KARNATAKA ENGINEERING

COMPANY LTD.
Group 3
B16067 Amarnath Dixit
B16095 Preetam Modi
B16117 Uday Sharma
B16157 Santhapur Rakesh
B16172 Sourav Mukherjee

21st August 2017

 Karnataka Engineering Company ltd. : Case Facts
• Automobile company based out of Raichur (Karnataka-A.P border)
• Entered 2-wheeler production with moped in 1981 and Scooter production
in 1983
• 19 branches across India and Marketing offices located in most of the States
• Operations:
• Mopeds & Scooters transported by specially adapted trucks (Capacity
80 mopeds or 50 scooters or combination) Decide Locations to have
• Secondary transportation is arranged by Marketing Offices by LCVs or Branch Warehouses – Andhra
Trucks Pradesh selected as Pilot
• Min. throughput for setting up branch is 4.25 lakh/month
• Market Situation:
• Slump in 2 wheeler market in 1987, difficult to remain competitive
• Build-up in Finished Goods inventory at Raichur and branches on
account of lower offtake
• Some trucks have to wait for more than a week to unload at branches
• VP (Corp Planning) projected physical distribution function as source
of competitive advantage
• ‘Go for It’ – Aggressive marketing campaigns in slumpin markets
 Karnataka Engineering Company ltd. : Problems at hand
• Inter-state transfer sales tax is 4%. Benefit due to a new
warehouse location must be more than cost incurred due
to it
• Savings in Total Transportation costs due to new branch
must be more than additional cost of new branch

• Identify:
• Volumes at which opening of warehouse is justified
• Optimal number of required warehouses, their
location and allocation of demand points
• Best choice for shipment size from warehouses to
demand points
Minimum Volume and Maximum Number of Branches
Operating Expenses per month per branch ₹21,000
CST 4%
Volumes at which opening of
Min monthly Sales required to breakeven CST ₹525,000
warehouse is justified
No. of Mopeds to be sold(@ Rs.5,500 each) 96
No. of Scooters to be sold (@ Rs.13,000 each) 41

No. of branches using current volume

State/UT Branch Location Mopeds Scooters Sales Value

Adoni 465 78 ₹ 3,571,500 Branch Operating Costs

Andhra
Pradesh Per Month Cost ₹ 21,000
Mehbub Nagar 1460 210 ₹ 10,760,000
Total 1925 288 ₹ 14,331,500 Max. no. of Feasible Locations 27.29

Central Sales Tax Collected (@4%) ₹ 573,260

 Feasible Locations using Logware: PMED
No. of Facilities = 1

No. of Facilities = 2

No. of Facilities = 3

Hyderabad and Vijayawada are the feasible locations

for opening branches
* Volume refers to the no. of trucks to be transported
Total Cost

Primary
Avg Distance of
No of Transportation + Transportation
Branch Name Monthly Branch from Total Cost
Branches Operating Cost Cost (using Large
Offtake Raichur
trucks @ Rs 6/km)
1 Vijayawada 2386 ₹ 92,779 480 ₹ 86,400 ₹ 179,179
a) Vijayawada 1172 480 ₹ 43,200
₹ 87,197
2 b) Hyderabad 1214 190 ₹ 18,240
Total 2386 ₹ 87,197 ₹ 61,440 ₹ 148,637
a) Vijayawada 946 480 ₹ 34,560
b) Hyderabad 1001 ₹ 92,482 190 ₹ 14,820
3
c) Cuddappah 439 270 ₹ 9,720
Total ₹ 92,482 ₹ 59,100 ₹ 151,582

