Please read the case and answer the questions given below:

During slowdown of business, Purchase professionals feel that this is the time for breather. But GM (Supply Chain
Management) of a multinational company does not think so. He feels that that is the right time to keep track of suppliers and global
market as well.

Mr. Bhattacharya has learnt long back that it was important to look for new overseas suppliers for critical components and
keep a track of broader economic trends at all times.

“ Purchasing professionals need to be aware of the situation in countries from where they are purchasing their products to
know if there is a problem or an opportunity to reduce the cost further by working jointly” He opined. He also mentioned that if, for
example, you are purchasing from Thailand find out whether there is any riot or blockage of port or transport strike etc which would
paralyze your supply.

Suppliers could also give you excellent information like scrap prices, RM price trend across the globe, Labor cost prevailing,
method of tackling fluctuation of exchange rates between Dollar and Rupee, shipping rates etc. He often drafts 10/12 questions and
hand it over to the select suppliers through their representatives/e-mail. Next time he hands over 10 more questions. Sometimes
sales representatives find it hard to get the answer because they have to contact lot of people in the organization to get the correct
answer. However they do not resent because he respects the relationship with them and treat them nicely all the time.

Once Mr. Bhattacharya receives the answers he analyses them thoroughly. If these are similar for one question this tells him
one thing. If it is different he has to go for further investigation. These answers and other research work he carries out from time to
time give him the information as to where he stands with respect to pricing, which he believes should come down during lesser
demand. Mr. Bhattacharya also believes that suppliers would not reduce their prices on their own but would do so only when you
point out where they can improve the things .For example, if steels are purchased by suppliers at the rate he is purchasing supplier
would be willing to reduce their prices. So should he sell the steel to suppliers or give it to him on loan basis? He also shares with the
suppliers benefits so accrued. He emphasizes that you must be more informative than your suppliers if you want to take the best
decisions for your organization. He likes to see sometimes that suppliers fighting over one product, which helps him, reduce
procurement cost.
 He is very honest and impartial with suppliers and tells them openly if things are not going their way. He says “If you are
honest, suppliers would work closely with you. But you need to be politely aggressive with them, if you want to make them listen to
your logic/arguments. After all, whoever has a better logic/argument should win the game.”

Answer the following questions:-

1) How exchange rate fluctuation affects your purchase cost?
Ans. Exchange rates have a significant impact on the prices we pay for imported products. A weaker domestic currency
means that the price we pay for foreign goods will generally rise significantly. As a corollary, a stronger domestic currency
may reduce the prices of foreign goods to some extent. Also the negotiation depends on exchange rates, suppose for a large
quantity we have negotiated a rate for certain commodity in foreign currency and at the time of payment if the rate of that
currency has increased then the very purpose of negotiation and reducing the cost price would be defeated, on the contrary
if the rate of that currency reduces in terms of home currency then we will be benefited and the cost price of that
commodity will further reduce.
2) What is the most important task of a purchase manager?
Ans. The most important task of a purchase manager is to look for new overseas suppliers for critical components and keep
a track of broader economic trends at all times. Purchasing professionals need to be aware of the situation in countries from
where they are purchasing their products to know if there is a problem or an opportunity to reduce the cost further by
working jointly. For example, you are purchasing from Thailand find out whether there is any riot or blockage of port or
transport strike etc which would paralyze your supply. This concludes that he has to ensure that all the products are available
and ready in a timely manner.
3) Why Supplier relationship is important?
Ans. Suppliers could provide you excellent information like scrap prices, RM price trend across the globe, Labor cost
prevailing, method of tackling fluctuation of exchange rates between Dollar and Rupee, shipping rates etc. Sometimes sales
representatives find it hard to get the answer of typical questions asked because they have to contact lot of people in the
organization to get the correct answer. However they do not resent because he respects the relationship with customers and
treat them nicely all the time.
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Postponement

Customer satisfaction at minimum inventory has always been a challenge faced by industries in competitive business
environment. Companies are restructuring their businesses to meet this challenge.
Colour dispensing machines have transformed manufacturing and distribution strategies followed by paint manufacturers world
over. Earlier paint companies used to manufacture and distribute 30 to 50 shades in 5 to 8 packs of different sizes.
The demand pattern was difficult to predict with historical demand, as consumer preferences were changing very fast.
The colour dispensing machines changed the production pattern from producing shades to producing bases. Variety of shades is
produced by mixing these bases in prescribed proportions. This reduced the variety and produced economies of scale, reduced
inventory levels and also eliminated redundancy of stock. New product introduction time reduced considerably. Range of shades
expanded rapidly without the burden of inventory. Customers enjoyed the benefit of variety of shades in every colour. Retailers did
not lose business due to long lead time.
With the strategy of processing postponement, finished products are produced only when specific needs of the customer are
identified. The final product is created only at the point of consumption and not in the factory. The paint companies set up these
colour dispensing machines at dealers places, even at big garages which consume large volume of variety of shades. Paint companies
have drawn huge benefits in terms of inventory reduction and customer satisfaction from the new strategy of manufacturing and
distribution.

Questions:
a) Analyze the case and identify the main problems faced by paint companies before the advent of colour dispensing machines.

Ans .

1. Burden of huge inventory.

2. Variety of paints in large number to be produced.
3. Loss of sales due to unavailability of specific paint demanded by the customer which was difficult to predict with
historical demand, as consumer preferences were changing very fast.
4. Long new product introduction time.
5. Loss of business due to long lead time.
6. Loss of customer satisfaction.
b) Explain the concept of processing postponement with reference to the above case.

Ans.

