A Project report On Optimization of logistics cost by Milk-run and packaging improvements For Mahindra and Mahindra Ltd.

In partial fulfilment of the requirements of The Summer Project of Master of Management Studies Through Rizvi Institute of Management Studies & Research

Under the guidance of Prof. Narendra Sidhu

Submitted by Sameer Y Ingale

MMS Batch: 2011 - 2013

CERTIFICATE
This is to certify that Mr. Sameer Ingale, a student of Rizvi Institute of Management Studies and Research, of MMS bearing Roll No. 89 and specializing in Operations has successfully completed the project titled Optimization of logistics cost by Milk-run and packaging improvements.

under the guidance of Prof. Narendra Sidhu in partial fulfilment of the requirement of Masters of Management Studies by University of Mumbai for the academic year 2011 2013.

_______________ Prof. Narendra Sidhu Project Guide

_______________

_______________

Prof. Umar Farooq Academic Co-ordinator

Dr. Kalim Khan Director

ACKNOWLEDGEMENT
I would like to thank to my project Guide Prof. Narendra Sidhu for the invaluable help and support he extended during the project work.

I express my deep thanks to Mr. R Jambhavdekar, Head of SCM department, Mahindra and Mahindra Ltd. , for giving me this opportunity to undertake this project in this prestigious organization and providing a good environement to my work.

I would also like to express my sincere thanks to Mr. Jill Dasani, Assistant Manager Logistics for the support and encouragement extended to me during the course of the training. I would like to express my heartiest gratitude to all in the SCM Department Automotive Sector, for the co-operation they extended to me.

Last but not the least. I am thankful to our Director Dr. Kalim Khan for being the source of inspiration and Motivations to Strive for excellence.

TABLE OF CONTENTS
TITLE
PAGE NO

EXECUTIVE SUMMARY INTRODUCTION LOGISTICS MANAGEMENT MILK RUN CONCEPTS PACKAGING AND GREEN SCM SCOPE AND OBJECTIVES METHODOLOGY ANALYSIS AND FINDINGS RECOMMENDATIONS CONCLUSIONS

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EXECUTIVE SUMMARY
In todays world a company has to face stiff competition, locally as well as globally, in order to excel. The same fact is applicable to automobile industries. In order to excel in a particular sector a company has to ensure that its customers are satisfied. For this to happen it is important that the company functions efficiently from material procurement till product delivery. Hence it is important that the Supply Chain Department functions smoothly. All the component of a car cannot be manufactured by the company. Some of them are produced by the manufacturers who specialize in that area for e.g. tyres, glass, etc. Hence many of the companies buy parts from them. This is where SCM department comes in to action. Suppliers are selected on basis of their location, cost of the part, etc. Once a supplier is selected then the question of transportation arises. Many a times transportation of materials from the supplier to the buyer is done by a third person. The transportation charges are either paid by the supplier or by the buyer. This is decided during the buyer - supplier negotiations. This project was done in Logistics Department of Supply Chain Management (SCM) of Mahindra & Mahindra (Automotive Sector). This project is mainly concerned with the logistic cost of the company. One of the ways to save logistic cost is by reducing the transportation cost involved in procurement of parts. Hence for this project, parts for which the company (Mahindra & Mahindra) pays for transportation are taken into consideration. The transportation charge is based on either the weight or the dimension of the package. Hence the dimension of the package and the weight was noted down. This was compared with earlier data already available with the SCM department. On comparison, differences between the two sets of data were visible which was used to finding the savings involved. Also the quantity of parts in a package and the type of package used was also studied. Suggestions for improvements for the same are also provided.

Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

INTRODUCTION
INDIAN AUTOMOBILE SECTOR
One of the major industrial sectors in India is the automobile sector. Subsequent to the liberalization, the automobile sector has been aptly described as the sunrise sector of the Indian economy as this sector has witnessed tremendous growth. Automobile Industry was de-licensed in July 1991 with the announcement of the New Industrial Policy. The passenger car industry was, however, de-licensed in 1993. No industrial license is required for setting up of any unit for manufacture of automobiles except in some special cases. The norms for Foreign Investment and import of technology have also been progressively liberalized over the years for manufacture of vehicles including passenger cars in order to make this sector globally competitive. At present 100% Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. The import of technology/technological up gradation on the royalty payment of 5% without any duration limit and lump sum payment of USD 2 million is also allowed under automatic route in this sector. With the gradual liberalization of the automobile sector since 1991, the number of manufacturing facilities in India has grown progressively. The cumulative production data for April-January 2010 shows production growth of 23.07 percent over same period last year.

