Farmaid Tractors Limited

This document is authorized for use only in National Rail and Transportation Institute's PG; Logistics and Supply
Chain Management course by Prof. G. Raghuram from Sep 26, 2022 to Oct 31, 2022.
Indian Institute of Management

Ahmedabad IIMA/QM0242
Revised 2004
Farmaid Tractors Limited
The tractor industry in India had become very competitive, with growth in capacity
outstripping growth in demand. The increased capacity was in response to a healthy growth
in demand during the 90s. (A brief description of the Indian tractor industry is given in
Exhibit 1.) There were seven major players targeting both domestic and international
markets (Exhibit 2). FarmAid Tractors Limited (FTL), situated near Thane in Mumbai, was
the third largest player in FY99 with a 20 per cent market share. FTL was aiming to be the
market leader within five years.
FTL had one factory, 15 models (4 accounting for 90 per cent sales), 18 regional offices (each
with a stockyard, one in a given state), and 300 dealers, and sold 60,000 tractors in a year for
the past two years (Exhibit 3). FTL was relatively a new entrant in the industry, having
started in the early 90s. The promoters were familiar with the automobile industry, and had
competency in the auto components business.
Customer preferences and demands had changed in a competitive environment. The role of
the dealer and servicing the dealer by the company were recognized by FTL as key success
variables. The key issue was to develop a partnership with dealers by bringing in service
focus, through improvements in supply chain management and outbound logistics.
In summer 1999, as part of a major effort in organizational restructuring and business

process reengineering, FTL decided to engage the services of Prof. Prashanth from a reputed
institute of management in western India. The assignment was on supply chain
management, focused on outbound logistics. After an in-depth study of FTL
(manufacturing, production planning, visiting and despatch processes), and, some of the
regional offices, stockyards, and dealers, various issues and decision areas were identified
by Prof. Prashanth. Exhibit 4 gives a list of the issues and decision and action areas which
were planned to be analysed and for which data were sought from FTL. An in-company
logistics team of four young executives, coordinated by Mr Rajesh Bhatt, supported Prof.
Prashanth in this exercise.
Two critical areas for analysis were taken up first:
Order processing and inventory planning

Distribution structure including stockyard location
Prepared by Professor G. Raghuram, Indian Institute of Management, Ahmedabad. Assistance

