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ENERGY MANAGEMENT
COURSE : Total Marks : 80
Attempt any 4 questions ( 10 marks each )
PART-1
Q1) A plant consumes 4,500 tons of furnace oil per year (GCV =10,200 kCal/kg), as well as
43,000 MWh of electricity per year. Draw the pie-chart of percentage share of each type of
energy based on consumption in kCal (1 kWh = 860 kCal)
Q2) How much steam is required in a heat exchanger to heat 120 kg/ hour of a process fluid
From 40o C to 90o C. The specific heat of process fluid is 0.24 kCal/kg oC and the latent heat
of steam is 540 kCal/ kg.
Q3) The following table shows the import bill of fossil fuels in million metric tones (MMT) and its
cost in Crores Rupees over the last eight years.
1. Calculate the average annual percentage increase of fossil fuel imports
2. Calculate the average annual percentage increase of the import bill
3. Calculate the average costs for the last eight years, in Rs.Per metric ton of imported fossil fuels.
Import bill of fossil fuels
Year Quantity (MMT) Value (Rs.Crore)
1996-97 33.90 18,337
1997-98 34.49 15,872
1998-99 39.81 19,907
1999-00 57.80 40,028
2000-01 74.10 65,932
2001-02 84.90 80,116
2002-03 90.00 85,042
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2003-04 95.00 93,159
Q4) Fuel substitution from a high cost fuel to a low cost fuel in boilers is common to reduce
energy bill. For the following situations calculate:
1. Annual reduction in energy costs in Crore Rs.
2. Annual change in energy consumption in %. (Calorific value of fuels not required for calculations)
Q5) A company invests Rs.10 lakhs and completes an energy efficiency project at the beginning of
year 1. The firm is investing its own money and expects an internal rate of return, IRR, of at
least 26% on constant positive annual net cash flow of Rs.2 lakhs, over a period of 10 years,
starting with year 1.
1. Will the project meet the firm’s expectations?
2. What is the IRR of this measure?
Before substitution:
Steam output = 6 tons/hour
Fuel consumption = 1 ton oil per 13 tons of steam.
Operating hours = 6400 / Year
Fuel costs = Rs.13,000 /ton of oil
Boiler thermal efficiency (yearly average)= 82%
After Substitution:
Steam output = 6 tons/hour
Fuel consumption = 3 tons of waste wood per 13 tons of steam
Fuel costs = Rs.2,000 / ton of waste wood
Boiler thermal efficiency (yearly average) = 74%
PART -2
BOTH QUESTIONS COMPULSORY (20 MARKS EACH)
Q.1) A waste heat recovery system can be installed in a furnace, which will cost Rs. 7,00,000/- to
install. This system is expected to have a useful life of 6 years. The salvage value will be Rs.
2,00,000/-. The system will reduce the energy cost by Rs. 2,00,000/- per year, when it operates
at full capacity. However the plant will be operating at partial capacity for the first 3 years and
the annual energy savings will be at 70% of the energy cost savings at full capacity
(Rs. 1,40,000/-). (20 Marks)
The new system will entail a maintenance cost of Rs. 10,000/- per year for the first 3 years
and Rs.12,000 per year for the next 3 years. A major overhaul is required in the 3rd year, which
will cost Rs 1,00,000/-
a) If discount rate is 10%, calculate the NPV and find out whether this energy conservation
measure is profitable
b) What is the profitability index for the project?
Q2) An energy auditor undertakes the energy audit of a steam system. The operating data is
given as per the schematic diagram given below (20 Marks)
Bo ile r
C ap acity
8 T PH
Fe e d
P ump
Fe e d Water
T ank
S te am
F low ra t e = 7 TP H
P re s s u re = 1 0 k g /c m 2 (g )
Tem p e ra t u re = 1 8 0 °C
C o nd e n s a te
R e t u rn
Q u a n t ity = 5TPH
Tem p . = 9 4 °C
Ma k e -u p w a te r
Q u a n t ity = 2TPH
Tem p . = 2 8 °C
Ba re P ip e
Key data and assumptions are enunciated below:
a) Specific enthalpy of water at 10 kg/cm2 (g) pressure : 186 kCal/kg
b) Specific enthalpy of evaporation/latent heat at 10 kg/cm2 (g)
pressure
: 478 kCal/kg
c) Dryness fraction of steam generated : 0.95
d) Coal consumption : 840 kg/ hr
e) Net calorific value (NCV) of imported coal : 6269 kCal/kg
f) Moisture in coal : 3.5%
g) Hydrogen in coal : 4%
Other parameters as indicated in the above figure :
1) Based on preliminary data assessment as stated above, calculate the following:
2) Feed water temperature to boiler
3) Boiler efficiency by direct method on GCV basis
If the condensate return is enhanced to 6 TPH (steam generation of 7 TPH remaining same) what will
be the reduction in coal consumption?
Operation Management
Page 1 Out of 1
Total Marks: 80
Note : All Questions are Compulsory
Each Question Carries Equal Marks
1. Ilhan’s, a local bakery, is worried about increased costs – particularly energy. Last year’s
records can provide a fairly good estimate of the parameters for this year. Ilhan Balci,
the owner, does not believe things have changed much, but he did invest an additional 3
000 MU for modifications to the bakery’s ovens to make them more energy efficient. The
modifications were supposed to make the ovens at least 15 % more efficient. I. Balci has
asked you, as a brilliant graduate of EMU, to check the energy savings of the new ovens
and also look over other measures of the bakery’s productivity to see if the
modifications were beneficial. You have the following data to work with:
2. Serra’s Ceramics spent 3 000 MU on a new kiln last year, in the belief that it would cut
energy usage 25 % over the old kiln. This kiln is an oven that turns “greenware” into
finished pottery. Serra is concerned that the new kiln requires extra labour hours for its
operation. Serra wants to check the energy saving of the new oven, and also to look over
other measures of their productivity to see if the change really was beneficial.
Serra has the following data to work with:
Were the modifications BENEFICIAL?
Last Year Now
Production (dozen) 1500 1500
Labour (hours) 350 325
Capital Investment (MU) 15 000 18 000
Energy (kw-hrs) 3 000 2 750
Last Year This Year
Production (finished units) 4000 4000
Greenware (pounds) 5000 5000
Labour (hrs) 350 375
Capital (MU) 15000 18000
Energy (kWh) 3000 2600
Page 1 Out of 1
3. Suzan has a part-time “cottage-industry” producing seasonal plywood yard ornaments
for resale at local craft fairs and bazaars. She currently works a total of 4 hours per day
to produce 10 ornaments.
a. What is her productivity?
b. She thinks that by redesigning the ornaments and switching from use of a wood glue to a
hot-glue gun she can increase her production to 20 ornaments per day. What is her new
productivity?
c. What is her percentage increase (or decrease) in productivity?
4. A company has asked YOU to evaluate the firm’s productivity by comparing this year’s
performance with last year’s. The following data are available:
Last Year This Year
OUTPUT 10500
units
12100
units
Labour Hours 12000 13200
Utilities 7600 MU 8250 MU
Capital 8300 MU 88000 MU
Has the company improved its PRODUCTIVITY during the past year?
5. Mr. Ilhan DALCI makes billiard balls in his Beyarmudu plant. With a recent increase in
taxes, his costs have gone up and he has a newfound interest in efficiency. Mr.Dalci is
interested in determining the productivity of his organisation. He would like to know if
his organisation is maintaining the manufacturing average of 3% increase in
productivity. He has the following data representing a month from last year and an
equivalent month this year.
__________________Last year Now
Units produced 1 000 1 000
Labour (hours) 300 275
Resin (kg.s) 50 45
Capital invested (MU) 10 000 11 000
Energy (BTU) 3 000 2 850
Show the productivity change for each category and then determine the IMPROVEMENT for
labour- hrs, the typical standard for comparison.
Page 1 Out of 1
6. Haldun LOP, the production manager of LOP Chemicals, in Gazimagusa, TRNC, is preparing
his quarterly report which is to include a productivity analysis for his department. One of the
inputs is production data prepared by Meltem SERIN, his operation analyst. The report,
which she gave him this morning, showed the following:
2005 2006
Production (units) 4500 6000
Raw Material Used (barrels ofPetroleum byproducts)
700 900
Labour Hours 22000 28000
Capital Cost applied to the Department (MU) 375000 620000
Haldun LOP wondered if his productivity had increased at all. He called Meltem into his office
and conveyed the above information to her and asked her to proceed with preparing this part
of the report. (Include your interpretations for each productivity figure)
7. Ahmet Uslu makes wooden boxes in which to ship motorcycles. Ahmet and his three
employees invest 40 hours per day making the 120 boxes.
a. What is their productivity?
b. Ahmet and his employees have discussed redesigning the process to
improve efficiency. If they can increase the rate to 125 per day, what
would be their new productivity?
c. What would be their increase in productivity?
8. The manager of a local firm says “the forecasting techniques are more trouble than they
are worth. I don`t forecast at all, and I`m doing 25% more business than last year”.
Comment.
SUPPLY CHAIN MANAGEMENT
Total marks 80
Group A
Case 1 (14 Marks )
Supply Chain Management at Bose Corporation
Bose Corporation manufactures audio premium speakers used in automobiles, high-fidelity systems and
consumer and commercial broad-casting systems. Head quartered in Framingham, Massachusetts, Bose
Corporation has plants in Massachusetts and Michigan as well as in Canada, Mexico and Ireland. Bose
speakers are the best sellers in Japan, the world leader in consumer electronics. Bose’s competence is in
its electronic engineering skills, ‘but the company attributes much of its business success to its tightly
controlled materials management and excellent Integrated supply chain management.
Bose purchases most of its electronic and other components from independent suppliers scattered around
North America, the Far East and Europe. About 50 percent of its purchases are from foreign suppliers,
the majority of them are from the Far East. Its purchasing organisation while decentralized has some
overlap that requires coordination between sides. Bose attempts to coordinate its globally dispersed
supply chain so that material holding and transportation costs are minimised. This requires component
parts to arrive at Bose’s Massachusetts assembly plant just in time to enter the production process. But
because Bose must remain responsive to its customers, it sometimes must respond quickly to increases in
customer demand for certain speakers so as to remain competitive. Since Bose does not want to hold
extensive inventories at its Massachusetts plant, this need for responsiveness requires Bose’s globally
dispersed supply chain o respond rapidly to increased demand for component parts.
Bose’s materials management function is responsible for coordinating the supply chain to meet both
objectives — minimising transportation and inventory holding costs and yet responding quickly to
customer demands. This function achieves coordination through a sophisticated logistics operation. Most
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of Bose’s imports from the Far East come via ships to the West coast and then across North America to
its Massachusetts plant via train. Most of the company’s export also move by ocean freight. Bose does
not hesitate to use airfreight when goods are needed urgently.
Bose has a long standing relationship with W.N. Procter. a Boston based freight forwarder and customs
broker. Procter handles customs clearance and shipping from suppliers to Bose. Procter provides Bose
with up-to-the minute electronic data interchange (EDI) capabilities which enable Bose to track parts as
they move through its global supply chain. Procter provides several other services to Bose such as
selecting overseas agents who can help move goods out of the Far East.
Procter’s well-established network of overseas contacts is especially useful when shipments must be
expedited through foreign customs. Procter also is electronically linked into the US customs system,
which allows it to clear freight electronically as much as five days before a ship arrives at a US port or
hours before an international airfreight shipment arrives - This helps to get goods to Bose’s
manufacturing plant several days sooner.
Bose has developed a detailed supplier performance system that measures on-time delivery, quality
performance, technical improvements and supplier suggestions. A report is generated twice a month from
this system to be sent to the suppliers providing feed-back about supplier performance.
Bose has written contracts with suppliers. After six months of delivery without rejects. Bose certifies the
suppliers as qualified suppliers.
