By: Ankit Mohanty Project Guide: Mr S.K.

Jaiswal

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Contents
What is SCM?
Where can it be applied? Benefits

Current Scenario of Materials Management in HAL,

Koraput Analysis Causes and Effects Suggestions Conclusion

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Supply Chain Management (SCM)

SCM is the management of a network of interconnected

businesses involved in the ultimate provision of product and service packages required by end customers. SCM spans all movement and storage of raw materials, work-in-process, inventory and finished goods from point of origin to point of consumption (supply chain).

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Where can it be applied?

Manufacturing firms
Retailers Services

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Benefits of SCM
Profitable growth
Working capital reductions Fixed capital efficiency

Global tax minimization

Cost minimization

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Current Scenario

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Analysis (Balance Sheet HAL KPT)

Inventory Turnover Ratio (Overall)
3500 3000 Value (in Crores) 2500 2000 1500 1000 500 0 2008-09 2009-10 Year 2010-11 0.52 0.57 0.91 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00

Net Sales
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Inventories

Sales/Inv
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Analysis (RD 33 Inventory)

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Inventory Usage (RD 33)

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Inventory Usage (RD 33)

40% 35% 30% 20% 10% 5% 37%

2009-10

2010-11

2011-12

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Trend of the Inventory Usage

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Effects
Over stocking of non mandatory spares which incurs

unwanted hidden cost to the company. Poor material planning. Very low inventory turnover ratio. Consumption pattern not in line with the purchase schedule. High amount of wastage. Actual shortage not taken into account. High production cycle time which leads to LD/MRO.
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Causes
Over dependence on Original Equipment Manufacturer (OEM) for

supply of spares (BOF). Terms and conditions being dictated by supplier due to monopoly. MOQ being decide by supplier depending on their own convenience. High Lead time for procurement (i.e. from projection of requirement by indenting department to the receipt of spares). Suppliers has own cycle time for manufacturing and delivery. Presence of various intermediaries like licensors (e.g. ROE) which increases time and cost. Difficulty in preparation of estimates in view of non availability of past procurement reference prices for several items & absence of price catalogue.
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Causes (Contd)
Many of the spares are not easily available (due to obsolescence).
The manufacturing lines have been closed at OEM plants in Russia for

some of the old project materials leading to high cost as manufacturing lines are especially re-opened for catering to HAL needs. The PNC are held only during IRSAs, the process is very time consuming, and do not yield desired results on many instances. Different MOQ are being offered by vendors. It becomes difficult to decide on L-1 i.e. whether to go on unit cost L-1 basis or cost to the company basis. There being no LD clause for supply of material to HAL by vendors and there is no choice for alternate supply HAL is constrained to extend the delivery schedules as per the vendor requests which hampers the material plan.
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Suggestions
Business Process Reengineering (BPR).
Spares Indigenization. E-Procurement.

SCM supporting tools (Kinaxis).

Implementation of Internal customer concept (TQM). JIT approach feasibility in current scenario.

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Fishbone Diagram
Indigenization E Procurement
Vendor rating, followup and introduction of LD
Vendor survey and LTBA as per year wise req. staggered fashion

Over dependence on OEM

Presence of Retailers Direct contact with OEM Forecast task variation leads to high inventory Regular followup with AHQ to have firm task for next year early

Internal Process takes 17 Months

High Lead Time (External)

High MOQ due to over dependence

F I S H
PNC being done during IRSA only

B O N E
Increase in nonmoving stock

Escalation factor very high as per norms Price catalog to be maintained to have effective PNC

Over Stocking Poor Material Planning Low Inventory Turnover ratio High wastage High Prod cycle time

Frequency of IRSA to be increased

P-factor for procurement needs revision

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Business Process Reengineering (BPR)

Planning of Indents
Estimation Indent to OEM other than Retailer

MOQ for materials/spares

Price Catalogue Vendor rating

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Spares Indigenization
Low dependence on Russian OEMs.
Low cost. Just in Time (JIT).

Reduced Inventory.
Scope for outsourcing.

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E-Procurement
E-Procurement reduces costs in three ways: Increased contract compliance Reduction in Transaction Costs Improved supplier leverage
E-Procurement provides tangible savings like: Increased profits Payback period of less than one year Spend savings of 5% - 10% Transaction costs reduced by more than 73% Cycle times decreased by more than 70% - 80%
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Potential Savings

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SCM Tools (Kinaxis Rapid Response)

Pioneer in providing SCM solutions in the Aerospace & Defense

sector. Some of their customers achievements:

Reduced excess inventory at one site by $600,000 in first month of

use Reduced inventory by $52 million in first six months of use Shortened time to respond to change from five days to under 24 hours Shortened time to perform "what-if" simulations from 160 hours to about 3 minutes (2-3 days for the most complex simulations) Reduced product lead time by 35% Avoided $4.6 million in inventory purchases (on one project alone) by accurately understanding inventory positions
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Kinaxis Rapid Response

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Conclusion
Thus the scope of the project work was limited to

study of Supply Chain of RD 33 Sr2 engines and can be extended to:

R11 R25 R29B RD 33 MFG

TG-16M
KSA-2 AL31FP
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