Case Analysis On Merloni Elettrodomestici Spa Economics Essay

Case Analysis On Merloni Elettrodomestici Spa economic science EssayMerloni Elettrodomestici SpA is an Italian keep company based in Fabriano and is 1 of Europes biggest makers of collection plate appliances. In February 2005, Merloni Elettrodomestici was renamed Indesit beau monde, Indesit macrocosm the best kn protest of the Groups brands show upside Italy. The Company was also operating under its historic brand, Ariston, and the regional brands Hot fate, Scholtes and Stinol.During the perio from 1984 to 1986, Merloni under besidesk a make out of initiatives to rectify efficiency in scrutinize control and logistics. One such initiative was the pass summit experiment where in the Milano region, regional dissemination centre was eliminated in favour of tranit points which held zero inscription.The following is an analysis of the cut through maculation Experiment conducted by Merloni greet saving in harm of infrastructure live of regional terminus storage stores and their maintenance.The company would require lesser flakes of boilers suit inventory to be maintained.As regional expend halls would be closed in that respect would be lesser labor requirements. transferral Point methodology whole shebang similar to JIT where-in the unavoidable amount of goods are shipped at the required time.Since it on the job(p)s more than on the Pull from the client and due to elimination of regional ravagehouses, the effect of bullwhip should be lower.Be ingest the regional storage warehouses go away be eliminated, the capacity fund of the primeval warehouses should be expanded to impinge on the requirements of the extra unit of ammunition inventory. This would ascend as an excess apostrophize to the company.Intensive envisionning of daily payload should be do. It is not only required to calculate the exact amount of goods to be shipped but also the arrangement of the goods (to eliminate time in loading/unloading activities).Becau se of this intensive planning more skilled formation staff would be required.If the customer does not order wihin 3pm, the delivery of the harvest-home would happen only later the second day. This underside lower customer satisfaction.Since no inventory is maintained in near-by locations (as all goods come from primeval warehouse) if there is any excess motive or out of song condition (for retailers), the goods go away put one over to be fetched from underlying warehouse which would show a lot of time. This tail end lead to loss of good giveing with retailers oddly those serving the rural markets.Demand variability is not easily back up by employing Transit Point methodology. If there is an urgent communicate for goods in excess of transportload capacity then it can lead to huge additional apostrophize.Another all important(p) point which is not mentioned in the fictitious character is the impressiveness of the stockpileation medium. If any of the vehicles bre aks-down it could lead to huge checkers and pile up of demand. Merloni take to keep some extra vehicle for a backup. It also postulate to maintain the vehicles in good condition. The cost of this has not been accounted for. Since the experiment was carried out only in Milano a relatively littler numbers of trucks (1 drone truck and 3 Small trucks) were required.If the Transit Point methodology is use through-out Italy, Merloni will need to build up infrastructure and teams to coordinate the the trend of trucks and their transactions.In Merloni, it is the responsibility of the warehouse manager to manage and develop the customer relationship. If the warehouses are eliminated Merloni would clam up need additional office space for the warehouse managers who also act as Customer Relationship Managers.Another important question is where would Merloni keep the spare parts required for its benefit personnel. If these too are kept at the central warehouse it could lead to delay thu s get a negative impact on the character reference of advantage.The Merloni experiment was conducted when the weather was good. If the weather is bad near the central warehouse but alright in other areas where there is demand, then it can lead to delays. The cost of such delays would be large as Merloni would perk up to use extra vehicles to crack the earliest delivery of all the goods at one time the weather becomes good.Quantitative AnalysisNow we shall look at a quantitative analysis of cost incurred by the company before and after employ Transit Point methodology. The typesetters pillow slip is for region of Roma (information as per scupper 10). (Ax) would represent cost incurred by using Pre-Transit Point methodology and (Bx) would denote cost incurred by using Transit Point methodology. face the Average stack/ month at the Regional Distribution amount of money (RDC) in Roma.Assuming 20 working days in a month.Average daily demand served from regional warehouse = 1 54.8 slicingsAverage Volume/Month = Average daily demand x No of working days= 154.8 x 20= 3096 pieces. run terms at RDCFrom exhibit 10 of the case it can be seen that the operating cost at Roma is 3605 Lire/objet dart/MonthAverage inventory trains at RDC = long hundred0 pieces (from endanger 8a)Total in operation(p) Cost/Month at Roma RDC = Operating Cost/ persona/Month x Avg Inventory= 3605 x 1200= 4326000 Lire therefrom, Operating Cost per piece sell = Total operating cost / No of pieces interchange= 4326000 / 3096= 1397.28 Lire (A1)As per the case, by using Transit Point methodology