[Date]

KARNATAKA ENGINEERIN G CASE

Submitted To
Prof. Saroj Koul & Dr. Chitresh Kumar

Submitted By
B Vamsee Krishna Vyas
20142116
IBM’14

O P Jindal Global University

Jindal Global Business School
Sonipat

Contents
1. Company Profile

2. Selection Criteria

3. Facts from The Case

4. Main Issues in Karnataka Case

5. Approach

Company Profile

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Karnataka Engineering Company is in Raichur, India. It had entered 2-wheeler industry in 1981

starting with mopeds. It had started production of scooters in 1983. Overall India, it has 19

branches have been established. The minimum throughput that would justify setting up of a

branch in any state would be 4.25 lakh per month (78 Mopeds or 33 Scooters per month or any

other combination). Marketing offices are located in 14 states overall India.

In Andhra Pradesh, they are situated in 22 locations. We have divided the locations in Andhara

Pradesh as Northern AP & Southern AP.

Mopeds and Scooter are transported by a specially adapted truck with a capacity of either 80

Mopeds or 50 Scooters or combination of both

Secondary transportation is arranged by marketing offices by LCVs or trucks

Case Facts

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Sales from Jan-Jul’1998 are 465 mopeds and 78 scooters

Andhra Pradesh between the time frame of Jan-Jul’98 have contributed around 5.3% of KEC’s,

total mopes sales & Scooter sales of 3.6%

Average monthly off take in AP during Jan-Jul’1998 are 1925 mopeds and 288 scooters

The current rate of tax: 4% CST

Current sales in AP Rs.14.33/- million per annum

At this rate the money outflow to exchequer is Rs.573260/- ; Cost for setting up one branch is

Rs.17000/- to Rs.21000/- p/m, i.e., Rs20,4000/- to Rs.252000/- per annum.

So, 2 branches can be set up in the state at the current rate of tax and sales issues.

Main Issues in Karnataka Case

 How many number of warehouses should be selected?

 Deciding on the warehouses location

 Shipment capacity for each warehouse

 Allocation system for products to other branches

 Selection of the routes from the warehouses to meet their demand constraints and to

address the order processing system.

Approach

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 1.

Truck Rates (Rs per Km)

Transporter Transporter 80 Mopeds / 50 56 Moped / 35 20 Moped / 12
Scooters Scooters Scooters
T-1 PC Rao Brothers 6 4.8
T-2 Raichur Roadways 6 4.8
T-3 Adoni Travels 6.5 5 4
T-4 Mehboobnagar Trucking Society 6.9 5.5 4.6

Here we are looking at the transportation cost of each company for different products. We can

know the primary and secondary transportation costs for each for different scenarios.

Trucks needed Trucks capacity

Qty Rate / Km Transporter (numbers) (in moped)

<=20 4 T-3 1 20
21 – 56 4.8 T-2* 1 56
57 – 80 6 T-1 1 80
81 – 112 9.6 T-2* 2 56
113 – 136 10.8 T-1, T-2* 1, 1 80, 56
137 – 160 12 T-1 2 80
161 – 180 16 T-1, T-3 2, 1 80, 20
181 -216 16.8 T-1, T-2* 2, 1 80, 56
217 – 240 18 T-1 3 80
241 – 260 22 T-1, T-3 3, 1 80, 20
261 – 296 22.8 T-1, T-2* 3, 1 80, 56
297 – 320 24 T-1 4 80
321 – 340 28 T-1, T-3 4, 1 80, 20
341 – 376 28.8 T-1, T-2* 4, 1 80, 56
377 – 400 30 T-1 5 80
401 – 420 34 T-1, T-3 5, 1 80, 20
421 – 456 34.8 T-1, T-2* 5, 1 80, 56
457 – 480 36 T-1 6 80
481 – 500 40 T-1, T-3 6, 1 80, 20
501 – 536 40.8 T-1, T-2* 6, 1 80, 56
537 – 560 42 T-1 7 80
561 – 580 46 T-1, T-3 7, 1 80, 20
581 – 616 46.8 T-1, T-2* 7, 1 80, 56
617 – 640 48 T-1 8 80
641 – 660 52 T-1, T-3 8, 1 80, 20
661 – 696 52.8 T-1, T-2* 8, 1 80, 56
697 – 720 54 T-1 9 80
721 – 740 58 T-1, T-3 9, 1 80, 20
741 – 776 58.8 T-1, T-2* 9, 1 80, 56
777 – 800 60 T-1 10 80
801 – 820 64 T-1, T-3 10, 1 80, 20
821 – 856 64.8 T-1, T-2* 10, 1 80, 56
857 – 880 66 T-1 11 80

