OSCM

Assessment-2

Model
Solution

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
Question-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 supply chain for the petroleum
products?
Ans: Below is the flowchart of the supply chain for the petroleum products

A supply chain is the network of all the individuals, organizations, resources, activities,
technology and information involved in the creation and sale of a product. It encompasses
everything from the delivery of source materials from the supplier to the manufacturer
through to its eventual delivery to the end user. Petroleum industry is divided between the
upstream and the downstream activities. Upstream activities covers the exploration,
production and transportation of crude oil to refineries. The downstream activities deal
with the processing of crude oil in refineries, the distribution and the marketing activities
of all the oil derived products.

Upstream
• Exploration: This section comprises of companies that explore potent petroleum and
natural gas reserves in the areas that they are allowed to. This is an expense that these
companies, such as ONGC and Oil India Limited, undertake. It comprises of detection
infrastructure and qualified Human resources.
• Production: Once a commercially viable reserve has been located, additional drilling
infrastructure is deployed along with suitable Human resources to extract the natural
resource, such as crude oil or gas from the site. The extracted crude is then sold to the
Downstream companies, as discussed in the next section

Downstream

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
• Refining: The crude oil is bought from the Upstream companies by organizations such as
Indian Oil and Reliance. These are referred to as Downstream companies. Their primary
value addition is to subject the incoming crude oil through a series of complex refining
processes in order to extract various petroleum products, such as Petrol, Diesel, Naphtha,
and Bitumen, among others. These products are usable in internal combustion engines of
vehicles, such as bikes, cars, trucks, and buses
• Marketing: This stage encompasses the retail and institutional sales of the refined
petroleum products at suitable retail spots widespread all across the country. The companies
in this space are HPCL, BPCL, IOCL, Reliance, and Essar, to name a few. They invest in big-
ticket retail spaces all over the country and get access to almost a perennial source of
customers. In most cases, the companies involved in Marketing of the petroleum products
are also invested in their refining, as has been explained in the previous step.

b) Definition of supply chain contains a very important word “information”. In your opinion,
what information is being referred.
Ans: The word “information” in the context of the definition of the supply chain refers to
identifying and disseminating data of the raw materials, WIP goods, and finished goods to
relevant stakeholders in a timely manner.
Incorporating an information sharing mechanism enables transparency in a supply chain,
thereby providing gratification to the participants as well as a platform to identify and
mitigate any bottlenecks.
This can be understood better with an example.

Consider that a customer places an order for a Facewash on Amazon. Once the payment is
confirmed to have been debited from their account, Amazon sends an “Order confirmation”
message via email and/or a text on the phone. This is accompanied with a range of delivery
time period. The way it is possible for this “information” to be relayed to the customer at such
an early stage is because the system has sensors in place that can reveal a range based on the
seller’s pin code, the buyer’s pin code, the inventory availability of the ordered product, and
the approximate status of the transportation infrastructure between the two points.
Similarly, the courier agency will also be relayed a separate message at this point, relating to
what they need to know in order to execute their part of the business. Thus, it can be seen
that “information” sharing among pre-identified participants makes for a seamless supply
chain function.

c) A company is into manufacturing an antibiotic product. This is for veterinarian purpose.

During the 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: At the onset, it is useful to know the contents of having responsiveness and efficiency in
a company’s supply chain. Responsiveness refers to how quickly an order received from a

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
customer can be fulfilled. If a supply chain is tuned for high responsiveness, it means that the
product is ready, packed, the human resources are in place, and the transport lines are all set,
and thus the order can be shipped almost instantaneously once an order is received. To keep
the supply chain so agile costs money. Thus, the management will need to ascertain if they
can sell the product at a premium due to ecstatic service levels that they are providing their
customers with.
On the other end of the spectrum is efficiency. When a supply chain is strongly skewed
towards “efficiency”, the inventory would ideally be zero, including the Packaging material,
the people, and the transportation lines. It is to say that the company is extremely lean and
that an order will be processed from scratch only when it is received from the buyer.
Irrespective of the question asked here, the first step is to determine if responsiveness or
efficiency is by choice or a mandate. For example, is a company in a business where the
product/service being rendered is required immediately or is it in a landscape where the
buyers usually don’t mind waiting. Moving on, in this particular example, it seems that the
said product experiences a spike in demand during a natural calamity, the flood. The first
element to check if the occurrence of a flood in the region can be forecasted by studying the
underlying causes of it. Example: Floods happen when there is incessant, seasonal/non-
seasonal rain. This can be predicted to some extent. Thus, a suitable portion of the supply
chain can be tuned for efficiency, by forecasting for seasonal changes and keeping a close eye
on short-term whether developments.
However, floods caused due to a river overflowing as a result of a cloud burst or a glacier burst
are next to impossible to predict. Hence, a portion of the supply chain will also be required to
be optimized for responsiveness, by keeping inventory, packaging, and transport lines ready.
Thus, to balance the pros and cons of responsiveness and efficiency, it is required that the
management identifies all the causes of the demand spikes, then categorizes them into
predictable and unpredictable, and depending on which is more prevalent, designs the supply
chain closer to being responsive or efficient.

