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Ford Motor Company :

Supply Chain Strategy

Strategic case analysis

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Table of Contents:

1. Case Analysis

• Company Overview
• GATI Objectives
• Group Structure
• Initial Business Model
• Business Strategy
• Initial Challenges
• Rapid Expansion
• Driving the change
• Organization Restructuring
• Courier service launch & transformation
• Future Developments
• Technology Management
• Financial Analysis

2. Case solutions

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Company Overview

• Gati Ltd. Was incorporated on 25th April,1989 as a division of Transport Corporation of India
(TCI ) with its registered office at Secunderabad. It was launched in four stations: Hyderabad,
Madras, Bangalore, and Hosur

• It is established by Mr. Mahendra Agarwal with an aim to redefine the logistics industry

• It became a separate company after a period of six years (1994) with a revenue of 18 Cr INR.

• It is a leading domestic express cargo company with a pan-India distribution network offering
multi-modal connectivity (road, rail, air and sea) and end-to-end logistics solutions

• The focus is on integrated logistics solutions. Gati’s transport infrastructure, IT systems,


cutting - edge technology solutions and an intensive knowledge of India allows it to tailor its
products to meet every customers unique needs.

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GATI Objectives

•To meet customer requirements:

Quality of services at competitive value


Analyze customer needs and find solutions to satisfy them
Provide timely and correct information and avoid surprises
Prompt resolution of compliances and create an environment of mutual respect

• Achieve operational efficiency by correct operational balances with the help of uniform,
accurate, and timely information.

• Control revenue leakages and costs and improve profitability.

• Centralized information which is consistent throughout the organization

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Present Group Structure

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Initial Business Model

• Gati was introduced in the market as a door-to-door cargo company with commitment on
delivery and money back guarantee

• More priority to timely delivery (to ensure customer satisfaction) than the cost of delivery
which was reflected by vehicle underutilization

• Gati took payment from corporate clients only after producing proof of delivery.

• Over a period of 4 years, GATI established itself as a differentiated express cargo business
offering time bound premium delivery services to its clients

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Business Strategy

• Gati operated its business with a group of front-end entrepreneurial delivery set-up. Members
of this set-up were known as Gati Associates (GAs)

• Gati Associate was trained and motivated by Gati. He was assured a net revenue of Rs. 8000 a
month (in 1994)

•A financial arrangement ensured over a period of time, GA owned the vehicles they have been
using on behalf of Gati

• Gati announced a money back guarantee scheme when delivery promises were not met

• Gati also invested substantial resources in customer relationship marketing through regular
customer meets and customer carnivals

• This was a new strategy to the industry and resulted in creating a unique market for Gati
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Initial Challenges

• The Gati model was cloned by several retail courier operators between 1994 & 1998.

• Competitors started recruiting Gati employees

• Premium pricing was no more feasible. There was erosion in the market share (up to 60 per cent).

• In 1994, Gati introduced desk-to-desk service to meet the price sensitive customer market. This
service was placed between regular transportation and premium cargo.

• Soon desk to desk business started growing at the expense of premium. Consequently in 2001,
the desk-to-desk segment was merged with the premium segment.

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Rapid Expansion

• GATI grew rapidly to operating in 10 regions in 2001 from 2 in 1994

• Courier business was made operational

• International operation to SAARC countries was in place. Shipping business, earlier handled by
TCI, became a part of Gati

• TCI Highways was taken over by Gati

• Gati started using several modes or a combination of modes to give customers a choice
on service (product, volume, and time) at an appropriate price

• In October 1994, Gati formally separated from TCI through a de-merger process)

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Driving the change

• Gati systematically developed relationships with airlines and railways to use their cargo
capacity to deliver products and services

• Gati believed in long term employee relationship. Attitude was given more importance in
employee recruitment than qualification and expertise

• Over a period of time, Gati build its image of being a caring organization.

• Management graduates and engineers were recruited from the campuses and placed in
executive or managerial cadre

• Gender ratio was improved by recruiting more women in graduate & management trainee roles
• To keep a check on the number of employees, a performance-based separation scheme was
implemented.

