Luxmi Transformers

PROBLEM STATEMENT:

In present scenario Luxmi transformer is facing decision for having following criteria:

Modal Mix for Inbound Supplies

For Lump Ore (Daitari, Banspani, Goa)

For Pellets (Mangalore)

Modal Mix for Outbound supplies (DRI to Markets), which market to cater

Cheapest alternatives in terms of Transportation, Inventory holding, extra handling charges, and Stockyard for finished product to cater eastern region demand

Decision regarding Investment in Rail line Extension from Pen to Alibagh

Barge deployment according to Ship Size

Apart from these decisions they have to look into:

Target Market Share (which region to cater how much)

Use of Rail / Road Transportation for Near Market

Availability of Trucks for Loading at PEN

Shipping Cost advantage, with consideration that it's going to increase in future due to surge in shipping charges

Use of Ship for delivering DRI (Finished goods) at Eastern Markets

Some Consideration:

We are not aware of market share which we could capture. So instead of optimising demand with respect to capturing entire market in nearest region, we focussed on having policy to serve near by market (less than 900 kms) by 50% of demand & 25% market share in rest of the regions.

INBOUND MODAL MIX DECISION:

As per calculated figure for Lump Ore requirement (annual) for Luxmi transformer is 155000 tons, which will be sourced from Goa (31000 tons), Banspani (62000 tons), and Daitari (62000 ton). Apart from this Pellets are on FOB terms sourced from Mangalore (620000 tons annually).

FOR LUMP ORE:

1. From Daitari:

Option which is most economical in terms of transportation & inventory carry cost is Sourcing Lump ore from Daitari through Paradip port on 65000 DWT Ships & using these ships for outbound supplies. Barge deployment will be on trade-off between Barge Charges & Ship Standing Charges

MODE will be: Daitari to Paradip on Rail & from Paradip to Alibagh on 65000 DWT ships, there is no need to worry about Monsoon season as entire requirement for year is sourced once. 5 Barge will be deployed for 11 days while ship is on high sea & on return trip they will be carrying DRI to cater Eastern market (this will result in efficient transportation, as empty shp capacity could be utilized).

2. From Banspani:

We found suitable option with consideration of entire cost (transportation & inventory carry cost) to source via Sea Route.

MODE will be: we find sourcing Lump ore from Banspani (though train) & than from Paradip to Alibagh on large ship (65000 DWT). Again ship will be used to cater Eastern market on return journey. Moreover cost will come down after 1995 when Konkan Railway will be completed.

3. From Goa:

Amongst various options we zero down on the option of sourcing from Goa through PEN via rail & than carrying from PEN through road to Alibagh post 1995 when Konkan railway will come up. But from 1991 to 1996 Ship routing is the best option.

MODE will be: In present stage Sourcing mode will be Goa to Mormugao through Rail & than Shipped to Alibagh. After 1996, sourcing via PEN is best option as we have to manage nearly negligible inventory, if we go by Sea route its quite expensive.

FOR PELLET:

Only source is Mangalore, we considered all option available & carrying via sea route is the cheapest source with inventory holding. Other options are too expensive.

Mode will be: From Mangalore, pellets will shipped to Alibagh & from there it would be carried to Alibagh plant.

In below mentioned chart all yellow marked options are the viable option with total cost of sourcing being lowest one.

Note: Calculation sheets are in Appendix 1 to 4.

Number Barges Deployed:

We would employ 5 barges to unload ships as large ship are used for most of the inbound shipment carrying 62000 tons of Lump ore from Daitari & Banspani (Each). Big ships are on high seas for 11 days on Alibagh port & this number of barges will be required to unload the entire quantity. From Goa we are sourcing 31000 tons & ship is on seas for 8 days so we will employ 5 barges.

SHIP USAGE:

For Paradip & Banspani we would use 65000 DWT Ship & for Goa we would deploy 35000 DWT Ship. Ships returning to Paradip will be utilised to carry DRI, will be stocked in Paradip Stockyard & Eastern market will be catered through this stockyard.

Shipment of Finished Goods to four regions

In our analysis we have found out that the road option is only best for the short distance and we found out that it is good for Mumbai city only. For other market place in Northern, Southern and Western regions we have found out that the best transportation model is the usage of rail network. The total cost of transportation for the three region i.e. for west, south and north has been estimated as 7.23 Crore. The details of transportation model followed for eastern region is given below.

Eastern Region Transportation cost

The demand for eastern region has been estimated as 278525 MT. This region caters to 54% of total sales and the region is farthest from the plant hence transportation to this region is very critical to Luxmi transformers. The options that have been considered for transportation to this region are as follows:

Usage of Sea and Road network