Operations & Supply Chain

Management

Submitted by: Anamitra Sen

Question 1

1(a). Filling petrol or diesel in our vehicles is a very common activity that we all do
regularly. With the information available openly, can you identify the supply chain for
petroleum products? 
1(b). The definition of supply chain contains a very important word “information”. In
your opinion, what information is being referred? 
1(c). A company is into manufacturing an antibiotic product. This is for veterinarian
purposes. During floods when animals such as cows, buffalos, or other bovine
species have digestive disorders, this medicine is very effective. If you were to give a
thought to have a supply chain designed for this company, what will be your choice-
responsiveness or efficiency. Ideally, how will you balance these both? 
1(d). Consider the situation of a pharmaceutical manufacturer. The basic raw
material is abundantly available and that comprises almost 75% of the total cost of
the finished product. However, they also require some other ingredients that are not
very expensive and also are required in small quantities but are available only
seasonally. What type of inventory strategy you would suggest to this company and
why?
1(e). Following are the details of a major cycle manufacturer
 Have operations spanned in North India at three locations
 More than 300 suppliers have been contracted in the South East Asian countries for the
supply of parts
 All these supplies are not critical but need to have a steady flow at the factory sites
 Each suppliers’ volume of supply is small.

Looking at these bare minimum facts, what macro-level logistics strategy would you
suggest. If need be, you may have assumptions, but do mention them in your
answer.

Solution 1
1 (a) Exploration Production Crude

Trading/Distribution Storage Terminal Refining

Above steps shows the flowchart or the process of the supply chain for petroleum
products. Exploration is the initial stage for the supply chain. The raw material are
explored. It is followed by Production. Production is done in order to extract the
crude. Once the production is completed, crude is extracted from the same. This
crude can be either imported from other countries or it may be extracted and can
also be exported to other countries. Once the crude is exported, it is refined
thoroughly and they are stored in storage terminals. The last stage is distribution
where they are distributed or traded among commercial markets, industrial
markets and retail markets.

1 (b) The term “information” in supply chain management is regarded as a very

vital supply chain driver since it allows the other drivers to work in an organized
manner and also helps to maintain strong coordination in the supply chain. Its also
creates a very strong base on which transactions are executed and all decisions are
being made by the managers. Furthermore, it helps to make a coordination among
strategy, operations and planning thus resulting in the improvement in the
performance of the supply chain management. Lastly, it brings visibility to supply
chain management and makes sure all data are exchanged in vertical and horizontal
manner resulting in profit maximization of the firm.

1 (c) In this case, I shall be opting for responsiveness or responsive supply chain.
Before supporting the reason for selecting this, responsive supply chain is defined as
an organization’s capability to satisfy the wants of consumers in a timely manner. It
is a very flexible supply chain and it acts with respect to the changes in environment
including certain unforeseeable events like natural disasters. Although the main
objective of responsiveness is satisfaction of the needs of the customer which must
be achieved anyhow even though change in production is needed for it.

In order to balance responsiveness and efficiency high operating costs needs to be

avoided along with minimization of waste and also being able to adapt with the
changing environment and meet the demand of the customer in a timely manner.

1 (d) In this case, according to me I shall opt for SOS strategy. Seasonal for
Seasonal strategy looks to be the fit model or strategy in this case. If some
ingredients are found seasonally no matter which class they are, still we need to
procure the same in a better manner. The ingredients which are seasonal, they need
to stocked in a huge quantity so that it meets the demand for the rest of the year.
The ingredients which are seasonal, their prices drop during the season time
therefore the pharmaceutical manufacturer should take great of it and taking all
factors into consideration should purchase them at lower prices and stock them.
Question 2

Following data is sourced from the regulatory authorities. Using this data, build the
below-given forecasting models:
 Naive Forecast
 2 Months moving Average
 Exponential Smoothing (alpha =0.3)