Domestic Sales
Passenger Vehicles segment during April-January 2010 grew at 25.21 percent over same period last year. Passenger Cars grew by 24.75 percent, Utility Vehicles grew by 21.95 percent and Multi Purpose Vehicles grew by 37.05 percent in this period. The overall Commercial Vehicles segment registered positive growth at 30.39 percent during April-January 2010 as compared to the same period last year. Medium & Heavy Commercial Vehicles (M & HCVs) registered growth at 20.58% while Light Commercial Vehicles grew at 39.66 percent.
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Three Wheelers sales recorded a growth rate of 25.77 percent in April-January 2010. While Passenger Carriers grew by 32.54 percent during April-January 2010, Goods Carriers grew at 4.20 percent. Two Wheelers registered a growth of 23.74 percent during April-January 2010. Mopeds, Scooters and Motorcycles grew by 31.73 percent, 20.56 percent and 24.32 percent respectively.

Exports
During April-January 2010, overall automobile exports registered a growth rate of 13.24 percent. Passenger Vehicles segment, Three Wheelers and Two Wheelers segments grew by 33.92 percent, 4.60 percent and 8.84 percent respectively in this period. Commercial Vehicles recorded growth of (-) 7.52 percent Indian car manufacturers are also earning rare reviews in the wider world. According to Global 200: The Worlds Best Corporate Reputations List, compiled by US-based Reputation Institute, India automaker, Maruti Suzuki India Ltd (MSIL) has earned the status of being the fourth most reputed auto company in the world, even ahead of its parent company Suzuki Motor Co of Japan. Tata and Mahindra & Mahindra are the leading names in the Indian original equipment manufacturers (OEMs) segment, creating waves on the global arena too. And given the stiff competition, Indian OEMs are continually upgrading their technology and are producing superior quality vehicles. Indian original equipment manufacturers (OEMs) like Tata and Mahindra & Mahindra are leading from the front on the global scene. And with India Inc facing increased competition from the global players, Indian OEMs have also been upgrading their technology and are manufacturing better-quality vehicles. Economical Engineering has being the flavour of the Indian automotive industry, with Indian OEMs making the best use of its cost-efficient and highly skilled work force. Also, the skilfulness of their suppliers has helped them in reducing costs and the manufacturing time. In fact, OEMs all across the globe are making a beeline to India to gain access to India-based design and development centres.

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Optimization of logistics cost by Milk-run and packaging improvements

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Indian Automotive Component Industry

The Indian Auto Component Industry had its small beginnings in the 1940s. If the evolution of this industry is traced in India, it can be classified into three distinct phases namely: 1. Period prior to the entry of Maruti Udyog Ltd (1940s to 1984). 2. Period after the entry of Maruti Udyog Ltd till economic liberalization (1984 to 1991). 3. Period post Liberalization (1991 onwards). The period prior to the entry of Maruti Udyog Ltd was characterized by low technology and assured business for most of the auto-component manufacturers who used to supply to a handful of players in the Indian automobile market like Hindustan Motors, Premier Automobiles, Telco, Bajaj, Mahindra & Mahindra etc. With the entry of Maruti in the 1980s, the auto ancillary industry in the country showed a spurt in growth. This period witnessed the emergence of a new generation of auto ancillary manufacturers who were required to meet the stringent quality standards of Maruti's collaborator Suzuki of Japan. The good performance of Maruti resulted in an upswing for the domestic auto ancillary industry. It was also during this period that auto components from India began to be exported. With the liberalization of the Indian economy in 1991 and coming of many foreign automobile manufacturers like Hyundai, Daewoo etc., the auto ancillary industry witnessed huge capacity expansions and modernization initiatives in this period. This also led to a tough competitive scenario, which saw a lot of consolidation, technological collaborations and equity partnerships within the industry and with leading global players abroad.

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Optimization of logistics cost by Milk-run and packaging improvements

