Assessment - Vivek Sengar

Operations & Supply Chain Management

1. Short question and answer:

1(a). 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 having a supply chain
designed for this company, what will be your choice- responsiveness or efficiency. Ideally, how will
you balance these both?

Efficient Supply Chain Management saves money and increases profits throughout the business, but
efficiency can be particularly beneficial to the business only. An efficient SCM gets the product to its
destinations in the most cost-effective way.

Responsiveness is described as how the supply chain can be prompt & the extent to which it
addresses the changing needs of customers about their demand as well as response to the other
changes in the dynamic business environment.

Difference between Efficiency & Responsiveness

Factors Efficiency Responsiveness
Production Little excess capacity, narrow focus, Excess capacity, flexible Manufacturing,
and few central plants and many smaller plants
Inventory Low inventory levels and fewer items High inventory level, and wide range of
items
Location Few central locations serve widely Many locations close to customers
Transportation Few large shipments and slower Frequent shipments and Fast flexible
cheaper modes modes
Information Cost of information drops while other Collect and share timely and accurate
cost rise data

Responsiveness and efficiency are seen as interrelated. Responsiveness and efficiency are directly
and indirectly linked and even involve feedback. In supply chains, the interrelationships between key
parts of the system are complex.

During the flood, the main focus is to evacuate the animals rapidly to higher ground and check for
injuries to be attended to by a veterinarian and the animals should be brought to safer places if the
forecast of a disaster is beforehand. a responsive supply chain management of antibiotics for the
animals is important. A guarantee of quick delivery is essential in such a situation.

1(b). Consider the situation of a pharmaceutical manufacturer. The basic raw material is
abundantly available and comprises almost 75% of the total cost of the finished product. However,
they also require some other ingredients that are not very expensive and are required in small
quantities but are available only seasonally.

From the ABC, SDE, and SOS inventory model strategies, what type of inventory strategy you
would suggest to this company and why?
Solution:

My suggestion will be SOS Inventory Model Strategy to the manufacturer

‘S’ stands for the Seasonal items and ‘OS’- Off Seasonal items. In general, it is merit for the seller to
buy seasonal items at a lower price and keep inventory and sell them at a high price during the off-
season if not the seller has to buy the goods at a higher price during the off-season. A decision is
taken based on the fluctuational and availability.

25% of the remaining raw material is not expensive and the company requires raw material in small
quantities and the availability of this raw material is seasonal. Also maintaining the inventory cost is
also less.

Q2. 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:

Category Year Production Naive forecast Error Absolute deviation

Light Commercial Vehicles 31/03/2006 68,922
Light Commercial Vehicles 31/03/2007 65,756 68,922 -3,166 3,166
Light Commercial Vehicles 31/03/2008 83,195 65,756 17,439 17,439
Light Commercial Vehicles 31/03/2009 108,917 83,195 25,722 25,722
Light Commercial Vehicles 31/03/2010 138,890 108,917 29,973 29,973
Light Commercial Vehicles 31/03/2011 171,788 138,890 32,898 32,898
Light Commercial Vehicles 31/03/2012 225,724 171,788 53,936 53,936
Light Commercial Vehicles 31/03/2013 254,049 225,724 28,325 28,325
Light Commercial Vehicles 31/03/2014 224,587 254,049 -29,462 29,462
Light Commercial Vehicles 31/03/2015 317,423 224,587 92,836 92,836
Light Commercial Vehicles 31/03/2016 408,193 317,423 90,770 90,770
Light Commercial Vehicles 31/03/2017 544,335 408,193 136,142 136,142
Light Commercial Vehicles 31/03/2018 553,184 544,335 8,849 8,849
553,184
Naïve forecast MAD - 45793.16
 2 months Moving Absolute
Category Year Production Error
Average forecast deviation
Light Commercial Vehicles 31/03/2006 68,922
Light Commercial Vehicles 31/03/2007 65,756
Light Commercial Vehicles 31/03/2008 83,195 67,339 15,856 15,856
Light Commercial Vehicles 31/03/2009 108,917 74,476 34,442 34,442
Light Commercial Vehicles 31/03/2010 138,890 96,056 42,834 42,834
Light Commercial Vehicles 31/03/2011 171,788 123,904 47,885 47,885
Light Commercial Vehicles 31/03/2012 225,724 155,339 70,385 70,385
Light Commercial Vehicles 31/03/2013 254,049 198,756 55,293 55,293
Light Commercial Vehicles 31/03/2014 224,587 239,887 -15,300 15,300
Light Commercial Vehicles 31/03/2015 317,423 239,318 78,105 78,105
Light Commercial Vehicles 31/03/2016 408,193 271,005 137,188 137,188
Light Commercial Vehicles 31/03/2017 544,335 362,808 181,527 181,527
Light Commercial Vehicles 31/03/2018 553,184 476,264 76,920 76,920
548,760
2 months Moving Average MAD - 68,703.05

