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9:45 AM
Consider 3 companies A,B,C. Each of them enters the trading business with an investment of 100 Crores.
Company A buys stocks worth 100 Crores and sell it for 110 crores. It retained the 10 crores with itself
and again buys stocks worth 100 crores. They keep repeating the same process. Each cycle takes 3
months.
Company B buys stocks worth 100 Crores and sell it for 102 crores. It retained the 2 crores with itself
and again buys stocks worth 100 crores. They keep repeating the same process. Each cycle takes 1 week.
Company B buys stocks worth 100 Crores and sell it for 105 crores. It retained the 5 crores with itself
and again buys stocks worth 100 crores. They keep repeating the same process. Each cycle takes 1.5
months.
Calculate the following on annual basis for both the companies
1. Annual sales
2. Annual profits
3. Profit margin
Find out which company is the most profitable
A 400 440 40
C 800 840 40
Identify 5 initiatives of how a company can increase the profit margins and five initiatives to improve the
capital turnover.
Consider two companies A & B . The annual sales for both is 1 lakh units each. The average cost per unit
is Rs.1000/-. Average inventory in number of days for A = 60 for B = 30. annual interest rate 10% for
both A & B. ware house space heir is for A 5000 sqft. For B 3000 sqft. Warehouse rentals Rs 30/month
for both. Ware house operating cost which includes manpower utilities etc Rs.20/Sqft per month for
both A & B. Calculate the annual warehousing cost and the annual inventory carrying costs for both the
companies.
Company A B
Inventory carrying cost means the opportunity cost of capital lying idle.
1500/12=125
In the year 2010-11 the average sales was 1 lakh each for company A & B. the average inventory was
10000 units for A & B. The next year average sales of company A was 1.5 lakhs & for company B 3 lakhs.
The average inventory was 20000 for A and 20000 for B. calculate the average inventory in number of
days for both A & B.
Company A B
Or
Or
Inventories impact both profit margin and the capital turn over
Reason: inventory appears as assets in balance sheet
inventory appears as interest in P&L statements.
How are the 3 objectives of supply chain are related to each other?
Assume that you have joined a summer internship in a company. The project is to reduce the
supply chain cost. Currently the supply chain cost is 100 crores of which transportation cost 30
crores, inventory carrying cost 50 crores, warehousing cost 10 crores and others 10 crores. Your
project objectives is to identify the initiatives to reduce the supply chain cost. How will you go
about this project. What data you will collect? What analysis you will do and how will you identify
the cost reduction opportunities?
5. Material costs α
6. Stock outs α
Average 521.5
Average 70
What factors decide the average inventory of any industry?
Inventories α uncertainties
α lead time
α reorder interval
α product availability
α poor information systems
α Lot size
α Demand
A company currently has the manufacturing plant in Pune and they have four warehouses across the
country in Mumbai, Delhi, Calcutta and Bangalore. The company transfers the products from its
manufacturing plants to each of the four ware houses. Each warehouse cater to the demand of that
particular region for eg. Delhi warehouse will cater to the demands of northern region. The annual total
sales of all region put together is 1 lakh units. The average inventory of all units put together is 10000
units. The company want to increase the number of ware houses from 4 to 30 one in each state. The
products would be transferred from the plants to each of the 30 warehouses which will cater to the
demand of the particular states. What will happen to the sales and the inventory. Assume the product
availability is constant in both the cases.
. Current Proposed
Annual sales 100000 ? Remain same as it depends on the product availability and not the
warehouse location
Warehouses 4 30
Inventory 10 ?
turnaround
A company made the annual forecast for the year 2011-12 in the following manner. It made weekly
forecast for each of the 52 weeks in the year. It didn’t make separate monthly or annual forecast. The
summation of every four weeks forecast became the monthly forecast and the summation of monthly
forecast became the annual forecast. The company measures the forecasting accuracy at the end of the
year. They found that the annual forecasting accuracy was 90%, monthly forecasting accuracy was 80%,
weekly accuracy was 65%. How is this possible because the company hadn't separately made the
monthly and the annual forecast.
Weeks W1 W2 W3 W4
What will happen to the transportation cost with the reduction in the number of warehouses.
Transportation cost is inversely related to the number of ware houses.
The decision to have more or less ware houses depends on two factors.
1. The value of the item
2. Nature of the demand
If the nature of demand is high, regular and predictable its better to have a ware house. If its low
and predictable then there is no point in having a warehouse in that particular location.