 Out of the above three, which model will give the most accurate results (Using MAD-
Mean Absolute Deviation to compare the models)

Solution 2
a) Naïve Forecast

Naive
Category Year Production
Forecast
Light Commercial Vehicles 31-03-2006 68,922
Light Commercial Vehicles 31-03-2007 65,756 68,922
Light Commercial Vehicles 31-03-2008 83,195 65,756
Light Commercial Vehicles 31-03-2009 1,08,917 83,195
Light Commercial Vehicles 31-03-2010 1,38,890 1,08,917
Light Commercial Vehicles 31-03-2011 1,71,788 1,38,890
Light Commercial Vehicles 31-03-2012 2,25,724 1,71,788
Light Commercial Vehicles 31-03-2013 2,54,049 2,25,724
Light Commercial Vehicles 31-03-2014 2,24,587 2,54,049
Light Commercial Vehicles 31-03-2015 3,17,423 2,24,587
Light Commercial Vehicles 31-03-2016 4,08,193 3,17,423
Light Commercial Vehicles 31-03-2017 5,44,335 4,08,193
Light Commercial Vehicles 31-03-2018 5,53,184 5,44,335

The above results we get after calculating the Naïve Forecast. From the results and
the data, we can come to a conclusion that this method is not the ideal one in order
to get accurate results for forecast. This calculation is done in Calculation -1 Excel
in Qsn 2 spreadsheet.

b) Moving Average
From the below graph and data, we can derive the moving average. From the
results and the data mentioned below, we can conclude that it gives to some
extent better and accurate results with relation to the Naïve Forecast. This
calculation is done in Calculation -1 Excel in Qsn 2 spreadsheet.
 Moving Average
600,000
400,000
Actual
Value

200,000 Forecast

0
1 2 3 4 5 6 7 8 9 10111213
Data Point

Naive
Category Year Production Moving Average
Forecast
Light Commercial Vehicles 31-03-2006 68,922 #N/A
Light Commercial Vehicles 31-03-2007 65,756 68,922 #N/A
Light Commercial Vehicles 31-03-2008 83,195 65,756 72,624
Light Commercial Vehicles 31-03-2009 1,08,917 83,195 85,956
Light Commercial Vehicles 31-03-2010 1,38,890 1,08,917 1,10,334
Light Commercial Vehicles 31-03-2011 1,71,788 1,38,890 1,39,865
Light Commercial Vehicles 31-03-2012 2,25,724 1,71,788 1,78,801
Light Commercial Vehicles 31-03-2013 2,54,049 2,25,724 2,17,187
Light Commercial Vehicles 31-03-2014 2,24,587 2,54,049 2,34,787
Light Commercial Vehicles 31-03-2015 3,17,423 2,24,587 2,65,353
Light Commercial Vehicles 31-03-2016 4,08,193 3,17,423 3,16,734
Light Commercial Vehicles 31-03-2017 5,44,335 4,08,193 4,23,317
Light Commercial Vehicles 31-03-2018 5,53,184 5,44,335 5,01,904

c) Exponential Smoothing (alpha =0.3)

Naive Exponential
Category Year Production Moving Average
Forecast Smoothing
Light Commercial Vehicles 31-03-2006 68,922 #N/A #N/A
Light Commercial Vehicles 31-03-2007 65,756 68,922 #N/A 68,922
Light Commercial Vehicles 31-03-2008 83,195 65,756 72,624 67972.2
Light Commercial Vehicles 31-03-2009 1,08,917 83,195 85,956 72539.04
Light Commercial Vehicles 31-03-2010 1,38,890 1,08,917 1,10,334 83452.428
Light Commercial Vehicles 31-03-2011 1,71,788 1,38,890 1,39,865 100083.6996
Light Commercial Vehicles 31-03-2012 2,25,724 1,71,788 1,78,801 121594.9897
Light Commercial Vehicles 31-03-2013 2,54,049 2,25,724 2,17,187 152833.6928
Light Commercial Vehicles 31-03-2014 2,24,587 2,54,049 2,34,787 183198.285
Light Commercial Vehicles 31-03-2015 3,17,423 2,24,587 2,65,353 195614.8995
Light Commercial Vehicles 31-03-2016 4,08,193 3,17,423 3,16,734 232157.3296
Light Commercial Vehicles 31-03-2017 5,44,335 4,08,193 4,23,317 284968.0307
Light Commercial Vehicles 31-03-2018 5,53,184 5,44,335 5,01,904 362778.1215
 Exponential Smoothing
600,000
Value 400,000 Actual
200,000 Forecast
0
1 2 3 4 5 6 7 8 9 10111213
Data Point

