National Institute of Industrial Engineering, Mumbai

Module II Faculty Name Prof. Ashok Pundir, Prof. Vivek Khanzode,

Prof. Priyanka Verma
Exam Date 20-Dec-2021 Subject Name Supply Chain Management
IC/PC/IE/PE PC Program/ PGDIE/ All 4 sections (A, B, C, D)
Section (A-H)
Duration 2 (two) Hours Max Marks 40 (Forty)
(11 AM – 1 PM)

Part – B (10 Marks): Answer ANY ONE

QUESTION 1: ANSWER BOTH THE PARTS (10 Marks)

PART I:

Explain in detail the role of emerging technologies in supply chain with reference to Artificial
Intelligence, Internet of Things, Blockchain and Machine Learning with examples.

[5 Marks]

PART II:

What are the different Collaborative planning, Forecasting and Replenishment (CPFR)
scenarios and how do they benefit supply chain partners with examples.

[5 Marks]
QUESTION 2: ANSWER BOTH THE PARTS (10 Marks)

PART I:

Prepare design for Distribution Network considering Manufacturer or Distributor storage with
customer pick up. What will be the impact on various cost and service factors?

[3 Marks]

PART II:
Cooling Agents, Inc., is a manufacturer of air conditioners that has seen its demand grow
significantly. The company anticipates nationwide demand for the next year to be 180,000 units
in the South; 120,000 units in the Midwest; 110,000 units in the East; and 100,000 units in the
West. Managers at Cooling Agents are designing the manufacturing network and have selected
four potential sites - New York, Atlanta, Chicago and San Diego. Plants could have a capacity
of either 200,000 or 400,000 units. The annual fixed costs at the four locations are shown in
the table below, along with the cost of producing and shipping an air conditioner to each of the
four markets.

Table: Production and Transport Costs for Cooling Agents, Inc.

Atlanta Chicago San Diego

New York
Annual fixed cost of 200,000 plant $6 million $5.5 million $5.6 million $6.1 million
Annual fixed cost of 400,000 plant $10 million $9.2 million $9.3 million $10.2 million
East $211 $232 $238 $299
South $232 $212 $230 $280
Midwest $240 $230 $215 $270
West $300 $280 $270 $225

Where should Cooling Agents, Inc. build its factories and how large should they be?
[7 Marks]

********

PART – C (30 MARKS): Answer ANY THREE

QUESTION 3: ANSWER ALL THE PARTS (10 Marks)

PART I:

Explain various Supply Chain risks to be considered for network design for Global supply
chain. Describe risk mitigation strategies to be followed for network design.

[3 Marks]

PART II:
A European apparel manufacturer has production facilities in Italy and China to serve its
European market, where annual demand is for 1.9 million units. Demand is expected to stay at
the same level over the foreseeable future. Each facility has a capacity of 1 million units per
year. With the current exchange rates, the production and distribution cost from Italy is 10 euro
per unit, whereas the production and distribution cost from China is 7 euro. Over each of the
next three years, the Chinese currency could rise relative to the euro by 15 percent with a
probability of 0.5 or drop by 5 percent with a probability of 0.5. An option being considered is
to shut down 0.5 million units of capacity in Italy and move it to China at a one-time cost of 2
million euro. Assume a discount factor of 10 percent over the three years. Do you recommend
this option? [Hint: Use NPV]
[7 Marks]

QUESTION 4: (10 Marks)

Benetton has entered into a quantity flexibility contract with a retailer for a seasonal product.
If the retailer orders O units, Benetton is willing to provide up to another 35 percent if needed.
Benetton’s production cost is $20, and it charges the retailer a wholesale price of $36. The
retailer prices to customers at $55 per unit. Any unsold units can be sold by the retailer at a
salvage value of $25. Benetton can salvage only $10 per unit for its leftover inventory. The
retailer forecasts demand to be normally distributed, with a mean of 4,000 and a standard
deviation of 1,600.

a. How many units O should the retailer order?

b. What is the expected quantity purchased by the retailer (recall that the retailer can
increase the order by up to 35 percent after observing demand)?
c. What is the expected quantity sold by the retailer?
d. What is the expected overstock at the retailer?
e. What is the expected profit for the retailer and Benetton?