WHAT will happen to the supply chain if the number of variants or the number of models increases?
A B
Number of variants 4 25
Increase in variety increases the supply chain complications which means higher inventories, higher
forecasting error higher stock outs and overall reduction in the supply chain performance.
Maruti currently manufactures 500 units of swift crank shaft before moving to SX4 crank shaft. Cost per
setup is Rs.1 lakh. They want to now produce 50 units per setup. What would be the cost implications.
Units 500 50
If the batch quantity is increased from 500 to 5000 the unit cost will come down but the inventory will
go up.
Consider 2 companies C1 & C2. C1 produces 4 models m1-m4. the average sales per month for each
model is 500 units. Company 2 produces 10 models. M1-M10. the average sales per month for each
model is 200 units. The minimum batch quantity is 500 units for both the units . The companies
marketing department give the requirement to the production department. The production
department will start producing only of the quantity is more than the minimum batch quantity. What
would be the average inventory for each model of company 1 and company 2.
. Company 1 Compnay 2
Models M1-M4 M1-M10
500/30=16.6667
How can companies provide high variety to the market and at the same time have high levels of
operational efficiency?
Consider two companies Asian paints and nerolac. Following are the process details for nerolac.
Both companies manufacture 26 colors of paints from p1-p26 from 5 base colors. Each of them
forecasted a demand of 10 units for each color of paints. They had also procured the raw material
accordingly. But the actual demand turned out to be 20 units p1-p13 and zero units for p14-p26
1. Draw the process of the two companies in the form of line graph. x-axis time in weeks, y-axis
number of variants.
2. Calculate the sales, loss of sales and excess stock for both the companies.
Nerolac
Asian Paints
Postponement means keeping the number of variants low as long as possible and adding customization
as late as possible.
An auto component supplier has two customer segments for his components.
1. OEM
2. After sales service
The supplier has got 4 OEM customers located in Delhi, Ahmedabad, Bangalore, and Pune. The supplier
also supplies to the after market. If the component fails in the field the supplier had to directly replace
it. Should the supplier has the same supply chain for both the segment or should the supply chain be
different. If its different then how.
. OEM ASS
A business is said to have high IDU if the supply chain planning is difficult for that business.
The following could increase the IDU of a business.
Demand fluctuations
Unpredictability
Short time to respond to an order.
Higher variety
Sort product life cycles
Frequent emergencies
Responsive supply chain can manage the business with high implied demand uncertainties. i.e. they can
manage
Demand fluctuations
Unpredictability
Short time to respond to an order.
Higher variety
Sort product life cycles
Frequent emergencies
Efficient supply chain cant manage IDU business. They are efficient because of their low cost
High IDU business should have a responsive supply chain. Low IDU business should have an efficient
supply chain
Big Bazzar operates two distribution centers. One in Bombay another in Kolhapur. Bombay distribution
center caters to 40 stores. Kolhapur distributes to 5 stores. Hul will sell a minimum batch of 200
shampoos. The average sales per day per store is 5 units. Which of these 2 DC's can manage without
inventory?
3000 cases
100$ per case
By air
Transport Fair Delivery Quantity Total Cost Margin Profit
Mode Time
120000*120=14400000 rupees
120000*10=1200000 kg
365/240=1.5208
4/1.5*500=1,333.3333 1,333.3333/4=333.3333
Golden carriers
120000/500=240
500*10*.08*240=96,000.0 cost of transportation
225*20%*120*4=21,600 inventory carrying cost
Total cost= 1600+21600=23200
Indian Railway
2000*10*.065*60=78000.0
1000*20%*120=24000
Total cost = 1300+24000=25300
The daily average sales per day for a company is 100 units. But the range could be between 70-150 units
per day. The normal lead time for the purchases is 3 days. But the delay could be anywhere between 1-3
days. The companies cycle inventory takes care of the normal demand and the normal lead time. How
much safety inventory do you purpose to manage the demand and supply uncertainties.
The annual demand is 120000 the transit time is 3 days. The company is considering two scenarios.
Whether to order in a lot size of 120000 or in a lot size of 10000 units. Calculate the in transit inventory
without applying the formula.
