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Divya Kabra - 2012016

CK Rotors Pvt. Ltd.

Q1. Which alternative should the company pursue? Why?

Ans: Fig 1. Company produces as per order (60% capacity)

Order transmittal 2 days

Order process 1 day

Manufacturing 5-7 days

Dispatch 2 days

Total (taking maximum days) 12 days

Fig 2. Company produces as per order (100% capacity)

Order transmittal 2 days

Order process 1 day

Manufacturing 0 days

Dispatch 2 days

Total (taking maximum days) 5 days

1st alternative: Producing to full capacity & two warehouse

When we see Fig 1 and Fig 2 we can see:

As cited in the case full capacity will lead to increase in margins by 10 -15 % Producing full capacity will lead to reduction in lead time from 12 days to 5 days Reduced lead time will mean that there is fast supply of product to distributor which will

lead to timely supply to retailer

The retailer will have proper supply, which will ensure there will be no stock-outs in turnhelping in gaining back sales from lost customers during stock-out.

Having two warehouses will also ensure proper supply of products in respective areas plusthe transportation cost will be reduced as distance might be reduced of travel as per area.

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Divya Kabra - 2012016

2nd alternative: Automate order processing (With same 60% capacity)

Order transmittal 0 days

Order process 1 day

Manufacturing 5-7 days

Dispatch 2 days

Total (taking maximum days) 10 days

Here we put machines and automate the order process and remove the 2 clerks who used to this

work. This will lead to:

Reduction in lead time from 12 days to 9 days This will again lead to a quick supply as compared to when having the manual labour as

before

It will also save on the cost of labour which is Rs.5 per order Lead to no error while processing order as it is automated work However will involve cost for automation and maintenance of the machine

Comparing both alternatives I feel the company should adopt option 1 as it has more benefits than

that as compared to option 2.

Q.2 How are the costs of distribution interlinked?

Distribution costs are any type of costs involved with the tasks of moving products from the

manufacturer to the consumer. Distribution costs can start right from expenses involved in form of

transportation of finished goods from manufacturers place as well as the costs of delivering the

products to the buyers.

The distribution cost will have the following impacts:

Transportation costs are borne by the company while moving goods from it the distributor,which account for 1% of value of goods.

While transporting or moving goods to the transport vehicle also have its own costs whichmay include either manual labour or machine equipments (conveyor belt or pulleys).

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Divya Kabra - 2012016

Having a warehouse facility will mean you can have a high inventory storage which meansthat the goods can be supplied in full capacity at once reducing the number of travel.

But along with this there is storage cost with all expenses related to keeping goods safe, theshelf space etc.

Q.3 Is there any other alternative than the two presently being contemplated?

The company can choose to take full production system as well as automation. This will no doubt

have high investment but it will also be beneficial to the company.

Choosing this mixed alternative will lead to:

Order transmittal 0 days

Order process 1 day

Manufacturing 0 days

Dispatch 2 days

Total (taking maximum days) 10 days

Reduce lead time to 3 days as with full capacity the goods are already produced and storedso it is just a question of taking the order and then providing the distributor with goods.

Reduced labour cost as no manual labour Increase in margin and more revenue Customer satisfaction and customer retention This will help is smooth supply and business function