How do you suggest IKEA can use Information Technology to support its Supply Chain operations in Malaysia

05 Oct

Supply Chain management

1. UrbanStairs, an online furniture retailer is planning to set up distribution centres pan India. As an SCM consultant, offer advice on how to design the distribution network to deliver products to the customers in a timely manner.

2. While designing a supply chain, various strategic, tactical and operational level decisions need to be made. Supply chains need to be designed in such a way that they can respond immediately to any fluctuations that take place. Supply chain must be designed in such a way that the performance and costs remain unaffected despite various fluctuations. Elaborate on the strategic supply chain decisions a Retail Store selling Electronics and Computer Accessories needs to take.

3. Netherlands-headquartered furniture retailer IKEA will invest 908 million ringgit ($212.10 million) to set up one of its largest regional distribution and supply chain centres in Malaysia, the Southeast Asian country said.

The supply chain centre will manage an inventory worth 6.6 billion ringgit annually, catering to IKEA’s growth in the ASEAN region, the Malaysian Investment Development Authority (MIDA) said in a statement on Tuesday.

The new 100,000 square metre warehouse will supply to 12 existing retail stores in the region. IKEA plans to grow its number of stores in ASEAN to 20 by 2026.

Malaysia is a significant market for IKEA, with retail stores in the country being among IKEA’s most visited globally. “The establishment (of the warehouse) also adds momentum towards making Malaysia a regional distribution hub and preferred logistics gateway to Asia as outlined in the National Logistics and Trade Facilitation Masterplan and National E-Commerce Strategic Roadmap,” Minister of International Trade and Industry Mustapa Mohamed said.

Malaysia has been encouraging large local conglomerates and multi-national companies to use the country as a gateway to the region through various initiatives, including the principal hub scheme that allows companies to centralise their global activities such as procurement and distribution.

The web of companies that make up IKEA has recently focused ownership of retail operations, which also include shopping centres and food retail, on IKEA Group. Supply chain management and design has transferred to brand owner and franchisor Inter IKEA.

Source: http://retail.economictimes.indiatimes.com/news/home-and-decor/furniture-and-decor/ikea-to-invest-212-mln-to-build-regional-supply-centre-in-malaysia-govt/60185153

a. What are some of the challenges faced by IKEA in managing its global Supply Chain.

b. How do you suggest IKEA can use Information Technology to support its Supply Chain operations in Malaysia?

What are some of the challenges faced by IKEA in managing its global Supply Chain

05 Oct

Supply Chain management

1. UrbanStairs, an online furniture retailer is planning to set up distribution centres pan India. As an SCM consultant, offer advice on how to design the distribution network to deliver products to the customers in a timely manner.

2. While designing a supply chain, various strategic, tactical and operational level decisions need to be made. Supply chains need to be designed in such a way that they can respond immediately to any fluctuations that take place. Supply chain must be designed in such a way that the performance and costs remain unaffected despite various fluctuations. Elaborate on the strategic supply chain decisions a Retail Store selling Electronics and Computer Accessories needs to take.

3. Netherlands-headquartered furniture retailer IKEA will invest 908 million ringgit ($212.10 million) to set up one of its largest regional distribution and supply chain centres in Malaysia, the Southeast Asian country said.

The supply chain centre will manage an inventory worth 6.6 billion ringgit annually, catering to IKEA’s growth in the ASEAN region, the Malaysian Investment Development Authority (MIDA) said in a statement on Tuesday.

The new 100,000 square metre warehouse will supply to 12 existing retail stores in the region. IKEA plans to grow its number of stores in ASEAN to 20 by 2026.

Malaysia is a significant market for IKEA, with retail stores in the country being among IKEA’s most visited globally. “The establishment (of the warehouse) also adds momentum towards making Malaysia a regional distribution hub and preferred logistics gateway to Asia as outlined in the National Logistics and Trade Facilitation Masterplan and National E-Commerce Strategic Roadmap,” Minister of International Trade and Industry Mustapa Mohamed said.

Malaysia has been encouraging large local conglomerates and multi-national companies to use the country as a gateway to the region through various initiatives, including the principal hub scheme that allows companies to centralise their global activities such as procurement and distribution.

The web of companies that make up IKEA has recently focused ownership of retail operations, which also include shopping centres and food retail, on IKEA Group. Supply chain management and design has transferred to brand owner and franchisor Inter IKEA.

Source: http://retail.economictimes.indiatimes.com/news/home-and-decor/furniture-and-decor/ikea-to-invest-212-mln-to-build-regional-supply-centre-in-malaysia-govt/60185153

a. What are some of the challenges faced by IKEA in managing its global Supply Chain.

b. How do you suggest IKEA can use Information Technology to support its Supply Chain operations in Malaysia?

Netherlands-headquartered furniture retailer IKEA will invest 908 million ringgit

05 Oct

Supply Chain management

1. UrbanStairs, an online furniture retailer is planning to set up distribution centres pan India. As an SCM consultant, offer advice on how to design the distribution network to deliver products to the customers in a timely manner.

2. While designing a supply chain, various strategic, tactical and operational level decisions need to be made. Supply chains need to be designed in such a way that they can respond immediately to any fluctuations that take place. Supply chain must be designed in such a way that the performance and costs remain unaffected despite various fluctuations. Elaborate on the strategic supply chain decisions a Retail Store selling Electronics and Computer Accessories needs to take.

3. Netherlands-headquartered furniture retailer IKEA will invest 908 million ringgit ($212.10 million) to set up one of its largest regional distribution and supply chain centres in Malaysia, the Southeast Asian country said.

The supply chain centre will manage an inventory worth 6.6 billion ringgit annually, catering to IKEA’s growth in the ASEAN region, the Malaysian Investment Development Authority (MIDA) said in a statement on Tuesday.

The new 100,000 square metre warehouse will supply to 12 existing retail stores in the region. IKEA plans to grow its number of stores in ASEAN to 20 by 2026.

Malaysia is a significant market for IKEA, with retail stores in the country being among IKEA’s most visited globally. “The establishment (of the warehouse) also adds momentum towards making Malaysia a regional distribution hub and preferred logistics gateway to Asia as outlined in the National Logistics and Trade Facilitation Masterplan and National E-Commerce Strategic Roadmap,” Minister of International Trade and Industry Mustapa Mohamed said.

Malaysia has been encouraging large local conglomerates and multi-national companies to use the country as a gateway to the region through various initiatives, including the principal hub scheme that allows companies to centralise their global activities such as procurement and distribution.

The web of companies that make up IKEA has recently focused ownership of retail operations, which also include shopping centres and food retail, on IKEA Group. Supply chain management and design has transferred to brand owner and franchisor Inter IKEA.

Source: http://retail.economictimes.indiatimes.com/news/home-and-decor/furniture-and-decor/ikea-to-invest-212-mln-to-build-regional-supply-centre-in-malaysia-govt/60185153

a. What are some of the challenges faced by IKEA in managing its global Supply Chain.

b. How do you suggest IKEA can use Information Technology to support its Supply Chain operations in Malaysia?

While designing a supply chain, various strategic, tactical and operational level decisions need to be made

05 Oct

Supply Chain management

1. UrbanStairs, an online furniture retailer is planning to set up distribution centres pan India. As an SCM consultant, offer advice on how to design the distribution network to deliver products to the customers in a timely manner.

2. While designing a supply chain, various strategic, tactical and operational level decisions need to be made. Supply chains need to be designed in such a way that they can respond immediately to any fluctuations that take place. Supply chain must be designed in such a way that the performance and costs remain unaffected despite various fluctuations. Elaborate on the strategic supply chain decisions a Retail Store selling Electronics and Computer Accessories needs to take.

3. Netherlands-headquartered furniture retailer IKEA will invest 908 million ringgit ($212.10 million) to set up one of its largest regional distribution and supply chain centres in Malaysia, the Southeast Asian country said.