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COMPANY PROFILE
Mahindra & Mahindra (M&M) was established in 1945 as Mahindra & Mohammed. Later on, after the partition of India, one of the partners - Ghulam Mohammad - returned to Pakistan, where he became Finance Minister. As a result, the company was renamed to Mahindra & Mahindra in 1948. M&M started its operation as a manufacturer of general-purpose utility vehicles. It assembled CKD jeeps in 1949. Over the passing years, the company expanded its business and started manufacturing light commercial vehicles (LCVs) and agricultural tractors. Apart from agricultural tractors and LCVs, Mahindra & Mahindra also showed its dexterity in manufacturing army vehicles. Soon, it started its operations abroad, through its plants set up in China, the United Kingdom and the USA. M&M partnered with companies prominent in the international market, including Renault SA, International Truck and Engine Corporation, USA, in order to mark its global presence. M&M also started exporting its products to several countries across the world. Subsequently, it set up its branches including Mahindra Europe Srl (based in Italy), Mahindra USA Inc., Mahindra South Africa and Mahindra (China) Tractor Co. Ltd. At the same time, M&M managed to be the largest manufacturer of tractors in India, by holding leadership in the market of the country, for around 25 years. The company is an old hand in designing, developing, manufacturing and marketing tractors as well as farm implements. It made its entry to the passenger car segment in India, with the manufacture of Logan (mid-size sedan) in April 2007, under the Mahindra Renault collaboration. Soon after the considerable success of Logan, M&M started launching a wide range of LCVs and three wheelers as well as SUVs including Scorpio and Bolero. In the present time, Bolero has gained immense popularity in India. It is one of the most opted vehicles in its.
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Mahindra & Mahindra is in the business of manufacturing of utility vehicles, SUVs, Light commercial vehicles in plants located in Mumbai, Nasik, Igatpuri production facilities in the state of Maharashtra and Zaheerabad in the state of Andhra Pradesh. The Haridwar production facility located in the state of Uttararkhand is the latest addition to the production capacity. M&M is the leader in this segment of utility vehicles with substantial market share in excess of 47%. The Kandivali plant which is situated within the Municipal limits of Greater Mumbai city is devoted to the production of Pick ups which include Bolero Flat Beds, MAXX, Maxi trucks and SOFT TOPS which include the Commander and CL.One of the oldest plants of Mahindra, the Kandivali plant was inaugurated on 2nd October 1964.The total area of the plant is 63 acres with a built up area of 26.92 acres. The plant provides employment to 2435 workmen and 625 engineers. The infrastructure at the Kandivali plant includes robust machining lines for Engine (cylinder blocks and head) Transmission (gears, Shafts and housings) and Axle (Housings and gears) along with highly efficient Heat treatment shop, Press shop and Tool room. The daily production capacity of the plant is 250 vehicles, 325 engines, 500 Transmission units and about 1000 axles. The presence of Mahindra & Mahindra in the Kandivali location has caused large scale development of ancillary suppliers in the vicinity of the plant. The entire assembly line involved in the manufacture of vehicles requires a large number of parts and components which are sourced from a huge and diversified vendor base. The transportation of all these parts to Kandivali location involves a huge movement of materials. The logistics costs involved therefore forms a substantial chunk of the total costs and any review which may lead to cutting down of logistics cost would add to the profitability of the entire operations. Packaging and storage also plays an important role. They not only help in saving costs but also help in improving material handling thus resulting in better production process.

Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

LOGISTICS MANAGEMENT

Logistics is the organized movement of materials and, sometimes, people. The term was first associated with the military but gradually spread to cover business activities. Logistics is part of the supply chain process that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers requirements. It describes the entire process of materials and products moving into, through, and out of firm. Inbound logistics covers the movement of material received from suppliers. Materials management describes the movement of materials and components within a firm. Physical distribution refers to the movement of goods outward from the end of the assembly line to the customer. Finally, supply-chain management is somewhat larger than logistics, and it links logistics more directly with the users total communications network and with the firms engineering staff. The process of logistics management differs from one firm to another. In some firms, all these activities are placed within a single logistics department; in others, they are shared among the departments. The firm may also go in for what is called third-party logistics, which is a contract with an outside party to perform specific logistics services. The following indicative list gives some of the functions that a firm's logistics management system is supposed to perform.

1. Customer Service: All the activities that are done to keep the existing customers satisfied come under the gamut of customer service. 2. Demand Forecasting: This process includes various statistical measures that enable the firm to estimate the demand in the future, which in turn helps in proper demand management.
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3. Documentation Flow: This process covers the movement of the paperwork that accompanies the movement of physical product 4. Interplant Movements: This is only applicable to those firms where production process is accomplished in more than one plant, requiring the movement of semi-finished products from one plant to another. 5. Inventory Management: Inventory management requires a cost effective maintenance of stocks of goods and materials. 6. Order Processing: Order processing starts with the receipt of an order from a customer and ends when the order is ready for packaging. 7. Packaging: Packaging is done mainly to protect the product when it is being transported from the source to the destination. It can also be used for promotional purposes. 8. Parts and Service Support: This covers the whole after-sales service process. 9. Plant and Warehouse Site Selection: This function is carried to determine where the plant and the warehouse are going to be located, keeping cost-benefit analysis in mind. 10. Production Scheduling: This function's task is to balance demand for products with the existing plant capacity and availability of inputs.
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Optimization of logistics cost by Milk-run and packaging improvements 11. Purchasing:

