Mid-Term Examination

(PGP 2019 – 21), Term - V

Total marks: 40 Time: 2 hrs

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Note: Attempt ALL questions. To the point answers, with distinctive examples would attract rewards

Q1. Ms. Akanksha, CEO of Akanksha Manufacturing Company (AMC), and Mr. Shreyas, Vice-President,
were discussing how future economic conditions would affect their product, which is vacuum cleaner.
These vacuum cleaners are very popular items sold in the local as well as regional market.

They were particularly concerned about inflation and Covid like situation, which was causing their costs to
increase at an alarming rate. The input material costs had gone up. AMC had increased the prices of their
products last year (by 10%) and felt another price increase would have an adverse effect on sales. There
were at least known competitors in the market. Besides, there are at least 20 other local brands available in
the market, mostly labeled as coming from an unorganized, sector. AMC wondered if there was some way
to reduce costs in order to maintain the existing price structure and yet be competitive. The product is
targeted at the middle and upper middle class. The middle class segment is highly price sensitive.

Mr. Shreyas attended a presentation (organized by IIM Shillong) on how they were solving a similar kind
of the problem. Number of industry examples were discussed during the program. Like, one of the company
had hired a purchasing agent who was successful in reducing costs by 15%. They have outsourced majority
of sub—assemblies. Mr. Shreyas thought some new and innovative ideas might be applicable to AMC.
AMC had a Supply Chain Manager to which the present assistant manager (Materials), Ms. Komalangi,
was reporting. Ms. Komalangi had been with the company for 5 years and apparently AMC had no
complaints. Production had never been stopped for lack of material. Yet there was thinking that a 20 % cost
reduction in the present economic scenario was a possibility, which could not be ignored.

Ms. Akanksha suggested that Mr. Shreyas look into this area and come up with a set of recommendations
in another 3 weeks. Mr. Shreyas consulted the people in the division. Through a series of brain—storming
sessions, the group interacted on how they could improve the company’s purchasing functions. Several
suggestions were discussed and deliberated. These are given below:

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 S1: Analyze the product specifications on many parts of the vacuum cleaners with an idea towards
using plastics instead of metals. Install a state-of-the-art computerized system for structured Bill of
Material (BOM). This responsibility could be given to the Engineering & Design Group (RDG).

S2: Standardize many of the parts on the vacuum cleaners to reduce the number of items kept in
stock. Evolve a coding system which may enable this. Give this responsibility to the Purchasing
Group (PG).

S3: Analyze items to see if more products can be purchased by blanket purchase orders with the
ultimate goal of reducing the purchasing staff. These blanket orders could be for the next three
years. Currently, about 20 people are engaged in purchasing function of AMC. Again give this
responsibility to the Purchasing Group (PG).

S4: Lower the stocks re-order levels from 75 to 30 days for many items, thus reducing inventory.
Implement this across the board.

S5: Look for new and lower cost sources of supply. There was a yellow page directory published
by the Young Entrepreneurs Association listing various vendors. These vendors could be contacted
based on local contacts.

S6: Increase the number of requests for bids in order to get still lower prices. Make bidding process
as competitive as possible, Document this process professionally.

S7: Be more aggressive in negotiations. Make sure all trade, quantity, and cash discounts are taken.
Document outcomes of all such negotiation exercises. Make purchasing group for a variety of
items.

S8: Buy from the lowest price source, disregarding local public relations. Stop showing favoritism
to customers who also buy from AMC. Always purchase as per the current requirements as
projected by the forecasting group, instead of according to market conditions (whereby there may
an incentive to buy in bulk!).

S9: Exploit the potential of IT Use bar codes. Explore the possibility of having EDI with vendors.
Explore the possibility of using RFID also.

S10: Give aggressive discounts on all products so that dead inventory or slow moving items can be
disposed off. Fix monthly targets for reduction of inventory. Offer group incentives for inventory
reduction.

After going through the above ten suggestions, Mr. Shreyas was debating with himself what he should
recommend to Ms. Akanksha. Just last week at the department meeting, Ms. Komalangi was recommending
many opposite actions. In particular, she recommended an increase in inventory levels, anticipating rising
prices and keeping the customer service levels in mind. Ms. Komalangi also stressed the good relations the
company had with all its suppliers and how they can be relied upon for good service and possible extension
of credit if the situation warrants it. Most of their suppliers bought their vacuum cleaners from AMC. Mr.
Shreyas was not sure what action he should recommend.

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 Questions:

1. What recommendation would you make if you were Mr. Shreyas? Why?

2. Analyze the above recommendations in detail. Justify your arguments. [10]

Q2. Nisarg Electrical and Electronics Limited (NEEL) is an Indian manufacturer. NEEL company has a
manufacturing facility in Bhopal, MP. Through five regional warehouses NEEL distributes its products that
are located in Guwahati, Mumbai, Jaipur, Vishakhapatnam, and Bangalore. Currently, the Indian market is
partitioned into five major markets, each of which is served by these individual regional warehouses.
Customers, typically retail outlets, receive items directly from the regional warehouses in their market area.
In the current distribution system, each customer is assigned to a single market and receives deliveries from
one regional warehouse.

The warehouses receive items from the manufacturing facility. By and large, it takes about two weeks to
satisfy an order placed by any of the regional warehouses. In recent years, NEEL has seen a significant
increase in competition and huge pressure from their customers to improve service levels and reduce costs.
With an aim to improve service level and reduce costs, NEEL would like to consider an alternative
distribution strategy in which the five regional warehouses are replaced with a single, central warehouse
that will be in charge of all customer orders.

a) Suggest Mr. Hrishikesh, the owner of NEEL, to design a new logistics network consisting of
only a single warehouse.

b) If you are the consultant to the above assignment, suggest an outline of such an analysis. What
are the main steps? What data would you ask Mr. Hrishikesh to provide?

c) Present the advantages and disadvantages of the newly suggested distribution strategy relative
to the existing distribution strategy, in bullet points? [10]

Q3. You are manager of the company where you interned yourself. Contrast the supply chain issues you
would face if your firm is located in each of the following countries: Belgium; China; Russia; Singapore;
Canada; Argentina; Nigeria. [10]

Q4. Consider a large discount store. Discuss some products and suppliers for which the discount store
should use a cross docking strategy; some products and supplies better suited to a direct-shipment strategy;
and finally, some products and suppliers for which the discount store should utilize a change to “traditional
warehousing strategy”. [5]

Q5. Discuss a recent example of a known-unknown risk that proved damaging to a service supply chain.
Explain specifically how each of the following strategies might have mitigated this risk:

 Invest in redundancy
 Increase velocity in sensing and responding
 Create an adaptive supply chain community [5]

All the Best