DRIVE: SUMMER 2014

PROGRAM: MBADS (SEM 3/SEM 5) MBAFLEX/ MBA (SEM 3) PGDOMN (SEM 1)

SUBJECT CODE & NAME: OM0012 SUPPLY CHAIN MANAGEMENT
BK ID: B1542
CREDITS AND MARKS: 4 CREDITS AND 60 MARKS
Q.1: What are the different factors affecting transportation decisions?
(Description/outline of different factors and its sub factors in students own words- 10 [5 marks for
each factor any 2])
ANS:
Description/outline of different factors and its sub factors in students own words:
The two major factors that affect transportation decisions are:

Carriers
Customers

1. Carriers
These are the companies or vendors who transport goods from the origin to the destination. Different
carriers charge different costs. One carrier may give the required service for a low cost when compared to
another carrier. But the quality provided may be low as well. It is important to research the local market
to learn the different types of services provided by different carriers, and then select the carrier that
provides the best service.
This factor can be further divided as follows:
Vehicle related cost
It is the cost involved in maintaining the vehicle used for transportation throughout the trip. This may
vary from carrier to carrier and the type of vehicle used for transportation. Transportation of small
quantity of goods in small vehicles costs more when compared to mass transportation. Hence, bigger
vehicle with large quantity of goods provides more cost-effective service.
Fixed operating cost
It is the cost that is fixed for every service provided by a carrier. This again varies from carrier to carrier
and the type of service offered. Here, you get quotes from different carriers and then you can choose on
the cost-effective and useful carrier.

Trip related cost

It is the cost involved in one trip from the origin to the destination of the transportation. If it is long
distance transportation, the trip related cost will be high. Each carrier will have a different trip related
cost. Hence, it again varies on the needs and the carrier chosen.
Quantity related cost
It is the cost involved for transporting a standard quantity of goods. This cost depends on the quantity of
goods that you have to transport. Here, the cost is fixed for a standard quantity and calculated for your
quantity accordingly. This cost may sometime depend on the nature of the good as well.
Overhead cost
It is the cost that is indirectly related to the services offered. This includes the rent of an office building,
administrative costs, and so on. This cost is not directly connected to the service provided, but is needed
indirectly to provide and maintain the service. Each carrier has different overhead costs depending on the
carrier.
2. Customers
Another factor that affects the transportation decisions is the shipper, the party that requires the goods to
be transported from the origin to the destination.
This factor can be further divided as:
Transportation cost
It is the cost involved in the transportation of goods from a source to the destination. A customer first
thinks of this cost when planning for transportation. If a carrier charges too much for just the
transportation, the customer may think of going to another carrier. This is one of the most important
factors in transportation.
Inventory cost
It is the cost involved in holding the goods in storage. This can become the most expensive part of
transportation for a customer, because the rent for big warehouses is usually high. If there is delay in
transportation, the customer has to store the goods for the extended duration. This is an added
expenditure to the customer, which is not appreciated. Hence, if a supplier does not provide the services
in time, the customer may change the decision and move to another carrier.
Facility cost
It is the cost involved in maintaining the factory, or the workspace of the carrier. This includes the cost
involved in maintaining the facility, the tools used, and to ensure that the facility is in proper working
condition. Facility cost has nothing to do with the transportation of goods, but is added to the service cost
provided by the carrier. Facility cost varies from carrier to carrier.
Processing cost

It is the cost involved in direct labour used in the service. Some carriers calculate processing cost as the
sum of costs of direct labour and factory overhead. This varies from carrier to carrier. Hence, the
customer has to decide which carrier is more affordable.
Service levels and fast delivery
Service levels are the different levels into which a service is divided. Different levels have different
offerings and the cost also varies. The highest level has the highest cost. Similarly, fast delivery is usually
a premium service. If a customer wants the goods to be delivered quickly, the supplier has to pay more.
Each carrier has different levels of services and different costs for fast delivery.Thus, both carriers and
customers always have to do a lot of research on these factors before choosing the best service that
satisfies their needs.

Q.2: Write short notes on risk pooling.

(description of risk pooling- 1 marks, importance of risk pooling in SCM- 1 marks, listing and
summarization(along with suitable examples for each) of four types of risk pooling-8 [2 marks
each])
ANS:
Description of risk pooling:
Risk pool is a term used in risk management, mostly in insurance companies. Under this system,
insurance companies come together to form a pool, which can provide protection to insurance companies
against catastrophic risks such as floods, earthquakes, etc.
Importance of risk pooling in SCM:
Risk pooling is an important concept even in supply chain management. It involves the use of centralised
inventory to gain benefits when demand is higher than average at some retailers and lower than average
at others.

