Ride: Charging the Supply Chain

Pradip Bagchi, GM – Supply Chain Management (SCM) at Ride Industries Limited, was getting ready for
the Ride’s Board meeting in the coming week. Ride 1, a brand that is more than 100 years old, had been
enjoying a huge success in terms of large market share and profitability. In the changing competitive
scenario in the Indian battery industry, Ride had been working on several dimensions to maintain its
dominance in the market. For the last few weeks, Pradip had been grappling with several supply chain
strategic issues that would attract management intervention on the supply chain parameters. Pradip and
his colleague, Surajit Majumdar, had been interacting with the operations faculty at IIM Calcutta. He was
looking at the last email from the professors that had a list of recommendations based on some analyses
they had done for Ride. His thoughts were interrupted by Surajit, who knocked at his door to remind him
of another trip to IIM for a meeting with the professors. Pradip took the print out of the recommendations
and headed for Joka.

The Indian Battery Industry

The Indian battery industry, mainly comprising the lead acid batteries, is a mature industry in terms of
technology. The other battery types, such as Nickel-Cadmium (Ni-Cd) and lithium-ion, are relatively in
their early stages of development. In 2013, about 70 percent of the battery industry revenue came from
the organized sector. The future of the battery industry is promising in India owing to the increasing
deficit in power generation. As a consequence, demand for backup power requirements from industries
such as Information Technology (IT), financial services and telecom have been increasing.

The major raw material for battery production is lead. It comprises more than 70 percent of the raw
material cost. During the last five years, due to the rising cost of lead, depreciation of rupee, and a big
recession in the global automobile sector, the battery players have been facing huge challenges of
reducing margins.

The key competitive factors in the battery industry are the brand name, sales and distribution network,
ease of the replacement, service, price, and quality. The battery market comprises of two major segments:
Original Equipment Manufacturer (OEM) and trade (replacement). Both the segments in turn are broadly
classified into automotive and industrial applications.

Profile of Ride

Ride brand is synonymous with battery in India. The largest battery player, it has been the most trusted
brand both in the OEM and trade segment. The competitive strategy of Ride is driven by high quality of
its products, large variety at the stock keeping unit (SKU) level, robust and large distribution network,
and long term relationship and trust with the dealers. The select financials of Ride for the four years till
Financial Year 2013-14 is provided in Exhibit 1.

Ride has eight production facilities spread across the country. From a supply chain view-point the firm
has categorized its activities into five regions. There are two plants in the northern region, two in the
eastern region, one in the southern region and three in the western region. Ride has an annual aggregate
capacity of producing eight million automobile batteries, including motorcycle applications, and around
600 million ampere-hours of industrial applications.

Automobile Applications:

Ride has 72 percent share of the OEM market and 70 percent share of the organized trade market. In the
battery industry the entire OEM demand is met by the organized players. However, the trade demand is
met by both organized and unorganized players. The Company supplies batteries to all major car and two-

1
The company was initially known as Chloride Electrical Storage Syndicate. One of the critical ingredients in
making the plates of battery is oxide. Having perfected the technology, Chloride coined the brand name "Ride", a
derivative acronym from the term 'Excellent Oxide'. Source: http://www.rideindustries.com
wheeler manufacturers in the country. Brand image, service quality and reliability are the key
differentiators in the trade market. Ride operates with a very wide distribution network consisting of more
than 2000 dealers. The company also caters to the international market with presence in Middle East, CIS
countries and Japan.

Industrial Applications:

Ride has a dominating presence in the market for industrial application of batteries. Design and
manufacturing capabilities include wide range from 2.5 Ah to 20,600 Ah of batteries. Industrial batteries
are of three types: conventional lead acid batteries, VRLA (Valve regulated lead acid) batteries and
Nickel-Cadmium batteries.

Industrial batteries are mainly used in applications such as railways, power generation, telecom, solar
cells, and UPS. Ride is also present in niche segments such as miners’ cap lamp batteries and submarine
batteries.

The Supply Chain at Ride

The manufacturing process and facilities

Figure 1: The Manufacturing Process
The manufacturing process
followed at Ride is as shown
in Figure 1. Based on the
technology, there are two
broad categories of batteries:
dry and wet ones. The
charging of battery is
integrated with the production
process for dry batteries. They
are shifted to the factory
warehouse after completion of
the assembly process. In wet
batteries, the charging is a sep-
arate activity that is taken up
only after the completion of the
battery assembly after which they are shifted to the factory warehouse. It is important to ensure that the
finished product reaches the customer as quickly as possible so that the loss from self-discharge is not
significant. High self-discharge could lead to insufficient charge at the time of installation, which in turn
could lead to quality problems and customer complaints.

