0

Rating

Supply Chain Management at

Dalmia Cement Ltd
Case analysis-05
Group # A7

Section 01

[Email]
SCMT-2015

Supply Chain Management at

Dalmia Cement Ltd
IMPACT OF RAILWAY GAUGE CONVERSION

Raw materials

Clinker manufacturing

Cement manufacturing
1) Product differentiation stage.
2) Company manufactures three types
of cement :
a) OPC
b) PPC
c) PSC

Figure 1: Manufacturing process

7 Zones

Market

Kerala

Tamil Nadu

Figure 2: Operations in market

Each zone divided into

districts

Manufacturing at
Dalmiapuram

Rail/Road

28 Stockists
Stocks for atleast
manufacturers

7 Depots
Each depot serves
zone

Figure 3 : Distribution system

Railway gauge conversion from metre gauge to broad gauge has the following impact on Dalmia
cements operations:
1. Railways line will be unavailable for a period of 6 months.
i) During this six months the distribution to stockists have to be carefully planned. This
would also imply greater stocking in the depots to meet the demand. This involves
greater inventory holding costs.
ii) Transportation will be done by trucks alone during this period. Trucks are obtained
currently through truck contractors. Truck availability is difficult during mango
season and monsoons. So the company has to pay higher to obtain truck services
during this time. This also increases the costs incurred.
2. Changes in capacity
Gauge

Capacity

Metre gauge

18.6 MT

Broad gauge

40 MT

Lead time to get wagon

from Indian Railways
3 days 1 day ( due to great
rapport with IR)
Uncertain

Table 1: Railway wagon capacity

i) Capacity of the wagons will increase after railway gauge conversion, this will help in
reducing transportation costs.
2

ii) Since greater inventory is transferred through railways it involves greater inventory

carrying costs.
iii) Trucks have a capacity of 10 MT. So if we transfer more stock, it would involve
greater costs.
3. After the railway gauge conversion two key decisions the firm has to take are
i) Optimal transport policy
ii) Transportation mode mix
4. The company also had to decide if it is going to move from pack to stock, to pack to
order. Different markets had different packaging and color requirements. This has to be
taken care of. Also not all silos were connected to all packaging machines, if it is a pack
to order scheme, to obtain better effectiveness all silos will have to be connected to all
packaging machines.

OPTIMAL TRANSPORT MODE MIX

Different options available are:
1) Rail + Road via Depot Cement is sent from factory to depot by rail and from depot to
stockists by truck

Most expensive mode of transportation

Time consuming
Involves lot of material handling
Involves multiple mode of transport

2) Rail + Road without Depot cement sent by rail to stockists

3) Road via Depot trucks used to transport from factory -> depot -> stockists
4) Road without depot cement transported from factory to stockists using trucks
Issue : availability of trucks
Total costs
= Transportation costs + Inventory cost + Handling costs + cost due to loss/damage

TRANSPORTATION COSTS
Ernakul
am

Kolla
m

Trichur

Palgh
at

Madur
ai

Trich
i

Coimbat
ore

Rail freight

393

335

401

266

181

107

249

Road freight
Distance from plant
to depot
Rail : Cost per MT per
km
Road : Cost per MT
per km

385

350

395

320

156

70

235

440

380

445

300

190

60

250

0.89

0.88

0.90

0.89

0.95

1.78

1.00

0.88

0.92

0.89

1.07

0.82

1.17

0.94

1996-97 sales volume in

1000 tons
733 (from table 3)
1996-97 sales volume in
MT
0.733 MT
Assumption is sales = quantity produced by Dalmia
% of
Materia material
Capaci
l routed handled
ty
throug
in 1996carrie
Mode of transport
h depot 97
d (MT)
0.329
Rail + Truck
Yes
45
85
0.036
Rail + Truck
No
5
65
0.219
Truck
Yes
30
9
0.146
Truck
No
20
6
Table 2 : Capacity calculation
Cost calculation for one path
Dalmiapuram -> Trichi -> Madras
Assume :
Train is run in full capacity
Since cost of transportation from depot -> stockists is not given, base fare of
depot is applied to all transportation costs

number
of
wagons *
capacity
of one
wagon
i.e. ,40 *
18.6
10 MT

Capacity of train (MT)

