Fabric Monde: Bringing Supply Chain Innovation to Handloom Sector

As soon as Ms. Jyothi opened her office desktop in the morning, she saw a mail from Arvind, the
Central warehouse manager of Fabric Monde, in her inbox. She could already anticipate what would
be the contents of the message. It was the 25th of July and in another 5 days, the next stock rotation
was due. It had been quite a challenge for Jyothi and her team to design a robust model to determine
which and how many SKUs to rotate inter-group as well as intra-group amongst Fabric Mondes
distributors.

Fabric Monde, in a bid to create a women distributor network for Handloom products, has taken up
the direct selling method, which leverages the distributors social connections. Jyothi started this
venture in 2016 after graduating from the post-graduate program of Indian Institute of Management,
Lucknow. Her objective was to provide a boost to the struggling handloom industry of India by bringing
in supply chain innovation into the distribution network of a sector that provides employment to
around 4.3 million people in the country.

Fabric Mondes distributors comprised of apartment-dwelling homemakers who practiced social

network selling in Bangalore city. Jyothi and team sourced the products from 20-30 government
recognized handloom houses. The stock-rotation amongst the distributors enabled them to offer high
variety that is pretty much a prerequisite in textile business. Their operating model is illustrated in
exhibit 1.

As Jyothi picked up her cellphone to dial Arvinds number, she was thinking about a permanent model
to optimize this stock rotation system to maximize value as well minimizing Logistic costs.

The Handloom Market in India: A grieving sector

With over 4.3 million people directly involved, handloom sector is the second largest employment
provider for the rural population after agriculture. Even though they make up only about 10% of Indias
total fabric production, they consist of an amazing range right from the Kanchipuram Weaves of Tamil
Nadu to Pashmina silk of Kashmir. The export of handloom products from India stood at US$ 360.02
million in FY2015-16.

The main challenge for traditional handloom products comes from the power loom industry, which
accounts for 60% of the total fabric produced in the country. They are cheaper to use and works 10
times faster than handlooms. While Handlooms can cost around 500/meter while power looms cost
around 30/meter. It is almost impossible to tell the difference between a handloom product and a
power loom product. The Ministry of Textiles has recently launched India Handloom Brand to create
a differential identity for authentic and quality handloom products, making it easier for the buyer to
make a purchase decision.

The industry is highly unorganized in nature wherein the weavers have low bargaining power for the
raw materials required because of low volumes procured. Lack of access to working capital deepens
this problem. Another major challenge associated with this sector is the marketing and distribution of
the products. Players like FabIndia play in the niche space by displaying and selling premium ethnic
products across malls and exhibitions.

Ability of a large company and Agility of a small company

Fabric Monde aims to be a demand side player who can integrate the minor players by achieving scale
by increasing accessibility. The company owns a warehouse where it stores the handloom products
procured from weavers. A sales cycle lasts for 6 months after which the products become obsolete
(salvage value is 0). The sales process begins by forming groups of 6 women each of whom has an
inventory of 1 lac at the beginning. This inventory stock is equally distributed among the 5 varieties-
A, B, C, D and E (i.e.) Each of the women has an inventory worth 20,000 of each variety at the beginning
of a sales cycle. Each group services a particular zone in Bengaluru city and there are 5 such zones in
Bengaluru City-P, Q, R, S and T.

At the end of one month, a stock rotation occurs. Stock Rotation essentially means the unsold stock
of one woman has the option of getting distributed to one or more other women and she in turn
receives unsold stock from one or more women. This was an excellent process innovation as each
woman buys stock worth 1 lac but gains the opportunity to sell stock of significantly higher value.
This was essential to compete with power loom products. The stock rotation is based on the demand
trends of the varieties in circulation for that cycle. There are two kinds of stock rotation (1) Intra-
group (Stock rotation occurs among the members of the same group) & (2) Inter-group (Stock Rotation
occurs among members of two different groups). Assume demand trends remain constant across a
zone in a single cycle. Intra-group rotation occurs at zero additional cost whereas inter-group rotation
involves a transportation cost of 2 per unit.

This stock rotation process occurs as per the guidance of Jyothi. In addition to the rotation between
the women, Jyothi also decides if and how much additional stock from the central warehouse needs
to be supplied to women, so that lost sales are minimized. This additional stock transfer from the
warehouse to the women incurs a transportation cost of 4 per unit. (Assume Transportation Lead
Time is 0).

Before the beginning of a sales cycle, the company must order items from the handloom weavers and
no additional orders can be placed in between two sales cycles. The inventory holding cost is 0.3 per
unit per month. Any stock remaining at the end of a sales cycle with either the warehouse or any of
the distributor has a salvage value of zero.

Similar to the inventory holding cost incurred by the firm on its warehouse inventory, each distributor
also incurs the same cost of 0.3 per unit per month on any unsold inventory.