The supply chain centre will manage an inventory worth 6.6 billion ringgit annually, catering to IKEA’s growth in the ASEAN region, the Malaysian Investment Development Authority (MIDA) said in a statement on Tuesday.

The new 100,000 square metre warehouse will supply to 12 existing retail stores in the region. IKEA plans to grow its number of stores in ASEAN to 20 by 2026.

Malaysia is a significant market for IKEA, with retail stores in the country being among IKEA’s most visited globally. “The establishment (of the warehouse) also adds momentum towards making Malaysia a regional distribution hub and preferred logistics gateway to Asia as outlined in the National Logistics and Trade Facilitation Masterplan and National E-Commerce Strategic Roadmap,” Minister of International Trade and Industry Mustapa Mohamed said.

Malaysia has been encouraging large local conglomerates and multi-national companies to use the country as a gateway to the region through various initiatives, including the principal hub scheme that allows companies to centralise their global activities such as procurement and distribution.

The web of companies that make up IKEA has recently focused ownership of retail operations, which also include shopping centres and food retail, on IKEA Group. Supply chain management and design has transferred to brand owner and franchisor Inter IKEA.

Source: http://retail.economictimes.indiatimes.com/news/home-and-decor/furniture-and-decor/ikea-to-invest-212-mln-to-build-regional-supply-centre-in-malaysia-govt/60185153

a. What are some of the challenges faced by IKEA in managing its global Supply Chain.

b. How do you suggest IKEA can use Information Technology to support its Supply Chain operations in Malaysia?

UrbanStairs, an online furniture retailer is planning to set up distribution centres pan India

05 Oct

Supply Chain management

1. UrbanStairs, an online furniture retailer is planning to set up distribution centres pan India. As an SCM consultant, offer advice on how to design the distribution network to deliver products to the customers in a timely manner.

2. While designing a supply chain, various strategic, tactical and operational level decisions need to be made. Supply chains need to be designed in such a way that they can respond immediately to any fluctuations that take place. Supply chain must be designed in such a way that the performance and costs remain unaffected despite various fluctuations. Elaborate on the strategic supply chain decisions a Retail Store selling Electronics and Computer Accessories needs to take.

3. Netherlands-headquartered furniture retailer IKEA will invest 908 million ringgit ($212.10 million) to set up one of its largest regional distribution and supply chain centres in Malaysia, the Southeast Asian country said.

The supply chain centre will manage an inventory worth 6.6 billion ringgit annually, catering to IKEA’s growth in the ASEAN region, the Malaysian Investment Development Authority (MIDA) said in a statement on Tuesday.

The new 100,000 square metre warehouse will supply to 12 existing retail stores in the region. IKEA plans to grow its number of stores in ASEAN to 20 by 2026.

Malaysia is a significant market for IKEA, with retail stores in the country being among IKEA’s most visited globally. “The establishment (of the warehouse) also adds momentum towards making Malaysia a regional distribution hub and preferred logistics gateway to Asia as outlined in the National Logistics and Trade Facilitation Masterplan and National E-Commerce Strategic Roadmap,” Minister of International Trade and Industry Mustapa Mohamed said.

Malaysia has been encouraging large local conglomerates and multi-national companies to use the country as a gateway to the region through various initiatives, including the principal hub scheme that allows companies to centralise their global activities such as procurement and distribution.

The web of companies that make up IKEA has recently focused ownership of retail operations, which also include shopping centres and food retail, on IKEA Group. Supply chain management and design has transferred to brand owner and franchisor Inter IKEA.

Source: http://retail.economictimes.indiatimes.com/news/home-and-decor/furniture-and-decor/ikea-to-invest-212-mln-to-build-regional-supply-centre-in-malaysia-govt/60185153

a. What are some of the challenges faced by IKEA in managing its global Supply Chain.

b. How do you suggest IKEA can use Information Technology to support its Supply Chain operations in Malaysia?

Supply Chain management

05 Oct

Supply Chain management

1. UrbanStairs, an online furniture retailer is planning to set up distribution centres pan India. As an SCM consultant, offer advice on how to design the distribution network to deliver products to the customers in a timely manner.

2. While designing a supply chain, various strategic, tactical and operational level decisions need to be made. Supply chains need to be designed in such a way that they can respond immediately to any fluctuations that take place. Supply chain must be designed in such a way that the performance and costs remain unaffected despite various fluctuations. Elaborate on the strategic supply chain decisions a Retail Store selling Electronics and Computer Accessories needs to take.

3. Netherlands-headquartered furniture retailer IKEA will invest 908 million ringgit ($212.10 million) to set up one of its largest regional distribution and supply chain centres in Malaysia, the Southeast Asian country said.

The supply chain centre will manage an inventory worth 6.6 billion ringgit annually, catering to IKEA’s growth in the ASEAN region, the Malaysian Investment Development Authority (MIDA) said in a statement on Tuesday.

The new 100,000 square metre warehouse will supply to 12 existing retail stores in the region. IKEA plans to grow its number of stores in ASEAN to 20 by 2026.

Malaysia is a significant market for IKEA, with retail stores in the country being among IKEA’s most visited globally. “The establishment (of the warehouse) also adds momentum towards making Malaysia a regional distribution hub and preferred logistics gateway to Asia as outlined in the National Logistics and Trade Facilitation Masterplan and National E-Commerce Strategic Roadmap,” Minister of International Trade and Industry Mustapa Mohamed said.

Malaysia has been encouraging large local conglomerates and multi-national companies to use the country as a gateway to the region through various initiatives, including the principal hub scheme that allows companies to centralise their global activities such as procurement and distribution.

The web of companies that make up IKEA has recently focused ownership of retail operations, which also include shopping centres and food retail, on IKEA Group. Supply chain management and design has transferred to brand owner and franchisor Inter IKEA.

Source: http://retail.economictimes.indiatimes.com/news/home-and-decor/furniture-and-decor/ikea-to-invest-212-mln-to-build-regional-supply-centre-in-malaysia-govt/60185153

a. What are some of the challenges faced by IKEA in managing its global Supply Chain.

b. How do you suggest IKEA can use Information Technology to support its Supply Chain operations in Malaysia?

Supply Chain Management

02 Sep

Case I

DABBAWALLAHS OF MUMBAI (A)

Dabba was a generic, colloquial term used explicitly in Mumbai to describe any cylindrical box. In the context of meal delivery service, a dabba was an aluminum box carried by its handle like a tin of paint. Each dabba housed three to four interlocking steel containers and was held together by a collapsible metallic wire handle. Each of these containers accommodated an individual food item found in a typical midday lunch.

Wallah was a label for a tradesperson in a particular profession. For example, a paperwallah was an individual who delivered newspapers. Taken together, a dabbawallah was a courier who picked up a lunch-full dabba from a client’s home in the morning, left it outside of the client’s workplace for pick-up, retrieved the empty dabba after the lunch was consumed and returned the empty dabba to the client’s home in the evening.

On November 7, 2003, Raghunath Medge, president of the Nutan Mumbai Tiffin Box Suppliers Charity Trust (The Trust), had just returned to his office in suburban Mumbai after meeting with Britain’s Prince Charles who was on an official visit to India’s commercial capital.

The Trust was the managing organization of the dabbawallah meal delivery network. The dabbawallahs’ service, often referred to as tiffinwallahs outside of Mumbai, was cited internationally by management schol­ars and industry executives as an exemplar of supply chain and service management. The service had acquired a reputation for its delivery reliability in Mumbai. International interest in the dabbawallahs was largely due to a 1998 article published in Forbes:

Mumbai’s “tiffinwallahs” have achieved a level of service to which Western businesses can only aspire. “Efficient organization” is not the first thought that comes to mind in India, but when the profit motive is given free rein, anything is possible. To appreciate Indian efficiency at its best, watch the tiffinwallahs at work. Documentaries on the dabbawallahs were produced by the BBC, M1V and ZEE Tv, and their delivery performance earned them recogni­tion in the Guinness Book of World Records and Ripley’s Believe It or Not!