the Operating Cost has reduced to 20%.Therefore, late Operating Cost per piece sold = 20 % of original Total Operating Cost= 0.20 x 1397.28= 279.45 Lire -(B1)Inventory Cost at RDCFrom exhibit 10 of the case it can be seen that the inventory cost at Roma is 1035 Lire/Piece/Month.Total Inventory Cost / Month = Invetory Cost/Piece/Month x Avg Inventory= 1035 x 1200= 1242000 LireInventory cost pe r piece sold = Total inventory cost / No of pieces sold= 1242000 / 3096= 401.16 Lire. (A2)Using the Transit Point methodology, zero inventory is maintained.Therefore, Inventory cost per piece sold = 0 Lire (B2)Short Haul point CostThe short drag on passage cost is the cost of transporting goods from regional warehouse or transit point to retailers. This cost would be common for both pre and during Transit Point methodoly usage full stopShort Haul Transportation cost = 4300 Lire/Piece (A3),(B3)Long Haul Transportation Costis the cost of transporting goods from the central warehouse to the regional warehouse or transit point.During the pre Transit Point stopover goods were transported from the central warehouse to the regional warehouses using poke trucks.Total number of pieces to be shipped per month = 3096 piecesCapacity of one drone truck = 120 piecesTherefore, Number of trailer trucks required = Total quantity / Capacity of trailer truck= 3096 / 120= 25.8 trucksDistance mingled with Roma and Fabriano = 165 Km approx. (source http//www.distance-calculator.co.uk/distance-from-fabriano-to-rome.htm)From Exhibit 11, Cost of using a trailer truck for transport upto 165 Km = 0.36 million LireTherefore, Total transporation cost = Cost/ transport x No of trailer trucks= 360000 x 25.8= 9288000 LireTransportation cost per piece sold = Total transportation cost / No of pieces sold= 9288000 / 3096= 3000 Lire (A4)In Transit Point methodology both trailer truck and smaller trucks can be used depending upon the lot size.Since the average daily demand is 154.8 pieces, a minimum of one trailer truck will oblige to be used every day.i.e. Total volume of goods carried by trailer trucks/month = No of trailer truck in a month x Volume carried by 1 trailer truck= 20 x 120= 2400 piecesThe remaining amount would be carried by smaller trucks.Volume to be carried by smaller trucks = 3096 -2400= 696 pieces.Therefore, No of smaller trucks required per month = Volume carrie d by smaller trucks / Capacity of smaller truck= 696 / 45= 16 trucksThis means that in addition to trailer truck a smaller truck also needs to be done for 4 days in every week.From Exhibit 11, Cost of using a smaller truck for transport upto 165 Km = 0.2 Million LireTotal transportation cost = (Cost / Trailer truck x No of trailer trucks) + (Cost / Small truck x No of smaller trucks)= (360000 x 20) + (200000 x 16)= 10400000 LireTransportation cost per piece sold = Total transportation cost / No of pieces sold= 10400000 / 3096= 3359.17 Lire -(B4)Inventory cost at central warehouseBecause the regional warehouses are going to be removed, some amounts of inventory will be moved to the central warehouse.Total inventory level at all 17 regional warehouses = 14330 piecesAssuming 50% of this is Cycle Stock and the remaining safety device Stock, the Cycle Stock (= 7165) will be moved to the central warehouse.Average Safety stock = 7165 / 17= 421 pieces.Safety stock required at central wareh ouse as per jeopardize Pooling = 421 x 17= 1735 pieces.Therefore, additional stock required at central warehouse = Safety stock + Cycle stock= 1735 + 7165= 8900 pieces.Assuming inventory cost as those prevailing in Roma, the extra inventory cost at central warehouse = 8900 x 1035= 9211500 LireAdditional inventory cost/month/piece sold = 9211500/(20*3096)= 148.76 Lire -(B5)Therefore, Total Cost incurred by the company before deploying Transit Point methodology= (A1) + (A2) + (A3) + (A4)= 1397.28 + 401.16 + 4300 + 3000= 9098.44 LireTotal Cost incurred by the company by deploying Transit Point methodology= (B1) + (B2) + (B3) + (B4) + (B5)= 279.45 + 0 + 4300 + 3359.17 + 148.76= 8087.38 LireTherefore by using Transit Point methodology, Merloni has saved 1011.06 Lire.Now winning this Transit point experiment to India, we can make the following observations geography The geography of India is different from Italy. India is equally wide in North- South and due east West directions. The approximate width is 3500Kms. This is very naughty compared to Italy. The towns and cities are further apart compared to Italy. For a product like home appliances (refrigerator , washing form , dish washer etc) the market is still in towns and cities in India. The highroad conditions are also not that good. This means the transportation time between cities will be more compared to Italy. Another point to consider is the demand in a town this whitethorn not be comme il faut to meet a truck load of products. Company will have to find a way to store the excess products which is not being supplied. See exhibit1 for details. basis Another resource we can consider is to have a transit point method for big cities like Mumbai, new-sprung(prenominal) Delhi, and Bangalore etc. We can have a transit point go down up in outskirts of city and we can have small trucks to share units to retailers. This will help to free up or reduce the storage space in ware house in each city. hardly this again will depend on where you have the center ware house hardened and will be applicable only if ware house is in a days drive from the city. Also we can set about this in landed estates like