Truck capacity

i.e. , 75
74.4 trucks

Number of trucks needed

Distance from Dalmiapuram to
Madras
Distance from Trichi to Madras

315
303

Cost (Rs)

Depot
Dalmia
-> Trichi

Rail + Truck
Truck

744

Trichi ->
Madras

Total
cost
481628.
79608
402020.4
4
454100.
52080
402020.4
4
Table 3 : Cost calculation

No
Depot
Dalmia
->
Madras
41794
2
27342
0

We can see from table above that costs is reduced by eliminating depot
The truck availability varies. During monsoons and mango season availability is less. To
ensure smooth transportation during this time company has to pay 50% higher than

normal rates
Capacity of truck is 10 MT. Sometimes to the same route you might need more than one

truck. This also results in higher costs

Handling costs (loading + unloading) is Re 1 per bag
Different regions need different packing requirement (50 kgs/100 kgs). Hence the
carrying capacity and total costs involved would also change with this

INVENTORY COST
Inventory = safety stock + cycle inventory
Metre gauge = 40 wagons *18.6 MT
Broad gauge = 40 wagons * 40 MT

Since the available total capacity increases, it involves greater inventory costs
5

Lead time for broad gauge is not certain, hence this calls for more safety stock
requirements. This will add onto the costs incurred

WAYS IN WHICH DALMIA CAN GET ASSURED SUPPLY OF

TRUCKS THROUGHOUT THE YEAR
CURRENT SYSTEM

Annual fixed price agreement with brokers

Broker sources trucks from Trichi market
Each broker has responsibility for one zone
During peak season, brokers would inform Dalmia in advance that they should make

alternative arrangements
Demand varied from day to day, hence difficult to estimate the number of trucks
needed

PROPOSED SYSTEM
a) Own the trucks issues:

Convincing the marketing team

They are skeptical about managing the fleet as it would add to the workload
Unavailability of trucks due to peak season will not affect Dalmia anymore as they
own the fleet

b) Monthly contract

Fixed cost = Rs 25,000 per month

Variable costs = Rs 2 /km ( fuel and variable expenses)
Since demand is varying from day to day, they can have this contract for a fixed number
of trucks. As and when the demand is more they can pay for the extra trucks

SHOULD DALMIA CHANGE ITS TRANSPORT POLICY

Yes, Dalmia should change its transport policy. Owning its own fleet system ensures:

Availability of trucks all through the year

6

Lesser dependency on brokers

Cost savings
Better negotiation with truck drivers
Ensures prompt delivery

PACK TO ORDER STRATEGY

Cement would be stocked in silos only and no cement stock would be kept in packed
condition. After the receipt of an order and 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.
After interaction with stockists, Puneet understood that if the company could service the
stockist in 24 hours, then the stockist would not mind if the material was shipped directly
from the factory.
Requirement:
Entire cycle from receipt of order to delivery should not take more than 24 hours.
Total time to fulfill an order
= Packing time + Transportation time + Loading and unloading
time
< 24 hours
Issue:
Overstrain on transport contractors and packaging people
PACKING TIME
Company had 5 packing machines. Total capacity = 455 tons/hr (from Exhibit 5a)
To calculate the time required to pack we will take the highest demand and estimate the time
required to pack it.
Date
OP