[10 Marks]

QUESTION 5: (10 Marks)

The red tomato company manufactures gardening tools which are highly seasonal in nature and
creates bullwhip effect in the supply chain from retailer to manufacturer. The company has
hired you as a supply chain professional to solve the aggregate planning problem. In order to
cater to the fluctuating demand, the available options with the manufacturing function of the
company are as follows: Changing the workforce size to address the variable production
requirement, subcontracting a part of demand quantity to already developed sources, building
up inventory during the slack season, and creating a backlog of orders that will be delivered
late to the customers.

As an supply chain expert, you first decide to coordinate with the marketing team to look at the
demand forecasts. By engaging with the retailers through a collaborative process, the marketing
team has built a six month forecast from January to June. The demand is highly seasonal, and
there is no demand for the product during the other six months i.e. July to December. The
forecasts are given in the following table.

Month Jan Feb Mar Apr May Jun

Forecast 1600 3000 3800 4000 2200 2200
In the discussions with marketing team, it emerges that due to competitive market, customers
expect high level of service, i.e. there must be no unmet demand, although the demand can be
met late.

Further, you examine several costs related to manufacture available from the company records.
The costs are as follows.

Item Cost
Material cost 10
Inventory holding cost 2 / unit / month
Marginal cost of backlog 5 / unit / month
Hiring and training costs 300 / worker
Layoff costs 500 / worker
Regular time costs 4 / hour
Overtime costs 6 / hour
Subcontracting costs 30 / unit

The selling price per unit is 40.

Also, you find from the industrial engineering department that the labor hours required are 4
hours per unit and each worker is expected to work for 8 hours a day. Further there are 20 days
of production scheduled per month and the production capacity is primarily determined by the
total labor hours worked. The HR department reports to you that at the beginning of January
month, the existing number of workers are 80, and maximum number of overtime hours cannot
be more than 10 hours per month due to regulations.

You take a stock of inventory of finished product at the beginning of January and find that you
have 1000 units in stock. Also, the materials department informs you that at the end of June, a
minimum of 500 units must be in stock to handle a small volume of off-season demand.

You are required to prepare an aggregate production plan over the next 6 months which results
into maximizing the overall profit for the company.

(i) Solve the problem using a linear programming approach.

(ii) Formulate the objective function and constraint equations with
explanation/justification of each equation.
(iii) Obtain the optimal solution and explain it.
(iv) Explain the impact of high demand variability and lowering the hiring/layoff costs
on the optimal solution.

You can use spreadsheet solver to obtain the solution.

[10 Marks]
QUESTION 6: (10 Marks)
The management of the Red Tomato company has further requested you look into their demand
planning process. After discussion with the marketing team, you find that the company is
planning to offer price discount ($39 instead of $40) as a promotion either at the beginning of
the season (January) or during the peak season (April). Also, it is estimated that the price
discount increases the consumption by 10% of the demand in the same month and shifts
forward the demand of the next two months by 20%.

The management wants to know the impact of promotion on the profitability.

You are required to obtain the optimal aggregate plan for both the options i.e. promotion in
January or promotion in April and suggest the best alternative. Also comment on how the
profitability will be affected if (i) there is a higher amount of forward buying and (ii) there is a
greater increase in the consumption.

You can use spreadsheet solver to obtain the solution.

[10 Marks]

QUESTION 7: ANSWER ALL THE PARTS (10 Marks)

In writing the answers to this question, select one industry of your choice (e.g. FMCG,
Automobile, etc.) and write the answers with respect to that industry.

PART I:

(i) What is the effect of lack of coordination on the performance of the supply chain?
(ii) What are the obstacles to coordination in supply chain?

[5 Marks]

PART II:

(i) What are the managerial levers to achieve the coordination in supply chain?
(ii) In your selected industry, which of the CPFR scenario would you implement to
achieve coordination and why?

[5 Marks]

-----END OF QUESTION PAPER-----