Asian Paints SCM Project

7/30/2019 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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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

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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


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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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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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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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

77

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

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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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Asian Paints SCM Project

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