Assessment II – Operations & Supply Management

Manikandan Balasubramanian

Q1(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-

A. We can observe that the Supply Chain in Petroleum Industry starts from Crude Purchase and Transport,
Crude Storage and Product Distribution. Then followed by marketing the base product and Product Storage
(Terminal/ Depot/ Port) and then Refining after which Supply Planning and Distribution Planning is done before
reaching to end customers.

Different Stages in Petroleum Supply chain Exploration is as below:

1. Production
2. Refining
3. Marketing
4. Consumer
5. Exploration: Seismic, geophysical and geological operations
6. Production: Drilling, reservoir, production and facilities engineering.
7. Refining: complex operation and its output is the input to marketing.
8. Marketing: The retail sale of gasoline, engine oil and other refined products.
Q1(b). The definition of supply chain contains a very important word “information”. In your opinion, what
information is being referred to?
Ans-

Information is crucial to the performance of a supply chain because it provides the basis on which supply chain
managers make decisions. Information technology consists of the tools used to gain awareness of information,
analyze this information, and execute on it to improve the performance of the supply chain.

Information is essential in making good supply chain decisions because it provides the broad view needed to
make optimal decisions.

Information is a key supply chain driver because it serves as the association or bridge that allows the other
supply chain drivers to work together to create an integrated, coordinated supply chain. It is as crucial to supply
chain performance because it provides the foundation on which supply chain processes execute transactions
and managers make decisions. Without information, a manager cannot know what customers want, how much
inventory is in stock, and when more products should be produced or shipped.

Using IT systems to capture and analyse information can have a significant impact on a firm’s performance.
Availability and analysis of information to drive decision-making is key to the success of a supply chain. To
support effective supply chain decisions, information must have the following characteristic

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)

Q1c . 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: Antibiotics are medicines that have activity(fight/grow) against bacteria. They may function by either killing
the bacteria or by inhibiting the growth and proliferation of bacteria. They are either bacteriostatic or
bactericidal, allowing the animal’s immune system to more effectively fight a bacterial infection. In any case, the
bottom line is that an antibiotic treatment stops the growth of a bacterial infection so the host (i.e., the animal)
can eliminate it. The animal can then recover and return to health.

As per the question below is the Supply Chain diagram and brief description on Antibiotic product.
The supply of veterinary drugs in country is made up of several actors who play distinct but complementary
roles and who are mainly from the private sector. Drug manufacturers are the first level of actors, They are
mostly based abroad and include international reputed pharmaceutical companies which have established a
market in Africa.

The primary wholesalers (or drug importers/distributors) are in the country and they hold large-scale business
dealing directly with manufacturers. They supply drugs to secondary wholesalers and retailers, and to some
extent to the government.

The secondary wholesalers hold medium scale businesses and mainly redistribute drugs to retailers and to
AHSPs such as veterinarians and para-veterinarians, who supply to farmers some of whom practice self-
medication.

Primary and secondary wholesalers have their main branches located in the capital city. Drug retailers are
located in the regions (or districts), and around municipalities from where they have access to infrastructures
such as electricity. They mainly supply drugs to AHSPs and to livestock farmers. Drug retailers consider farmers
as their first-choice customers because they pay higher prices as compared to AHSPs, who tend to bargain for
lower prices as they have better market information of the products from wholesalers.

Secondary wholesalers and retailers stock drugs based on demand forecasts, price, and profit margin. The
transactions costs and their poor bargaining power may result in weak incentives for them to stock a wide
variety of products or brands, leading to frequent shortage of products in the market. The government procures
veterinary products for public use, especially livestock vaccines and acaricides, mainly from primary wholesalers.
Q1.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 also are required in small quantities but are available only
seasonally. What type of inventory strategy you would suggest to this company and why?

Ans

Supply chain capability Charters Metrics

Supply Chain Capabilities Reliability Delivery performance Fill rate
Perfect order fulfilment
Responsiveness Order fulfillment lead time
Flexibility SC response time Production flexibility

Supply Chain Efficiency Cost Total SC cost Cost of goods sold

Value added productivity Return processing costs

Asset
Cash to cash cycle time Inventory day of supply Asset turns
Management

in brief explanation, in this industry, the SC Processes initiate by product development and marketing activities
as a strategic function. This means that the sales and marketing unit try to find the market needs and change
them to demands. They achieve their goals by communicating with physicians authorized to prescribe
pharmaceutical products to end users. On the other hand, sales and marketing unit interacts with distribution
companies and pharmacies to sell their products. In this way, they can monitor the market as downstream and
forecast future demand. Marketing department provides forecast information for planning department to
schedule all internal processes including purchasing materials, formulation and making finished products, and
distribution in response to market demand. The branded-generic pharmaceutical manufacturing companies also
have upstream companies which may have local or international activities, to supply active pharmaceutical
ingredients and other inactive materials. Therefore, the supplier selection and supplier relationship are critical
tasks for manufacturing companies, they have to evaluated suppliers considering both qualitative and
quantitative factors such as quality of materials, delivery performance, their reputation and position in industry,
bargaining power, production facilities and capacity, technical capability, geographic location, order fulfillment
lead time, net price, total logistics cost
Q1(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

Ans- With gyms and pools shut and health suddenly becoming priority, people around India turned to cycling
during the coronavirus lockdown.

