Kirloskar Agri

Video Case Study

Consumer Goods & Retail,

Mr. Antony Cherukara, CEO, VST Tillers and the former Business Head of KOEL Agri, discusses the prevalent supply chain challenges present in the Agri-Equipment business and how shifting to pull-based supply chains has optimised inventory and de-stressed the operations for themselves and their suppliers.

Client Speaks

Mr. Antony Cherukara
Chief Executive Officer, VST Tillers Tractors Ltd.

Mr. Antony Cherukara, discusses how by adopting a pull-based supply chain, companies can become flexible enough to adjust themselves to changing market demand in such a way that sales loss for the company can be prevented while simultaneously de-stressing operations both for​ themselves and their suppliers.

What are the major problems faced in the agri-equipment businesses that make this environment very challenging?

In the agriculture scenario, there are always ups and downs. There is the issue of good rainfall, good monsoon. There is the issue of crop prices. And, these are uncontrollable, and hence, there is considerable fluctuation in terms of demand.
The unpredictability of the market plays out onto the manufacturing front because there is a sudden spike in demand in certain parts of the country, and if you are not able to supply on time, you will lose a sales opportunity. Manufacturing is under pressure, but you can also not keep manufacturing inventory as too much of manufactured inventory with you can mean that you will have to carry that inventory to the next season as well if the season doesn’t play out.
There is also the whole push pay system that we work with to ensure that the collections come in time. Typically, the collection comes in early in the month and then the billing is skewed towards the month end. This creates a problem with the supplier end because the raw material is already bought, and the inventory is lying at the supplier end. This queue creates a problem of cash flow for the supplier as well, wherein, he cannot procure raw material for the next month’s demand. Thus, as you can see, this creates a problem not only at the company level but for its suppliers as well.

What was the impact of these problems on the business?

I think the biggest factor was the loss of the sale itself. When you have such unpredictable demand, and then you’re not able to supply on time, customers move on to competitors and then you lose sale. So that is number 1, and number 2 is the efficiency of the organization in terms of the time spent on shortage meetings, the time spent in scurrying to ensure that supplies are maintained.
People had to be rushed to the supplier and made to sit overnight and somehow manage the material, and bring it to the company for the- next day’s production.
Thirdly, the aspect of losing inventory rotations, not able to ensure that the right models are available at the right time at the Market place – this stops your rotation from happening, and that creates a problem at the supplier end, especially with the pandemic situation that is going on. Suppliers were short of cash, and there were issues with the MSMEs. So, there were problems not only in terms of supply constraints, but also in terms of the pandemic itself where there were lockdowns, where there was a situation that people were not turning up for work because they got infected with the virus, etc. All these factors further magnified the problems when the inventory flow is not maintained.

How can these issues be solved?

For that we need to know what are the inventory that we should carry into a season. There should be a way to optimize inventory if the season does not play out as expected.
So, fundamentally, what we have been able to create is the buffer at various levels and ensuring the buffer is more at the back end than the front end where the variation in demand is the highest as it is closer to the consumer. What we have done is ensuring that the variation in demand is taken care of by the buffer that we have kept at various locations, including the warehouse and the factory. This ensures that there is no last minute rush, while taking care of a falling demand too through a dynamic buffer system.
The other aspect is that in the last one and a half years we have faced a lot of commodity inflation, and it was important that the suppliers also had a good view of what raw materials they should carry and what kind of buffer they should carry to manage this inflation. This has been an immense help not only for the company but the suppliers as well to manage their inventory in an efficient way during this fluctuating commodity inflation.

Question You have helped lead implementation of ‘pull systems’ in the supply chains of two companies. Can you share your experience?

As a Business Head at KOEL (Kirloskar Oil Engines) and now as the CEO of VST Tillers, what I have understood is that a fundamental aspect that a CEO has to deal with is the amount of resources that is at his behest to garner growth for the company. So, what happens is, if you create efficiency with the current resources, and if you can free up resources to do work that garners growth, you are on the right path. And, that is what TOC enables us to do because we are out of the firefighting mode, because we are able to focus on stuff which is long term and important, because we are able to save time away from the daily firefighting that we are used to do. This enables the same resource to work towards growth and other opportunities the market throws up. So that is one big factor that I’ve seen.
The second aspect is in terms of creating complete visibility and the ability to manage with agility in a situation where things are out of your control. For example, this system enables you to monitor raw material inventory to ensure that your inventory is optimized for the coming season, and manage this kind of volatile commodity inflation pressures that keeps happening in the industry.
The third aspect is that we have seen people used to sit around, work late into the night, prepare for ‘shortage’ meetings which they would have to do in the morning the next day, etc. With the implementation of pull systems, those kinds of meetings are avoided, and people can actually get back home on time, and I think that creates a great work life balance for people. So, all in all, I think it kind of creates a social engine in the company which is about people, about the culture and how you go after growth.

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