Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

Q : 1(a). Filling petrol or diesel in our vehicles is a very common activity that we all do regularly. With
the information available openly, can you identify the supply chain for petroleum products?

Ans: Supply chain is the activities required by the organization to deliver goods or services to the
consumer. The goal of supply chain management is to look holistically at the entire supply chain from
supplier through to the consumer, and review three core areas of people, process and systems in order
to maximize value from all activities.

1(b). The definition of supply chain contains a very important word “information”. In your opinion, what
Information is being referred?

Ans: Information is crucial to the performance of a supply chain because it provides the basis on which
supply chain decision makers make decisions. It is a key supply chain driver because it serves as the glue that
allows the other supply chain drivers to work together to create an integrated, coordinated supply chain.
Without information, a manager cannot know what customers want, how much inventory is in stock, and
when more products should be produced or shipped. Information provides the ultimate supply chain
visibility. In summary, information is crucial to making good supply chain decisions at all three levels of
decision making (strategy, planning, and operations) and in each of the other supply chain drivers (facilities,
inventory, transportation, sourcing, and pricing).

1(c). A company is into manufacturing an antibiotic product. This is for veterinarian purposes. During
floods when animals such as cows, buffalos, or other bovine species have digestive disorders, this
medicine is very effective. If you were to give a thought to have a supply chain designed for this
company, what will be your choice- responsiveness or efficiency? Ideally, how will you balance these
both?
Ans: The Company needs to manage effectively sudden high surge in demand situation and a normal demand
situation. In Normal situations i.e., when there is no flood the company needs to focus on efficiency and
stocking up sufficient inventory to face the crisis. They might need to run at full capacity during normal tie to
stock inventory as per the demand forecast. During floods, company needs to prepare itself to be agile and
highly responsive to the market situation and supply anti biotic products. It can’t delay the supply of anti-
biotic products in those crisis situations. So, it needs to maintain agility in delivery of stocked inventory and
ensure anti-biotic availability at all parts where they are accessed. Hence To balance supply-demand, the
company needs to responsive and efficient as well.

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

1(d). Consider the situation of a pharmaceutical manufacturer. The basic raw material is abundantly
available and that comprises almost 75% of the total cost of the finished product. However, they also
require some other ingredients that are not very expensive and are required in small quantities but are
available only seasonally. What type of inventory strategy you would suggest to this company and
why?
Ans: The ingredients though are not very expensive but are Vital in terms of its availability only during the
season. Hence Purchases and Inventory must be specifically planned, monitored and executed for those
ingredients which are only available seasonally with prudent care as like an AV (A category Vital Product).
They should hold a sufficient safety stock forecasting demand and supply. We will go with Seasonal of
Seasonal classification of inventory strategy. It is because we can procure the ingredient only during a
particular season, whereas we require the ingredient to be in inventory throughout the year. As without that
ingredient, we can’t manufacture the finished product.

Meanwhile the other raw materials & non vital ingredients to be classified by Pareto Principle as ABC
Category based on the contribution value and percentage and supply chain to be planned suitably.
The medical products in the system, such as drugs and other pharmaceuticals, are perishable. It is necessary
to keep track of the ages of units in stock and to plan and control the inventory accordingly.

1(e). Following are the details of a major cycle manufacturer

 Have operations spanned in North India at three locations

 More than 300 suppliers have been contracted in the South East Asian countries for the
supply of parts
 All these supplies are not critical but need to have a steady flow at the factory sites
 Each suppliers’ volume of supply is small.

Looking at these bare minimum facts, what macro-level logistics strategy would you suggest? If need
be, you may have assumptions, but do mention them in your answer.
Ans: With the given information, we must follow the time utility macro-level logistics strategy. The Sourcing
and Procurement synchronization must be agile. All the supplies need to be at the factory site at a specific
time, but some delays can be taken care of. In case a company doesn't receive the supply from a particular
supplier, the company can switch to a different supplier. But a final product can’t be manufactured or termed
as a finished product with a missing part, even if that part might not be critical. Once, the finished product is
manufactured, the company should follow place-level logistics strategy. The finished product must reach the
location depending upon the demand of product at each location.

Further, there are 300 different suppliers for spare parts, which increases the cost of managing the suppliers.
The company can implement a supplier tiring model in which the top performing suppliers receive priority
orders. This will result in greater bargaining power with suppliers and greater responsiveness from suppliers.

Now, all Suppliers are in Southeast Asia. This may result in a variety of risk factors, such as geopolitical risks
or unrest in a specific region. It may also expose the supply chain to acts of God in a specific geography for
example Floods, cyclones etc.
All three of India's factories are in the country's north. Spare parts, which are currently sourced from
Southeast Asia, will be shipped by sea rather than air. To mitigate these risks, it is suggested that the
company establish one factory in an industry-friendly port state in Central or South India.

