supplier relationship management system has helped Tata Motors fix things says Akhtar Pasha

Probir Mitra, Senior General Manager-IT, Tata Motors could not stop smiling as his team recently won the SAP Award for Customer Excellence (ACE) 2007 for the best automotive sector implementation (Large Enterprises) for Supplier Relationship Management (SRM) and Warehouse Management. The implementation has redefined supplier processes and leveraged technology applications in warehouse operations conferring operating benefits. The project has helped the company increase the overall efficiency of its operations helping it expand into new markets—around the world and at home with new product rollouts. Mitra said, “IT is not desirable. IT is essential.” While SAP ERP was the foundation for the company’s transactional systems, it has built a strong platform and the SRM and Warehouse Management solution have helped it reach the market faster.

Let’s look at the ERP implementation first in order to better understand the SRM and Warehouse Management solution and get a 360 degree snapshot of the entire implementation.

The company’s manufacturing base is spread across Jamshedpur, Pune and Lucknow, supported by a nation-wide dealership, sales, services and spare parts network comprising over 2,000 touch points. Tata Motors was using functional and location-specific solutions developed in house. These solutions were built based upon local and individual perceptions and therein lay the rub. For example the Materials Management and Sales and Finance functions were on three different systems at Jamshedpur, Pune and Lucknow. Even the databases were different. Since these systems had been developed over long periods of time, they were on multiple platforms and therefore it was difficult to consolidate the data and merge it. Mitra explained, “Common and rationalized processes and practices across all organizational units were not enforced. Therefore, managing functions like HR, sales and finance across three manufacturing units spread across the country and their corporate office was tedious and time-consuming. Integrated functions like materials management and payment processing were separate entities, causing delays in individual transactions. This led to an unnecessary increase in overhead costs and duplicated efforts at each unit.”

Tata Motors soon understood that it needed a unified real-time database that gave up-to-date information to all of its stakeholders—both internal and external. It had to move from legacy decentralized platforms to a consolidated enterprise platform and rationalize business processes across various units. This would give it an enterprise-wide perspective across process and IT infrastructure. The company could then serve its customers much better and faster, all the while reducing operational costs and cutting manufacturing cycle times.

The company took the strategic decision to go in for a SAP ERP Solution with the goal of lowering customization and upgrade costs. Risks, which emanate from attrition or change of guard in the company, would also be minimized. “SAP has clear superiority in the market. It had a large presence, so we chose the SAP ERP R/3 solutions for our company. The results have definitely exceeded our expectations,” said Mitra. Tata Motors outsources its IT to Tata Technologies, which is a 100 percent subsidiary of the former. Tata Technologies became the implementation partner. In 1997, when the seed of implementation was sown, the WAN infrastructure in India did not permit a single server implementation. Hence a distributed server implementation was done in stages over a period of two years between 1998 and 2000. The SAP version used was 3.1H. In August 2003, the company moved from SAP 3.1H to 4.6C on a single server platform. Today, there are 3,500 users across the country. Once R/3 was implemented, extensive rationalization of processes took place. Various business processes like materials, finance, logistics, etc. were stripped down to their basic components and a lot of re-engineering had to be done, as all these processes became location-independent. Tata Motors also opted for the standard cost functionality, which was a significant business process change for the company.

With the SAP ERP Solution in place, Tata Motors has experienced significant benefits in terms of productivity and cost control. The number of servers as well as the number of different applications that run on them has been greatly reduced. Disaster recovery management is being done only for one entity rather than for every application. Non-value-add activities have been put on the back burner. The implementation of a single SAP instance forced a much required change in the organization. There is a significant reduction in inventories and better control over receivables and other forms of credit control. A shared services platform has also been created for IT and shared financial services. The financial consolidation time has been reduced to almost two weeks. The statutory compliance of quarterly closing of books and audit has been largely facilitated by SAP. Compliance activities have become more structured and easier to manage.

SRM for accountability and efficiency

Rapid growth in its domestic and international business led to the introduction of many new products. During the past four years, Tata Motors has launched about 55 new products in the commercial vehicle space alone. The company found itself supporting about 1,500 plus product variants, consequently transaction volumes increased exponentially. The increase in transaction volume strained and overstretched the infrastructure and human resources. The existing VCM system (Value chain Management; a homegrown Win dows-based system using an Oracle database) that managed supplier relationships could not scale up to meet the diversifying demands of the function as VSM was old technology. Mitra said, “The number of Goods Receipts Notes (GRN) increased significantly from 6,000 to 16,000. The time required for new projects is heavily dependent upon supplier collaboration.” For any tenders it took 20 to 60 days for approval of quotations from suppliers because a number of processes had to followed, there would be much iteration before a tender was cleared.

