AGARWAL AUTOMOBILES

FUEL STATION FORECASTING AND INVENTORY

MANAGEMENT
CASE ANALYSIS

SAURABH AGRAWAL
EPGP-12A-102
INDIAN FUEL RETAILING INDUSTRY
In 2012-13, sales of diesel and petrol accounted for 54% of all petroleum products in India
Consumption trend
% sales in 2012 Sales from (%)
1% Petrol (MnT) Diesel (MnT)
74.3
Diesel 69.1

46% 44% Petrol Fuel Stations

Others
Other Petroleum 99% 15.7 18.0
Products

10%
2012-13 2015-16

• In FY 2015-16, oil companies opened more than 2,500 fuel stations, for a total number of 56,190 fuel stations as of March
2016 with IOCL + HPCL + BPCL = 52,604 fuel stations

• Madhya Pradesh contributes to 6% of national figure by having a total of 3,269 fuel stations during 2015-16

• BPCL, the market leader in the Indian petroleum sector with revenues of US$40 billion had been listed among the 2015
Fortune Global 500 companies.
COMPANY OVERVIEW & PRESENT SCENARIO
• Company held an average ending inventory of INR 2.1 Million in
Agarwal Automobiles
past 6 months
Authorized Fuel Station Of BPCL
• Average Daily Sales of the Fuel Station is 0.52 Million in past 6
Type Private months

Model Dealership • Because of high competition, business is keeping high inventory

levels to ensure high customer service level
Industry Fuel
• Absence of formal analytical techniques to govern ordering and
Founded 1981
inventory management policies
Founder Alok Agarwal
• Operational decisions are based on intuitions
Headquarters Madhya Pradesh, India
• In March 2015, fuel station was renovated to keep pace with
Diesel, Petrol and High technological developments which resulted in increased capacity
Products
Speed Petrol and physical space to serve more customers at a time
 COMPANY INSIGHTS
Petrol Diesel High Speed Petrol
Daily Sales Trends

8000 20000 1200

1000
6000 15000
(Litres)

800
4000 10000 600

2000 5000 400

200
0 0
0
4/1 5/1 6/1 7/1 8/1 9/1 10/111/112/1 1/1 2/1 3/1 4/1 5/1 4/1 5/1 6/1 7/1 8/1 9/1 10/111/112/1 1/1 2/1 3/1 4/1 5/1
5/1 6/1 7/1 8/1 9/1 10/1 11/112/1 1/1 2/1 3/1 4/1 5/1

Petrol Diesel High Speed Petrol

Daily Sales Trends

150000 250000 40000

200000 30000
100000
(Litres)

150000
20000
100000
50000
50000 10000
0 0 0
Apr-0 9

Apr-1 0

Apr-1 1

Apr-1 2

Apr-1 3

Apr-1 4

Apr-1 5

Apr-1 6
Oct-09

Oct-10

Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Apr-0 9

Apr-1 0

Apr-1 1

Apr-1 2

Apr-1 3

Apr-1 4

Apr-1 5

Apr-1 6

Apr-0 9

Apr-1 0

Apr-1 1

Apr-1 2

Apr-1 3

Apr-1 4

Apr-1 5

Apr-1 6
Oct-09

Oct-10

Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-09

Oct-10

Oct-11

Oct-12

Oct-13

Oct-14

Oct-15
• From 2009 – 16, Agarwal Automobiles observed a total monthly sales of 18,88,929 ltrs, 48,74,757 ltrs and 1,37,86,977 ltrs &
an average monthly sales of 21964 ltrs, 56683 ltrs and 160314 ltrs each of HSP, Petrol and Diesel
• It is evident from the above shown trends that the sales of Petrol is increasing y-o-y with diesel sales almost constant and
have seen a continuous decrease in the y-o-y sales of High Speed Petrol from 2009 - 16
CURRENT INVENTORY MANAGEMENT
• Fuel Station have 3 storage tanks for each type of fuel