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This is a very important function in the logistics management as the quality of inputs that are purchased determines the quality of the finished product. Vendor selection is an important sub-process of this function. 12. Returned Products: There are many categories of returned products. A few are subjects of product recalls, meaning that a safety defect or hazard has been discovered. E.g. laptop battery recall by Dell. These products are removed from the shelves, and both retailers and consumers attempt to return them to the manufacturer. This is a form of reverse distribution, with goods moving in the opposite direction of their usual flow. 13. Salvage Scrap Disposal: How a firm takes care of its waste material is covered in this function. The firm might recycle its waste or sell the waste to various processors who specialize in recycling it. 14. Traffic Management: All the transport requirements needed to move a firm's freight is known as traffic management. 15. Warehouse and Distribution Centre Management: This logistics activity involves management of the locations where the firm's inventories are stored.

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Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

MILK RUN

The basic definition of a milk run is delivery method for mixed loads from different suppliers. Instead of each of several (say 5) suppliers sending a vehicle every week to meet the weekly needs of a customer, one vehicle visits each supplier on a daily basis and picks up deliveries for that customer. This way, while still five vehicle loads are shipped every week, each vehicle load delivers the full daily requirements of the customer from each supplier. This method gets its name from the dairy industry practice where one tanker collects milk every day from several dairy farmers for delivery to a milk processing firm Milk run scheme has worked as a catalyst for the automotive industry. Working on the effective planning of pick-up or delivery routing, it alleviates the burden of scheduling and dispatching of vehicles in vehicle-based internal transport systems. Adherence to the scheme bears fruits in terms of cost effectiveness and time saving. Milk run is one of the most commonly used terminologies in the Automotive Industry as on today. By definition Milk run is a transport and logistic technique for the collection and transport of goods from suppliers with a defined delivery route, in which various stops are planned and executed in terms of quantities and timing. Though being quite helpful for the logistics sector it also presents complexity at different levels like- at consolidation hubs for clusters of suppliers and different geographic levels (local, regional, national and international suppliers). Vehicle pickup or delivery routings often need to be planned; and are not random movements. Milk-run is a tested and proven method of optimizing a providers trucking (collection or dispatch activities) Transportation within Automotive spares today would require optimization in terms of cost and time. Milk-run method can solve the problem of scheduling and dispatching vehicles in vehicle-based internal transport systems within warehouses and production facilities within automotive and electronic industries. Depending on

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Optimization of logistics cost by Milk-run and packaging improvements

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the variables that matter to a particular vendor, milk-run routing of optimizing trucking can be used. Submission

IMPORTANCE OF MILK RUNS

Milk-Run especially becomes very important in cases where There is demand for multiple pick-up / delivery points for urgent services, hence there is a need to optimally prioritize A Service provider runs a number of vehicles (ex - trucks) to provide delivery / pick-up of items and hence needs to optimize the routes When automotive spares from certain manufacturing clients need to be urgently shipped on a JIT basis to the next stage in the supply chain Combine inbound and outbound logistics chain in a single vehicle. (To increase vehicle capacity utilization)

PROCESS
In order to run the Milk-run scheme, the nodal points of distribution are established. These might be collective pick-up / delivery points for the trucks / pickup vehicles. Then the variables that matter to the vendor for that particular process are determined like distance, cost, priority of delivery / pick-up, cycle-time or longevity of a product. At every point in a distribution network, Milk-run mandates an optimization of the said variables. This means that to the vendor, what matters for the pick-up and delivery of automotive spares are the variable distance, priority of pick-up or delivery, and shelf-life of the product, then weight age is given to each of these activities / variables and their pecking order in terms of priority is determined. So, at every nodal point, Milk-Run method is followed by the vehicles considering all the proximities with the above variables. So say from Node A in the network, the closest point for the truck would be Node B, but this will also be traded off against the other variables taken into consideration. So even though Node B might be geographically the closest, if Node C is at a little farther distance, C scores higher in
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terms of priority. The spares that need to be delivered at point C might be far more urgent than the spares needed at point B because an entire assembly line might be in wait of the spares at C while in case of B, no such glaring urgency might exist. So in terms of weight age, C receives higher importance and overall score of C is higher. Hence Milk-run would favor point C at the first Nodal point A. This would continue at every node until all requirements are met. Now considering the same truck not only for delivery but also for pick-up would add a whole new set of variables to the existing list. When so many variables exist, Milkrun is among the few simple yet tested method of optimizing vehicle routing.

