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AGARWAL AUTOMOBILES: INVENTORY

MANAGEMENT

OPERATIONAL MANAGEMENT –CASE

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Agarwal Automobile : An Overview

 Agarwal Automobiles is an authorized fuel station for Bharat Petroleum Corporation Limited (BPCL), a major
oil and gas company located in the Sagar district of Madhya Pradesh.
 Mr. Alok Agarwal founded Agarwal Automobiles when he signed a dealership contract with BPCL in March
1981.
 Mr. Alok Agarwal bought the premises for the fuel station, but the fuel dispensing machines were installed by
BPCL.
 Agarwal Automobile has been performing well for last 35 years and it has been recognized by the BPCL
several times for its excellence in performance.
 Agarwal Automobiles sold three main products at the fuel station: diesel, petrol, and high-speed petrol (HSP).
 In March 2015, the fuel station was renovated and was transformed into a next-generation pump station.
 Agarwal Automobiles did not use any formal analytical techniques to govern ordering and inventory
management policies.
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Agarwal Automobile : Present Scenario

 Most of the operating decisions of the business were based on simple operating principles combined with
managerial intuition.
 Mr. Alok Agarwal looking for a better way to tackle the demand properly in order to serve the customers effectively
and to maximize the profits at the same time.
 The available data for the previous six months suggested that the company held an average ending inventory of
₹2.1 million worth of fuel products to maintain average daily sales of ₹0.52 million.
 Mr. Agarwal's main concerns is about the optimum inventory level that should be kept in order to fulfil the demand
of the customers. Also what, when, and how much to order are the main issues when it comes to determining the
purchase policy of the firm.
 Aditya Agarwal, son of Mr. Alok Agarwal, a IIM-Indore graduate with specialization in Supply chain management
took the responsibility to analyze the current status and suggest suitable solution to maintain a optimum inventory
without affecting the customer demand.
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Agarwal Automobile : Total Sales Vs Total Margin
Month-wise distribution of last 3 Years

 Analyzing the Monthly sales data of last 3 years, indicate that the overall sales and margin were quite stable from June’13 to
Dec’14.
 Both Sales and corresponding margin increased in 2015 gradually to a all time high in Oct-Nov’15.
 Sales and margin dipped in initial 5 months in 2016, compared to 2015 average.

Total Sales Vs Margin - Last 3 Years Total Sales Total Margin

25000000 1200000
23000000
21000000 1000000
19000000
800000
17000000
15000000 600000
13000000
11000000 400000

9000000
200000
7000000
5000000 0
13 l-13 13 13 t-13 13 13 14 14 r-14 r-14 14 14 l-14 14 14 t-14 14 14 15 15 r-15 r-15 15 15 l-15 15 15 t-15 15 15 16 16 r-16 r-16 16
n- Ju g- p- c ov- e c- n- b- a p a y- n- u ug- p- c ov- e c- n- b- a p a y- n- u g- p- c ov- e c- n- b- a p a y-
Ju Au S e O N D J a F e M A M J u J A S e O N D J a F e M A M J u J Au S e O N D J a F e M A M
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Agarwal Automobile : Product-wise Sales Trend
April’09-May’16

 Diesel sales shows a gradual downward trend since Dec’15.

 Petrol sales shoot up since Mar’15
 Slight downward trend observed in High Speed Petrol sales.

Month-wise Sales Trend (in INR) Diesel SP Petrol SP HSP SP

16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
9 9 9 9 9 0 0 0 0 0 0 1 1 1 1 1 1 2 2 2 2 2 2 3 3 3 3 3 3 4 4 4 4 4 4 5 5 5 5 5 5 6 6
r-0 n-0 g-0 t-0 c-0 b-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1
Ap Ju Au Oc De Fe A J A O D F A J A O D F A J A O D F A J A O D F A J A O D F A J A O D F A
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Agarwal Automobile : Product-wise Sales Trend
April’09-May’16

 Diesel Margin shows a gradual downward trend in initial 5 months of 2016.

 Petrol margin shoot up since Mar’15
 Slight downward trend observed in High Speed Petrol margin also.

