DMM PROJECT

REAL LIFE CASE ON

PRODUCTION MIX
AND
TRANSPORTATION
PROBLEM OF HERO
HONDA
SUBMITTED TO: DR. HITESH ARORA

ABSTRACT
Hero Honda is the leader in the 2 wheeler automobile market. Hero Honda use to manufacture 8 different
models in its factories. The profit and resource requirements for different models are different. Also the
market demand for different models is such that it places a cap on upper limit of number of vehicles of a
specific model that should be produced. Similarly the market demand places a cap on lower limit of
number of vehicles of a specific model that should be produced.

Under all the constraints we need to come up with the optimum production mix that will satisfy all the
constraints and will yield maximum profit to the company.

Now after manufacturing the vehicles Hero Honda company need to deliver the vehicles to its zonal
offices from where it will be sent to the dealers of Hero Honda. Hero Honda has 3 factories located at
Daruhera, Gurgaon and Haridwar. The 4 zonal offices are located at Bangalore, Pune, Delhi and Kolkata.
The cost of transferring vehicle from different factories to different zonal offices are different. Also the
production capacity of different factories are different and the demand of different zonal offices are
different.

We have to allocate or transfer vehicles from factories to different zonal offices in such a way that the
demand of all the zonal offices are met and the cost of transportation is minimum for the company.

So we have to come up with optimim production mix and transportation solution for the Hero Honda
company.
 METHODOLOGY
Telephonic Interview Schedule

Telephonic Interview Schedule was administered for the purpose of collecting information.
Probing questions were asked to gather data about the operations of Hero Honda company. The
respondent was Shri Ashish Goel Authorized Hero Honda Dealer(Raigarh District).

He could provide all the information regarding the different models of Hero Honda, approximate
Sales figures of different models along with the approximate profit associated with different
models.

He threw light on distribution system of Hero Honda and the production capacity of different factories
and demand of different zonal offices.

Other Resources Of Information

Annual Report:

Annual report of the company was also studied for getting the sales figure of the company. Also
we could get hint on the demand of the different models. It also gave information on how
company is doing in different zones from where we could estimate the demand of different zonal
offices.

Informed Hypothetical Data:

While respondent provided almost all the information to our satisfaction, but he was able to give
only rough idea on the resource required for production of different models. He could not
provide precise data on resource constraints of the company and resource required for 1 unit
production of different models. So based on the rough estimate provided by the respondent the
data was guessed. Thus the data on the resource constraint is not exact and precise but it is
hypothetical. But the data is not completely imaginary as it is based on rough estimates provided
by the respondent.
 PROBLEM
Profit on Different Models:

Hero Honda, the leader in the 2 wheeler automobile segment, produces 8 different models of
vehicles which are Passion, Splendor, CBZ, Karizma, Achiever, Glamour, Hunk and CD Dawn.
The profit per unit vehicle sold is different for different models. The table below summarizes the
profit per unit of vehicle sold for different models.

Model Profit per unit

Passion 5000
Splendor 4000
CBZ 9064
Karizma 15000
Achiever 7400
Glamour 6000
Hunk 9700
CD Dawn 2000

Manufacturing Process:

Hero Honda does not manufacture the parts of the bike on its own. It has a complete list of 117
vendors from which it gathers the parts. It only manufactures Fuel Tanks for its bikes, Do the
Paint job, Prepare the Chassis according to the technical specifications and finally it assembles
all the parts to the chassis which leads to production of a new bike.

Firstly, the metal sheet is taken from which the fuel tank is casted in two parts, these two parts
after casting are joined together and then properly sealed. Then, these Fuel Tanks are sent to the
checking zone where the test such as leakage checking and all are done so as to check problem,
if any. These fuels tanks are then sent to the painting zone, where they get spray painted in 10-
step process and then the fuel tanks are cured through heating so that its paint gets permanent
and finally the graphics are put over it.