Finished products are produced only when specific needs of the customer are identified. The final product is created only at the
point of consumption and not in the factory.

c) What is the disadvantage of producing large variety in anticipation of forecasted demand?

Ans. The main disadvantage is the demand pattern was difficult to predict with historical demand, as consumer preferences were
changing very fast, so even after producing large quantities of 30 to 50 shades in 5 to 8 packs of different sizes .

d) Discuss briefly inventory systems used by paint companies before and after introduction of colour dispensing machines?

Ans. Earlier paint companies used to manufacture 30 to 50 shades in 5 to 8 packs of different sizes. Large quantity of shades was
stored in for redundancy of stock. This was done in view of meeting customer demand based on forecasting by studying the
historical demand.

After the introduction of colour dispensing machines, as companies stopped manufacturing and storing shades of paint, instead they
are now producing bases and by mixing variety of shades are produced by mixing these bases in prescribed proportions. This
reduced the variety and produced economies of scale, reduced inventory levels and also eliminated redundancy of stock.

The paint companies set up these colour dispensing machines at dealers places, even at big garages which consume large volume of
variety of shades so that inhouse inventory levels reduced considerably.
e) In one of the dealer's locations a base colour is consumed at the rate of 500 liters per day. The lead time for procurement is 3
days. A safety stock of 1000 litres is maintained by the dealer. Calculate the recorder level.

Ans. Re-order level = (Maximum daily usage rate x Lead time) + Safety stock

= (500 x 3) + 1000

= 2500 liters

Study the following business case and answer the questions asked at the end of the case:-

Furniture India (P) Ltd. made a humble beginning in the liberalized atmosphere of mid 1990s. They produced steel furniture for
offices in their plant in Mumbai. They put their focus on process quality since the beginning. Their products earned the reputation of
being one of the best in the trade, though they were small in terms of volume. Indian economy grew rapidly post liberalization
creating good market for office furniture.

Furniture India's marketing efforts coupled with their reputation for product quality helped them expand their market share. The
volumes grew, revenue jumped up and the business was booming. in their Annual Operating Plan meeting in 1999 marketing
Manager presented a vision of the company being No. 1 in the market in near future. Engineering function demanded large
allocation of funds for expansion plan in line with projections of marketing. Operations function wanted to expand work force to
meet the demand of the market.

In this atmosphere of enthusiasm, cost accountant was an unhappy participant. He argued that the costs were increasing. The
revenues are absorbed by various cost heads which were not so prominent till then. The costs of distribution were rising
dangerously. The CEO took serious note of the concern raised by the accountant.

One of the participants in the meeting, a young MBA, Deputy Manager in operations function talked about the importance received
by new Management functions called Logistics and Supply Chain Management in competitive business. He said that these new
concepts dealt mainly with movement of inputs and outputs in industry which is a cause of serious cost concern. The CEO asked the
new manager to closely examine the company's movement activities and work out a plan of action to put a lid on the rising costs.
The efforts of the new MBA started showing results.

In a presentation made by him he said:-

1. Transportation and warehousing costs increased rapidly with growing volumes.

2. Application of the packaging concept of "cube minimization" from packaging function of Logistics and Supply Chain Management
yielded substantial reduction in transportation cost.

3. The products were now distributed in "knocked down" condition (dismantled condition) to a warehousing hub in the market. This
further reduced transit damages and warehousing costs.

4. The Hub sent the required volumes to spokes outlets for sale. The mechanics assembled the furniture on the spot at the
customers' place

The cost accountant agreed that there was a favorable impact on total cost.

Answer the following questions

(i) Explain concept of "cube minimization " from packaging function.

Ans. Cube minimization is reducing the space occupied by the product to cut the freight charge. Square shaped bottles and oval
shaped containers. The shape and size of a package is critically important to its lifetime environmental impact. Wasted space inside
of packaging is just that – wasted. And the extra packaging reduces the number of products per pallet and thereby increases the
costs associated with moving products.
(ii) How does the knocked down condition reduce transit damages and warehousing cost?

Ans. By knocked down condition the complexity the product reduces and it becomes easy for packaging goods as simple shapes are
easy to pack and providing cushioning to them in a packaging box is simples instead of complex geometry. Thus the damage to the
product is less and even in case of damage instead of complete assembly on a single or two products may be damaged which will not
incur more cost which will be the case in case of complete assembly

Ware housing of knocked down products occupy less space and cane be stores in standard pallets and drawers where as if a
complete assembly will occupy more space as it may not me of square or rectangular shape(which utilizes the optimum space and
reduces space required for ware housing). So for the same space more goods can be stored in case of knock down condition then in
case of complete assembly.

(iii) What are warehousing hubs and spoke outlets?

Ans. In supply chain management, Warehousing Hub refers to a central warehouse that’s used to cater various destinations that
may be customers, stores or other smaller warehouses. It’s an important part of supply chain strategy and used to optimize the
overall transportation costs. Hubs are generally placed at the places that are near to customers.

A production unit may not be near to its customers. In such cases, bigger warehouses are made near the customers in order to serve
them at minimum cost and shorter lead time. The various benefits of the Hubs are as follows:

• Optimization of transportation cost

• Shorter lead time

• Enables implementation of Just in Time Delivery

• Reduction of in-plant inventory and allows level production

In Hubs, goods can be stored in orderly fashion and labeling or documentation can be easily performed. It enables use of modern
technologies like RFID etc and reduces the possibility of rank A and B errors. It can also be used to maximize cross docking i.e. direct
delivery to stores or customers and minimize costs.
A hub and spoke network is a centralized, integrated logistics system designed to keep costs down. Hub and spoke distribution
centers receive products from many different origins, consolidate the products, and send them directly to destinations.

An example of Hub and Spoke model