Medge, who had personally demonstrated to Prince Charles how the dabbawallah meal deliv­ery system worked, was himself in the spotlight of late. He had recently been invited by the Confederation of Indian Industry to speak to its members at a leadership summit in a special module titled “Leading Without Suits and Ties.” He was also approached by human resource executives and asked to present seminars on team building. Additionally, he was asked by corporations, such as Siemens India, to make a presentation to their employees on the dabbawal­lahs’ working practices. Finally, he was also reg­ularly sought by the print and television media within and outside of India.

The dabbawallah service had begun informally in 1890 in Mumbai. According to Medge:

A Parsi banker working in Ballard Pier employed a young man, who came down from the Poona district to fetch his lunch every day. Business picked up through referrals and soon our pioneer dabba-carrying entrepreneur had to call for more helping hands from his village. Such was the origin of the dabbawallahs.

However trivial the task may sound, it is of vital importance since havoc is caused if the client had to skip his home-cooked food or worse, carry the dabba himself in the ever so crowded Mumbai trains during the rush hour!

By the early 20th century, people from all parts of India were migrating to Mumbai in large numbers. Once they found a source of livelihood and settled down, they wanted home-cooked food at their workplaces. Home-cooked food had a comfort level for various reasons. First, the food was prepared in the ambience of a domestic kitchen, with recipes that were tried and tested, and that resulted in familiar fare. Second, home­cooked food was comparatively inexpensive. The dabbawallahs were initially charging two annas per month per dabba for their delivery service.

Working independently and in small groups for decades, the dabbawallahs had united in 1954 to put together a rudimentary co-operative. This umbrella organization was officially registered in 1956 as a charitable trust under the name Nutan Mumbai Tiffin Box Suppliers Charity Trust. At that time, some of the dabbawallahs employed delivery boys to carry their dab bas and transport them along their routes on bicycles and pushcarts.

These dabbawallahs would collect the fees from their clients every month and pay the boys whatever they could negotiate with them. This changed in 1983 when the Trust adopted an owner-partner system. Under this new system, the practice of subcontracting was dispensed with and dabbawallahs started to receive equal earnings. The delivery boys’ system was con­verted into an apprenticeship system wherein new recruits were trained for at least two to three years on a fixed remuneration before they became full-time dabbawallahs.

By 2003, more than 5,000 dabbawallahs worked under the aegis of the Trust. Together they delivered about 175,000 lunches daily in Mumbai (see Exhibit 2). They served a total area that covered approximately 75 kilometres (lan) of public transport. The dabbawallah business generated approximately Rs380 million per annum. Given the two-way route for each dabba, the number of deliveries worked out to more than 350,000 per day. Despite the sheer number of daily deliveries, the failure rate reported by the media numbered one in two months, or one in every 15 million deliveries.

The Nutan Mumbai

Tiffin Box Suppliers Charity Trust

The Trust was responsible for managing the overall meal delivery system. It worked in close co-ordination with the Mumbai Tiffin Box Suppliers’ Association, a forum that provided opportunities for social interactions among the dabbawallahs, and the Dakkhan Mavle Sahakari Patpedhi, a credit union that catered to the financial needs of individual dabbawallahs by pro­viding personal loans. Given its charitable trust status, the Trust was also involved in community initiatives by providing free food and accommodation to low-income families at some pilgrim­age centres.

The Trust had a three-tier structure: Executive Committee, mukadams and dabbawallahs. Under this structure, the basic operating unit was the team. Each team, which comprised between five and eight dabbawallahs, was headed by a mukadam. Having risen from the ranks of the dabbawallahs, a mukadam’s primary daily responsibility involved the sorting of the dabbas. However, as team leader, the mukadam performed several administrative tasks that included maintaining records of client payments, arbitrating disputes between dabbawallahs and customers, and apprentice training.

  Number of Number of
Year Dabbawallahs Customers
1900 58 1,445
1905 75 1,965
1910 142 4,120
1915 204 6,504
1920 321 9,675
1925 407 12,140
1930 695 22,865
1935 1,024 34,230
1940 1,206 42,340
1945 1,715 64,240
1950 2,106 82,000
1955 2,552 105,120
1960 3,216 140,000
1965 4,406 198,100
1970 4,605 176,040
1975 4,904 215,000
1980 5,511 275,075
1985 5,524 190,645
1990 5,102 130,860
1995 5,180 142,260
2000 5,164 165,670
2003 5,142 175,040

The mukadam was also in charge of acquiring new clients for the team and managing customer satisfaction. New customers purchased their dabba from the dabbawallahs when service was commenced. Dabbas were typically replaced, at cost to the customer, once every two years.

Seven to eight mukadams typically aggregated their efforts and constituted a profit centre; each profit centre was referred to as a “group.” There were about 120 groups in total. While each group was managed autonomously, its members stepped in without hesitation to help other groups· in dealing with emergencies such as dabbawallah absenteeism. Monthly group maintenance costs totalled Rs35,000, covering the maintenance of the bicycles, pushcarts and wooden boxes the dabbawallahs used in their daily deliveries.

The 13 members of the Executive Committee, which were elected by the general body every five years, co-ordinated the activities of the various groups. The Committee, which under­took all major decisions for the Trust and worked on the principles specified in the Co-operative Societies Act, met on the 15th of each month. Operational issues typically dominated each meeting’s agenda. Examples of such issues included disputes with the Mumbai city railways over dabbawallahs not carrying their monthly passes or the ID issued to them by the Trust, and with the city police when dabbawallahs parked their pushcarts or bicycles where parking was not permitted. Annually, there were few reports of lost or stolen dabbas. In such instances, clients were reimbursed by the individual dabbawallah or given a free dabba.

The dabbawallahs were a homogenous group in many ways. Its members, traditionally male, hailed from the same geographical region­known as Mavla-Iocated east of the Sahyadri (Western Ghats) near Pune, and they spoke the same language (Marathi). They shared similar customs and traditions, such as gathering together for a week every April for a festival in their hometown. They wore the same dress, a loose white dhoti shirt, cotton pajamas and their trademark white oval cap.

All of these combined to form a distinct local identity for the dabbawallahs. They were easily recognized even in the busiest of locations. Pedestrians and commuters yielded to the dab­bawallahs in order not to interfere with their service delivery. Seemingly always in a rush, the dabbawallahs were known for their reliability and work ethic. They ascribed to the traditional Indian belief that “work is worship.” Averaging 55 years in age, dabbawallahs were typically lean, agile, active and physically fit. While the minimum level of education of a dabbawallah was grade seven, most never got past grade eight schooling.

Each dabbawallah earned a monthly income between Rs5,OOO and Rs6,OOO. Out of this income, each dabbawallah was responsible for paying:

Rs. 120 for the monthly railway pass that allowed for unlimited access to Mumbai’s railways;

Rs. 60 for the maintenance of the bicycle or the pushcart (which were owned by the group or profit centre); and the compulsory monthly contribution of Rsl5 to the Trust.

DABBAWALLAH MEAL DISTRIBUTION NETWORK

The dabbawallah meal distribution network was characterized by a combination of a “baton relay system” in which dabbas were handed off between dabbawallahs at various points in the delivery process and a “hub and spokes” system in which the sorting of dabbas was done at specific railway locations from where individual spokes branched out for distribution. There was no local historical model on which this distribution network was designed. All design decisions were driven by the singular purpose of delivering a dabba in time for the customer’s lunch. The delivery processes had largely remained unchanged since their inception even though the environment of service delivery had changed. For example, the delivery system did not rely on the use of computers.

