Listen Now

Discover how a leading agri-equipment company transformed supply chain chaos into competitive advantage by shifting from a push-based to a pull-based system during the COVID-19 crisis.

From chaos to control - Shifting to a pull-based system in agri-equipment

Hello and welcome to the Counterpoint Podcast. I'm Shubham Agarwal, and today, we're talking about a timeless lesson from a turbulent time: how a crisis can reveal the critical flaws in a business and how fixing them can lead to a sustainable competitive advantage. We'll be looking at a case in point from the agri-equipment business.Let's rewind to early 2020. The agri-equipment industry was looking at a great season, but then came the unprecedented COVID-19 lockdown.&nbsp;It resulted in a complete loss of a peak sales month. But as the country began to open up, a massive and rapid surge in demand followed.&nbsp;Dealers were selling off their inventory so fast that they were even offering cash to get new equipment. It was a golden opportunity.But the manufacturers couldn't deliver. The entire system choked. Why?&nbsp;The problem wasn't a lack of demand; it was a severe&nbsp;supply crunch. This situation exposed critical symptoms of a dysfunctional supply chain:1. Supplier struggles:&nbsp;Tier-1 suppliers were unable to ramp up production due to broken working capital cycles, constrained plant capacity, limited logistics, and the persistent threat of future lockdowns.2. Operational chaos:&nbsp;As a result, OEMs could not maintain production schedules and their plants were forced to operate at low capacity.3. Hoarding:&nbsp;In the face of uncertain supply, dealers and branches began hoarding inventory, driven by the fear of shortages.Under pressure to utilise limited capacity and meet sales targets, manufacturers and their channel partners engaged in a series of self-defeating behaviors, creating a self-reinforcing vicious loop.There are two basic concerns that aggravate during such times:1. The manufacturing mismatch.&nbsp;To keep production lines running, OEMs would assemble whatever they had parts for, even if the final product was not in demand.&nbsp;This practice consumed limited components, in a process we call&nbsp;‘material stealing’, and valuable production time, in a process we call&nbsp;‘capacity stealing’,&nbsp;on products that would not sell immediately.2. Pushing unwanted stock.&nbsp;To meet billing targets, companies pushed any available finished goods to dealers, regardless of what the dealers actually needed.&nbsp;This left dealers with non-moving stock, tying up their working capital and preventing them from buying and selling in-demand products.This dysfunction highlights a core conflict - companies want to respond quickly to market demand, but to do so, they need a smooth, stable production flow. However, the reality of the situation with erratic supply, frequent plan changes, and fragmented control, makes a stable flow impossible.The fundamental conflict, as people are currently solving it, is between two things:1. Responding to market demand by pushing available stock.&nbsp;People choose this because it offers the illusion of control and an immediate, measurable outcome, a completed sale.2. Maintaining stable, predictable production.&nbsp;This is chosen when the team wants to improve efficiency and reduce costs.&nbsp;However, in a push-based system, any attempt to maintain stability is quickly abandoned when faced with immediate market urgencies, leading to a cycle of firefighting and chaos.People choose the first option because it offers the illusion of control and immediate financial gain, while the second seems to fail in the face of unpredictable conditions.&nbsp;The result is a system with no protective inventory, leading to chronic instability and poor performance.So, what’s the way out?&nbsp;The solution requires a complete paradigm shift from a ‘push’ to a&nbsp;‘pull’ system, based on the principle of using strategic buffers to decouple the supply chain.The principles of this solution are simple yet powerful.1. Buffering against variability:&nbsp;Instead of pushing inventory to dealers, a company should hold finished goods stock at an aggregated central location, like a warehouse. This stock acts as a buffer to absorb demand spikes.&nbsp;Replenishment to dealers is based only on what they have sold, preventing hoarding and ensuring the entire system responds to real consumption.2. Ensuring ‘full kit’ availability: At the plant level, maintain buffers of all necessary components to protect production from supply uncertainty.&nbsp;The plant’s production should then be driven by the actual off take from its finished goods warehouse, not by unreliable forecasts.3. Suppliers as partners:&nbsp;You can't do this alone.&nbsp;Encourage suppliers to implement a similar ‘pull’ system.&nbsp;They can maintain their own finished goods buffers and produce to replenish what the OEM has consumed, rather than following rigid monthly schedules.&nbsp;This provides them with much-needed working capital relief and reduces overall supply chain inventory.The transition should be done systematically in phases to avoid overwhelming the system.1. Phase 1:&nbsp;Stabilise the supply chain for&nbsp;‘Runner’&nbsp;variants, the high-volume, regular-selling products. This is where the highest leverage lies.2. Subsequent phases:&nbsp;Once runners are stable, the company can move on to&nbsp;‘Repeater’&nbsp;and then&nbsp;‘New/Stranger’ variants.3. Use a priority system:&nbsp;A simple, color-coded system can be used to manage priorities and signal replenishment needs.<ul style="list-style-type:disc;"><li>Black will signify stockout, signalling urgent replenishment needed.</li><li>Red will stand for stock below one-third of the target level.</li><li>Yellow&nbsp;is stock is at a sufficient level and Green is stock is at a healthy level.</li></ul>The solution isn't just about changing processes; it's about building a foundation of trust and stability.<ul style="list-style-type:square;"><li>Support supplier finances:&nbsp;Implement a&nbsp;"bill discounting"&nbsp;mechanism with a financial institution.&nbsp;This allows OEMs to leverage their strong credit rating to get suppliers paid faster at a lower interest rate, ensuring business continuity for their partners and an uninterrupted supply for themselves.</li><li>Proactive safety:&nbsp;During a pandemic or other similar disruption, create a dedicated ‘COVID Care Team’ to ensure compliance with health norms, both at the OEM's plant and at the supplier's facilities.&nbsp;This reduces the risk of future shutdowns.</li></ul>The effectiveness of this approach is not just theoretical.&nbsp;International Tractors Limited (ITL), which already had a pull-based system in place before the pandemic, serves as a powerful example.&nbsp;While other companies struggled with supply-side chaos, ITL was able to respond to market realities with agility.&nbsp;In July 2020, ITL recorded an impressive domestic growth of &gt;71%, far surpassing the industry average of&nbsp;38.5%.&nbsp;Their cumulative domestic growth was the highest in the entire tractor industry. This demonstrates that a robust, flow-based system provides a sustainable competitive advantage, even in the most turbulent times.That's it for today's episode! Until next time, stay curious, stay informed. This is Shubham, signing off.

In this episode of the Counterpoint Podcast, host Shubham Agarwal explores how a crisis exposed deep flaws in the agri-equipment supply chain—and how one company turned chaos into competitive advantage. Learn how shifting from a push-based to a pull-based system helped stabilize operations, align production with real demand, and build resilience across the value chain. A must-listen for anyone interested in supply chain transformation and business agility.

Let's Empower Growth