The eight manufacturing plants are identified as F21, F22, F31, F32, F41, F51, F52 and F53. The first
number in the factory code indicates the region in which the plant is located. F53 indicates that the plant
is the third one in region 5. Plants F21 and F22 are only functioning as charging facilities for wet batteries
while plants F31, F32, F41, F51 and F52 are used for production, assembly and charging (based on
requirement) of wet batteries. After assembly, wet batteries can be charged either in their respective
manufacturing plant or in F21 and F22. Dry batteries are produced, assembled and charged only in F51
and F53.

The outbound logistics network

The outbound logistics network at Ride comprised of two channels: OEM supply chain and trade
(replacement) supply chain. Around 40 – 45 % of the business comes from the OEM segment. The
balance business comes from the trade segment. Managing the OEM supply chain is less complicated as
(i) the business operated on high volumes and moderate variety, (ii) there were no tiers between Ride
and the OEM, and (iii) firm orders were provided almost a month in advance by the OEMs. However,
the margins are also lower in this business owing to the high bargaining power of the OEMs.
The trade supply chain management is an area of Table 1: Warehouse and Hub Details
concern to the management (see Figure 2). It WH-H d Spokes
Region WH Hub
comprised of many tiers: the batteries are dispatched (kms) Covered
from the manufacturing plants to the regional 200 H101 S101 to S106
warehouses. The firm has 9 regional warehouses, W11, W11
10 H102 S107 to S110
W12, W21, W22, W31, W32, W33, W41 and W42 1
10 H103 S111 to S112
(refer Table 1). The first number in the warehouse code W12
300 H104 S113 to S115
indicates the region in which the plant is located. W42 10 H201 S201 to S206
indicates that the warehouse is the second one in W21 1000 H202 S207 to S211
region 4. Though a particular regional warehouse may 1300 H203 S212 to S213
receive most of its material from a manufacturing plant 400 H205 S214 to S215
located in the same region, it could also receive 2
500 H206 S216 to S219
material from a plant located in another region when W22 300 H207 S220 to S223
there are capacity issues in the nearby plant or if the
10 H208 S224 to S 226
nearby plant does not produce certain battery types.
350 H209 S227 to S228
From the regional warehouses material is dispatched to 10 H301 S301 to S304
the hubs, which accounted for about 35% of the W31 250 H302 S305 to S309
dispatches to the dealers. The rest of the batteries are 700 H303 S310 to S311
dispatched to the dealers from the spokes. A spoke 200 H304 S312 to S317
received its material from the hub under whose 150 H305 S318 to S321
jurisdiction the spoke fell. The firm has no warehouse W32 400 H306 S322 to S326
3
in region 5 and material is dispatched from the region 5 10 H307 S327 to S331
plants directly to the hubs. The firm has 40 hubs and 50 H308 S332 to S338
164 spokes. Some of the hubs are located in the same 350 H309 S339 to S341
city as the regional warehouse but the inventory points 450 H310 S342 to S347
are separate. The spokes are, on an average, located at W33
10 H311 S348 to S352
a distance of about 100 kms from their respective hubs. 300 H312 S353 to S356
10 H401 S401 to S406
Transportation is currently done exclusively by road. W41 400 H402 S407 to S412
The trucks involved in transporting the products from the
550 H403 S413 to S416
manufacturing plants to the regional warehouses are
10 H404 S417 to S419
not involved in the outbound traffic from the regional 4
500 H405 S420 to S423
warehouses to the hubs. Similarly, the trucks involved
W42 600 H406 S424 to S429
in transporting batteries from the regional warehouses
to the hubs are not involved in the outbound traffic 450 H407 S430 to S433
from the hubs to the spokes. The diagram below 450 H408 S434 to S437
650 H501 S501 to S506
directly from plants

describes the outbound logistics network at Ride. The

Material received

trucks engaged in transporting the products from the 250 H502 S507 to S510
manufacturing plants to the regional warehouses 150 H503 S511 to S513
typically have a payload capacity of 16 Tonnes. The 5 20 H504 S514 to S520
trucks engaged in transporting the products from the 850 H505 S521 to S524
regional warehouses to hubs and from hubs to spokes 400 H506 S525 to S526
could be of payload capacity between 9 and 16 Tonnes. 100 H507 S527 to S528

