Supply Chain Management Consumer Durables Industry (LG Electronics India)

Consumer Durables Market

Indian consumer durables industry size Rs.15000 Crore Pull system trying to overtake Push System (change in market dynamics)

Magnitude of Comforts
Estimated Market Size
Segment 99-00
Colour T.V. Refrigerators Washing Machines 5 2.9 1.5

Market Size (Mn units) 00-01E

5 3.2 1.5

Growth (Rate %) 00-01E

Nil 9 2

Market (Size) 00-01E

6000 3700 1500

Air-Conditioners
Source: Industry

0.2

0.3

37

1000

Top 5 SCM Concerns

Demand Forecasting Inventory Management Working Capital Obsolescence Cost of Service

Reversal of Attitude
Selling Expenses of Consumer Durables Industry 1991 1992
Net Sales (Rs. Cr) Selling Exp. (Rs Cr) Growth In Sales Exp. (%)
Source: CMIE prowess database

1993 1994 1995 1996 1997 1998 1999

2867 129 19.4 3933 276 113.5 4935 403 45.7 6345 575 42.9 6077 487 15.3 7992 653 34.1 9283 747 14.3

2489 107

2783 108 0.8

Favoured SCM Initiatives

E Commerce Build to order Forecasting Techniques Flexible manufacturing Reducing pipeline inventory

Typical Distribution Set - Up

Manufacturer

Warehouse of Manufacturer

Warehouse of Dealer

Dealer Location

Retailing A key driver

1378 brands and 2500 new products entered in the market between 1990 to 1996 4500 stores in organized retail Aids in:
Better Data Collection Increased level of sales Lesser freight costs Collaborative planning Better Sales Promotions

More Stores
Current Retailers Chain Stores Single Stores Total
Source: ET Knowledge Series Retail

Future 2100 1450 1000 4550

Growth Rate (%) 28 29 15 25

600 400 500 1500

Retailing A key driver

Power of Knowledge
Retail Information and Use
Type of Information Model and Category Wise Sales Use of Retailer Turnover & cash flow, reordering/ assortment Reordering, pushing Order Placement, delivery lead times Pushing fast moving SKUs SCM Implication Replenishment quantity and speed, popular brands and SKUs, forecasting Replenishment, push, production planning, re routing Inventory planning, forecast accuracy Better product development, features leading to greater sales, market share Stock disposal, changing production plans to offer desired SKUs, forecasting

Inventory Loss of sale due to Stock Out Response to features

Exchange Data/ Returns

Popular brands, trend of sales

Source: ETIG analysis, industry

Internet Vital Tool

Virtual Delivery
Logistics Implication of the Internet
Parameter Vendor Management Development B2B exchanges Logistics Implication Reduction in cost of transactions with vendors; greater transparency; faster communication Integration of virtual and physical order fulfillment chains Optimization of costs Disposal of excess or even obsolete stocks to markets, which lag behind in the development cycle

Sales Prices Reverse Logistics

E-marts, web shops Global Supplier exchanges Auction sites

Order Tracking

Online tracking systems: company/courier/transporter

Websites, online shops Independent online shops

Integration of trucking, warehousing, dispatch systems all linked by data

Self-help reduces pressure on service personnel/physical system Greater contact with customers; more chances to convert enquiry into order

Service Points Of Contact

Source: ETIG analysis

LG Electronics India An Overview

Established in 1997, LG Electronics India Pvt. Ltd., is a wholly owned subsidiary of LG Electronics, South Korea Market leader in consumer durables and leading technology innovator in the information technology and mobile communications business

One of the most formidable brands, an impressive portfolio of Consumer Electronics, Home Appliances, GSM mobile phones and IT products
State-of-the art manufacturing facility at Greater Noida (1998) & Pune (2004) It has online shops, conventional distribution and global sourcing, hence a complex supply chain