provided by Ms. Sushma Choudhary is acknowledged. Names and some of the data have been
modified.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class
discussion. Cases are not designed to present illustrations of either correct or incorrect handling of
administrative problems.
© 2000 by the Indian Institute of Management, Ahmedabad.
This document is authorized for use only in National Rail and Transportation Institute's PG; Logistics and Supply Chain Management course by Prof. G. Raghuram from Sep 26, 2022 to Oct 31, 2022.
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Order Processing and Inventory Planning
Orders were placed by regional offices for delivery to stockyards, model-wise on a monthly
basis. Orders had to be consolidated, based on dealers' requirements by the twentieth for
receipts during the following month. Over the next five days, there could be discussion
between the plant (production planning) and regional offices to modify the order, keeping in
view any possible production constraints. Even though production (and despatches) were
planned and scheduled for a whole month, there were always end of month pressures for
modifications and additions. Marketing executives and top management of FTL were
sensitive to the monthly market shares that industry analysts watched and reported.
Inventory planning at the stockyards to enable high service levels to dealers and at the plant
to respond to seasonality were key concerns. The forecasts that would drive this planning
also needed to be examined. Exhibit 5 gives the framework proposed by Prof. Prashanth to
address these concerns.
Distribution Structure and Stockyard Location
There were two concerns: the need for a central despatch yard and location (and number) of
stockyards. Exhibit 6 gives relevant issues as part of the consultant's framework of
addressing these concerns.
Currently, all despatches were made from the factory to stockyards through a daily
allocation process which took into account the unmet demand at stockyards, ready for
despatch inventory, and availability of trucks based on transporters' inputs. Once assigned
to a transporter, tractors were moved by transporters to their godowns, since there was no
space in the factory for holding finished stocks. It was often noticed that transporters
actually moved tractors out of their godowns after an average of two days, primarily
because of non-availability of intended trucks for despatch. FTL was concerned about this
since the period of "lack of control" over tractors was enhanced because of this. A central
despatch yard at a suitable highway location, 20 km away from the plant, was being
considered. (There was no space nearer or adjacent to the existing plant for such expansion.)
For better servicing of dealers, location of stockyards was crucial. The primary
transportation mode was decided as road, using long platform trucks that could carry up to
five tractors. Secondary transportation from stockyards to dealers would use trucks that
could carry two tractors rather than move tractors on own power. This was expected to
reduce transit damages and also offer tractors in a mint condition to the dealer. One of the
issues was whether a stockyard should be close to the entry point in a state or close to the
marketing office, which was usually in a large commercial centre near the centre of the state.
For an in-depth analysis, Exhibit 7 gives potential stockyard locations for Gujarat, with
monthly operating costs and distances. The current stockyard location was Ahmedabad.
Exhibit 8 gives the location of 19 FTL dealers in Gujarat, along with expected monthly
demand and distances. The total demand for tractors in Gujarat was expected to be 500
tractors a month. Exhibit 9 gives a map of Gujarat showing all locations.
The primary transportation cost was expected to vary from Rs 2.5 to Rs 3.0 /tractor/km,
depending on the truck technology. The secondary transportation cost was expected to vary
from Rs 3.0 to Rs 3.5 /tractor/km depending on the service level offered. It was also a
matter of concern that a dealer should not have to be more than 500 km from a stockyard.
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Some of the more aggressive marketing executives felt that this should not exceed even 350
km, which would be a one day transportation lead time. Another issue was a possible
minimum on what a stockyard should handle in a month, especially if stockyard
management was to be outsourced. The company executives felt that 200 tractors a month
was a reasonable figure to enable it to be attractive to the outsourcee.
Exhibit 10 gives the results (optimal stockyard locations with total costs) of the analysis
based on a programming model for various scenarios of parameters affecting stockyard
location. Top management was interested in the actual allocation of dealers to stockyards for
these scenarios and their implications. The recommendations for stockyard locations in
major states are given in Exhibit 11.
Supply Chain Organization
To ensure better supply chain coordination for higher service levels to dealers and
customers, the distribution unit right up to stockyards would be under a new supply chain
organization which would include the production units (Exhibit 12).
The overall spirit of the service orientation sought to be achieved by better supply chain
management was communicated in a letter (Exhibit 13) to the logistics team members in
response to certain queries.
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Exhibit 1
The Indian Tractor Industry
In 1999, the Indian economy was still highly dependent on agricultural growth and not surprisingly it
was the largest tractor market in the world. However, in terms of total tractors in use in the country, it
was eighth in the world. The country had a tractor density of 10.5 tractors per thousand hectares of
gross cropped area (GCA) compared to the international average of about 28 tractors per thousand
GCA.
Demand and Supply
The tractor industry was segmented based on the power of the tractor engine expressed in terms of
horse power (HP). Among the segments, the 31-40 HP segment led with 54.7 per cent of total tractors
sales in FY2000. Among the regions, North India constituting UP, Punjab and Haryana led with a
contribution of 44 per cent of tractor sales for FY99. The demand for tractors increased from 121,106
tractors in FY90 to 260,762 tractors in FY2000 at a CAGR of 8 per cent, but the annual growth in
demand varied substantially. For example, in FY99 and FY2000, the rise in sales was reducing with
growth rates of 3 per cent and 2.9 per cent respectively.
During the last 20 years from FY78 to FY98, the tractor industry had performed substantially better in
comparison to the growth in Indian agriculture production and GDP. As given in Table 1, CAGR of
tractor sales was almost four times the growth in agriculture production.
Table 1: Tractor Sales v/s GDP Growth
CAGR (FY78 to FY98)