Milk run practices in India

A study among few OEMs (Original Equipment Manufacturers) in India revealed that there is quite a bit of gap between the expectations of the OEMs to the services received from LSPs (Logistics Service Providers). As per one of the major OEMs in India currently their inbound supplies are delivered to the plant through the respective transporters. Most of the suppliers have DDU (Delivered Duty Unpaid) terms and hence this arrangement continues without the involvement of the OEM. The absence of a well defined, process oriented supply design is missing due to this. As per the present system every Vendor has his own choice of transporter leading to varied service level from each transporter. The understanding of the transporters about the system and the complexities due to lack of visibility also is one of the major gap which was found. The freight component of the inbound material is also opaque to the OEM as the transportation is still vendors responsibility. Hence driving efficiency through reduction in transportation cost is not in control of the OEM. The Indian OEMs feel that Single LSP approach for all vendors through an effective Milk run system as practiced in many other countries can bring in the much desired efficiency into the present system. The responsibility of the LSP would be to cover the entire spectrum of the supply chain starting from collection of component

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from the vendor, transportation to the warehouse, warehousing and line/dock feeding. The Milk run should bring in efficiency through effective utilization of resources by optimization.

MILK RUN LOGISTSICS

Why Milk Run

Inventory Control for High Value Parts Inventory Control for High Value Parts Smooth flow of Material to eliminate procurement uncertainties and hassles Logistics Cost Reduction through optimum utilization of vehicles Eliminate obsolescence creation

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LOGISTICS CONCEPTS
Mahindra procures around 5000 parts from around 441 suppliers. These suppliers are responsible for supplying automotive parts/components in all the categories like Transmission shafts and assemblies, Engine parts Suspensions and braking parts, electrical fittings and hardware. The requirement for these parts sourced from these suppliers is spread across the entire operations of Mahindra automotive section. The materials are procured from suppliers which are located in different parts of the country. Of the 441 major suppliers 50 suppliers are included in the category of Exworks, the remaining are Free Delivery suppliers. Ex Works is defined as buying based on a price quoted to the buyer without the inclusion of transportation or delivery to the buyers site. It just means that the manufacturer has the limited duty for producing and placing the finished goods at his factory or warehouse, and then the buyer collect it with his own transporter. Also a point to be noted is that the seller is not responsible for the loading and unloading of the goods and also not responsible the state of the goods once it has left his factory premise. On the other hand Free Delivery is buying based on a price quoted to the buyer with the inclusion of transportation or delivery to the buyers site. It simply means that the manufacturer is responsible for producing the finished goods and also for the delivery of the goods to the buyer. The manufacturer is also responsible for loading and unloading of the goods at the buyers premises. Like other automotive companies Mahindra has also introduced Milk Run concept to procure parts more efficiently. Milk run is delivery method for delivering mixed load from different suppliers. Instead of each of several (say 5) suppliers sending a vehicle every week to meet the weekly needs of a customer, one vehicle visits each supplier on a daily basis and picks up deliveries for that customer. This way, while still five vehicle loads are shipped every week, each vehicle load delivers the full daily requirements of the customer from each supplier. This method gets its name from the dairy industry practice where one tanker collects milk every day from several dairy farmers for delivery to a milk processing firm.

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In Mahindra milk run concept is used to procure parts from local vendors as well as from vendors located in Nasik. The transporter used for bringing parts from Nasik is JMD Logistics.

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Optimization of logistics cost by Milk-run and packaging improvements

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PACKAGING AND GREEN SCM

PACKAGING
Packaging is an integral part of the goods supply chain. It protects goods from damage, allows efficient distribution, informs the consumer and helps to promote goods in a competitive marketplace. The definition of packaging is a coordinated system of preparing goods for safe, efficient and cost-effective transport, distribution, storage, retailing, consumption and recovery, reuse or disposal combined with maximizing consumer value, sales and hence profit. Since packaging does not change a manufactured product in anyway it is tempting to easily dismiss it as non value added service, but importance of packing cannot be easily dismissed. Some of the importance aspects of packing are listed below. Protects the product against o Mechanical damages (shocks and vibration) o Electrostatic discharge o Corrosion o Dust o Theft Protects the environment against hazardous material, particularly chemical or radioactive. Protecting the handlers against the sharp edges which the product may have. Communicating information about the product through labels, kan-ban, barcodes, etc. Placing a cap on inventory. If there are fixed number of packages in circulation, then the amount of inventory of those items in the packages are limited to their content.
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Helps in optimum utilization of the truck used for transport.