According to Medge:

“If we were to use computers, we. would be out of business. It is not because we do not know how to use computers but the system itself is not amenable to the use of technology in whatever form.

The only major change in the dabbawallahs’ delivery model was the fine-tuning of the coding system in 1966. The number of customers using the delivery service had continued to grow, and without some form of common identification that all dabbawallahs could follow, the sorting process at the hubs was likely to become overly time-consuming. Medge observed:

We decided to decentralize the coding at the level of groups and each group was free to develop its own coding system based on simple and easily identifiable numbers and signs. In time, each group gradually developed its own distinctive color code-from a spectrum of combinations of the seven primary colors-serving as the first line of identification for any dabbawallah”.

The workday for a dabbawallah started with the first delivery pick-up at 8:30 a.m. Leaving their Mumbai home, most of the time by bicycle, the dabbawallahs arrived punctually to the minute at the doorstep of each collection point, although they might not be wearing a watch. The collection point would typically be the client’s home. Customers were aware of their responsibilities in the delivery process. Each knew that if the dabba was not ready for pick-up, the dabbawallah simply moved on; the dabbawallah did not wait. Each dabbawallah was personally responsible for the daily delivery of 30 to 35 dabbas. Dabbawallahs found that number to be usually manageable in terms of personal memory and physical handling capacity.

8:25 a.m. The dabba is filled with lunch at the client’s kitchen and kept outside the door of the residence.

8:30 a.m. The dabbawallah arrives, picks up the dabba and moves on knocking at the door only if the dabba is not seen. Under normal circumstances there is no interaction with any member of the client’s household.

8:38 a.m. The dabba is placed on the bicycle or pushcart together with dabbas collected from other customers.

9:20 a.m. Bicycles and pushcarts drawn by individual dabbawallahs arrive from various collection centres to the suburban railway station.

9:30 a.m. The sorting operation begins with dabbas sorted according to destinations and placed in cartages that are specific to each destination. The cartages come in two standard sizes, accommodating 24 and 48 dabbas each.

9:41 a.m. The suburban train arrives. The cartages, normally numbering five to six, are loaded into the special compartment located next to the driver’s cabin.

10:21 a.m. The train arrives at one of the major hubs. The cartages are unloaded and bundled with those arriving from other collection centres. They are resorted according to destinations.

11:05 a.m. Cartages are loaded into the suburban train for onward journey to the final destination terminals.

11:45 a.m. The suburban train reaches the terminal station. Cartages are unloaded and dabbas are re-sorted, now according to specific delivery routes.

12:1 0 p.m. Dabbas are placed in destination-specific cartages and hitched typically on to bicycles or pushcarts for delivery to individual clients.

12:30 p.m. The dabba is delivered at the doorstep of the client’s workplace.

The delivery process is reversed in the afternoon. The empty dabba is picked up between 1: 15 p.m. and 2:00 p.m. for its return to the client’s home early that evening (e.g. by 5:30 p.m.).

The hub was essentially a mid-point station in the suburban railway network where trains con­verged before branching out to other parts of the city. Dadar, Bandra, Andheri and Kurla were the four major hubs for the dabbawallahs’ meal distri­bution network (see Exhibit 5). As epicentres that had to be passed through while moving from one end of the city to the other, the hubs were crucial links in the delivery system. They were also places where delivery errors could take place. That was why each of the hubs was actively managed by the mukadams, who stepped in to co-ordinate the sorting operation at each hub. As trains kept arriv­ing in rapid succession, it became imperative to orchestrate three activities-sorting, loading and unloading-simultaneously. Doing so was a challenge during Mumbai’s rush hour when thousands of commuters were also getting on or off each train. Given the tight time schedule for Mumbai’s railways, the dabbawallahs had to complete their tasks quickly and precisely.

From these hubs, the sorted dabbas spoked out to various destinations-including the termi­nal stations of the city railway-where a third set of dabbawallahs was waiting to take over. The dabbas were off-loaded at various terminals and re-sorted, depending now upon specific customer location information, such as the street, building and the floor. The dabbas were then handed over to the fourth set of handlers, individual dabbawallahs, who were assigned to specific delivery routes in Mumbai city. Placing the dabbas on pushcarts or bicycles, or in some cases carried by hand or in crates on top of their heads (a full crate of dabbas could weigh up to 100 kilograms), the dabbawallahs delivered the home-cooked lunches to the designated recipient by 12:30 p.m.

An hour or two later, the empty dabbas­dropped off by the satiated client at the same spot used for dabba pick-up–were collected to be routed backwards on their return journey. In short, each dabba was picked up at the source by one dabbawallah for transport to the railway terminal, sorted and loaded by a second dabbawallah, unloaded and re-sorted at the hub or destination station by a third dabbawallah and delivered by a fourth dabbawallah to the home from which the dabba was picked up earlier in the day. The exact combination of dabbawallahs used each day varied with the volume and density of traffic, but it remained the same on the return route.

Since each dabba traveled through four sets of hands each day, it was important to identify· and monitor the dabbas while in transit. This was done through a system of codes painted on the top of each dabba’s exterior. The originating station and the destination station were the primary codes. They were crucial for the sorting operations that took place at each of the hubs, and they were normally identified by alphabets that any sorter could recognize. The other encoded data included the apartment, floor, building and street the dabba originated from and was to be delivered to. The codes included symbols (e.g. dashes, dots, etc.), alphabets, numbers and other forms of notation which likely made little sense outside of the dabbawallah community, but which the dabbawallahs recognized and understood instantly. The movement of the dabbas was monitored solely through these codes and client names were not utilized.

Pulling one dabba aside, Medge explained:

The codes “K-BO-IO-19/A/15” on top of this dabba mean the following: K was the dabbawallah who picked it up; BO meant Borivali, the area from where the dabba was collected; I0 referred to the Nariman Point area, the destination; 19/N15 referred to the 19th building; A was the dabbawallah who delivered it; and 15 was the floor of the building where the customer’s workplace was located.

Questions:

1. Comment on how following issues may be affecting the dabbawallah system:

  • Competition and resulting shrink in customer base
  • Lifestyle Changes
  • Workforce Management

2. How do the dabbawallahs find recruits?

3. How can an incentive system based on “equal pay for all” work?

4. Do the dabbawallahs know their clients?

5. How does the dabbawallah system ensure that the individual links in the delivery network do not break down?

6. How is the Trust dealing with the issue of growth?

7. How is the Trust coping with dabbawallah competitors?

8. The world around you is changing but the dabbawallahs have not changed; why not?

9. Is there a future for Dabbawallahs?

10. Following are the foundations for the success of the dabbawallah service

  • Low-Cost Delivery
  • Delivery Reliability
  • Decentralization
  • Suburban Railway Network
  • Perceived Equality.

Justify.

 

CASE II

LOGISTICS OUTSOURCING

Company Profile

Indian Steels Limited (ISL) is a Rs. 6000 crore company established in the year 1986. The company envisaged being a continuously growing top class company to deliver superior quality and cost effective products for infrastructure development. With major customers being from Public Sector Undertakings, the company has established itself well and is said to be considering its expansion plan and proposed merger with another steel making giant in the country.

In 1996, owing to the cut throat competition in the emerging dynamic global markets, ISL emphasized on both effectiveness and efficiency. The company strongly believed in focusing on its core competency (i.e. manufacturing of steel) and outsourcing the rest to its reliable partners. Outsourcing of its outbound logistics was one such move in this direction. ISL out sourced its stockyards and other warehousing services to a third party called Consignment Agent, who was selected on an annual basis through a process of competitive bidding. The CA was responsible for the entire distribution of the products within the geographical limits of the allotted market segment and was paid by the company according to the loads of transaction (measured in metric tonnes) dealt by him. The company also believed in maintaining long-term relationships with the suppliers as well as the buyers. It always prioritized the needs of its regular and important customers over others and this worked out to be a win-win strategy. The case brings out the model of outsourcing logistics the company has adapted for the enhancement of its supply chain competency and thus leveraging more on its core competency which led to increased productivity.

