Under the Guidance of: - Submitted by:-

Dr.G.D.Sardana Mahendra Verma

Head of Operation Dept Roll No. 200501118
ABS-Noida Section-A
PGDM-2005.

Amity Business School

 ACKNOWLEDGEMENT

It is of great pleasure to express my sense of gratitude to my dissertation guide,

Dr.G.D.Sardana core Faculty and Head of Operation Dept, ABS-Noida, for
providing his invaluable time and guidance throughout my research work. Here I would
also like to mention the name of Prof.B.K.Srivastava, who had helped me out in the
Review of the existing literature.

I would also like to take this opportunity to thank the following people from Chambal
Fertilizers &Chemical Limited without whose support it would not have been possible
for me to do some amount of primary research in an otherwise secondary project. They
include:

• Mr. S.K.Patra ,Vice President Chambal Fertilizers &Chemical Limited

• Mr. Swaminathan,Personnel Assistant to S.K.Patra

Last but not the least I would also like to thank my colleague, Mr. G. Suman (Roll No.
AU200524132, MBA-2005) for helping me out in the collection of data.

Signature:

Mahendra Verma
Roll No. 200501118
Section-A
PGDM-2005.

Place: NOIDA

Date: _________________

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 CERTIFICATE:

This is to certify that Mr. Mahendra Verma, a student of PGDM-2005 (Roll

No.200501118, Section-A) has completed his Dissertation work under the guidance
of Dr.G.D.Sardana (Core Faculty and Head of Operation Dept., ABS-Noida).

This is his original work on the topic “Supply Chain System in Manufacturing
Industries”, and is submitted for the award of Post Graduate Diploma in Management
by Amity Business School, Noida and not to any other college or university for any
other purpose.

Dr.G.D.Sardana Mahendra Verma

(Faculty Guide) (Student)

Place: NOIDA

Date: ____________

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 Table of Contents
Executive Summary 5
Why I have chosen the topic 7
Introduction 8
Supply Chain System Outline 14
• Supply Chain Vision
14
• Policies & Procedures
14
• System Design
16
• Organizational Design
17
• Factors that impact upon Supply Chain Systems
20
Review of existing literature 21
Supply chain system in Chambal Fertilizers & Chemical Limited 26
• Fertilizer distribution 26
Constraints in Fertilizer Marketing 28
• Ensuring availability of fertilizers 31

• Analytical Model
34
• Estimation of Fertilizer Demand
38
General Discussion about the supply Chain System 43
• Scope 44
• Methodology 46
• Planning Time Dimension 46
• Strategic Planning 47
• Tactical Planning 48
• Operational Planning 50
• Planning Design 51
• Planning Implementation 52
• Management Decisions 54

Supply-Chain Characteristics 55
Planning Policies 57
Demand Source Information 59
Transportation in Supply chain system 69
Ranking of various modes of Transportation 69
Advantages & Disadvantages of transport modes 70

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Characteristics of infrastructure in India 70
Learning, Recommendation & conclusion 71
References 72
Executive Summary
Supply chain system provide guidance and assistance to process and repetitive
manufacturing companies to maximize their return on assets by integrating their supply
chain decision making processes with their information systems. Specialize in the
effective implementation of supply chain optimization technologies that automate
planning and finite capacity scheduling processes and integrate them with business
systems (like SAP) and the business strategy.

SCS recognized as the leading, cutting edge provider of planning and finite capacity
scheduling technologies for supply chain optimization. Promote these ideas:

1. The future of scheduling technology is complete and comprehensive schedule

automation, automating your business objectives.
2. Optimal asset planning and utilization is having crystal clear visibility of how
much/many resources you need and knowing how to best deploy them.
3. Profitability is accomplished by managing demand as much as supply.

SCS Strategy - Partner with the best available software vendors and employ the best
possible people that have the experience and the necessary skills in supply chain
concepts, operations research/math modeling, computers and materials management.
Foster a corporate culture and promote principles of Management by Planning (MBP).

