The problem setting: The problem considered is motivated from a real life case of a consumer

goods company. The company has multiple parallel plants and sales regions spread across the
country. The basic raw material used for all the products is the same and is imported. For this
raw material the mode of transport used is sea till the receiving dock and then the road transport
till the manufacturing plant. The material is delivered to the plant as a full container load as de-
stuffing of the container at the dock is very expensive and it causes damage to the material.

The products by its nature are bulky and have high volume to value ratios, which puts
constraints on storage facilities at plants and distribution centers as well as requires
consideration of transportation costs. Safety stocks are used to ensure product availability and
absorb the fluctuations (demand and supply); these safety stocks are determined for individual
products based on the variation in forecasted and actual demand and are defined as the
percentage of the next periods demand at a selling location.

From the database of a consumer goods company a scaled down data set of a manageable size
(see tables 1 - 6) is presented here.

Table 1: Data for example problem: problem size

1. Number of products, J = 1 (A)
2. Number of manufacturing locations, M = 2 (X and Y)
3. Number of selling locations, S = 4 (K, L, M, N)
4. Number of Docks, D = 2 (P, Q)
5. Planning horizon = 3 months (January, February, March): with T = 4 weekly periods (i.e.
January) and U = 2 monthly periods (i.e. February and March).
Table 2: Data for example problem: inventory
1. The inventory carrying cost for the product = Re 1/ per dozen per month
2. Inventory coverage policy: amount of safety buffer = 40% of the next month’s demand.

3. Beginning stocks (inventory) and storage capacity:

Location  X Y K L M N
Opening Stock (in dozens) 5 4 3 5 2 4
Storage capacity (in dozens) 6 4 4 7 4 5

Table 3: Data for example problem: transportation cost per dozen product (Rs./doz.) and
production capacity of plants (doz./wk):

1
 To selling location Production capacity of plant
From manufacturing location
K L M N (dozens /week)
X 2* 3* 2* 4 8
Y 3 4 3 2* 7
*Channel allocation for the existing system based on the minimum transportation cost.
Table 4: Data for example problem: location wise and countrywide sales plans (quantity shown
in dozens)
January February March
Location Week 1 Week 2 Week 3 Week 4 Country Country Country
K 5 2 3 2 52 45 50
L 3 4 3 4
M 5 2 3 3
N 3 4 2 4

Table 5: Data for example problem: raw material data

1. Quantity of raw material required to produce 1 dozen of finished goods = 1.0 kg /
dozen.
2. Lead time of the raw material up to the port = 2 weeks
3. Beginning stock (Inventory) storage capacity and opening transit.

Location Opening Stock Storage Opening Transit (Container) for

(Kg.) Capacity (Kg) receipt in
Week 1 Week 2
X 10 25 1 0
Y 5 20 1 0

Table 6: Data for example problem: raw material receipts at dock during the procurement lead-
time of 2 weeks.

Port Opening Planned order receipts (open

stock purchase orders) (Containers)
(Containers) Week 1 Week 2
P 1 1 1
Q 2 1 1
In the existing planning system the raw material required for plant X is ordered from
port P and plant Y from port Q.
Quantity per container = 5 Kg.
Table 7: Data for example problem: transit time between the dock and the manufacturing
location

2
Port Transportation cost Transit time in Weeks
(Rs. / Container)
Plant X Plant Y Plant X Plant Y
P 3 5 0 1
Q 2 3 1 0
Detention charges at the port Rs. 10 / week.
Raw material coverage policy
Plant X (Disaggregate Level) 2.2 Weeks
Plant Y (Disaggregate Level) 1.6 Weeks
Aggregate Level – 0.5 Month

Please calculate following

1. Using MRP Principles generate the production plans for individual manufacturing
locations, also generate distribution and raw material procurement plans. Use the given
matrix for arriving at the DRP requirement at the plants. Make appropriate assumptions
where ever required.
2. Using Optimization generate the plans while considering dynamic distribution from any
dock to any production plant and similarly from any plant to any selling location.
3. Compare the results of the above two to understand the advantages and disadvantages
of each of the methods.