Listing and summarization(along with suitable examples for each) of four types of risk pooling:
The four types of risk pooling are:

Location pooling
Product pooling
Lead time pooling

Capacity pooling

Location pooling
Location pooling is used to decrease the inventory while holding service constant, or to increase service
while holding inventory cost, or is used to combine inventory reduction and service increase. Location
pooling is used to broaden the product line, since it reduces the demand uncertainty which is measured
with the coefficient of variation. Reduced demand uncertainty reduces the inventory needed to achieve a
target service level. FMCG Company like Hindustan UniLever uses the concept of regional distributors
for large geographic areas or states. For example, one regional distributor in a place like Bangalore will
stock the entire product line and cater to the demand of local distributors across the state or large retail
outlets in the region.
Product pooling
Product pooling is a process of keeping the products separate, but forcing one or more of their
coefficients to be same or similar. Product pooling has always been used as a measure to deal with the
risks involved in marketing the agricultural goods. This type of pooling also generates potential benefits
through the provision of market power. There is an increase in the interest in product differentiation and
the development of value chains which is a means to increase returns to the farmers. Product pooling is
most effective, if the coefficient of variation of the Universal product is lower than the coefficient of
variation (COV) of the individual products. This method is widely used for stocking food and associated
products. For example, different kinds of rice could be stocked together at a common location and then
supplied to customers, based on the demand.
Lead time pooling
Lead time pooling risk by dividing the replacement orders among the multiple suppliers is a sourcing
policy which has been in demand for the academic researchers for more than 20 years. It has many
advantages over the other pooling types. Lead time pooling is a way to reduce the safety stock which has
to meet the service targets or the expected number of backorders for a prescribed level of safety. It also
reduces the cycle stock. In this type of pooling, the incremental ordering cost of the second and
subsequent orders may be relatively small in a variety of settings. This type of pooling is further divided
into two more types. They are:

Delayed differentiation
Consolidated distribution

Capacity pooling
There are several recent trends motivating the companies to merge the capacities which were dedicated to
specific customers. The focus on modularization in manufacturing systems helped to redesign the parts

which are produced at the same manufacturing capacity and therefore, the separate production processes
for parts can be merged later. Let us consider the example of a car manufacturer. The manufacturer
receives several orders from different distributors for one particular model. Instead of treating this as
multiple orders at the production line, he can treat this as a single order, thereby saving valuable time and
resources.

Q3. Read the following case study and answer the questions given the end of the case study
Best Supplier Relationship Management: Jaguar Land Rover and Gobel & Partner Jaguar Land
Rover production line
8 October 2013 | CIPS Supply Management Awards 2013 Jaguar Land Rover (JLR) transformed
its position in customer satisfaction surveys and enhanced the quality of its products through an
innovative partnership with a key supplier.
By re-evaluating the way it deals with quality control and suppliers, Jaguar took top spot in the
2012 JD Power Survey for customer satisfaction and Land Rover raced up the chart. In 2008, the
survey put Jaguar at nine and Land Rover at 34 for quality, described by JLR as clearly an
unsatisfactory situation for a premium brand and stated that something had to change.
Component quality was identified as the key issue for some suppliers the proportion of rejected
parts was as high as 65 per cent and some finished vehicles were being put into containment due
to faulty components. This had knock-on effects including delayed customer shipments, production
line stoppages that cost 2,000 per minute and the risk that faulty parts could make their way into
completed vehicles. At the time, JLR was working with 16 different suppliers across three factories
to undertake parts rework and containment, resulting in differing quality regimes and an inability
to share data across the company. As a result, there was no single view of any given suppliers
quality history, which made preventative action impossible. A new director of quality was
appointed who launched a review of quality across the supply chain that identified potential
improvements that could be made to the inspection of incoming components from suppliers. The
Inbound Materials Project was established and the 16 suppliers dealing with quality control were
reduced to one Gobel & Partner (G&P) who saw it as an opportunity to introduce innovations
and boost investment in its Qtrak quality management system, which totals 2 million to date.
This evolved into a partnership between JLR and G&P. Both realised that prevention was better
than cure, and through Qtrak they could identify the component suppliers causing the most
problems. Those with a recurrent history of reject parts were subject to a more rigorous inspection

regime. G&Ps aim is to ensure no faulty part ever arrives at JLR production facilities and they
now work on the premises of high-risk suppliers to review quality processes. The firm is also
working at JLRs new plant in China to ensure the right quality approach is in place from the
beginning.
Over six years, the relationship between the firms has evolved from a traditional adversarial
situation, where G&P were treated as one of a number of commodity suppliers, to one where the
two are working to the same goal of bringing premium quality to premium brands.Wolfram
Leidtke, JLR board quality director, said: JLR is a premium brand and accordingly needs to have
premium quality vehicles. Procurement has aligned with this objective. G&P has been able to
transfer their global knowledge and work with JLR to develop a new approach to incoming
material quality and the results are starting to speak for themselves.
(Illustrate the role quality played as criteria in JLR choosing its supplier Gobel & Partner. Explain
the importance of Gobel & Partner in the supply chain(unit 6)
A Students should illustrate based on:

How critical is component quality to JLR

What were the effects of bad quality

What were the issues JLR had to tackle to working with 16 suppliers

The steps taken by JLR to improve quality

Importance of the supplier) 10 marks

Answer.
The role quality played as criteria in JLR choosing its supplier Gobel & Partner

Quality plays a very important role as criteria In JLR choosing its supplier. It is critical
component.

As we see in the case study JLR was working with 16 different suppliers across three factories to
undertake parts rework and containment, resulting in differing quality regimes and an inability to
share data across the company.

The main bad effect of this bad quality was that, there was no single view of any given suppliers
quality history, which made preventative action impossible. As I noticed after reading given study
that only the quality was the reason that made the Gobel & partner as supplier.

The main issue was differing quality regimes and an inability to share data across the company.
Also, Component quality was identified as the key issue for some suppliers the proportion of
rejected parts

A new director of quality was appointed who launched a review of quality across the supply
chain that identified potential improvements that could be made to the inspection of incoming
components from suppliers. The Inbound Materials Project was established and the 16 suppliers
dealing with quality control were reduced to one Gobel & Partner (G&P) who saw it as an
opportunity to introduce innovations and boost investment in its Qtrak quality management
system, which totals 2 million to date.

Importance of Gobel & Partner in the supply chain

G&P has importance in supply chain. Over six years, the relationship between the firms has evolved from
a traditional adversarial situation, and it were treated as one of a number of commodity suppliers, to one
where the two are working to the same goal of bringing premium quality to premium brands.Wolfram
Leidtke, JLR board quality director, said: JLR is a premium brand and accordingly needs to have
premium quality vehicles. Procurement has aligned with this objective. G&P has been able to transfer
their global knowledge and work with JLR to develop a new approach to incoming material quality and
the results are starting to speak for themselves.

Q4 MTR Foods, the Bangalore-based food processing company, is planning to utilise the services
of a third party manufacturer for the first time. The contracted plant in Mathura for producing
vermicelli is expected to give it a push in the northern and eastern markets where it is trying to
expand its presence. The company is also planning a capacity expansion in spices.
MTR has nine plants in Bommasandra Industrial Area in Bangalore which caters to its product
categories like spices and masala, beverages, vermicelli and frozen food. The company has so far
produced its brands inhouse. The plant in Mathura would help us supply to the north and eastern
parts of the country. It would help us source wheat faster and also trim freight costs by 6-7 per
cent, said Sanjay Sharma, chief executive officer, MTR Foods.
Which according to you may then be distribution strategy used by MTR? Justify your answer (unit
8)

(Explanation on the facts fitting the strategy

Identification of the strategy

Rationale behind choosing the strategy

Conclusion) 10 marks

Answer.
Explanation on the facts fitting the strategy
MTR Foods Ltd. is one of India's leading purveyors of packaged foods.The company is one of only a few
that sell packaged food nationwide. It pushed into more cities in southern India, where it eventually
gained leading market share in every region that enjoyed a predominantly vegetarian cuisine. Market
opportunities also increased in Bangalore, which had become the so-called Silicon Valley of India, the
center of the country's booming information technology industry. The name of the distribution strategy
choosed by MTR is intensive which fits to the facts of this food company.
Identification of the strategy
MTR uses intensive distribution to let the passengers can be enjoying the MTR service, MTR network
has expanded 17 of interchange stations. It is the safest, convenient and reasonable price railway services
for our customers. MTR focus on provides quality lifestyles for residents easy rail access to work,
education, family and friends, shopping and other activities. These can increased passenger for the
railway, and enhanced investment returns.
Rationale behind choosing the strategy
In order to provide convenient transfer points between different lines, so that more passengers could be
travel MTR to much more destination .For example the Airport Express is a fast way to link with Hong
Kong City form Airport, Disneyland Resort Line can be interchange from Sunny Bay through the Tung
Chung Line, also if you want to cross the harbor form Kowloon to Hong Kong it can be interchange in
Admiralty or North Point. All these kinds of way can be increase the passengers flow.
Conclusion
Using the above distribution strategy MTR Company has reached at top position. It is believed that the
management of this company is highly efficient and hence the output, successful. This has been possible
by good strategic planning and evolving the business plans and their implementation. The manager uses

human skills, material resources and scientific methods to perform all the activities leading to the
achievement of goals.