Bose uses a sophisticated transportation system which is the best EDI system n the US. This j system
operates close to real time and allows two-way communication between every one of the freighthandlers’
230 terminals and Bose. Information is updated several times daily. This state-of- the art
system helps Bose’s managers to proactively manage logistics time elements in pursuit of better customer
service.
Perhaps one of the most unique features of Bose’s procurement and logistics system is the development
of JIT II. The basic premise of JIT H is: “the person who can do the best job of ordering and managing
inventory of a particular item is the supplier itself” Bose negotiated with each supplier to provide a full—
time employee at the Bose plant who was responsible for ordering. shipping and receiving materials from
that plant, as well as managing on-site inventories of the items. This was facilitated through an EDT
connection between Bose’s plant and the supplier’s facility.
Questions:-
1. Briefly present the salient features of the integrated supply chain management system at Bose?
2. Discuss how the strategy development process might work at a company like Bose?
3. What should be the relationship between Bose’s supply management strategy and the development of
its performance measurement system?
4. Discuss the importance of quality of purchased components to Bose?
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Case 2 (14 Marks)
SKF Bearing’s Best Practices
“SKF’S outbound logistics outsourcing is characterised by strong control over quality norms and delivery
schedules by SKF personnel”
SKF Bearings is one of the world’s biggest ball bearing manufacturing units, and they have: a sizeable
presence i India. As part of its supply chain management practice. SKF Bearings handles the training,
implementation and quality control activities themselves, while outsourcing the actual
operations to logistic solution providers. Outbound warehousing and transportation practices outsourced
to logistic solution providers and national transporters.
(A) Inbound transportation and warehousing: Complete vendor outsourced, i.e. transportation and
warehousing managed and handled by vendors.
B) Outbound transportation : Handled predominantly by national fleet operators, with some
responsibilities of contingency transportaton outsourced to organised players.
(C) Outbound warehousing : Completely outsourced to organised players with five players handling
different warehouses of the company.
SKF’s outbound logistics outsourcing is characterized by strong control over quality norms and delivery
schedules by SKF personnel. Outbound warehousing which is a completely outsourced activity is
controlled by SKF personnel by integrating the warehouses through their in-house developed ERP
software platform.
Training of logistics company personnel to load/unload goods, assemble and disassemble and for
integrating scheduling and supply orders is imparted by SKF. Through this, they have managed to
achieve 100 percent order cycle fulfillment, bring down damaged/ short/over delivery instances to almost
0.25 percent of total annual order and train logistic personnel to meet all in-house developed quality
norms.
Even though majority of their logistics partners have IT capabilities of their own, SKF Bearings doesn’t
use them as they have integrated their own IT platform to schedule orders, keep track of consignments
and to manage both effective and efficient distribution. Their warehousing costs are higher than their
outbound transportation costs because of the extensive warehousing practices, but they have achieved
gains through the application of internal control over implementation of quality norms, strict adherence
to Standard Operating Procedures (SOPs) and a robust system of IT implementation throughout their
supply chain, Future Plans: Moving slowly towards Vendor Managed Inventory (VMI) for inbound
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sourcing and also looking at outsourcing more warehouse management responsibilities. Looking to
implement more definitive 3PL solutions for outbound activities of the supply chain, but will still, keep
operational control in its own hands.
Questions
1. Discuss the activities involved in the supply chain of SKF Bearings?
2. Explain how .SKF establishes strong control over its outbound logistics?
3. What is meant by vendor managed inventory (VMI)?
4. What meant by third party (3PL) logistics solutions? Explain how SKF will be able to implement the
same?
Case 3 (14 Marks)
Chrysler Unseats its Competition with Supplier Partnerships
When Lee lococea gave the co ahead to Chrysler’s Neon Project in I NO, he \\ as taking a big risk. Until
that time; no American subcompact ear had been able to turn a profit for its manufacturer. l3ut Chrysler’s
Neon ultimately reversed this trend: mainly because of the unprecedented partnerships Chrysler entered
into with its suppliers in the earliest stages ot the Neon Project.
Robert Marcell. head of Chrysler’s small -car division, knew that such partnerships held the key to
Chrysler’s success. In order to make a profit, Marcell had to meet stringent production schedules for
which he had to bring suppliers on board early. This is crucial because outside companies would be
furnishing 70 percent of the value of the car in the form of tyres seats,suspension, and other components.
In an unprecedented move, Marcell allowed engineers from key potential suppliers to dose the first
Neon prototype during an October 1990 meeting. His team then issued a cost challenge. inviting
suppliers to make use of sensitive Chrysler financial data and ideas in a mutual effort to Cut costs.
Companies who entered into this unique partnership found that collaborating with Chrysler was a twoway
street. For exarple Johnson controls, Inc was initially to make the Neon’s seats within Chrysler’s
price targets, but Chrysler was unhappy with their safety. Weight and comfort. After the supplier
partnership agreement, ten Chrysler engineers moved into Johnson controls’ firm near Detroit to work
with the engineers of Johnson controls. After working together for five days together the partners agreed
on new weight, cost and performance standards that were so on target that they didn’t have to be changed
again.
As a result of this unique partnership, Chrysler was able to accept higher component Costs from Johnson
controls because of overall savings for Chrysler. At Chrysler’s request Johnson designed some rear seats
with the capability of folding down to expand trunk space. But Chrysler engineers insisted that Johnson
design the special seats so that they could be installed the same as other seats. This made each seat cost
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more, but Chrysler ultimately could save about $ one million overall in final assembly costs. Thanks to
its successful partnership with Johnson controls and other major suppliers, Chrysler met its stringent cost
and time deadlines for the Neon- and came out with Detroit’s first profitable subcompact car in the
bargain.
Questions
1. Discuss the approach of Chrysler’s operations managers in developing arid building the Neon model?
2. Discuss the relevance of this case to the study of supply chain management?
3. What benefits a manufacturing firm can achieve from its suppliers, through outsourced manufacturing?
4. Discuss the differences between outsourcing and out-partnering?
Case 4 (14 Marks)
Delphi Automotive Setting New Norms
“Logistics service provider and transporter evaluation is done on the basis of requirement levels met,
which is 100 percent for any component before it goes on to the line”.
Delphi Automotive India Ltd. is the Indian arm of the global giant Delphi Automotive. The major
components that Delphi supplies in the country are steering columns, half shafts, AC Units, Engine
Management systems, Catalytic Converters and Wiring Harnesses. The Company also takes up sourcing
requirements of clients based out of India.
Suppliers are generally selected on the basis o their proximity to the company’s four manufacturing units
in India, which are located in Bangalore, Karnataka (two plants), one in Noida, Uttar Pradesh and one in
Gurgaon (Haryana). Delphi believes in efficient sourcing from its suppliers. Nearby suppliers are
required to supply the plant everyday while far flung suppliers are required to supply 2-3 times in a week.
Delphi has streamlined the inbound process by procuring high volume, low cost items from nearby
suppliers and high cost, low volume items from far flung suppliers.
Delphi Automotive India has outsourced the entire inbound sourcing part of the supply chain to its
suppliers, totaling about 150. They are responsible for the inbound transportation and warehousing of
components before the latter reaches any of Delphi’s manufacturing plants.
For outbound trá1sportation and warehousing. the company works with a mixture of national transporters
and organised logistics solution providers, Its outbound warehousing has been outsourced to a trading
company with capabilities in warehouse management.
To make sure that quality norms are adhered to and supply schedules are met, logistics service 1?rovider
and transporter evaluation is done on the basis of requirement levels met, which is 100 percent for any
component before it goes on to the line. This is a very Important service level definition on which logistic
solution providers and transporters are evaluated.
Since the stock and inventory checking aspects of the supply chain have been automated, details of stocks
and status of delivery can be tracked. Web enabled
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consignment tracking facilities are provided by Delphi India to its foreign customers enabling the latter to
track the status and location of their’ consignments at any given point in time. Indian customers are
slowly being provided with this facility. Also, Indian customers can place orders from Delphi using the
company’s extranet system as and, when the requirement arises.
Future Plans: Will slowly move towards a more structured system of logistics outsourcing, which would
mean that it will increasingly start looking at more 3PL outsourcing arrangements.
Questions
1. Explain the supply chain of Delphi Automotive.
2. Explain how Delphi Automotive manages its inbound sourcing.
3. Explain how Delphi Automotive manages its outbound logistics.
4 Suggest a suitable strategy for Delphi Automotive to Improve its supply chain effectives.
Group B
Case 5 (24 Marks)
Karnataka Engineering Company Limited
By 1983 (the case time context), the two-wheeler market had been liberalised and companies had to deal
with the new realities. Logistics was one of the business activities which got a strong look. The case of
Karnataka Engineering Company Limited (KEC) provides the background for analysing a key set of
logistical concerns.
Strengthening the distribution network for finished products is one of the most direct ways of improving
service effectiveness and cost efficiency of a firm’s marketing related operations. The cost of selling up
and operating different facilities in the distribution network have to be viewed vis-à-vis the recurring
transportation and inventory costs in the distribution network and increasingly, service measures such as
response time to different sets of downstream customers.
In this case, the logistics manager s faced with the issue of designing a distribution network. ‘Twowheelers
have to be distributed from a single factory to several dealers. For illustrating the nature of the
decision, one state (Andhra Pradesh) is taken up for detailed analysis. Here, it is assumed that distribution
will be done state-wise, because of commercial (tax) considerations.
Five hierarchical decisions have to be made in this case; deciding on the number of warehouses, the
location of those warehouses, the allocation of demand points to a warehouse, the selection of a shipment
size, and an order processing and routing policy for the actual distribution from warehouse to demand
7
points. Here, shipments from depots to dealers are through trucks or LCVs. Depending on the order
processing discipline that is selected, one could have the possibility of meeting the demands of two or
more dealers with a single trip. This would need a routing procedure.
Questions
1. At what volumes is the opening of a warehouse in a state justified primarily on the grounds of the 4 per
cent central sales tax for transactions across states?
2. How many warehouses do you think are required for the distribution of KEC’s products in Andhra
Pradesh? What could the candidate locations of the warehouses be? What would be the criteria on which
to select the candidates?
3. Determine the optimal selection of warehouses and the best allocation of demand points to the selected
warehouses?
4. What are the best choices for shipment (truck) size from warehouses to demand points? Given the size,
what routing would you recommend for a typical dispatch run?
Approach for Analysis
The problem here is a relatively complex one, in theory, because of the number of different but
interrelated decisions that have to he made. Two options are suggested to approach this problem. One is
to decompose the decision areas (typically in the order of the hierarchy described above) and calculate
only the aggregate contributions from other decisions. For example, a shipment size can be assumed
while deciding the number and location of warehouses (and that would determine the relevant costs), and
this can be repeated for each significant option.
Another approach is to explicitly and simultaneously consider two or more interrelated decisions. This is
a very common practice in, for example, location allocation models. This makes decision-making more
accurate. But this is not always possible.
A combination of these two approaches may be helpful here. A reasonable set of scenarios for shipment
size for making the upper-level decisions, a combined model for location and allocation, and again an
aggregate consideration for deciding the number of warehouses (based on the fixed costs vis-à-vis the
maximum savings in transportation) can be prepared. The routing decision can be separately made after
the allocation decisions are made, for each shipment size possibility. For the location-allocation decision,
even the number of warehouses to be opened can be left open, and a model developed based on Mixed
Integer Linear Programming. The model size should be kept small enough that a simple solution should
be obtained by running the model on a PC. Extensions of such models in m1aitleve1 distribution, where
explicit consideration of warehouse location costs and transport link fixed costs have been combined with
allocation decisions, have been among the most successful applications of models to practical decisionmaking.
