27 Logistics Case Studies
Finance and Investment Management (Imperial College London)
(Prof Parshuram – 26606780/26605814)
Case Study No. 1
Super Dolls is a toy manufacturing company which is in the business for the past two decades. The manufacturing unit is situated in Mumbai, while its sales and marketing are spread over a large geographical area, especially in the major cities across the country. Over the years, a number of competitors have sprung in the field. Far from child’s play, the company found that the toys’ sector is a tough business. Some of the problems faced by it are:
There is a massive sale during the festival seasons. If the company’s product is delayed, the valuable market is missed.
“Fashion” or “cult” status products influence the market. Any wrong decision in this matter, means loss of sales and build-up of unwanted inventory
There are high marketing and promotional costs. If these programmes go out, the sales drop massively Any misjudge of the market can also mean closing down of the company
The company has problems regarding stock holding at its distribution centers. This is mainly due to wrong inputs from feedbacks and improper surveys.
The company relies mainly on hired fleet of road transport. The services are not up to the mark in terms of delivery schedules, safety of goods from pilferage/theft, and mishandling of product.
Marketing strategies are far from adequate. They are not effective enough to counter the strategies adopted by the competitors.
You are called upon by the management of Super Dolls to head their logistics operations. You are required to study and guide the company regarding the following matters.
Case Study No. 2
The management of Yummy Noodles Company was contemplating on introducing 200 grams pack of savory noodles into the Indian market at Rs. 10 per pack. This was only for one month which was construed to be as a test marketing period. During this period, the Company wanted to have a “blitz” strategy of flooding the market with their product.
In the subsequent month, the management of Yummy Noodles Company had planned to raise the price of the pack to Rs. 15, while the weight of the pack was to be fixed at 250 grams. A free gift in the form of a plastic bowl with a spoon was also planned.
Two months before the launch of the actual production, the marketing department of the company brought out advertisements regarding the savory noodles. The advertisements were displayed on bill-boards, TV, radio, print media. Schools and colleges were also targeted to rope in students and children to buy the product.
Production of the noodles was planned to be started along with the marketing program. The forecast of the number of expected packets that could be sold for the first month was around 75,000, and 1,25,000 for the second month. The production was required to be started earlier to meet the target of projected demand as well as to account for the changeover in the pack-size in the second month.
You are appointed as a logistics consultant by the Company. You are required to guide the Company regarding the following
Prof Parshuram 26606780/26605814
Case Study No. 3
Food Savories Limited is engaged in the manufacturing of various types of fast food items that are ready-to-eat variety. It has been in the business for the past 12 years. It has its factory as well as the processing unit in Navi Mumbai. The raw materials required are mainly vegetables, chicken which the company procures from either the local vendors, or from various suppliers situated at Nasik, Pune and other districts. The required materials are procured with the help of hired transporters. However, the hired transporters do not care much about the preservation of the goods. Hence, about 20% of the goods are lost due to damage, deterioration, pilferage, etc. Again, the hired transporters are unreliable with regard to their availability as well as prompt delivery schedules.
The company’s products are quite popular with the customers who are situated in Mumbai, Navi Mumbai, Pune, etc. However, the company stands to lose the market due to erratic supply schedules which do not cater promptly to the customers. The packaging of the products is attractive, but it does not preserve the product for a long time. The shelf-life is only about 5 hours, if the goods are not properly refrigerated. Loss on this account is about 10%.
The company has about 10 distribution centres. But there does not seem to be the much coordination between these centres. Logistical information system is not adequate. Due to this, the company is unable to expand its business. In fact, due to competition, there is fear that the company may stand to lose its existing clientele. Due to mismanagement, the company is unable to meet increase in the demands during festival seasons and holidays.
You are appointed as a logistics consultant. You are required to put forward your suggestions with regard to:
Case Study No. 4
Shoppers’ Paradise has a swanky mall at Andheri, Mumbai. They have a complete range of who’s who of shopping items. It was shop-in-shop based on international standards. The shop area is nearly 3, 50,000 square feet and about 25,000 customers visit the mall daily.
Fierce competition has driven Shoppers’ Paradise to tie-up with music companies, popular food outlets, etc. This ensures at least a certain percentage of sales. Again, to ensure that no stock-outs take place, Shoppers’ Paradise has built a warehouse
Prof Parshuram 26606780/26605814
close to its mall. The warehouse has sufficient storage capacity. Based on the consumption patterns, the warehouse is stocked with the required inventory.
Shoppers’ Paradise basically targets higher income groups. Therefore, it prefers to use roadways for transport of goods from the vendors. Though expensive as compared to railways, roadways have advantages in terms of door-to-door delivery, quicker decisions regarding change in routes or change in delivery schedules, etc.
Shoppers’ Paradise physically opens the packs received from the vendors. It sorts out the goods and puts the necessary price tags on them. The goods are then repacked to be appropriately stacked for final delivery, as and when required.
Since no heavy inventory has to be transported, mechanized material handling is not used since it would involve heavy capital investment. Pallets and crates are used extensively. Again, when goods are returned by the customers due to defects, Shoppers’ Paradise sends the goods to the warehouse from where the goods are sent back to the concerned vendor. The cost of return is borne by the vendors.
In case of new arrivals of stock, the sales department of Shoppers’ Paradise puts bill-boards about the new stock early in the morning, before the customers rive. This makes it convenient for the customers to know about the new arrivals.
Shoppers’ Paradise is very keen to ensure that the customers get the right product at the right time. At the same time, the management of Shoppers’ Paradise desires to reduce the overall cost. You are appointed as a Logistics Consultant. Suggest ways to improve the performance of Shoppers’ Paradise.
Case Study No. 5
(Mumbai Univ. Nov 2001)
M/s Britecolor Paints Ltd. (BPL) is a manufacturer of decorative paints for households, commercial premises and industrial applications.
combining various primary shades and would await the prospective customer to carry out the purchase. It ensured that these shades were available at each and every depot even at the cost of transportation incurred in sending goods in less than full truck load lots. This certainly provided a very high service level and the customers would get their shades as per their desires and thus they were fully satisfied.