Indian Steels Limited (ISL) is a Rs. 6000 crore company established in the’ year 1986. The company envisaged being a continuously growing top class company to deliver superior quality and cost effective products for infrastructure development. The company performed with a mission to attain 7 million ton liquid steel capacity through technological up-gradation, operational efficiency arid expansion; to produce steel with international standards of cost and quality; and to meet the aspirations of the stakeholders. The production started in the year 1988 and initially, it manufactured Angles, Pig Irons) Beams and Wire Rods that were mainly used for constructing roads) dams and bridges. These products were mainly supplied to Public Sector Undertakings such as Railways, Public Works Department (PWD) Central Public Works Department (CPWD) Rashtriya Setu Nigam Limited, Audyogik Kendra Vikas Nigam Ltd. and various foundry units. The company had its headquarters at Raipur with three stockyards (a kind of warehouse with a huge land to store the products).

The company has established itself well and is said to be considering its expansion plan and proposed merger with another steel making giant in the country. The company was awarded ISO 9001, ISO 14001 and ISO 18001 certifications. The temperature in the plant premises is reportedly about 6°C lesser than that of the township, thanks to the greenery being maintained therein.

Logistics Outsourcing

Outbound logistics which basically connects the source of supply with the sources of demand with an objective of bridging the gap between the market demand and capabilities of the supply sources was always a problem for companies operating in this industry. Consisting of components like warehousing network, transportation network) inventory control system and supporting information systems outbound logistics was always playing a key role in making the right product available at the right place, at the right time at the least possible cost. In 1996 owing to the cut throat competition in the emerging dynamic global markets, ISL emphasized on both effectiveness and efficiency. The company strongly believed in focusing on its core competency (Le. manufacturing of steel) and outsourcing the rest to its reliable partners. Outsourcing of its outbound logistics was one such move in this direction.

Recognizing the growing demand for its products from the big, diversified and geographically­dispersed customers, the company started expanding the number of warehousing stockyards. From a humble beginning, the company today has 26 stockyards; most of them are outsourced. Each of the outsourced stockyards was managed by a third party, which the company referred to as Consignment Agent (hereafter referred to as CA) in the area. The CA was selected on an annual basis through competitive bidding process. The performance of CA was closely monitored by a company representative (full time employee of ISL working in the site of CA). The CA was responsible for the entire distribution of the products within the geographical limits of the allotted market segment and Was paid by the company according to the loads of transaction (measured in metric tonnes) dealt by him. Based on their sales turnover CAs were trifurcated into A, Band C categories. The CAs with a monthly turnover of Rs. 150-200 crore fell under A category) whereas those with Rs. 100 – 150 crore were B and less than Rs. 100 \ crore were C category.

In addition to the company representative) a team of marketing division operated in the town where, the site of CA was located. This department was responsible or estimating the future demand, translating it into orders and sending to the manufacturing plant. Material dispatch was done using either one or a combination of the two modes: Rail, Road. While using rail as the mode of transportation, the company had a choice to book a Normal Rake (a full train with about 35 wagons, each wagon with an approximate capacity of 60 tonnes) or a Jumbo Rake (a full train of about 52 wagons, each wagon with an approximate capacity of 60 tonnes). At times, the company was engaging the services of the CONCOR (Container Corporation of India) where a train of 62 to 70 wagons, each wagon with about 26 tonnes capacity was used for transportation. Instead, if the company decided to send the material by road, the company had a choice between Trailor (25-30 tonnes} and Truck (15-20 tonnes). The choice of transportation mode was based on the quantity of dispatch.

As soon as the material was dispatched from the manufacturing plant, the respective CA used to get a Stock Transfer Chalaan electronically through Virtual Private Network, which was developed by a professional software service provider. In-transit, monitoring was generally done with the help of Indian Railways, if the mode was Rail. Otherwise, truck/trailor drivers were contacted through mobile phone. Transit generally took five to six days, providing time for CA to plan for receiving materials. The CA used to utilize this time for arranging material handling devices like heavy cranes and required labour. The material thus unloaded was reaching the warehousing stockyard where CA was responsible for arranging the materials as per the warehousing norms of ISL.

The company broadly classified materials into Long Products and Rounds. Products falling into each category were further classified by their size, shape and utility and the company used a distinct colour code for this purpose. Each subcategory of material had a specific place for downloading. The company used Bin System for this purpose. While downloading the material in stockyard, the company norms insisted that CA arrange for providing Dunnagt Material. This enabled the CA to store material without 1 direct contact with the land surface and thus reduced the probability of material deterioration. Material was stored in the stockyard until an authorized representative of the customer used to come and collect it. While dispatching material to the customer, a Loading Slip was generated against the Delivery Order. The company” also believed in maintaining long-term relationships with the suppliers as well as the buyers. It always prioritized the needs of its regular and important customers over others and this worked out to be a win-win strategy.

Operational problems were majorly because of uncertainties in transportation, fluctuation in supply of electricity and the load bearing capacity of the soil in the stockyard. Some: more problems were encountered whenever there was a change in CA and these were overcome by training the employees of the new CA and keeping the old CA responsible for the: material in his stockyard for six months after the contract as well. Observations reveal that, at times there were situations wherein CAs had to do those things which they were not legally supposed to do (like subcontracting) because of the pressures mounted by political leaders with selfish interests.

Despite these problems, this model of outsourcing logistics was working out very well for the company. The practices, which were started in the year 1996 have sustained major changes in the environment and are being practiced even in 2006. It has enhanced the supply chain competency of the company by enabling it leverage more on its core competency, which leads to increased productivity.

Questions:

1. Analyze the case in view of the logistics outsourcing practices of the ISL.

2. Discuss the importance of logistics outsourcing with reference to supply chain management.

3. Suggest strategies for further strengthening the supply chain of ISL.

Supply Chain Management

02 Sep

A CASE OF ALPHA TELENET LIMITED

Alpha Telecom Ltd., a part of Alpha Group was established in 1976 by its visionary Chairman and Managing Director, A. S. Verma. The company started with manufacturing of Electronic Push Button Telephones (EPBT) and Cordless phones in 1985 in Allahabad. On July 7, 1995 Alpha Tele-Ventures Limited was incorporated. A mobile service called ‘Web-Tel’ was launched in Kochin, which eventually expanded its operations in Andhra Pradesh in 1996.

Till 1994, fixed telephone services were provided by Department of Telecommunications (DoT) which had a monopoly in this business. This was regarded as self-defeating because DoT was a regulator as well as a competitor. With increasing pressure for privatisation, the government agreed to give license to private operators. Finally in December 1996, the bill of privatisation of fixed telephone services was passed. The New Telecom Policy (NTP) with its targets for improving tele-density was an ambitious policy. The NTP planned to achieve a tele-density (number of telephones per 100 people) of 7 by the year 2005 and 15 by the year 2010, which translated into 130 mn lines. The policy also planned an investment of Rs. 4000 billion by the year 2010. The above factors combined with the fact that the domestic long distance telephony was open to private players, led to considerable demand for the company’s products. But to get the tenders from Ministry of Telecommunication, Government of India, a license fee was to be paid over a period of 15 years and the viability of telecom projects was also affected by the guidelines that required private operators to earmark at least 10% of their telephone lines for villages. The operating companies did not like the idea of having to pay for the maintenance of lines that might not be used most of the times. The license fee of Maharashtra state was minimum at Rs.643 crores. Thus, Alpha Telenet, a pioneer in every field wanted to avail this opportunity and started the survey for extending the services in Pune. Their marketing survey team provided the statistics of existing customers of DoT, the waiting list of DoT, potential of users for successive years and so on.