Karnataka Engineering Company Limited (KEC)*
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Karnataka Engineering Company Limited, Raichur, entered the two-wheeler industry in 1981 with the
production of mopeds. In 1983, they set up a scooter production line in Raichur. The two-wheeler scene
in India was very much a seller’s market in the early years, with waiting times of several months for
potential customers.
In 1987, there was a slump in the Two-wheeler market which affected all manufacturers badly. The
market became extremely competitive. This forced KEC to look for ways to tackle the increased
competitiveness. It was felt by the Staff Vice-President (Corporate Planning) that the physical
distribution function was a source of competitive advantage which, if properly handled, could yield
substantial dividends that would be visible in the immediate future.
KEC had set up a team to aggressively lead their marketing efforts in the slumping markets, called ‘Go
For It’. At a meeting of ‘Go For It’, the Staff VP (Corp. Planning) put forth his ideas for rationalising the
management of the physical distribution function, which was accepted by everyone, including the
Managing Director. Prior to this meeting, he had circulated a letter to all concerned (Exhibit
1). The organisation structure of KEC is given in Exhibit 2. Value added by KEC based on 1986-1987
financial data is given in Exhibit 3
Present Distribution
From Raichur, the two-wheelers are transported by specially adapted trucks, which can carry either 80
mopeds or 50 scooters or a combination of both. This phase of the distribution, called primary
transportation, is organised at Raichur itself by the central marketing office.
KEC has 19 branches spread all over India. Exhibit 4 gives a list of the branches (along with the
states/Uts) and their rnonh1y offtakés with sales value. Every branch is manned by a branch manager,
who is the 501C KE.C employee there. He wage labour for the loading and unloading operations. The
econda1y tansport arrangements transport from the branch to the dealers arc made by KEC Marketing
offices located in most states. A list of the marketing offices is given in Exhibit 5.
The consultant, based on discussions with the Staff VP arid Chief Operating Officer, arrived at a
framework for analysis, quite similar to the one outlined in Exhibit 1.
Branch Operating Costs and Locations
The operating expenses of a branch were estimated to be Rs 17,000 per month. The break-up is given in
Exhibit 6. However, the actual average expenses were closer to Rs 21,000 per month. The inventory cost
for each branch has been determined by examining the average branch inventory as given in Exhibit 7. It
should be kept in mind that the period January-July 1988, on which the data is based, represents a slump
in the market resulting in higher than normal inventories.
Given the costs, it can be determined that at 4 per cent central sales tax, the minimum throughput that
would justify the setting up of a branch in a state would be Rs 4.25 lakh per month. This translates into
78 mopeds (at Rs 5,500 per moped) or 33 scooters (at Rs 13,000 per scooter) per month or any
combination thereof. From Exhibit 4 it can be seen that it would be advantageous to locate branch
warehouses in 18 states/UTs. New branches need to be set up in Goa, Orissa and Pondicherry.
9
The branch in Jammu and Kashmir can be discontinued. The north-eastern part of the country should be
examined in greater detail with a state with break up
For the states where a branch location is deemed Essential the next task was to determine how many
branches should be opened iii each state arid where exactly they should be located.
The principal factor to examine when considering whether more than one branch is justified would be to
see if the savings in total transportation costs (primary and secondary transportation costs) would be more
than the additional cost of a new branch.
Distribution in Andhra Pradesh
The logistics expert decided to examine the case of AP in detail for an interim presentation to KEC. The
existing position was that KEC had two branch warehouses at Adoni and Mahbubnagar,f serving roughly
the northern and southern halves of AP. Exhibit 8 shows the locations of the dealer points on a map.
Exhibit 9 gives the actual average monthly offtake to the dealer points in Al’ based on January-July 1988
data.
The marketing office at Hyderabad would collate the orders and issue instructions by telephone to the
branch manager at Adoni and Mahbubnagar regarding secondary despatches. Actual routing decisions
were the responsibility of the branch manager. Both the branch managers found it difficult to get through
to dealers by telephone. Further, the Mehboobnagar branch manager frequently complained about
difficulties in arranging secondary transport. It must be mentioned here that the principle that motivated
KEC to select Adoni and Mahbubnagar as branch locations is that they are the first major towns in AP
after crossing the border.
Transportation and Routing
To get a good handle on the nature of transportation cogs, the consultant defined a unit called the moped
unit km. where one moped unit km is performed by transporting one moped unit for a distance of one
kilometre. One scooter was taken as equivalent to 1.6 moped units as a full truckload carries 1.6 times
more mopeds than scooters. He further set out to determine an average1 figure of the transport cost per
moped unit km, both for primary and secondary transportation.
The truck rates for various truck sizes are given in Exhibit 10. An important decision here is the optimal
size of shipment (which size truck to use). Exhibit 11 gives the distance math between the dealer points
and potential branch locations. The potential locations were selected based on offtake levels, demand
spread, quality of life, etc.
For primary transportation, it was found that the trucks were generally run at full capacity The 80 moped
units capacity truck was normally used. To determine primary transport cost, the distance figures from
Raichur to the potential branch locations are given as Adoni (70 km) Cuddappah (270 km), Hyderabad
10
(190 km), Kurnool (100 km—not a good road, 170 km—by good road), Mehboobnagar (100 km) and
Vijayawada (480 km via Hyderabad). For secondary transportation. six sample routings as given in
Exhibit 12 were chosen to determine the transport cost per moped unit km.
The average pipeline inventory was also a cost consideration. At the national level, average pipeline
inventory for primary transportation can be calculated given the average lead for mopeds as 700 km and
for scooters as 900 km. A truck does average of 350 km per day. Secondary transport pipeline inventory
was negligible, accept in large states.
The consultant now felt that he was ready to analyse the alternatives for branch location shipment size,
etc.
EXHIBIT I
From Staff VP (Corporate Planning)
To COO (Chief Operating Officer)
All members of Go For It
The recent slump in the market for two-wheelers is hitting not only our bottomline but also the morale of
the staff. We have been caught almost unaware by this and our sales forecasts look ridiculous. We are
faced with the all too visible problem of a build-up in finished goods inventory at Raichur and the
branches on account of lower offtake. The problem is so severe that sometimes trucks have had to wait
for more than a week to unload at branch points.
An important, but unfortunately neglected area to which we must pay attention is our logistics function.
If the right decisions are taken here, the potential to save money and provide an optimum level of service
to the consumer exists. Studying our logistics requirements should lead to savings in transportation costs
and inventory costs. The other benefit would be that our response time to orders would be acceptable to
the customer without imposing unjustifiable additional costs. As a first step, it would be useful for us to
recognise the significance of logistics costsas a proportion of value added to products. As I see it, the
first-level decision should be to make up our minds as to which states we should have branches in. The
financial advantage of having a branch warehouse in a state is that we then don’t have to pay the 4 per
cent central sales tax which is based on interstate sales.
The second-level decision should be to determine where in a state the branch should he located and
whether more than one branch would be justified. Related decisions would be the size of shipment,
frequency of shipment. inventory positioning at branches and routing of primary and secondary transport.
As we do not have any suitable person in KEC who is qualified to examine the issues involved, I have
identified an external management logistics expert to conduct the study.
11
EXHIBIT 3
Value Added Statement for 1986-87
Mopeds Scooters Total
Sales 63.20 41.10 104.30
Raw Material and Component Cost (67%
for mopeds) (69% for Scooters)
42.34 28.36 70.70
Value Added 20.86 12.74 33.60
EXHIBIT 4
12
State/UT-wise Monthly Average Sales (January-July 1988)
S.No State/UT Branch Location Mopels Scooters Sales Value (Rs 000)
1 Andhra
Pradesh
Adoni/M nagar 465/1460 78/210 3571.5/10760
2 Bihar Ranchi 360 125 3605
3 Daman Daman 15 300 3982.5
4 Delhi Delhi 65 30 747.5
5 Goa - 55 50 952.5
6 Gujarat Vadodara 80 70 1350
7 Haryana Faridabad 60 20 590
8 Himachal
Pradesh
- 10 10 185
9 Jammu &
Kashmir
Ja 5 25 352.5
10 Karnataka R 2400 150 15150
11 Kerala Cochin 80 60 1220
12 Madhya
Pradesh
Bhopal/Raipur 290/300 80/60 2635/2430
13 Maharashtra Mumbai 180 360 5670
14 North-east - 30 35 620
15 Orissa - 60 20 590
16 Pondicherry - 65 25 682.5
17 Punjab &
Chandigarh
Chandigarh 300 180 3990
18 Rajasthan Jaipur 210 120 2715
19 Tamil Nadu Vellore 1100 120 7610
13
20 Uttar Pradesh Luknow/Varanasi 750/300 170/70 6335/2560
21 West Bengal Medinipur 100 40 1070
Total 8740 2408 79374
Exhibit 5
Marketing Officer
Tamil Nadu Chennai
Karanataka Bangalore/Raichur
Andhra Pradesh Hyderabad
Kerala Cochin
Maharashtra Mumbai
MP Bhopal
UP Lucknow
Bihar Ranchi
West Bengal Calcutta
Rajasthan Jaipur
Gujarat Ahmedabad
J & K Srinagar
Punjab & Haryana Chandigarh
Delhi Delhi
Exhibit 6
Branch Opening Cost
Item Rs/Month
14
Utility ect 2000
Rent 4000
Salary 4000
Inventory 11000
Total 21000
Exhibit 7
Average Inventory Position at Branches (January-July 1988)
1 Adoni 63 24
2 M’nagar 58 30
3 Ranchi 30 14
4 Daman 39 91
5 Delhi 20 32
6 Vadodara 96 112
7 Faridabad 0 0
8 Jammu 29 25
9 Cochin 0 0
10 Bhopal 143 132
11 Raipur 55 59
12 Mumbai 63 109
13 Chandigarh 75 119
14 Jaipur 115 53
15 Vellore 53 32
16 Lucknow 165 146
15
17 Varanasi 86 146
18 Medinipur 50 32
Average Inventory at Branches 63.33 64.22
19 Raichur (including finished goods inv.)1122 768
Exhibit 8
Andhra Pradesh-KEC Branches
16
17
EXHBIT 9
Average Monthly Offtake in Andhra Pradesh (January –July 1988)
Mopeds Scooters moped-units
From Adoni
1 Adoni 25 10 41
2 Chittoor 90 10 106
3 Nellore 20 15 44
4 Ongole 20 0 20
5 Chirala 50 3 54.8
6 Cuddappah 55 4 61.4
7 Hindupur 60 7 71.2
8 Anantapur 60 10 76
9 Kurnool 20 3 24.8
10 Tirupati 65 16 90.6
From M’nagar
11 Guntur 95 15 119
12 V’Wada 205 30 253
13 Khammam 80 15 104
14 Warangal 65 15 89
15 R’Mundry 80 0 80
16 Kakinada 70 4 76.4
17 Vizag 115 6 124.6
18 V’nagram 30 5 38
19 M’nagar 20 10 36
20 Hyderabad 600 80 728
18
21 Nizamabad 45 15 69
22 K’nagar 55 15 79
Total 1925 288 2385.8
EXHIBIT 10
Truck Rates (Rs per km)
Transporter 80 Mopeds or 50
Scooters(large truck)
56 Mopeds or 35
Scooters(medium
truck)
20 Mopeds or 12
Scooters (LCV)
PC Rao Brother 6.00 4.80 -
Raichur Roadways 6.00 4.80 -
Adoni Travels 6.50 5.00 4.00
Mehboobnagar
Trucking Society
6.90 5.50 4.60
EXHIBIT 11
AP Distance Matrix
S No. Adoni Cuddappah Hyderabad Kurnool M’nagar V’wada
1. Adoni 0 200 240 125 150 540
2.