Agriculture production 2.2 %
GDP 5.15 %
Tractor sales 8.31 %
The major factors influencing demand of tractors were monsoon, land holding pattern, availability of
credit, growth in income of farmers, and implementation of scientific farming practices. The industry
was not cyclical, as many would presume about the automotive industry in general. Demand
contraction occurred in 1982 and again in 1993, the two years of severe credit squeeze.
The optimal land holding required for different HP tractors was approximately 8 to 10 hectares for
1800 cc or 25 HP tractors, 25 to 30 hectares for 35 HP tractors and beyond that, it was higher HP
tractors. But the actual relationship between different land holdings and the power of tractors was
dependent on earning stability, type of soil, type of operation, and affordability by farmers.
As per FY91 data, nearly 78.2 per cent of India's agriculture land was held by small and marginal
farmers having less than the prescribed land holding. This had gone up from 76.2 per cent in FY86.
The all-India average land holding figure stood at 1.55 hectares in FY91, down from 1.69 hectares in
FY86. For these small and marginal farmers, there was very little potential for economic use of
tractors by outright purchase.
Industry Structure
The HP-wise composition of tractor industry sales, as shown in Table 2, reveals that 31-40 HP
tractors constituted the largest segment with 54.7 per cent of sales in FY2000. It can also be seen that
demand for the less than 30 HP segment, which used to be the largest in FY94, had been pushed
back by the 31-40 HP segment.
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Table 2: Segment Wise Market Shares
FY94 FY99 FY2000

