Biz-Czar

Business Simulation – Round 2

Case Conceptualized and created by:

Hamir Chhetariya | Harsh Mehta | Jaydeep Thadeshwar | Rohit Bhura | Sandeep Kapasi
Team Biz-Czar, Perspective 2010, Institute of Management, Nirma University
BIZ-CZAR, Perspective-2010, Round 2

“Would you like to have anything, Sir?” echoed the soft voice of lady in the ears of Neerg.

“Sir, would you like to have anything?” she repeated. Neerg suddenly came out of a deep thought just to
realize that he was in a plane heading towards Himalayas and that airhostess was waiting for an answer.

“Oh! Sorry. A strong cup of Irish black coffee please” replied Neerg with an apologetic expression.

Neerg was returning from Niagara Falls, where he went to attend one of the largest auto expo
exhibitions of the world – NF World Auto Expo. It is a place where all the biggies of the automobile
industry come together to show case their new cars, innovations etc. The scope of the Auto Expo is not
only limited to the launch of new cars, but also to wide array of business activities. As for example, it
provides a platform for car manufacturers and material suppliers to meet at one place and enter in to an
agreement and/or contract. Various associations like Small Car Manufacturing Association, Car
Manufacturing Labour Association, and Raw Material Manufacturing Association etc come at the expo
to share their view and expectations from the industry.

It was one such meet of Raw Material Manufacturer Association that put Neerg in thinking. Various
quality aspects were discussed in the meet owing to quality and delivery issues which had recently
increased in the parts supplied by the supplier. Secondly, even though WonderLand had lived a decade
in liberalized and open economy, it still had the stigma of cartels or control groups. The material
manufacturers also, in a way, have a cartel. This led to a very dangerous dependence for car
manufacturers on the material suppliers and manufacturers. All these things forced Neerg to rethink
about their current production strategy.

Next day, Neerg set up a meet with Retaw and also called upon Mr. Zubas Terra, the Chief Operating
Officer of the plant. Neerg told about the happenings of his trip to Niagara Falls to Retaw and Terra.

“I think, it is now time that we now change our production strategy and take the maximum advantage of
our current competency in manufacturing auto parts and start exploiting it” said Neerg to both of them.

“I agree sir. One thing which I would like to say is about Engine and Chassis. Sir, these parts are the body
and heart of any car. We have been producing excellent quality of engine and chassis in our luxury car
segment since many years. I think we can use our expertise of producing engine and chassis and thus
make the optimum use of our expertise and resources. Moreover, we would also save a lot by in-house
production” said Terra.

“hmmm… I think we need to look over it. Terra you should get into more details and submit me a report
for the same with full details.” asked Neerg to Retwa.

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BIZ-CZAR, Perspective-2010, Round 2

After 2 weeks:

Retaw & Terra entered into Neerg’s cabin. “Terra was right. We feel that we should start planning for
the in-house production as soon as possible”, Retaw said.

Neerg nodded and started reading the report. He asked Terra whether he has any plan for the same

“Sir, production unit for chassis and engine can be fully functional in about a year. That means that if we
decide to have an in-house production unit for engine and chassis today, then we would be able to start
the production by next year and the produced parts can be used for production of cars from April-2012.”
answered Terra.

“I think we should go ahead with in-house production unit for engine and chassis.” said Neerg to Retaw
and Terra. Both agreed to the same.

“Sir, I think we should also consider the in-house production of remaining parts. There have been some
issues with supply of Seats, Airbags, Windshields and Tyres. The timely delivery of the material is also a
very crucial concern. We expressed these issues to our suppliers but there is only marginal improvement
in the quality and delivery time. This is badly affecting the production schedule and also the overall
quality of the car. Sir, I propose that if we could produce some of these parts in our own plant, both the
issues can be taken care of.” Terra said.