Exponential Absolute
Category Year Production Smoothing Error deviation
Light Commercial Vehicles 31/03/2006 68922 68922 0 0
Light Commercial Vehicles 31/03/2007 65756 68922 -3166.00 3166.00
Light Commercial Vehicles 31/03/2008 83195 67972.20 15222.80 15222.80
Light Commercial Vehicles 31/03/2009 108917 72539.04 36377.96 36377.96
Light Commercial Vehicles 31/03/2010 138890 83452.43 55437.57 55437.57
Light Commercial Vehicles 31/03/2011 171788 100083.70 71704.30 71704.30
Light Commercial Vehicles 31/03/2012 225724 121594.99 104129.01 104129.01
Light Commercial Vehicles 31/03/2013 254049 152833.69 101215.31 101215.31
Light Commercial Vehicles 31/03/2014 224587 183198.28 41388.72 41388.72
Light Commercial Vehicles 31/03/2015 317423 195614.90 121808.10 121808.10
Light Commercial Vehicles 31/03/2016 408193 232157.33 176035.67 176035.67
Light Commercial Vehicles 31/03/2017 544335 284968.03 259366.97 259366.97
Light Commercial Vehicles 31/03/2018 553184 362778.12 190405.88 190405.88
419899.89
Exponential Smoothing MAD - 90481.40

The Forecasting Models compared using MAD Mean Absolute Deviation:

Forecast Model Mean Absolute Deviation

Naïve forecast 45793.16

2 months Moving Average 68703.05
Exponential Smoothing 90481.40
After doing the forecasting with the 3 models, the least MAD value is 45793.16 which come through
the Naïve forecast, therefore Naïve forecast will give the best result rather than 2 months moving
average & Exponential smoothing.

Q3. 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)

Unit Cost Annual

no. Item
(Rs) Usage
1 Oil Filter 2200 150
2 Head Lamp 395 140
3 Fuel Filter 270 95
4 Rod Bearing 1430 45
5 Air Filter 860 120
6 Wind Screen 12000 90
7 Piston Rink 4500 250
8 Bumper 8000 110
Main
9 1130 120
Bearing
10 Bush 169 1160

Solution:

Annual Annual Consumption ABC Analysis

Item Unit Cost (Rs) Rank %(ACV)
Usage Value Categories
Oil Filter 2200 150 330000 4th 29% A
Head Lamp 395 140 55300 9th 28% A
Fuеl Filter 270 95 25650 10th 22% A
Rod Bearing 1430 45 64350 8th 9% B
Air Filter 860 120 103200 7th 5% B
Wind Screen 12000 90 1080000 2nd 4% B
Piston Rink 4500 250 1125000 1st 3% C
Bumper 8000 110 880000 3rd 2% C
Main Bearing 1130 120 135600 6th 1.40% C
Bush 169 1160 196040 5th 0.70% C

The total Annual Consumption Value (Inventory) is 39,95,140/- in which the A category is 79%, the
B category is 14% and the C category is 7% which is above 5%.

But still, we will consider it into the C category as it has the lowest inventory.