If M/s BPL appoints you as their Logistics Consultant, how would you advice them in respect of the following:
Case Study No. 6
(Mumbai Univ Nov 2002)
ABCL Ltd is a leading Fast Food Processing Company operating from Thane. It is involved in the fast food business since last 10 years and has a tie up with a foreign firm operating in the same field. It handles both vegetable as well as non-vegetable products for which it arranges the required vegetables and chickens from local vegetable vendors and poultry farms as well as from far off places like Nasik, Pune and Aurangabad. It has very good markets in Mumbai, Pune and the surrounding cities. The products are sold in the brand name of Nasta which is very popular brand among the young collegians and office goers. It has its most modern kitchen at New Mumbai to cater to the needs for fresh Nasta. Vegetables and chicken items are transported from the procurement centres of Nasik, Pune, Aurangabad using hired trucks. While transporting vegetables and chickens, there were shortages, damages and decomposition problems which varies from 10% to 15% and there is inconsistency in the transit time, the reliability of the raw material transporters is very low.
Packaging of Nasta is very good and attractive but it is not long lasting type. However, the quality and taste are the reasons for its popularity. Nasta is sold in three different packs – party, family and individual.. Nasta loses its taste and flavour after 8 hours, if it is not preserved in refrigeration. Nasta is distributed through 25 distribution centres including three at its main procurement centres of Nasik, Pune and Aurangabad.
Logistics Information Network is not up to the mark. The procurement centres directly communicate to the operating centre at Thane. Due to lack of proper co-ordination at different distribution centres, it has started creating problems of stocks, spoilage, pilferage and wastage of raw materials as well as finished goods at certain distribution and procurement centres.
Transportation and storage problems are identified as the main culprits for the heavy losses being incurred at some centres. Holidays, festivals and collegians put a lot of pressure on the existing demand and supply situations of Nasta seasonally, resulting in mismanagement and losses. Entry of multinationals into the market has increased the competition and put a pressure on Nasta. The Managing Director of the company has formed a team consisting of senior executives to suggest a concrete plan to fight the growing competition and overcome problems of transport, storage and other related problems so as to increase the market share and margin.
The team of senior executives has recommended your name as a Logistics Consultant. You are required to put forward your suggestions for the following:
Case Study No. 7
(Mumbai Uni Nov 2003)
M/s Modern Garments is the manufacturer of ladies and gents garments, such as tops, shirts, undergarments, etc. Their manufacturing technology is advanced and, at the same time, there are several players who have access to such latest technologies. The supply chain for M/s Modern Garments includes significant purchases of raw materials, stitching of garments, packaging of finished products and supply of goods to its customers.
The logistics functions are the key competitive elements in the market. M/s Modern Garments is considering to take over the control over its inbound and outbound logistics functions. These have a direct bearing upon the inventories, reduction in the losses due to transit delays and improvement in transit time and service reliability. However, the company has to look into the cost implications of such changes.
M/s Modern Garments have been the leader in the readymade shirts market in India for a number of years. After liberalization, they entered into a joint venture with a French company to expand its business in the area of trousers and T-shirts. Despite the new joint venture, M/s Modern Garments still continues to manufacture its shirts at Thane near Mumbai and has started a new state-of-art garment manufacturing plant at Pune in Maharashtra, to compete with other market players. The company has planned to undertake the distribution of garments made and packed in its plants at Navi Mumbai and Kalyan so as to retain the control over the design, quality and service channel of its products.
After liberalization, the market has grown more matured and the expectations of the customers towards the features of the product have increased and also the technology and the design has improved considerably. Now, in the market only the garments with good delivery quality are acceptable. All the competitors have equally good quality product in the market. Presently the area of logistics distribution, customer service and satisfaction are the areas of prime concern in order to have extra value addition to the product. The product defects due to stitching, cutting and transportation are now under increasing scrutiny.
From the cost control point of view, the amount of money held up in distribution pipeline is significant. The large variety of garments now means more raw materials and components are to be held in stock. Presently, the incoming supplies are arranged by the vendor firms and also, they may have to be persuaded to opt for jointly approved transporters. Due to product variations, the order fulfillment and its processing are of considerable importance. The traditional information system has become inadequate. There are over 500 retail outlets through which the finished products are distributed with the help of more than 50 transporters. Lead-time variability is creating problems of buffer stocks with the distributors. The transit time fluctuations are due to the breakdown of trucks, improper documentation and unfair practices of over charging of the vehicles, etc. Such variability has to be reduced. Major portion of logistics cost was allocated in fleet management whereas warehousing, raw materials management and information networking have insignificant costs. On the basis of the above case, answer the following questions:
Case Study No. 8
(Mumbai Univ Nov 2004)
Mumbai Flour Mills provide high quality bakery flours to commercial bakers as well as to the consumer market. The commercial buyers have consistent demand and brand loyalty, whereas the consumers have minimal brand loyalty. They, instead, generally prefer known names over store brands. Demand is seasonal for the flour with the annual break occurring just before Diwali. It slacks off drastically during January and February. To offset both these phenomena, Mumbai Flour Mills and its major super market chain accounts carry out special deals and sales promotions.
The Production Planning Department of the company which is located at Akola in Maharashtra, has the responsibility of controlling the inventory level at the plant warehouse at Nagpur as well as the three distribution centres located at Nasik in Maharashtra, Bhopal in Madhya Pradesh and Hyderabad in Andhra Pradesh.
Planning has been routinely based on past experience and history. No formal forecasting is performed by the company. Distribution centres get their requirements by rail from Nagpur. The lead time of replenishment from Nagpur to distribution centres is 7 days. The replenishment rate is 48 to 54 pallets per wagon depending upon the type of wagon used. In case there is any emergency demand, then 18 pallets can be made available by truck with 3 days transit time.
