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PADMINI MOTORS LTD

A Lean Supply Chain Through ‘Just-in-Time’ System

Aft er the liberalization of the Indian economy in 1991, the auto sector was one of the
first few industries to face the stiff competition from the foreign MNCs, which started
putting their foothold on the Indian soil to tap the green market. Th e auto manufacturers
lost their government protection umbrella and had no other alternative but to remain
competitive by developing cost-based or differential-based competitive strategies. Within
the short span of 5–6 years, the market was flooded with world-class passenger car
models and multi-utility vehicles produced in India by the world auto giants like, Ford,
Mercedes, Hyundai, Toyota and so on.
Company Profile
Padmini Motors Ltd (PML) was amongst the old Indian veterans having started
manufacturing auto vehicles way back in the 1950s having its first plant in Mumbai
manufacturing a sturdy vehicle jeep in a single model to suit the poor road conditions
prevailing then. Padmini had a virtual monopoly in jeep markets commanding 85 per cent
of market shares till 1991. Aft er liberalization the scene changed. It became buyers
market rather than sellers’ market, which was prevailing prior to 1991. One world-class
manufacturer and one old Indian player entered in Indian market with a large number of
multi-utility vehicle models, giving more choice to the Indian customers. In the GPL
(globalized, privatized and liberalized) economic environment Padmini lost its monopoly
and its share reduced to 55 per cent. Two other players shared the balanced market
equally. In the changed competitive environment, Padmini observed the following:
„ Heightened customer expectations
„ Faster new product introduction
„ Shortening of product life cycle
„ Intense competition race for market share
To remain competitive and arrest the declining market share, Padmini adopted both cost-
based and differentiation-based marketing strategy. However, for the cost-based strategy
Padmini decided to focus on its supply chain to take cost out so as to make supply chain
more lean.
Padmini is currently manufacturing around 60,000 multi-utility vehicles per annum. Th e
product range covers 150 models. Th e fi rm has three main assembly plants of which
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two are located in Maharashtra and one is located in Uttar Pradesh. Th e assembly plants
are supported by four subassembly plants exclusively dedicated to engines (two), axle
and transmission gears. Th e firm has a vendor base of over 900 suppliers for 7,000 parts.
Th e vendors are located in and around, Mumbai, Delhi and Vapi. Padmini is marketing
its products through 20 area offices, which are controlling the network of 160 Padmini
dealers spread across the country.

Padmini employees a local work force of about 2,000 skilled personnel intensively
trained in their areas of specialization. Th e company endorses equal opportunities and
encourages women’s participation in the organization’s growth. Th e company has
exports contributing to 10 per cent of its sales turnover. Th e Padmini products are well
accepted by the local and international buyers because of its world-class quality and the
back up aft er sales service offered by the company to its clients.
Paradigm Shift
The company has gained its reputation over the consistent eff orts in making available to
its clients the quality products and a variety of models to suit their requirements. Th e real
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eff orts stared aft er the liberalization when the company got the first jolt by way of
substantial reduction in its market share in subsequent years. To counter the competition
and remain differentiated, the company focused on its supply chain (Figure 1). It adopted
the concepts of JIT (Just-in-Time) based on the ‘Toyota Production System’.
Traditionally the company was planning its production on the forecasts, which was based
on the customer demand trends observed in the past. Th e prevailing practices were as
follows:
„ Monthly requirements of sales based on forecast
„ Monthly production plan based on requirements of sales
„ Production plan translated into schedules
„ Vendor schedules based on production plan
„ Frequent changes in production plan due to demand variations
„ Corresponding changes in vendor schedules

