Riding the ERP Wave
Date: Tuesday , February 01, 2005
It is the last day of the month. Meghana Motors, a dealer of Hero Honda in downtown Banglaore is preparing the monthly order and sales plan, based on the model and color of motorcycles being sold and also keeping in mind seasonal shifts and customer moods. He sends in this data to the Marketing Office, which is then uploaded to the system.
Requirements from the Bangalore dealer and 550 other dealers from across India—not just specific orders but the model and color as well—are gathered and compiled automatically and passed over to the sales and distribution module of the ERP system. This demand plan triggers the MRP, which compiles the production material requirement plan.
“By streamlining production to match with the demands of the market, we are able to give the customer whatever color or model he asked for. Earlier all of this was not a well co-ordinated exercise,” says Balasubramanian, CIO of Hero Honda. “Now the demand plan, the assembly plan, the manufacturing shops plan, and the materials requirement plan, all work to a common target. It used to be tedious, time consuming and often resulted in buffering at various stages. Now all parts of the organization work in unison,” he continues, elaborating on how ERP has changed the way Hero Honda does business today.
This monthly plan then is given to the production module provided in the ERP package. The work is divided between Hero Honda’s two existing plants in Dharuhera and Gurgaon, both in Haryana. Once this is completed, a weekly plan is drawn for each plant, further translating into a material requirement sheet. This indeed is a complicated task, given the fact that the every single bike requires an assembly of more than 850 parts. Weekly plans further breaks up into a daily plan order and an according bill of materials is compiled. This tells the shop floor manager exactly what material to put out of the store to make the required number of bikes per day.
“With the use of ERP package, today there is less inventory on the shop floor and within our stores,” says Anil Khopkar, CIO of Bajaj who has also, like Balasubramanian, steered the implementation of SAP ERP at Bajaj.
This is very true at TVS Motors as well. “Earlier we had 7 to 8 days of inventory. Today we have less than two,” says Venkat Iyer, CIO of TVS Motors.
A typical motorbike needs an assembly of approximately 860 parts. Of these, 90 per cent such as wheel, seats, and handles are procured from third-party vendors. Only 10 percent such as the frame, body, and fuel tank are made in-house. Therefore, managing and building a strong network of accessories is considered the most critical aspect of this business. Large resources to meet rocketing demand call for more suppliers. Be it Bajaj, TVS or Hero Honda – all are using information systems to connect to their suppliers, thereby keeping pace with its production.
Bajaj has gone around and connected its suppliers to the central ERP system using SAP portals and an electronic data interchange system (EDI) system. A supplier in far away Madurai or Coimbatore can simply log in and be informed of his delivery schedule for various components. Suppliers can then send in their invoices through the Web and receive an automatic token number. This means is when suppliers deliver their components, they can just show the token number and the data regarding the material delivered is automatically entered into the system. With this, Bajaj has been able to cut down on both billing time and the required period for material flow. “Earlier, a truck bringing in material would wait not less than four hours at the gate. Now within 25 minutes they move into the assembly line. The material becomes available at the store within10 minutes after the truck is in,” says Khopkar. “You will not find many examples of this kind around here [in India],” he adds.
Once the truck enters the gate it goes to the “receive section” where the material is offloaded, inspected and sent for in store stocking. According to the vast warehouse architecture plan initially built into the ERP, the truck is directed to the exact rack and bin where the material has to be stored. A “Goods received” note is made and the ERP system throws up the payment to be made to the vendor. The ERP system now knows the inventory lying unused and can plan for availability at the production unit.
“Earlier, whatever material stock we had was noted on an excel sheet. The information wasn’t widely available to other units. The ERP system we have in place, today, automatically processes a Manufacturing Resource Planning (MRP) schedule on every Saturday morning. With this we know if the demands of all our plants is met,” says Iyer. “Running MRP has no meaning till every physical process in an organization is captured on to the ERP system,” he adds.
Now let’s look at what happens on the assembly line. When the engine is assembled it is bar-coded and scanned, and then heads for assembly. When the frame is assembled and bike is almost completed, it is scanned again and an entry is made to the ERP system. The final scan is done after quality check and entered into the ERP system just before the bike is sent for dispatch.
For example, at Bajaj Auto they use an efficient dispatch mechanism. The company uses wireless radio frequency handheld bar-code scanners with real-time connectivity to its SAP system to keep track of its vehicles. Bajaj had developed this kind of a dispatch system even before it implemented ERP. Once they had ERP in place, the company integrated some of its best practices like the dispatch mechansim into the ERP system. With such a novel integration, the company’s productivity has increased 50 per cent, as the number of vehicles dispatched per person per shift currently stands at 450, from 225 previously.
This is where supply and dispatch module of the ERP becomes involved. The newly manufactured bikes must be dispatched to various dealers across the country. Bikes are loaded onto the trucks and an entry is made as to which batch is en route to which dealer. A message is then sent to dealers indicating to them that the motorcycles have been dispatched and their likely receiving date of the bikes. The ERP system also bills each dealer, even throwing up the invoice.
Once the motorcycle is removed from the assembly line and dispatched, the ERP system automatically reduces stock and the financial team is alerted to make funds available to procure raw material for another motorcycle.
“Earlier if the motorcycle was take off the assembly line, someone in the dispatch section would fill in the number of motorcycles that have gone out. This information would never or reach very late to the procurement and financial department. Now with the wonderful ERP system, at one click the whole system gets restructured,” says Iyer.
Having implemented an ERP solution from the same vendor, how are these three players differentiated in the marketplace? The “catch” is in the method of technology deployment. Each of the companies have implemented and used the ERP solution in a different way. For instance, Hero Honda initially spent around $2 million to deploy its ERP system. With support from the management and the employees, it took just eight months to implement the ERP. What matters is the quality of implementation, the courage to use improved business processes, the adoption of best practices and the program of continuous improvement. “We recovered our initial investment in about 15 months time,” says Balasubramanian proudly, “A quick RoI depends on how effectively you have deployed and used the ERP effectively.”
What has given Hero Honda a significant advantage over competitions is its adoption of technology to integrate key vendors and dealers. Using the SRM and CRM modules of SAP, Hero Honda is able to connect to our suppliers and dealers on-line and transact both ways. There is transparency and partners are able to view the status of their orders, the delivery schedules, dispatch status, payment details, and outstandings. Due to the drastic reduction in the time spent on routine co-ordination, people concentrate more on the main business and forecasting information. Implementation of Business Intelligence has further added to the company’s capabilities by drawing more meaning out of the data and information collected.
Each of the three CIO’s recognizes the role of technology as an enabler of business and is committed to having the world’s most responsive enterprise resource planning system. They have put the pieces of its operating model in place and are deriving business value by ensuring continuous online information flow right through the supply chain.