Vijayawada & Hyderabad can be selected as

branches as the total cost is lower
 Feasible Locations: Drop Heuristics Method
Drop
Volu Drop Drop Drop Dropping
Location Rate Drop Adoni Drop Kurnool Mehbub
me Cuddappah Hyderabad Vijayawada None
Nagar
Adoni 2 4.8 1200 0 0 0 0 0 0
Anantpur 4 4.8 2304 2112 2112 2112 2112 2112 2112
Chirala 2 4.8 864 864 864 864 864 2016 864
Chittoor 4 4.8 2688 6144 2688 2688 2688 2688 2688
Cuddappah 4 4.8 0 3456 0 0 0 0 0
Dropping
Guntur 6 4.8 864 864 864 864 864 7200 864 Vijayawada will
Hindupur 4 4.8 3456 4416 3456 3456 3456 3456 3456
Hyderabad 26 4.8 0 0 11232 0 0 0 0 lead to highest
Kakinda 4 4.8 4032 4032 4032 4032 4032 7488 4032 increment in cost.
Karimnagar 4 4.8 4800 4800 5184 4800 4800 4800 4800
Khammam 4 4.8 2496 2496 2496 2496 2496 3648 2496 Hence it should be
Kurnool 2 4.8 0 0 0 1152 0 0 0 selected
Mehbubnagar 2 4.8 0 0 0 0 864 0 0
Nellore 2 4.8 1248 2304 1248 1248 1248 1248 1248
Nizamabad 4 4.8 2880 2880 5472 2880 2880 2880 2880
Ongole 2 4.8 1200 1200 1200 1200 1200 1536 1200
Rajamundry 4 4.8 2880 2880 2880 2880 2880 7104 2880
Tirupati 4 4.8 2496 5952 2496 2496 2496 2496 2496
Vijayawada 10 4.8 0 0 0 0 0 13920 0
Vishakapatnam 6 4.8 10656 10656 10656 10656 10656 16992 10656
Vijayanagaram 2 4.8 4032 4032 4032 4032 4032 6144 4032
Warangal 4 4.8 2304 2304 4032 2304 2304 2304 2304
Total Cost 50400 61392 64944 50160 49872 88032 49008
Incremental Cost (wrt.
1392 12384 15936 1152 864 39024
Dropping none)
 Feasible Locations: Drop Heuristics Method
Drop
Location Volume Rate Drop Adoni Drop Cuddappah Drop Hyderabad Drop Kurnool Dropping None
Mehbubnagar
Adoni 2 4.8 1200 0 0 0 0 0
Anantpur 4 4.8 2304 2112 2112 2112 2112 2112
Chirala 2 4.8 2016 2688 2016 2016 2016 2016
Chittoor 4 4.8 2688 6144 2688 2688 2688 2688
Cuddappah 4 4.8 0 3456 0 0 0 0
Guntur
Dropping
6 4.8 7200 7200 7200 7776 7200 7200
Hindupur 4 4.8 3456 4416 3456 3456 3456 3456 Hyderabad will
Hyderabad 26 4.8 0 0 11232 0 0 0 lead to highest
Kakinda 4 4.8 7488 7488 7488 9600 7488 7488
Karimnagar 4 4.8 4800 4800 5184 4800 4800 4800
increment in cost.
Khammam 4 4.8 3648 3648 5184 3648 3648 3648 Hence it should be
Kurnool 2 4.8 0 0 0 1152 0 0
Mehbubnagar 2 4.8 0 0 0 0 864 0
selected
Nellore 2 4.8 1248 2496 1248 1248 1248 1248
Nizamabad 4 4.8 2880 2880 5472 2880 2880 2880
Ongole 2 4.8 1536 2304 1536 1536 1536 1536
Rajamundry 4 4.8 7104 7104 7104 8448 7104 7104
Tirupati 4 4.8 2496 5952 2496 2496 2496 2496 Vijayawada &
Vijayawada 13920
10 4.8 13920 13920 13920 13920 13920
Hyderabad are selected
Vishakapatnam 6 4.8 16992 16992 16992 19008 16992 16992
Vijayanagaram 2 4.8 6144 6144 6144 6816 6144 6144 using drop heuristic
Warangal 4 4.8 2304 2304 4416 2304 2304 2304 method
Total Cost 89424 102048 105888 95904 88896 88032
Incremental Cost (wrt. Dropping
1392 14016 17856 7872 864
none)
Demand Fulfilment Plan
S.No Place Demand Fulfilled from Volume Actual Break up
1 Adoni Hyderabad 41 1 MT
2 Anantapur Hyderabad 76 1 LT
3 Chirala Vijayawada 54.8 1 MT
4 Chittoor Vijayawada 106 2 MT
5 Cuddappah Vijayawada 61.4 1 LT
6 Guntur Vijayawada 119 1 LT + 1 MT
7 Hindupur Hyderabad 71.2 1 LT
8 Hyderabad Hyderabad 728 9 LT + 1 MT
9 Kakinada Vijayawada 76.4 1 LT
10 Karimnagar Hyderabad 79 1 LT
11 Khammam Vijayawada 104 2 MT
12 Kurnool Hyderabad 24.8 1 MT
13 Mehbubnagar Hyderabad 36 1 MT
14 Nellore Vijayawada 44 1 MT
15 Nizamabad Hyderabad 69 1 LT
16 Ongole Vijayawada 20 1 MT
17 Rajamundry Vijayawada 80 1 LT
18 Tirupati Vijayawada 90.6 2 MT
19 Vijayawada Vijayawada 253 3 LT+ 1 MT
20 Visakhapatnam Vijayawada 124.6 1 LT + 1 MT
21 Vijayanagaram Vijayawada 38 1 MT
22 Warangal Hyderabad 89 2 MT
THANK YOU