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Optimization of logistics cost by Milk-run and packaging improvements

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GREEN SUPPLY CHAIN MANAGEMENT

Listening to Environmentally Aware Consumers As the public becomes more aware of environmental issues and global warming, consumers will be asking more questions about the products they are purchasing. Companies will have to expect questions about how green their manufacturing processes and supply chain are, their carbon footprint and how they recycle.

Profiting from Being Green However some companies have seen that this not a bad thing and indeed have been able to convert the publics interest in all things green into increased profits. A number of companies have shown that there is a proof of the link between improved environmental performance and financial gains. Companies have looked to their supply chain and seen areas where improvements in the way they operate can produce profits. General Motors reduced disposal costs by $12 million by establishing a reusable container program with their suppliers. Perhaps General Motors may have been less interested in green issues if they were making record profits, but in an attempt to reduce costs in their supply chain, GM found that the cost reductions they identified complemented the companys commitment to the environment.

Unaware of Potential Benefits Companies can find cost savings by reducing the environmental impact of their business processes. By re-evaluating the company's supply chain, from purchasing, planning, and managing the use of materials to shipping and distributing final products, savings are often identified as a benefit of implementing green policies.

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Despite the publics focus on the environment, benefits attributed to reducing a companys environmental impact are not in the forefront of supply chain executives minds. It appears that many executives are still unaware that improved environmental performance means lower waste-disposal and training costs, fewer environmentalpermitting fees, and, often, reduced materials costs. Hopefully the interest in green issues and environmental concern by the public will not wane as economic issues become more important due to the faltering economy.

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Optimization of logistics cost by Milk-run and packaging improvements

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SCOPE AND OBJECTIVES

Objective
There are around many ex-works suppliers who supply around 500 parts, according to the data available with the SCM Dept. The proportion of ex-works parts or parts for which the buyer pays the freight costs is therefore significant. Some components sourced from Ex-works delivery suppliers are also included in the Free Delivery category. Also a point to be noted is that the parts taken up for the project falls in the category of Ex-works. As the logistics costs for bringing the components to the premises rests with Mahindra Automotive section, a review of these costs is required. As these parts are ex-works any change in dimensions of the packaging will help in saving transportation cost. Also a discrepancy of non uniformity in the freight rates of the parts which are transported by JMD logistics is present. The transporter charges on per piece basis and not according to the dimensional or actual weight. The logistics costs therefore are exorbitant. Most of the parts delivered by JMD are from Nasik. When compared with the normal logistics costs for an equivalent distance of 190 Kms for a 9 tonne commercial goods carrier, the total costs charged by the transporter for the Milk run exceeds by a large amount. Freight cost charged for voluminous parts are more than the dimensional weights. Here the contribution of the Conversion Factor plays a very important role. Therefore on indentifying this anomaly it would be highly recommendable that the logistics costs should be reviewed. Many of the parts are bought in gunny bays. This causes lot of problems from handling and storage. Also there are some parts which are not properly / systematically arranged while packing. Improper packing methods lead to inefficient utilization of truck. To ensure proper implementation of milk run, the company has to ensure proper truck utilization. Hence there was a need to improve existing packaging methods.
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Scope and limitations

As mentioned earlier out of around 5000 parts 110 parts were selected for this project. This was does because analysis of all the 5000 parts is not possible as the project time was of two months. Similarly there are some more limitations of the project which are explained below.

Use of plastic packing/boxes Issues related to environment are given more importance in todays industries. Even in Mahindra SCM department is trying to implement Green SCM. One of the ways to reduce harm to environment is to use reusable plastic boxes for packing. These boxes can be used many times by sending the empty boxes to the supplier who in turn supplies parts in those boxes. But to return these boxes to the supplier the company has to spend around Rs. 1500/- per trip. Due to the complexity involved in planning and calculation of the costs this idea of using plastic boxes was not taken in to consideration.

Limitation due to Buying House One of the major suppliers of Mahindra is Sharda Motors. Sharda Motors does not manufacture all the parts it supplies. It acts as a Buying House, i.e. it procures some of the parts from its suppliers and directly supplies them to Mahindra. These parts which are bought from suppliers of Sharda Motors are packed in gunny bags. Suggestion of changing the packing material to cardboard or plastic cannot be implemented. This is mainly because these suppliers do not have sufficient funds for implementing the change and Sharda Motors would not help them in making the change either.