However, we believe manufacturers should strategize now on how they can transform and position their
organization in ways that will give them a competitive advantage and help create greater resilience in a post-
crisis world. This ought to be done on the heels of the disruption, throughout the crisis and during recovery.

Dealing with Disruptions – Take Coordinated actions

The Recovery – Charge out of the gate
Competitive Advantage – Taking Bold steps forward
Resilience – Keep eyes on the prize
Q2. 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
Naïve forecast

Absolute Naïve
Year Production Catogory Forcast Deviation Forcast
F_{t+1}=A_{t
31-03-2006 68,922 Light Commercial Vehicles
}
31-03-2007 65,756 Light Commercial Vehicles 68,922 3166
31-03-2008 83,195 Light Commercial Vehicles 65,756 17439
31-03-2009 1,08,917 Light Commercial Vehicles 83,195 25722
1,08,91
31-03-2010 1,38,890 Light Commercial Vehicles
7 29973
1,38,89
31-03-2011 1,71,788 Light Commercial Vehicles
0 32898
1,71,78
31-03-2012 2,25,724 Light Commercial Vehicles
8 53936
2,25,72
31-03-2013 2,54,049 Light Commercial Vehicles
4 28325
2,54,04
31-03-2014 2,24,587 Light Commercial Vehicles
9 29462
2,24,58
31-03-2015 3,17,423 Light Commercial Vehicles
7 92836
3,17,42
31-03-2016 4,08,193 Light Commercial Vehicles
3 90770
4,08,19
31-03-2017 5,44,335 Light Commercial Vehicles
3 136142
5,44,33
31-03-2018 5,53,184 Light Commercial Vehicles
5 8849
5,53,18
31-03-2019 4
MAD ( Mean
Absolute Deviation) 45793.17
 Naive Forcat
600,000
500,000
400,000
300,000
200,000
100,000
0
1/14/200410/10/2006 7/6/2009 4/1/2012 12/27/20149/22/2017 6/18/2020

Production Catogory Forcast

2 Months moving Average

Absolute
Year Production Catogory 2 Months Deviation
31-03-2006 68,922 Light Commercial Vehicles
31-03-2007 65,756 Light Commercial Vehicles
31-03-2008 83,195 Light Commercial Vehicles 67,339 15856
31-03-2009 1,08,917 Light Commercial Vehicles 74,476 34441.5
31-03-2010 1,38,890 Light Commercial Vehicles 96,056 42834
31-03-2011 1,71,788 Light Commercial Vehicles 1,23,904 47884.5
31-03-2012 2,25,724 Light Commercial Vehicles 1,55,339 70385
31-03-2013 2,54,049 Light Commercial Vehicles 1,98,756 55293
31-03-2014 2,24,587 Light Commercial Vehicles 2,39,887 15299.5
31-03-2015 3,17,423 Light Commercial Vehicles 2,39,318 78105
31-03-2016 4,08,193 Light Commercial Vehicles 2,71,005 137188
31-03-2017 5,44,335 Light Commercial Vehicles 3,62,808 181527
31-03-2018 5,53,184 Light Commercial Vehicles 4,76,264 76920
31-03-2019 5,48,760
MAD ( Mean Absolute Deviation) 68703.05
 Moving Average (2 Months)
600,000

500,000

400,000

300,000

200,000

100,000

0
1/14/2004 10/10/2006 7/6/2009 4/1/2012 12/27/2014 9/22/2017 6/18/2020

Production Catogory 2 Months

Category Year Production

31-03-
Light Commercial Vehicles 68,922
2006
31-03-
Light Commercial Vehicles 65,756
2007
31-03-
Light Commercial Vehicles 83,195
2008
31-03-
Light Commercial Vehicles 1,08,917
2009
31-03-
Light Commercial Vehicles 1,38,890
2010
31-03-
Light Commercial Vehicles 1,71,788
2011
31-03-
Light Commercial Vehicles 2,25,724
2012
31-03-
Light Commercial Vehicles 2,54,049
2013
31-03-
Light Commercial Vehicles 2,24,587
2014
31-03-
Light Commercial Vehicles 3,17,423
2015
31-03-
Light Commercial Vehicles 4,08,193
2016
31-03-
Light Commercial Vehicles 5,44,335
2017
31-03-
Light Commercial Vehicles 5,53,184
2018