Anantapur
110 120 340 130 240 400
3. Chirala 360 210 380 280 280 90
4. Chittoor 340 140 515 320 450 420
5. 200 0 365 180 280 310
19
Cuddappa
6. Guntur 390 270 320 250 410 30
7.
Hindupur
230 180 475 240 330 470
8.
Hyderabad
240 365 0 175 90 290
9.
Kakinada
740 520 500 390 590 210
10.
K’nagar
420 615 250 320 270 280
11.
Khammam
430 400 190 290 270 130
12.
Kurnool
120 180 175 0 125 290
13.
M’nagar
150 280 90 125 0 380
14. Nellore 280 130 470 260 360 240
15.
Nizamabad
435 515 150 330 285 360
16. Ongole 320 160 425 240 290 125
17.
R’mundry
680 460 440 370 530 150
18. Tirupati 330 130 485 310 440 390
19. V’wada 540 310 290 290 380 0
20. Vizag 900 680 660 590 750 370
21.
V’nagaram
950 730 710 640 800 420
22. 380 480 120 310 230 210
20
Warangal
EXHIBIT 12
Sample Routings for Dealer Point Delivery (Based on Invoice Statements)
Shipment
Number
Routing
From 1 To 2
Offtake at 2
Mopeds3 Scooters4
Offtake at
2
Sector
Distance
1 Adoni Anantpur 12 __ 12 110
Anantapur Hindupur 8 __ 8 120
2 Adoni Trupati 10 25 50 330
Triupati Nellore __ 15 24 120
3 Adoni Cuddappah 40 __ 40 200
Cuddappah Nellore 40 __ 40 130
4 M’ Nagar Hyderabad __ 30 48 90
Hyderabad Warangal __ 20 32 120
5 M’nagar Hyderabad 24 20 56 90
6 M’nagar Vijayawada 30 __ 30 380
Vijayawada R’mundry 30 __ 30 150
R’mundry Kakinada 20 __ 20 60
Analyze in minute details this Case with reference to the Principles of Logistics and supply chain
Management
AEREN FOUNDATION’S Maharashtra Govt. Reg. No.: F-11724
SUBJECT: SUPPLY CHAIN MANAGEMENT
Total Marks: 80
CASE - 1 (20 Marks)
E-TENDERING IN SUPPLY CHAIN MANAGEMENT-VENDOR SELECTION
The e-tendering process has meant a transformation from a traditional vendor selection process
through tenders to an online process making huge advances in efficiency, transparency and Data
Storage solutions and retrieval systems. Wipro Infotech Enterprise application practice through its eprocurement
application development service has ensured a smooth migration for governments.
The e-tendering service offering allows vendors to electronically upload and download documents,
access project details as well as enabling you to maintain a track on the overall status of the tenders.
The key benefits of our E-tendering service offering include:
Reducing collusion among vendors and making the process fair and competitive
Enabling systematic documentation of the complete tendering process and hence reducing
administrative costs and minimising human error
Ensuring significant reduction in processing time and tender cycle time
Ensuring timely completion of tendering process thereby resulting in better utilisation of
available funds from financial institutions
Providing onsite service and training to ensure that government adopts the new system
without any difficulties
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
Questions
How has technology helped SCM ?
Is e-tendering a good process to select vendors?
CASE-2 (20 Marks)
Supply Chain: definition of a supply chain as a partnership of organizations sharing a common goal
of delivering a set of goods or services to an end-customer. Thus, the supply chain includes not only
the upstream suppliers of an item and the organizations that make the components used to create that
item, but also the downstream retailers or distributors for the item. Other authors have called these
value chains or webs, in an attempt to highlight the fact that supply chains don't just include suppliers
but also their customers and that the relationships aren't always linear but more commonly look like a
network or web.
Supply Chain Collaboration: any kind of joint, coordinated effort between two parties in a supply
chain to achieve a common goal. Note that these words on their own give no indication of whether
the effort I am talking about is at a strategic, tactical, or operational level, what kind of business
process is involved, or the degree of collaboration. These things aren't often stated explicitly enough
when we talk about collaboration or the tools used to support it.
Since there are numerous processes that partners can collaborate on, it is critical that we are clear
about which processes are involved in the collaboration. On this site, we focus primarily on
Collaborative Planning, Forecasting, and Replenishment (CPFR) activities when talking about supply
chain collaboration, rather than other activities such as collaborative design or marketing. However,
once organizations begin the strategic shift towards more collaborative relationships, it is much easier
to experience process gains in many other areas.
Questions
Define supply chain and supply chain collaboration?
CASE-3 (20 Marks)
Decisions on Three Levels
Supply chain management decisions are often said to belong to one of three levels; the strategic, the
tactical, or the operational level. Since there is no well defined and unified use of these terms, this
Section describes the how they are used in this thesis. Figure shows the three level of decisions as a
pyramid shaped hierarchy. The decisions on a higher level in the pyramid will set the conditions
under which lower level decisions are made.
On the strategic level long term decisions are made. According to Ganeshan and Harrison [12], these
are related to location, production, inventory, and transportation. Location decisions are concerned
with the size, number, and geographic location of the supply chain entities, such as plants,
inventories, or distribution centers. The production decisions are meant to determine which products
to produce, where to produce them, which suppliers to use, from which plants to supply distribution
centers, and so on. Inventory decisions are concerned with the way of managing inventories
throughout the supply chain. Transport decisions are made on the modes of transport to use.
Decisions made on the strategic level are of course interrelated. For example decisions on mode of
transport are influenced by decisions on geographical placement of plants and warehouses, and
inventory policies are influenced by choice of suppliers and production locations. Modeling and
simulation is frequently used for analyzing these interrelations, and the impact of making strategic
level changes in the supply chain.
On the tactical level medium term decisions are made, such as weekly demand forecasts, distribution
and transportation planning, production planning, and materials requirement planning. The
operational level of supply chain management is concerned with the very short term decisions made
from day to day. The border between the tactical and operational levels is vague. Often no distinction
is made, as will be the case in this thesis.
Questions
Define hierarchy of decision making in supply chain management?
CASE-4 (20 Marks)
Inventory is a ``Flexibility Buffer''
A manufacturers flexibility is its ability to respond to changes in demand. Imagine a company that
can receive customer orders, order and receive components, assemble these, fill the orders, and ship
them to customers in one single day. This company would have a total flexibility. It would be able to
respond to any unforeseen events on a daily basis, and could easily attain a hundred percent customer
satisfaction without any inventory. But this is of course rarely the case. A supply chain may consist of
many levels of production, transportation, and warehousing, each level adding to the lead time. The
time from the first materials are ordered at the beginning of the supply chain till the finished products
reach the customer may be long. In the US apparel industry this time is typically 58.5 weeks ! (from
1990, Flaherty.
It is evident that customers will not wait this long from order to delivery. The manufacturer needs to
plan ahead, and therefore also to estimate future demand by making demand forecasts. If planning of
production and inventories was perfect we would be able to implement a pure Just in Time strategy,
with components arriving as they are needed, and finished goods being shipped as they leave the
assembly line. But in a supply chain there are many events that can not be foreseen and uncertainties
that need to be accounted for. These may be: late shipments from suppliers, defect incoming material,
imperfect production yield, production process breakdown, or highly uncertain product demands.
The longer the planning horizon, the less accurate the plans will be. A typical US apparel
manufacturer must see more than a year into the future ! For it to maintain a high level of customer
service, all uncertainty of the year must be accounted for (see Pitfall 5 below). The long lead times
make the manufacturer inflexible, and vulnerable to unforeseen changes and inaccurate demand
forecasts.
A manufacturer will account for the uncertainties and unforeseen events by keeping safety stocks.
The safety stocks assure the necessary flexibility, or rather they act as buffers for the lack of
flexibility in the supply chain.
As we decrease lead times in the supply chain, we decrease the planning horizon, and thereby
increase the flexibility. The need for a buffer in the form of inventory will also diminish. In other
words; higher flexibility allows less inventory to maintain the same level of customer service.
Inventory vs. Customer Service: A Trade-Off
If we assume lead times to be constant, the ability to fill orders is directly dependent on the inventory
levels in a supply chain. As long as there are products in the finished goods inventory (FGI), from
which products are taken, orders can be satisfied. Other inventories, such as raw product inventories
will have a more indirect effect on customer satisfaction. Stock-outs in any of these will obstruct
production and may eventually lead to stock-out in the FGI. For this reason, it is common in supply
chain management to keep exaggerated inventory levels. But as mentioned above inventory holding
costs are often calculated as high as 30-40% of inventory values.
While oversized inventories is a costly inventory management strategy, low fill rates are also costly.
Business may be lost through cancelled orders, and the company's reputation may be severely
damaged. It is therefore in a company's interest to balance inventory holding cost and the cost of
imperfect customer satisfaction. The trade-off inventory vs. customer satisfaction is one of the classic
issues of logistics and supply chain management.
Pitfalls in Inventory Management
Based on knowledge and experience from supply chain management in electronics, computer, and
automobile companies, Lee and Billington [16] identify 14 pitfalls in inventory management. Eight of
which are found relevant to this project:
Pitfall 1. No Supply Chain Metrics:
In a supply chain with multiple sites, each site will often have its fairly autonomous
management team. The objectives of the various teams may differ, and even be
conflicting. Inventory may for example be reduced at a Site A of a supply chain, and
thereby, seen from a local perspective, the performance is enhanced. But the inventory
decrease may also decrease Site A's flexibility. Because Site A now responds more slowly
to changes, Site B, which is Site A's customer will have to increase its inventory (of Site
A parts) in order to maintain its flexibility and level of customer service. The lack of
supply chain metrics has prevented managers at Site A to see that their local
improvements has not lead to improved overall performance of the supply chain. The
objective of supply chain metrics is to give the basis for evaluations of the performance of
the whole supply chain as one system.
Pitfall 2. Inadequate Definition of Customer Service:
Too few and in-concise metrics for customer service. The evaluation of performance
becomes difficult, and certain aspects of customer service may be overlooked.
Pitfall 3. Inaccurate Delivery Status Data:
Customers are not correctly informed of delivery dates of orders and of late deliveries.
Companies can often not readily retrieve the information needed to do so.
Pitfall 4. Inefficient Information Systems:
Databases at different operation sites that describe system environment, inventories,
backlog, future production plans, and so on are often not linked. Information must be
retrieved manually, and this can be a long process. Planning cycles may therefore be long,
using highly uncertain demand forecasts. The wrong products are made, and inventories
and backlogs grow.
Pitfall 5. Ignoring the Impact of Uncertainties:
Too often supply chains do not track uncertainties such as suppliers' delivery times, the
quality of incoming materials, manufacturing process time, transit times, and so on. This
leads to non-optimal stocking levels. In some cases uncertainties are properly tracked, but
there is no follow-up.
Pitfall 6. Simplistic Inventory Stocking Policies:
Stocking policies are often not linked to knowledge of the uncertainties mentioned above.
Stocking policies are often based on the quantity usage of the items stocked. This says
nothing about the uncertainty associated with the usage. Analysis show that stocking
levels could be greatly reduced by transferring stocking policies from being quantity
based to being uncertainty based.
Pitfall 7. Organizational Barriers:
Entities in a supply chain may belong to different organizations within the same company.
The organizations will independently measure the performance of the entities. While each
entity is occupied with achieving local goals (much like in pitfall 1), important synergies
may be lost.
Pitfall 8. Incomplete Supply Chain:
Supply chain managers are often focussed only on the internal supply chain. Going
beyond the internal supply chain by including external suppliers and customers often
exposes new opportunities for improving internal operations
Questions
Define Inventory is a ``Flexibility Buffer’’?
What are the various pitfalls in inventory management?