Figure 2: The Trade Outbound Logistics Network

→ Spoke → Dealers
Factory → Regional → Hub → Dealers
Warehouse Warehouse → Spoke → Dealers
→ Spoke → Dealers
Factory → Regional → Hub → Dealers
Warehouse Warehouse → Spoke → Dealers
The Ride dealers, who number about 2000 across the country, make their own forecasts for the various
products they sell and place their orders at the hub or spoke under whose jurisdiction they fall under. The
order is accepted only to the extent of material being available in the hub or spoke. For instance, if the
retailer’s requirement of a particular battery is 45 and the available stock is 25 at the hub from where he
orders, the hub would only take an order of 25 from this retailer. On confirmation of the order, the dealer
has to immediately make payment to Ride. The ordered material is delivered at the dealer outlet within
two to three days’ time of receipt of payment. Ride operates small size pickup vans that can negotiate
narrow streets and crowded areas for delivering their products at the dealer outlets. This activity is as per
a “Fixed Journey Cycle Plan” (FJCP) with a defined frequency (usually twice a week). A particular trip of
the van typically covers many outlets.

Ride offers over 500 battery types in the Table 2: A Sample of Ride Replacement Batteries
replacement market. Though the choice
Material Weight Manufacturing factory and factory code
of the battery for a new vehicle is a
Code (kgs) F21 F22 F31 F32 F41 F51 F52 F53
decision by the OEM, Ride recognizes
that there are differences between the AA1 11 √ √ √ √
vehicle users when it comes to ordering AA2 17 √
a replacement battery. Many customers AA3 17 √
choose their replacement battery purely AA4 17 √
on cost basis while a good number of AB1 11 √ √
customers opt for quality aspects like AB2 14 √
durability and reliability. The Ride AB3 11 √ √
replacement market has focussed BA1 36 √ √
strongly on this customer segment and
BA2 41 √
has been fairly successful in maintaining
its margins on the strength of its BA3 36 √ √ √ √
replacement market brands. Table 2 BB1 29 √
provides a sample of 20 batteries that CA1 23 √
the company is currently selling. The DA1 28 √
first letter of the material code indicates DA2 23 √
the application (example: passenger car, EA1 2 √
scooter) and the second letter indicates EA2 2 √ √
the brand (either A or B). The brand “B” EA3 2 √ √ √
is the higher priced one. The number in EB1 2 √ √
the code indicates the sample variety in
EB2 2 √ √ √
a particular application-brand
combination. FA1 18 √

The planning process

The supply chain planning department plans the OEM and trade sales on a monthly basis, where sales of a
particular month is decided in the latter half of the previous month. The former is planned based on inputs
received from the OEM, while the latter is based on actual sales data. A planning month comprises of four
weeks, in which the last three weeks are of seven days duration. The remaining days in that month fall in
week 1. As an illustration, week 1 of July refers to July 1 to 10, week 2 refers to July 11 to 17, week 3
refers to July 18 to 24 and week 4 refers to July 25 to 31. Hence, the first week of a month could be of
duration 7 days to 10 days, depending on the month of the year.

As batteries are heavy products, priority is to meet demand to the extent possible from production facility
of the same region so that transportation costs are minimal. After the demand projection exercise
mentioned above, the production allocation exercise is carried out. After factoring current stock levels net
of the buffer, production is allocated to the manufacturing plants of the respective regions. Production that
cannot be met owing to capacity constraints are taken up in a factory of another region. The above table
indicates the plants where the 20 sample batteries are currently produced.

OEM supply chain

The OEM supply chain of Ride comprises direct shipment from the nearest plant to the OEM site. The
customer orientation of Ride is evident from the fact that the capacity expansion has been done in
proximity to the OEM. The Bawal plant was initially installed to ship frequent deliveries to Maruti.
Demand planning is pull based as OEMs typically share their 3-4 months production schedule with Ride.
The lead times are pre-specified and order fulfillment is usually done through relational contracts.