Now on the other side, the engines were being assembled, i.e. all the parts, like carburetor, air
filter, spark plugs, etc. are fitted into the engine and then the finished engines are sent to the
assembly line. The Assembly line consists of a basket of parts which contains all the parts of the
bike, and this basket continuously moves along with the main conveyor belt. This main conveyor
belt holds the chassis of the motorcycle into which all parts are fitted into. The Engine, Tires,
Fuel tanks, etc. all are placed into that basket containing all the parts. This Basket directly comes
from the inventory house, from where all the parts are loaded into the basket. Now, when all the
parts are fitted into the chassis, the final motorcycle is prepared and is sent for further testing and
analysis.

Resource Requirement and Total Availability:

The resources required for the production of different models are different. The table below
summarizes the resource requirement for producing different models of vehicles and the total
resources available with the company.

Reso
Reso urce
urce Reso Resou Resou Resou s
s urces Reso rces rces rces Resou used
used used urces used used used rces by 1
by 1 by 1 used by 1 by 1 by 1 used unit Total
unit unit by 1 unit unit unit by 1 of Resource
of of unit of of of unit CD s
Passi Splen of Kariz Achie Glam of Daw Availaibl
Resources on dor CBZ ma ver our Hunk n e
Engine
Assembly
time in 3999000
seconds 7 7 12 15 13 9 13 4 0
Painting
time in 1048200
seconds 18 20 30 40 30 18 35 10 10
chasis
assemby
time in 1499799
seconds 30 40 25 30 20 17 25 6 67
vehicle
assembly
time in 1712000
seconds 35 30 50 70 40 25 60 15 00
Inspection
time in 9998000
minutes 13 20 30 50 25 22 35 10 0
Fuel Tank
manufacturi
ng time in 3529000
seconds 70 60 120 150 110 60 120 30 00
Pasting
graphics on
bike in 1469000
seconds 3 2 4 5 4 4 5 2 9

Restrictions on Quantity of different models produced:

But the whole quantity of a model produced cannot be sold due to market demand restrictions.
Also there is the minimum quantity associated with certain models that needs to be produced
otherwise it will hurt the revenue and image of the company or lead to increased sales of the
competitors model. The table below summarizes the constraints of the company on production
quantity of different models.

units of the
model constraint
produced Constraint value Reasons for constrained value
Passion should be produced atleast
1200000 otherwise it will hurt the sale and
image of the compnay.As it is one of the
most successful brand of hero honda and its
Passion >= 1200000 shortage will lead to loss of revenue.
Splendor the most selling brand of hero
honda. They cant allow shortage in this
brand. They have to meet the market
demand.Thus the minimum no of units it
Splendor >= 2000000 has to produce is 2000000
CD Dawn >= 600000 This is the entry range which it introduced
to compete with the lower priced motor
cycles.If it is not produced Bajaj will move
ahead in competition.Thus atleast 600000
 units must be produced.
Karizma is a very costly bike and less fuel
efficient. It cannot be sold more than 50000
units.So 50000 is the upper limit for the
Karizma <= 50000 production

CBZ is a costly bike and less fuel efficient.

It cannot be sold more than 100000 units.So
CBZ <= 100000 this is he upper limit for the production
Hunk being costly and less efficient but
stylish bike serves the market niche. Thus
Hunk <= 80000 its production must be lmited to 80000
Achiever should not be produced more than
600000 units. As market cannot consume
Achiever <= 600000 more han 600000 units.

Now according to the conditions and restrictions mentioned above we need to

formulate the problem and tell the quantity of different models that Hero Honda
company must produce in order to maximize the profit.

PROBLEM FORMULATION
Decision Variables:

Let the number of units of different models of 2 wheelers that should be produced by Hero
Honda company be x1,x2. and so on as shown in the table below.