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Organization Restructuring- 2003

Reasons:

Before reorganization, Gati’s operations were divided into 10 regions. Each region was like an
independent business unit and was managed by a regional manager. The regional
manager was in charge of all activities related to the management of the region. This led to
various challenges like:

• The monitoring (business) mechanism was at the regional level & hence country level business
performance cannot be judged

• The regional head could spend only a limited amount of time with his clients because of his other
responsibilities of managing the region

• Common goals across marketing & service teams led to responsibility overlaps

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New Organization structure:

• Marketing and services (operations) were vertically separated across the company

• Services like information technology, finance, and HR which were used by every product in Gati
became corporate functions.

• In new set-up, company was divided into five zones: north, south, east, west, and central which
were primarily marketing offices

• Services and the associated infrastructure were renamed as divisions. The division heads were
responsible for operational efficiency and service reliability

• Every division and zone was expected to set its targets (in consultation with the corporate office)

• The old system was driven by close supervision. The new system is driven by performance
measures and empowerment.
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Gati Online Initiative :

• The Gati online project was conceptualized in 2000. The objective was to develop a web enabled
information technology platform to support operations. Before this initiative Gati had developed
a software and implemented it on FoxPro.

• Gati wanted a software, which would track all activities from receiving a document until
settlement of accounts related to the document.

• Gati online project engaged Satyam on the software development project

• The project comprised three different components: GEMS (Gati Enterprise Management
System), Oracle Financials, and Oracle CRM.

• The system went live on July 3, 2003. As soon as the system went live it crashed owing to server
load exceeding the design capacity. A recovery plan was put in place within a day and foolproof
implementation was put in place by Aug,2003
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Customer Service at Gati:

• Gati operated call centers on 24 x 7 basis to receive, respond, and monitor customer
complaints.

• For the first time in this industry a toll free number was made available to
customers.

• Every complaint is captured in a database to evolve a better understanding of the patterns of


complaints, what is Gati’s response in the resolution of the complaints, and time taken to resolve
it.

• The nature of complaints is analyzed to form a basis for preventive actions and
systemic improvements

• Every vehicle is monitored by the elaborate computer communication system. In case of any
forecasted delays, remedial measures are implemented & customer is kept informed at all times.
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Launching of Courier Service “Suvidha”- Later Transformed to Zipp

• In 2000, Gati launched Suvidha, a premium cargo (courier) product, to be managed and
operated by the same team which was in-charge of the cargo business.

• Higher revenues & better network utilization was anticipated from small courier shipments

•Unfortunately, the delivery team did not pay equal attention to small cargo, small documents,
and small parcels. This led to failure of courier service.

• Gati decided in 2004 to revamp the courier business and take it forward with a strong brand
image. Service name was changed to Zipp & a separate team was formed which would be
responsible for delivery from end to end

• Zipp was to use the Gati network wherever it was appropriate and operate on its own network
whenever necessary for purposes of speed. This resulted in significant increase in revenues by
venturing into successful courier business alongside cargo transport using existing infrastructure
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Future Developments

• The number one priority for Gati is customer relationship. It must provide a solution to all
customer requirements (express cargo and courier).

• There is tremendous scope to revamp infrastructure. The purpose is to increase productivity in


material handling by automation. There is scope to rationalize branches, modify and restructure
routes

• Gati has a great business opportunity in packaging. The packaging industry in the country is in
primitive stage. The margins in this business are good.

• Gati has a great role to play in goods movement in SAARC countries through international
expansion of business

• Creating and managing warehouses would provide an opportunity to move from mere transport
to logistics.
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Technology Management at GATI:

• Regularly calibrated thermostats to control the refrigeration units

• Monitoring of climate conditions at all times, record temperature, RH and CO2 levels during
transit

• Vehicle tracking systems for climate control truck movement to monitor in-transit location

•Technology Online line tracking on www.gati.com-POD-Scanned copy of Proof Of Delivery


through e-mail

• Tracking consignment is just a click away Toll Free Number

• A 24 x 7 service SMS Updates Messages on your mobile

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GATI Financial Analysis

Total Income Profit After Tax

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Case Solution:

1. The logistics business in India is expected to grow steadily as an offshoot of 7 per cent
projected GDP growth. Gati has competition in every product/market segment but none as a
whole. How should Gati protect itself from possible encroachment by competition?