Alpha Telenet Ltd. (ATL) decided to start their fixed line telephone operations in technical collaboration with Telecom Italia at Pune in Maharashtra. Initially, they received permission for installing their exchanges covering 0.5 km. of radius which was too small with respect to the cost involved and thus difficult to achieve lucrative returns. After struggling for a year, they finally got permission to set up exchanges covering 1 km. of radius. They set up their exchanges in potential areas in the city. Another problem was that the consumer’s mindset fixated was with DoT and they were not ready to accept the services of Alpha Telenet Ltd. This was due to opposite tariff rates for household consumers. Consumers did not rely on ATL as they were private players. ATL initially had attracted the customers from the areas where the waiting line for DoT connections was high. Further, they had provided the connections with wireless CDMA receivers for only Rs. 3000 (movable within the area of 5 km radius) though its actual cost was Rs.15,000. The connection between exchanges by optical fibre ensured high quality of voice and data transmission, which was later to be shifted to the conventional copper wires for consumer connections. The company made the connection using Ring Topology stay connected even in case of line disturbances.

They also installed a Submarine Optical Fibre Cable to Singapore with an 8.4 Tbps (terabits per second) capacity providing high-class worldwide connectivity. Alpha Telenet installed the latest Digital Switches from Tiemens and other devices, which were fully compatible with the equipment of other telecom providers in India. The company installed a digital Geographical Information System (GIS) for network surveillance. A 24-hr Internal Network Management System for technical support and infrastructure maintenance were also installed with a dedicated round-the-clock toll-free call centre to ensure prompt services.

In 1997, Alpha Telenet Ltd. obtained a license for providing fixed-line services in Maharashtra state circle and formed a joint venture with Behrin Telecom, Alpha BT, for providing VSAT services. On June 4, 1998 they started the first private fixed-line services launched in Pune in the Maharashtra circle and thereby ending fixed-:-line services monopoly of DoT (now TSNL). Alpha entered into a license agreement with DoT in 2002 to provide international long distance services in India and became the first private telecommunications service provider. The company also launched fixed line services in the states of Goa, Uttar Pradesh, Gujarat and Delhi.

With the start of basic telephony services in the .state of Maharashtra, residents of the area and others felt a great sense of breaking away from the old and traditional government monopoly. The kind of ill-treatment of customers and also the red-tapism and bureaucracy which prevailed earlier, was about to end. It was observed that no private telecom company wanted to start their operations in less profitable areas like Bihar and other eastern states .

. The tariff plans of the TSNL and Alpha Telenet Ltd. were opposite to each other. TSNLS tariff structure was upwards i.e., price per unit increase with number of calls and vice versa for Alpha Telenet. This was the beginning of the entry of private players in the sector.

Questions:

1. Give a critical analysis of the privatisation of telecom sector in India.

2. Highlight the secrets of success of Alpha Telenet Ltd. in terms of technological advancements and service~ provided.

 

CASE II

GEARING· FOR GROWTH

Premier Differential Gears Pvt. Ltd. (PDGL) was formed in the year 1991 near Noida in the state of Uttar Pradesh (India). The company was established to cater to the ever­growing needs of the differential gear market for cars, jeeps, trucks, and tractors. It was established under the aegis of the parent company called Premier Gears Pvt. Ltd. which in turn was established in the year 1962 at Noida. The parent company was engaged in the manufacturing of automobile transmission gears. With a modest start in 1961, it had never looked back and by 2006, it became the largest manufacturer of automobile transmission gears in the country. The parent company had employee strength of 2,500 trained and dedicated employees and was producing a range of over 1,000 gears. Premier Gears Pvt. Ltd. was making gears for virtually every major brand of truck, car, jeep and tractor. In 2006, the group company comprised of three firms namely, Premier Gears Pvt. Ltd. (manufacturing Transmission gears, Gearbox assemblies, Laser marking machines, and Material handling equipments), Premier Differential Gears Pvt. Ltd. (manufacturing differential gears) and Elve Corporation (a government recognized export house).

PDGL was manufacturing a wide range of Crown Wheel and Pinions, Bevel Gears, Bevel Pinions, and Spider Kit Assemblies. The installed capacity was 20,000 sets per month. PDGLs focus on quality, fast product development and customer service had enabled it to become an OEM supplier to many car and tractor companies in India, the EU, and Asia. Almost 75% of the total production was exported to a number of countries like Germany, Russia, USA, China, Japan, South Mrica, etc. The domestic OEM and replacement market accounted for the remaining 25% of the company’s sales and in a short span of time, the company had become one of the major players in the Indian replacement market. The use of latest technology and comprehensive quality control systems at PDGL go a long way to ensure that customers get exactly what they want.

PDGL was using world class Gleason machines in its manufacturing programme. The raw material for manufacturing gears was in the form of forgings, which were procured from various parts of the country for manufacturing crown wheels and pinions. These forgings were subjected to turning followed by drilling. The drilled crowns and pinions were taken for tapping, which were then rimmed. After this, the teeth cutting procedure was applied which was called broaching. The broached units were then heat-treated. Heat treatment was very critical in producing gears having short tolerance levels. To meet this end, the company had two rotary furnaces and one state-of-the-art Continuous Gas Carburizing Furnace (CGCF) from Aichelin ALD of Austria to heat-treat its products. After the heat treatment, a number of intermediate processes like short blasting, phosphating, lapping were performed which resulted into the finished product, ready for putting company marks to avoid imitation/forgery. The company had developed a state-of-the-art 70-watt ND­YAG laser-marking machine in collaboration with Quantum Laser (UK), which was used for marking on its produces. Laser marking was environment-friendly and was applied without any force or contact and thus the material was not subjected to any stress. The marked products were” manually pushed onto a conveyer for packing and dispatching. All the above have enabled the company to meet international standards and to produce world­class gears with the highest performance standards.

The upstream portion of the supply chain at PDGL included a number of forgers located at “geographically dispersed locations in various parts of the country. These forgers were supplying the forgings to PDGL, which were then used in manufacturing the differential gears. All of the raw material was routed to the POGL works through road transport and”” due to large distances, transportation costs were a major issue in increasing the efficiency of this upstream portion of the supply chain. The forgings were supplied according to the drawings and dimensions set by design engineers at the company. The company indeed tried some local suppliers to cope up with the increasing transportation costs but the results on quality front wet satisfactory. To serve this end, the company was planning to develop some local suppliers. It had planned to provide them support in the areas of procuring good material for producing forgings, procuring good quality machines and” training their workforce in the required technical know-how. This was considered as an investment by the company to reduce its inbound transportation costs. To meet the small lot requirements of the forgings, the company was also contemplating to share the truckloads with the parent company. This was feasible because of the geographical proximity of the parent company, which was situated at a distance of less than 15 kms, the similar nature of raw material and same suppliers supplying to both the units.

The internal supply chain at PDGL comprised of various processing stations/lines” through which the forgings were transformed into finished differential gears. The movement of the work-in-progress between various stations was semi-automatic in which the workers manually placed the goods on trolleys/carts. Even the finished units were manually placed on a conveyer; which needed to be pushed to send the units to the packing section. There was a risk of units being damaged in this process. To minimize this risk, the company was planning to have automatic systems for moving the material from one place to another. It was decided to have hydraulic lifts, cranes, electronic escalators and the likes for progression of material from forging to packing. The packing material was stored on first floor as and when it arrived, with the help of casual laborers, which was inefficient and also involved a: risk of some· casualty.

