Gunny Bags Inventory

By Anish Gulati

FORE SCHOOL OF MANAGEMENT

March 1, 2013

Authored by: Anish Gulati

Gunny Bags Inventory

By Anish Gulati

Case Overview
The case is based on WICC (Western India Cement Company), which is a large-scale cement manufacturer in western India. WICC has a competitive advantage of access to high quality limestone availability at proximity but it has to lose out on proximity to coal another important ingredient in cement manufacturing. Also apart from coal it also has a major problem of managing the inventory of Gunny Bags. Gunny Bags are made from jute in Kolkata; cost of each gunny bags is Rs 10; the total requirement of gunny bags in a year is around 20.4 million bags including the burstage and other losses of around 2%. Orders are placed on monthly basis by the purchase division on suppliers. Now it may seem why gunny bags are major problem, it is because government has made it mandatory for the cement manufacturer to use gunny bags for transportation of cement. So cement needs to be transported in lots of 50 kgs each. The company cannot afford to be out of stock of gunny bags because it will affect the dispatch of cement for an Rs 10 bag. Hence the company has to maintain inventory of gunny bags such that it do not run out of stock and do not have high inventory because that would result in high inventory cost.

Issues in the case

There were mainly 4 Issues identified in the case those were Variation in transportation time and quantity demanded: This issue exists because there is a large time lag in the transport of gunny bags from Kolkata, it takes approximately 12 days for good to actually arrive at the factory as it goes to Delhi first via train and the truck are to transport it to the plant Computation of ordering cost and inventory cost of gunny bags: Another important issue is reducing the cost associated with carrying the inventory of gunny bags and also the amount of time required to manage the inventory. Frequency of orders to be placed: To have an effective cost of inventory one must understand the frequency in which the order for the gunny bags must be placed Transportation of gunny bags: How the bags would be transported is also an issue of concern while discussing the case.

Gunny Bags Inventory | 01/03/13

Possible Solution
Ordering based on Fixed Time: This model seems to be good enough because it would not eat us the personalle time required in keeping the inventory, by this method one does not have to devote any extra time in seeing whether the inventory is there or not. o Ordering Every 30 days: We see that is we order every 30 days the cost of inventory is Rs 16448992 which is Hugh for an item that is just worth Rs 10 o Ordering Every 15 days: Now we see that if we order every 15 day the cost of inventory is Rs 1111726.44 which is comparatively less but still large. Transporting using same trucks: Another possible way to reduce the transport cost is using the same trucks for transporting the gunny bags as the trucks used to transport cement to Kolkata. The trucks which are used for supplying the cement to the eastern region, could be used to pick up gunny bags once they are in the region. This would increase the efficiency if the trucks that come back empty can carry some gunny bags when required.

Conclusion
Seeing the possible solution we come to the following conclusion that the case is actually based on the concept of JIT i.e. the inventory cost of the gunny bags can only be effective if just in time inventory is used which is keeping no inventory at all and using gunny bags as they come but this would incure large amount of transport cost a small qauntiti

Gunny Bags Inventory | 01/03/13