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Escorts cost reduction case
Submitted to Prof. Atanu Chaudhuri
Submitted by: Group 7 1. 2. 3. 4. 5. 6. Meghana Katiki (PGP28230) Priyanka Gupta (ABM09035) Ashok Patsamatla (PGP28275) Mansi Dhamija (PGP28261) Vipul Banthia (PGP28251) Arun Ginjala (PGP28246)
the company cost structure didn’t look good. Escorts has played a pivotal role in the agricultural growth of India for over five decades. In the year 2008. the company has a full range of tractors to cater to the domestic as well as overseas markets. Along with sagging sales. viz. The immediate need was to contain costs. Powertrac and Farmtrac. What are the data points you would seek and why. is among India’s leading corporations operating with diverse products: agri-machinery. auto components. The group has 15 modern manufacturing facilities & an extensive marketing network spread across the country. To assess possibility of cost reduction using publicly available data 2. Escorts has already sold over 6 lakh tractors. Escort. construction and material handling equipment. Its tractors are marketed under three brand names. Spanning these three brands.Case 7a. with Escorts Limited as its flagship company. financial services. There was no scope to initiate actions on sales front due to cost constraints. You are given a 3 day window to spend time with top officials of Escorts to assess internal state of affairs. Escorts has evolved as one of India’s largest conglomerates.000 75000 tractors 14% Rs 2000 Crore 33 800 150 350 6500 1|Page . Table 1: Some Facts Total Tractors Sold Total Manufacturing capacity per year Market share (as of 2008) Annual Revenue Number of Area offices Number of Dealers Number of Territory Managers Number of suppliers Number of employees 600. health care. the newly appointed CEO of Escorts Agri Machinery division is worried about the state of company financials. One of the leading tractor manufacturers of the country. information technology. Create a data requirement table with details of data point /duration/purpose. railway components. Escorts Agri Machinery Group Having pioneered farm mechanization in the country. Background: Escorts Group The Escorts Group. ETL is a public limited company and is a market leader in the Tractor industry. He calls you in and lays down following objectives – Is there opportunity to improve cost structure significantly? If yes what is the quantum? Our task is 1.
the company cost structure didn’t look good. The immediate need was to contain costs.7 Figure 1: Snapshot from Financial statements (2007-08) Along with sagging sales. 2|Page . The following snapshot from the balance sheet shows that the Revenue has fallen by 14% Decline in sales = 2293. Figure 2: Snapshot from Financial statements (2007-08) There was no scope to initiate actions on sales front due to cost constraints.70−1968. There was a sharp decline in export sales from 5468 tractors last year to 1401 tractors this year.Present (2008) situation The company was facing low sales given the recession.92 = 14% 2293.
Figure 4: Potential opportunities for controlling cost Reducing Inventories From the following the financial measures we can estimate the amount of inventory in the supply chain Escorts Agri-machinery group. Figure 5: Snapshot from Financial statements (2007-08) 3|Page . Figure 3: Spend management Area of focus form the present study Costs could be contained by implementation of Lean operations through the following potential opportunities.1: Possibility of cost reduction Cost could be decreased in a number of ways as depicted in the following figure.7a.
31 Current Ratio Quick Ratio Inventory Turnover Ratio Days of supply With each tractor costing an average 4. This was causing repeated service requests to Escorts and an increase in After-sales costs.99 15.00. Materials and Finance can be merged to attain Economies of scale. Activities that are duplicated like HR. The production was driven by shortage lists. 150 territory manager and 350 suppliers. an IT system should be implemented. Reducing rework In 2008. 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐷𝑒𝑚𝑎𝑛𝑑 𝑝𝑒𝑟 𝑑𝑎𝑦 = Sales per day 365 = 46958 = 365 129 Production should be planned based on market demand and effort should be made to reach 100% adherence level. The present planning time is 15 days.000 Rs.400 million in just finished goods inventory. This can significantly reduce the planning time. Railway Products and Construction Equipment. resulting in leakage from safety valves and choked filters. Sharing resources amongst Escorts subsidiaries Escorts has various subsidiaries like Agri Machinery. To be able to this demand visibility should be provided to all stakeholders. 4|Page . Auto Products.Table 2: Important measures of Inventory (2007-08) 2007-08 1. a problem was detected in the hydraulic lifts of tractors of Escorts owing to oil contamination.42 25.17 2006-07 1.12 0. an inventory of 874 tractors means locking up Rs. The factory should churn out only 129 tractors a day though it has a capacity of 400 in order to meet the demand and decrease inventory. A better connectivity is required but this cannot be done manually. gut feel and manual adjustment as of 2008. To coordinate the details from 800 dealers.16 0.10 24. Figure 6: Snapshot from Financial statements (2007-08) Demand forecast mechanism As we can see there is a lot of inventory in the supply chain.9 14.
Cash flows for the organization Sub-entity break up will give better picture of financials Spend to sales ratio by location or business unit. Escorts Agricultural Machinery had 6. 4.2: Data Requirement Table We need to categorize and disaggregate the spending based on the following matrix to assess cost reduction: Figure 7: Categorize the overall spends Table 3: Data Requirement Table Data Point Financial break up for AMG (investments. Balance sheet. 7a. top categories by spend. cash flows) Products sales data Duration 3-4 years Purpose Escorts Ltd. Raw material. Aligning them with Lean culture could be achieved by a series of training sessions and facilitated discussions.Intangible potential areas of cost cutting For the success of any Lean operations all the stakeholders should be involved in the process. Dealers and suppliers should also be made part of the lean culture for success.500 workers. 2. 5|Page . This can help streamline the manufacturing and supply chain processes. Large-scale interactive process should be implemented to bring together workers and executives to dissect customer feedback threadbare. For example to tackle the problem of hydraulic lifts. category Pareto analysis Production mismatch can be identified and better integrated with demand-supply in terms of model mix and volumes Split of WIP. 2-3 years 3. P&L. finished goods to check bottlenecks or specific piling up locations in supply chain Amount of cash locked-in and the data for operational efficiency and liquidity 1. The implementation of IT suggested earlier will aid this too. This will link the workforce to the market. teams including suppliers and dealers should be formed who could give us their feedback on the products. Demand forecastsindustry level. product level Inventory – Product category wise split Working capital/Cash availability Weekly or monthly data over 2-3 years Weekly records over past 3 years Quarterly over 3 years 5.
fill rate 14. Product portfolio details and specifications All product lines. Annual Reports of Escort Group 3. KPIs for operational efficiency.6. In 2008. who could give their feedback on the products.800 dealers. e.The Escort group communiqué 4. spend by business unit. World of Escorts. lead times. www. Inventory turnover. obsolescence. response time/service levels (CRP. Information on inventory management data.com 6|Page . CPFR. VMI systems) To analyze any trend or specific feature that might be leading to cost increase. ROI 13. 9. Quality and safety issues in products 2-3 years Monthly/weekly data over an year All products Return rate. revenue growth. Distributors. 7.over 350 Wages over past 2 years Weekly data for 2-3 years Recent addition of any tool/ERP Quarterly data Quarterly data Productivity levels.escortsgroup. To be analyzed from financial information available and the insights given by functional and divisional managers Supply chain performance indicators 10. leakage from safety valves of hydraulic lifts of tractors was sorted by a team comprising suppliers and dealers. References 1. etc. benefits Initiatives like SGA and it’s cost-benefit Centralized planning.market share. annual 12. 8. Financial Statements of Escorts Group 2. 32 offices 11. top suppliers Distribution network. coordination in the supply chain Pareto analysis.g. 150 territory managers. Labor Material Planning cycle SCM using IT Suppliers. days of supply.
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