Recently, the company has experienced two major stock-outs for its consumer size 5 kg sacks of refined quality white flour. One of these was problems in the milling operations, the other occurred when the marketing department initiated ‘buy-one-get-one-free’ coupon promotion. Ever since these events took place, the planning has become excessively couscous and hence, errs on the side having excessive inventories at the distribution centres. Additionally, two other events have affected distribution centre’s throughputs
(1) implementation of direct factory supply for replenishing the five largest super market chains and (2) a price increasing making the Mumbai Flour Mills more expensive than its national brand competitors such as Eillsburry, or Tata maida.
Out of the 1,500 pallets in Hyderabad distribution centre, the Mumbai Flour Mills shows only 396 pallets for open orders. This has led the company to use outside overflow storage where there are another 480 pallets. Flour is easily damaged. Hence, the company prefers to minimize handling. Overstocking at the distribution centres alone costs Rs. 1.85 per pallet for outside storage to which must be added Rs. 4.25 per pallet extra handling charges and Rs. 225 oer truck load for transportation. Similar scenarios are seen at other distribution centres as well.
Mr. Mohan, the distribution manager, is contemplating various approaches to solve the inventory problem. It is clear that the product must be in place at the time a consumer is making a decision to buy the product At the same time, the company cannot tolerate the overstocking situation and the stress that it is putting on facilities and cash flow. Mr. Mohan’s first thought is “better information system”, which will provide timely and accurate information throughout the organization.
On the basis of the above case, answer the following questions:
Case Study No. 9
(Mumbai Univ May 2004)
In the recent years, Bharat Point Corporation has emerged as a very successful merchandiser of contemporary fashion apparel for men and women. The company publishes a high quality catalogue that it sends to prospective customers, who then place order by mail or by using a toll-free telephone number. The customer base consists principally of young working couples. Children are not included as potential customers. The young working couples also receive catalogue from competitive firms such as ABC Ltd., etc.
Though catalogue business is fiercely competitive, it is growing as well. People who are “just-to-busy” to shop at retail outlets regard this as an appealing alternative. Also, it is seen that purchase apparel merchandise by catalogue has an element of prestige in certain social circles.
To further connect with today’s consumers, the company has developed an internet-based capability, bharat.com, which provides full catalogue and ordering services for on-line customers. The breadth of the product line is identical to that of the traditional catalogue, the company’s website offers a new and effective way to interact with customers.
Among companies of its kind, Bharat Point Corpn. is thought to offer the best product assortment, product quality and customer service. Two critical customer service elements at Bharat Point Corpn. are that the company receives, packs and ships orders in a timely manner and that the product return procedures are “customer friendly”. Although the company accommodates product returns with “little-or-not-bother” to the customer, is practice is expensive and of growing concern to the higher management.
Bharat Point Corpn does not produce any of the merchandise that it sells. Instead, it contracts with local manufacturers and also imports from Korea, Hong Kong, Taiwan and Singapore to meet its largely seasonal product-line needs. The company ships container loads of labeled and pre-tagged merchandise by combination of ocean transportation and domestic inland motor freight to a centralized distribution centre in Delhi and Bangalore. Subsequent movements to individual customers are made by companies like UPS and Federal Express.
Bharat Point executives consider themselves to be in the “logistics business”. They feel that the company’s logistical capabilities are the key to its excellent reputation in the market place. An area of nagging concern to the managers of Bharat Point however, is that customer tastes and company product preferences are beginning to change very quickly, sometimes in the middle of a selling season. Only a continued ability to react quickly to the changing market needs will separate market leaders from the others.
Case Study No. 10
(Mumbai Univ May 2005)
Hind Watches (HW) was established in 1962 in Bangalore as a PSU with foreign collaboration. This was the first factory of its kind in India to manufacture wrist watches. Since the production was very low till 1978, the sale was comparable with imported watches. In 1978, another factory was established with two million capacity and mass production technology. In order to cater to the market demand, dealers in major cities were appointed. The company was “protected” and had established its brand name.
On opening of the country’s economy, new players entered into the market in 1982 with new type quartz watches and with innovative methods of advertisements and techniques which became a major threat to HW. In 1990, another private manufacturer with a capability of producing two million quartz watches was started in Delhi. HW had to face further tough competition.
New entrants had modern technology and more tuned products required by customers. To counter competition, HW changed its strategy. It started a new distribution strategy by appointing dealers in major cities, including nodal warehouses in Bangalore and Delhi, resorting to institutional sales. It also opened specialized showrooms to cater to customer demands. Due this this, the sales of HW went up to 7 million watches in 1995, as against the total sales of only 4 million watches of all its competitors put together.
At this juncture, new management took over HW. A Voluntary Retirement Scheme (VRS) was introduced. A number of senior officers left the Organization under the VRS. New Heads of Departments took charge of the organization of HW. They had expertise in Capital Goods Marketing, while selling/marketing of wrist watches was essentially retail-based. These changes affected the sales of HW. It dropped to just 4 million, while the sales of the competitors’ went up to 5 million. Apart from this, HW had only 400 models of watches while the competitors had more than 1,000 models. HW had a traditional management system, whereas its competitors were having professional personnel with knowledge of modern techniques. The customers began to feel that HW has now become old-fashioned. This reduced the sales drastically which resulted in the closure of special shops and a number of showrooms of HW.
Lastly, the pricing of the watches manufactured by HW were based on equal distribution of expenses. At present, HW is operating through two Nodal Warehouses, whereas the sales of its competitors are effected through dealers who have their own warehouses and distributors having their own infrastructure. Further, the competitors had their own specialized franchises showrooms.
e)State the remedial measures which you think would be needed to improve the performance of HW
Case Study No. 11 (Case (a)
(Mumbai Univ November 2005)
Modi Brand threads are manufactured at their plant in Mumbai and sold all over the country through their 15 area offices. It caters mainly to hosiery, tailoring and household segments. Even though the distribution is done through their 15 area offices, the customer satisfaction level was estimated at just 85% level. Moreover, the fill rate is also 80%.
The market for this product is very competitive. Many times there is cut-throat competition. Hence, to maintain its customer base, Modi Brand has to maintain inventory of all its products at all time. This increasing levels of inventory, just to maintain the customer base and ward off competition, are a matter of great concern to the company. The large levels of inventory have posed a myriad of problems to the company, including reduction in the profits.
