Case Study Summary: Agarwal Automobiles: Fuel Station Forecasting and Inventory

Management
Introduction:
Aditya Agarwal, a business management student at the Indian Institute of Management, was
tasked by his father, Alok Agarwal, owner of Agarwal Automobiles, with revamping the fuel
station's inventory management practices. The goal was to replace the existing simplistic rules
with a more rational and complex planning model. Aditya analysed data from the past six
months, aiming to reduce inventory levels while maintaining a high customer service level.
Background of the Fuel Station:
Agarwal Automobiles, an authorized fuel station for Bharat Petroleum Corporation Limited
(BPCL), was founded by Alok Agarwal in 1981. The station underwent renovation in 2015,
increasing its capacity and efficiency. Despite the station's success, Alok felt pressure from
growing competition and customer expectations. The firm lacked formal analytical techniques,
relying instead on simple operating principles and managerial intuition.
Fuel Retailing Industry in India:
In FY 2012-13, diesel and petrol accounted for 54% of all petroleum products consumed in
India. By FY 2015-16, overall consumption of petrol and diesel grew by 7.5% and 14.5%,
respectively. Noticing this trend, oil companies expanded their retail networks, with BPCL
leading in the Indian petroleum sector.
Inventory Management at the Fuel Station:
Agarwal Automobiles had three separate storage tanks, each with a different capacity, for diesel,
petrol, and high-speed 2 (HSP). The firm used a tanker to pick up inventory ordered from
BPCL's Bina refinery. Ordering was based on a pre-planned delivery system, and an order
needed to be placed before 3:00 p.m. for the next day's requirements, totalling 12,000 litres in
any combination of the three fuel types. The fuel station followed a daily review purchase policy,
aiming to minimize the chance of running out of stock while minimizing costs. Inventory
carrying costs were estimated at 10% per year.
Conclusion:
Aditya was tasked with developing an inventory rationalization model for the fuel station. With
access to monthly sales data for the past seven years and daily demand figures for the previous
year, Aditya aimed to develop a model to manage inventory planning for the future.