Larsen and Toubro: Spare Parts Forecasting Harvard Case Solution & Analysis

With a number of diversified business units Larsen and Toubro (L&T) India’s largest company is having the operation in construction, engineering, manufacturing and technology and have achieved sustained positions in the market.

One of the business unit of L&T, sells number of equipment used in construction and mining such as Surface Miners, Tipper Trucks, Wheel Dozers, Wheel Loaders, Dozer Shovels, Hydraulic Excavators, Motor Grader and Pipe Layers with the title of Construction and Mining Business (CMB). CMB not only gain a distinctive position in tangible goods, but the company is providing the services of installation of equipment and other maintenance services.

The company has always focused to provide a superior quality products and services to its prestigious customers which has attracted all the attention of the company towards the quality only, ultimately the company faced the problem of availability of its spare parts in the market that hit the company’s revenue.

Unavailability of spare parts rose the sale of its competitors and other substitute present in the industry. An improper forecasting caused this shortage in the market that was mainly based on the experience of the planning personnel.  Each spare parts valued in the market ranged from 10 million Indian Rupees (INR) to 80 million INR.

To maintain inventory level was too critical for the company because the shortage would ultimately cause huge loss for the company in terms of profitability, customer loyalty and market share. Although, maintaining a pile of inventory would carry a huge burden of cost, working capital lock-in, warehousing and a significant risk of that spare part could become obsolete.

The forecasting technique used by the Deputy General Manager of CMB, Vijaya Kumar, that comprised of less than 10% error for its 20,000 odd spare parts. Although these forecasted model was not inexpensive to manufacture and maintain. To introduce the forecasting strategy on a pan-India basis, Kumar started to generate the forecasting model rapidly............................

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