Supply-chain management at W'Up Bottlery

After spending a day in a meeting room in August 2005, pondering how to improve supply-chain performance, Rajat Mehra's team hit upon an idea that might enable a dramatic reduction in the cost of stock-outs and excess inventory. This idea involved moving away from the current situation in which independent distributors placed orders for replenishment to the W'Up plant, which in turn shipped the items ordered. In the proposed system, distributors wouldinstead report their inventory levels directly to the W'Up supply-chain management group. Managers in this group would then decide how much stock to send out to each distributor. This plan mirrored the concept of vendor-managed inventory (VMI) that was gainingpopularity in the West.

A clever part of this plan was how it would actually be implemented in the absence of electronic data interchange and Internet connectivity. Mehra's team decided to implement the plan using cell phones for information exchange. Cell phones were far more widely penetrated in the Indian market than in most Western markets, at least partly due to the relatively scarce phoneand broadband networks.

While the cell phone idea seemed like a good one, distributors were very suspicious. When he heard about the proposed initiative, a distributor in Allahabad exclaimed: "There's no such thing as a free cell phone. While we may gain a few phone minutes, we will lose a lifetime of cumulated competitive advantage."

Mehra's team decided to first try out the proposal on a smaller scale, rather than go for a full-blown implementation. For the pilot implementation, they chose a geographic area within the densely populated Western Uttar Pradesh region. There were 150 Coca-Cola distributors in this region alone, out of which 70 participated in the pilot project. Coca-Cola provided a free cellphone to each of these 70 distributors, many of whom were only semiliterate. Every evening, each distributor was required to send a standard template text message back to Mehra's team. Allthat the distributor needed to do was to punch in the total amount of returnable glass bottle (RGB) inventory in stock. The system was set in place in December 2005, well before thesummer 2006 peak season

Back at the W'Up plant, an analyst would cut and paste the inventory information from the short message service (SMS) messages into a Microsoft Excel spreadsheet. On any evening, using the just-received inventory information for a particular distributor for that evening together with information on how much stock had been sent via truck from W'Up to that distributor the previous nightthe analyst would determine the distributor's total actual sales for that day. Using the typical sales mix, the total actual sales for the distributor on that day were then broken down into sales of each stock-keeping unit (SKU). Members of the supply-chain management team would then use this demand information, along with information from marketing on what the sales quota was for each day, to decide how much inventory to send out to the distributor in the next shipment.

In the past, distributors had ordered based on instinct no formal ordering mechanism. In the new system, Mehra's team used a simple back stock system to determine distributor orderdelivery quantities, with the base stock level calculated based on demand over the lead time, time between deliveries, and suitable safety stock. While the system proposed orderdelivery quantities, the distributors could manually override the system if needed, and talk to an actual person. This feature helped reduce the distributors' fear that they were giving up all control over their archrivals. Interestingly, once distributors started to see the benefits of the system, the override feature was used rather frequently.

The new system resulted in tremendous reductions in inventory, while the service level, as measured by the fill rate, improved substantially.

Having completed the pilot implementation successfully, Mehra and his team were now back in the meeting room at the W'Up plant a full year later in August 2006, working on how to implement a full-blown rollout.

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