National Institute of Industrial Engineering

Operations Research Project

Production Planning and Scheduling for Hero

Cycles using Simulation Technique

Submitted to:
L. Ganapathy

Submitted by:
Rajat Mittal 1902183
Manas Rupainwar 1902128
Shashwat Sinha 1902210
Anurag Joshi 1802099
Vipul Sahu 1802010
Ayush Kumar 1905011
 Production Planning and Scheduling for Hero Cycles

Introduction

Hero Cycles was established in 1956 in Ludhiana Punjab and started with manufacturing
bicycle components. Today, Hero Cycles is the one of the world’s largest manufacturer of
Bicycles and producing 19,000 cycles per day. Hero Cycles is part of Hero Motors Company.
At present, Hero cycles exports to over 70 countries including Germany, Poland, Africa,
Finland, UK and Europe etc. The company is ISO9001 & ISO14001 Certified from BVC of UK
and recognized by the R&D department by the Govt. of India.
The company has over 250 suppliers’ network, approx. 2800 dealerships & over 7610
employees. Hero Cycles has also entered into Mid Premium, Premium & Super Premium
segment under the brand names Hero Sprint, Hero Sprint Pro & UT (formerly called —
Urbantrail). As part of its strategy to further cement its position in the fast-growing
premium cycling segment in India, Hero Cycles acquired Firefox Bikes, India’s largest
premium bicycle brand. Firefox Bikes has established presence pan-India through a network
of 160 outlets and has been growing at a 3-year CAGR of 35% in revenue.

Objective

Our aim is to do the production planning of Hero cycles (for a particular type of bicycle) in
order to optimize the inventory and increase the profit thereby.
We have used Simulation method for this project as it creates various scenarios with the
change in demand for the particular product.
Model/Formulation

We have used Monte Carlo simulation method using Random numbers for giving the
demand.
As per the company, it has a reorder policy as follows:
Parameter
Scenario Reorder point Reorder quantity
1 400 800
2 400 1000
3 400 1200
4 500 1000
5 500 1200
6 600 1000
7 600 1200

We need to find out which is the best order policy and gives maximum profit.
Mean Demand = 400
Standard deviation = 100
Using Normal Distribution (NORMINV) we calculate the demand for every month for 4
years.
Beginning inventory = 700 (Given)
Ending Inventory = Beginning inventory – Sales
If ending inventory> 400, then no order will be placed.
If Ending inventory<= 400, an order of 1000 bicycles will be placed
Holding cost = 50/unit
Total Holding cost = Ending inventory*70
Profit = Sales- (Order cost+ Holding cost+ Product cost)
Stockout occurs when Demand> Inventory available
Only 2 stockouts occurred in 4 years data.
Salvage value = Rs 1500
Excel simulation

Given data:
Mean demand(per Month) 400
Standard Deviation 100
Fixed order cost 600
Unit cost 1700
Sales price 3600
Holding cost 50
Salvage value 1500