Month-wise Margin (in INR) Diesel M Petrol M HSP M

400000
350000
300000
250000
200000
150000
100000
50000
0
9 9 9 9 9 0 0 0 0 0 0 1 1 1 1 1 1 2 2 2 2 2 2 3 3 3 3 3 3 4 4 4 4 4 4 5 5 5 5 5 5 6 6
pr-0 un-0 ug-0 ct-0 ec-0 eb-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1 un-1 ug -1 ct-1 ec-1 eb-1 pr-1 un-1 ug-1 ct-1 ec-1 eb-1 pr-1
A J A O D F A J A O D F A J A O D F A J A O D F A J A O D F A J A O D F A J A O D F A
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Agarwal Automobile : Sales (in litre) Forecast June-
Dec’16

 Considering sales volume (in litre) between period Jul’15-May’16, the Sales forecast
Coil for period June-Dec’16 shows a
overall downward trend.

Month Diesel Petrol HSP Total

Jul'15 Act 137,973 104,650 10,944 253,567
Sales (in ltrs) Forecast Jun-Dec'16
Aug'15 Act 128,200 100,541 13,905 242,646 250,000
Sep'15 Act 185,919 110,441 15,029 311,389 Sell Diesel Sell Petrol Sell HSP
Oct'15 Act 232,151 126,279 14,145 372,575
Nov'15 Act 223,190 137,375 11,367 371,932 200,000
Dec'15 Act 160,290 112,993 11,287 284,570
Jan'16 Act 132,146 102,289 10,846 245,281 150,000
Feb'16 Act 133,871 97,823 9,064 240,758
Mar'16 Act 140,204 108,273 10,626 259,103
100,000
Apr'16 Act 143,070 118,033 7,158 268,261
May'16 Act 142,884 104,723 7,558 255,165
Jun'16 FC 141406 109684 7386 258,476 50,000
Jul'16 FC 129444 107572 6008 243,024
Aug'16 FC 110635 103447 5022 219,104
0
Sep'16 FC 98561 99778 4375 202,713 t t t t t t t t t t t
Ac Ac Ac Ac Ac Ac Ac Ac Ac Ac Ac FC FC FC FC FC FC FC
Oct'16 FC 97130 98900 3829 199,859 5 5 5 5 5 5 6 6 6 6 6 16 16 16 16 16 16 16
l' 1 '1 '1 t' 1 '1 1 ' ' ' ' ' ' '
g ep v'1 c'1 an
'1
eb r'1 r' 1
ay
' n Ju
l g p
Oc
t v c
Nov'16 FC 100347 101771 2961 205,079 Ju Au S Oc No De J F M
a Ap M
Ju Au Se No De
Dec'16 FC 96744 102021 2170 200,935
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Agarwal Automobile : SWOT analysis

Strengths Weakness
1. Good past performance, recognized by BPSL several times, 35 years
1. Agarwal Automobiles did not use any formal analytical techniques to govern
of experience in same business.
ordering and inventory management policies.
2. In Mar’15, the fuel station was renovated and new machines are
2. Most of the operating decisions of the business were based on simple
installed, have larger inventory carrying capacity and can serve large
operating principles combined with managerial intuition.
no of customer at a time
3. the company held an average inventory of ₹2.1 million worth of fuel products
3. Mr. Alok’s eagerness to thrive for excellence by minimizing the
to maintain average daily sales of ₹0.52 million.
inventory cost and operational excellence.

Opportunities Threats

1. Very high competition from other fueling stations.

1. The automobile fueling industry was witnessing rising consumer
2. Constant pressure from the parent company to increase sales.
demand. Very encouraging business prospect.
3. To maintain a high customer service level, the fuel station keep high
2. During FY 2015–16, overall consumption of petrol and diesel grew
inventory levels.
by 7.5% and 14.5%, respectively.
3. Operating costs to run a fueling station is not as high compared to
the profit it yields.
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Problem Statement & Expected approach
for their solution

 How Agarwal Automobile can reduce the inventory level and while
maintaining a high customer service level?

 What are the changes needed in inventory management policy so

that the purchase head can take better purchase decision?
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Expected approach for the case solution

To develop an Inventory rationalize model so that the referred

company can adopt to manage its inventory for future.