Supply Chain Management At Dalmia Cements
Given the fact that Dalai is expected to face tremendous pressure on the profitability front in the future, any improvements in the supply chain would be of critical importance and could well define the very existence of the firm in the future. While the unavailability of the rail link from Dalmatian is of short term concern, determining the optimal transport-mode mix and deciding the shifting to pack to order are long-term decisions needed to be made by Dalai and are the focus of the case.
The case focuses on these two questions: (a) What is the optimal transport policy that the Dalai group should follow after the availability of the broad gauge rail link from Dalmatian? This excision will have to be taken by comparing the various possible transport mixes and then zeroing in on the most cost-effective one. (b) Should Dalai change its business model and start serving the bulk of the demand directly from Dalmatian (pack-to-order model), thereby eliminating the need for storage depots?
This would have to be done by finding out whether it would be actually possible for Dalai to service all stockiest within 24 hours of receipt of order. Copyright @ 2009 Darling Kindnesses (India) Pit. Ltd. 45 Case Teaching Notes Case Objectives The Dalai case is a comprehensive case for integrating concepts of supply Hahn optimization and supply chain restructuring. The case is rich with data and provides scope for analysis at various levels. It also poses lot of challenging implementation issues, covering a wide range Of issues in supply chain management and can be used to developing skills in supply chain diagnostics.
The case deals with following supply chain concepts: Supply chain strategy and performance measures Supply chain optimization elementary management o Transportation management Supply chain integration Supply chain restructuring There is enough scope for instructor to get in to several degrees of detail in ACH one of these issues. Apart from above case also allows instructor to get in to discussion about unique challenges of managing pack-to-order (MOT) situation. The instructor can also use this case to hone the diagnostics skills of students.
- What is the impact of railway gauge conversion (from meter gauge to broad gauge) on Dalai cement’s distribution operations?
- What should be the optimal transport mode mix for Dalai cement?
- Suggest ways in which Dalai can get assured supply of trucks throughout the year. Copyright C 2009 Darling Kindnesses (India) Pit. Ltd. 46
- Should Dalai change its transport policy and manage a fleet of truck on its own for its distribution function?
- Why was Dalai cements exploring the option of moving from pack-to-stock to pack-to- order strategy? What conflicts or barriers internal to Dalai would the pack-to-order program create?
How should Dalai cement handle these issues? Case Analysis Transport-mode Mix The market for Dalai Cement Ltd. Has been divided into 7 zones (apart from Trinitarian) and 28 stockiest points subsequently. The company has number Of options in terms Of mode Of transport to cater to these markets. Optimal Transport mix .
Option 1? Rail + Road: Via Depot, the cargo is sent from factory to depot by rail and from depot to stockiest by trucks.
2. Option 2?Road + Road: Via Depot, trucks are used for transportation from factory to depot and from depot to stockiest. .
3. Option A3?Direct Road: No depot routing; trucks are used to transport from factory to stockiest.
4. Option 4?Direct Rail + Road: No depot routing; are used to transport from rail point to stockiest.
Total costs = Transportation costs + Inventory cost + Handling cost + Loss due to damages Copyright 0 2009 Darling Kindnesses (India) Pit. Ltd. 47 Cement has low value density so transportation cost is major component of costs abased on data available about road and rail freight for seven depots one can work out cost per km per tone using regression.
Cost per tone = Fixed cost + Variable cost* Distance rail freight cost per tone = 75 + 0. 7 * Distance road Freight cost per tone = 34 + 0. 8 * Distance So for distance less than 360 km, road would be optimal; and beyond 360 km. Rail would be optimal. – Optimal distance would change for mango season where road freight would be higher. Different mode of transport results in different number of handling so eternal cost is relevant form of cost for decision making Extra handling would increase cost by 40 RSI. 20 bags per MAT and each extra a loading and unloading would increase cost by RSI. 2 per bag). If we add handling cost (rail would involve extra handling) road would be optimal mode of transport in Dalai case. Inventory carrying costs: Relevant inventory : Cycle stock + Safety stock o Transport by railway would involve moving material in bulk so would results in higher cycle stock. Scenario involving meter gauge movement, material would be moved in batch of 18. 6*40 MAT.