As supplier management was fragmented it was difficult to do global spend analysis for all our plants and give advice to suppliers on total volumes. Additionally the vendor (supplier) bill payment system was not in place. Suppliers used to do 15,000 to 20,000 transactions per day and 80 percent of these were covered under the Bill Market Scheme (BMS), which was a invoice verification program that had to be complied manually. The vendor payment window was long (48 hours) and the company wanted to shrink this process. Now with SAP SRM, bill payment is done electronically.

Scheduling agreement is done in R3 and schedule lines are created through MRP and transferred to the SRM system. A vendor accepts schedule lines and sends a confirmation through the SRM system and creates invoice details and the same are uploaded as ASN (Advance Shipping Notification) in the system. The ASNs are grouped by vendor into one or multiple consignment numbers with bar codes having consignment numbers and item details. The consignment is converted to inbound delivery in R/3 from the SRM. The vendor physically brings goods along with a consignment barcode printout to the gate of Tata Motors. For a given consignment, GRS will be created for the included ASNs. Stores are updated and quality checks carried out. Invoice verification is done by authorized users and those that match the Purchase Order and vendor invoice are directly posted and a payment list generated based upon payment terms.

Mitra said, “The SRM system has helped reduce processing time for vendor payments from 48 to 24 hours. This reduction in vendor payment cycle time has enabled Tata Motors to get better terms and cash discounts in purchases. It has consequently reduced the manpower required for processing vendor payments in Tata Motors. The manual work has gone down by 60 percent.” For e.g. there has been a significant reduction in manpower deployed in the Materials Receiving function. A single bar code enables multiple supplier shipments reducing the goods receipt cycle time at the entry gate leading to a reduction in turnaround time for vehicles by 50 percent.

The SAP solution has helped Tata Motors serve its customers better and meet all their needs. Since information is now available in real-time, they are able to respond quickly to their customers, vendors and suppliers. “Previously, you had to pick up data from four different locations and consolidate it before you could update your customer. Now, we have up-to-date information about the customer right up to his last transaction,” said Mitra.

The project began in November 2004 and went live in April 2005 for 1,100 vendors. The solution was rolled out to other vendors in all locations from April to June 2005 adding up to a total of 1,700 vendors.

Flexibility in floor space; optimizing warehouse costs

The company’s Spare Parts Division operates a number of warehouses across the country—it has regional warehouses in Gurgaon, Kolkata, Pune and Bangalore. The spare parts business is considered a strategic part of the company’s business. A study of the warehouse operations revealed that customer satisfaction levels were low because of poor order fulfillment. Many a time the customer was either under or over served and sometimes with the wrong products. To raise efficiency levels and revenue, the decision was taken to implement a RF-based Warehouse Management Solution (WMS).

There were a couple of issues that the company wanted to sort out with a proper WMS. It’s goal was to reduce errors in order fulfillment, increase warehouse output and eliminate potential loss of sale. Mitra added, “We were wasting floor space and we wanted to optimize our warehouse costs. For example, we had to keep dedicated bins to stock all the materials in different locations within the warehouse.” If Tata Motors had 11,000 items, each of these had to be kept at a fixed location. In other words, if the company had 11,000 items then it would require that many locations to store them. Even if 40 percent of those items had zero stock a separate bin was allocated—leading to space being wasted. “We wanted a flexible approach for optimizing the floor space. With SAP WMS the fill rates are higher leading to less storage space [being required]. We have increased the throughput of warehouses by 40 percent. There is 100 percent accuracy in physical inventory. We are using Radio Frequency enabled Dynamic Binning (Put Away) that has eliminated manual procedures for tracking inventories,” added Mitra.

The WMS project kicked off in January 2006 and went live that April. The Tata Technologies team that implemented the solution consisted of three functional consultants, one ABAP consultant and one Project Manager. The business team from Tata Motors comprised of a Project Manager and a Business Process Owner. The ASAP methodology was followed for this project.

The SRM deployment has resulted in seamless integration with suppliers and streamlined the warehouse management at Tata Motors. The biggest benefit has been the creation of a large, unified database for the entire company. “Now anyone across the enterprise can just look in and easily find out what customers we have, who our suppliers and vendors are, what prices we offer, etc. It brought a synergy in purchasing by strategically sourcing critical components for the entire organization. This has resulted in strategic partnering with vendors with volume discounts,” concluded Mitra.

akhtar.pasha@expressindia.com