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: Considering the seasonal nature of the portion of the raw materials that make up 25% of
the cost to the company, it is recommended to follow the SOS inventory model. SOS refers to
“Seasonal” and “Off-season”. Thus, these items need to be bought while they are in season so that
they can be inputted when their prices are the most competitive. Thus, the amount that needs
to be bought will be determined as a direct relation of the production targets that the
company has set. That, in turn, will be a function of the forecasted sales of the finished product.

e) Following are the details of a major cycle manufacturer

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
  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: Based on the information about the company from the provided description, the
manufacturer engages with a lot of suppliers (over 300) and thus periodic inventory
management will be too cumbersome and inefficient. However, a perpetual inventory
Management system like ERP (Enterprise Resource Planning) would be an apt option for
this company. With ERP, we can not only track the supplies and quantities of parts, but also
utilize other functionalities of order forecasting and enhancing supplier relationships. This,
in turn, increases the life time value and helps in decreasing the operational cost.

The functionalities that can be utilized from the ERP are:

a. Effective Inventory Management and Stock Maintenance: To understand the
factory location form where the commodity has to be received
b. Payment Gateway functionality: This would ensure that payments and orders are
always synchronized and eliminates ambiguities that may arise otherwise
c. Multi – Channel order fulfilment: This can be useful since because the company has a
huge number of vendors and assuming that they may have different types of channels
of fulfilment

While the above setup will cost a fair bit, I believe that it’s benefits in the given context
will far outweigh its capital investment. Moreover, this suggestion is being made because
the company description strongly hints towards the availability of such funds.
General Note for Question-1: We have displayed one approach, there are several other
approaches possible for this cases given in this question.
Question-2

Following data is sourced from the regulatory authorities. Using compare the three
forecasting models on this data. Models you should be testing are: Naïve Forecast, 2 months
moving average and exponential smoothing with alpha = 0.3. Which model is the best under
this condition? (Use MAD- Mean Absolute Deviation) to compare the models.

Category Year Production

Light Commercial Vehicles 31-03-2006 68,922
Light Commercial Vehicles 31-03-2007 65,756
Light Commercial Vehicles 31-03-2008 83,195
Light Commercial Vehicles 31-03-2009 1,08,917
Light Commercial Vehicles 31-03-2010 1,38,890
Light Commercial Vehicles 31-03-2011 1,71,788
Light Commercial Vehicles 31-03-2012 2,25,724

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
 Light Commercial Vehicles 31-03-2013 2,54,049
Light Commercial Vehicles 31-03-2014 2,24,587
Light Commercial Vehicles 31-03-2015 3,17,423
Light Commercial Vehicles 31-03-2016 4,08,193
Light Commercial Vehicles 31-03-2017 5,44,335
Light Commercial Vehicles 31-03-2018 5,53,184

Naïve Forecast

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
Two Months Moving Average

Exponential Smoothing with alpha=0.3

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
Model Summary
Below given is the summary from the models.

The Naïve forecast has resulted in the least Mean Absolute Deviation for this data set. The
MAD value for exponential smoothing can be improved for the different values of exponential
smoothening constant(alpha).

Question-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 Annual Usage
Cost (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

6 Wind Screen 12000 90

7 Piston Rink 4500 250

8 Bumper 8000 110

Main
9 1130 120
Bearing

10 Bush 169 1160

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
Solution:

ABC classification is an inventory control technique where products are grouped into
three categories:
A – extremely important
B – moderately important
C – relatively important
The approach is majorly based on the Pareto principle (80/20 rule), a metric that
proposes 80% of the outcomes are determined by 20% of the inputs.

Question-4
Compare the year-wise performance of Tata Motors and Ashok Leyland based upon the
techniques covered in SCM. Also, please state which company is doing better and
why?
Answer:We have calculated the inventory Turnover rate/ratio of both the companies.

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
Below given is the comparison of Inventory Turnover Rate/Ratio of both companies

From the comparison we can analyse that Tata Motors has consistently maintained a
higher inventory turnover ratio, as compared to Ashok Leyland. Thus, going by this
metric, it has been doing better. For Ashok Leyland to improve, they need to optimize
their purchasing strategies to reduce excess inventory and improve sales forecasts.

Question-5

We have the passenger traffic data 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.
Answer:
Domestic Forecast

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
International Forecast

Insights from the model:

As we can analyze there is a steady increase in the passengers (both domestic and
international) from the last 30 years. There is no seasonality observed in the data as we
have yearly data.

Question-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

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
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.
Answer:
Data Value

Total Annual Quantity(D) 6000

Cost per Order(S) ₹4,000

Per Unit Cost(C) ₹500

Holding Cost(I) 20%

Cost of carrying Average inventory (Inventory Cost) = (Q/2) *I*C

Ordering Cost = S*(D/Q)

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
We will be having the minimum total cost at the point where the Inventory cost and
Ordering cost curve intersects. From the above graph, we can see that inventory cost
and ordering cost curves are intersecting for a quantity which is <1000.
Now finding the optimum quantity:
EOQ = (2*D*S/ I*C)^0.5
= (2*6000*4000/500*20%)^0.5
~ 693.
The Optimum order quantity (Q) is 693 units.

Total Cost = Cost of carrying average inventory (Inventory Cost) + Ordering Cost
= 69,282

The total cost at the given EOQ is INR 69,282.

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.