120000* =986.3014
10000* *12=986.3014
Class Missed on 15-jan-2013
Wednesday, January 16, 2013
4:48 PM
Consider two warehouses Mumbai and Bangalore. Each warehouse receives 100 T/ day from the local
suppliers. Mumbai warehouse receives 100T through 20 consignments. Bangalore warehouse receives
100Tonnes through 200 Consignments. Each of them are planning to implement the milk run system.
They are looking at 3 options.
1. A 10 T truck which can pick up 5 consignments a day, the cost is 1.5 Lakhs/month.
2. A 5 Tonne truck which can pick up 5 consignments a day the cost is 1 Lakh/month.
3. 2.5 T truck which can pick up 5 consignments a day cost being 75000/month.
1 2*1.5=3 2*1.5=3
2 4*1=4
3 .75*8=6.0
If the lower is taken then 4 trucks would be chosen for Mumbai then only 40 Tons can be
delivered.
So option 1 is cheaper for Mumbai (15 Lakhs) and option 3 is cheaper for Bangalore(30 Lakhs)
5% consignment/month 200*8%=16
4000/125=32
Problem-2
Packaging Costs Real Estimated
July-Nov 1.1 .5
Cost/Carton 55
For road the inventory norm at each warehouses which includes cycle inventory and factory inventory is
6 weeks. In case of rail rake it is 10 weeks and in case of rail wagons its 20 weeks.
Roads
Total cost
Inventory
Cycle inventory +
Safety inventory (Units)
Available
Additional Cost
Handling Cost
Inventory
Distribution
Warehouse and cross docking
Planning
Channels
Network design
Inventory storage
Inventory co-ordination
Creating a distribution center helps in reducing the number of transactions.
600*25=15,000
300*2=600
Assignment
Supply Chain improvement in an organization
You have to look at two companies that have undertaken any supply chain improvement initiative in the
recent past. This could be in the areas of transportation, inventory, forecasting etc.
Toyota
Wall mart
Dell
Current sales
Revenue
Profit
Impact of poor distribution
Stock outs
Loss units
Opportunity profit loss
Expires
No. of expires
Loss due to expires
What are the reasons for this problem and what can be done to irradiate the problem?
If the product is of short self life and the forecasting is difficult then the company should follow a shorter
planning and replenishment process. This will improve the forecasting accuracy and would also rectify
the forecasting errors sooner than later.
What to find
Quantity to be shipped from one location to another.
Constraints
Xij = Dj ( J=1,2,3,…..m)
Xij:
Constraints
Xij = Dj ( J=1,2,3,…..m)
Xij:
Objective function
Min (FC+VC)
Demand Region:
Production &
Transportation
Cost per
1000000 Units
Demand 12 8 14 16 7
Supply Region N. America S. America Europe Asia Africa Low Capacity High Capacity
( 1= Open, (1= Open,
0= Close) 0= Close)
N. America 0 0 0 0 0 0 0
S. America 0 0 0 0 0 0 0
Europe 0 0 0 0 0 0 0
Asia 0 0 0 0 0 0 0
Africa 0 0 0 0 0 0 0
Demand 0 0 0 0 0 0 0
Net $ Net $
Profit 5,471 Profit 60,182
Year-0 100000 1.22
Year-2 50000
Pre 1972
1972-79
1979-87
1987-91
Post 1991
2. Whether the change of 1991 helped the company or didn’t help the company
3. Should they continue with the current structure of KRP or should they make any
changes to the
structure?
PRE 1972
1972-1979
Consumers
Branches
Impact of removing a layer from the distribution network
If KPL had not removed the sole selling agent could they have been in a better position in 1979 to
manage the raw material price increase
A/R 70-90 7
They should retain the KRDs. The distributers should be services directly from the factories. KRDs are
required only for servicing the institutional buyers.
If LTCL's annual net profit was 3% in 1990-91 what would be its net profit in 1992-93. assume all costs
other than the inventory carrying cost were in the same proportion between 1991 and 1993
1990-91
Annual sales = 314*12=3,768
Net Profit @ 3% :- 3768*3%=113.04
Total Cost :- 3768-113.04=3654.96
Other costs (except ICC) = 3654.96-97.8=3557.16
1991-92
Cost Proportion 480/314*3557.16=5437.6968
Annual sales 480*12=5,760
Profit :- 5760-5437-285.6=37.4
Profit percentage:- 37.4/5760*100=0.6493
What would be the overall reduction in the inventory if LTCL reduced the inventory of remaining 150
articles by 50%
Steps to be taken to reduce the cost and improve profit and efficiency.