Category A:
 Piston Rink, Wind Screen, and Bumper

Category B:
 Oil Filter, Bush, and Main Bearing
Category C
 Air Filter, Rod Bearing, Head Lamp, and Fuel Filter

Q4. 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:

Tata Motors
Year 2015 2014 2013 2012 2011
Inventories (in Cr.) 4802 3862 4455 4588 3891
Revenue (in Cr.) 43485 68764 58234 48078 46883
COGS (in Cr.) 26171 43748 37080 27651 24997
Inventory Turnover Ratio 5.45 11.33 8.32 6.03 6.42

Ashok Leyland
Year 2015 2014 2013 2012 2011
Inventories (in Cr.) 1398 1188 1896 2230 2208
Revenue (in Cr.) 14234 10353 13020 13458 12034
COGS (in Cr.) 8626 5909 7539 9121 8064
Inventory Turnover Ratio 6.17 4.97 3.98 4.09 3.65

Inventory Turnover Rate

Year Tata Motors Ashok Leyland
2011 6.42 3.65
2012 6.03 4.09
2013 8.32 3.98
2014 11.33 4.97
2015 5.45 6.17

As per our analysis, Tata Motors has shown consistently a higher inventory turnover ratio
comparative to the Ashok Leyland.

Hence the conclusion will be for Ashok Leyland that they need to optimize their purchasing
strategies to reduce the inventory cost and improve the sales forecasts.
Q5. 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: Domestic:

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
1996
1987
1988
1989
1990
1991
1992
1993
1994
1995

1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Values Forecast Lower Confidence Bound Upper Confidence Bound

Timeline Values Forecast Lower Confidence Bound Upper Confidence Bound

2016 38,371,410 38,371,410 38,371,410 38,371,410
2017 41,433,900 39,322,376 43,545,423
2018 43,610,710 40,968,770 46,252,651
2019 43,889,817 40,806,332 46,973,301
2020 42,363,895 38,893,647 45,834,144
2021 42,934,993 39,116,079 46,753,906

International:

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0
1992
1993

2017
1987
1988
1989
1990
1991

1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

2018
2019
2020
2021

International Forecast (International)

Lower Confidence Bound(International) Upper Confidence Bound(International)
 Forecast Lower Confidence Upper Confidence
Year International (International) Bound(International) Bound(International)
2016 12,678,865 12,678,865 12,678,865 12,678,865
2017 13,346,495 12,634,718 14,058,273
2018 14,024,361 12,559,344 15,489,379
2019 14,702,227 12,286,835 17,117,620
2020 15,380,093 11,860,282 18,899,904
2021 16,057,959 11,300,855 20,815,064

As per our analysis, there is a stable increase in the passengers (both domestic and international)
from the last 30 years. There is no seasonality observed in the data as we have yearly data.

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 for EOQ.

Solution:

Demand for carrom boards 500 per month

Annual Demand(D) 6000 Qty
Cost per orders(S) 4000 Rs
Order cost C 500 per unit
Holding cost (I) 0.2
Annual Carrying cost per carrom 100

Order Quantity Inventory cost Ordering cost Total cost

500 25000 48000 73000
1000 50000 24000 74000
1500 75000 16000 91000
2000 100000 12000 112000
2500 125000 9600 134600
3000 150000 8000 158000
3500 175000 6857 181857
4000 200000 6000 206000
4500 225000 5333 230333
5000 250000 4800 254800
5500 275000 4364 279364
6000 300000 4000 304000
 Carrom Board Costs
350000

300000

250000

200000

150000

100000

50000

0
0 1000 2000 3000 4000 5000 6000 7000

Inventory cost Ordering cost Total cost

When ordering cost & inventory carrying cost are matching then the total cost will be the minimum.
From the above graph, we can see that inventory cost and ordering cost curves are intersecting for a
quantity which is >500 and <100.

By using the EOQ formula:

EOQ = √(2*N*OC/ (UP*ICC))

EOQ = 692.82

EOQ = 693

Inventory cost = Q/2*I*C

Ordering cost = S*(D/Q)

Total Cost = IC + OC

= 34650 + 34632.03

Total cost of EOQ = 69282.03