Exponential Smoothing (alpha =0.3)

 Exponential Absolute
Year Production Catogory Forcast Deviation alpha
Light Commercial
31-03-2006 68,922 68,922
Vehicles 0 0.3
Light Commercial
31-03-2007 65,756
Vehicles 68922 3166
Light Commercial
31-03-2008 83,195
Vehicles 67972 15223
Light Commercial
31-03-2009 1,08,917
Vehicles 72539 36378
Light Commercial
31-03-2010 1,38,890
Vehicles 83452 55438
Light Commercial
31-03-2011 1,71,788
Vehicles 100084 71704
Light Commercial
31-03-2012 2,25,724
Vehicles 121595 104129
Light Commercial
31-03-2013 2,54,049
Vehicles 152834 101215
Light Commercial
31-03-2014 2,24,587
Vehicles 183198 41389
Light Commercial
31-03-2015 3,17,423
Vehicles 195615 121808
Light Commercial
31-03-2016 4,08,193
Vehicles 232157 176036
Light Commercial
31-03-2017 5,44,335
Vehicles 284968 259367
Light Commercial
31-03-2018 5,53,184
Vehicles 362778 190406
31-03-2019 419900
MAD ( Mean Absolute
Deviation) 90481.41

Exponential Smoothing Ft=αAt-1+(1-

Formula α)Ft-1

Exponential Smoothing
600,000

500,000

400,000

300,000

200,000

100,000

0
1/14/200410/10/20067/6/2009 4/1/201212/27/20149/22/20176/18/2020

Production Catogory Exponential Forcast

Of the four choices (simple moving average, weighted moving average, exponential smoothing, and single
regression analysis), the weighted moving average is the most accurate, since specific weights can be placed in
accordance with their importance.

Q3. 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)

Ans :
1. Category A : Rod Bearing, Wind Screen, Piston Ring, Main Bearing
2. Category B : Oil Filter, Fuel Filter, Air Filter, Head lamp
3. Category C : Bumper and Bush

• Cat A items are high valued items on a yearly /bi-yearly consumed products. Applying the (Pareto
principle) 80/20 rule where 80 percent of the output is determined by 20 percent of the input.
They comprise a relatively small number of items but have a relatively high consumption value. So
it’s logical that analysis and control of this class is relatively intense, since there is the greatest
potential to reduce costs or losses.
• Cat B items are interclassed items. Mostly these are items in common with Cat A or Cat C. Their
consumption values are lower than A items but higher than Cat C items. One main point of having
this interclass group is to watch items close to Cat A item and Cat C item classes that would alter
their stock management policies, If the items drift closer to class CATA or class Cat C. Stock
 management is major cost. It is better to have a balance between controls to protect the asset
class and the value at risk of loss, or the cost of analysis and the potential value returned by
reducing class costs. The scope of this class and the inventory management policies are determined
by the estimated cost-benefit of class cost reduction, and loss control systems and processes.
• Cat C items have the lowest consumption value. This class has a relatively high proportion of the
total number of lines but with relatively low consumption values. Logically, it’s not usually cost-
effective to deploy tight inventory controls, as the value at risk of significant loss is relatively low
and the cost of analysis would typically yield relatively low returns.

Q4. 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?

Ans-

Tata Motors
Year 2015 2014 2013 2012 2011
Profit 17314 25016 21154 20427 21886
Investor Turn
Over 9.055602 17.80528 13.0716 10.47908 12.04909

Ashok Leyland
Year 2015 2014 2013 2012 2011
Profit 5608 4444 5481 4337 3970
Investor Turn Over 10.18169 8.714646 6.867089 6.034978 5.450181

A comparison of Profit and Investor Turn Over of Tata Motors and Ashok Leyland leads to the conclusion that
Tata Motors is performing much better year over year, than Ashok Leyland. Both metrics are increasing over the
years for Tata Motors.

Q5.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-

Forcast for International2017-2021

2017 12092182.7
2018 12656450.96
2019 13204957.91
2020 13767083.38
2021 14323788.72

Year on Year growth on average traffic increase in 4-5%

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.

Ans-

Annual Consumption 6000 Units N

Order Quantity 692.82 Uniter per month Q
Inventory carrying cost per unit cost 0.2 percentage icc
Ordering cost 4000 Rs OC
Unit Price 500 Rs UP

Total Cost

EOQ 692.82
Number of Orders 8.660254038
Total Ordering Cost 34641.01615
Invertory Carry Cost 34641
Total Cost 69282.01615