Vinod Gupta school of Management IIT Kharagpur Team Name : OhGod.

Team Members Amol Bankar MBA,2nd Year. Email id : amolbankar.vgsom@gmail.com Ph : +91-7797255918

Prashant Saurabh MBA,2nd Year. prashantsaurabh@gmail.com Ph: +91-7797326977

Assumptions.
We have assumed a price of around $25,000 in 2005 for all 4 standardized models offered by ACE at an annual inflation 0f 6% . Manufacturing + Procurement cost is 45% percent of the total cost. Transportation cost = 15% of the total cost. Trend Adjusted forecasting used . Alpha=0.5, Beta=0.5 Profit is a approximately linear function of revenue . Regression Model : Profit = 7.25 + 0.06 Revenue ( in Millions) Cost of all subassemblies is directly proportional to their volume in the final product.
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We would advise not to shift the CLC warehouse from Pune to Hyderabad for following difficulties.

5 Years because of the

Capacity and infrastructure Constraint at Hyderabad Warehouse.

Supplier constraint 1)Generating a loyal pool of suppliers in Hyderabad specially for electrical which match the quality requirement of ACE is impossible in time frame of 3 months. 1)CLC warehouse of 50000 sq m is already short of capacity. 2)Hyderabad Warehouse of 20000 sq m is inadequate to absorb all subassemblies inventory.

3)The lack of proper facilities at Hyderabad plant for integration of all activities

Increase in lead time, Further reduction in on time delivery and increase in the rate of non service level if continued with suppliers in Pune

Skilled Workforce Constraint 1)Just 40% of the workforce at Pune is willing to relocate to Hyderabad . 2)Recruiting and Training of the Labors at Hyderabad would also be time taking process. 3)Laying off workers at Pune, would generate dissentient.

Time Constraint
1)Expansion of the capacity of the Hyderabad plant and warehouse with deployment of proper facilities , IT infrastructure and skilled labor would require at least 2-3 years 2)Contract for CLC warehouse in Pune had to renewed in next 3 months

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Suppliers In PUNE

Hyderabad Factory

Our Proposed Solution for next 3 years.

We are not shifting the warehouse from PUNE to HYD for 5 yr. ACE products are of Low Demand and High Value Major Problems Faced by ACE : Increasing Non- service level resulting in Back orders and lost sales. Accumulation of inventory at CLC and Hyderabad warehouse leading to shortage of storage space. Difficulty in Tracking of order. CHALLENGES: For Short term Objectives. Expansion of the producing capacity at Hyderabad from 3000 units to 6000 units in one year. ( Refer Table 2) Change the existing Supply chain structure for the next 5 years. FLOW : From Suppliers and HYD factory to PUNE CLC warehouse. From PUNE CLC to onsite location and some inventory to 50 sales and Service offices. Fig 1 1)Adapt a combination of Supply chain design of Manufacture storage with Direct shipment and Distributor storage with Carrier delivery as shown in FIG 1. 2)Transfer marginal inventory to 50Sales and service centre from Pune CLC warehouse. Use the space made free to convert the Pune warehouse into a partially cross docking Facility for the Cabins shipped from Hyderabad Factory. Achieve a lead time of 28 days( 7 outbound logistics + 21 Inbound logistics) from 5o days.
3

Warehouse

FIG : 1
CLC PUNE Warehouse Onsite Client Location

Sales and Service centers

TABLE 2 : No of units sold/Demand

Average Selling No of Revenue of ACE Expecte Price of an ACE Units Year ($Mn) d Profit Product Sold 2005 69 11 25000 2760 2006 82 11 26500 3094 2007 91 11.98 28090 3240 2008 86 12.8 29775 2888 2009 92 12.6 31562 2915 2010 103 13.3 33456 3079 2011 220.39 20.47 35463 6215 2012 236.54 21.44 37591 6293 2013 248.48 22.15 39846 6236

Revenue for 2011 -13 forecasted by Trend forecasting at 95% service level
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CHALLENGES .cont.

Benefits from our Model.

Better Order Tracking Decrease in Back Order and loss of customers. Economies of scale in Transportation from Pune to onsite. Better order visibility. Decrease in lead time. Decrease in inventory level at CLC Pune warehouse. Improved and efficient order return ability. Achievement of 95% service level. Profits of around $22 million by 2013. ( refer TABLE2)

Transportation cost increases by 3%. (Refer Table 3) 0.75% increase in the Total Procurement cost due to 15% increase in prices of Accessories of Adron India. Complication of procedure at Pune warehouse due to the added responsibility of cross docking of Cabin from HYD plant. Installing a better IT infrastructure for order tracking. Increase in space requirement at 50 sales and services centre to accommodate some inventory.