The treads manufactured are of two types, namely, cotton and polyester. They come in different lengths, strengths and shades. There are 100 varieties of these shades in each shade. Considering about 20 different shades, the total product range works out to 2000 stock keeping units (SKUs).
One carton of each colour is to be kept in stock to meet the varied demands of the customers. The cost of one such carton works out to Rs. 2,000 for Modi thread. Thus, 2000 SKUs multiplied with Rs. 2,000 works out to Rs. 40 lakhs. If this has to be stocked at each of the 15 centres, the total stock value to be kept on hand at any time works out to Rs. 600 lakhs, or, Rs. 6 crores. This is very high high for the company by any standards.
The company is also facing problems of warehousing and transportation. At present, the company has contracted trucks for delivery of stocks to the various centres. But, the company faces problems of reliability and consistence with these trucks. Warehousing problems pertain to storage, pilferage and damage due to weather conditions..
Case Study No. 12 Case (b)
(Mumbai Univ Nov 2005)
Cambridge has become a trademark of gents clothing. Initially, the company started marketing quality shirts for the common man at an affordable price. The concept of the company was “offer better products at a cheaper price”. The strategy clicked. There was a boom in sales and Cambridge shirts became a rage with the general public.
But, over the years, the Company wanted to increase its market segment. It, therefore, began offering clothing for both, the middle as well as the higher level income groups of gents customers. Buoyant with their success, Cambridge expanded their product range to include pants, trousers, shirts and other accessories.
The basic philosophy of the company is outsourcing. The cloth, thread and other materials are supplied by Cambridge to the garment factories. The labour required is also outsourced.
But outsourcing brought in various problems. Cambridge did appoint its own quality control personnel to ensure the requisite quality of the finished products offered to the customers. But, the expertise and the experience of the quality control inspectors were questionable. The company heavily depended upon them to ensure the quality.
The products required by the customers are produced in standard, acceptable sizes. They were produced in bulk to economy of scale in production. But whether all the goods produced in such large scale would be sold with definitely was in doubt. It was a risk, since customers tastes change rapidly. What is of value today for a customer, maybe absolutely useless tomorrow.
In all, there are about 20 company-owned outlets spread over the city and suburbs of Mumbai. The stocks at these outlets are replenished by the central stores of the company as per the demand and the forecasts made by these outlets. Sometimes, delays in the delivery of supplies occur due to unforeseen inadequacy of stocks. The company has its own fleet of tempos to deliver the finished products. In fact, these tempos are used for both, inbound as well as outbound activities. Presently, the tempos are handling more than 50 stock keeping units.
SKUs of various gents attire enjoy a strong brand image which the company has build. But, fierce competition is making it extremely difficult to maintain the sales. But, Cambridge believes that their strength lies in their quality. This, they believe, will ward off the threat from its competitors.
Case Study No. 13
Superb Automobiles, a Nasik-based heavy vehicle manufacturing company, designed, developed and produced a deluxe car which it called Satisfaction. This vehicle was meant for the elite of the Indian corporate world and other higher income group customers. For an Indian vehicle manufacturing company, Satisfaction was a bold venture. They company’s intention was to ‘take-on’ imported cars which were higher priced.
Superb Automobiles had a market reputation. Hence, Satisfaction was well-received in the market without much initial fuss and skepticism. At the end of the first round of booking, a waiting period of average 5 years was estimated. These ‘waitings’ enriched the company’s coffers by Rs. 50 crores!
But, when the first batch of Satisfaction hit the road, problems began cropping up. There was a steady flow of complaints regarding the performance and road-worthiness of Satisfaction. The service centres that were authorized to undertake the after-sales service on behalf of the company were unable to meet the customers’ expectations regarding after-sales service. The problems ranged from availability of spares to expertise in repairing.
The customers had expected Satisfaction to be of international standards because of the reputation and image of Superb Automobiles. Very soon, dissatisfied and angry customers started writing to the CEO of Superb Automobiles. The CEO called for a meeting of the different HODs of the company and discussed the matter. The outcome of the meeting was as follows:
Prof Parshuram 26606780/26605814
Case Study No. 14
Global Engineers is a decade old engineering organization engaged primarily in the manufacturing of switchgears of various ranges. Its manufacturing unit is situated in Delhi but its sales are spread all over the country. Apart from Global Engineers, there are two other fierce competitors in the switchgear market who, between them, have captured 75% of the market share.
During the initial years of manufacturing, Global Engineers concentrated in the northern region. After that, it has moved towards selling its products in the entire country. For this, Global Engineers required an efficient logistical distribution system. It has established hub warehouses at strategic geographical locations, but the problem of inadequate space and/or stock outs continue to pose a serious problem. The company is contemplating on outsourcing its distribution.
As regards transport, at present the company has its own fleet of transport. But delivery schedules get affected due to various reasons. One of them is absenteeism among the staff. The second is that many times trucks have to leave without adequate stocks due to various problems in production schedules. On return journey, the trucks are empty. The drivers delay in returning giving various excuses for the same.
Because of its low share in the market, the pricing policy of the company has always been to charge lower than its competitors. Discounts offered are flexible. Many times the company deals directly with the customers because they can offer better pricing terms and know the customers’ requirements first-hand. On the other hand, competitors strategy has been to maintain high quality because they feel that the customers will not hesitate to pay a little more if they are assured of a product have better performance and efficiency.
For better sales and service, the company has appointed dealers in the various regions of the country. The dealers not only sell the goods manufactured by the company, but also those manufactured by the competitors. The dealers sell various other engineering products as well. There has been a general complaint among the customers of Global Engineers that the after-sales service provided by the dealers is not satisfactory. The company, on receiving such complaints, sends letters to the dealers to improve their services. Beyond that, nothing is done.
The dealers of the company have got together to list their problems. They have stated that they want a higher rate of commission in comparison with that offered by the competitors. Secondly, they want the company to improve upon the quality of the product which will reduce the complaints by the customers. Thirdly, they want engineers from the company to visit them at regular intervals so that the dealers can apprise them directly about the requirements of the customers. Fourthly, the dealers want an efficient transport system to ensure timely delivery of the products and spares.