To Create a Demand Pull

The push system, which was based on forecast, proved wrong due to change in the
customer’s taste, and the demand pattern and competition. Th e production panned on the
basis of forecasts was either inadequate or in excess of the actual demand. Th is resulted
in excessive inventory to meet the desired level of customer service. Th e products thus
manufactured were pushed through the dealer’s network to sell. To get over this problem
the company decided to adopt the principle of ‘sell one make one’ and go in for the pull
system so as to let production be demand driven rather than forecast driven. They
integrated its distribution, manufacturing and procurement operations by using latest IT
tools and connectivity equipment based on the latest technologies. Th e fi rm now had all
the supply chain participants on line with each other with proper information sharing
security policy. Th e current practices under the newly introduced pull system are as
follows:
 Replenishment action to start from dealers
 Dealer sales replenished by regional sales office
 Sales from regional sales office replenished from the fresh production
The firm had reviewed its product range and regrouped its products into two categories,
that is, 33 models contributing to 88 per cent of the company’s sales and 117 models
contributing to 12 per cent of sales (Exhibit 1).
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It was further decided that only FMG would be carried in the buff er stocks, while the
SMG models will be strictly manufactured against the fi rm orders. Th e buff er quantity
for replenishment worked out, considering the following:
 Forecasted average retail sales
 Lead time variable factor (considering logistics slipups)
 Demand variable factor (seasonal, short-term and regional pattern)
Thus getting daily orders from the dealers for FMG and SMG models created the demand
pull. With the buff er maintained at the depots, the dealer’s requirements for FMG
models were fulfilled within 48 hours from the regional offices. Th e weekly orders (fi
rm) from regional offices were sent to plants on both FMG and SMG models for
replenishment.
Planning and Scheduling
To support the field requirements, Padmini stressed on the planning and scheduling of
the manufacturing activities. The firms adopted a system of preparing and rolling out the
quarterly sales forecast
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for planning its manufacturing capacity and resources and preparing its monthly
production plans. Th e fi rm has clear distinctions between the manufacturing planning
and scheduling. Th e planning was for capacity booking and organizing resources while
the scheduling was for resources allocation and actual physical production of the product
on the shop floor. From the traditional practice of monthly production schedule Padmini
had shift ed to weekly production schedules to meet the replenishment at regional sales
offices. Th e weekly schedules were further refined by the daily replenishment
requirement from the regional sales offices, which were further getting the replenishment
requirement from the dealers on a daily basis.
Flexible Manufacturing
To support the pull system, Padmini had further adopted and implemented the concept of
‘let demand drive the production’ with the following objectives:
„ Hundred per cent order fulfilment
„ Reduction in order-to delivery time
„ Minimum pipeline inventory
To attain the objectives, the company had identified four key thrust areas such as
manufacturing flexibility, synchronous production of aggregate, increase in frequency of
ordering, and speed, frequency and automation of the information-processing system. Th
e company heavily invested in latest IT tools like EPR and installed SAP for supply chain
coordination on real-time basis. Th e company had gone for manufacturing flexibility by
regrouping its critical assemblies/components (Exhibit 2) into two categories, that is,
stocks and make-to-order
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For all the assemblies and components the delivery lead time was planned as 24 hours.
However, the buffers were maintained for FMG assemblies and components and for
SMG, it was decided to manufacture the same against actual orders. Th e fi rm went for
daily order processing for faster fulfillment of orders as against the weekly earlier. Th e
KANBAN system was introduced to have the speedy replenishment at the assembly line
from the sub-assembly and components stores.
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Material System
To support the flexible manufacturing, the demand pull was further extended to vendors.
Th e material system was devised to ensure the availability of all materials to meet the
scheduled production of the sub-assemblies and vehicles with simultaneous reduction in
acquisition costs. Padmini used the latest tool for inventory planning and KANBAN for
material scheduling. Over 90 per cent of material was put on the KANBAN
replenishment system for speed, accuracy and reliability.
Padmini has a wide base of 900 vendors spread across the country. For the reliable and
speedy deliveries the entire inbound logistics activities were outsourced to 3 PL fi rm for
transportation and storage at various points. Th e fi rm divided its vendors into seven
zones (Exhibit 3) for its plants. Th e 3 PL fi rm was responsible for the daily milk run (in
each zone) to collect the material as per the schedule to either send it to the plant
warehouse in case of the full truck load or keep it at the hub warehouse in the zone for
getting the truck load filled for dispatch to plants.
Th e limits for stock levels at the hub was always 1 day and daily shipments were panned
from hub to plants with limitation on transit time (5 days from Delhi to Nashik or other
plants) to meet the JIT requirements at the plant.
Achievements
As a result of supply chain initiative Padmini achieved its strategic objective of cost
leadership. Th e fi rm’s products are price competitively in the market and command
comfortable margins as compared to the competition. Th e inventory-related cost is
reduced to more than half as compared to the level 4 years back. Th e average finished
goods inventory level has come down to 5,350 in 2002 from 12,500 in 1999 (Figure 2).
For differentiation-based objective, the fi rm has a very wide product range of 150
models for the customers to choose from and is supported by the network of the
countrywide service centres for the aft er sales service. With the enhanced service level
backup, the customer satisfaction level is much above as compared to the nearest
competitor, which is half of that enjoyed by Padmini. Even though the market share of
Padmini did not grow, the supply chain management initiative helped the company to
improve its profit margins and customer service

Question:
1. Compare and contrast the SCM and traditional approach of Padmini to service the
market.
2. Discuss the role of 3 PL partner in meeting the strategic objectives set by the
company.
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3. What are the system inputs Padmini had planned for the SCM initiative to be
successfully implemented?
4. For flexible manufacturing what are the challenges and limitations ?