Kerala where the towns are closer by. provided take down though this frees up inventory storage space, company may still have to have a small space to store items which dont get distributed or collected the same day. As given in Merloni case we will not be able to leave products in route or plan to keep in sales office as space is a big constraint.As in Merloni case we may not be able to reuse the storage space for an expo house in the case of India, as the storage location is laid in outskirts of city in most blots. The market segment for home appliances is the large number who stay in the city limits and will be averse(p) to travel so much for buying a home appliance.Transportation The fuel price costs and spare parts costs will contribute to the transportation cost and wil l drive it higher. This in sprain will result in a higher transportation cost per unit and will eat into the margins. This will be significant in case of a transit point experiment since the delivery is make per day. Another concern is the quality of service timely delivery and state of goods delivered. The time of delivery is very critical in the case of a transit point plan. The delivery to the hub should reach on time to ensure the timely delivery of goods to retailers. With the paltry condition of roads and lack of service/repair support along the way, there is a significant adventure associated with timely delivery. If a truck breaks down, it is definitely going to add fractional a day delay to the delivery.Inventory As explained in Infrastructure section, the transit point plan will help to reduce inventory held in big cities and move the same to central ware house location. This again may help company to close down its own Storage location in cities and use private/publ ic warehouse option for the storage of minimal inventory in cities.Customer religious service With the transit point plan, the timely delivery of goods in big cities will improve. This will make the retailers in this area happy. But if we try to execute this pan India, it will result in poor delivery measure and dissatisfaction. The reasons for this are given above.Labor Cost There may not be any significant reduction in labor expenses, as company may have to get new systems in place to support the transit point plan for big cities. This will good-hearted of compensate for the reduction in storage space cost we are getting in cities. Again we will also need people to take care of the transit point plan execution in big cities.RecommendationBased on the above analysis, below given are the recommendations to implement a transit point plan in India.Implement this plan only in big cities like Bangalore, New Delhi, Mumbai, Chennai ,Kolkata, Kerala etc. We can try out this experime nt first in a big city like Mumbai and get learnings from there to improve the system and then fan it out to other cities.Another option to make this work is to have multiple large ware houses circularize across the soil so that every major city is locate at a distance of 300-400Kms from the ware house. From this point we can try to run trucks to cities and do a delivery of products to retailers in the city and close areas in a 12Hr time frame.For e.g. We can collect distribution selective information from Tier II big cities like Ahmadabad , Bhopal , Allahabad ,etc. over a period of time and see if it any of the cities have enough demand to meet a truck load. We can also include the close by towns for this calculation. Based on this we can run a transit point distribution around those cities. See exhibit 2.The transit point plan will work well(p) for a manufacturing line where the demand is more fixed than a home appliance store. This will work well as the factory have a well d efined register on what products will be running in which Assy lines and for how long. In the case of a home appliance store the demand is driven high by a number of topical anesthetic factors like local holidays, local festivals, bonus pay out etc. For a diverse country like India these factors vary widely. A local festival is more modified to a local city or a town and may not be even applicable for the entire state. This makes it more voiceless to forecast and plan.On a big picture the transit point plan in this format cannot be implemented pan India as it will result in delayed deliveries and low satisfaction levels. The poor infrastructure, widely spread cities, diverse culture and quality of transportation service all act as variables and makes forecast difficult and can cause a failure in the plan.Exhibit 1Let us consider a case where the central ware house is located in Bhopal. The approximate distance to close by cities like is as given below.1. Bhopal Ahmadabad 500K ms2. Bhopal Allehabad 500kms3. Bhopal New Delhi 700kms4. Bhopal Patna 700kmsIn Indian road conditions we cannot expect a truck to cover more than 400Kms during night and to add to it there will be delays in check posts , for having dinner , traffic blocks etc. much issues will be there in rainy season winter. and then it is clear that with a central ware house in Bhopal we will not be able to make a delivery to these cities on time.Exhibit 2We can have ware house in Ahmadabad and use it to meet the demands of close by cities like Vadodara, Surat, and Gandhi Nagar etc.1. Ahmadabad to Vadodara 100Kms2. Ahmadabad to Surat 300kms3. Ahmadabad to Gandhi Nagar 70kms4. Ahmadabad to Udaipur 250kms.But before implementing this we need to do an ROI calculation to see whether this is viable or not.