Total Inventory for achieving 28 days Lead Time Demand Approx 6000 units for next 3 yrs at 95% service level. (Refer TABLE 2 ) Assuming as suppliers are located close by, we order once in 21 days and Order size(Q) = Demand for 21 days.
Subassemblies in the ratio of 1:1:1:1

TABLE 3:Transportation and Manufacturing cost.(Refer to Assumptions slide 1)

Subassemblies

Demand for 3 weeks for next 3 yrs

Average Inventory = Cylcic Inventory + Safety stock(units)

Year

Mechanico Lumimax Adron India Fumic Cables

374.88 374.88 374.88 374.88

329 310 186 186

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Cost to company($Mn) 2005 58.00 2006 71.00 2007 79.02 2008 73.20 2009 79.40 2010 89.70 2011 199.92 2012 215.10 2013 226.33

Manufactuing Cost($Mn) 23.2 28.4 31.6 29.3 31.8 35.9 80.0 86.0 90.5

Transportation cost ($Mn) 8.7 10.7 11.9 11.0 11.9 13.5 30.0 32.3 4 33.9

Short Term Strategy for ACE : Expansion of the producing capacity at Hyderabad from 3000 units to 6000 units in one year. ( Refer Table 2) Use 20000 sq m space for above purpose. Get environmental clearance to build a manufacturing facility on a forest land. Continue with CLC warehouse in Pune for next five years, Change the existing supply chain structure . The Inventory holding cost can be shared with the 50 sales and service office. Achieve a lead time of 28 days. Achieve 95% service level. Decrease Inventory. Increase after sales revenue. Short term strategy has been already explained in detail in slides 3 and 4.

Short term and Long term strategies.

Long term Strategy for ACE. Demand constant at approx 6000 units after 5 yrs . (Refer TABLE 6 ,Slide 6) Use remaining 20000 sq m of available forest land for the production of Hardware subassemblies. Acquire land resource near to the current manufacturing for in-house production of assemblies. Get environmental clearance for all the steps mentioned above. Acquire another 40000 sq m of forest land. Develop a pool of skilled workforce and search for potential suppliers in Hyderabad.. Develop in-house manufacturing facility for suppliers in Hyderabad, which in turn will reduce Transportation cost inventory cost improve agility and service level. Develop a distribution cum logistic centre somewhere in the middle of country to exploit economies of scale and FTL and ensure high service level is attained.

LONG TERM STRATEGY: FLOW OF MATERIALS THROUGH THE SUPPLY CHAIN. HYD Factory HYD Subassemblies Suppliers
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CENTRAL WAREHOUSE (either in HYD or Somewhere in central India like Nagpur)

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Onsite clients Sales and service centers.

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Other Steps to be taken to achieve $25million profit. As it can be seen from Tab 4 that we only increase the cyclic service level to 95% we can get profit of $22 million by 2013. (Refer table 4) We can further do tight integration of all process to reduce the TABLE 6 : No of units sold/demand Manufacturing cost of Cabins in Factory. We can work closely with the suppliers of Lumimax so that we can reduce Average Selling Revenue of Price of an ACE No of Units the lead time of electrical Year ACE ($Mn) Product Sold Even one week reduction in lead time would help us to decrease huge 2010 100.29 33456 2998 inventory cost thus enhancing profits. We can search for other supplier for Hardware in PUNE instead of 2011 220.39 35463 6215 Mechanico and enter with a contract with him till we start production of 2012 236.54 37591 6292 Hardware in house. 248.48 39847 6236 We can either continue with Adron India , it would increase our 2013 254.45 42237 6024 manufacturing cost by 0.75% or we can search for other supplier of 2014 Accessories with a lead time of 3 weeks at most. 2015 260.16 44772 5811
2016 2017 263.32 261.75 47458 50305 5548 5203

Table 5 : Revenue calculation at 95% service level.

Revenue without Revenue of Quantifying ACE when Rate of Non the service Proposed 95% service Service level level Revenue if 100% level is for ACE constraint($Mn service level is attained($ Yearz Inc.(%age) ) attained($Mn) Mn) 2005 69 69 69 2006 82 82 82 2007 10 91 101.12 96.064 2008 2 86 87.75 86 2009 15 92 108.235 102.82 2010 55 103 228.89 217.44

TABLE 4 : Revenue Vs Profit

Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 Ft 69 82 91 86 92 103 155.89 188.14 212.33 At Revenue Expected profit 69 11.045 82 11.76 94.25 12.905 92.766 12.81596 95.43 12.9758 108.94 13.7864 220.39 20.4734 236.54 21.4424 248.48 22.1588

3.25 6.766 3.43 5.94 64.5 48.4 36.15

Considering Profit to be linearly dependent with Revenue and following the regression model [Profit =7.25 + (.06*Revenue)].Revenues for the year 2011-2013 are based on 95% service level.

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THANK YOU

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