Prof Parshuram 26606780/26605814
Case Study No. 15
M/s Good Parts is a manufacturer of automotive replacement parts. The company is situated at Pune. The main market for the company is Mumbai, apart from various cities in Maharashtra. The company has three main supplier who handle 80% of the company’s component parts.
The company is keen on developing a very good rapport with the suppliers so that it can reap the potential benefits of sound alliances to improve supply chain and also reduce the total cost. At present, the company’s products face fierce competition and any increase in the selling price would mean substantial loss in the business. The only way to improve profits is by reduction in the costs. The company wants to have a better reliability, responsiveness and relationship with its suppliers.
Each of the suppliers has served M/s Good Parts for several years. But, M/s Good Parts never realized the importance of making these suppliers, who supply their bulk of the components, as virtual partners of their business. Such a move would have proved beneficial to both, the company as well as suppliers.
One of the suppliers, M/s Super Supply, sent its sales representative to discuss certain problems with M/s Good Parts. The sales representative had the following issues to discuss:
The current layout and design of the unloading dock at M/s Good Parts results often in delays and mishandling. Due to this, M/s Super Supply has estimated that it costs them nearly Rs. one lakh per year. By suitable improvements, M/s Super Supply feels that M/s Good Parts can help them save this amount.
To confirm the claims made by M/s Super Supply, M/s Good Parts contacted its other two major suppliers. These two suppliers agreed with the observations made by M/s Super Supply. Each of these two suppliers has estimated that it loses around Rs. 50,000 per year due to the inadequate and inefficient facilities made available by M/s Good Parts. All the three major suppliers are of the opinion that larger and less frequent ships would help M/s Good Parts to reduce on transportation costs.
M/s Good Parts hires a contractor to estimate the cost for improvements suggested. The cost was estimated to about Rs 10 lakhs. Questions:
Case Study No. 16
M/s Chemtech manufactures various types of industrial chemicals at the outskirts of Chennai. It has distributors located at various places across the country. M/s Chemtech also sells chemicals directly from its factory as well.
M/s Potash Ltd is a major supplier of raw materials to M/s Chemtech. But M/s Chemtech is facing problems with this supplier because of (i) late deliveries, (ii) delivery of wrong orders, (iii) missing deliveries giving reasons that they had not received the order. Historically, M/s Chemtech has dealt with its supply problems by simply changing its suppliers. The company now is contemplating on further additional changes.
M/s Potash, as stated before, is one of the main suppliers of M/s Chemtech. M/s Potash holds a large inventory to meet the demands of its customers. But some of the vital items of inventory have to be imported. The lead time for this is around 3 months.
Now, when M/s Chemtech places orders for these vital items of inventory, M/s Potash is not able to meet the order immediately due to stockouts. Therefore, M/s Chemtech feels that M/s Potash lets it down due to which the production schedules of M/s Chemtech is totally disturbed.
Due to the repeated frictional relationship with M/s Potash, the management of M/s Potash is wondering whether it is worth keeping customer relationship with M/s Chemtech. Of course, M/s Chemtech is one of its major buyers, but the constant threats by M/s Chemtech has put M/s Potash on the defensive. That is, they fear that if they suddenly lose the business with M/s Chemtech, then this might seriously affect the operations of M/s Potash. The top management of M/s Potash is seriously contemplating to change its customer base, namely, it wants to now focus on building a customer- base founded on long-tern relationship and rely less on business with M/s Chemtech.
The present scenario between M/s Chemtech and M/s Potash is like this:
At the beginning of each month, the customers of M/s Chemtech forecast their requirements for the next month. Throughout the month, these customers keep telephoning their orders to M/s Chemtech’s marketing department. The representatives of the marketing department relay the requirements of the customers to the logistics department of M/s Chemtech. The logistics department of M/s Chemtech transmits the orders to the purchase department and the purchase department, in turn, then orders the required stocks from M/s Potash.
Several times, the customers of M/s Chemtech place expedited orders. Such orders are generally not met by M/s Potash since the stock with them has already been ear-marked for other clients. The customers of M/s Chemtech are dissatisfied for non-delivery of stocks on schedule.
Case Study No. 17
M/s Speedometers is a public transportation operation that was incorporated in the early 1980s in Mumbai. The mission of the company is to provide a safe, reliable, and comfortable transportation service at a price that is affordable by the general public. To achieve the required service level, M/s Speedometers set up a maintenance department in the second year of its operations. Unfortunately, the maintenance department is having problems of spares, components, and other inventory as well as experienced personnel who can deal efficiently with mechanical failures.
During the recent informal visit to the maintenance workshop, the managing director of M/s Speedometers overheard a frustrated staff member complaining annoyingly to his supervisor. He said that he had gone to four different storage areas to collect the required spares and components but managed to fill only part of the order because of the required items were out-of-stock. However, for some reason, the materials management department of M/s Speedometers showed on record that sufficient quantity of all spares and components were available on hand.
On going through the finance books, the managing director was worried about the recent steady escalation in the cost of maintenance as well as inventory carrying costs. The managing director directed the general manager of the maintenance department to study he various problems of his department and submit a proposal to resolve them. The general manager investigated and identified the following problems:
Case Study No. 18
M/s Ace Sports was established in the 1970s to manufacture sportswear and equipment. Because of stiff competition, the company initially generated only nominal profits. After 1990s, the campaign regarding “healthy lifestyle” began gaining ground. The sales of the company started rising steadily.
To improve performance, Mr. Right was appointed as the company’s logistics manager. Mr. Right had obtained his MBA degree in logistics from an university in the USA. He also had substantial experience in logistics management abroad.
Currently, M/s Ace Sports consists of 5 departments headed by managers who report to the president of the company. These five departments are production, finance, marketing, logistics, and administration. The president employs a democratic style of management, where each person has a right to comment on and recommend improvements. This, the president believes, will help the departments to work cohesively and assist each other.
