Case Study on

Miracle Mind Bicycle Company

Submitted By:-

AshamDeep Singh Cheema(09020241003)Deepika Singh(056)

Devendra Chandra(038)Harshleen Kaur Sawhney(039)

Shubhalaxmi Patil(028)Sonam Sandilia(065)Vishal Singla (048)

MIRACLE MIND COMPANY (MC)

Company Overview:

• MC is a wholesale distributer of bicycles & its parts.• Has a retail outlet within an area of 1000 sq. km. • These retail outlets receive its order from MC within 2 days.• Road King is the most popular model.• If MC fails order is placed elsewhere, thus loss of business for MC.• MC receives the order from one manufacturer in China. • The shipment takes 4 - 4.5 weeks from the time of order placement to the

delivery in India.• Estimated per order cost is Rs. 1000/-.• About 75% of MRP is the purchase price for MC. • Average retail price of Road King is Rs 1200/-.

Expectations for 2005

• MC is planning inventory for 2005. • MC wishes to maintain a 99% service level to keep losses minimum.

Questions

• What are the issues from SCM point of view?• How do you resolve these issues?• Develop a comprehensive supply chain?

MonthsActual Sales for

2003Actual sales for

2004Predicted

Demand for 2005

January 1216 1217 1218February 1222 1224 1225March 1234 1238 1241April 1240 1245 1255May 1260 1270 1278June 1239 1234 1250July 1235 1244 1251August 1236 1235 1239

September 1228 1231 1230

October 1218 1231 1254

November 1225 1230 1235

December 1230 1235 1245

Annual 14921

Monthly Sales of MMC

1180

1190

12001210

1220

1230

1240

1250

12601270

1280

1290

No.

Of B

icyc

le(in

100

0's)

Actual Sales for 2003 Actual sales for 2004 Predicted demand for 2005

Issues in SCM:

To satisfy demand during period of replenishment To determine the quantity to be ordered. To take care of contingencies(Prevent stock outs) To economize on buying cost To find out if the storage facility is adequate to accommodate the inventory. To reduce the lead time. To keep pace with the changing market conditions

Solution to the issues:

Inventory carrying cost refers to the cost of holding stocks. in this case it is given to be 20 %.

Ordering cost includes cost incurred to replenish the stock of an item. It includes paper work cost, Postage cost, Cost of communication, Customs clearance etc. in this case it is given to be Rs.1000/Order.\

Cost per unit is the cost price of each unit. In this case Cu= 75% of the maximum retail price=.75*1200=Rs. 900

Ordering large lots infrequently reduces the administrative work but increases investment in stocks. Ordering small stock frequently keeps the investment low but increases administrative work.

So in order to attain maximum efficiency at minimum total cost we need to find out the optimum quantity to be ordered which we can calculate by finding out EOQ (Economic Order Quantity)

EOQ= √ (2*A* Cp)/(Cu*I)

Here A= Annual consumption =14921000 unitsCp=Ordering cost per order=Rs. 1000/-Cu=Cost per unit =Rs. 900/-I=Inventory carrying cost per year= 20%

EOQ=12896 units/Order.

Start

Calculate Theoratical EOQ

Determine the average requirement per period(C)

If Q=C?

Raise or lower Q so as to make it multiple of periodic (Say Weekly) Requirement

Is the demand

Place a bulk order covering annual requirements to receive q per period

End

Order and receive Q or more at a time by giving periodic schedule/Frequent order

No

Average monthly requirement

=14921000/12= 1243417 units/Month.

No. of orders to be placed in a month as per EOQ: 1243417/12896=97 Orders/month.

Safety Stock: It is also called minimum stock or buffer stock is the lower limit below which the stock should not be allowed to fall under normal circumstances. To prevent stock out it is important to keep a safety stock:

Safety Stock= z*SD of Demand*√L

Z (For 99% Service level) = 2.33

L=Lead time = 4.5 Weeks

SD(Standard deviation of demand)=483.64

Therefore, Safety Stock=2.33*483.64/4*√4.5

=598 Units.

Factors effecting safety stock:

1. Lead Time: Longer the lead time, Higher is the degree of uncertainty. In this case it is between 4 to 4.5 weeks

2. Number of suppliers: The more the number of suppliers, lesser can be the safety stock. In our case there is a single supplier so the safety stock should be high or the company should search for some other suppliers also.

3. Service Level: Higher the service level, higher the safety stock needs to be maintained. In our case desired service level is 99% which is very high thus safety stock should be high.

SCM strategy to be implemented:

The following are the recommendations to be implemented for effective supply chain management

Company should look out for other suppliers. As lead time is very important the company should try and reduce it by

streamline the flow of information, negotiating annual contracts with staggered deliveries and selecting efficient and faster mode of transport to achieve overall economic efficiency.

The company should make use of the EOQ calculated to decide the ordering quantity and frequency.

The company should keep a safety stock as calculated above in order to achieve more than 99% service level.

Miracle Mind

Company(distribut

or)

Manufacturer

in China Retail

outlet

sAltern

ate distributor of bicycle

s

Step 1: Order placedOrder dispatched in 2 daysIs

stock

available

?

YES

NO

Retailer informed, & he places the order with an alternate distributor

Shipment received in 4 to 4.5 weeks