Business Areas & Main Products

Source: http://www.in.lge.com/AboutUs/aboutus-companyProfile-factsnfig.aspx

LG Electronics India Financial Performance

Source: http://www.in.lge.com/AboutUs/aboutus-companyProfile-factsnfig.aspx

LG Electronics India Supply Chain

Major Focus Areas of LG Supply Chain: Increasing Stock Returns Intensifying E-commerce Efforts Reducing Lead Times Improving Efficiency Pursuing Integrated Supply Chain, which has led to the cost reduction of Order to Sales Cycle Significant effect on increasing the inventory days by touching stock turns of 24 days in 2001

LG India Outbound Logistics

Outbound Distribution Network:
2480 direct dealers 900 sub dealers 75 distributors 90 brand shops which have only information but no LG products

Costs incurred due to stock:

Inventory cost 57% (hence reduce inventory to raise EVA) Demurrage 28% Discounts 15%

Accuracy levels of 70% and model mix of 70% to be increased to 95%

Better forecasting and real time collection of data to reduce supply chain costs

LG - SCM Targets & Initiatives

SCM Parameter From To Initiatives

Stock Turns/ Year

14.6

24

E-SCM

E-commerce

50

75

Extranet

Lead times

3 months

2 months

Sharing information

Forecasting Accuracy (%)

70

95

Online sales data collection

Source: LG Electronics India.

LG Electronics India - Inventories

1999 Raw Materials Work in Progress Finished Goods Turns for Finished Goods 10 1 26 14 2000 8 1 22 16 2001 (in days) 6 1 15 24

Source: LG Electronics India.

LG SCM Parameters
Problems
Supply Chain - Average Inventory Effective Conversion to Sale (%) Distribution Efficiency (%) Achievements Average Branch Inventory Reduction Average Inventory (All India) Model Mix Availability Order to supply Cycle Business Expectations Targets '99 Average Model Mix Availability Distribution Cost Reduction Minimum Average Inventory At All Branches Tools Used To Tackle Problems No credit for overachievement & less credit for underachievement FSI - 2 sq.ft to 2.2 sq.ft V-SAT linking for all branches 90% 5% 7 days 7 days 16.5 days 88% Same day; upcountry - 2.5 days

Status
16 days 60 68

Credit System for Production/Supply And Sales Warehousing Space For Optimum Use Information Technology Source: LG Electronics India CII Logistics presentation

Steps taken to improve supply chain operations

Become networked to dealers through internet site: www.Lgdealernet.com
Dealer sample chosen comprising of 328 dealers who represent 16% of total dealer population and 79% geographical spread Get sales data on brands, SKUs, price bands from the dealers as well as geographical estimates of sales to plan dispatches

Perpetual demand-supply balancing system:

Move-in-Move-Out Report designed to suggest excess of shortages at branches based on average quantities required in the balance days of the month to achieve the sales plan Suggests inter-branch movements depending on stocks and the physical move-in-moveout procedure is monitored manually

Effective Utilization of Warehousing space:

Steps taken to improve supply chain operations

Linking together small teams of people to be attached to its branch offices to carry out brand promotions in smaller cities & towns Rationalization of transporters based on high value added guaranteed services leading to savings in transaction cost & time Tracking of goods to reduce safety stock substantially
Arrangement with e-trans & BPCL petrol pumps around the country to use the tracking system The truck driver swipes the card given by LG at the petrol pumps, and hence details are provided at every two hours at the Kolkata & Mumbai hubs

LG e-SCM Vision
Information Flows Logistics Suppliers Manufacturers Goods Flow Dealers/ Distributor

Supplier Exchanges Logistics Exchanges

Customers
Customer Exchanges

Virtual Manufacturers Logistics Contract Manufacturers

Steps taken to improve supply chain operations

Use of hardware & software (ERP SAP R/3, V-SATs) for tracking Online Sales through the website: Lgezebuy.net
Deliver high value to the customer by shipping customized machines as per the customer requirements Online product financing as well as savings in the logistics cost Operate a built to order business model with minimum levels of the inventory

Online exchanges with vendors to bid and supply; for dealers to buy and track and for customers to click and buy thus reducing time, costs and improving coordination

Thank You