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METHODOLOGY

A list of ex-works part was obtained from Mahindra Logistics. As mentioned earlier there around 500 ex-works parts out of these some parts were shortlisted such that these parts are from different vendors and different transporters. Information about the supplier and the transporter can be obtained through SAP. The parts were then segregated according to their transporter and then on the basis of suppliers. This helps in calculating the freight charges as these are dependent on the location of the vendor and their distance from the plant. A further segregation of the list with respect to the location of the material in the plant was needed as this would facilitate the quick identification of materials. The list according to the various stores positions was obtained The major locations where these parts were required are Vehicle assembly lines, Trim section, Body shop & Transmission and Axle Production units. The description of all the parts can be sourced from SAP; also the entire requirement and consumption can also be traced accurately. On a detailed analysis of the parts it can be concluded that a majority of the parts in the vehicle stores location are bulky in nature and have substantial mass. The standard packing in which this material arrives is normally in the range of 10 pieces per carton to 200 pieces per gunny bag, depending on the physical form of the material. Also many parts comprise of fibre or plastic components and are generally large in size and therefore voluminous in nature. The standard packing of these parts varies from single pieces per carton to 15 pieces per carton. The next category of parts received in the vehicle stores are the Exhaust pipe assembly components and the Expansion chamber components. These parts being bulky as well as voluminous are dispatched from the supplier on fixtures.

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CALCULATION PROCEDURE
The following steps are involved in the computation of freight costs savings across all stores locations. The short listed parts are located (all Ex works parts) across all stores locations. The parts are weighed and the standard dimensions of the packaging, in case of CFT parts is measured. The data gathered is complied and entered into the Excel sheet format. The standard format of the Excel sheet records all the dimensions and the CFT is calculated.

DIMENSIONS IN INCHES (LENGTH*BREADTH*HEIGHT)/123 = CFT

The freight cost per box/standard packing is obtained by multiplying the dimensional weights as computed by the above calculations with the standard freight rate.

The total freight costs per piece are calculated by dividing the freight costs/per box or standard packing with the number of pieces of the components present in the standard packing/box. The per piece logistics costs can thus be calculated.

The savings per piece are multiplied with the yearly consumption data obtained from SAP Corresponding savings per piece are calculated by subtracting the ideal freight costs charged from the actual freight costs which are currently being charged. The data regarding the currently charged freight costs is obtained from the weight master.

A summation of all these values gives the Total Annualized Savings.

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

For packaging improvements each and every box was manually opened and checked. People working at the shop floor were also asked for their suggestion. This is because any packaging changes have to be made by keeping material handling in mind. Assembly speedometer cable supplied by Pricol Ltd., and used in vehicle PU, contained free space in between. This space can be used for keeping another part from the same supplier. This helps in saving freight cost of the component kept inside, which is evident in the calculation done. In order to transport two components in same box it was important to identify parts which are procured from the same supplier. From the various parts vehicle speed sensor was selected because of the size of the part. The present size of the box used for transporting the speed sensor had to be reduced. Hence according the number of quantity of the part in a single box was calculated. Also the consumption pattern of previous 9 months of both the parts was taken in consideration. This was done so as to ensure that there is no scope of bringing excess parts. The consumption pattern was obtained from SAP.

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

ANALYSIS AND FINDINGS

TRUCK UTILIZATION
Milk run can be effective if the truck is utilized properly. Proper truck utilization helps in reducing the number of trips. This can be done by changing the packaging methods but at the same time it is important that the quality of the part is not affected. Fixtures and other returnable boxes can be used of proper utilization but these boxes have to be sent back to their suppliers. This is done by the same trucks used for milk run. A point to be noted is that the transporter charges the buyer/supplier for transporting such fixtures or returnable boxes. JMD logistics charges Mahindra approximately Rs. 1300 per trip for delivering such boxes. Hence before suggesting use of fixture or plastic trays for a particular part the above mentioned cost should also be calculated.

FREIGHT COSTS
The freight costs considered for the project on hand differs from vendor to vendor as the materials are procured from various parts of the country. The range of freight costs lies between 0.65paisa/kg to Rs.3.00/kg. This information was provided by Mahindra Logistics. Further, the elements which affect freight costs are listed below: Freight weight Freight type Space required Destination Fuel surcharges Origin Pallet/product characteristics Frequency of shipments Payment terms

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

The general freight rate considered includes all these factors stated above. But more importantly freight weight, destination and frequency of shipments of trips made are important in deciding the freight costs. As the frequency of the milk run is on a daily basis, the frequency of trips is of utmost importance in computation of freight costs. Any increase or decrease in this rate due to any factors can be considered at a later stage when the recommendations made in the project actually materialize.