< 30 HP 36% 22.5% 26.1%
31-40 HP 46% 57.8% 54.7%
41-50 HP 15% 15.9% 14.7%
> 51 HP 3% 3.8% 4.4%
This graduation to a higher HP segment can be explained if one considers the fact that region wise
share of tractor sales had also shifted from the northern states to other parts of the country. Initially,
the population of tractors was concentrated in states like Punjab and Haryana which received the
benefits of the Green Revolution. Soil in these states was alluvial and thus required a low powered
tractor for tilling. However, over the years, with an increase in irrigated cropped area, the population of
tractors began to increase in other states as well. These included states in the western and southern
parts of the country where the soil – laterite soil, black soil, etc. – was harder and needed higher
powered tractors.
From the table above, we see that in FY2000 the share of the less than 30 HP segment improved by
around 3.5 per cent while that of the next higher segment fell by 3 per cent. This could be attributed to
the fact that in the 1999-2000 budget, the excise duty for the plus 1800cc tractors (above 30 HP) was
increased from 13 per cent to 16 per cent while that of the less than 1800cc segment remained at 8
per cent.
Region-Wise Share of Tractor Sales
North India constituting UP, Punjab, and Haryana led among the regions, by contributing 44 per cent
of tractor sales in FY99, the data for which are presently available. But its contribution had come down
in the last five years from a peak level of 53.5 per cent in FY94. Among the states, UP stood first with
a contribution of 23 per cent of the country's tractor sales. MP and Punjab stood next with around 12-
13 per cent contribution each.
State-wise sales figures over the years show some important changes (Table 3). Sales in
agriculturally developed states like Punjab, Haryana and Uttar Pradesh as part of total tractor sales
had come down from 53.5 per cent in FY94 to 44 per cent in FY99. This contrasts with the increase in
share for the central and western regions of the country (Rajasthan, Madhya Pradesh, Maharashtra
and Gujarat). This region's share rose from 20.4 per cent to 27.8 per cent in the same period. Sales in
the northern regions had been below the all India CAGR of 8.6 per cent in the last ten years. On the
other hand, the central and western regions of the country had recorded double-digit growth rates.
Table 3: State-Wise Market Shares
CAGR
FY90 FY94 FY98 FY99 (FY90 to
FY99)
Punjab 22,026 26,636 31,644 31,047 3.9%
Haryana 15,307 16,579 22,711 21,877 4.0%
UP 31,233 30,656 50,433 59,211 7.4%
Bihar 4,891 2,900 10,282 12,875 11.4%
Rajasthan 9,315 11,129 25,152 24,054 11.1%
MP 10,018 11,418 32,250 32,711 14.1%
Andhra Pradesh 5,395 5,881 11,171 9,862 6.9%
Gujarat 6,508 10,033 21,501 22,208 14.6%
Maharashtra 5,737 6,730 15,059 16,011 12.1%
Karnataka 3,665 5,179 10,176 6,501 6.6%
Tamil Nadu 3,864 7,030 10,392 7,369 7.4%
Others 3,147 3,887 9,608 11,145 15.1%
All-India 121,106 138,058 250,379 254,871 8.6%
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The increased growth from central and south Indian states had led to growth in the medium and high
powered tractor sales, as these states had harder soil compared to the alluvial soil in the northern
states. In the future, new tractor sales were expected to take place mainly in the western and
southern regions while the mature markets of the north would see higher replacement sales.
Table 4: Major Markets for Tractors
Major markets
Less than 30 HP UP, MP, Rajasthan, Haryana, and Bihar
31-40 HP MP, Rajasthan, Punjab, UP, Haryana, Gujarat, and Bihar
41-50 HP Punjab, MP, and Rajasthan
More than 51 HP Punjab and some volumes in Kerala and Maharashtra
Source: SIAM/TMA
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Exhibit 2
Key Market Players
As of 1999, the industry was controlled by seven major players – Mahindra & Mahindra (M&M),
Escorts, FarmAid Tractors Limited (FTL), Punjab Tractors Limited (PTL), TAFE, Eicher, and HMT. All
except FTL had been in the tractor market for more than 20 years. M&M continued its leadership
position for the sixteenth successive year with a market share of 25 per cent in FY2000. Escorts had
taken the second position from PTL with a market share of around 20 per cent. Escorts was followed
by FTL (20 per cent), PTL (15 per cent), and TAFE (12 per cent). While M&M had a balanced
presence in all HP segments except that less than 20 HP, others like PTL were stronger in the low
and medium powered segments.
In recent years, the tractor industry had seen some new entrants introducing their products in the
higher HP range. These included Ford New Holland and L&T John Deere. This had added around
65,000 units to existing capacities. In FY99, capacity stood at approximately 350,000 units. This
meant a capacity utilization of around 72 per cent, down from around 87 per cent in FY98. This
pointed to a growing problem of overcapacity in the industry.
Many of the players had strong linkages with the automobile industry. Recently, one of the largest and
oldest players in the tractor industry, Escorts Limited, merged itself with Escorts Tractors Ltd after
buying out the stake of its foreign collaborator Ford New Holland.
Mahindra and Mahindra Limited (M&M)
M&M was the world's largest tractor manufacturer. It was the largest jeep and tractor manufacturer in
India with a tractor market share of 27 per cent. Achieved economies of scale because of these
associated operations in LCV and utility vehicles. Strong distribution network and brand equity.
Recently embarked on a business process reengineering programme to achieve reduction in the
production time, costs, and improvements in product quality. One of the core competencies of M&M
lay in engineering skills and R&D which had helped the company develop a diversified product range.
M&M had acquired a majority stake in Gujarat Tractors Limited.
Escorts
With the recent merger, Escorts had emerged as the second largest player in the Indian tractor
market with a market share of 20 per cent. (Escorts may not have substantial economies of scale
because of differences in the products of the two companies.) It was also poised to takeover the
tractors division of public sector HMT Ltd. Engaged in a restructuring exercise, resulting in the
integration of the entire tractor business in one company and the other businesses like two-wheeler,
auto components, telecom, etc. in separate companies. The distribution network, though widespread
in the north, was weak in the emerging markets of south and west. The highly successful brand name
Ford had been withdrawn with the divestment of the stake of Ford New Holland in favour of Escorts.
Now, tractors were being marketed in the name FARMTRAC and the change had been well
advertised among the customers. Escorts had seen declining sales, had lower margins than the
industry, and had a very high debt/equity ratio.
FarmAid Tractors Limited (FTL)
Had a presence in all market segments. Had a 20 per cent market share and was aiming to be the
number one player in another five years, achieving a market share of 30 per cent, either by expansion
or by acquisition.
Punjab Tractors Limited (PTL)
Strong distribution network and brand equity. Had adapted its tractors to suit specific state/crop
conditions. Had been growing at a faster rate than the industry. Had one of the highest operating
margins in the industry. Sales were against advances. It had a working capital surplus. Well
positioned in the > 40 HP segment to exploit future growth opportunities.
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TAFE
Closely held company of the Amalgamation Group. It had the strongest presence in the 30-40 HP
market segment, but had no presence in either < 30 HP or > 40 HP segments. The company had
substantial presence in all the major markets, though, its earlier focus was southern India where the
competition was weak. Setting up new facilities to manufacture 13,000 tractors per year. Most of the
vendors were well known automobile ancillary group companies such as Bimetal Bearings, India
Pistons, etc.
Eicher
Sales were limited to < 30 HP category which had seen declining market share, though absolute sales
may be increasing. Distribution was limited to Haryana, Punjab, and western UP. There was a
proposed merger with Royal Enfield, which could provide access to Enfield's network in the south.
Had one of the lowest net profit margins in the industry.
HMT
Had a presence in all market segments. Despite very good product quality, had not been a very
strong marketing company. Had been experiencing a declining market share, although volumes were
increasing. Had not been strong in the Green Revolution states of Punjab, Haryana, and western UP.
It had not been competitive on prices. Proposed takeover by Escorts Ltd though final approval was
pending with CCEA.
As seen in the table below, production capacities in the tractor industry had increased with the coming
in of John Deere and Ford New Holland. However, this increase had not kept pace with a
corresponding increase in production. Capacity utilization in FY99 stood around 72 per cent, clearly
indicating a growing problem of overcapacity in the industry. In FY2000, the utilization was expected
to drop to 64 per cent. In FY01, additional 17,000 units were likely to be added to New Holland's
capacity while another 20,000 units were expected to be added to John Deere's capacity in the next
two years. FTL was also planning to expand either by adding capacity or through acquisition.
Production Capacities
Company FY99 FY2000 (Expected)