CONTACT:
DR. PRASANTH MBA PH.D. DME MOBILE / WHATSAPP: +91 9924764558 OR +91 9447965521 EMAIL: prasanththampi1975@gmail.com WEBSITE: www.casestudyandprojectreports.com
ENERGY MANAGEMENT
COURSE : Total Marks : 80
Attempt any 4 questions ( 10 marks each )
PART-1
Q1) A plant consumes 4,500 tons of furnace oil per year (GCV =10,200 kCal/kg), as well as
43,000 MWh of electricity per year. Draw the pie-chart of percentage share of each type of
energy based on consumption in kCal (1 kWh = 860 kCal)
Q2) How much steam is required in a heat exchanger to heat 120 kg/ hour of a process fluid
From 40o C to 90o C. The specific heat of process fluid is 0.24 kCal/kg oC and the latent heat
of steam is 540 kCal/ kg.
Q3) The following table shows the import bill of fossil fuels in million metric tones (MMT) and its
cost in Crores Rupees over the last eight years.
1. Calculate the average annual percentage increase of fossil fuel imports
2. Calculate the average annual percentage increase of the import bill
3. Calculate the average costs for the last eight years, in Rs.Per metric ton of imported fossil fuels.
Import bill of fossil fuels
Year Quantity (MMT) Value (Rs.Crore)
1996-97 33.90 18,337
1997-98 34.49 15,872
1998-99 39.81 19,907
1999-00 57.80 40,028
2000-01 74.10 65,932
2001-02 84.90 80,116
2002-03 90.00 85,042
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
2003-04 95.00 93,159
Q4) Fuel substitution from a high cost fuel to a low cost fuel in boilers is common to reduce
energy bill. For the following situations calculate:
1. Annual reduction in energy costs in Crore Rs.
2. Annual change in energy consumption in %. (Calorific value of fuels not required for calculations)
Q5) A company invests Rs.10 lakhs and completes an energy efficiency project at the beginning of
year 1. The firm is investing its own money and expects an internal rate of return, IRR, of at
least 26% on constant positive annual net cash flow of Rs.2 lakhs, over a period of 10 years,
starting with year 1.
1. Will the project meet the firm’s expectations?
2. What is the IRR of this measure?
Before substitution:
Steam output = 6 tons/hour
Fuel consumption = 1 ton oil per 13 tons of steam.
Operating hours = 6400 / Year
Fuel costs = Rs.13,000 /ton of oil
Boiler thermal efficiency (yearly average)= 82%
After Substitution:
Steam output = 6 tons/hour
Fuel consumption = 3 tons of waste wood per 13 tons of steam
Fuel costs = Rs.2,000 / ton of waste wood
Boiler thermal efficiency (yearly average) = 74%
PART -2
BOTH QUESTIONS COMPULSORY (20 MARKS EACH)
Q.1) A waste heat recovery system can be installed in a furnace, which will cost Rs. 7,00,000/- to
install. This system is expected to have a useful life of 6 years. The salvage value will be Rs.
2,00,000/-. The system will reduce the energy cost by Rs. 2,00,000/- per year, when it operates
at full capacity. However the plant will be operating at partial capacity for the first 3 years and
the annual energy savings will be at 70% of the energy cost savings at full capacity
(Rs. 1,40,000/-). (20 Marks)
The new system will entail a maintenance cost of Rs. 10,000/- per year for the first 3 years
and Rs.12,000 per year for the next 3 years. A major overhaul is required in the 3rd year, which
will cost Rs 1,00,000/-
a) If discount rate is 10%, calculate the NPV and find out whether this energy conservation
measure is profitable
b) What is the profitability index for the project?
Q2) An energy auditor undertakes the energy audit of a steam system. The operating data is
given as per the schematic diagram given below (20 Marks)
Bo ile r
C ap acity
8 T PH
Fe e d
P ump
Fe e d Water
T ank
S te am
F low ra t e = 7 TP H
P re s s u re = 1 0 k g /c m 2 (g )
Tem p e ra t u re = 1 8 0 °C
C o nd e n s a te
R e t u rn
Q u a n t ity = 5TPH
Tem p . = 9 4 °C
Ma k e -u p w a te r
Q u a n t ity = 2TPH
Tem p . = 2 8 °C
Ba re P ip e
Key data and assumptions are enunciated below:
a) Specific enthalpy of water at 10 kg/cm2 (g) pressure : 186 kCal/kg
b) Specific enthalpy of evaporation/latent heat at 10 kg/cm2 (g)
pressure
: 478 kCal/kg
c) Dryness fraction of steam generated : 0.95
d) Coal consumption : 840 kg/ hr
e) Net calorific value (NCV) of imported coal : 6269 kCal/kg
f) Moisture in coal : 3.5%
g) Hydrogen in coal : 4%
Other parameters as indicated in the above figure :
1) Based on preliminary data assessment as stated above, calculate the following:
2) Feed water temperature to boiler
3) Boiler efficiency by direct method on GCV basis
If the condensate return is enhanced to 6 TPH (steam generation of 7 TPH remaining same) what will
be the reduction in coal consumption?
Operation Management
Page 1 Out of 1
Total Marks: 80
Note : All Questions are Compulsory
Each Question Carries Equal Marks
1. Ilhan’s, a local bakery, is worried about increased costs – particularly energy. Last year’s
records can provide a fairly good estimate of the parameters for this year. Ilhan Balci,
the owner, does not believe things have changed much, but he did invest an additional 3
000 MU for modifications to the bakery’s ovens to make them more energy efficient. The
modifications were supposed to make the ovens at least 15 % more efficient. I. Balci has
asked you, as a brilliant graduate of EMU, to check the energy savings of the new ovens
and also look over other measures of the bakery’s productivity to see if the
modifications were beneficial. You have the following data to work with:
2. Serra’s Ceramics spent 3 000 MU on a new kiln last year, in the belief that it would cut
energy usage 25 % over the old kiln. This kiln is an oven that turns “greenware” into
finished pottery. Serra is concerned that the new kiln requires extra labour hours for its
operation. Serra wants to check the energy saving of the new oven, and also to look over
other measures of their productivity to see if the change really was beneficial.
Serra has the following data to work with:
Were the modifications BENEFICIAL?
Last Year Now
Production (dozen) 1500 1500
Labour (hours) 350 325
Capital Investment (MU) 15 000 18 000
Energy (kw-hrs) 3 000 2 750
Last Year This Year
Production (finished units) 4000 4000
Greenware (pounds) 5000 5000
Labour (hrs) 350 375
Capital (MU) 15000 18000
Energy (kWh) 3000 2600
Page 1 Out of 1
3. Suzan has a part-time “cottage-industry” producing seasonal plywood yard ornaments
for resale at local craft fairs and bazaars. She currently works a total of 4 hours per day
to produce 10 ornaments.
a. What is her productivity?
b. She thinks that by redesigning the ornaments and switching from use of a wood glue to a
hot-glue gun she can increase her production to 20 ornaments per day. What is her new
productivity?
c. What is her percentage increase (or decrease) in productivity?
4. A company has asked YOU to evaluate the firm’s productivity by comparing this year’s
performance with last year’s. The following data are available:
Last Year This Year
OUTPUT 10500
units
12100
units
Labour Hours 12000 13200
Utilities 7600 MU 8250 MU
Capital 8300 MU 88000 MU
Has the company improved its PRODUCTIVITY during the past year?
5. Mr. Ilhan DALCI makes billiard balls in his Beyarmudu plant. With a recent increase in
taxes, his costs have gone up and he has a newfound interest in efficiency. Mr.Dalci is
interested in determining the productivity of his organisation. He would like to know if
his organisation is maintaining the manufacturing average of 3% increase in
productivity. He has the following data representing a month from last year and an
equivalent month this year.
__________________Last year Now
Units produced 1 000 1 000
Labour (hours) 300 275
Resin (kg.s) 50 45
Capital invested (MU) 10 000 11 000
Energy (BTU) 3 000 2 850
Show the productivity change for each category and then determine the IMPROVEMENT for
labour- hrs, the typical standard for comparison.
Page 1 Out of 1
6. Haldun LOP, the production manager of LOP Chemicals, in Gazimagusa, TRNC, is preparing
his quarterly report which is to include a productivity analysis for his department. One of the
inputs is production data prepared by Meltem SERIN, his operation analyst. The report,
which she gave him this morning, showed the following:
2005 2006
Production (units) 4500 6000
Raw Material Used (barrels ofPetroleum byproducts)
700 900
Labour Hours 22000 28000
Capital Cost applied to the Department (MU) 375000 620000
Haldun LOP wondered if his productivity had increased at all. He called Meltem into his office
and conveyed the above information to her and asked her to proceed with preparing this part
of the report. (Include your interpretations for each productivity figure)
7. Ahmet Uslu makes wooden boxes in which to ship motorcycles. Ahmet and his three
employees invest 40 hours per day making the 120 boxes.
a. What is their productivity?
b. Ahmet and his employees have discussed redesigning the process to
improve efficiency. If they can increase the rate to 125 per day, what
would be their new productivity?
c. What would be their increase in productivity?
8. The manager of a local firm says “the forecasting techniques are more trouble than they
are worth. I don`t forecast at all, and I`m doing 25% more business than last year”.
Comment.
SUPPLY CHAIN MANAGEMENT
Total marks 80
Group A
Case 1 (14 Marks )
Supply Chain Management at Bose Corporation
Bose Corporation manufactures audio premium speakers used in automobiles, high-fidelity systems and
consumer and commercial broad-casting systems. Head quartered in Framingham, Massachusetts, Bose
Corporation has plants in Massachusetts and Michigan as well as in Canada, Mexico and Ireland. Bose
speakers are the best sellers in Japan, the world leader in consumer electronics. Bose’s competence is in
its electronic engineering skills, ‘but the company attributes much of its business success to its tightly
controlled materials management and excellent Integrated supply chain management.
Bose purchases most of its electronic and other components from independent suppliers scattered around
North America, the Far East and Europe. About 50 percent of its purchases are from foreign suppliers,
the majority of them are from the Far East. Its purchasing organisation while decentralized has some
overlap that requires coordination between sides. Bose attempts to coordinate its globally dispersed
supply chain so that material holding and transportation costs are minimised. This requires component
parts to arrive at Bose’s Massachusetts assembly plant just in time to enter the production process. But
because Bose must remain responsive to its customers, it sometimes must respond quickly to increases in
customer demand for certain speakers so as to remain competitive. Since Bose does not want to hold
extensive inventories at its Massachusetts plant, this need for responsiveness requires Bose’s globally
dispersed supply chain o respond rapidly to increased demand for component parts.
Bose’s materials management function is responsible for coordinating the supply chain to meet both
objectives — minimising transportation and inventory holding costs and yet responding quickly to
customer demands. This function achieves coordination through a sophisticated logistics operation. Most
AN ISO 9001 : 2000 CERTIFIED INTERNATIONAL B-SCHOOL
2
of Bose’s imports from the Far East come via ships to the West coast and then across North America to
its Massachusetts plant via train. Most of the company’s export also move by ocean freight. Bose does
not hesitate to use airfreight when goods are needed urgently.
Bose has a long standing relationship with W.N. Procter. a Boston based freight forwarder and customs
broker. Procter handles customs clearance and shipping from suppliers to Bose. Procter provides Bose
with up-to-the minute electronic data interchange (EDI) capabilities which enable Bose to track parts as
they move through its global supply chain. Procter provides several other services to Bose such as
selecting overseas agents who can help move goods out of the Far East.
Procter’s well-established network of overseas contacts is especially useful when shipments must be
expedited through foreign customs. Procter also is electronically linked into the US customs system,
which allows it to clear freight electronically as much as five days before a ship arrives at a US port or
hours before an international airfreight shipment arrives - This helps to get goods to Bose’s
manufacturing plant several days sooner.
Bose has developed a detailed supplier performance system that measures on-time delivery, quality
performance, technical improvements and supplier suggestions. A report is generated twice a month from
this system to be sent to the suppliers providing feed-back about supplier performance.