PACKAGING PROCEDURE
Packaging procedure is very important as many factors are directly related it. The supplier does not pack the parts according to his requirements. This is done in coordination of the SCM (the person who is in charge of placing the order and maintaining the stock), Supplier Quality Assurance, Materials Management, Stores and the Supplier. Details like size of the box, quantity to be stored in a box, type of primary and secondary packaging, etc are also decided. Other details like mode of transportation, special packaging instructions, and other storage specifications are included. After deciding upon the format of packing, signatures from various departments are taken. RETURNABLE PACKAGING Returnable packaging decreases the logistics cost, depending upon the designing of the package and the increase in fitment of the component in package Material handling improves as the material is protected from the external as well as damages. Reduce in manpower as well as packaging cost. There are certain steps which can be eliminated. Keep the production floor clean.

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

PROJECT FINDINGS
1) ITEM PART NO.: 0102DF0980N SUPPLIER: Sharda Motor Industries PART DESCRIPTION: Assembly plate enclosure OBSERVATION: This part is a flat metal component with sharp edges therefore almost whole packaging and also the part is getting damaged. SUGGESTION: Hence instead of using card board box, plastic reusable box or plastic crate can be used. Usage of returnable plastic box also helps to achieve Green SCM initiative

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

Replacing cardboard box packaging by recyclable corrugated PP box packaging/ plastic crates.

2) ITEM PART NO.: 1306AAA00431N SUPPLIER: Minda Industries Ltd. PART DESCRIPTION: Assembly horn low tone OBSERVATION : Without partitions or packaging design, 45 parts can be kept in box and in present packaging 30 parts are accommodated . The packaging card board box material is enough strong to protect the part and prevent box damaging. SUGGESTION: Keeping into account the strength of the box, one side's safety row can be removed and one more row of components can be added, by utilizing the safety space on side. This way redesigning of packaging can accommodate 35 parts in the box.

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

CURRENT PACKAGING

PROPOSED PACKAGING

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements 3) ITEM PART NO.: 0105AAF02090N PART DESCRIPTION - Cover Transmission Assembly SUPPLIER: Ukay Metals

Sameer Ingale

OBSERVATION: In the current packaging, 40 parts are delivered in the box. There is some volume space being wasted which can be used to accommodate more no. parts can be fitted in the box. SUGGESTION: With proposed packaging method, 5 more parts can be accommodated in the box. And optimum utilization of available space, in the box, can be achieved.

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

CURRENT PACKAGING

PROPOSED PACKAGING

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements 4) ITEM PART NO.: 028761 SUPPLIER: United Rubber Industries (200 parts per bag)

Sameer Ingale

OBSERVATION: In present packaging there is some space unused. 5 plastic bags containing 200 no. of rubber component each are kept in the box. present quantity 1000 SUGGESTION: In proposed packaging, one more bag containg rubber components can be kept in box. proposed quantity 1200. Also instead of using of cardboard box for these rubber components, plastic Reusable Gunny bags can be used. This practice will contribute to Green SCM.

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

CURRENT PACKAGING

PROPOSED PACKAGING

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

RECOMMENDATIONS

After a detailed study and through analysis of the data collected, following recommendations are being made. Implementation of these recommendations will ultimately add to the value of the enterprise. The presently adopted system of charging on per/piece basis in case of components/parts falling in the CFT and WEIGHT parts category must be changed to CFT or WEIGHT basis.. It would be advisable to negotiate with logistics companies and convince them to charge on weight basis or CFT basis. This will ultimately result in saving of transportation costs. Parts from the same supplier and having same demand should be bought in a single box or container. Keeping track of these parts thus becomes easier and also helps in saving transportation cost involved. The Annualized Savings across all store locations are substantial and a review of logistics costs with the Logistics service provider is important.

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Rizvi Institute of Management Studies and Research

Optimization of logistics cost by Milk-run and packaging improvements

Sameer Ingale

CONCLUSIONS
The objective of this project, which aims to expose management students to the corporate world through the practical experience of working on a large project, has given me a chance to put into practice all the concepts that I had only studied in theories. I was trained to work effectively as part of team, interact with various managers and other working staff of various departments and improve my writing and oral presentation skills. Throughout this project, I became aware of the various methods employed by Mahindra & Mahindra Automotive sector in procurement of the parts. I also understood the various procedures which were followed in order to ensure continuous supply of raw materials. During this project, I got a chance to sharpen my skills on technical, analysis and interpersonal skills. During the course of this project I had to collect lots of information. For this I got an opportunity to use SAP which I would have not got other wise. All the information collected was discussed and analyzed with my industry as well as faculty guide. Finally the project was completed thanks to the efforts of my guides and the members of SCM department. Special thanks to the members of SCM department for their support and co-operation.

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Rizvi Institute of Management Studies and Research