PP
7

Total
PS Daily demand

C
C
C
137
1-May-97
0 270
0
162
10
2-May-97
0 210
0
27
3-May-97 960 130
0
172
4-May-97
0 140
0
138
5-May-97
0 370
20
36
6-May-97 860 220
0
125
18
7-May-97
0 210
0
102
20
8-May-97
0 200
0
151
11
9-May-97
0 230
0
187
10-May-97
0 110
10
141
11-May-97
0 160
0
138
12-May-97
0 180
0
145
13-May-97
0 490
0
127
14-May-97
0 210
60
109
51
15-May-97
0 200
0
150
14
16-May-97
0 200
0
17-May-97 910 160
30
125
18-May-97
0 330
10
19-May-97 910 240
10
116
20-May-97
0 250
0
139
16
21-May-97
0 520
0
14
22-May-97 580 350
0
135
14
23-May-97
0 260
0
23
24-May-97 940 370
0
30
25-May-97 920 200
0
8

1640
1930
1360
1860
1770
1440
1640
1420
1850
1990
1570
1560
1940
1540
1800
1840
1100
1590
1160
1410
2070
1070
1750
1540
1420

128
0 100
90
1470
980
60
0
1040
135
28-May-97
0 120
0
1470
129
29-May-97
0
30
20
1340
161
30-May-97
0
60
20
1690
203
31-May-97
0 240
20
2290
Table 4 : Daily demand for May 1997 (Extension of exhibit 4)
26-May-97
27-May-97

Daily demand for cement is highest on the 31st May 1997 and is 2290 tons. If we want to
extrapolate this demand for the year we can use data given in Exhibit 6. (Assumption is
demand ratio between May and March for 1997-98 is same as 1996-97.)
Highest demand is in March 1997 = 7197670 tons.
Peak daily demand in March 1997
= peak daily demand in May 1997 * (Monthly demand for March 1997 / Monthly
demand for May 1997)
= 2290 * (7197670/5901055)
= 2793.17 tons
= 2794 tons
Number of hours needed to pack = 2794/455 = 6.14 hours
TRANSPORTATION TIME
Most longest route is from Dalmiapuram to Trivandrum = 455 kms
Assume average speed of truck is 40 km/hour (taking into consideration that road quality
is different at different places)
Time = 11.375 hours
Total time = 6.14 + 11.375 = 17.515 hours
9

Total time < 24 hours if the process is tightly scheduled and optimally used. If the system
is not optimally used time between receipt of order and delivery to stockist will exceed 24
hours.
SILO AND PACKING MACHINE CONNECTIVITY
Not all silos are connected to all packing machines.
Capacity of 14 silos = 2835 tons (from Exhibit 5b)
Capacity of 5 packing machines = 455 tons/hr (from Exhibit 5a)
Here constraint is the packing machine and hence it does not matter which silo is
connected to which packing machine. To increase throughput, Puneet can suggest adding
a packing machine.
ROAD PERMITS
In India there is inter-state road transport checks/permit issues. These can cause time
delays while delivering to Kerala.
CONVINCING MARKETING TEAM
Puneet will have to convince the marketing team as they are:

Skeptical to eliminating depots

Their target is to expand sales hence eliminating depots might be a disadvantage

while reaching out to new stockists

Skeptical about having zero finished goods due to pack to order strategy.
Marketing team is worried that having zero finished goods will not allow to
accommodate seasonal variations

CHANGES TO SCHEDULING SYSTEM

Currently 100 loaders are employed and is involved in labor intensive packing operations.
These loaders are paid on a piece rate basis.

At the beginning of a day, packing section would freeze its packing schedule

10

Allot a specific packing machine to a loader at the beginning of the shift and
he was not moved to any other packing machine throughout this shift. This

ensured more efficiency

The loaders were also rotated among the various packing machines. Different
packing machines and different capacities. Hence if a loader works
continuously on a low capacity packing machine every day he will be at a
disadvantage to someone who works on high capacity machine. Rotation
ensured fair wages.

Pack to order will require dynamic scheduling. So it is critical to ensure

Rotation of workers among various packing machines for fair wages

Efficiency: It might be possible that a worker will have to shift machines to meet

the demand. This might lower efficiency

Wages: workers can no longer be paid on a piece rate basis and the demand is
dynamic

11