SCM Assignment – Karnataka Engineering Company Limited

Manoj Kumar Kasireddi

2018PGP207
Section - E

Case Overview

Karnataka Engineering Company aim to strengthen the distribution network in order to

improve the firm’s service effectiveness and cost efficiency. The cost of setting up and operating
different facilities in the distribution network have to be viewed against the recurring
transportation and inventory costs in the distribution network. Here we look at the distribution
network of Andhra Pradesh for a detailed analysis. Two wheelers have to be distributed from a
single factory to several dealers. The logistics manager is faced with the issue of designing a
distribution network.

Questions for Discussion

1. How many warehouses are required for the distribution of KEC’s products in Andhra
Pradesh?

2. Determine the optimal selection of warehouses and the best allocation of demand
points to the selected warehouses.
3. What are the best choices for shipment size from warehouses to demand points?

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 Approach

Each scooter is converted to 1.6 moped units for further calculations

From the given choices of truck rates, having a full truck load (large truck) provides the
lowest rate, i.e. Rs 6 per km for 80 mopeds which is equivalent to Rs 0.075 per km per
moped.

For the ease of further calculations, this large truck has been taken as the shipment size
(although a smaller truck may be more economical in terms of lesser pipeline inventory
and lesser holding costs)

For choosing which branch to open, the objective is set to minimize the total cost.
It has been assumed that there is no limit to the capacity of a branch.

The total cost is given by: Branch operating cost + Primary transport cost(from Raichur
to operational branches) + Secondary transportation cost(from branch to dealer)

It has been made sure that the demand at each dealer is exactly met.
Here, the inventory holding costs have been neglected

Analysis

The branch operating cost is given as Rs 21,000 per month

The primary transport cost is equal to the product of the total demand at a branch, the
transportation cost per unit per km and the distance between the branch and Raichur.

The secondary transport cost is equal to the product of the demand of a dealer, distance
from branch and the transportation cost per unit per km.

Using the solver in Excel, we come up with the following results:

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 Opened 1 0 0 1 0 0
Adoni Cuddapah Hyderabad Kurnool Mehboobnagar Vijayawada
Adoni 411.0 0 0 0.0 0 0
Anantpur 76.0 0 0 0.0 0 0
Chirala 51.4 0 0 3.4 0 0
Chittor 106.0 0 0 0.0 0 0
Cuddapah 61.4 0 0 0.0 0 0
Guntur 0.0 0 0 119.0 0 0
Hindupur 71.2 0 0 0.0 0 0
Hyderabad 564.0 0 0 164.0 0 0
Kakinada 0.0 0 0 76.4 0 0
Karimnagar 59.2 0 0 19.8 0 0
Khammam 57.4 0 0 46.6 0 0
Kurnool 24.8 0 0 0.0 0 0
Mehboobnagar 36.0 0 0 0.0 0 0
Nellore 44.0 0 0 0.0 0 0
Nizamabad 49.2 0 0 19.8 0 0
Ongole 20.0 0 0 0.0 0 0
Rajamundry 0.0 0 0 80.0 0 0
Tirupati 90.6 0 0 0.0 0 0
Vijayawada 0.0 0 0 253.0 0 0
Vizag 0.0 0 0 38.0 0 0
Vizianagaram 0.0 0 0 36.0 0 0
Warangal 82.2 0 0 6.8 0 0

Secondary transportation cost ₹ 48,916.64

Branch opening cost ₹ 42,000.00
Primary transportation cost ₹ 20,473.25
Total cost ₹ 111,389.89

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 Results

Two branches should be opened for optimizing the costs of transportation and
operating costs, at Adoni and Kurnool.

The total branch operating cost is Rs 21000*2 = Rs 42,000

The total transportation cost is Rs 69,390

The minimum throughput that justifies the setting up of a branch is 78 mopeds per
month. The throughputs at Adoni and Kurnool are well above this limit.
The total cost to be incurred is Rs 111,390
The optimal shipment size is 80 moped units in a large truck

Conclusion

Karnataka Engineering Company Limited should continue to operate their Adoni branch.
They should discontinue their Mehboobnagar branch.
They should open a branch in Kurnool to serve the dealers.

The two branches must serve the dealers in the state as per the optimal allocation given
in the table above

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