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Innovativeness in Design and Development of Warehousing*

CASE STUDY, SUPPLY CHAIN MANAGEMENT
ET Cases - FLAME, 9 Pages
AUTHOR(S) : Dr. Pranjal Kumar Phukan, D.Litt. (Hons), F.I.P.E, M.I.E, F.I.S.M.E, M.IOD

Case Preview

Innovativeness in Design and Development of Warehousing

 

The primary function of any warehouse is to store products in order to make an assortment for customers, to assemble customer orders, sometimes to add value to the orders by customization activities, organize transport to the customers, and ship orders timely, in the way desired by the customer. Simultaneously, distribution centres also get affected by warehouse locations as this makes the transportation routes more efficient and pragmatic. The proximity of the warehouse to its distribution points always has the greatest impact on sustainability.

M/s Cracker and Polymer Limited is a polymer plant situated in North East India, that produced HDPE and Polypropylene. The plant required naphtha and natural gas as dual feed for its manufacturing process in addition to numerous chemicals, additives, catalysts and other electrical and operational machinery and spares on regular basis for it to be operational.

However, few major issues/problems faced by M/s Cracker and Polymer Limited were the limited supply sources for chemicals and critical spares leading to high sourcing lead times and logistics/ transportation hurdles considering the demographic disadvantages. Also, most of the chemicals were having a limited life span which required detailed sourcing, logistics and storage to avoid redundancies and disposal. Multiple storage facilities which were constructed during project phases led to high lead time in transportation, manpower resources visiting on regular basis for inspection activities at storage locations thereby wastage of their precious time in travelling which is purely unproductive in nature.......................

About M/s Cracker and Polymer Limited

M/s Cracker and Polymer Limited is the lone polymer plant situated in North East India having production capacity of 280,000 Tonnes per annum (TPA) of HDPE and Polypropylene. The plant operates on naphtha and natural gas as the dual feed for manufacturing of various grades of polymer granules. Apart from naphtha and natural gas, the plant requires lots of chemicals, additives, catalysts on regular basis for maintaining it operational. Other support materials required are various types of equipment and machineries along with operation and break-down spares of electrical, instrumentation, mechanical categories..........

History of the Situation

At M/s Cracker and Polymer Limited, the materials department was the custodian of materials inventory of around 5,000 items with value INR 455 Crore lying in “Stores” (pertaining to Pipeline, Instrumentation, Mechanical, F&S, Electrical, BIS & Telecom, etc.) for operation and maintenance of the polymer plant. Apart from the chemicals, 140 Kms trunk and branch pipelines (2" diameter to 48" diameter size), Terminals, SV/IP Stations and process activities besides HR, Security and Project left over materials after completion of Pipeline activities were also maintained in the warehouses at various locations. Materials pertaining to gas distribution and naphtha stations in and around Dibrugarh with value INR 3.38 Crore were also in the custody of materials department.......

Strategies Initiated

In order to seek solutions to the critical situation, Materials department of M/s Cracker and Polymer Limited as a team investigated the costs and benefits of using the present facilities, building a new one, or obtaining a facility free of charge – which included various recommendations and opinions received from stake-holders for achieving optimized inventory purchasing, storage and management and personnel requirements. Further to that, activities which were decided for improvement included suggestions regarding the economic gains that could be realized through changes in the current method and process of sourcing. Based on deliberations made, it was found that changes involving warehouse and sourcing alternatives may not require to establish new warehousing facility............

Costs Related to a Warehouse Facility

The associated costs estimated by the Materials department of M/s Cracker and Polymer Limited were as follows (they were obtained from either published standards or calculated using the cost-estimating method of analogy. Where standards were not available, estimating by analogy was used because the data did not lend itself to statistical methods. In using the costs developed through analogy for this model, it was considered that analogy is only useful for rough estimates.):............

Outcomes Expected

In order to determine whether the proposition was economically justifiable to build a warehouse, the annual costs associated with operating the facility was compared with the annual savings (Exhibit V) which could be generated by purchasing standardized products and distributing them through a warehouse system, in economic order quantities (Data from Exhibit I, II & III)............

Decisions Made

Based on the detailed analysis carried out by the Materials department of M/s Cracker and Polymer Limited, a “New Central Warehouse” for the plant was constructed with modification of few existing buildings at the Plant Terminal at Dibrugarh and additional warehouse of open sheds for the first time. Both the closed and open warehouses started operating in December 2016 after shifting of materials from ‘CWH at Lakwa’ (where the warehouse was operating since last 20-25 years)..............

Accomplishments

The decision of construction of new central warehouse and shifting of materials led to few major accomplishments/outcomes:

• Freight and business travel time were relatively high with high unit costs because it includes the value of driver wages and benefits, vehicles and cargo, and the need to meet delivery schedules – These costs got reduced by 45%.

• ....................................

