Supply Chain Management at Dalmia Cement Limited.pptx

Supply Chain Management Case Study

1. Supply Chain Management at Dalmia Cement Limited PREPARED BY :- TANMAY MHATRE – 4749 RUDRAKSH ANABHAVANE – 4760 GUIDED BY :- Prof. Shital Patel

2. BACKGROUND Dalmia Cements is a 60-year-old company with the cement division contributing 85 per cent of its revenues. In the last couple of years it had diversified into a number of areas such as electronics and travel services. Its cement manufacturing plant is located at Dalmiapuram, which is about 45 km from Trichi. Cement companies in the south had not thus far faced too much price pressures, but surplus capacities in the northern and western regions had resulted in price erosion in those markets. Companies in the south were also likely to face similar pressures in the coming months. In the financial year 1997–1998, with rising power costs and increasing competition, the company was likely to face tremendous pressure in the future on the profitability front

3. MANUFACTURING PROCESS The manufacturing process is quite simple and involves two operations: clinker manufacturing and cement manufacturing. For all the types of cements manufactured by company the type of clinkers used is of the same quality and only at the cement manufacturing stage does the product get differentiated. The company manufactures mainly three types of cements: OPC, PPC and PSC. The product composition for these are as follows :-

4. For storing cement the company has 14 silos. Cement is packed in a standard pack size of 50 kg but using different kinds of packaging material, resulting in effectively 10 SKUs in the market place. Different types of packaging offered by company are as follows : PACKAGING PROCESS

5. MARKETING The company operates only in 2 states, Tamil Nadu and Kerala. It has divided the entire market into 7 zones, which in turn are divided into districts. The company has 1 marketing executive for each of the zones and all of them in turn report to GM Marketing. The company supplies the product to stockists. It maintained 7 depots so as to provide prompt service to its stockists. The company used various modes of transport to reach its stockists. There were four options that the company used :-

6. CONVENTIONAL TRANSPORTATION METHOD ADOPTED Direct shipping, i.e option1, was the most preferred option by the company from the cost point of view. There was an ease of availability of rail wagons. Usually, the company would send material in a lot of 40 wagons and each wagon had a capacity of 18.6 MT. Since the company usually asked for 40 wagons at a time, the cement would reach in a day or two to the respective location, from where the material was shipped directly to stockists or to depot. Option 1, i.e Rail and Road, was the most expensive and time-consuming option as it would involve lot of material handling and involvement of multiple modes of transport. For every loading and unloading operation the company incurred a cost of Re 1 per bag. Also two truck engagements to reach the same distance would be more expensive than direct shipping using only one truck engagement. Since Dalmia shipped cement for short distances, railway freight used to be more expensive than truck freight.

7. After the conversion to broad gauge, the company may have to revisit the transport mode decisions. Each wagon would have a capacity of 40 MT and the company was not sure about the lead time required for the wagons. A truck could carry up to 10 MT of cement. Rail freight and road charges in Rupees per MT for various destinations are given below :- The full transport costs did not figure into profit and loss because the company billed its stockists on ex-factory/depot basis. This was done mainly to avoid sales tax on the freight .

8. NEED TO SWITCH Other companies managed a fleet of vehicles so that they had a better control over transport operations. Either they owned the trucks or they used to hire trucks on annual contract basis. It was also difficult to get trucks in the monsoon. Similarly, during the season for mangoes truck operators got much better freight from the mango business, so again it was very difficult to get trucks during that season. The company worked with transport brokers, each broker had the responsibility for one zone, who would organize trucks from the Trichi truck market. The company entered into annual fixed price agreements with brokers. During the mango season and during the monsoon, brokers would inform the company in advance that they should make other arrangements as trucks would be difficult.

9. MOVING FROM PACK TO STOCK TO PACK TO ORDER The ideal situation would be that cement would be stocked in silos only and no cement stock would be kept in a packed condition. After the receipt of the order and after arranging for a truck, the cement could be packed in the required package and loaded directly into trucks. This would reduce handling and finished goods inventory costs substantially. Interactions with stockists indicated that if the company could service a stockist in 24 hours, then the stockist would not mind if the material was shipped directly from the factory. Obviously, this would put a lot of strain on the transport contractors and packaging people. Though the company had lot of surplus capacity, it may have to re-examine some of the policies followed in the packing section. If the company wanted to shift to pack to order, it would have to change some of the work load management practices. Similarly, currently not all silos were connected to all the packing stations. With some investment it would be possible to connect all the silos to all the packing machines.

10. Packing capacity: Capacity of silos: Connectivity:

11. CONCLUSION By and large, it came to known that people within the company were skeptical about the whole idea. The competitors were opening more depots and the VP Marketing was talking about reducing the dependence on depots. He just kept thinking about the reaction of GM Marketing who had said that we might be able to reduce costs but in the process might lose the business.

12. DISCUSSION QUESTIONS Q1: What is the impact of railway gauge conversion (from meter gauge to broad gauge) on Dalmia cement distribution operation ? Ans. The company currently is using Trichy as the base to supply to districts. The distance for transportation is relatively less and we can see that the cost of transporting is higher in case of rail than road transportation. Availability of trucks is an issue due to which company will have to pay higher rent for truck rentals. After the railway is made into broad gauge the freight container size will increase from 18.6 to 40MT.

13. Q2: Should Dalmia Change its transport policy and manage a fleet trucks on its own for its distribution function? Ans. Dalmia should not consider maintaining its own fleet of trucks as it is very expensive in maintaining and managing own mode of transportation. This will also require much management attention, time and planning to make it work effectively. In case of seasonal uncertainty there are chances that few trucks will remain idle and the cost of maintenance can be high.

14. Q3: Suggest ways in which Dalmia can get assured supply of trucks throughout the year. Ans. Dalmia cement is moving from stocking of inventory to direct shipping of product from the production site. In such situation the timely and cost efficient availability of product become an issue of concern. Ways to make availability sure throughout year can be as followings Dalmia should do a market research using past data to figure out average demand in a given month and then can have a fixed contract for every year at a fixed price. For additional demand fluctuations trucks can be rented at around 50% higher rate from market as and when required. Contracts should be made with large transportation firms that have their own fleet of trucks can thus can provide an uninterrupted supply of trucks.

15. Q4: Why was Dalmia Cement exploring the option of moving from pack to stock to pack to order strategy? What conflicts or barriers internal to Dalmia would the pack to order strategy create? How should Dalmia Cement handle these issues? Ans. The disadvantages of moving to pack to order strategy :- i . There is a possibility of loss of sales/business, though there would be a reduction in cost, which may lead to difficulty in future expansion plans because of the pack to order strategy. There would be a reduction in service levels. ii. It is always easier and safer to have stockiest during expansion than servicing directly from factory keeping in mind the distances to travel. iii. The payment of loaders is based on machine basis and this would not be correct as the capacity of each is different and in the new strategy, utilization of machine changes according to the demand. iv. The new strategy demands scheduling the packing dynamically as opposed to the freeze packing schedule which the current strategy uses. This may require working on developing an apt scheduling program. v. Since the new strategy would include stocking of cement in silos itself and no cement stock would be packed. This means less finished goods inventory. vi. One of them is varying seasonal demand of the orders of different destination.

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