Bose has written contracts with suppliers. After six months of delivery without rejects. Bose certifies the
suppliers as qualified suppliers.
Bose uses a sophisticated transportation system which is the best EDI system n the US. This j system
operates close to real time and allows two-way communication between every one of the freighthandlers’
230 terminals and Bose. Information is updated several times daily. This state-of- the art
system helps Bose’s managers to proactively manage logistics time elements in pursuit of better customer
service.
Perhaps one of the most unique features of Bose’s procurement and logistics system is the development
of JIT II. The basic premise of JIT H is: “the person who can do the best job of ordering and managing
inventory of a particular item is the supplier itself” Bose negotiated with each supplier to provide a full—
time employee at the Bose plant who was responsible for ordering. shipping and receiving materials from
that plant, as well as managing on-site inventories of the items. This was facilitated through an EDT
connection between Bose’s plant and the supplier’s facility.
Questions:-
1. Briefly present the salient features of the integrated supply chain management system at Bose?
2. Discuss how the strategy development process might work at a company like Bose?
3. What should be the relationship between Bose’s supply management strategy and the development of
its performance measurement system?
4. Discuss the importance of quality of purchased components to Bose?
3
Case 2 (14 Marks)
SKF Bearing’s Best Practices
“SKF’S outbound logistics outsourcing is characterised by strong control over quality norms and delivery
schedules by SKF personnel”
SKF Bearings is one of the world’s biggest ball bearing manufacturing units, and they have: a sizeable
presence i India. As part of its supply chain management practice. SKF Bearings handles the training,
implementation and quality control activities themselves, while outsourcing the actual
operations to logistic solution providers. Outbound warehousing and transportation practices outsourced
to logistic solution providers and national transporters.
(A) Inbound transportation and warehousing: Complete vendor outsourced, i.e. transportation and
warehousing managed and handled by vendors.
B) Outbound transportation : Handled predominantly by national fleet operators, with some
responsibilities of contingency transportaton outsourced to organised players.
(C) Outbound warehousing : Completely outsourced to organised players with five players handling
different warehouses of the company.
SKF’s outbound logistics outsourcing is characterized by strong control over quality norms and delivery
schedules by SKF personnel. Outbound warehousing which is a completely outsourced activity is
controlled by SKF personnel by integrating the warehouses through their in-house developed ERP
software platform.
Training of logistics company personnel to load/unload goods, assemble and disassemble and for
integrating scheduling and supply orders is imparted by SKF. Through this, they have managed to
achieve 100 percent order cycle fulfillment, bring down damaged/ short/over delivery instances to almost
0.25 percent of total annual order and train logistic personnel to meet all in-house developed quality
norms.
Even though majority of their logistics partners have IT capabilities of their own, SKF Bearings doesn’t
use them as they have integrated their own IT platform to schedule orders, keep track of consignments
and to manage both effective and efficient distribution. Their warehousing costs are higher than their
outbound transportation costs because of the extensive warehousing practices, but they have achieved
gains through the application of internal control over implementation of quality norms, strict adherence
to Standard Operating Procedures (SOPs) and a robust system of IT implementation throughout their
supply chain, Future Plans: Moving slowly towards Vendor Managed Inventory (VMI) for inbound
4
sourcing and also looking at outsourcing more warehouse management responsibilities. Looking to
implement more definitive 3PL solutions for outbound activities of the supply chain, but will still, keep
operational control in its own hands.
Questions
1. Discuss the activities involved in the supply chain of SKF Bearings?
2. Explain how .SKF establishes strong control over its outbound logistics?
3. What is meant by vendor managed inventory (VMI)?
4. What meant by third party (3PL) logistics solutions? Explain how SKF will be able to implement the
same?
Case 3 (14 Marks)
Chrysler Unseats its Competition with Supplier Partnerships
When Lee lococea gave the co ahead to Chrysler’s Neon Project in I NO, he \\ as taking a big risk. Until
that time; no American subcompact ear had been able to turn a profit for its manufacturer. l3ut Chrysler’s
Neon ultimately reversed this trend: mainly because of the unprecedented partnerships Chrysler entered
into with its suppliers in the earliest stages ot the Neon Project.
Robert Marcell. head of Chrysler’s small -car division, knew that such partnerships held the key to
Chrysler’s success. In order to make a profit, Marcell had to meet stringent production schedules for
which he had to bring suppliers on board early. This is crucial because outside companies would be
furnishing 70 percent of the value of the car in the form of tyres seats,suspension, and other components.
In an unprecedented move, Marcell allowed engineers from key potential suppliers to dose the first
Neon prototype during an October 1990 meeting. His team then issued a cost challenge. inviting
suppliers to make use of sensitive Chrysler financial data and ideas in a mutual effort to Cut costs.
Companies who entered into this unique partnership found that collaborating with Chrysler was a twoway
street. For exarple Johnson controls, Inc was initially to make the Neon’s seats within Chrysler’s
price targets, but Chrysler was unhappy with their safety. Weight and comfort. After the supplier
partnership agreement, ten Chrysler engineers moved into Johnson controls’ firm near Detroit to work
with the engineers of Johnson controls. After working together for five days together the partners agreed
on new weight, cost and performance standards that were so on target that they didn’t have to be changed
again.
As a result of this unique partnership, Chrysler was able to accept higher component Costs from Johnson
controls because of overall savings for Chrysler. At Chrysler’s request Johnson designed some rear seats
with the capability of folding down to expand trunk space. But Chrysler engineers insisted that Johnson
design the special seats so that they could be installed the same as other seats. This made each seat cost
5
more, but Chrysler ultimately could save about $ one million overall in final assembly costs. Thanks to
its successful partnership with Johnson controls and other major suppliers, Chrysler met its stringent cost
and time deadlines for the Neon- and came out with Detroit’s first profitable subcompact car in the
bargain.
Questions
1. Discuss the approach of Chrysler’s operations managers in developing arid building the Neon model?
2. Discuss the relevance of this case to the study of supply chain management?
3. What benefits a manufacturing firm can achieve from its suppliers, through outsourced manufacturing?
4. Discuss the differences between outsourcing and out-partnering?
Case 4 (14 Marks)
Delphi Automotive Setting New Norms
“Logistics service provider and transporter evaluation is done on the basis of requirement levels met,
which is 100 percent for any component before it goes on to the line”.
Delphi Automotive India Ltd. is the Indian arm of the global giant Delphi Automotive. The major
components that Delphi supplies in the country are steering columns, half shafts, AC Units, Engine
Management systems, Catalytic Converters and Wiring Harnesses. The Company also takes up sourcing
requirements of clients based out of India.
Suppliers are generally selected on the basis o their proximity to the company’s four manufacturing units
in India, which are located in Bangalore, Karnataka (two plants), one in Noida, Uttar Pradesh and one in
Gurgaon (Haryana). Delphi believes in efficient sourcing from its suppliers. Nearby suppliers are
required to supply the plant everyday while far flung suppliers are required to supply 2-3 times in a week.
Delphi has streamlined the inbound process by procuring high volume, low cost items from nearby
suppliers and high cost, low volume items from far flung suppliers.
Delphi Automotive India has outsourced the entire inbound sourcing part of the supply chain to its
suppliers, totaling about 150. They are responsible for the inbound transportation and warehousing of
components before the latter reaches any of Delphi’s manufacturing plants.
For outbound trá1sportation and warehousing. the company works with a mixture of national transporters
and organised logistics solution providers, Its outbound warehousing has been outsourced to a trading
company with capabilities in warehouse management.
To make sure that quality norms are adhered to and supply schedules are met, logistics service 1?rovider
and transporter evaluation is done on the basis of requirement levels met, which is 100 percent for any
component before it goes on to the line. This is a very Important service level definition on which logistic
solution providers and transporters are evaluated.
Since the stock and inventory checking aspects of the supply chain have been automated, details of stocks
and status of delivery can be tracked. Web enabled
6
consignment tracking facilities are provided by Delphi India to its foreign customers enabling the latter to
track the status and location of their’ consignments at any given point in time. Indian customers are
slowly being provided with this facility. Also, Indian customers can place orders from Delphi using the
company’s extranet system as and, when the requirement arises.
Future Plans: Will slowly move towards a more structured system of logistics outsourcing, which would
mean that it will increasingly start looking at more 3PL outsourcing arrangements.
Questions
1. Explain the supply chain of Delphi Automotive.
2. Explain how Delphi Automotive manages its inbound sourcing.
3. Explain how Delphi Automotive manages its outbound logistics.
4 Suggest a suitable strategy for Delphi Automotive to Improve its supply chain effectives.
Group B
Case 5 (24 Marks)
Karnataka Engineering Company Limited
By 1983 (the case time context), the two-wheeler market had been liberalised and companies had to deal
with the new realities. Logistics was one of the business activities which got a strong look. The case of
Karnataka Engineering Company Limited (KEC) provides the background for analysing a key set of
logistical concerns.
Strengthening the distribution network for finished products is one of the most direct ways of improving
service effectiveness and cost efficiency of a firm’s marketing related operations. The cost of selling up
and operating different facilities in the distribution network have to be viewed vis-à-vis the recurring
transportation and inventory costs in the distribution network and increasingly, service measures such as
response time to different sets of downstream customers.
In this case, the logistics manager s faced with the issue of designing a distribution network. ‘Twowheelers
have to be distributed from a single factory to several dealers. For illustrating the nature of the
decision, one state (Andhra Pradesh) is taken up for detailed analysis. Here, it is assumed that distribution
will be done state-wise, because of commercial (tax) considerations.
Five hierarchical decisions have to be made in this case; deciding on the number of warehouses, the
location of those warehouses, the allocation of demand points to a warehouse, the selection of a shipment
size, and an order processing and routing policy for the actual distribution from warehouse to demand
7
points. Here, shipments from depots to dealers are through trucks or LCVs. Depending on the order
processing discipline that is selected, one could have the possibility of meeting the demands of two or
more dealers with a single trip. This would need a routing procedure.
Questions
1. At what volumes is the opening of a warehouse in a state justified primarily on the grounds of the 4 per
cent central sales tax for transactions across states?
2. How many warehouses do you think are required for the distribution of KEC’s products in Andhra
Pradesh? What could the candidate locations of the warehouses be? What would be the criteria on which
to select the candidates?
3. Determine the optimal selection of warehouses and the best allocation of demand points to the selected
warehouses?
4. What are the best choices for shipment (truck) size from warehouses to demand points? Given the size,
what routing would you recommend for a typical dispatch run?
Approach for Analysis
The problem here is a relatively complex one, in theory, because of the number of different but
interrelated decisions that have to he made. Two options are suggested to approach this problem. One is
to decompose the decision areas (typically in the order of the hierarchy described above) and calculate
only the aggregate contributions from other decisions. For example, a shipment size can be assumed
while deciding the number and location of warehouses (and that would determine the relevant costs), and
this can be repeated for each significant option.
Another approach is to explicitly and simultaneously consider two or more interrelated decisions. This is
a very common practice in, for example, location allocation models. This makes decision-making more
accurate. But this is not always possible.
A combination of these two approaches may be helpful here. A reasonable set of scenarios for shipment
size for making the upper-level decisions, a combined model for location and allocation, and again an
aggregate consideration for deciding the number of warehouses (based on the fixed costs vis-à-vis the
maximum savings in transportation) can be prepared. The routing decision can be separately made after
the allocation decisions are made, for each shipment size possibility. For the location-allocation decision,
even the number of warehouses to be opened can be left open, and a model developed based on Mixed
Integer Linear Programming. The model size should be kept small enough that a simple solution should
be obtained by running the model on a PC. Extensions of such models in m1aitleve1 distribution, where
explicit consideration of warehouse location costs and transport link fixed costs have been combined with
allocation decisions, have been among the most successful applications of models to practical decisionmaking.