From the above graph and data, we can derive the Exponential Smoothing. In this
matter, alpha =0.3 is given, so we have calculated initially (1-alpha) = 1-0.3 = 0.7.
From this result we received more accurate and better results than both Naïve and
Moving average. This calculation is done in Calculation -1 Excel in Qsn 2
spreadsheet.

Thus, from the above three models, Exponential Smoothing provides the most
accurate result. The value for Exponential smoothing is much less than both Naïve
and Moving average. Naïve forecast does not come anywhere near to it. There is
tough choice between Moving average and Exponential Smoothing but we get the
least value for Exponential Smoothing resulting in being closest to actual production.

Question 3

Below are the details of the inventory of a store dealing with automobile spare parts.
Using the concepts of ABC analysis, categorize the spare parts into A, B, and C
categories. (If required, you may have assumptions, but do mention them in your
answer).

Solution 3

The following below table shows that the items are divided and categorized into A, B
and C categories with respect to the annual usage. Piston Rink, Wind Screen and
Bumper, these three items constitute 77.33% usage annually. Thus they are
indicated in red and falls under A category. These three items constitute the highest
and maximum usage for the store in an annual basis. Oil Filter, Bush and Main
Bearing, these three items constitute 16.56% usage annually. Thus they are
indicated in green and falls under B category. Lastly, the rest four items constitute
least and very minimal usage of 6.22% only on an annual basis. This calculation is
done in Calculation -1 Excel in Qsn 3 spreadsheet.
Item Annual Usage Cost Per Unit
Piston Rink 250 4500 1125000 28.16% A
Wind Screen 90 12000 1080000 27.03% A 77.22%
Bumper 110 8000 880000 22.03% A
Oil Filter 150 2200 330000 8.26% B
Bush 1160 169 196040 4.91% B 16.56%
Main Bearing 120 1130 135600 3.39% B
Air Filter 120 860 103200 2.58% C
Rod Bearing 45 1430 64350 1.61% C 6.22%
Head Lamp 140 395 55300 1.38% C
Fuеl Filter 95 270 25650 0.64% C

Question 4

Here is the data of Tata Motors and Ashok Leyland. Compare the year-wise
performance of these two companies based upon the techniques covered in SCM.
Also please state which company is doing better and why?

Solution 4
Inventory Turnover Ratio of Tata Motors
Year 2015 2014 2013 2012 2011
5.45:1 11.32:1 8.32:1 6.02:1 6.42:1