Bajaj Tempo 6,000 6,000
Eicher 45,500 45,500
Escorts 56,250 56,250
FTL 60,000 65,000
HMT 18,000 18,000
M&M 77,000 89,500
Punjab Tractors 50,000 72,000
TAFE 37,800 37,800
L & T John Deere 0 10,000
Ford New Holland 0 18,000
Total 350,550 418,050
Total production 253,904 267,356
Source: TMA/Annual reports
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Exhibit 3
FTL Tractor Production
FY Numbers
1996 45000
1997 53000
1998 60000
1999 60000
2000 65000 (Expected)
Source: Company Records
Exhibit 4
Logistics Issues and Decision Areas
1. Objectives of FTL's logistics: To maximize market share and profitability in a competitive

environment by enabling availability of the right model in best quality at the right place at the right
time.
2. Symptoms/issues
a) Stockouts
Inability to supply specific models indented by dealers (end user impact: lost sale/forced
conversion to another model)
Delayed supply of specific models indented by dealers (end user impact: loss of goodwill)
Stockout cost considered anywhere from 50 to 200 per cent of contribution.
b) Excess stocks
Inventory carrying cost: working capital cost of Rs 100/tractor/ day (at 0.05 per cent a day on
a tractor worth Rs 200,000)
Scope for damages
An average of 20 days stock before sale to dealer costs Rs 2000/tractor (Rs 12 crore/year)
An average of 20 days stock and a further 15 days credit by the dealer costs the dealer Rs
3500/ tractor (Rs 21 crore/year) (a dealer typically earns Rs 8000/tractor as commission, and
possibly Rs 1500 as 15 days credit, apart from margins on accessories)
c) Inter-stockyard transfers
Extent during 1997/98
Reasons, costs
d) Losses: transit/storage resulting in repair/replacement/replenishment (70 per cent of tractors

received a 'yellow' card on receipt at dealers - implying not ready for sale. 75 per cent of
these were set right in the first week. The remaining sometimes got complicated in
investigations, resulting in non-settlement of claims/dues even up to four years)
Losses chargeable to transporter

