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Strategic Network Optimization

Introduction

Mr. Gagan Khanna, the head of Supply Chain of Tetra India was having his evening coffee in his
office on a Monday. The last quarter was a disastrous one with supply chain costs spiraling
exponentially. Mr. Khanna was wondering whether the supply chain of the company was
optimized.
Tetra India is a public limited company engaged in the business of marketing food and food
ingredients to consumers and institutional customers.
Their vision is to become the Best Performing Most Respected Foods Company in India
Their driving motto is that we should be "Nourishing families... Enriching life"
Their call to action - "ACT NOW" - and it means being empowered, being agile and making a
difference with a sense of urgency!

Sales and Distribution

Tetra India reaches towns across the length and breadth of India and retail stores sell the products
(traditional trade stores, visited by consumers at a high frequency).
The company has a strong presence and a pro-active stance with respect to modern trade. There
are direct selling agreements in place with key accounts like Reliance Retail, Food Bazaar,
Aditya Birla (More and Trinethra), Heritage, Food World, Spencers, Bharti-Walmart, Tesco,
Hypercity, D-Mart etc.

This case has been written by Sandeep Chatterjee, IIM Kozhikode (Batch of 2003)
and Associate Director, KPMG. No part of this text may be reproduced in any form
by any electronic or mechanical means (including photocopying, recording, or
information storage and retrieval) without permission in writing from the author
except for reading and browsing via the World Wide Web.
Copyright - Sandeep Chatterjee, KPMG, 2014. All rights reserved.
1

Manufacturing
The competitive edge has been maintained by their unique manufacturing process at 3 locations
across India. The factories are located in Delhi (Factory 1), Mumbai (Factory 2) and Hyderabad
(Factory 3).
In order to assure consumers of the highest standards of food safety and hygiene, they are
engaged in supporting co-packers in implementing world-class quality standards based on
HACCP principles. The resolute commitment to globally benchmarked quality standards enabled
them to rapidly gain market standing in the two brands.
Processing is based on Lean Manufacturing Concept i.e. customer will not pay for the mistakes,
but only for the value of the product or the service they receive. The impact on this thinking is
huge on the manufacturing process. It changed the way people looked at the manufacturing
process. It made people to define value of the product from the customer's point of view, not
from the internal manufacturing point of view.

Tetra India has two products: Edible Oil 1 and Popcorn 1. Exhibit 1 has the Bill of Material
details.

UOM
Edible Oil
1

Litre

RM 1

Ton

RM 2
RM 3
RM 4

gm
gm
gm

UOM
Conversion

Qty
1

1
0.001 Ton=1000
5 litre
1 litre
5 =1000 gm
4
6

This case has been written by Sandeep Chatterjee, IIM Kozhikode (Batch of 2003)
and Associate Director, KPMG. No part of this text may be reproduced in any form
by any electronic or mechanical means (including photocopying, recording, or
information storage and retrieval) without permission in writing from the author
except for reading and browsing via the World Wide Web.
Copyright - Sandeep Chatterjee, KPMG, 2014. All rights reserved.
2

UOM
Popcorn 1

Packet

PM
PM
PM
PM

Ton
gm
gm
gm

1
2
3
4

UOM
Conversion
1 Packet =
1 50 gm
1 Ton=1000
0.06 gm
2
1
1.5

Qty

EXHIBIT 1: Bill of Material of Edible Oil 1 and Popcorn 1


UOM: Unit of Measure

Supply Chain Management and Purchases


The Supply Chain Management & Purchases Organization is organized under following subfunctions:
Demand Planning (DP)
Supply Planning and Sales & Operations Planning (S&OP)
Distribution Requirement Planning (DRP)
Supply Chain Operations - Warehousing & Transportation
Materials Requirement Planning (MRP)
Purchasing
Imports & Exports
Demand planning function performs the Long Term and Short Term Sales Forecasting. Sales
Forecasting is the starting of the Supply Chain process. Through this process, it is estimated what will be customers requirement, what qty and when is the demand? This process considers
the periodicity of demand to reflect the right demand at the right time. The output of this process
is used by Supply Planning, Financial Planning, Sales Planning and Marketing.