 Tie up with e-commerce companies such as Flipkart, Amazon, Snapdeal, etc.


 Introduce Express delivery and Overnight delivery schemes
 Emphasize on the extensive outreach of Gati and publicize it
 Cater to remote areas in the country such as the north eastern states and Himalayan
region
 Develop warehousing capabilities especially in tier 2,3 and remote regions
 Increase transportation through waterways

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Case Solution:
2. What advantages does Dell derive from virtual integration? How important are these
advantages in the automotive business?

• Virtual Integration has enabled Dell to aggressively reduce working capital and greatly reduce
obsolete inventory.
• In terms of communication and coordination, vertical integration leads to efficient and
effective collaboration between supplier and Dell. It requires fundamental operations to be
changed a shift from ‘push’ to ‘pull’ processes.
• Another rationale for vertical integration is real time responsiveness and inventory
management. Dell has real-time updating of order status and is able to check order status
regardless of where the order is in the fulfilment process, which provided Dell with
competitive capabilities.
• Improved inventory velocity facilitates Dell PCs with newly innovated technologies to get to
market much sooner than competitors.

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• A major benefit Dell gained from virtual integration is the ability to forecast demand. Dell’s
direct relationship with customers helped in forecasting future demand.

• Virtual integration allows company to work with partners in real time which allows them to
outsource the design, system development, product sourcing, logistics and even final assembly
to strategic partners
• Virtual integration will enable having faster communication between suppliers, manufacturers
and customers in the value chain

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Case Solution:
3. What challenges does Ford face that are not faced by Dell? How should Ford deal with such
changes?

The challenges faced by Ford while implementing “virtual integration” like Dell are:
• Cost of automobile being very high relative to computers, thus exponentially reducing
chances of customer buying an automobile online!!!
• Significantly larger amount of components in automobile thus increased dependency on third
party suppliers.

• No “touch-n- feel” in e-selling, which is essential while buying an automobile.


• Ford and Dell being of two different contrasting domains, so same replication of “virtual
integration ” is not suggestible.

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• Ford should not directly “replicate” Dell’s model of virtual integration to bask in high sales and profit glory, as it would
not be possible for the automobile giant to implement and maintain an exact replica on the Dell’s direct selling model. A
much more complex multi -tier architecture of Ford needs a “customized” approach.

• FPS (Ford Production System)


• OTD (Order to Delivery)
• FRN (Ford Retail Network)
• Implementing JIT, TQM
Case Solution:
3. If you were Teri Tekai, what would you recommend to the senior Executives? To what degree
should Ford emulate Dell’s business Model?

• Dell was always huge on customization which covered a large portion of their overall cost.
However Ford cannot afford the customization cost as it has to roll out standard models. Dell
hardly invested in physical assets and Ford can’t afford to go lean in that area specifically.
• Ford’s biggest challenge in implementing virtual integration would be overcoming cultural
resistance followed by issues with the current system and data complexity with the new
supply chain technology. Hence one of the main recommendations would be implement
good training for the employees to help them undergo change management process.

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Case Solution:

3. Gati online ERP (called GEMS) is working well and has stabilized. What should Gati do
with this software? Should it be sold to an IT firm or should Gati start a consulting agency to
implement this ERP in other courier companies?
 Gati is well known for its advanced IT infrastructure
 GEMS is Gati’s strength which differentiates it from its competitors
 In the west, many companies are known for their proprietary IT capabilities especially in the
logistics domain such as UPS
 These capabilities give an upper hand to such companies over their competitors
 So, Gati should not sell GEMS to direct competitors operating in the same domain
 They should rather make use of India’s high skill and low cost IT capabilities to develop itself
as a solution provider
 They may consider selling this service to large firms in other domain that have logistics as
their enabler by bringing solutions based on logistic expertise to the table
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Case Solution:

4. Gati’s experience in international operations in Singapore is quite encouraging. There is a


similar opportunity for small cargo business in the Middle East and Europe. The fact that Gati
has multimodal transport operations is an advantage. All these would ensure a solid basis to
grow both nationally and internationally. The key issue is how fast this growth should be? What
would accelerate this growth?