Q.5: Write short notes on:

Intercompany - inter functional strategic scope: The maximise supply chain surplus view
Capacitated plant location model- 10 (5 marks each)
ANS:
Intercompany - inter functional strategic scope: The maximise supply chain surplus view:
The objective of maximising company profits can sometimes build conflicts between stages of a supply
chain. In intercompany - inter functional scope, the two parties work together to minimise the amount of
inventory required. By working together, they can share the information that helps to reduce inventories
and total cost, and thus increases the supply chain surplus. If the supply chain surplus is higher, then the
supply chain becomes more competitive. Consider the following example, for intercompany - inter
functional scope. The promotions at Wal-Mart required P&G to execute its facilities with over time at
high cost. Later, Wal-Mart and P&G collaborated to plan promotions jointly. Now, both the parties have a
team that make sure promotion is timed and executed to benefit both sides and minimise the marginal
cost increase.
Today, the two teams work together to produce the product which satisfies the promotion demand without
generating any extra unsold inventories. In this era, the intercompany - inter functional scope of strategic
fit is essential, because the competition is now between the supply chains instead of companies. This
scope enables companies to evaluate every action in the context of the entire supply chain.

Capacitated plant location model:

The capacitated plant location model is a variant of facility location model that includes allocation of
capacities for the facilities. The allocation of capacities for a facility that serves as a least cost source for
a demand point helps in serving any demand at that point. The capacity of a facility and demand at each
of the demand point are known as deterministic parameters. These parameters can be easily calculated
using mathematical equations. According to capacitated plant location model, different facility locations
offer different fixed costs for locating a facility. The facilities that are located at the demand points are

controlled to a given capacity level of the demand. This is done in order to determine the maximum
number of facilities to be opened. It is the responsibility of a supply chain manager to implement the
capacitated plant location model to optimise the network design and maximise the profit. This model also
helps you to focus on reducing the cost of meeting the global demands. Usually to make the process
simple, the manager ignores the taxes on earnings and ensures that all the required demands to optimise
the network are met. Later, the model can be modified to include profits and taxes. The solution for the
location of the facility helps to identify the plant that need to be kept open as well as identify their
capacity based on which regional demand is allocated to these plants.

Q.6: Briefly explain how information helps in resolving the important trade-offs involved in a
supply chain.
[Explanation of how information helps in resolving the important trade-offs-10 (2 marks for each
trade-off)]
ANS:
The large amount of information available now helps the supply chain to meet all the apparently
conflicting goals of different areas. Five important trade-offs in supply chain include:
Lot size-inventory trade-off
Inventory-transportation cost trade-off
Lead time-transportation trade-off
Product variety-inventory trade-off
Cost-customer service trade-off
Lot size-inventory trade-off Trade-offs have to be made between lot size and inventory in a supply
chain. The manufacturers always like to have large lot sizes. However, the demand doesnt always result
in large lot sizes. Hence, large lot sizes lead to high inventory as well. Effective sharing of information is
important to ensure that the manufacturer has much time to fulfil the needs of the downstream supply
chain members.
Inventory-transportation cost trade off There is a trade-off between inventory and transportation
cost. Transportation cost can be reduced by aggregating the product movement. Less frequent product
movement increases transportation costs as well as inventory levels. This may result in a decrease in
customer service.

Lead time-transportation cost trade-off Trade-offs have to be made between lead time and
transportation cost in a supply chain. Transportation costs are lowest for transporting large amount of
products between stages of the supply chain. It is easier to reduce lead time if the manufacturers
transport items immediately after they are developed. It is not possible to eliminate inventorytransportation cost trade-offs completely. However, information can be used to reduce the impact of this
trade-off. The suppliers can decrease transportation cost by reducing the frequent transportation of items
by aggregating the product movement. With the help of improved forecasting techniques and information
systems, we can reduce some components of lead time and thus eliminate the need to reduce
transportation cost.
Product variety- inventory trade-off There is a trade-off between product variety and inventory. The
complexity of supply chain management increases with an increase in product variety. An increase in
product variety results in shifting a considerable amount of products to the warehouse. This shifting leads
to an increase in both transportation and warehouse costs. An increase in product variety contributes to an
increase in inventory level as well. Delayed differentiation helps in managing this trade-off and
manufacturers can transport generic items as far as possible down the supply chain.
Cost-customer service trade-offs There is a trade-off between cost and customer service in supply
chain management. We can improve customer service by reducing inventories, manufacturing and
transportation costs. We can reduce various costs involved in the supply chain using information system
and appropriate supply chain designs. We can also improve customer service by reducing these costs.