Jyothi had developed a model to arrive at decisions pertaining to stock rotation, additional stock to
be transferred from the warehouse to the distributors and initial order to be placed to weavers. But
she had started feeling that the model was inadequate. It was essential that she came up with an
alternative model. Being a socially conscious firm, she wanted to maximize the profits of the entire
eco system that consists of both the firm and all the women distributors
Refer exhibits for data. The 5 product varieties are taken as A, B, C, D and E. The 5 zones are labelled
as P, Q, R, S and T. The 6 distributors in zone P are labelled as P1, P2, P3, P4, P5 and P6. Similarly, the

6 distributors in Q are labelled as Q1, Q2, Q3, Q4, Q5 and Q6. Similar naming conventions are followed
for the other 3 zones.

Based on long term trends, Jyothi had developed the demand forecasts for all 30 women distributors
across the 5 varieties in a typical month. They followed a normal distribution. The mean demand is
shown in exhibits 3,4,5,6 and 7 for distributors of zones P, Q, R, S and T respectively. In all cases the
variance of the demand was 5. The same demand trends can be assumed to remain constant
throughout the sales cycle (for all 6 months) across varieties for all distributors. Jyothi knew that this
would be a key component in modelling the system. At the end of each month, exact sales figures of
all distributors get known and once these numbers are fed into the model. The output of the model
should determine the optimal quantity of stock rotation and additional stock to be transferred from
warehouse (if any) to the distributors.

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Objective
Develop a model to determine the quantity for each variety to be transferred amongst
the individual distributors and the additional orders to be transferred from the
warehouse to each distributor.
This must be done for an entire sales cycle consisting of 6 months (Remember the
value of any unsold stock at the end of sales cycle is zero, while each individual
distributor begins the sales cycle with a stock worth 1 lac).
End goal is to maximize the total profits for Fabric Monde and the distribution
network as a whole for the entire sales cycle.

Guidelines
The teams are expected to prepare a holistic and robust model.
They will be evaluated based on the model itself rather than any output numbers.
Hence, any additional necessary information necessary for the model not explicitly
mentioned in the case may be assumed suitably.
These assumptions must be reasonable and stated clearly

Submission details
The Powerpoint presentation should not exceed 5 slides (excluding the cover page,
table of content, references and Exhibits, if any). Exhibits, if any, should not exceed 3
slides and should be present at the end of the presentations
Submission to be sent to operations@iimb.ernet.in
Subject line of the email: Horizon_Team Registration ID_Institute Name_Round 1
 Body of Email: Name, Contact Number, Email Id, Team Registration Id, Institute name
of each team member
Filename: Horizon_Team Registration ID_Institute Name_Round 1
In case of any queries, keep the subject line as Horizon_Team Registration
ID_Institute Name_Round 1_Query and address the mail to
soumik.sarangi16@iimb.ernet.in & vijay.venkatesh16@iimb.ernet.in and cc to
operations@iimb.ernet.in

Exhibit 1: Business Model of Fabric Monde

Exhibit 2: Costs and Prices for different product varieties

Transfer price at Selling price to
which product is end consumer
Procurement Price paid by
supplied to (per unit )
Varieties Fabric Monde to weavers (per
distributors by
unit)
Fabric Monde
(per unit)
A 70 100 200

B 130 200 370

 C 170 250 450

D 250 400 650

E 400 500 800

Exhibit 3: Mean Demand forecast for the 6 distributors in zone P across product
varieties in a typical month
P1 P2 P3 P4 P5 P6
A 30 25 29 40 80 16
B 20 6 15 70 47 10
C 40 10 30 8 17 56
D 10 7 8 5 11 15
E 20 18 9 22 31 20

Exhibit 4: Mean Demand forecast for the 6 distributors in zone Q across product
varieties in a typical month
Q1 Q2 Q3 Q4 Q5 Q6
A 11 16 18 19 28 44
B 56 62 11 16 22 19
C 33 40 52 5 6 13
D 22 19 34 11 36 44
E 10 19 17 23 9 9

Exhibit 5: Mean Demand forecast for the 6 distributors in zone R across product
varieties in a typical month
R1 R2 R3 R4 R5 R6
A 43 86 11 9 4 44
B 44 7 42 2 36 9
C 11 12 14 9 8 41
D 22 19 2 23 22 16
E 5 14 26 14 22 18

Exhibit 6: Mean Demand forecast for the 6 distributors in zone S across product
varieties in a typical month
S1 S2 S3 S4 S5 S6
A 11 22 16 22 52 54
B 54 10 22 2 18 19
C 10 18 19 26 10 16
 D 33 2 14 18 22 12
E 18 19 10 16 24 11

Exhibit 7: Mean Demand forecast for the 6 distributors in zone T across product
varieties in a typical month
T1 T2 T3 T4 T5 T6
A 9 104 11 36 8 22
B 66 44 18 32 20 19
C 16 76 6 7 22 8
D 22 19 17 9 33 37
E 8 9 14 39 22 17