Problem Statement:

For the first half of the fiscal year, which begins in April 2011 and ends in September 2011, we
must project the monthly demand for premium milk in Madurai city and its neighboring regions.
Additionally, we must evaluate the daily production schedule set forth for the month of April
2011 and provide an optimal strategy to Aavin to cater to the demand.

Case Facts

1. The current supply of raw milk from farmers always experiences severe shortages to the
demand.
2. Only after the supply from farmers falls short, should Aavin look for other resources
(which can be either Raw milk from other sources or Milk from the Recombination of
butter and SMP)
3. The Price of Raw Milk from farmers is 15rs per liter, and the Price of raw milk from
other resources is 16.5rs per liter.
4. Conversion of raw milk to premium milk incurs 4rs per liter.
5. Cost of 1 KG of butter is 112rs and cost of 1 KG of SMP is 163rs.
6. Storage capacity of butter is 10000 KG, and the cost of storing butter per day is 2500 per
kg.
7. Capacity required to convert raw milk into butter and SMP are 20000L and 40000L,
respectively.
8. 93.45KG of SMP and 54.87KG of Butter will yield 2000 L of Premium milk.
9. On April 12, 2011, the company had 12110 liters of milk, 520 KG of Butter, and 1200
KG of SMP in hand.
10. The shell life of SMP and Butter are three months and six months, respectively.
11. 5% of reserve stock is always maintained.
Assumptions:

1. We Assumed, the company starts its fiscal year activities on April 1, 2011, with no
reserve stock of milk, butter, or SMP.
2. Analysis and optimization is done on the last 18 days till the end of the month (from Apr
13 -30) is primarily focused on the fact that we have stock data as of April 12, 2022.
3. The butter and SMP are not going to be stocked up further, instead use it as daily
purpose, hence the storage cost is not brought into the equation.
4. The stocked-up milk of 12110 liters along with the 5% leftover milk of April 12, is
converted into butter.

Working:

We need to have a general understanding of how each season performs in order to have a better
production plan in order to better comprehend the demand and supply gap that is anticipated to
expand or contract in each month. Since the historical data considered as a whole does not allow
us to predict demand for each month starting in April 2011, we must use the seasonality trend
technique.

Seasonality Index
April 0.91
May 1.06
June 1.02
July 1.06
August 0.99 The data is consistent with the case because milk consumption is
September 0.95
often lower in the summer but increases throughout the festival
October 1.21
November 0.98 seasons. As a result, we determine the seasonality index for each
December 1.18
month and are able to forecast the demand for the following months.
January 1.03
February 0.78 The APE % for all these forecasted months lies in the range of 1-
March 0.83 7%, which is in an acceptable range.
Regression:

Multilinear regression using dummy variables is run on this data, and the data results with a very
high R square value.
Supply Chain Optimization:
When closely examining the production plan for the month of April 2011, it is clear that it has
been designed to lessen the demand-supply imbalance compared to 2010 since the supply figures
from exhibit 5 in the case are 81% of the demand for each and every day. This is backed by our
regression data, with the regression having a very high R square, so we went ahead with
considering supply to be the average of all the supply rather than working on each day’s supply
which is listed.

 We follow the Linear Programming structure as our approach to optimize the supply, and
for this, we have set our LP’s objective as Profit-maximization.
 premium Milk can be obtained in three forms, 1. Milk from Farmer (MF), 2. Milk from
Other resources (MO), and 3. Milk from recombination of butter and SMP (MR), and we
calculated the cost price for each method and evaluated the profit it earns. The Profit
comparison calculation is attached below.
 The Profits from each method are, Milk from Farmer (MF) is 3rs per liter, Milk from
Other resources (MO) is 1.5rs per liter, and Milk from recombination of butter and SMP
(MR) is 9.31rs per liter.
 While forming a Linear Programming structure, our objective is set to optimize by
meeting demand-supply and also to maximize the profits. We set the milk to be procured
from each method as our Decision variable. On the contribution part, we set the profits
each method yields.
 We set only two constraints 1. The Sum of all sources of supplies should meet demand
and 2. The average supply taken from the to exhibit should be equal to decision variable
MF.

 To determine the quantities to be bought by MAMD to meet the demand, we levied out
the recombination formula listed in the case (93.45 KG of SMP + 54.87 KG of Butter =
2000 L of Premium milk).
  With the structure being set, we ran a solver for each day of demand with the average
solver to find out the optimized values of other resources to be bought to meet the
demand.
 The profit value we get from solver for each day is listed in separate sheet to find out,
how much we save/earn for the remaining 18 days of April.

Inferences from LP
 The Optimized solution of LP solver, suggests MAMD to stop procuring milk from other
resources and instead procure Butter and SMP to meet the demand of premium milk.
  Also, by following this butter and SMP process, MAMD can make additional profits of
2.42 crore rupees INR (which can be seen on the table listed above).

Excel File: