Sailing Against The Tide: The JCB Implementation Case Study
September 7, 2015
About The Company
JCB India is a 1 Bi USD company into the business of manufacturing and selling earth moving equipment. JCB Parts and Service Division is responsible for sales of spare parts and service to machines post sale across the country. The company understands that any breakdown and down time of the earth moving equipment is significant damage to its customers and hence strive for 100% parts availability to ensure that the machine break down time comes down significantly.
About The Environment Before TOC: Company has around 18,000 parts in its system. Company sources these parts from a network of 600 to 700 vendors located in India as well as outside India. Parts are distributed through a network of 80 dealers spread across India, and around 500 retail outlets owned by these dealers. The monthly planning process was used by retail outlet managers to demand parts and quantities for their outlet from a central warehouse. Dealer’s parts manager at a warehouse would decide what to supply and how much. The constant conflict between part manager and retail outlet manager would happen based on demand and approved supply. Based on aggregate demand from outlets, dealer would place one single large order on JCB in the beginning of the month. During month, he will order whatever is needed urgently. JCB used to offer incentives for such monthly order placement by dealers.
Unique Challenges Faced: The unique challenges faced by the environment are as follows:
- Higher availability needed for the entire range of 18,000 parts (and not just in fast moving parts)
- A small range of fast moving and long range of slow or non-moving parts - most of parts slow moving (sold once in 3 to 6 months) or non-moving parts
- Inability to discontinue non-moving parts due to legal and service obligations
- 40% to 50% of inventories held by the company as well as dealers were non-moving or slow moving category reducing the scope to significantly improve inventory turn
- Significantly higher unpredictability of parts demands from individual customers – Equipment move from region to region, hence which retail outlet will need which parts is highly unpredictable.
- Competition from cheaper spurious products in market
- Demand completely driven by the need (when the machine fails, then only the customer wants to buy part) and no impulse buying hence limitations to liquidate tail. Giving discount can’t make customers to buy non-moving parts
- Dependency on quality of retail outlet manager on parts availability (his experience matters)
- Resistance from dealers on several accounts to implement TOC due to the slowdown in the industry.
The Solutions Implemented
Replenishment model till retail outlets: From vendors to JCB CWH, RWH, dealers CWH and retail outlets. It also involved developing new processes considering specific challenges of the environment.
TOC Business Innovation concepts
The Key Results Achieved
- Develop solutions for end users/equipment owners to significantly reduce machine breakdowns and increase parts sale
- A business Innovation process to identify best attachment for development to focus on which can give significant impact on equipment users and hence sales for the company
- Using key steps of CCPM for NPD process
- Sustaining through the slowdown: Sales grew by around 10% in two years while market shrunk by around 20%.
- Unheard of inventory turn, fill rate and the number of parts:
- Consistent high same day fill rate of orders (and not just availability) for JCB, since August 2014 the fill rate is 93%+ for all 18,000 parts (improved from around 70% to 75%).
- Significantly higher and consistent availability of parts at dealers warehouses and outlets (in the range of 85 % to 98% at outlets, improved from 60% to 70%)
- Improvement in inventory turn by 25% to 30% at company level (considering fact that half of the inventory is slow or non-moving) and by 50% excluding dead inventory.
- Achieved inventory turn of ~9 on TOC Parts that contribute to 90% of sales.
- More than 75% drop in emergency orders from dealers, indicating better service level (Emergency orders are raised when equipment is broken down and parts are not available with dealers)
- Released management attention not only from the JCB supply chain, also from dealer’s business
The Challenges Addressing Now: Focusing on further improving dealer’s business
Almost half of non-moving or slow moving inventory, making it difficult for them to significantly improve inventory turns
Inability to liquidate non-moving or slow moving parts since demand is need driven
Making the decision to add new parts due to slow down in the equipment business
Qualification- B.Tech (Mechanical engineer)
Total Experience: 18 years
Subhash has been working with JCB India Limited for 17 years and worked in following functions:
- Product quality testing and in process production quality for 5 years
- Supplier Quality Assurance system- 3years
- Parts Purchasing- 2 years
- Worked as Core team member for SAP implementation
- Managing Parts Planning and supply chain function for last 8 years, handling 20,000 SKU’s, 700 suppliers and 4 warehouses
- Heading the TOC implementation project in organization since November 2012
In 2012, Subhash did PoC of replenishment solution at his own and delivered impressive results. With the help of those results, Subhash convinced his management to embark on TOC journey despite industry facing slowdown in 2012.
CHANDRASHEKHAR CHAUDHARI is a Mechanical Engineer and has completed his ‘Post Graduation’ in operations from one of the leading operations business schools from India. 2002 to 2008 he has worked with the Godrej Group (one of the leading and more than 100 years old business house in India.) He has worked on several TOC implementations, many of them within the Godrej Group of companies.
Since 2008 he has been associated with Goldratt Consulting and involved in various ‘Viable Vision’ implementations in various companies across the globe in different roles. He loves to develop and experiment with new solutions beyond traditional TOC solutions and share new knowledge at various forums including TOCIC.
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