.............................

Innovative solutions adopted post-implementation:

However, with such major benefits accruing to the company with the construction of the new central warehouse, the company further decided to take some innovative steps forward in terms of warehouse operations. Additing to the newly constructed Central warehouse (Exhibit VII), the innovative steps were taken towards warehouse operations:............

Conclusion

Major mile stone was achieved for M/s Cracker and Polymer Limited, Dibrugarh as the earlier stores was operating in CWH at Lakwa and GDU at Duliajan since inception of the Plant at Dibrugarh. 100% physical verification with reconciliation of shifted materials was completed........

Assignment Questions

I. Discuss the various warehousing issues were faced by M/s Cracker and Polymer Limited. Was the decision of constructing a new warehouse right? Why? What would have been your suggestions as the solution for these issues?

II. ..................

Exhibits

Exhibit I: Warehouse Labor Costs

Exhibit II: Utilities Costs

Exhibit III: Miscellaneous Costs

Exhibit IV: Annual Procurement Savings

Exhibit V: Annual Cost vs Savings

Exhibit VI: Present Value

Exhibit VII: Photographs of the Newly Constructed Central Warehouse

Teaching Note Preview

Innovativeness in Design and Development of Warehousing

 

Synopsis

The case is designed for MBA students specializing into Materials, Operations and Supply Chain management, which is deliberated in such a manner to make students understand the basics of warehousing and logistics affecting the supply chain network and in turn affects the entire supply chain business of any organization. In the present scenario of GST tax structure getting implemented w.e.f 01.07.2017, entire supply chain domain is getting affected leading to more arranged and cohesive nature of its integrated domains. MBA students from 4th semester onwards can appreciate the subject well and whosoever wants to further discuss on the topic shall be fluent with minimum basics of materials management domain. This topic is chosen from the practical reflection made during planning and execution stages of procurement process at the Plant and accordingly whatsoever major deterrents observed was taken into account for inclusion in this case study.

Prerequisite Conceptual Understanding Before the Classroom Discussion

There is no dearth of resources to understand the basics of logistics and warehousing management. Students can refer on-line search engines, libraries and text books available for referring their queries related to this case study. Logistics and warehousing plays an important role in any petrochemical industries globally.

Case Positioning and Setting

This case study can be used in the MBA/MDP/post graduate level for the course of Logistics and Supply Chain Management.

Learning Objectives

The case study will help in understanding the logistics domain of supply chain management which is an integral part of the system. Through this case study, students will be in a position to understand the impact of logistics and warehousing both on the supply chain and related business decisions for any organization.

Assignment Questions

I. Discuss the various warehousing issues faced by M/s Cracker and Polymer Limited. What do you suggest as the solution for these issues?
II...............

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Abstract

**ET Cases – FLAME Industry Experience Case Award - 2017

Innovation could be recognized as a key success factor in an increasingly competitiveness in this complex environment. The act of innovating can provide a firm with the capability to capture a substantial level of market share or create an entirely new market opportunity that enables a firm to reap supernormal profits. Warehouses are in an exciting era where design and innovation is shaping the industry for the better. Technology, productivity and sustainability are a few of the main driving factors. Warehousing is becoming more and more a critical activity in companies. This case study aims to illustrate the role of innovation strategies in improving warehouse operation efficiency, enhancing the utilization of warehouse capacity and increasing inventory accuracy. This case study will help managers and practitioners to understand the role of innovation management tools in structuring warehouse management and how to gain a competitive advantage through successfully planned and implemented innovation strategies. Organizations need to differentiate themselves from other players in the market. In most cases, leading companies continuously use innovative strategies to create an edge over their competitors. One way is to update their warehouse management through innovation strategies. These strategies will help them to have less inventory, react faster to market changes and lead times and costs.

Pedagogical Objectives

Process industries constitute primarily of refineries and petrochemical processing units which consume various types of chemicals, additives, catalysts and lubes in large quantities and are hazardous too. Shelf life determines the applicability of these chemicals and determines the usage duration and storage parameters. Earlier process industries managed multiple warehouses for chemicals, other raw materials and operating inventories to minimize the logistics time. Later, it was found unscientific as it indirectly hits the profitability of the organization due to costs involved in manpower resources, maintenance and multiple sourcing activities. Through this case study, the entire activities involved in warehousing and logistics was explained in detail with cost benefits in construction and managing central warehouse for multiple usages at one place. The case study will make students and practitioners understand the practical issues related to supply chain network management which involves sourcing, logistics, warehousing and distribution in particular for any type of industries. Also the case insists on innovative steps undertaken to manage the store management for optimum utilization of resources in achieving the business objectives of any organization.

Case Positioning and Setting

This case study can be used in the MBA/MDP/post graduate level for the course of Logistics and Supply Chain Management.

* FLAME CASE CONFERENCE 2017



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