Let no. of
units of
model
produced Profit per
Model be unit

Passion x1 5000
Splendor x2 4000
CBZ x3 9064
Karizma x4 15000
Achiever x5 7400
Glamour x6 6000
Hunk x7 9700
 CD Dawn x8 2000

Objective Function:

Max z=5000x1+40000x2+9064x3+15000x4+7400x5+60000x6+9700x7+2000x8

Constraints:

Passio Minimum no of passion

n x1 >= 1200000 constraint
Splend Minimum no of splendor
or x2 >= 2000000 constraint
CD Minimum no of CD Dawn
Dawn x8 >= 600000 constraint
Karizm Maximum number of
a x4 <= 50000 Karizma constraint
Maximum number of
CBZ x3 <= 100000 CBZ constraint
Maximum number of
Hunk x7 <= 80000 Hunk constraint
Achiev Maximim number of
er x5 <= 600000 Achiever constraint
The constraints related to the various resources required to produce the different models of Hero
Honda and the total resources available with the company is summarized below in the table
format.
 Non Negative and Integer
Passion x1 >= 0 and int constraint
Splend Non Negative and Integer
or x2 >= 0 and int constraint
Non Negative and Integer
CBZ x3 >= 0 and int constraint
Karizm Non Negative and Integer
a x4 >= 0 and int constraint
Achieve Non Negative and Integer
r x5 >= 0 and int constraint
Glamou Non Negative and Integer
r x6 >= 0 and int constraint
Non Negative and Integer
Hunk x7 >= 0 and int constraint
CD Non Negative and Integer
Dawn x8 >= 0 and int constraint
 SOLUTION BY SOLVER

Screen Shot of Excel Before Applying Solver

Let no. Optimum

of units Quantity
of model Profit that
produce per should be
Model d be unit produced

Passio
n x1 5000 0
Splend
or x2 4000 0
CBZ x3 9064 0
Karizm
a x4 15000 0
Achiev
er x5 7400 0
Glamo
ur x6 6000 0
Hunk x7 9700 0
CD
Dawn x8 2000 0

Max z 0

No of
units
that
should
be
produce COSTRAI Constrain
d NTS ed Value
x1 >= 1200000
x2 >= 2000000
x8 >= 600000
x4 <= 50000
x3 <= 100000
x7 <= 80000
x5 <= 600000

Screen Shot of Excel After Applying Solver

Let no. Optimum

of units Quantity
of model Profit that
produce per should be
Model d be unit produced

Passio
n x1 5000 1299998
Splend
or x2 4000 2000000
CBZ x3 9064 100000
Karizm
a x4 15000 50000
Achiev
er x5 7400 120001
Glamo
ur x6 6000 440000
Hunk x7 9700 540000
CD
Dawn x8 2000 600000

26122397
Max z 400

No of
units
that
should
be
produce COSTRAI Constrain
d NTS ed Value
x1 >= 1200000
x2 >= 2000000
x8 >= 600000
x4 <= 50000
x3 <= 100000
x7 <= 80000
x5 <= 600000
 RESULTS

The optimum production mix and maximum profit at this production mix for Hero Honda
company is as follows and is summarized in the table below:

Let no.
of units Optimum
of Quantity
model Profit that
produce per should be
Model d be unit produced
 Passio
n x1 5000 1299998

Splen
dor x2 4000 2000000

CBZ x3 9064 100000

Kariz
ma x4 15000 50000

Achie
ver x5 7400 120001

Glamo
ur x6 6000 440000

Hunk x7 9700 540000

CD
Dawn x8 2000 600000

26122397
Max z 400

TRANSPORTATION PROBLEM OF HERO HONDA

Hero Honda has established 4 zonal offices in India at 4 different regions i.e. in North Delhi,
South Bangalore, East Kolkata, and West Pune. These Zonal offices act as intermediary
between the Authorized Centers and the Hero Honda Company, they gather demands from
various centers and send them to Hero Honda to which it acts and supplies the bikes to these
zonal offices and these offices in turn supplies the 2 wheelers to various centres. Every Zonal
Office is in networking with every authorized centre in its area. Hero Honda, in total has 771
Dealers, 693 Spare Suppliers, 1440 Authorized Service Centers and 28 Stockists in India.
Hero Honda has three manufacturing facilities based at Dharuhera, Gurgaon in Haryana and at
Haridwar in Uttarakhand. These plants together are capable of churning out 5.4 million bikes per
year.[10] Hero Honda has a large sales and service network with over 3,000 dealerships and
service points across India.