Losses chargeable to insurance
Other losses, including opportunity cost of sale
Model-wise losses
e) End of month pressures

Inventory carrying cost associated with skewed sales to dealers
Cost of communication
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f) Need to revise production schedules

Extent during 1997/98
Scope for improvement through better forecasting and planning
g) Transportation costs
Average primary (Rs 2500/ tractor, Rs 15 crore a year)
Average secondary (Rs 1500/ tractor, Rs 9 crore a year)
3. Decision and action areas
a) Central despatch yard

Allocation based on truck availability: savings in inventory
Increased flexibility because of later allocation across destinations: savings in inventory
Loading and storage under supervision: reduced losses
Infrastructure cost
Availability of trucks/movement to railsiding
b) Stockyard locations
Stockyard in every state owing to tax savings
Since secondary transportation cost is not significantly higher than primary transportation
cost, entry point in the state is often the best
Multiple stockyards will be justified based on total transportation cost (primary and
secondary), limitations on secondary movements (if on own power), and stockyard
infrastructure and management cost (each stockyard costs about Rs 25,000/ month)
Stockyard to have minimum throughput volume (say 200 tractors/ month)
Stockyards to be managed by C&F agents
c) Mode choice
Transportation Cost
Inventory cost at unloading end
Inventory cost at loading end
Inventory cost because of pipeline
Cost because of losses
Buffer inventory cost at unloading end due to reliability in transit
Availability of transport/lead time for availability
d) Inventory norms
e) Forecasting and planning systems

Current system
Revised system with rolling horizon
f) MIS for stockyard management
Selection of C&F agents

Experience/familiarity with tractor business
Professional outlook of management and employees
Understanding of transport business
Skills for inspection and documentation on receipt and before delivery
Security infrastructure, preparedness for contingency
Infrastructural support: land for ordered storage and retrieval, fax, telephone, loading/
unloading ramp
Professional charges
Time frame for contract
Monitoring of C&F agents

Proper record keeping
Proper execution of instructions
Orderly storage and retrieval (in full communication with area office)
Damages during unloading/storage/despatch
g) MIS for transporter assessment
Selection of transporter
Quality in delivery (accidents, thefts)
Reliability in transit time (average, variance)
Price
Number of trucks owned
Nature of financing
Type of drivers employed
Permits invested in
Monitoring of transporter
Date of despatch, date of delivery, variance analysis,
Transhipments on route
Report daily movement
Spot contingency owing to accidents (role of central despatch/nearest C&FA/destination
C&FA)
Stock allocation during contingency by central despatch
Despatchwise
Transporter wise
Model-wise
h) Need for transport development

Loading and unloading practices
Truck design
Financing of transporters
Coordination with other tractor manufacturers for return loads
i) Inputs for product development

Avoid protruding parts for better packing efficiency and reduction of damages
Kitting of loose parts
Exhibit 5
Order Processing and Inventory Planning
Regional Office to Factory (Stockyardwise, Modelwise)
• Monthly inventory plan with safety stock for stockyards. Safety stock to provide 98 per cent
service level, model wise
• Order quantity = expected demand during protection interval + safety

stock - current stock (including stock in transit)
• Protection interval = Order interval (monthly) + lead time (0.8-1.3 months)
• Attempt to reduce end of month skew and move to weekly ordering, with two weeks lead time
Seasonality
• Annual inventory plan for seasonality (uniform production versus demand driven, if required by
using overtime and/or subcontracting).
Month Demand Production Inventory because of

uniform production
January 5,000 5,000 1,100

February 4,000 5,000 2,100
March 4,500 5,000 2,600
April 6,000 5,000 1,600
May 5,900 5,000 700
June 5,700 5,000 0
July 4,500 5,000 500
August 4,000 5,000 1,500
September 4,500 5,000 2,000
October 5,500 5,000 1,500
November 5,400 5,000 1,100
December 5,000 5,000 1,100
Total 60,000 60,000
Forecasting
• Company level (for aggregate and seasonality planning)