M/s Ace Sports has only one plant. One hundred employees work at this plant. The raw materials are stored in the company’s warehouse which is situated near the factory. The president is of the firm opinion that having a warehouse near the factory will ensure smooth operations. Packed finished goods are transferred to a public warehouse situated about 100 km from the factory. From there, the products are delivered directly to the retailers.
M/s Ace Sports distributes its products to four major retailers. One of the four retailers, M/s Mass Sportswear, holds about 50% of the market share. Recently, they have informed the logistics manager, Mr. Right, that there are too many late deliveries from M/s Ace Sports that had affected M/s Mass Sportswear’s customer service levels. Mr. Right said he will look into the matter.
Recently, the competitors’ of M/s Ace Sports have built mass manufacturing and distribution facilities close to the factory of M/s Ace Sports. These new facilities of production and distribution have caused sporting goods wholesale prices to drop. Mr. Right has realized that this threatens M/s Ace Sports and will dramatically affect its sales.
One distinguishing of M/s Ace Sports was that it maintained a large supplier base. The company has about 40 raw materials suppliers. Mr. Right believes that a large supplier base is good because it encourages price competition among the suppliers and will thus give some competitive advantage to the company.
M/s Ace Sports uses a private fleet of 25 trucks to deliver the products to its retailers’ warehouses and uses the same trucks to transport products from its own site to the public warehouse.
Mr. Right quickly had a meeting with his managers to develop a new strategy for evolving broader market base in order to protect/improve profitability. During the meeting, the marketing manager pointed out that to remain competitive, the company had to become a “low-cost supplier of high-quality products”. The production manager pointed out that this is a good strategy. However, he question as to how M/s Ace Sports can become a low-cost supplier when the cost of the raw materials has risen between 10 and 15%
because of the increase in the demand for the raw materials. To add to this, the cost of the public warehousing has been rising. Clubbed together, these increase in costs have raised the price of the finished products.
Mr. Right brought up the feedback from M/s Mass Sportswear about delivery failures. The administrative manager, who is responsible for order processing, explained that the department is also responsible for employees’ welfare and information processing. Being too busy with this work had caused delays in the delivery schedules of M/s Mass Sportswear.
Mr. Right listened carefully as the managers explained their situations. He knew that M/s Ace Sports did not control the raw material cost and improve customer service, sales will continue to drop. After hearing from the managers, Mr. Right brought up a proposal to expand into lower labor-cost markets. He indicated that outsourcing would help to reduce costs. In fact, Mr. Right was toying with the idea of setting up a factory closer to areas where labour-cost is low.
Initially, the managers merely glanced at each other and said nothing. But, after a few minutes, they all began to heartily endorse the idea. However, they believed that it should be studied and analyzed further. The planning should be carefully done, they opined. Moreover, there were a number of factors that needed to be considered, namely, transportation, warehousing, inventory, and market strategies, as well as the cost of the raw materials. Mr. Right agreed with the concerns of the managers and appointed the production, logistics, and marketing managers to provide him with an integrated approach to expansion.
Case Study No. 19
(Mumbai Univ April 2006)
M/s Excellent Dashboard Private Limited (EDPL) is situated at Gurgaon near Delhi. The company supplies dashboard assembly as a 4PL supplier to Maruti Udyog Limited (MUL) since the past three years. There are a number of components in the dashboard such as speedometer, fuel level gauge, etc. EDPL purchases these individual components from various suppliers and assembles them at their factory. It then supplies the finished product to MUL.
One of the major components, namely, the “starter switch”, has always been a cause of problem. EDPL does not observe any Systematic Inventory Control Methods in purchasing of various items of inventory. They order the required items of inventory as and when the demands for those inventories arise.
At EDPL, dashboards are not available off the shelf. Hence, many times delays occur in arranging for supply of required quantity of assembled dashboard to MUL. This, in turn, results in a substantial financial loss to EDPL since, as per the agreement signed between EDPL and MUL, MUL can levy penalties towards delays in the supply of required quantity of dashboard assembly.
The information gathered from EDPL shows that the annual demand of the item, namely, starter switches, is 5,000 nos. The unit price of the item is Rs. 50/- each. The ordering cost is R. 40/- per order. The inventory carrying cost is 20% of the unit cost of inventory.
Case Study No. 20
(Mumbai Univ April 2006)
In 1997, M/s Ford Motor Company set-up their plant for manufacturing of cars in India, on the outskirts of Chennai. In accordance with their purchasing philosophy, the company identified certain components for purchase from local suppliers.
Currently, for this plant, the Indian supply base provides 70% content for the car. Again, about 80% of their local suppliers are situated in the vicinity of 50 kms. This proximity of a large number of suppliers has enabled the company in successfully implementing the JIT concept in their purchasing activities.
The company was satisfied with its initial experience in the manufacturing of cars in India. In view of this satisfactory experience, the company decided to develop a partnership with its Indian suppliers so as to create a strong supply chin network based on stringent quality standards and engineering support from their end.
At the same time, the company also has a strong supplier base situated in other countries as well. It takes advantage of this for procuring critical components like assembled engines from abroad. Thus, the critical components of the car are imported by the company.
The inbound logistics of the company is handled by TVS Lead Logistics, a third party service provider. The required materials/components are collected from all the existing 83 suppliers who are locally situated at their four hubs situated at Delhi, Pune, Daman, and Chennai. The materials are consolidated at the four hubs.
The hub at Chennai collects the required materials from the suppliers on daily basis in the form of milk run and supplies the same to the company’s factory. From the remaining three hubs, the shipment of materials is received by the factory every second day. Hence, the safety stock is maintained as per the norms prescribed by the company for the supply of the materials from the three hubs.
Case Study No. 21
Clean Corner House Limited is an Indian fast food restaurant chain. It has been receiving wide attention in the media because it is one of the only serious restaurant chains in India. But international competitors have started entering the market with huge investments and several outlets. The game is turning big, in every way. However, the management of Clean Corner insists that it is not loosing sleep over the threat of international competitors.
