Erp Implementation at Mtr Foods free essay sample

Foods has been able to simplify its supply chain and increase its bottom-line growth. A MTR Foods has been grappling with the intricacies of managing its supply chain to generate a profitable rate of growth. Among the top-five processed food manufacturing companies in the country, the company has seven diverse businesses—ready-to-eat foods, instant foods, ice-cream, meal accompaniments, frozen foods, spices amp; masalas, and vermicelli—and 200 products in all. The company also exports its products to the US, Canada, Europe and Australia. The raw material required for each plant is unique. Maintaining quality while managing such a complex supply chain that involves everything from the selection of products to sending out the finished products was difficult. For instant food, we have 600 raw materials to source. As the company is in the processed foods industry, it cannot buy the raw materials that are required in bulk in advance. In the pre-SAP period we used to buy 65 percent of our annual raw material requirement in the agricultural season to get the best of the yield, which would lead to our working capital getting locked up. We will write a custom essay sample on Erp Implementation at Mtr Foods or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Some percentage of this raw material used to spoil, and had to be discounted leading to a clear input cost loss. Similarly, for our vermicelli production, we used to source 12,000 tonnes of ‘chiroti suji’ from 40 different suppliers as far away as Uttar Pradesh, Madhya Pradesh and Haryana. The first challenge was to ensure a steady and transparent supply chain since inefficiencies and delays in supplies are common and natural in agricultural commodity markets, leading to spiralling costs. Everything was done in Excel. From the bill of material onwards, the issuing of bills, input/output entry and cost analysis were compiled manually. Since data entry was done lot-by-lot and batch-by-batch, it was a time-consuming task and the process was prone to errors. Because of the manual paper-based entry system, a lot of paper bills used to land up in the finance department where they were consolidated. Reporting (accounting) was possible only after a month. Data that had been keyed in or printed during the first fifteen days of a particular month was not available. Daily reports for analysing raw material procured vis-a-vis profitability—which was desirable—remained a dream. The management did not get even preliminary data for making decisions. MTR Foods was using many legacy applications that had been developed in-house. For example, for accounting they used Tally, for purchase orders and inventory a FoxPro package. The lack of control and check mechanisms allowed anybody to alter data and goods receipt notes. Production flow and warehousing was also handled by a FoxPro application. None of these applications was linked, and duplicate entries flourished whenever there was a transfer of materials from one plant to the other. The company wanted to maintain its CAGR of 30 percent, and set an internal target of touching Rs 500 crore by 2007. To achieve this it need to grow even faster, at 50 percent. But cranking up production called for increased spending on its supply chain. The natural corollary was that an ERP package was the need of the hour. After four months of evaluating popular MNC ERP systems, MTR zeroed in on SAP in 2002 because it permitted online updating using VPN as against a competing product that required additional investment in a VSAT network. SAP’s solution was also found to be more economical, and its release of patches was faster. In March 2003, the company settled on SAP R/3 Enterprise Version 4. . Five key modules were to be deployed: production planning, material management, quality assurance, sales amp; distribution, and financial accounting. Instead of customising R/3 which would have required us to make a further investment, we decided to re-engineer our business processes to suit the R/3 package. For instance, purchase negotiations used to be conducted at the Bangalore head office; this activity was shifted to the plant. The release of payments (invoicing and verification) was done at the plant; this task was shifted to the head office. The process re-engineering to suit R/3 led to a smooth deployment, with Lamp;T Infotech as the implementation partner. The apex steering committee identified ten key functional heads for training, who, in turn, trained fifty other users. In August 2003, MTR went live with SAP R/3 and cut out the parallel processing (legacy applications). Quantifiable benefits| Improvement in working capital | In the pre-SAP environment, MTR foods used to procure 65 percent of its raw material requirements on an annual basis. After the ERP implementation, this has come down to 45 percent, and released much working capital. R/3 also lets the company calculate the exact amount of raw materials required, and brings transparency to the supply chain. Now damage, wastage and slow-moving products can be singled out. | Reduced inventory| Pre-SAP, MTR used to take 30 percent stock cover (valued at Rs 70 lakh) for 20 days. This has dropped to 14 days. | Cost control | Earlier, MTR relied on historical data to calculate profitability. According to Shenoy, the problem with this approach was that inter-category product profitability could not be determined. To maintain a good margin, product profitability should be at least 60 percent. But if it gives you only 55 percent, then an analysis needs to be conducted as to why the remaining five percent is not being earned. Additionally, there was no mechanism to check profitability on a regional basis. R/3 helps achieve cost control, category- as well as region-wise. | Fatter margins| In the past, the reasons for input or output wastage, and where those wastages happened, were not known. With R/3 in place, the company has saved one percent of the wastage. This has helped MTR raise its gross margins from 45 percent to 49 percent per month, which translates into an improvement from Rs 20 lakh to Rs 25 lakh per month in profitability. | Tabs on defaulters| MTR had to incur a loss of Rs 45 lakh per month due to payment defaults by its distributors (bouncing of cheques, etc. ) Today, it has been able to cut its losses by blocking the release of fresh orders until a distributor clears the previous invoice and falls in line with the company’s directions. With this, the company has reduced defaults to Rs 15 lakh per month.