Profit Margin Ratio of Tata Motors

Year 2015 2014 2013 2012 2011
0.39:1 0.36:1 0.36:1 0.42:1 0.46:1

Inventory Turnover Ratio of Ashok Leyland

Year 2015 2014 2013 2012 2011
6.17:1 4.97:1 3.97:1 4.09:1 3.65:1

Profit Margin Ratio of Ashok Leyland

Year 2015 2014 2013 2012 2011
0.39:1 0.42:1 0.42:1 0.32:1 0.32:1

From the data given the question, I have derived the Inventory Turnover ratio of Tata
Motors and Profit margin ratio of Tata Motors from 2011-2015. The same was done
for Ashok Leyland. This calculation is mention in Calculation 1 Excel Sheet under
Qsn 4 spreadsheet. So, from the above chart we can see that, the turnover ratio for
the year 2011 of Tata Motors is 6.42:1 and for Ashok Leyland is 3.65:1. There is a
vast difference between them almost double. Similarly, in 2012, the inventory turn
over ratio decreases to 6.02:1 but still it is greater than that of Ashok Leyland which
is 4.09:1. In 2013, the inventory turn over ratio increases again to 8.32:1 but for
Ashok Leyland, it decreases to 3.97:1. In 2014, there is a huge increase in inventory
turn over for Tata Motors to 11.32:1 and Ashok Leyland also increased to 4.97:1. In
the year 2015, there is a huge downfall in the inventory ratio for Tata Motors to
5.45:1 but for Ashok Leyland, it increases to 6.17:1. The profit margin for Tata
Motors in 2011 was 0.46:1 and kept on decreasing and in 2015, it was 0.39:1. For
Ashok Leyland, profit margin in 2011 was 0.32:1 and it kept on increasing till it fell in
2015 to 0.39:1.

Thus from these given data, we can conclude that the performance of Tata Motors is
much better in relation to Ashok Leyland. The inventory turnover is much higher for
Tata Moto with respect to Ashok Leyland and also the revenue generation is much
higher for Tata Motors.

Question 5

Here is the data of passenger traffic of a very busy international airport. Using MS
Excel build-in Forecast Sheet, forecast for next 5 years for domestic and
international passenger traffic. Share insights on your forecast.

Solution 5
Timeline Values Forecast Lower Confidence Bound Upper Confidence Bound

2016 3,83,71,410 3,83,71,410 3,83,71,410 3,83,71,410

2017 4,14,33,900 3,93,22,376 4,35,45,423
2018 4,36,10,710 4,09,68,770 4,62,52,651
2019 4,38,89,817 4,08,06,332 4,69,73,301
2020 4,23,63,895 3,88,93,647 4,58,34,144
2021 4,29,34,993 3,91,16,079 4,67,53,906

50,000,000
45,000,000
40,000,000
35,000,000
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20

Values Forecast
Lower Confidence Bound Upper Confidence Bound
From the above data and graph, we derived the forecast for next 5 years (2017-
2021) for domestic passenger traffic. This calculation is done in Calculation -1 Excel
under Qsn 5a Domestic spreadsheet.
Timeline Values Forecast Lower Confidence Bound Upper Confidence Bound

2016 1,26,78,865 1,26,78,865 1,26,78,865 1,26,78,865

2017 1,33,46,495 1,26,34,718 1,40,58,273
2018 1,40,24,361 1,25,59,344 1,54,89,379
2019 1,47,02,227 1,22,86,835 1,71,17,620
2020 1,53,80,093 1,18,60,282 1,88,99,904
2021 1,60,57,959 1,13,00,855 2,08,15,064

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0
87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20

Values Forecast
Lower Confidence Bound Upper Confidence Bound

From the above data and graph, we derived the forecast for next 5 years (2017-
2021) for International passenger traffic. This calculation is done in Calculation -1
Excel under Qsn 5b International spreadsheet.
Question 6

Demand for the Carrom Board at a sports shop is 500 units per month. This shop
incurs a fixed order placement, transportation, and receiving cost of Rs. 4,000 each
time an order is placed. Each carrom board costs Rs. 500 and has a holding cost of
20 percent. Evaluate the number of carrom boards that the store manager should
order in each replenishment lot? Secondly, also calculate the total cost.

Solution 6

EOQ = sqrt (2SD/H)

S = 4000

D has to be annual demand

Therefore, D = 500*12 = 6000

H = 20% of 500 = 100

Therefore,

EOQ = 2190.89 = 2191 (Rounded off)

Now, Total Cost = (D*S/Q) + (Q*H/2) = 120503.90 (where Q= 2191)