ASSIGNMENT 2- SUPPLY CHAIN MODELLING EXERCISE

1. A company manufacturing a product is considering the trucking and inventory norms that is
to be followed at the plant and at various warehouses. The product exist in 4 SKUs. The
production involves 4 stages and the SKUs are differentiated at the third stage. (For analysis
you can take the production as a two stage process). The SKU wise demand at four
Distribution Centres along with trucking cost is given in the attached tables. The Plant is
having a maximum capacity 1200 units per week. The last stage has an additional capacity
for 200 units. The company follows batch mode at stage 4, even though it can make two
SKUs at the same time. However the yield will reduce to 80% (divided equally) if two SKUs
are made simultaneously. Assume the production rate is uniform. For every change of
setup, the capacity to the tune of 1 days production will be lost. Company maintain labour
to operate only at 90% of its full capacity. Any additional labour cost Rs 1000/- per 50 units
produced and retrenchment cost Rs 2000/- per 50 units reduced. The company can
produce in lots of 100 and changes can be in the steps of 100 only. Using DRP develop,
production and dispatch schedules for weeks under consideration. Make any relevant
assumptions. The storage capacity at the plant and DCs (total cartons in terms of SKU1) is
given in Table 4. However additional capacity can be hired at Rs 10,00 per 100 units per
week (in terms of SKU1). The inventory cost is 24% per annum. The unit cost of SKU's (at
Plant) is given Table 6. The time taken for travel between plant and warehouses (DC) is
given in Table 7. State your assumptions clearly.
2. Refer to the problem above. A detailed study of the company revealed that the actual
demand varies as per exponential distribution with mean equal to 5 week average. Using
simulation find how your solution earlier will reflect on firm's performance over an year (52
weeks average). Develop strategies (both functional and strategic) to minimise wastage. If
round trips (multi drops) are to be used, develop an algorithm for the same. Do you think
inter DC transfers are going to improve the performance. If SKU's have substitution effect
up to 10%, how will your answer change. Do you think it is wise to avert stock out by
providing another SKU at same/competitive rates. If you have to fix the price of products,
how will you approach the same? Assume any other data you feel relevant in solving
problem 1 &2
Table 1
Trucking Cost from the Source to Destinations
Trucking Cost
DC1 DC2 DC3 DC4
FULL 2000 1800 1500 2600
HALF 1300 1200 900 1800
(The Cost is in Rupees)

Table 2
Truck Capacity & SKU packing pattern

SKU1 SKU2 SKU3 SKU4
FULL 500 400 300 250
HALF 200 175 125 100
(UNITS ARE CARTONS : Combinations are possible in the same ratio)

Table 3
Lead time for procurement (including transportation time)
SKU1 SKU2 SKU3 SKU4
DC1 1 2 2 1
DC2 2 2 1 2
DC3 1 2 2 2
DC4 2 2 3 2
The figures are in Week

Table 4
Storage capacity (in cartons of SKU1)
SKU1
PLANT 1500
DC1 1000
DC2 900
DC3 800
DC4 700
For conversion please use the table 2
Table 5
SKU Wise demand, Safety stock, Order quantity at DCs
(a) SKU1
Wk3 Wk4 Wk5 Wk6 Wk7 Wk8 On
Hand
Safety Order
Qty
DC 1 100 90 90 100 90 95 120 90 200
DC 2 80 70 75 65 70 65 90 70 100
DC 3 70 75 60 80 65 70 100 50 100
DC 4 70 80 95 90 95 100 85 70 125
(b) SKU 2
Wk3 Wk4 Wk5 Wk6 Wk7 Wk8 On
Hand
Safety Order
Qty
DC 1 75 80 80 75 80 70 100 70 125
DC 2 60 50 55 45 50 45 70 50 80
DC 3 50 55 40 55 45 45 90 35 75
DC 4 70 60 75 70 75 80 65 50 100
(c) SKU3
Wk3 Wk4 Wk5 Wk6 Wk7 Wk8 On
Hand
Safety Order
Qty
DC 1 50 70 80 55 60 65 100 60 100
DC 2 40 40 50 35 30 35 50 40 50
DC 3 30 25 20 30 35 30 50 30 50
DC 4 50 65 60 55 45 50 55 55 100

(d) SKU 4
Wk3 Wk4 Wk5 Wk6 Wk7 Wk8 On
Hand
Safety Order
Qty
DC 1 100 60 70 100 70 75 100 100 150
DC 2 125 100 120 125 80 75 70 60 100
DC 3 75 55 80 70 70 95 90 100 150
DC 4 80 90 100 90 80 70 65 50 150
Demand is in Cartons
On hand refers to the amount stock in hand at the beginning of week 3

Table 6
Unit Price of SKUs (per Carton)
Unit Cost Demerage Charge
SKU1 2000 5000
SKU2 1000 3000
SKU3 500 3000
SKU4 3000 2000
Demerage Charges are per carton per week delayed

Table 7
DC1 DC2 DC3 DC4
PLANT 3 2 3 2
DC1 -- 5 2 2
DC2 5 -- 3 3
DC3 4 3 -- 4
DC4 2 3 3 --
Units are in days. Assume same time for smaller and bigger trucks. Assume week has 7 days for
transportation and 6 days for sales