For Scenario involving broad gauge movement, material would be moved in batch of 40*40 MAT o Transportation by railway would involve longer lead time so one would need higher safety stock Copyright C 2009 Darling Kindnesses (India) Pit. Ltd. 48 Moving from Make-to-stock to Pack-to-order Capability analysis: Dalai would have to check whether they can serve the stockiest in 24 hours ( Required delivery time) Dalai would have to ensure that operations (packing, silo and transportation operations) buy in the idea Dalai would have to ensure that marketing department buy in the Idea Capability Analysis
Let us try to analyses if the capacity of the packaging machines and the silos is sufficient to pack cement fast enough to enable the pack-to-order system. The total capacity of the 5 machines used for packaging is 455 tones/hrs. (from the case exhibits). The maximum daily demand for cement (total of OPAC, PC, SC) in May 1 997 is 2291 tones. This may be scaled up to the highest for the year if we find the peak demand in March 1997. For this, we assume that the ratio of monthly demands for March and May 1 997 is the same as the daily demand for March and May 1997. Eek daily demand for March 1 997 peak daily demand for May emend for March 1997/Monthly demand for May 1997) -2291*7197670/5901055 = 2794 tones If we assume that all orders come in at the same time of the day and that silos are full of cement at any point of time, all the machines can be utilized at the same time and we can manufacture 455 tones ‘hrs. This will take approximately 2794/45 = 6. 14 hrs. This, added to the transportation time, loading and unloading time would give the total time to fulfill the order.
Transportation time in the worst-case scenario can be determined by using the longest route and a truck speed of 45 km/hrs. Based on this we get a travel time Of approximately 10 hrs. O adding the Copyright 0 2009 Darling Kindnesses (India) Pit. Ltd. 49 loading and unloading time to the 16. 4 hrs of packing and transporting, we may just be able to seen,’ice the order by pack-to-order mechanism. However, if the process is not run so tightly, the 24-hrs threshold may be crossed and the customer may not be serviced.
We must also consider the constraints introduced by the feasibility of attaching each machine only to a particular number of silos. Also, we find that any demands on the system due to pack-to-order is coming from constraint in the packaging capacity (455/hrs), and not from the type of ill visit–visit the packaging machine (what silos are connected to what machines). Hence, we do not see any tangible benefit coming from connecting all silos to all packing machines. Any improvement can come by increasing the packing capacity.
It is assumed that there is no time wasted at interstate crossing (Tamil Undue to Kraal). If interstate crossing requires considerable time, may be Dalai should keep one depot in Kraal at initial stage. Another assumption is the speed of truck (road condition would play important role in this assumption), time required to procure a truck would also affect above calculations. Copyright 0 2009 Darling Kindnesses (India) Pit. Ltd. 50 A. Marketing buy-in The marketing personnel have already expressed reservations as to whether zero finished-goods inventory would be a good idea at all.
They don’t feel that the company can handle seasonal variations in demand without finished goods inventory. The marketing department would be concerned about improving the current business, and expanding the business by adding more stockiest/expanding the geographic presence in the future. It would be easier to get stockiest buy-in during expansion when there is a geographically closer depot rather than hen the servicing happens from the factory. Thus marketing is concerned that depot elimination would lead to lost sales as well difficulty in future expansion.
Manufacturing buy-in Static to dynamic scheduling Currently the packing section freezes its schedule at the beginning of the day. In the case of pack-to- order, the scheduling needs to be done dynamically as soon as the order comes from the stockiest. This means the scheduling algorithm needs to be appropriately modified, and automated (if not already so) because Of the complexity Of dynamic scheduling. Implications for the loaders Current practice: Currently the loaders in the packaging section are paid on a piece-rate basis.
Each loader is assigned to a specific machine at the beginning Of his shift; and does not move machines. Since the 5 machines available have different capacities, and the incentives are on a piece rate basis, a fair scheme would ensure rotation between the loaders and the machines. Copyright C 2009 Darling Kindnesses (India) Pit. Ltd. 51 For e. G. , if loader A is assigned to ROOT 1 on day 1, he is shifted to Heaver & Becker on day 2, to Populous on day 3 and so on. This ensures that over the ours of 5 days each loader gets a fair chance and is not constrained by the capacity of the machine he is attached to.
Fairness However, when the scheduling becomes dynamic it is not possible to ensure this fairness any more. This is because the machine utilized for packing depends on the order quantity and timing. It is possible that some loaders benefit more. Some machines might not be used at all in a day, and this will become clear only during the course of the day. The loaders attached to these machines would lose out due to no fault Of theirs. The alternative is to make loader assignment dynamic as well, I. E. When the machine is allocated, allocate a loader to that machine also in a way that ensures maximum fairness.
Efficiency However, this dynamic loader allocation causes problems in efficiency. If loaders are assigned to machines as and when orders come, loaders might be asked to switch machines mid-way. This might cause reduced efficiency in machine handling since it would be best if one person works with the same machine throughout the day. Compensation scheme Loaders would have to be on standby, waiting for orders to come so that they can start work. If they are paid on a piece rate basis, the loaders who don’t get signed to any work would get no pay.
This however makes no sense since they incur an opportunity cost (of alternative employment) when they are on standby. Copyright 0 2009 Darling Kindnesses (India) Pit. Ltd. 52 This essentially suggests that the compensation scheme needs to be changed from piece-rate-based to hours of work/presence-based. This would cause problems of its own since packing is a labor-intensive process and an hour of work scheme encourages dilly-dallying rather than efficiency. Thus, the move from static to dynamic scheduling necessitates changes in scheduling practices and compensation structures to ensure fairness.