Supply Planning and S&OP process determines how the demand as forecasted by Demand
Planning would be met. This function ensures that right product is produced at the most optimum
This case has been written by Sandeep Chatterjee, IIM Kozhikode (Batch of 2003)
and Associate Director, KPMG. No part of this text may be reproduced in any form
by any electronic or mechanical means (including photocopying, recording, or
information storage and retrieval) without permission in writing from the author
except for reading and browsing via the World Wide Web.
Copyright - Sandeep Chatterjee, KPMG, 2014. All rights reserved.
3

manufacturing location at the right time. This function also ensures that right inventory levels are
maintained and no obsolescence gets generated. S&OP Process is a collaborative approach,
through all functions Sales, Marketing, Manufacturing, Quality, SCM and Finance come
together and ensure that Customer demand is met in a most cost effective way. The output of this
process is the week wise and factory wise Production Plan and estimated FG Inventory Cost.
Distribution function works to distribute the products at all 10 warehouses across the country to
meet the customers demand on time and in most effective way. It tries to optimize the
transportation cost while meeting the customers demand at the right time.
SCM Operations function chooses the right Transporters and the Warehouses using the Third
Party Logistics Providers (3PL). This function is responsible for Primary Transportation, CFA
operations and the Secondary Transportation. If the Planning function is the brain of SCM, the
Logistics function is hands and feet of the SCM function. This function performs the movement
and storage of FG.
Materials Requirements Planning (MRP) function determines what inputs (Raw Materials and
Packaging Materials) are required when and at which factory based on the Production Plan in a
short term and based on the sales forecast in a long term.
Purchasing Function selects and nurtures good quality of Vendors who are reliable, quality
conscious and dependable. They also negotiate the right price with Vendors and are responsible
for maintaining a good Vendor base. In day to day operations, purchasing places the PO for the
required materials and ensures that all factories get the right quality inputs at right time.
The company and two suppliers and Exhibit 2 gives details of the Purchase price.
Commodity
RM 1
RM 2
RM 3
RM 4
PM 1
PM 2
PM 3
PM 4

UOM
Ton
gm
gm
gm
Ton
gm
gm
gm

Supplier 1
Rs. 40000
Rs. 2
Rs. 3
Rs. 2.5
Rs. 30
Rs. 4
Rs. 2
Rs. 3

Supplier 2
Rs. 37000
Rs. 3
Rs. 3
Rs. 3
Rs. 31
Rs. 4.5
Re. 1
Rs. 3

This case has been written by Sandeep Chatterjee, IIM Kozhikode (Batch of 2003)
and Associate Director, KPMG. No part of this text may be reproduced in any form
by any electronic or mechanical means (including photocopying, recording, or
information storage and retrieval) without permission in writing from the author
except for reading and browsing via the World Wide Web.
Copyright - Sandeep Chatterjee, KPMG, 2014. All rights reserved.
4

EXHIBIT 2: Purchase Price of Raw Materials


The lead times are given in Exhibit 3.
Commodity
RM 1
RM 2
RM 3
RM 4
PM 1
PM 2
PM 3
PM 4

UOM
Ton
gm
gm
gm
Ton
gm
gm
gm

Supplier
Supplier 1 2
2 days
3 days
1 day
1.5 days
1 day
2 days
1 day
1 day
3 days
2.5 days
1 day
1 day
1 day
1 day
1 day
1 day

EXHIBIT 3: Purchase Lead Time


Exhibit 4 gives details of the factories, warehouses and the corresponding distances
Factory
1
Depo 1
Depo 2
Depo 3
Depo 4
Depo 5
Depo 6
Depo 7
Depo 8
Depo 9
Depo
10

Delhi

Distance

Factory
2

Mumbai

Distance

Factory
3

Hyderabad Distance

Delhi
Srinagar
Jaipur
Mumbai
Bangalore
Chennai
Hyderabad
Kolkata
Lucknow

5 km
677 km
274 km
1161 km
1745 km
1761 km
1262 km
1482 km
416 km

Depo 1
Depo 2
Depo 3
Depo 4
Depo 5
Depo 6
Depo 7
Depo 8
Depo 9

Delhi
Srinagar
Jaipur
Mumbai
Bangalore
Chennai
Hyderabad
Kolkata
Lucknow

1162 km
2201 km
1142 km
2 km
1012 km
1031 km
707 km
1960 km
1422 km

Depo 1
Depo 2
Depo 3
Depo 4
Depo 5
Depo 6
Depo 7
Depo 8
Depo 9

Delhi
Srinagar
Jaipur
Mumbai
Bangalore
Chennai
Hyderabad
Kolkata
Lucknow

Gawahati

1840 km Depo 10 Gawahati

2746 km

Depo 10 Gawahati

EXHIBIT 4: Factories and Warehouses

Exhibit 5 gives the manufacturing costs.