 Threat of New Entrant [ LOW ] - high entry barrier is the high fixed cost associated with
establishing the international transportation network. This includes hubs, ground
transportation vehicles, air fleet, etc.

 Bargaining power of buyers [ HIGH] - buyers can turn to a shipping provider that offer faster
service, lower price, or service innovation with ease. This is especially true for large
corporations, like IBM, which ships in large volumes and can bargain quantity discounts

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Case Solution (Cond.):

 Bargaining power of suppliers [LOW] - Large shipping service provider can affect prices of
supplies, like packaging materials. This is because they buy in large quantities and can turn to
different suppliers easily.

 Threat of substitute products [LOW] - There are not many substitutes to shipping. In this
day and age where many businesses have strong online presence and a small physical
presence, it would be difficult to find a substitute in delivering their product

 Rivalry Amongst Existing Firms[HIGH] - Established players in shipping service industry


complete rigorously for a market share, the company who responses first to the constantly
changing environment wins. Established companies have to strive for continuous
improvement in quality, lowering price, and innovation. There is very low switching cost for
consumers in this industry making rivalry even more intense.

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Case Solution:

5. What are the internal (structure, people, system performance appraisal) requirements to
move from an activity-oriented organization to a solution provider (logistics, 3PL, etc.)?

 Structure
 New composite teams should be formed that have representatives from all the
specializations
 Should strengthen the marketing team to attract new projects

 People
 Should develop additional soft skills and management skills to serve clients better
 Team working capabilities need to be developed

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Case Solution (Cond.):

 System
 IT systems should be further strengthened
 Project management capabilities should be inculcated in the new system

 Performance appraisal
 Additional compensation should be given to teams who receive excellent feedback
from the clients on their projects
 Middle management should be appraised on the basis of client loyalty

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Case Solution:

6. The greatest strength of Gati is its ability to experiment, willingness to face failures, and
resilience to overcome them. These are typically the characteristics of an entrepreneur driven
organization. When and how Gati should graduate to a leadership managed entity?

 Gati’s leadership should focus on enhancing the company’s strengths


 In volatile markets it is good to have such entrepreneurial capabilities to adapt to change
 They should continue with such strategy in places where they have less than desired market
share
 In the domains where they have decent market share, they should operate as a leadership
managed entity

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Case Solution:

7. Gati’s business model has changed from partnership to investment oriented. What are the risks
in the new model? What are the advantages?

Risks
 Investments give future returns which are unpredictable
 Investments are guided by investees’ knowledge and outlook

Advantages
 Gati doesn’t have to lock up its resources, only money needs to be allocated
 Gati now can more autonomous in taking decisions

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Case Solution:

8. Gati cares for its employees. It emotionally supports them. What should it do to attract
talent and retain them? What kind of compensation would be desirable? How to make Gati
a most enjoyable workplace?
• Employees should be given freedom and responsibility to act on behalf of the entire
Ownership company, beyond just themselves or their team

• Leaders should have relentlessly high standards, which many people may think are
Insist on the Highest Standards unreasonably high. It would motivate the employees to give their best.

Having great managers at the • Middle managers matter. These are the individuals who will be having daily contact
Helm with your employees and will directly influence how they work day in, day out

• Start by looking at what it is you bring to the table in terms of potential to innovate
Create an Enviable Culture and how you company can drive change

• The employees of today want to start with one company and continue to grow with
Focus on career Development them. In order for them to advance, they need to know that the company will invest in
them and continually up-train them,

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Prepared By:

Anmol Kumar Kaushik- 1702030


Ankit Chandel- 1702025
Ashish Kumar Yadav- 1702042
Anshul Ekka- 1702031
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