Clean Corner is very quality conscious. Moreover, Clean Corner successfully adapts the fast food concept to the Indian situation. Clean Corner’s strategy has been to use standardization up to a certain point, but beyond that, it allows variety in the menu take precedence. If Clean Corner had grown faster, its size would have offered it protection. Instead, it settled for controlled expansion because of the fear that growth will affect product quality. It strongly believes that its strength lies in its food processing ability and uses a single central kitchen that caters to all the outlets. If the central kitchen gives the chain its muscle, it also holds back from expanding the chain.
Clean Corner fears that expansion can create logistics of quality and distribution. The company will have to invest on top quality storage facilities. Transportation will call for heavy investments in terms of efficient delivery systems. The company is apprehensive about stock-outs which might lead into market loss. So paranoid is the company about sullying its name that even at outlets where it uses franchises, the company itself does the managing.
The company has substantial processing facility. The company can go in for expansion of products. But it feels it may not be able to manage effective storage and efficient distribution. Damaged finished products can soil the company’s brand image.
Clean Corner has surmised that the international firms will not be able to cater to Indian tastes. The initial boom they experience will be more out of curiosity on the part of the customers. But, subsequently, their sales will drop. Clean Corner also feels that international players with several outlets all over the country will not be able to maintain the quality standards.
Case Study No. 22
Heavy Engineers Limited manufactures major farm equipments which it sells mainly in rural India. The tractor manufactured by Heavy Engineers has utility in farming activities. But, it is also considered as a status symbol in rural India since it is used as a means of conveyance and transportation as well.
Initially, the sale of tractors was concentrated in areas like Punjab, Haryana and Uttar Pradesh. However, the sales have now shifted to other parts of the country as well. The demand for tractors is steadily increasing all over the country. This spurt in demand has put a strain on the production facilities available with Heavy Engineers. Also, Heavy Engineers is worried that if they do not meet the increasing demand for tractors, they would stand to lose the market as well as the customer goodwill. Other players would enter and capture the market, possibly even eroding the existing market base of Heavy Engineers.
Heavy Engineers have established widespread and excellent dealers in northern India. But, other players are expected to intensify further in view of expected global competition. This is seen as a threat by Heavy Engineers.
The CEO of Heavy Engineers called a meeting of all HODs to discuss the future plans. Some of the the suggestions put forward were as follows:
Case Study No. 23
Good Food Limited, established in 1980, distributes a 100-item product line of canned vegetables, fruits, condiments, and specially items to wholesalers in several states.
Good Food introduced a customer order policy that was designed to improve Good Food’s service to its wholesalers and effectiveness of the sales representatives. This program was based on two important features, namely, (i) freeing sales representatives from order taking, and (ii) receiving orders from wholesalers on the basis of a predetermined schedule.
The company’s sales representatives were no longer to process customer orders due to the following reason. Previously, they had accumulated wholesale orders until they had enough volume to make up a truckload; then they would send the orders to the head office. Under the new program, wholesalers were to e-mail their orders directly to the head office according to a fixed schedule. If they missed their fixed date, they had to wait for the next one.
The procedures were designed to increase the number of calls that the sales representatives could make. By eliminating the need to prepare orders, Good Food hoped that the sales representatives would spend more time determining sales patterns and the effect of various sales promotions.
Unfortunately, many of the wholesalers neglected to follow the predetermined order schedule. They were not accustomed to having someone tell them when to order, and some of them objected to the regimentation and lack of flexibility. Others had become dependent on the sales representatives to determine what their requirements were and believed that the new program made more work for them.
If the orders did not reach Good Food’s head office according to the schedule, the wholesaler had to wait for 2 weeks. When a stock out occurred, the affected wholesaler could lose from 20% to 50% of the sales of Good Food’s products. Good Food also suffered in this way. Wholesalers and retailers carried several product lines of other brands. Hence, when they ran out of Good Food brands, they simply sold other brands.
Good Food has no integrated logistics department to effectively deal with its distribution activities. In the past, three of its sales representatives arranged for the necessary transportation. When they accumulated orders worth a full truckload, they would send the orders to the Good Food’s head office. To expedite shipment for an anxious wholesaler, a sales representative in one area would try to pool orders with another sales representative of a different area. However, the introduction of new practice meant that head office would ship according to fixed schedule and arrange shipment with the wholesalers, even if the orders totaled less than full truckload.
Case Study No. 24
M/Superfine Sulphur Limited is one of the largest producers of sulphur in the country. They supply sulphur to various industries/consumers requiring it.
The powder and granular sulphur are primarily used for the manufacture of paper and fetiliser. Superfine Sulphur’s management realized that quality packaging, proper material handling, and effective storage and warehousing systems are important to customer service as well as cost control. Therefore, to obtain an efficient and effective logistics operations, Superfine Sulphur periodically reviewed its system.
Superfine Sulphur’s products are are palletized or packed in bulk bags. A pallet hold forty bags (eight layers of five bags each), each bag weighing 20 kgs. The firm ships about 85% of the finished product on pallets. The company uses 2,500 wooden pallets per month, each pallet costing Rs 1,000/-. The bulk bags hold between 250 kgs to 500 kgs.
The work flow is listed below for the packaging and the material handling system. It consists of the following stations and machines:
After stretch wrapping the products, the material handlers move the palletized product to the designated storage place. Presently, Superfine Sulphur owns one private warehouse and rents two public warehouses. The rent paid to each of the two public warehouses was Rs. 150/- per square per month. The floor area of both the public warehouses together is 50,000 square feet. The monthly rent to the public warehouses is expected to double next year.
Superfine Sulphur’s pallets are neither customized nor standardized. Hence, its customers have trouble in unloading the pallets from the containers. This takes to long to unload the pallets. Also, the hand pallet trucks truck rollers of the customers stick to the pallets that is, create sort of a difficulty in the unloading of the containers.
Customers have also complained about the contamination of the two top layers of the product due to water/dust/atmospheric conditions during transportation and storage.