“In that case we will need to borrow money for plant set-up from bank. We can arrange the funds at
12% per annum. Terra, do you have an estimated cost of producing other parts at our plant so that we
could know that which all parts we should buy and which all should make?” asked Retaw

“Yes sir, here are the estimated costs.” answered Terra presenting him the sheet in which the concerned
costs were presented.

Setup cost Variable Defect Resale Value

Fixed Cost
Particular (Plant & Cost Per Rate (expected as
Per Quarter
Machinery) Unit (%) on Mar 2014)

Seats 150,000,000 20,000 3,500,000 3 85,000,000

Tyres 181,500,000 18,500 3,000,000 5 115,000,000
Windshields 105,500,000 9,500 2,200,000 10 55,000,000
Air Bags 305,000,000 23,000 5,000,000 7 125,000,000
All costs and resale value are in Windis (WD).
Resale value is the Expected value at which the Plant & Machinery can be sold on Mar 2014.
Defected Items does not have any economic value.
It is expected that there will be an increase in variable cost at the rate of 2% per quarter.
Company use SLM for calculating Depreciation

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BIZ-CZAR, Perspective-2010, Round 2

“We need to compare the cost of in-house manufacturing with that of outsourcing. The costing and
suppliers data are same as that of last year” said Terra.

“Ok… Again Terra, by what time we would be able to start the production of these parts and use them?
Neerg asked to Terra.

“Sir, here also like Engine and Chassis, if we decide, now, to have an in-house production for parts, we
will be able to start the production and use the parts for our cars from April-2012.” answered Terra.

“I think that should be fine. One very important point is remaining” said Neerg addressing both Retaw
and Terra. “I met a person named Mr. Hariharan Roy at the Auto Expo. He is the supplier of parts like
Airbags, Seats, Tyres, Windshields, etc. He is from the country named ZuluLand. He used to purchase
parts from different vendors and supply it to manufactures. He is going to start his operations in
Wonderland. What I propose is that after we start production of various parts in our own plant from
April-2012, i.e. one year from now, we can buy the remaining parts, which we still need to outsource,
from Mr. Roy. I have got his Price Quotations. The total cost at which he will deliver parts to our plant is
more or less same to the cost we are incurring right now through our Material Requirement Planning
decisions. He assures us of quality and timely delivery and his assurance can be cross checked by our
peers in ZuluLand.”

“I think that it is a very good plan Neerg.” said Retaw. Terra also agreed.

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BIZ-CZAR, Perspective-2010, Round 2

INSTRUCTIONS:

You and your teammate are Neerg and Retaw. Please use information provided in round 1 wherever
required.

You are expected to take following decisions.

1. Material Requirement Planning for the production of current year i.e. Apr-2011 to Mar-2012.

2. For in-house production of Seats, Tyres, Air-Bag, Windshield; what will be the expected cost per
unit for each quarter of next two years (i.e. 2012-13 and 2013-14)

3. Decide which all parts other than Engine and Chassis you plan to produce in-house. (Make or
Buy decision)

An Excel sheet is provided to you, where in you need to fill in your decisions. All the data (tables)
presented in the attached Excel sheet for your assistance and reference.
Please make sure that the decisions that you enter are in the allocated cells ONLY. The data entered
anywhere else will not be considered for evaluation. You need to send back the filled up Excel sheet
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before 7:00 PM, 11 February, 2010 at biz.czar.imnu@gmail.com.
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The next set of PDF and Excel sheet will be mailed to you by 9:00 PM on 11 February, 2010.

The Simulation PDF may be helpful as a reference for taking decisions for the next three days. So, please
save the PDFs.

You are going good Neerg and Retaw!

All the Best Neerg and Retaw for your second year of operations!
In case of any queries please feel free to call us.
Event Coordinators: Rohit Bhura (+91-9374560143)
Hamir Chhetariya (+91-9714442636)
Sandeep Kapasi (+91-9638997829)
Harsh Mehta (+91-9909894784)
Jaydeep Thadeshwar(+91-9825646700)