Demand Planning in an HCV OEM: Management of intramonth non-linear demand

Transcription

1 Demand Planning in an HCV OEM: Management f intramnth nn-linear demand The HCV OEM witnesses hugely lpsided sales f HCVs in favr f the later part f the mnth. It, therefre, wants t imprve its demand planning by managing its intra-mnthly sales better. The key is t make the demand pattern mre linear.

2 Table f Cntents 1 Overview f demand planning in an hcv em Capabilities Created Summary The client The Challenge Impacts f the Prblem Reasns Identified fr Intra-mnth Demand Nn- Linearity 2 Recmmendatins 3 Future Scpe Demand Planning in HCV OEM: Management f intra-mnth nn-linear demand

3 OVERVIEW OF DEMAND PLANNING IN AN HCV OEM 1. Capabilities Created Stellium suggested dealer incentive mdels and gave ther recmmendatins t linearize HCV demand 2. Summary The client wishes t linearize the intra-mnthly sales fr its HCVs and subsequently slve multiple demand planning prblems the demand pattern gives rise t. Stellium base lined the current scenari fr the client firm and by means f primary investigatin and secndary data, gave recmmendatins t remve this lumpiness in demand. 3. The client The client is a majr HCV OEM in India, cmprising f several business verticals. It sld ver cmmercial vehicles in 2014, with a net incme in excess f 8800 crres. 4. The Challenge The sales pattern fr the truck during a mnth is lumpy. It was reprted by the OEM that the majrity f their HCV sales materialize nly during the last week f the mnth; as much as 65% f the sales are made in the last week f the mnth. This creates several supply chain prblems which prpagates upwards, all the way up t their prductin prcess. 5. Impacts f the Prblem This skewed demand pattern fr HCVs had the fllwing impacts: The Inventry space required t stck trucks fr the end f the mnth sales spurt. The carrying cst fr the inventry stck increases due t the stck up, t serve the mnthend high demand Lgistics prblems- As the large number f trucks t be delivered at the mnth end excess requirements like drivers, fuel, etc. during the mnth end. The dispatch f large number f trucks frm the plant and the warehuse in a single week (last week) creates prblems. Balance sheet parameters like current assets, wrking capital Demand Planning in HCV OEM: Management f intra-mnth nn-linear demand

4 6. Reasns Identified fr Intra-mnth Demand Nn-Linearity Dealer s side frce Dealer has mnthly targets wherein a particular target fetches him a certain bnus IMPACT : HIGH Bnus incentive fr selling a particular quantity f HCVs. S he may sell the truck n a lwer price t get the incentive which wuld be mre than his nrmal margin n selling a truck IMPACT : MEDIUM Desn t prefer t make a sale in the initial mnth time. But later, n the realizatin that his mnthly targets wn t be met he ges n t w his custmers, nly later in the mnth. IMPACT : MEDIUM The dealer usually divides a mnth in tw halves. In the first half, he builds relatinship with the custmer and reserves the secnd half f the mnth final the deal IMPACT : HIGH/MEDIUM Offers given by the dealer t push a sale Dealers may als cite future increase in truck prices t make a sale by the mnth end s as t finish his mnthly target Extended AMC Free insurance r registratin Mnetary discunts Better credit terms Extended credit days t enhance financer IRR Other ffers Free n-site delivery Free paint n the truck Demand Planning in HCV OEM: Management f intra-mnth nn-linear demand

5 Financer side frces The financer als has targets t achieve fr lan disbursement. But he has a relatively less rle t play, since he desn t have much rm fr ffers, as cmpared t the truck dealer IMPACT : LOW The financer smetimes passes the infrmatin abut ptential truck buyers t ther dealers, wh then start pitching fr their trucks. This prlngs the purchase prcess IMPACT : LOW Custmer-side frces The perceptin that mnth end is the best time t get gd deals n vehicles. IMPACT : MEDIUM/LOW Industry frces The purchasing cycle f the truck is lng and takes almst a mnth t cmplete. (the purchase cycle) IMPACT : HIGH/MEDIUM Since mst business cntracts begin with the mnth, the best time t prcure a truck is at the previus mnth s end. IMPACT : HIGH Demand Planning in HCV OEM: Management f intra-mnth nn-linear demand

6 Cause and effect analysis fr the nn-linear intra-mnthly demand Recmmendatins Imprve in-huse financing In-huse financing fr an HCV OEM prves crucial fr its sales because f benefits fr custmers like better financing terms and cnditins, custmized financing ptins fr their HCVs and quicker prcessing time fr lans. The in-huse financing can prve crucial fr making intra-mnthly sales f HCVs linear as the availability f finance reduces the duratin f the purchase prcess fr the custmer and can lead t early sales fr the dealer, cutting the lng prcess which delays the sale till the mnth end. Change the dealer target incentive structure Currently, a truck dealer in Indian HCV market is incentivized fr ttal sales made in a mnth. The incentive structure can incentivize the unifrmity f sales during a mnth ver and abve the usual target incentive that a dealer receives. Demand Planning in HCV OEM: Management f intra-mnth nn-linear demand

7 Weekly Sales Percentage Dealer Savings per Overall Week Week Week Week Savings dealer savings % 5% 10% 25% 60% % 10% 25% 55% 3,441,360 40,969 8,194 2,753,088 12% 12% 25% 51% 5,735,600 68,281 13,656 4,588,480 15% 15% 25% 45% 9,176, ,250 21,850 7,341,568 25% 25% 25% 25% 20,648, ,811 49,162 16,518,528 Different weekly sales percentage scenaris and crrespnding savings Shrten the purchase prcess fr the custmer The purchase prcess fr HCV purchase is lng and takes abut days. The requirement is t shrten the prcess f purchase s that the sale f a truck desn t get delayed int the mnth end. 2-7 days 3-5 days 7-10 days 2-3 days Searching fr trucks t buy Searching fr a financer Bking the truck till its delivery Invicing The purchase prcess fr an HCV in India N haggle pricing N-haggle pricing refers t the cncept where the dealers ffer a single price with n scpe f discunt n the vehicle. Haggling r bargaining is very prevalent in the cmmercial vehicle industry and has becme s deeply entrenched that nly bargaining may take up t a week befre the truck is actually bught. Demand Planning in HCV OEM: Management f intra-mnth nn-linear demand

8 Hwever, n-haggle pricing, which was intrduced by aut makers in USA in the 1990s, is nw even being adpted by truck makers. N haggle pricing has several advantages, as it: It reduces the duratin f the purchase prcess It disincentivizes the custmer t purchase the truck in the last week f the mnth as he gets the same price during the first week as he gets during the end f the mnth DICV has adpted a similar plicy with its pricing as the dealers d nt ffer any mnetary discunts r in benefits in kind t the custmers. They have a fixed price fr every truck, which they cannt sell belw f and cannt extend any benefits like free insurance r registratin fees. Althugh in the very shrt run, the custmers may be skeptic abut such a pricing plicy but in the lng run, it will attract custmers wh will nt be biased abut any time f the mnth t buy a HCV. Future scpe The HCV OEM will have t take active steps t shift their sales frm the mnth end t the ther initial weeks f the mnth by balancing the custmer-side, dealer side and the industry side frces which lead t such a lumpy pattern f demand. Demand Planning in HCV OEM: Management f intra-mnth nn-linear demand

9 Stellium Inc , Richmnd Avenue, Ste # 208, Hustn, TX 77042, USA T: F: Stellium Cnsulting India Pvt. Ltd. First Flr, Ferns Icn, Outer Ring Rad, Dddanekundi Marathahalli, Bangalre , India. T: F: askus@stelliuminc.cm