This case has been written by Sandeep Chatterjee, IIM Kozhikode (Batch of 2003)
and Associate Director, KPMG. No part of this text may be reproduced in any form
by any electronic or mechanical means (including photocopying, recording, or
information storage and retrieval) without permission in writing from the author
except for reading and browsing via the World Wide Web.
Copyright - Sandeep Chatterjee, KPMG, 2014. All rights reserved.
5

1264 km
2374 km
1403 km
710 km
568 km
626 km
3 km
1605 km
1289 km
2370 km

Factory
1
Factory
2
Factory
3

Edible
Oil
Rs.
5/Litre
Rs.
4/Litre
Rs.
3/Litre

Popcorn 1
Re. 1/Packet
Rs.
1.5/Packet
35
paise/Packet

EXHIBIT 5: Manufacturing Costs


The storage cost at factory and warehouse is 10% of the item cost.
Exhibit 6 gives the manufacturing capacities.

Factory 1
Factory 2
Factory 3

Edible
Oil
100
litre
50
litre
200
litre

Popcorn 1
1000 Packets
700 Packets
2000 Packets

EXHIBIT 6: Manufacturing Capacities per day


Exhibit 7 gives the storage capacities at the factories. The storage capacities are distinct and
commodities cannot be intermingled.

Factory 1
Factory 2
Factory 3

Edible
Oil
1000
litre
500
litre
2000
litre

Popcorn 1
10000
Packets
7000 Packets
20000
Packets

EXHIBIT 7: Storage Capacities at the factories


This case has been written by Sandeep Chatterjee, IIM Kozhikode (Batch of 2003)
and Associate Director, KPMG. No part of this text may be reproduced in any form
by any electronic or mechanical means (including photocopying, recording, or
information storage and retrieval) without permission in writing from the author
except for reading and browsing via the World Wide Web.
Copyright - Sandeep Chatterjee, KPMG, 2014. All rights reserved.
6

The storage capacity is given in terms of litre and packets in Exhibit 8. The volume occupied by
1 litre of Edible Oil 1 is equal to the volume occupied by 2 packets of Popcorn 1. Mingling of
commodities is allowed.

Depo 1
Depo 2
Depo 3
Depo 4
Depo 5
Depo 6
Depo 7
Depo 8
Depo 9
Depo 10

Edible
Oil 1
20000
Delhi
litre
10000
Srinagar
litre
30000
Jaipur
litre
20000
Mumbai
litre
40000
Bangalore litre
45000
Chennai
litre
20000
Hyderabad litre
70000
Kolkata
litre
25000
Lucknow
litre
35000
Gawahati litre

OR
OR
OR
OR
OR
OR
OR
OR
OR
OR

Popcorn 1
40000
packets
20000
packets
60000
packets
40000
packets
80000
packets
90000
packets
40000
packets
140000
packets
50000
packets
70000
packets

EXHIBIT 8: Storage Capacities at the warehouses


There are 2 types of trucks available: 9 Ton and 16 Ton. The average speed of the trucks may be
assumed to be 40 km/hr to arrive at lead times.
The transportation cost per km per unit weight is 1 paisa for 16 Ton Truck and 1.5 paise for 9
Ton Truck respectively.. Both commodities can go in the same truck. In terms of volume, 1 litre
of edible oil is equivalent to 2 packets of Popcorn 1. In terms of weight, 1 litre of Edible oil 1 is
equivalent to 1000 gm of Popcorn 1.
There is a VAT benefit given by the government if the commodity is produced and sold in the
same state. The benefit is Rs. 10 per litre for Edible Oil 1 and Re.1 per packet for Popcorn 1.
Exhibit 9 gives the price of Edible Oil 1 and Popcorn 1 at the depos.
This case has been written by Sandeep Chatterjee, IIM Kozhikode (Batch of 2003)
and Associate Director, KPMG. No part of this text may be reproduced in any form
by any electronic or mechanical means (including photocopying, recording, or
information storage and retrieval) without permission in writing from the author
except for reading and browsing via the World Wide Web.
Copyright - Sandeep Chatterjee, KPMG, 2014. All rights reserved.
7

Depo 1
Depo 2
Depo 3
Depo 4
Depo 5
Depo 6
Depo 7
Depo 8
Depo 9
Depo 10

Edible Oil
1
Rs.
Delhi
200/litre
Rs.
Srinagar
300/litre
Rs.
Jaipur
170/litre
Rs.
Mumbai
200/litre
Rs.
Bangalore 250/litre
Rs.
Chennai
200/litre
Rs.
Hyderabad 150/litre
Kolkata
Rs.145litre
Rs.
Lucknow
200/litre
Rs.
Gawahati 300/litre

Popcorn 1
Rs. 40/packet
Rs. 50/packet
Rs. 40/packet
Rs. 40/packet
Rs. 40/packet
Rs. 40/packet
Rs. 35/packet
Rs. 30/packet
Rs. 40/packet
Rs. 40/packet

EXHIBIT 9: Prices at various depos


Exhibit 10 gives the demand pattern for Edible Oil 1 at the various depos for the next 6 months.