Current Challenges in Supply Chain Management at Ride

Ride has been losing market share in recent times to Amara Raja Batteries Limited (ARBL). ARBL
increased its organized replacement market share from 14% in 2010 to 22% in 2013. It increased its
market share in the OEM market from 24% in 2010 to 28% in 2013. Though much of its growth has been
driven by a low-cost and pricing strategy, it poses threat to Ride in the premium segments that compete
on quality. In this context, it has become very critical for Ride to not only preserve its position in the
premium segments but also to tap supply chain management concepts for reducing costs and speeding up
the material movement from its plants to the dealers.

The data accompaniment to this case provides the despatch, receipts and sales data for the 20 sample
batteries for the year 2013 (April 1, 2012 to March 31, 2013). The despatch data has five fields: battery
code, despatch location, destination, despatch date and despatch quantity. The receipts data has four
fields: battery code, receipt location, receipt date and receipt quantity. The sales data has four fields:
battery code, sale location, sale date and sale quantity. A negative quantity indicates cancellation of sales
that is already booked. Using the despatch, receipts and sales data, evaluate the performance of the firm
on the following aspects.

1. Analyse the weekly sales of one of the batteries of your choice (for instance AA1). Is the weekly
sales uniform across the month?
2. Analyse the weekly despatches from the manufacturing plants for this battery. Are the weekly
despatches uniform across the month?
3. Determine and analyse the inventory of this battery at all the tiers (factory warehouse, regional
warehouse, hubs and spokes). Hint: You may assume a non-negative number as the starting
inventory such that there is no negative ending inventory in any of the 48 weeks.*
4. Determine and analyse the total lead-times of this battery. Assume one day transport time
between same region factory and regional warehouse, three days transport time between factory
and regional warehouse/hub of separate regions, one to two days transport time between regional
warehouse and hubs, and one day transport time between hubs and spokes.
5. Map the material flow and check whether the flows are as per the network design for this battery.

Based on the above performance evaluation, (i) identify the major areas of concern, (ii) formulate supply
chain strategies given Ride’s challenges from competition, (iii) suggest appropriate changes to the
existing supply chain for achieving these strategic goals, and (iv) develop an optimal transportation plan,
with truck fleet details, for the supply chain suggested by you.
*
For a given time period, the closing stock at different tiers is determined by following formulae:
Closing stock at factory warehouse = Opening stock + production – dispatch
Closing stock at regional warehouse = Opening stock + receipt from factory warehouse – dispatch
Closing stock at hub = Opening stock + receipt from WH – dispatch to spokes – sales at hub
Closing stock at spoke = Opening stock + receipt from hub –sales at spoke
Exhibit 1: Abridged Balance Sheet and Profit & Loss Statements
Source: Annual Reports

Balance Sheet 2013-14 2012-13 2011-12 2010-11

Shareholders' fund 3731.46 3,423.59 3,057.31 2,742.45
Liabilities 1225.16 1,124.76 1,033.83 864.55
Source of Funds 4956.62 4,548.35 4,091.14 3,607.00

Fixed Assets 2708.99 2,565.65 1,962.35 1,789.61

Current Assets
Current investments 372.41 180.73 648.07 503.2
Inventories 1185.57 1,167.10 965.01 858.94
Trade receivables 516.64 509.19 402.30 366.22
Cash and bank balances 119.95 74.79 57.67 14.74
Short term loans and advances 53.06 48.2 51.32 63.47
Other current assets - 2.69 4.42 10.82
Total Current Assets 2247.63 1,982.70 2,128.79 1,817.39
Application of Funds 4956.62 4,548.35 4,091.14 3,607.00

Profit & Loss 2013-14 2012-13 2011-12 2010-11

Revenue from Operations 5964.24 6,071.37 5,110.06 4,547.33
Total Revenue 5997.27 6,147.25 5,177.32 4,651.47
Expenses
Cost of raw materials consumed 4009.98 4,160.24 3460.74 2962.36
Purchase of traded goods 3.29 14.52 7.30 61.49
Increase in WIP, finished goods, and
traded goods (102.88) (136.03) (32.03) (200.86)
Employee benefit expenses 355.86 349.27 286.21 282.85
Finance costs 1.19 4.17 5.30 6.03
Depreciation and amortisation 125.60
expenses 113.48 100.68 83.46
Other expenses 881.15 899.32 703.95 562.91
Total expenses 5274.19 5,404.97 4532.15 3758.24
Profit before tax 723.08 742.28 645.17 940.16
Tax 236.00 219.50 184.00 273.80
Profit after tax 487.08 522.78 461.17 666.36