• Regional office level (consolidation of dealer forecasts and cross-checking, for placing orders
from the factory)
• Dealer level (customer tracking)
Exhibit 6
Distribution Structure
Central Despatch Yard
• Investment cost: Rs 15 million

• Operating cost: Rs 2 million/year
• Flexibility in allocation after physical verification of truck availability
• Inventory saving over current practice: 2 days (1,20,000 tractor days/ year) i.e. Rs 12 million/ year
Some Drivers for Secondary Logistics
• Change from own power to truck based-movement

• Stockyard near dealer
• B/C category inventory to be held by stockyard only
Stockyard Location Analysis
• Because of 4 per cent central sales tax, by and large each state had to have at least one
stockyard
• Current policy for stockyard locations was proximity to regional marketing office, which was
usually in a major city in the centre of the state
• Both number and location of stockyards were questioned and relaxed where logistical servicing of
dealer gained importance
• A mathematical programming model could be used for analysis
Exhibit 7
Stockyard Location, Cost, and Distance
Stockyard Operating Cost Distance from

Location per Month (Rs) Thane (Kms)
Valsad 25,000 136
Surat 20,000 263
Vadodara 30,000 448
Ahmedabad 30,000 545
Rajkot 25,000 761
Exhibit 8
Dealer Location, Demand, and Distance
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Surendranag
Himmatnaga
Dharampur
Bhavnagar
Porbandar
Jamnagar
Junagadh
Mehsana
Palanpur
Godhara
Bharuch
Rajpipla
Dealer Location
Nadiad
Bardoli
Dholka
Anand
Amreli
Patan
Morbi
ar
r
No of Tractors/ 35 30 25 40 25 20 20 20 35 20 30 45 20 20 20 30 20 25 20
Month
Valsad 633 272 62 163 514 32 385 315 424 616 630 293 419 647 491 456 715 204 431
Surat 566 205 31 96 447 109 318 248 357 549 563 226 352 570 424 389 648 141 364
Vadodara 399 38 125 71 280 266 151 81 190 382 396 59 185 403 257 238 481 82 200
Ahmedabad 258 73 225 182 200 377 40 136 79 313 327 52 74 292 146 125 412 195 116
Rajkot 105 255 492 365 175 560 162 321 304 88 102 234 299 67 371 255 187 255 111
* All distances are in kilometers
Exhibit 9
Stockyard and Dealer Locations
Exhibit 10
Scenario Analysis for Gujarat
(Rs)
Secondary
Secondary
distance limit:
Secondary Secondary Secondary distance limit:
500 km
Cost/tractor/km Current Distance limit: distance limit: distance limit: None
Min. number of tractors to be
None 350 km 500 km Minimum number of tractors to be
serviced by a stockyard:
serviced by a stockyard: 200/month
200/month
Primary: 2.5 10,28,999 8,73,533 8,78,209 8,75,454 8,75,484 875,484
Secondary: 3.5
Ahmedabad Valsad Valsad Valsad Valsad Valsad
Rajkot Ahmedabad Ahmedabad Ahmedabad Ahmedabad
Rajkot
Primary: 3.0 11,19,855 8,22,880 9,43,085 8,87,380 8,22,800 8,99,080
Secondary: 3.0
Ahmedabad Valsad Valsad Valsad Valsad Valsad
Ahmedabad Vadodara Vadodara
Rajkot
Exhibit 11
Recommendations for Stockyard Locations
State Existing Yard(s) Optimal Locations

Hyderabad
Andhra Pradesh Hyderabad
Vijayawada
Hosur
Tamil Nadu Chennai
Trichy
Belgaum
Karnataka Bangalore
Davangere
Valsad
Gujarat Ahmedabad
Ahmedabad
Indore
Madhya Pradesh Bhopal
Raipur
Kota
Jaipur
Rajasthan Jodhpur
SriGanganagar
Sri Ganganagar
Punjab Jalandhar Patiala
Haryana Karnal Gurgaon
Exhibit 12
Organization Structure
CURRENT PROPOSED
PRESIDENT PRESIDENT
PRODUCTION MARKETING MARKETING