• Company uses BPCL’s online automatic ordering system to place frequent orders

• Min order to be placed = 12,000 ltrs. (in any combination) + to be placed only before 3:00 PM for next day’s requirements

• Lead time = 1 day and Estimated Ordering Cost = INR 150

• Tanker’s total Capacity = 12,000 ltrs. (Each compartment of Capacity of 3,000 ltrs)

Tank No. Fuel Type Capacity (ltrs) Fuel Type Unit Price (Rs) Margin (Rs)
Tank 1 Diesel 20,000 Diesel 60 1.50
Tank 2 Petrol 15,000 Petrol 70 2.33
Tank 3 High-speed Petrol 10,000 High-speed Petrol 73 2.50
 CURRENT INVENTORY MANAGEMENT
• The sales forecast for a coming month was assumed to be equivalent to the previous month’s sales, with some expectation of increase
in the average sales

• Actual orders received for the three fuel oils from the end of December 2015 to the end of May 2016 consisted mainly of petrol and
diesel, with HSP ordered only occasionally

• Two operating policies to plan the order. First, each day’s opening inventory to be at least 40 per cent of the total tank capacity for
diesel and petrol, and 15 per cent for HSP. Second, the opening inventory to be at least 1.5 times (for petrol and diesel) and 3 times
(for HSP) the predicted average daily demand for that fuel in the month. This prediction was calculated as an increase of 10 per cent
over the previous month’s data.

• Inventory Carrying Cost = 10% of Cost of Fuel

CASE OBJECTIVE
• Find out the best model for forecasting the future demand for each type of fuels

• The quantity of each type of fuels to be ordered to ensure high level inventory keeping is avoided and fuel station do not go
out of stock

• Find out Frequency of the order to be placed with the supplier

BEST FORECASTING MODEL - FINDINGS AND
RECOMMENDATIONS
High Speed Petrol Method MAD Values
• Methods Used for forecasting with 30 days Moving Average 2295.18
planning horizon –
Weighted Average 1961.08
ü Moving Average (Assumption: Done for 3
months) Exponential Smoothing 2290.52

ü Weighted Moving Average (Assumptions: Done Time-series 2207.08

for 3 months. Weights assumed: 0.7, 0.2, 0.1)

ü Exponential Smoothing (Assumptions: α- value 40000

35000
is taken as 0.3 and Z = 2.33)
30000
ü Time-series 25000
20000 HSP

• Since, MAD value using weighted moving 15000 Weighted moving average
10000
average is minimum, therefore, weighted
5000
moving average is the best method to forecast
0
HSP 1 4 7 1013161922252831343740434649525558616467707376798285

The forecasted value and actual sales value is shown in above graph. The forecasted value is approximately equal to the actual sales
value which will be used for predicting the future quantity to be ordered using the EOQ model
BEST FORECASTING MODEL - FINDINGS AND
RECOMMENDATIONS
Petrol Method MAD Values
• Methods Used for forecasting with 30 days Moving Average 7499.32
planning horizon –
Weighted Average 5576.87
ü Moving Average (Assumption: Done for 3
months) Exponential Smoothing 5625.69

ü Weighted Moving Average (Assumptions: Done Time-series 11405.68

for 3 months. Weights assumed: 0.7, 0.2, 0.1)
160000

ü Exponential Smoothing (Assumptions: α- value 140000

is taken as 0.3 and Z = 2.33) 120000

100000
ü Time-series
80000 Petrol

60000 Weighted Moving Average

• Since, MAD value using weighted moving
40000
average is minimum, therefore, weighted
20000
moving average is the best method to forecast 0
Petrol 1 4 7 1013161922252831343740434649525558616467707376798285

The forecasted value and actual sales value is shown in above graph. The forecasted value is approximately equal to the actual sales
value which will be used for predicting the future quantity to be ordered using the EOQ model
BEST FORECASTING MODEL - FINDINGS AND
RECOMMENDATIONS
Diesel Method MAD Values
• Methods Used for forecasting with 30 days Moving Average 38509.64
planning horizon –
Weighted Average 23172.68
ü Moving Average (Assumption: Done for 3
months) Exponential Smoothing 32619.37