The supply of different factories of Hero Honda and demand of different zonal offices along with
the cost of transfer of one unit from factory to zonal office is summarized in the table below:

Factories/
Zonal Bangal Kolka Suppl
Offices Delhi ore ta Pune y

15000
Dharuhera 68 1696 1322 1117 00

18000
Gurgaon 30 2054 1426 1416 00

21000
Haridwar 200 2277 1544 1605 00

18000 100000 12000 14000

Demand 00 0 00 00
Now we have to
supply vehicles
from different factories to zonal offices such as the demand of all the zonal offices are met in
such a way that the cost of transportation for Hero Honda company is minimum.

SOLUTION BY SOLVER
Screen Shot of Excel Before Applying Solver

Cost of transferring one unit

Factories/
Zonal Bangal Kolka Suppl
Offices Delhi ore ta Pune y

Dharuhera 68 1696 1322 1117 15000

 00

18000
Gurgaon 30 2054 1426 1416 00

21000
Haridwar 200 2277 1544 1605 00

18000 100000 12000 14000

Demand 00 0 00 00

Allocation matrix which shows how demand of zonal offices will be met

Factories/ Supply
Zonal Bangal Kolka Suppli constr Availai
Offices Delhi ore ta Pune ed aint ble

15000
Dharuhera 0 0 0 0 0 = 00

18000
Gurgaon 0 0 0 0 0 = 00

21000
Haridwar 0 0 0 0 0 = 00

Demand
Alloted 0 0 0 0

constraint = = = =

18000 100000 12000 14000

Demand 00 0 00 00

Minimum cost for meeting demands of all zonal offices

cost 0

Screen Shot of Excel After Applying Solver

Cost of transferring one unit

Factories/
Zonal Bangal Kolka Suppl
Offices Delhi ore ta Pune y

15000
Dharuhera 68 1696 1322 1117 00

18000
Gurgaon 30 2054 1426 1416 00

21000
Haridwar 200 2277 1544 1605 00

180000 100000 12000 14000

Demand 0 0 00 00

Optimim Allocation matrix

Factories/ Supply
Zonal Bangal Kolka Suppli constr Availai
Offices Delhi ore ta Pune ed aint ble

100000 50000 15000 15000

Dharuhera 0 0 0 0 00 = 00

90000 18000 18000

Gurgaon 900000 0 0 0 00 = 00

12000 21000 21000

Haridwar 900000 0 00 0 00 = 00

Demand 180000 100000 12000 14000

Alloted 0 0 00 00

constraint = = = =

180000 100000 12000 14000

Demand 0 0 00 00

Minimum cost for meeting demands of all zonal offices

 5588700
cost 000

RESULTS

Factories/ Zonal
Offices Delhi Bangalore Kolkata Pune

Dharuhera 0 1000000 0 500000

Gurgaon 900000 0 0 900000

Haridwar 900000 0 1200000 0

Daruhera plant should transfer 10 lakh units to Bangalore and 5 lakh units
to pune.

Gurgaon plant should transfer 9 lakh units to Delhi and 9 lakh units to
Pune.

Haridwar plant should transfer 9 lakh units to Delhi and 12 lakh units to
Kolkata.

Cost of transferring= 5588700000

 References
Book

Mustafi C.K.Operation Research: Methods and Practice. New age international

Publications.(pg-155)

Journals

Leavengood S and Reeb J: Transportation Problem: a special case for linear

programming problems, June 2002. Oregon state University

Websites

http://businessmanagementcourses.org/Lesson02IntroductionToLinearProgrammin
g&ProblemFormulation

http://www.heromotocorp.com/user/main