Case Study No. 25
Out-Of-This-World is a large regional grocery chain operating in all the major cities and towns of Maharashtra State. Currently, the company has no organized way to handle returns of (a) defective products (e.g., spoiled food items), (b) non-defective products (e.g., good products returned by the purchaser for various reasons), (c) re-usable items (e.g., soda bottles), and (d) recyclable items (e.g., aluminum cans, plastics bags, paper bags). At present, the company simply allows the returns to be handled by the clerk on duty at the time of the returns. There is no set procedure for handling them.
The company estimates that 4 % of its sales volume is somehow tied to returns (spoiled items, empty soda bottles returned for refilling, and so on). Like most grocery chains, the company operates on a very thin profit margin. A reverse logistics program would improve customer service and also be beneficial in minimizing costs. Such a reverse logistics system must be effectively designed to handle each of the following
Defective products consist of spoiled items, obsolete items, improperly packed items, and so on. The customers must be allowed to return these products and the company, in turn, must either replace these products with non-defective or refund the cost of the item. The particular store must then determine the causes that led to the product becoming defective.
Many steps in the logistics process could have been responsible for the damage to the product. For instance, many of the company’s grocery products require compulsory refrigeration throughout their travel through the supply chain. Failure to adequately refrigerate the product either during transportation or during storage can contribute to damaged product.
If the carrier or warehouse provider is responsible for the damage, the grocery store needs to receive credit since the food chain is not responsible for the damaged product.
If the product was defective when it was purchased, the product must be returned to the wholesaler for credit.
Regardless, Out-Of-This-World must have a logistics system designed to send the product backward through the supply chain.
These products are usually returned to the store in perfect condition, but a consumer wants either a refund or an exchange. The store needs to have a “mini-reverse logistics system” introduced so as to quickly re-stock the item in order that it can be re-sold. The store also needs to have an information system which should be sufficiently effective to track these returns, track refunds, and maintain inventory level records.
Some items are returned for re-use. When the grocery stores sell the soda bottles, the empty soda bottles are returned, a credit is given, and the empty bottles are replaced with full soda bottles. The reverse logistics system for this segment of items must be designed to take the empty soda bottles back from the customer and return them to the soda bottling plant for credit.
The store is also interested in contributing to the environmental consciousness of local communities. The store wants to implement a reverse logistics system designed to collect aluminum cans, newspapers, glass containers, plastics items, and so on.
Out-Of-This-World has appointed you to help the company in designing a reverse logistics system that will successfully handle the demands of the grocery chain. The system must achieve sufficient customer service levels, minimize costs, provide accurate record keeping of return items, and update information to maintain correct inventory levels.
Your report should also include a graphical representation of one or more reverse logistics systems required by the company.
You should also include in your report detailed description physical flows and information flows of items traveling through the reverse logistics system.
Lastly, your report should a detailed and concrete plan relating to an effective transportation, warehousing, and material handling system which should fit into the total systems and total cost concept of the company.
Case Study No. 26
A chemical company is using the following items at its factory. The annual consumption of each of the items and the cost per unit of each of the items has been given. Classify the items into A, B and C categories.
|Item Description||Annual||Consumption||Cost per unit|
|Hydrochloric Acid||4500||4 / litre|
|Benzene||650||9 / kg|
|Packing Drums||2000||15 per drum|
|Lac||55||10 / kg|
|Wax||4000||1 / kg|
|Ethylene||7000||5.75 / kg|
|Chlorine||2500||5.50 / kg|
|Methyl Alcohol||4000||11 / litre|
|Denatured Spirit||75||12 / litre|
|Sodium Acetate||100||13 / kg|
|Castor Oil||100||35 / kg|
|Commercial Camphor||100||6 / kg|
|Commercial gum||25||5 / kg|
|Amide||2500||1 / kg|
|Corrugated cartons||50||10 / piece|
|Linseed Oil||100||90 / kg|
|Lemon grass oil||60||150 / kg|
|Commercial talcum powder||200||25 / kg|
|Red oxide||900||5 / kg|
|Xylene||1000||12 / kg|
|Toluene||400||7 / kg|
|Ethyl acetate||50||13 / kg|
|Kerosene oil||100||20 / liter|
|Petroleum jelly||100||25 / kg|
|Coal tar||50||12 / kg|
|Refined charcoal||150||35 / kg|
Case Study No. 27
A light engineering company disclosed the following details of its stock.
|Details||Closing stock||Opening stock||Purchases
during the year
|Price per unit (Rs)|
|01||‘O’ ring washers||2000||2500||1500||0.50 per piece|
|02||Mild Steel washers||3000||2600||2000||0.75 per piece|
|03||Lubricant||300||500||500||2 per kg|
|04||Lathe tool||500||300||600||10 per piece|
|05||Shaping tool||450||350||150||12 per piece|
|06||Emery paper||500||800||200||5 per piece|
|07||Drill – A type||400||500||500||12 per piece|
|08||Hacksaw – small||300||600||400||2 per piece|
|09||Hacksaw – large||400||800||500||5 per piece|
|10||Steel strip rolls||400||500||1000||15 per roll|
|11||Brown Paper Rolls||500||200||600||12 per roll|
|12||Cartons||150||400||300||1 per piece|
|13||Nuts||1500||1500||1700||0.25 per piece|
|14||Bolts||1000||500||2500||2.50 per piece|
|15||Masonry Drill||500||450||1500||15 per piece|
|16||Steel punch||60||70||100||5 per piece|
|17||Ball Bearings||400||500||700||25 per piece|
|18||Roller Bearings||160||250||475||35 per piece|
|19||Steel Rivets – small||1500||2000||3000||4 per piece|
|20||Cams||750||950||1050||3 per piece|
|21||Carbide Tools||170||Nil||800||120 per piece|
|22||Diamond tools||200||50||400||150 per piece|
|23||Honing tools||300||400||400||90 per unit|
|25||Welding rods||4000||5000||3500||5 per piece|
|26||Flux material||500||300||800||10 per kg|
|27||Coolant||800||900||3500||15 per litre|
|28||Guide pins||500||400||600||2 per piece|
|29||MS Plates||300||700||1000||20 per piece|
|30||Copper rods||400||500||600||50 per piece|