ü Weighted Moving Average (Assumptions: Done Time-series 32775.23

for 3 months. Weights assumed: 0.7, 0.2, 0.1) 250000

ü Exponential Smoothing (Assumptions: α- value

200000
is taken as 0.3 and Z = 2.33)

ü Time-series 150000
Diesel
100000 Weighted Moving Average
• Since, MAD value using weighted moving
average is minimum, therefore, weighted 50000
moving average is the best method to forecast
Diesel 0
1 4 7 1013161922252831343740434649525558616467707376798285

The forecasted value and actual sales value is shown in above graph. The forecasted value is approximately equal to the actual sales
value which will be used for predicting the future quantity to be ordered using the EOQ model
INVENTORY PLANNING – HOW MUCH TO
ORDER?
Assumptions & Calculations
• Formula Used: Fuel Type HSP Petrol Diesel
Demand (units
Economic Order Quantity (EOQ) = SQRT(2*D*S/H) 260 3,591 4,756
per day)

• Per day demand for HSP in June 2016 = 260 Litres (found from Demand (units
7,800 1,07,730 1,42,680
forecasting) per month)

• Per day demand for Petrol in June 2016 = 3,591 Litres (found Ordering Cost
150 150 150
from forecasting) per unit (S)

• Per day demand for Diesel in June 2016 = 4,756 Litres (found Unit Cost 73 70 60
from forecasting) Carrying Cost 10% 10% 10%

• Ordering Cost/ day (S) = Rs. 150 Holding Cost 7.3 7 6

• Inventory Holding Cost (H) = 10% of Fuel Cost per unit Economic
Order Quantity 566 2,149 2,671
• Fuel Costs per unit – Rs. 60 (Diesel), Rs. 70 (Petrol), Rs. 73 (EOQ units)
(HSP)
INVENTORY PLANNING – FREQUENCY OF THE
ORDER
Assumptions & Calculations
• Formula Used: Fuel Type HSP Petrol Diesel
Demand (units
Number of Orders (O) = (Dx)/ Total EOQ 260 3,591 4,756
per day)

• Dp Average Per month demand for Petrol Demand (units

7,800 1,07,730 1,42,680
per month)
• Dd Average Per month demand for Diesel
Economic
• Ds Average Per month demand for HSP Order Quantity 566 2,149 2,671
(EOQ units)
• Frequency of orders to be placed (n*) = (Dp + Dd + Ds)/12,000

= (7,800 + 1,07,730 + 1,42,680)/12,000 Number of

14 50 53
Orders (O)
= 22 times

• Reorder point = Daily Usage * Lead Time Reorder Point 260 3,591 4,756
INVENTORY PLANNING – CATEGORIZING
INVENTORY BASED ON RELATIVE
IMPORTANCE
Method Used: ABC Classification of Inventory

Under ABC Classification, inventory is divided into defined groups on the basis of the quantity of Consumption and their relative
values. Assumption made on the basis of current inventory management – 99.6 % inventory is being consumed

Total
Total
Accumulat Product
Fuel type Monthly Demand Consumption Unit Value Usage Value Accumulated
ed Value Group
Value
(%)

Diesel 1,42,680 142109.28 60 8526556.8 8526556.8 51% A

Petrol 1,07,730 107299.08 70 7510935.6 16037492.4 97% B

HSP 7,800 7768.8 73 567122.4 16604614.8 100% C

CONCLUSION
• Agarwal Automobiles should order a total of 5,386 liters of fuel combining petrol, diesel and HSP

• The order can be placed 22 times in a month with a total of 75 orders in a month

• The Per month Economic Order Quantity of Petrol, Diesel and HSP should be 64,462 ltrs, 80,129 ltrs and 16,985 ltrs
respectively.
THANK YOU