Depo 1
Depo 2
Depo 3
Depo 4
Depo 5
Depo 6
Depo 7

January
30000
Delhi
litre
10000
Srinagar
litre
10000
Jaipur
litre
30000
Mumbai
litre
20000
Bangalore litre
30000
Chennai
litre
20000
Hyderabad litre

February
25000
litre
10000
litre
10000
litre
30000
litre
20000
litre
30000
litre
20000
litre

March

April

May

27000 litre 30000 litre

30000 litre

10000 litre 12000 litre

10000 litre

10000 litre 10000 litre

10000 litre

30000 litre 30000 litre

30000 litre

20000 litre 20000 litre

20000 litre

30000 litre 30000 litre

30000 litre

8000 litre

20000 litre

20000 litre

June
32000
litre
10000
litre
10000
litre
30000
litre
20000
litre
30000
litre
12000
litre

This case has been written by Sandeep Chatterjee, IIM Kozhikode (Batch of 2003)
and Associate Director, KPMG. No part of this text may be reproduced in any form
by any electronic or mechanical means (including photocopying, recording, or
information storage and retrieval) without permission in writing from the author
except for reading and browsing via the World Wide Web.
Copyright - Sandeep Chatterjee, KPMG, 2014. All rights reserved.
8

Depo 8

Kolkata

Depo 9
Depo
10

Lucknow
Gawahati

20000
litre
20000
litre
10000
litre

20000
litre
20000
litre
10000
litre

20000 litre 20000 litre

20000 litre

18000 litre 20000 litre

20000 litre

10000 litre 10000 litre

10000 litre

10000
litre
20000
litre
10000
litre

EXHIBIT 10: Demand Pattern for Edible Oil 1


Exhibit 11 gives the demand pattern for Popcorn 1 at the various depos for the next 6 months.
Depo
1
Depo
2
Depo
3
Depo
4
Depo
5
Depo
6
Depo
7
Depo
8
Depo
9
Depo
10

January
300000
Delhi
packets
100000
Srinagar
packets
100000
Jaipur
packets
300000
Mumbai
packets
200000
Bangalore packets
300000
Chennai
packets
200000
Hyderabad packets
200000
Kolkata
packets
200000
Lucknow
packets
100000
Gawahati packets

February
250000
packets
100000
packets
100000
packets
300000
packets
200000
packets
300000
packets
200000
packets
200000
packets
200000
packets
100000
packets

March
270000
packets
100000
packets
100000
packets
300000
packets
200000
packets
300000
packets
80000
packets
200000
packets
180000
packets
100000
packets

April
300000
packets
120000
packets
100000
packets
300000
packets
200000
packets
300000
packets
200000
packets
200000
packets
200000
packets
100000
packets

May
300000
packets
100000
packets
100000
packets
300000
packets
200000
packets
300000
packets
200000
packets
200000
packets
200000
packets
100000
packets

EXHIBIT 11: Demand Pattern for Popcorn 1


Edible Oil 1 has a shelf life of 3 months while Popcorn 1 has a shelf life of 4 months.
Mr. Gagan Khanna has the following questions to answer:

This case has been written by Sandeep Chatterjee, IIM Kozhikode (Batch of 2003)
and Associate Director, KPMG. No part of this text may be reproduced in any form
by any electronic or mechanical means (including photocopying, recording, or
information storage and retrieval) without permission in writing from the author
except for reading and browsing via the World Wide Web.
Copyright - Sandeep Chatterjee, KPMG, 2014. All rights reserved.
9

June
320000
packets
100000
packets
100000
packets
300000
packets
200000
packets
300000
packets
120000
packets
100000
packets
200000
packets
100000
packets

1. Which commodities should be produced at which factory to minimize the supply chain
costs?
2. Which all demand should be met to maximize profits?
3. How much raw materials should he buy from each supplier to minimize cost?
4. Which factory should cater to which warehouse?

This case has been written by Sandeep Chatterjee, IIM Kozhikode (Batch of 2003)
and Associate Director, KPMG. No part of this text may be reproduced in any form
by any electronic or mechanical means (including photocopying, recording, or
information storage and retrieval) without permission in writing from the author
except for reading and browsing via the World Wide Web.
Copyright - Sandeep Chatterjee, KPMG, 2014. All rights reserved.
10

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