SUPPLY CHAIN
RESPONSIBILITY
Engine Unit
Transmission Unit Distribution
Tractor Unit Unit Engine Unit
Transmission Unit Distribution Unit
Tractor Unit
Transport Stockyard Transport Stockyard

Management Management Management Management
Exhibit 13
November 2, 1999
Mr Rajesh Bhatt
Logistics Team
FarmAid Tractors Limited
Thane, Mumbai
Dear Rajesh,
Regarding the restructuring of the supply chain, I have the following points.
1. The entire supply chain should service the customer requirements in a coordinated way. We aim
to be like a “service” organization.
2. We build on the premise that marketing’s role is to be aware of the customer requirements, and
interface with the customer, both directly as well as through the dealer. Hence, ideally, supply
chain’s responsibility should be up to servicing dealer requirements. Thus, dealer and dealer
customer interface becomes the front office function, while servicing the dealer right from the raw
material vendor through a series of transport, storage, and conversion activities is the back office
function.
3. Given the above ideal supply chain structure, we can start examining activities prior to reaching
the dealer, one by one, to see if there would be better effectiveness and efficiency if the activity
was performed by marketing (front office) or by supply chain (back office). The activities in
reverse order would be
a) transportation from area stockyard to dealer

b) allocation from area yard to dealer
c) receipt, storage, inspection at area yard
d) transportation from central despatch to area yard
e) allocation to area yard
f) transportation from finished goods to area yard
g) ready for despatch inspection at the plant, and so on
4. If (a) above is better performed by marketing, then it could be part of marketing role. Apart from
this activity, it appears that the other activities should be a back office function under supply
chain, so that complete responsibility is taken to ensure availability of required tractors. Focus on
activities like transportation, storage, and inspection even at geographically dispersed places
should reach the same level as a particular manufacturing process in a factory environment.
Thanking you,
Yours sincerely,
Prashanth

Farmaid Tractors Limited

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This document is authorized for use only in National Rail and Transportation Institute's PG; Logistics and Supply

Indian Institute of Management

Farmaid Tractors Limited

In summer 1999, as part of a major effort in organizational restructuring and business

Two critical areas for analysis were taken up first:

Order processing and inventory planning

Prepared by Professor G. Raghuram, Indian Institute of Management, Ahmedabad. Assistance

Order Processing and Inventory Planning

Distribution Structure and Stockyard Location

Supply Chain Organization

Demand and Supply

Table 1: Tractor Sales v/s GDP Growth

CAGR (FY78 to FY98)

Table 2: Segment Wise Market Shares

FY94 FY99 FY2000

Region-Wise Share of Tractor Sales

Table 3: State-Wise Market Shares

Table 4: Major Markets for Tractors

Mahindra and Mahindra Limited (M&M)

FarmAid Tractors Limited (FTL)

Punjab Tractors Limited (PTL)

Company FY99 FY2000 (Expected)

1. Objectives of FTL's logistics: To maximize market share and profitability in a competitive

d) Losses: transit/storage resulting in repair/replacement/replenishment (70 per cent of tractors

Losses chargeable to transporter

e) End of month pressures

f) Need to revise production schedules

3. Decision and action areas

a) Central despatch yard

e) Forecasting and planning systems

f) MIS for stockyard management

Selection of C&F agents

Monitoring of C&F agents

g) MIS for transporter assessment

h) Need for transport development

i) Inputs for product development

Regional Office to Factory (Stockyardwise, Modelwise)

• Order quantity = expected demand during protection interval + safety

• Protection interval = Order interval (monthly) + lead time (0.8-1.3 months)

Month Demand Production Inventory because of

January 5,000 5,000 1,100

• Company level (for aggregate and seasonality planning)

Central Despatch Yard

• Investment cost: Rs 15 million

Some Drivers for Secondary Logistics

• Change from own power to truck based-movement

Stockyard Location Analysis

Stockyard Operating Cost Distance from

State Existing Yard(s) Optimal Locations

PRODUCTION MARKETING MARKETING

Transport Stockyard Transport Stockyard

a) transportation from area stockyard to dealer

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