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

Q. 2. Following data is sourced from the regulatory authorities. Using this data, build the below-given
forecasting models:

Naive Forecast

2 Months moving Average

Exponential Smoothing (alpha =0.3)

Out of the above three, which model will give the most accurate results (Using MAD- Mean Absolute
Deviation to compare the models)
Ans:

Naive Forecast Method:

Category Year Production Naive Forecast Errror Absolute deviation
Light Commercial Vehicles 31-03-2006 68,922
Light Commercial Vehicles 31-03-2007 65,756 68,922 -3,166.00 3166
Light Commercial Vehicles 31-03-2008 83,195 65,756 17,439.00 17439
Light Commercial Vehicles 31-03-2009 1,08,917 83,195 25,722.00 25722
Light Commercial Vehicles 31-03-2010 1,38,890 1,08,917 29,973.00 29973
Light Commercial Vehicles 31-03-2011 1,71,788 1,38,890 32,898.00 32898
Light Commercial Vehicles 31-03-2012 2,25,724 1,71,788 53,936.00 53936
Light Commercial Vehicles 31-03-2013 2,54,049 2,25,724 28,325.00 28325
Light Commercial Vehicles 31-03-2014 2,24,587 2,54,049 -29,462.00 29462
Light Commercial Vehicles 31-03-2015 3,17,423 2,24,587 92,836.00 92836
Light Commercial Vehicles 31-03-2016 4,08,193 3,17,423 90,770.00 90770
Light Commercial Vehicles 31-03-2017 5,44,335 4,08,1931,36,142.00 136142
Light Commercial Vehicles 31-03-2018 5,53,184 5,44,335 8,849.00 8849
5,53,184

45793.16667 Mean Absolute Deviation

Two Months Moving Average:

Category Year Production Moving Average Forecast Error Absolute deviation Moving Average Forecast Error Absolute deviation
Light Commercial Vehicles 31-03-200 6 68,922
Light Commercial Vehicles 31-03-200 7 65,756
Light Commercial Vehicles 31-03-200 8 83,195 67,339.0 15,856.00 15856 67022.4 16,172.6 16172.6
Light Commercial Vehicles 31-03-200 9 1,08,917 74,475.5 34,441.50 34441.5 76219.4 32,697.6 32697.6
Light Commercial Vehicles 31-03-201 0 1,38,890 96,056.0 42,834.00 42834 98628.2 40,261.8 40261.8
Light Commercial Vehicles 31-03-201 1 1,71,788 1,23,903.5 47,884.50 47884.5 126900.8 44,887.2 44887.2
Light Commercial Vehicles 31-03-201 2 2,25,724 1,55,339.0 70,385.00 70385 158628.8 67,095.2 67095.2
Light Commercial Vehicles 31-03-201 3 2,54,049 1,98,756.0 55,293.00 55293 204149.6 49,899.4 49899.4
Light Commercial Vehicles 31-03-201 4 2,24,587 2,39,886.5 -15,299.50 15299.5 242719 -18,132.0 18132
Light Commercial Vehicles 31-03-201 5 3,17,423 2,39,318.0 78,105.00 78105 236371.8 81,051.2 81051.2
Light Commercial Vehicles 31-03-201 6 4,08,193 2,71,005.0 1,37,188.00 137188 280288.6 1,27,904.4 127904.4
Light Commercial Vehicles 31-03-201 7 5,44,335 3,62,808.0 1,81,527.00 181527 371885 1,72,450.0 172450
Light Commercial Vehicles 31-03-201 8 5,53,184 4,76,264.0 76,920.00 76920 489878.2 63,305.8 63305.8
5,48,759.5

Mean Absolute Mean Absolute

68703.04545 deviation 64896.10909 deviation

Exponential Smoothing: (Alpha = 0.3)

Category Year Production Exponential Forecast Error Absolute Error Alpha 0.3
Light Commercial Vehicles 31-03-2006 68,922 68,922 0.00 0
Light Commercial Vehicles 31-03-2007 65,756 68922 -3,166.00 3166
Light Commercial Vehicles 31-03-2008 83,195 67972.2 15,222.80 15222.8
Light Commercial Vehicles 31-03-2009 1,08,917 72539.04 36,377.96 36377.96
Light Commercial Vehicles 31-03-2010 1,38,890 83452.428 55,437.57 55437.572
Light Commercial Vehicles 31-03-2011 1,71,788 100083.6996 71,704.30 71704.3004
Light Commercial Vehicles 31-03-2012 2,25,724 121594.9897 1,04,129.01 104129.0103
Light Commercial Vehicles 31-03-2013 2,54,049 152833.6928 1,01,215.31 101215.3072
Light Commercial Vehicles 31-03-2014 2,24,587 183198.285 41,388.72 41388.71504
Light Commercial Vehicles 31-03-2015 3,17,423 195614.8995 1,21,808.10 121808.1005
Light Commercial Vehicles 31-03-2016 4,08,193 232157.3296 1,76,035.67 176035.6704
Light Commercial Vehicles 31-03-2017 5,44,335 284968.0307 2,59,366.97 259366.9693
Light Commercial Vehicles 31-03-2018 5,53,184 362778.1215 1,90,405.88 190405.8785
Next Period 419899.8851

90481.40643 Mean Absolute Deviation

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

MAD gives us the deviation of the data from the actual one.