The downstream portion of the supply chain at PDGL included around 10 distributors located evenly in various parts of the country. These distributors were supplying the products of PDGL to number of car, truck, jeep and tractor manufacturers. This portion of the supply chain also included a large replacement market, which accounted for almost half of the company’s domestic sales. To meet its distribution needs the company had a panel of transporters, who used to distribute the finished goods. At times, the consignments scheduled for distributors were delayed because of lack of full truckload. One possible solution to this problem was sharing of truckload with the parent company. This was feasible because both the companies shared the same distribution network. The distribution of export consignments was through an intermediary who helped the company in exporting its products to the US, UK, Germany, China, Italy, Turkey, Saudi Arabia, Singapore, Malaysia, Thailand, Indonesia, and Nigeria, amongst other countries. The company’s wide export range included replacement gears for internationally renowned automotive manufacturers like Mercedes­Benz, Mitsubishi, Toyota, Nissan, Clark, Eaton, Fuller, New Process, ZP, Hino, Fuso, Tong Feng, Tata, Leyland, Massey Ferguson, Magirus – Deutz and various others.

There was a shortage of skilled employees. Therefore, the company has recently started training input for all their 400 employees. These training programmes are being conducted in the organization to enhance the skills of the employees and the duration of these programmes were 20 hours per month. On the financial front, the company is continuously moving on the growth track showing better financial results year after year. It has embarked on an ambitious plan to double its turnover by the end of this financial year and to become the world’s numero-uno in the automotive gear-manufacturing segment. The current capacity utilization was at a meager 6000 sets against a total installed capacity of 20,000 sets per month.

Questions:

1. Comment on the upstream and downstream supply chain portions operating in the company.

2. How far are the plans to improve the supply chain efficiency in the company feasible?

3. “Internal supply chain at the company can be characterized by the lack of it”. Comment.

 

CASE III

INTELLIGENT MOVEMENTS: ANYWHERE ANYTIME

Deepak Pai, an engineering graduate and a postgraduate in management from United States, was working in Transport Corporation of India (TCI), the market leader in conventional transportation. He established Speed Cargo as an express cargo distribution company after leaving TCI. Speed Cargo, started with its head office at Hyderabad, as a small cargo specialist in 1989, upgrading itself to desk-to-desk cargo in 1992, cargo management services in 1995 and became a public limited company when it was listed in Bombay Stock Exchange in 1999. The company was maintaining a strong customer base of prestigious companies like Acer, Cadilla, Sony, Panasonic, Titan, Dabur and Hitachi to name a few.

Speed Cargo Limited (SCL), a leader in the express cargo movement pioneered in distribution and supply chain management solutions in India. It differentiated the concept of cargo, from conventional transport industry by offering door pickup, door delivery, assured delivery date and containerized movement. It had a turnover of Rs.3600 million in 2005-06. The company had a strong team of 6400 employees with the fleet of 2000 vehicles on road and an extensive network covering 3,20,000 kilometers per day and a reach of 594 out of 602 districts in India. In addition to this, it was having a well-structured multimodal connectivity and 6lakh square feet mechanized warehousing facility. Warehousing facilities were comprised of the most modern storied system and material handling equipment offering very high level of operational efficiency. The four modes of transport – Road, Air, Sea and Rail were seamlessly integrated, enabling SCL to effortlessly reach anytime anywhere.

The international wing of SCL took care of the SAARC countries and Asia Pacific region covering 220 countries with a specialized India-centric perspective. The company had gone online by connecting 90 percent of its offices to provide web-centric solutions to its customers.

The company also offered money back guarantee to express cargo services. The services offered were customized for corporate, small and medium enterprises, cluster markets, wholesale markets and individuals. The state-of-the-art technology made things easier for the customers whose cargo could be tracked and traced in the simplest manner, because SCL had an effective tracking system. SCL believed that best of technology enabled best of service, and its outlays on providing the IT edge had always resulted in innovative services and solutions. SCL, in its day-to-day operations, used technologically advanced equipments like Fork Lifters, Hydraulic Trucks, Hand Trolly, Drum Trolly, Rubber Pads cushioning, Taper Rollers to move big crates, color codes for identification to delivery what it promised.

Between 1989, when company was born, and 1995, SCL started a unique value added service called Cash-On-Delivery for the advantage of its customers. SCL introduced Call Free Number for the first time in the logistics industry in India. To establish largest network in air and to facilitate faster delivery of shipments, SCL entered into a tie-up with Indian Airlines in 1996; The Company introduced the concept of 3rd party logistics and later started offering complete logistics and supply chain solutions in 1997. The courier service Suvidha later rechristened as Zipp was launched in 1998. The company entered into a tie­up with Bhutan and Maldives Postal Departments to expand its operations to SAARC countries in 1999. The Speed Cargo Development Center was set up at Pune in India for training of its employees in the same year.

An exclusive cargo train in association with Indian Railways between Mumbai and Kolkata was launched in 2001. Based on a survey conducted by Frost and Sullivan, SCL was conferred the Voice of Customer Award for being the best logistics company in 2003. After simplifying the internal process for faster and better communication, and a smarter way to work, SCL set up its corporate office at Singapore in 2003 to create an international hub with an aim to reach out to the world. The company introduced a mechanized racking system in the automated warehouse at Panvel (Maharastra) in 2004.

SCL was sensitive to the avenues where it could contribute to building a better society. Displaying continuous social responsibility, SCL associated itself with several community development programs and contributed generously to many social causes. SCL was the first to build makeshift houses for 400 families who were affected during a massive earthquake in Bhuj district of Gujarat in India during January 2001. They reached the devastated village the same day to provide food, clothes, medication and water to the affected people.

In 2003, SCL accepted to develop one of the government schools located at Banjara Hills in Hyderabad, and built a building with basic facilities like classrooms, staff rooms and toilets, and provided furniture for students and staff. The housekeeping and security of the school, which was now having 1100 students, was also taken care of by the company. After Tsunami, one of the worst natural disasters that struck South East Asia in December 2004 leaving over 10 lakh people dead and over 4 million displaced, SCL was on the rescue scene as it brought in food, water, clothing, medication, a team of doctors and cooks, and provided the affected people with essential utensils. After rehabilitating the people in Nagapattnam and Cuddalore, it took up the development of a high school in Nagore where 500 students came in from the Tsunami affected families. SCL also actively participated in Kargil contributions and other rescue and rehabilitation works in India.

LOOKING AHEAD

SCL believed that in the age of convergence, it had kept pace with time with its infrastructure, people and technological capabilities for moving cargo to its destination on time, by making intelligent movements in air and sea, as well as on road and rail. The company had experience of handling wide range of materials including confidential papers related to University examination and sensitive goods like polio drops and life-saving medicines. In view of the strengths of its competitors such as DHL, Safexpress and Blue Dart, the company had enhanced services with a greater focus on cargo management and customer satisfaction with the new operations backed by better strategic planning. To achieve its aim, SCL had strategically tied-up with Jubli Commercials, an lATA accredited freight forwarder, which started its operations as Air Cargo Agent.

The company was confident that it was set to become 24 x 7 one-stop solution provider for all freight forwarding services including customs clearance for international cargo. SCL having 40 percent share in express distribution business was developing a huge centralized warehouse on 22 acres of land at Nagpur in India. The centralized warehouse, which was about to be commissioned, was designed as a major hub or express distribution center for 200 smaller hubs as its spokes catering to the needs of its customers across India. SCL believed that it is a concept, a vision and an idea ahead of its time, which looked at a global perspective and was constantly reinventing itself in delivering the future of logistics.

Questions:

1. What made SCL a leader in the logistics industry?

2. Discuss the strategies adopted by SCL for its survival in the competitive scenario.

3. Comment on the contributions of SCL to society.

4. What steps the company should take to globalize its network reach? Discuss the strategies adopted by SCL for expansion.