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 881 – 900 70 T-1, T-3 11, 1 80, 20
901 – 936 70.8 T-1, T-2* 11, 1 80, 56
937 – 960 72 T-1 12 80
961 – 980 76 T-1, T-3 12, 1 80, 20
981 – 1016 76.8 T-1, T-2* 12, 1 80, 56
1017 – 1040 78 T-1 13 80
1041 – 1060 82 T-1, T-3 13, 1 80, 20
1061 – 1096 82.8 T-1, T-2* 13, 1 80, 56
*Indifferent situation for selection of transporter between T-1 & T-2 (same rates for both options).

The main idea here to examine more than 1 branch is to watch over the savings done in both

primary and secondary transportation costs, when compared to the expense of new branch.

Following this,

Secondary Transportation unit costs = Sum of all minimum costs (rate * min distance)

*According to the scenarios taken into consideration

Primary transportation costs were crucially to calculate every months demand.

2. Business in Andhra Pradesh

The company’s marketing office is located in Hyderabad.

Operating with 4 branches of warehouse facilities, one at Adoni, Cuddappah, Kurnool and the

other at Mahbubnagar are selected in the case. The selection criteria for the same is given below

Selection Criteria:

Major town which is nearest to the production facility

Hyderabad facility collects the orders, communicate to both the warehouses.

Warehouse manager looks after the secondary transportation facilities

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Secondary transportation is one of the huge tasks to tackle with.

3. The excel tables were formed for different scenarios to know the output of different situations.

The combinations which are selected are as follows 6C1, 6C2, 6C3,6C4, 6C5, & 6C6.

In this scenario 3 (6C1), we have chosen only 1 distribution center i.e., Adoni. It had the highest

secondary transportation cost, which would be a big expense to the company. And also, it would

be difficult to manage the orders from just one distribution center.

This scenario 10 (6C2), we have considered 2 locations which are Hyderabad and Kurnool. They

are performing in an average manner.

The scenario 8 (6C3), consist of3 distribution centers which include Adoni, Kurnool, M’nagar.

Though the profits are high in this scenario, the secondary transportation cost is high, which

would be a negative factor as it is an expense to the company.

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The scenario 4 (6C4), consist of 4 distribution centres mainly Adoni, Cuddappah, Kurnool,

M’nagar. This is one of the most favorable scenario as it gives highest returns for two of our

distribution centers. As these can reduce the transportation distance between different locations

In this scenario 1 (6C5), we have taken 5 distribution centers, and calculated the revenue,

primanry and secondary transportation cost, sales tax, operating cost and through put cost. The

selected distribution centers Adoni, Cuddappah, Hyderabad, Kurnool, M’nagar. We can see that

one of the distribution centers is reporting losses Mahbubnagar (-2.07lkh). So this scenario

won’t be suitable to us.

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In this scenario 1 (6C6), of the selected distribution centers are reporting losses if we select the

combination of Adoni; Cuddappah; Hyderabad; Kurnool; Mahbubnagar; Vijayawada. The

Kurnool and M’nagar are reporting losses of -2.92 lakh & -2.07 lkh respectively. So we won’t be

considering this scenario.

We have not included the scheduling events of the trucks dispatch methods, as there is no

sufficient data been provided in this particular part. From the above scenarios, we can say that

transportation costs savings have been taken into consideration and not on the cost incurred on

the inventory.

According the above analysis, I would recommend going with scenario 5 (6C1),

because the other all 4 scenario’s 6C1, 6C2,6C3,6C4 are making decent amount of profits and

the other 2 scenarios 6C5 & 6C6 are producing losses. 6C1, scenario has been generating the

highest amount of profit for the organization, when compared to the other scenarios. It is also

suitable for the company to perform its operations.

Branch Profit = Revenue – Throughput cost – Operating cost – Transportation cost (primary +
secondary)