Beginning inventory 700

Reorder point 400

Reorder quantity 1000

Simulated data:
 Simulation of 48-month period

Simulation of 24-month period

Month Beginning Inv Random no. Demand UnitsSold End Inv OrderSize OrderCost Sales rev HoldingCost Stockout? Profit
1 700 0.100 272 272 428 0 $0 $9,78,072 $21,416 0 $4,94,789
2 428 0.500 400 400 28 1000 $17,00,600 $14,39,792 $1,419 0 -$9,42,128
3 1028 0.387 371 371 657 0 $0 $13,36,684 $32,853 0 $6,72,619
4 657 0.025 204 204 453 0 $0 $7,33,474 $22,666 0 $3,64,445
5 453 0.319 353 353 100 1000 $17,00,600 $12,70,600 $5,019 0 -$10,35,025
6 1100 0.321 354 354 747 0 $0 $12,72,948 $37,339 0 $6,34,494
7 747 0.635 435 435 312 1000 $17,00,600 $15,64,518 $15,610 0 -$8,90,492
8 1312 0.800 484 484 828 0 $0 $17,43,156 $41,399 0 $8,78,599
9 828 0.107 276 276 552 0 $0 $9,92,111 $27,620 0 $4,95,994
10 552 0.088 265 265 288 1000 $17,00,600 $9,52,877 $14,386 0 -$12,12,078
11 1288 0.146 294 294 993 0 $0 $10,60,168 $49,661 0 $5,09,872
12 993 0.012 173 173 820 0 $0 $6,23,268 $41,005 0 $2,87,943
13 820 0.394 373 373 447 0 $0 $13,43,252 $22,348 0 $6,86,590
14 447 0.608 427 427 19 1000 $17,00,600 $15,38,976 $974 0 -$8,89,336
15 1019 0.237 328 328 691 0 $0 $11,82,433 $34,551 0 $5,89,511
16 691 0.301 348 348 343 1000 $17,00,600 $12,52,635 $17,153 0 -$10,56,640
17 1343 0.652 439 439 904 0 $0 $15,80,333 $45,204 0 $7,88,860
18 904 0.049 234 234 670 0 $0 $8,42,817 $33,498 0 $4,11,322
19 670 0.712 456 456 214 1000 $17,00,600 $16,41,298 $10,703 0 -$8,45,062
20 1214 0.918 539 539 675 0 $0 $19,41,136 $33,742 0 $9,90,746
21 675 0.288 344 344 331 1000 $17,00,600 $12,38,798 $16,537 0 -$10,63,327
22 1331 0.141 293 293 1038 0 $0 $10,53,261 $51,908 0 $5,03,979
23 1038 0.458 389 389 649 0 $0 $14,01,706 $32,440 0 $7,07,349
24 649 0.881 518 518 131 1000 $17,00,600 $18,65,328 $6,533 0 -$7,22,654
25 1131 0.945 560 560 571 0 $0 $20,16,283 $28,529 0 $10,35,620
26 571 0.276 341 341 230 1000 $17,00,600 $12,26,279 $11,497 0 -$10,64,894
27 1230 0.012 174 174 1056 0 $0 $6,27,092 $52,788 0 $2,78,178
28 1056 0.042 228 228 828 0 $0 $8,19,685 $41,403 0 $3,91,209
29 828 0.862 509 509 319 1000 $17,00,600 $18,32,587 $15,950 0 -$7,49,352
30 1319 0.172 306 306 1014 0 $0 $10,99,819 $50,675 0 $5,29,785
31 1014 0.467 392 392 622 0 $0 $14,10,179 $31,089 0 $7,13,172
32 622 0.624 432 432 190 1000 $17,00,600 $15,53,550 $9,512 0 -$8,90,183
33 1190 0.730 461 461 729 0 $0 $16,60,107 $36,455 0 $8,39,712
34 729 0.341 359 359 370 1000 $17,00,600 $12,92,297 $18,507 0 -$10,37,061
35 1370 0.670 444 444 926 0 $0 $15,98,238 $46,309 0 $7,97,205
36 926 0.590 423 423 503 0 $0 $15,22,270 $25,166 0 $7,78,254
37 503 0.811 488 488 15 1000 $17,00,600 $17,56,737 $767 0 -$7,74,200
38 1015 0.412 378 378 638 0 $0 $13,60,196 $31,876 0 $6,86,006
39 638 0.938 554 554 84 1000 $17,00,600 $19,94,425 $4,175 0 -$6,52,162
40 1084 0.799 484 484 600 0 $0 $17,42,286 $29,977 0 $8,89,563
41 600 0.980 606 600 0 1000 $17,00,600 $21,58,329 $0 1 -$5,61,482
42 1000 0.766 473 473 527 0 $0 $17,01,224 $26,372 0 $8,71,496
43 527 0.356 363 363 164 1000 $17,00,600 $13,07,525 $8,212 0 -$10,18,729
44 1164 0.043 228 228 936 0 $0 $8,21,278 $46,805 0 $3,86,647
45 936 0.915 537 537 399 1000 $17,00,600 $19,33,206 $19,955 0 -$7,00,252
46 1399 0.213 321 321 1079 0 $0 $11,54,034 $53,927 0 $5,55,147
47 1079 0.841 500 500 579 0 $0 $17,99,097 $28,939 0 $9,20,584
48 579 0.451 388 388 191 1000 $17,00,600 $13,95,228 $9,561 0 -$9,73,791
Totals $1,53,05,400 $3,08,49,641 $6,15,985

The data is simulated multiple times for different reorder points (400, 500, 600) and
different ordering quantities (800, 1000, 1200). Under these different scenarios, profit is
calculated based on different stockouts occurring. The Best case is chosen as the order
policy.

Attached excel sheet for further information

Planning and
scheduling.xls

Results and Conclusion

Simulation does not always give the best/optimum solution as the solver method. It gives
various scenarios out of which we need to pick the best one. In this case, we studied 18
different scenarios with different values of reorder point, quantity and number of stockouts.
The best solution is picked giving the maximum profit.
The best profit appears to be obtained with scenario 1, that is, a reorder point of R=400 and
an order quantity of Q=800.
However, scenario 2, that is, R=400 and Q=1000, is extremely close in profit to scenario 1.