Karnataka Engineering Company Limited (KEC)*
8
Karnataka Engineering Company Limited, Raichur, entered the two-wheeler industry in 1981 with the
production of mopeds. In 1983, they set up a scooter production line in Raichur. The two-wheeler scene
in India was very much a seller’s market in the early years, with waiting times of several months for
potential customers.
In 1987, there was a slump in the Two-wheeler market which affected all manufacturers badly. The
market became extremely competitive. This forced KEC to look for ways to tackle the increased
competitiveness. It was felt by the Staff Vice-President (Corporate Planning) that the physical
distribution function was a source of competitive advantage which, if properly handled, could yield
substantial dividends that would be visible in the immediate future.
KEC had set up a team to aggressively lead their marketing efforts in the slumping markets, called ‘Go
For It’. At a meeting of ‘Go For It’, the Staff VP (Corp. Planning) put forth his ideas for rationalising the
management of the physical distribution function, which was accepted by everyone, including the
Managing Director. Prior to this meeting, he had circulated a letter to all concerned (Exhibit
1). The organisation structure of KEC is given in Exhibit 2. Value added by KEC based on 1986-1987
financial data is given in Exhibit 3
Present Distribution
From Raichur, the two-wheelers are transported by specially adapted trucks, which can carry either 80
mopeds or 50 scooters or a combination of both. This phase of the distribution, called primary
transportation, is organised at Raichur itself by the central marketing office.
KEC has 19 branches spread all over India. Exhibit 4 gives a list of the branches (along with the
states/Uts) and their rnonh1y offtakés with sales value. Every branch is manned by a branch manager,
who is the 501C KE.C employee there. He wage labour for the loading and unloading operations. The
econda1y tansport arrangements transport from the branch to the dealers arc made by KEC Marketing
offices located in most states. A list of the marketing offices is given in Exhibit 5.
The consultant, based on discussions with the Staff VP arid Chief Operating Officer, arrived at a
framework for analysis, quite similar to the one outlined in Exhibit 1.
Branch Operating Costs and Locations
The operating expenses of a branch were estimated to be Rs 17,000 per month. The break-up is given in
Exhibit 6. However, the actual average expenses were closer to Rs 21,000 per month. The inventory cost
for each branch has been determined by examining the average branch inventory as given in Exhibit 7. It
should be kept in mind that the period January-July 1988, on which the data is based, represents a slump
in the market resulting in higher than normal inventories.
Given the costs, it can be determined that at 4 per cent central sales tax, the minimum throughput that
would justify the setting up of a branch in a state would be Rs 4.25 lakh per month. This translates into
78 mopeds (at Rs 5,500 per moped) or 33 scooters (at Rs 13,000 per scooter) per month or any
combination thereof. From Exhibit 4 it can be seen that it would be advantageous to locate branch
warehouses in 18 states/UTs. New branches need to be set up in Goa, Orissa and Pondicherry.
9
The branch in Jammu and Kashmir can be discontinued. The north-eastern part of the country should be
examined in greater detail with a state with break up
For the states where a branch location is deemed Essential the next task was to determine how many
branches should be opened iii each state arid where exactly they should be located.
The principal factor to examine when considering whether more than one branch is justified would be to
see if the savings in total transportation costs (primary and secondary transportation costs) would be more
than the additional cost of a new branch.
Distribution in Andhra Pradesh
The logistics expert decided to examine the case of AP in detail for an interim presentation to KEC. The
existing position was that KEC had two branch warehouses at Adoni and Mahbubnagar,f serving roughly
the northern and southern halves of AP. Exhibit 8 shows the locations of the dealer points on a map.
Exhibit 9 gives the actual average monthly offtake to the dealer points in Al’ based on January-July 1988
data.
The marketing office at Hyderabad would collate the orders and issue instructions by telephone to the
branch manager at Adoni and Mahbubnagar regarding secondary despatches. Actual routing decisions
were the responsibility of the branch manager. Both the branch managers found it difficult to get through
to dealers by telephone. Further, the Mehboobnagar branch manager frequently complained about
difficulties in arranging secondary transport. It must be mentioned here that the principle that motivated
KEC to select Adoni and Mahbubnagar as branch locations is that they are the first major towns in AP
after crossing the border.
Transportation and Routing
To get a good handle on the nature of transportation cogs, the consultant defined a unit called the moped
unit km. where one moped unit km is performed by transporting one moped unit for a distance of one
kilometre. One scooter was taken as equivalent to 1.6 moped units as a full truckload carries 1.6 times
more mopeds than scooters. He further set out to determine an average1 figure of the transport cost per
moped unit km, both for primary and secondary transportation.
The truck rates for various truck sizes are given in Exhibit 10. An important decision here is the optimal
size of shipment (which size truck to use). Exhibit 11 gives the distance math between the dealer points
and potential branch locations. The potential locations were selected based on offtake levels, demand
spread, quality of life, etc.
For primary transportation, it was found that the trucks were generally run at full capacity The 80 moped
units capacity truck was normally used. To determine primary transport cost, the distance figures from
Raichur to the potential branch locations are given as Adoni (70 km) Cuddappah (270 km), Hyderabad
10
(190 km), Kurnool (100 km—not a good road, 170 km—by good road), Mehboobnagar (100 km) and
Vijayawada (480 km via Hyderabad). For secondary transportation. six sample routings as given in
Exhibit 12 were chosen to determine the transport cost per moped unit km.
The average pipeline inventory was also a cost consideration. At the national level, average pipeline
inventory for primary transportation can be calculated given the average lead for mopeds as 700 km and
for scooters as 900 km. A truck does average of 350 km per day. Secondary transport pipeline inventory
was negligible, accept in large states.
The consultant now felt that he was ready to analyse the alternatives for branch location shipment size,
etc.
EXHIBIT I
From Staff VP (Corporate Planning)
To COO (Chief Operating Officer)
All members of Go For It
The recent slump in the market for two-wheelers is hitting not only our bottomline but also the morale of
the staff. We have been caught almost unaware by this and our sales forecasts look ridiculous. We are
faced with the all too visible problem of a build-up in finished goods inventory at Raichur and the
branches on account of lower offtake. The problem is so severe that sometimes trucks have had to wait
for more than a week to unload at branch points.
An important, but unfortunately neglected area to which we must pay attention is our logistics function.
If the right decisions are taken here, the potential to save money and provide an optimum level of service
to the consumer exists. Studying our logistics requirements should lead to savings in transportation costs
and inventory costs. The other benefit would be that our response time to orders would be acceptable to
the customer without imposing unjustifiable additional costs. As a first step, it would be useful for us to
recognise the significance of logistics costsas a proportion of value added to products. As I see it, the
first-level decision should be to make up our minds as to which states we should have branches in. The
financial advantage of having a branch warehouse in a state is that we then don’t have to pay the 4 per
cent central sales tax which is based on interstate sales.
The second-level decision should be to determine where in a state the branch should he located and
whether more than one branch would be justified. Related decisions would be the size of shipment,
frequency of shipment. inventory positioning at branches and routing of primary and secondary transport.
As we do not have any suitable person in KEC who is qualified to examine the issues involved, I have
identified an external management logistics expert to conduct the study.
11
EXHIBIT 3
Value Added Statement for 1986-87
Mopeds Scooters Total
Sales 63.20 41.10 104.30
Raw Material and Component Cost (67%
for mopeds) (69% for Scooters)
42.34 28.36 70.70
Value Added 20.86 12.74 33.60
EXHIBIT 4
12
State/UT-wise Monthly Average Sales (January-July 1988)
S.No State/UT Branch Location Mopels Scooters Sales Value (Rs 000)
1 Andhra
Pradesh
Adoni/M nagar 465/1460 78/210 3571.5/10760
2 Bihar Ranchi 360 125 3605
3 Daman Daman 15 300 3982.5
4 Delhi Delhi 65 30 747.5
5 Goa - 55 50 952.5
6 Gujarat Vadodara 80 70 1350
7 Haryana Faridabad 60 20 590
8 Himachal
Pradesh
- 10 10 185
9 Jammu &
Kashmir
Ja 5 25 352.5
10 Karnataka R 2400 150 15150
11 Kerala Cochin 80 60 1220
12 Madhya
Pradesh
Bhopal/Raipur 290/300 80/60 2635/2430
13 Maharashtra Mumbai 180 360 5670
14 North-east - 30 35 620
15 Orissa - 60 20 590
16 Pondicherry - 65 25 682.5
17 Punjab &
Chandigarh
Chandigarh 300 180 3990
18 Rajasthan Jaipur 210 120 2715
19 Tamil Nadu Vellore 1100 120 7610
13
20 Uttar Pradesh Luknow/Varanasi 750/300 170/70 6335/2560
21 West Bengal Medinipur 100 40 1070
Total 8740 2408 79374
Exhibit 5
Marketing Officer
Tamil Nadu Chennai
Karanataka Bangalore/Raichur
Andhra Pradesh Hyderabad
Kerala Cochin
Maharashtra Mumbai
MP Bhopal
UP Lucknow
Bihar Ranchi
West Bengal Calcutta
Rajasthan Jaipur
Gujarat Ahmedabad
J & K Srinagar
Punjab & Haryana Chandigarh
Delhi Delhi
Exhibit 6
Branch Opening Cost
Item Rs/Month
14
Utility ect 2000
Rent 4000
Salary 4000
Inventory 11000
Total 21000
Exhibit 7
Average Inventory Position at Branches (January-July 1988)
1 Adoni 63 24
2 M’nagar 58 30
3 Ranchi 30 14
4 Daman 39 91
5 Delhi 20 32
6 Vadodara 96 112
7 Faridabad 0 0
8 Jammu 29 25
9 Cochin 0 0
10 Bhopal 143 132
11 Raipur 55 59
12 Mumbai 63 109
13 Chandigarh 75 119
14 Jaipur 115 53
15 Vellore 53 32
16 Lucknow 165 146
15
17 Varanasi 86 146
18 Medinipur 50 32
Average Inventory at Branches 63.33 64.22
19 Raichur (including finished goods inv.)1122 768
Exhibit 8
Andhra Pradesh-KEC Branches
16
17
EXHBIT 9
Average Monthly Offtake in Andhra Pradesh (January –July 1988)
Mopeds Scooters moped-units
From Adoni
1 Adoni 25 10 41
2 Chittoor 90 10 106
3 Nellore 20 15 44
4 Ongole 20 0 20
5 Chirala 50 3 54.8
6 Cuddappah 55 4 61.4
7 Hindupur 60 7 71.2
8 Anantapur 60 10 76
9 Kurnool 20 3 24.8
10 Tirupati 65 16 90.6
From M’nagar
11 Guntur 95 15 119
12 V’Wada 205 30 253
13 Khammam 80 15 104
14 Warangal 65 15 89
15 R’Mundry 80 0 80
16 Kakinada 70 4 76.4
17 Vizag 115 6 124.6
18 V’nagram 30 5 38
19 M’nagar 20 10 36
20 Hyderabad 600 80 728
18
21 Nizamabad 45 15 69
22 K’nagar 55 15 79
Total 1925 288 2385.8
EXHIBIT 10
Truck Rates (Rs per km)
Transporter 80 Mopeds or 50
Scooters(large truck)
56 Mopeds or 35
Scooters(medium
truck)
20 Mopeds or 12
Scooters (LCV)
PC Rao Brother 6.00 4.80 -
Raichur Roadways 6.00 4.80 -
Adoni Travels 6.50 5.00 4.00
Mehboobnagar
Trucking Society
6.90 5.50 4.60
EXHIBIT 11
AP Distance Matrix
S No. Adoni Cuddappah Hyderabad Kurnool M’nagar V’wada
1. Adoni 0 200 240 125 150 540
2.
