Assignment 2

Supply Chain Management

(Last Date 21 August 2013, before 11 am)

PASHU KHADYA COMPANY LIMITED (PKCL)

Group No.
Section

SA

Total Marks

70

Marks Obtained

Sr No.

Name of Students

Roll No

Piyush Mathur

12136

Sameer Singh Pokharia

12148

Aniruddh Singh Rathore

12110

Midhun Rajagopal

12128

Amit Menon

12108

1.

What are the various cost components that needs to be considered in making the logistics
decision? Provide subcomponent with- in each head of the cost component if available

Material Cost: This is the cost of the rice barn extract purchased from
Lucknow.

Transportation Cost: This is the cost incurred on transporting the goods

from Lucknow to the various production facilities.
o Rail-rake cost: This is the cost of transportation for using the railrake.
o Rail-wagon cost: This is the cost of transportation for using the railwagon.
o Road Cost: This is the cost of transportation by road.
o Two point booking cost

Rebooking rate and charge: A minimum rate of Rs. 130/- per

ton plus an additional Rs. 250/- rebooking charge.

Inventory Holding Cost: This is the cost incurred to hold the inventory in the
warehouse.
o Holding Cost: Considered to be 20% of the cost of rice barn
o Local Transport and handling Cost: Applicable additional to the
holding cost, but is essentially a part of holding cost.
o Cost of additional storage: Applicable above storage capacity of
warehouse.

2.

What will be the total cost for moving rice bran extract from Lucknow to the four
demand centers in Maharashtra by using the:

Lot Size of the shipment = 1600 tons = Q

Qrake = 1600
Qwagon = 22
Qroad = 12
Cycle inventory = Q/2 like 1600/2 = 800
Safety inventory = (Lead time/2) * (Demand/365)
In-transit inventory = Demand (Lead time/ 365)
Total average inventory = Cycle inventory + Safety inventory + In-transit inventory
Holding cost = 20% of the one ton price = 1400 * .20 = 280 ~ Rs 300/ton
Total cost = Total average inventory + Transportation cost
a. Road option

Qroad = 12

Lot size
(motors)

Annual
Transport
ation cost

Cycle
inventory

Safety
inventory

In-transit
inventory

Total
Inventory
cost

Total cost

Inventory
units

Total
Time

Transit
Time

Kalyan

12

8550000

86

172.60

79471

8629471

264

Pune

12

15040000

153

306.85

139882

15179882

466

Karad
Kirloskar
wadi

12

26640000

230.

460.27

208923

26848923

696

12

16960000

153.

306.85

139882

17099882

466

b. Rail-wagon load option (without two point booking)

Qwagon = 22
Lot size
(motors)

Annual
Transport
ation cost

Cycle
inventory

Safety
inventory

In-transit
inventory

Total
Inventory
cost

Total cost

Inventory
units

Total
Time

Transit
Time

Kalyan

22

5670000

11

777

937

517410

6187410

1725

63

38

Pune

22

10720000

11

1381

1666

917273

11637273

3058

63

38

Karad
Kirloskar
wadi

22

16680000

11

2071

2499

1374259

18054259

4581

63

38

22

11120000

11

1381

1666

917273

12037273

3058

63

38

Total cost

Inventory
units

c. Rail-rake option (without two point booking)

Qrake = 1600
Lot size
(motors)

Annual
Transport
ation cost

Cycle
inventory

Safety
inventory

In-transit
inventory

Total
Inventory
cost

Total
Time

Transit
Time

Kalyan

1600

5400000

800

246

295

402739

5802739

1342

20

12

Pune

1600

10240000

800

438

526

529315

10769315

1764

20

12

Karad
Kirloskar
wadi

1600

15840000

800

657

789

673972

16513972

2246

20

12

1600

10560000

800

438

526

529315

11089315

1764

20

12

Safety Stock observation:

Safety stock is highest in case of transport medium: Wagon. The reason behind this is
the highest lead time. Lead time is higher due to higher ordering time and transit time.
In terms of location, safety stock level is higher in Karad as compared to other cities. This is due
to the higher demand.

3.

What do you conclude by comparing from the results of Question 2?

The comparative analysis clearly indicates the following:

a. Rail rake is the cheapest transportation available for all the locations.
b. Followed closely by Rail wagon in terms of cost. But the time taken to replenish the
inventory is the highest causing high inventory cost.
c. Road seems to be ideal for transportation within cities and not warehouse and
locations because the cost is very high and also the quantity transferred is very less as
compared to rake and wagon.
d. Lead time wise: Road is followed by rake and wagon, distantly. But due to the lesser
capacity it is ruled out for farther transport.

4.

If you want to consider combinations of road and rail movements, what are ALL the
options you would want to consider? Now consider two-point booking. For example:
Karad + Kirloskarwadi (Two point booking via rail rake), & from Karad road to Pune;
and Kalyan (via rail rake from Lucknow). Be smart with your choices based on the
results of Question 2?

The following would be the better solution:

Karad + Kirloskarwadi we will club together for 2 point rake as the total cost
would be reduced by 2,40,000.00.
Kalyan and Pune should be served by Rake directly without two point as the
two point cost increase due to >100 Km distance. Hence we will use
warehouse to location direct transport using rake for both Kalyan and Pune.

Hence the total cost would be minimized to this

Karad +Kirloskarwadi
Kalyan
Pune
Total

273,63,287.67
58,02,739.73
107,69,315.07
439,35,342.47

5.

What is the best procurement network option for the overall movement of raw materials
from Lucknow to the demand points of PKCL?

Using Rake from Lucknow to Karad and Kirloskar wadi using two point network and
direct transport to Kalyan and Pune from the warehouse using rake.
Rake is the best possible transport mode available and thus gives the most optimized
solution with minimum transportation cost.