MAD value of the Naive Forecast is small (45793.16667) and it shows the most accurate results.

Q. 3. Below are the details of the inventory of a store dealing with automobile spare parts. Using the
concepts of ABC analysis, categorize the spare parts into A, B, and C categories. (If required, you may
have assumptions, but do mention them in your answer)

Unit
Sno. Item Cost Annual Usage
(Rs)
1 Oil Filter 2200 150
2 Head Lamp 395 140
3 Fuеl Filter 270 95
4 Rod Bearing 1430 45
5 Air Filter 860 120
Wind
6 12000 90
Screen
7 Piston Rink 4500 250
8 Bumper 8000 110
Main
9 1130 120
Bearing
10 Bush 169 1160

Ans:
We have categorized Class A parts which are having contribution percentage more than 10 % which has
80% of the contribution as per pareto principle. Class B parts are those which have more than 5%
contribution percentage and has further 15% of contribution percentage as per Pareto Principle. Class C
parts are those which have less than 5% Contribution Percentage.

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

Cumulative
Unit Cost Contribution
Sno. Item Annual Usage Contribution Contribution ABC Classification
(Rs) Percentage
Percentage

1 Piston Rink 4500 250 1125000 28.2% 28.2%

2 Wind Screen 12000 90 1080000 27.0% 55.2% A
3 Bumper 8000 110 880000 22.0% 77.2%
4 Oil Filter 2200 150 330000 8.3% 85.5%
5 Bush 169 1160 196040 4.9% 90.4% B
6 Main Bearing 1130 120 135600 3.4% 93.8%
7 Air Filter 860 120 103200 2.6% 96.4%
8 Rod Bearing 1430 45 64350 1.6% 98.0%
C
9 Head Lamp 395 140 55300 1.4% 99.4%
10 Fuеl Filter 270 95 25650 0.6% 100.0%

Total Contribution 3995140

Q. 4. Here is the data of Tata Motors and Ashok Leyland. Compare the year-wise performance of
these two companies based upon the techniques covered in SCM. Also please state which company is
doing better and why?

Tata Motors
80.00
66.97
70.00 60.56
56.82
60.00
50.00 43.85
39.98
40.00 32.22 34.55
27.69 30.04
30.00 20.33
20.00
10.00
0.00
2015 2014 2013 2012 2011
Year

Inventory Days Ratio (COGS) Inventory Days ratio (Revenue)

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

Ashok Leyland
120.00
99.94
100.00 91.79 89.24
73.38
80.00 66.42
59.15 59.98
52.72
60.00
41.54
35.55
40.00

20.00

0.00
2015 2014 2013 2012 2011
Year

Inventory Days Ratio (COGS) Inventory Days ratio (Revenue)

Ans: As shown in the above graph, Ashok Leyland is improving year after year, and its IDR (Inventory Day
Ratio) is decreasing, implying that it is taking less time than the previous year to convert goods (Work In
Progress) to sales.

Whereas Tata Motors were doing good from 2012-2014 but again in 2015 their IDR has increased. They
are again taking more time from WIP to sales as compared to 2012- 2014 duration.

Ashok Leyland has a better Inventory days ratio when compared to Tata Motors

Tata Motors
20.00 17.81

15.00 13.07
11.33 12.05
10.48
9.06 8.32
10.00
6.03 6.42
5.45
5.00

0.00
2015 2014 2013 2012 2011
Year

Inventory Turnover (COGS) Inventory Turnover (Revenue)

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

Ashok Leyland
12.00
10.18
10.00 8.71

8.00 6.87
6.17 6.03
5.45
6.00 4.97
3.98 4.09
3.65
4.00

2.00

0.00
2015 2014 2013 2012 2011
Year

Inventory Turnover (COGS) Inventory Turnover (Revenue)

Ans: Inventory turnover indicates the rate at which a company sells and replaces its stock of goods during a
particular period.

The higher the inventory turnover, the better, since high inventory turnover typically means a company is
selling goods quickly, and there is considerable demand for their products.

Low inventory turnover, on the other hand, would likely indicate weaker sales and declining demand for a
Company’s products.