Anantapur
110 120 340 130 240 400
3. Chirala 360 210 380 280 280 90
4. Chittoor 340 140 515 320 450 420
5. 200 0 365 180 280 310
19
Cuddappa
6. Guntur 390 270 320 250 410 30
7.
Hindupur
230 180 475 240 330 470
8.
Hyderabad
240 365 0 175 90 290
9.
Kakinada
740 520 500 390 590 210
10.
K’nagar
420 615 250 320 270 280
11.
Khammam
430 400 190 290 270 130
12.
Kurnool
120 180 175 0 125 290
13.
M’nagar
150 280 90 125 0 380
14. Nellore 280 130 470 260 360 240
15.
Nizamabad
435 515 150 330 285 360
16. Ongole 320 160 425 240 290 125
17.
R’mundry
680 460 440 370 530 150
18. Tirupati 330 130 485 310 440 390
19. V’wada 540 310 290 290 380 0
20. Vizag 900 680 660 590 750 370
21.
V’nagaram
950 730 710 640 800 420
22. 380 480 120 310 230 210
20
Warangal
EXHIBIT 12
Sample Routings for Dealer Point Delivery (Based on Invoice Statements)
Shipment
Number
Routing
From 1 To 2
Offtake at 2
Mopeds3 Scooters4
Offtake at
2
Sector
Distance
1 Adoni Anantpur 12 __ 12 110
Anantapur Hindupur 8 __ 8 120
2 Adoni Trupati 10 25 50 330
Triupati Nellore __ 15 24 120
3 Adoni Cuddappah 40 __ 40 200
Cuddappah Nellore 40 __ 40 130
4 M’ Nagar Hyderabad __ 30 48 90
Hyderabad Warangal __ 20 32 120
5 M’nagar Hyderabad 24 20 56 90
6 M’nagar Vijayawada 30 __ 30 380
Vijayawada R’mundry 30 __ 30 150
R’mundry Kakinada 20 __ 20 60
Analyze in minute details this Case with reference to the Principles of Logistics and supply chain
Management
AEREN FOUNDATION’S Maharashtra Govt. Reg. No.: F-11724
SUBJECT: SUPPLY CHAIN MANAGEMENT
Total Marks: 80
CASE - 1 (20 Marks)
E-TENDERING IN SUPPLY CHAIN MANAGEMENT-VENDOR SELECTION
The e-tendering process has meant a transformation from a traditional vendor selection process
through tenders to an online process making huge advances in efficiency, transparency and Data
Storage solutions and retrieval systems. Wipro Infotech Enterprise application practice through its eprocurement
application development service has ensured a smooth migration for governments.
The e-tendering service offering allows vendors to electronically upload and download documents,
access project details as well as enabling you to maintain a track on the overall status of the tenders.
The key benefits of our E-tendering service offering include:
Reducing collusion among vendors and making the process fair and competitive
Enabling systematic documentation of the complete tendering process and hence reducing
administrative costs and minimising human error
Ensuring significant reduction in processing time and tender cycle time
Ensuring timely completion of tendering process thereby resulting in better utilisation of
available funds from financial institutions
Providing onsite service and training to ensure that government adopts the new system
without any difficulties
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
Questions
How has technology helped SCM ?
Is e-tendering a good process to select vendors?
CASE-2 (20 Marks)
Supply Chain: definition of a supply chain as a partnership of organizations sharing a common goal
of delivering a set of goods or services to an end-customer. Thus, the supply chain includes not only
the upstream suppliers of an item and the organizations that make the components used to create that
item, but also the downstream retailers or distributors for the item. Other authors have called these
value chains or webs, in an attempt to highlight the fact that supply chains don't just include suppliers
but also their customers and that the relationships aren't always linear but more commonly look like a
network or web.
Supply Chain Collaboration: any kind of joint, coordinated effort between two parties in a supply
chain to achieve a common goal. Note that these words on their own give no indication of whether
the effort I am talking about is at a strategic, tactical, or operational level, what kind of business
process is involved, or the degree of collaboration. These things aren't often stated explicitly enough
when we talk about collaboration or the tools used to support it.
Since there are numerous processes that partners can collaborate on, it is critical that we are clear
about which processes are involved in the collaboration. On this site, we focus primarily on
Collaborative Planning, Forecasting, and Replenishment (CPFR) activities when talking about supply
chain collaboration, rather than other activities such as collaborative design or marketing. However,
once organizations begin the strategic shift towards more collaborative relationships, it is much easier
to experience process gains in many other areas.
Questions
Define supply chain and supply chain collaboration?
CASE-3 (20 Marks)
Decisions on Three Levels
Supply chain management decisions are often said to belong to one of three levels; the strategic, the
tactical, or the operational level. Since there is no well defined and unified use of these terms, this
Section describes the how they are used in this thesis. Figure shows the three level of decisions as a
pyramid shaped hierarchy. The decisions on a higher level in the pyramid will set the conditions
under which lower level decisions are made.
On the strategic level long term decisions are made. According to Ganeshan and Harrison [12], these
are related to location, production, inventory, and transportation. Location decisions are concerned
with the size, number, and geographic location of the supply chain entities, such as plants,
inventories, or distribution centers. The production decisions are meant to determine which products
to produce, where to produce them, which suppliers to use, from which plants to supply distribution
centers, and so on. Inventory decisions are concerned with the way of managing inventories
throughout the supply chain. Transport decisions are made on the modes of transport to use.
Decisions made on the strategic level are of course interrelated. For example decisions on mode of
transport are influenced by decisions on geographical placement of plants and warehouses, and
inventory policies are influenced by choice of suppliers and production locations. Modeling and
simulation is frequently used for analyzing these interrelations, and the impact of making strategic
level changes in the supply chain.
On the tactical level medium term decisions are made, such as weekly demand forecasts, distribution
and transportation planning, production planning, and materials requirement planning. The
operational level of supply chain management is concerned with the very short term decisions made
from day to day. The border between the tactical and operational levels is vague. Often no distinction
is made, as will be the case in this thesis.
Questions
Define hierarchy of decision making in supply chain management?
CASE-4 (20 Marks)
Inventory is a ``Flexibility Buffer''
A manufacturers flexibility is its ability to respond to changes in demand. Imagine a company that
can receive customer orders, order and receive components, assemble these, fill the orders, and ship
them to customers in one single day. This company would have a total flexibility. It would be able to
respond to any unforeseen events on a daily basis, and could easily attain a hundred percent customer
satisfaction without any inventory. But this is of course rarely the case. A supply chain may consist of
many levels of production, transportation, and warehousing, each level adding to the lead time. The
time from the first materials are ordered at the beginning of the supply chain till the finished products
reach the customer may be long. In the US apparel industry this time is typically 58.5 weeks ! (from
1990, Flaherty.
It is evident that customers will not wait this long from order to delivery. The manufacturer needs to
plan ahead, and therefore also to estimate future demand by making demand forecasts. If planning of
production and inventories was perfect we would be able to implement a pure Just in Time strategy,
with components arriving as they are needed, and finished goods being shipped as they leave the
assembly line. But in a supply chain there are many events that can not be foreseen and uncertainties
that need to be accounted for. These may be: late shipments from suppliers, defect incoming material,
imperfect production yield, production process breakdown, or highly uncertain product demands.
The longer the planning horizon, the less accurate the plans will be. A typical US apparel
manufacturer must see more than a year into the future ! For it to maintain a high level of customer
service, all uncertainty of the year must be accounted for (see Pitfall 5 below). The long lead times
make the manufacturer inflexible, and vulnerable to unforeseen changes and inaccurate demand
forecasts.
A manufacturer will account for the uncertainties and unforeseen events by keeping safety stocks.
The safety stocks assure the necessary flexibility, or rather they act as buffers for the lack of
flexibility in the supply chain.
As we decrease lead times in the supply chain, we decrease the planning horizon, and thereby
increase the flexibility. The need for a buffer in the form of inventory will also diminish. In other
words; higher flexibility allows less inventory to maintain the same level of customer service.
Inventory vs. Customer Service: A Trade-Off
If we assume lead times to be constant, the ability to fill orders is directly dependent on the inventory
levels in a supply chain. As long as there are products in the finished goods inventory (FGI), from
which products are taken, orders can be satisfied. Other inventories, such as raw product inventories
will have a more indirect effect on customer satisfaction. Stock-outs in any of these will obstruct
production and may eventually lead to stock-out in the FGI. For this reason, it is common in supply
chain management to keep exaggerated inventory levels. But as mentioned above inventory holding
costs are often calculated as high as 30-40% of inventory values.
While oversized inventories is a costly inventory management strategy, low fill rates are also costly.
Business may be lost through cancelled orders, and the company's reputation may be severely
damaged. It is therefore in a company's interest to balance inventory holding cost and the cost of
imperfect customer satisfaction. The trade-off inventory vs. customer satisfaction is one of the classic
issues of logistics and supply chain management.
Pitfalls in Inventory Management
Based on knowledge and experience from supply chain management in electronics, computer, and
automobile companies, Lee and Billington [16] identify 14 pitfalls in inventory management. Eight of
which are found relevant to this project:
Pitfall 1. No Supply Chain Metrics:
In a supply chain with multiple sites, each site will often have its fairly autonomous
management team. The objectives of the various teams may differ, and even be
conflicting. Inventory may for example be reduced at a Site A of a supply chain, and
thereby, seen from a local perspective, the performance is enhanced. But the inventory
decrease may also decrease Site A's flexibility. Because Site A now responds more slowly
to changes, Site B, which is Site A's customer will have to increase its inventory (of Site
A parts) in order to maintain its flexibility and level of customer service. The lack of
supply chain metrics has prevented managers at Site A to see that their local
improvements has not lead to improved overall performance of the supply chain. The
objective of supply chain metrics is to give the basis for evaluations of the performance of
the whole supply chain as one system.
Pitfall 2. Inadequate Definition of Customer Service:
Too few and in-concise metrics for customer service. The evaluation of performance
becomes difficult, and certain aspects of customer service may be overlooked.
Pitfall 3. Inaccurate Delivery Status Data:
Customers are not correctly informed of delivery dates of orders and of late deliveries.
Companies can often not readily retrieve the information needed to do so.
Pitfall 4. Inefficient Information Systems:
Databases at different operation sites that describe system environment, inventories,
backlog, future production plans, and so on are often not linked. Information must be
retrieved manually, and this can be a long process. Planning cycles may therefore be long,
using highly uncertain demand forecasts. The wrong products are made, and inventories
and backlogs grow.
Pitfall 5. Ignoring the Impact of Uncertainties:
Too often supply chains do not track uncertainties such as suppliers' delivery times, the
quality of incoming materials, manufacturing process time, transit times, and so on. This
leads to non-optimal stocking levels. In some cases uncertainties are properly tracked, but
there is no follow-up.
Pitfall 6. Simplistic Inventory Stocking Policies:
Stocking policies are often not linked to knowledge of the uncertainties mentioned above.
Stocking policies are often based on the quantity usage of the items stocked. This says
nothing about the uncertainty associated with the usage. Analysis show that stocking
levels could be greatly reduced by transferring stocking policies from being quantity
based to being uncertainty based.
Pitfall 7. Organizational Barriers:
Entities in a supply chain may belong to different organizations within the same company.
The organizations will independently measure the performance of the entities. While each
entity is occupied with achieving local goals (much like in pitfall 1), important synergies
may be lost.
Pitfall 8. Incomplete Supply Chain:
Supply chain managers are often focussed only on the internal supply chain. Going
beyond the internal supply chain by including external suppliers and customers often
exposes new opportunities for improving internal operations
Questions
Define Inventory is a ``Flexibility Buffer’’?
What are the various pitfalls in inventory management?
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