 

CASE IV

LOGISTICS OUTSOURCING

Company Profile

Indian Steels Limited (ISL) is a Rs. 6000 crore company established in the year 1986. The company envisaged being a continuously growing top class company to deliver superior quality and cost effective products for infrastructure development. With major customers being from Public Sector Undertakings, the company has established itself well and is said to be considering its expansion plan and proposed merger with another steel making giant in the country.

In 1996, owing to the cut throat competition in the emerging dynamic global markets, ISL emphasized on both effectiveness and efficiency. The company strongly believed in focusing on its core competency (i.e. manufacturing of steel) and outsourcing the rest to its reliable partners. Outsourcing of its outbound logistics was one such move in this direction. ISL out sourced its stockyards and other warehousing services to a third party called Consignment Agent, who was selected on an annual basis through a process of competitive bidding. The CA was responsible for the entire distribution of the products within the geographical limits of the allotted market segment and was paid by the company according to the loads of transaction (measured in metric tonnes) dealt by him. The company also believed in maintaining long-term relationships with the suppliers as well as the buyers. It always prioritized the needs of its regular and important customers over others and this worked out to be a win-win strategy. The case brings out the model of outsourcing logistics the company has adapted for the enhancement of its supply chain competency and thus leveraging more on its core competency which led to increased productivity.

Indian Steels Limited (ISL) is a Rs. 6000 crore company established in the’ year 1986. The company envisaged being a continuously growing top class company to deliver superior quality and cost effective products for infrastructure development. The company performed with a mission to attain 7 million ton liquid steel capacity through technological up-gradation, operational efficiency arid expansion; to produce steel with international standards of cost and quality; and to meet the aspirations of the stakeholders. The production started in the year 1988 and initially, it manufactured Angles, Pig Irons) Beams and Wire Rods that were mainly used for constructing roads) dams and bridges. These products were mainly supplied to Public Sector Undertakings such as Railways, Public Works Department (PWD) Central Public Works Department (CPWD) Rashtriya Setu Nigam Limited, Audyogik Kendra Vikas Nigam Ltd. and various foundry units. The company had its headquarters at Raipur with three stockyards (a kind of warehouse with a huge land to store the products).

The company has established itself well and is said to be considering its expansion plan and proposed merger with another steel making giant in the country. The company was awarded ISO 9001, ISO 14001 and ISO 18001 certifications. The temperature in the plant premises is reportedly about 6°C lesser than that of the township, thanks to the greenery being maintained therein.

Logistics Outsourcing

Outbound logistics which basically connects the source of supply with the sources of demand with an objective of bridging the gap between the market demand and capabilities of the supply sources was always a problem for companies operating in this industry. Consisting of components like warehousing network, transportation network) inventory control system and supporting information systems outbound logistics was always playing a key role in making the right product available at the right place, at the right time at the least possible cost. In 1996 owing to the cut throat competition in the emerging dynamic global markets, ISL emphasized on both effectiveness and efficiency. The company strongly believed in focusing on its core competency (Le. manufacturing of steel) and outsourcing the rest to its reliable partners. Outsourcing of its outbound logistics was one such move in this direction.

Recognizing the growing demand for its products from the big, diversified and geographically­dispersed customers, the company started expanding the number of warehousing stockyards. From a humble beginning, the company today has 26 stockyards; most of them are outsourced. Each of the outsourced stockyards was managed by a third party, which the company referred to as Consignment Agent (hereafter referred to as CA) in the area. The CA was selected on an annual basis through competitive bidding process. The performance of CA was closely monitored by a company representative (full time employee of ISL working in the site of CA). The CA was responsible for the entire distribution of the products within the geographical limits of the allotted market segment and Was paid by the company according to the loads of transaction (measured in metric tonnes) dealt by him. Based on their sales turnover CAs were trifurcated into A, Band C categories. The CAs with a monthly turnover of Rs. 150-200 crore fell under A category) whereas those with Rs. 100 – 150 crore were B and less than Rs. 100 \ crore were C category.

In addition to the company representative) a team of marketing division operated in the town where, the site of CA was located. This department was responsible or estimating the future demand, translating it into orders and sending to the manufacturing plant. Material dispatch was done using either one or a combination of the two modes: Rail, Road. While using rail as the mode of transportation, the company had a choice to book a Normal Rake (a full train with about 35 wagons, each wagon with an approximate capacity of 60 tonnes) or a Jumbo Rake (a full train of about 52 wagons, each wagon with an approximate capacity of 60 tonnes). At times, the company was engaging the services of the CONCOR (Container Corporation of India) where a train of 62 to 70 wagons, each wagon with about 26 tonnes capacity was used for transportation. Instead, if the company decided to send the material by road, the company had a choice between Trailor (25-30 tonnes} and Truck (15-20 tonnes). The choice of transportation mode was based on the quantity of dispatch.

As soon as the material was dispatched from the manufacturing plant, the respective CA used to get a Stock Transfer Chalaan electronically through Virtual Private Network, which was developed by a professional software service provider. In-transit, monitoring was generally done with the help of Indian Railways, if the mode was Rail. Otherwise, truck/trailor drivers were contacted through mobile phone. Transit generally took five to six days, providing time for CA to plan for receiving materials. The CA used to utilize this time for arranging material handling devices like heavy cranes and required labour. The material thus unloaded was reaching the warehousing stockyard where CA was responsible for arranging the materials as per the warehousing norms of ISL.

The company broadly classified materials into Long Products and Rounds. Products falling into each category were further classified by their size, shape and utility and the company used a distinct colour code for this purpose. Each subcategory of material had a specific place for downloading. The company used Bin System for this purpose. While downloading the material in stockyard, the company norms insisted that CA arrange for providing Dunnagt Material. This enabled the CA to store material without 1 direct contact with the land surface and thus reduced the probability of material deterioration. Material was stored in the stockyard until an authorized representative of the customer used to come and collect it. While dispatching material to the customer, a Loading Slip was generated against the Delivery Order. The company” also believed in maintaining long-term relationships with the suppliers as well as the buyers. It always prioritized the needs of its regular and important customers over others and this worked out to be a win-win strategy.

Operational problems were majorly because of uncertainties in transportation, fluctuation in supply of electricity and the load bearing capacity of the soil in the stockyard. Some: more problems were encountered whenever there was a change in CA and these were overcome by training the employees of the new CA and keeping the old CA responsible for the: material in his stockyard for six months after the contract as well. Observations reveal that, at times there were situations wherein CAs had to do those things which they were not legally supposed to do (like subcontracting) because of the pressures mounted by political leaders with selfish interests.

Despite these problems, this model of outsourcing logistics was working out very well for the company. The practices, which were started in the year 1996 have sustained major changes in the environment and are being practiced even in 2006. It has enhanced the supply chain competency of the company by enabling it leverage more on its core competency, which leads to increased productivity.

Questions:

1. Analyze the case in view of the logistics outsourcing practices of the ISL.

2. Discuss the importance of logistics outsourcing with reference to supply chain management.

3. Suggest strategies for further strengthening the supply chain of ISL.

4. The participants/students are expected to have a clear understanding of Supply Chain and Logistics Management concepts.

5. The issues involved in the case are Sales Forecasting, Strategic Sourcing, Selection of Warehousing Service Provider, Transportation Mode and other nuances in Logistics Management.

 

Supply Chain Management

03 Jul

Group A

CASE 1

 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 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 freight-handlers’ 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?

 

CASE 2  

 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 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                                                                                                           

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 two-way 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 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                                                                                             

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

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                                                                                                    

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. ‘Two-wheelers 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 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 decision-making. Karnataka Engineering Company Limited (KEC)*

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.

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 (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.

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

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
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

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

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

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

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. Cuddappa 200 0 365 180 280 310
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. Warangal 380 480 120 310 230 210

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