Tata Automobile Corporation South Africa Pty Ltd (TACSA) distributes commercial vehicles above 3.5 tonnes from the Tata stable in South Africa and the neighbouring countries through 43 dealerships. From the days of selling over 5,000 vehicles per annum, sales had dropped post-recession and are around 2,000 currently.
“One of the triggers to regaining market share was the availability of spare parts,” says Dhananjay Bedekar, GM - After Sales Service, TACSA.
The impact on brand image due to non-availability of spares was a cause for worry. Adding to the criticality was the profile of TACSA's customers — a majority of them are owners who drive the vehicles themselves, adds Bedekar. So a day off the road for the vehicle would mean a negative impact on revenue.
Vector Consulting Group, which handles Tatas' retail brands Westside and Landmark, was introduced to the issue when Noel Tata, MD, Tata International, mentioned it in the course of conversation.
“We started in November 2011. The problem was one of high inventory and non-availability of spares — both at the same time. At times, orders had to be flown in to meet urgent demands,” explains Puneet Kulraj, Founding Director, Vector Consulting.
Auto spares need to be available at all times, and companies also want this part of the business to be a profit centre. Vector applied the Theory of Constraints (TOC).
TACSA's 50-odd dealers are supplied from its warehouse in Johannesburg, which in turn is supplied by Tata Motors Ltd (India) and Tata Daewoo Commercial Vehicles (Korea). Importing also had a role to play in delayed supplies and excess inventories.
The average inventory comprised stock equivalent to 10 months of sales. Kulraj explains that in comparison, in India just four to five months of sales in stock is maintained, on average. TACSA's multiple-year service commitments to buyers demanded that adequate stock was in place. However, it wasn't the ‘right stock'.
While the total inventory was in abundance, shortages in specific spares and SKUs (stock keeping units) were witnessed.
“The principles in application of TOC to inventory management include: (i) Not to use forecasting as a mechanism to decide on inventory stocking and ordering, and moving the supply chain to replenishment mode, and (ii) Reducing lead times, and hence the inventory holding,” adds Kulraj.
Based on the data of a year, a safety buffer was put in. Thereafter, the system was moved completely to ordering based on current consumption.
“After the exercise, we expect inventory turns to move from 1.2 to 4 (or 10 months' stock to three months' stock). The intent is also to assess and arrest the revenue loss on account of purchase of substitute spares. The target for availability of SKUs is over 95 per cent. This is best achieved by plotting availability everyday, which is currently at 90 per cent,” adds Kulraj.
The inventory that is already present will take time to get exhausted, he admits. The company may even look at disposing excess inventory of certain SKUs.