According to the graph above, Ashok Leyland is progressing and improving its inventory turnover ratio year
on year, whereas Tata Motor shows some improvement from 2012 to 2014, increasing its inventory
turnover ratio, but it crumbled very badly in 2015, which is not a good sign for Tata Motors.

Ashok Leyland has a better Inventory Turnover when compared to Tata Motors.

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

Inventory Days Ratio (COGS) - Tata Motors & Ashok Leyland

120.00
99.94
100.00 91.79 89.24
73.38
80.00 66.97
59.15 60.56 56.82
60.00 43.85
32.22
40.00

20.00

0.00
2015 2014 2013 2012 2011
Year

Inventory Days Ratio (COGS) Inventory Days Ratio (COGS)

Ans: As shown in the chart above, even though Tata Motors began with far fewer days of average inventory
in stock in 2011, turnover days increased significantly in 2015; whereas Ashok Leyland (AL) did a better job
of inventory management and steadily reduced its inventory days ratio to less than that of Tata Motors in
2015.

Inventory Turnover (COGS) - Tata Motors and Ashok Leyland

11.33
12.00

10.00 8.32
8.00 6.17 6.42
6.03
5.45 4.97
6.00
3.98 4.09 3.65
4.00

2.00

0.00
2015 2014 2013 2012 2011
Year
Inventory Turnover (COGS) Inventory Turnover (COGS)

Ans: The graph above depicts how Ashok Leyland has improved its inventory management by increasing
inventory turnover year after year, whereas Tata Motors has seen a decrease in inventory turnover.

Furthermore, for both ratios, Ashok Leyland shows an improving trend, whereas the data indicates that Tata
Motors is inconsistent in its approach to inventory management, resulting in peaks and dips in the Inventory
Management metrics.

Based on the data and observations presented above, it is reasonable to conclude that Ashok Leyland has a
more consistent and improving approach to inventory management.

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

Q : 5. Here is the data of passenger traffic of a very busy international airport. Using MS Excel build-
in Forecast Sheet, forecast for next 5 years for domestic and international passenger traffic. Share
insights on your forecast.

Ans:
Forecast – Domestic Passenger Traffic

Statistic Value
Alpha 0.751
Beta 0.001
Gamma 0.001
MASE 0.547
SMAPE 0.022
MAE 759933.612
RMSE 945109.557

70
Millions

60

50

40
30

20

10

Domestic Forecast(Domestic)
Lower Confiden ce Bound(Do mes tic) Upper Confiden ce Bound(Do mes tic)
Linear (Forecast(Do mes tic))

Insights:

We could observe in the forecast that domestic passenger traffic to increase in 2017, 2018, and 2019, but
there be a fell in 2021 and then to increase only marginally in 2022. The overall trend is positive.

We cannot predict Long Term Cyclic Pattern & Random Variations with the data available.

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

Ans:

Forecast – International Passenger Traffic

Statistic Value
Alpha 0.900
Beta 0.899
Gamma 0.000
MASE 0.792
SMAPE 0.030
MAE 282084.717
RMSE 327775.923

60
Millions

50

40

30

20

10

-10

-20

International Forecast(International)
Lower Confidence Bound(International) Upper Confidence Bound(International)
Linear (Forecast(International))

Insights:

We could observe in the forecast that International passenger to increase linearly. The overall trend is also
positive.

We cannot predict Long Term Cyclic Pattern & Random Variations with the data available.

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

Q: 6. Demand for the Carrom Board at a sports shop is 500 units per month. This shop incurs a fixed
order placement, transportation, and receiving cost of Rs. 4,000 each time an order is placed. Each
carrom board costs Rs. 500 and has a holding cost of 20 percent. Evaluate the number of carrom
boards that the store manager should order in each replenishment lot? Secondly, also calculate
the total cost for EOQ.

Ans:

N Annual Consumption 6000 Pcs

ICC Inventory Carrying Cost 0.2 Percentage
OC Ordering cost 4000 INR
UP Unit Price 500 INR

Q Order Quantity Q Pcs

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 Individual Assignment – Operations and Supply Chain Management

Balakrishnan S

By Using above formula when we substitute values of N, OC, UP and ICC we get the value of Q.

Here, Q or EOQ = Quantity to be ordered = Square root of ((2*6000*4000)/(500 *0.2 ))

Therefore, Q or EOQ = Economic Quantity to be ordered is 693 Pcs

Inventory Cost = ((693/2) *500*0.2)

Inventory Cost = 34650 INR

Order Cost = ((6000/693) *4000)

Order Cost = 34632 INR

Therefore, Total Cost = Inventory Cost + Order Cost = 34650 + 34632

Total Cost for EOQ = 69282 INR.

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