There are many computer aided supply chain decision making technologies over the past
seven years and have been very successful at it. However, it has only been recently that
the technology has caught up to the complexity of the supply chains, business strategies
and the markets. This experience gives us the confidence to tell you that we have found
some very exciting technologies in the demand management and planning/scheduling
areas that are clearly the next generation. Let us tell help you be an informed customer

5
before - you risk your business on inadequate technologies or implement advanced
technologies before your business is ready for them.
The partnership in Supply Chain Systems offers you the best capability in this area,
world-wide! they will work with you through the entire process and "guarantee"
extraordinary results. Give us a call to benchmark "Best of Class" for your company.
Seeing believes.

Technology is not the full answer. The issue includes defining how to operate the
business in terms of a disciplined process. Positioning the technologies properly within
the organization’s decision making process is essential for maximizing the value returned
from this technology. This goes hand-in-hand with defining and being willing to follow
supply chain policies. This is the strength of the experienced Supply Chain Systems
personnel. It help us to define the best policies, process and technologies to fit your
capability, market and competition.

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Why I Chosen the Supply Chain System

The partnership in Supply Chain Systems offers me the best capability in this area,
world-wide! They will work with you through the entire process and "guarantee"
extraordinary results. Give us a call to benchmark "Best of Class" for your company.
Seeing believes.
As I study the supply chain in depth of chambal fertilizers and chemical limited there are
following learning I will get from this dissertation:

• Global Sourcing
• Contact Manufacturing
• Multisided Planning
• Capital Expansion
• Transportation Modes
• Tactical Inventory
• Integrated site capacity
• Plan asset utilization
• Finite capacity scheduling
• Optimization

As I future plans are concerned I want to set up my own Logistics and supply chain
business which require a lot of concentration, commitment and experience. So I thing
doing dissertation on supply chain system enables me to understand this system in proper
manner.

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Introduction
Rapid innovation and globalization have generated tremendous opportunities and choices
in the marketplace for consumers and companies alike. Competitive pressures have led to
sourcing and manufacturing on a global scale, resulting in a significant increase in
product offerings. As businesses grow more complex, so do their supply chains. Now
more than ever, managers need tools that generate the insight that leads to smarter
decision making and results in a more efficient supply chain.

Enhancing both the effectiveness and efficiency of the overall supply chain operations is
a critical component in a company's ability to compete successfully. This is gained by
better understanding and leveraging the customer base, increasing yield, quality and
service levels, and through improving supplier strategies. From ERP systems to
traditional supply chain management software, the market is filled with silo-based
transactional systems that fall short in generating and delivering the performance-driving
insights that seamlessly and profitably link supply with demand.

Supply Chain System deliver a critical advantage to companies by helping them turn data
into knowledge, enabling companies to develop unique demand, supply, operational and
customer insights. As a result, companies improve the efficiency and effectiveness of the
overall supply chain, thus maximizing their own profits at optimal levels of customer
satisfaction.

Supply Chain System enables us to:

• Generate insights we can act on.

• Anticipate customer demand.
• Derive financial insights across the extended supply chain.
• Improve product quality, yield and time to market.
• Optimize supply strategies.
• Leverage existing IT investments.

It enables you to exploit integrated data and drive problem solving, monitoring, control
and improvement actions that align with value creation across your enterprise all from a
single, integrated vantage point – resulting in reduced cycle times, increased product
quality and throughput, and better asset utilization. You get a flexible, extensible
platform for intelligent processes that contains five essential elements:

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An up-to-the minute, unified view of processes, product and equipment. An
integrated data warehouse stores and manages all relevant information and presents users
with an intuitive interface that replaces disparate spreadsheets and proprietary tools with
"one version of the truth."

A rigorous framework for historical analysis. Going beyond simple trending and bar
graphs, modeling tools incorporate any number of business rules and engineering criteria
for analysis – and identify variations from accepted thresholds. Users can drill down into
information to reveal deeper understandings.

Tools for proactive analysis and action. An early-warning system scans operational
data, ferrets out potential problems and automatically issues alerts to the right persons, so
they can take action early.

A living archive of collective knowledge. A 'knowledge repository' stores the results of

historical and proactive analysis, thereby supporting collaborative learning within and
between teams.

Ready availability of knowledge to all contributors. The intelligence derived from

analysis and reporting must be available to all contributors, from line managers to
engineers to executives, and presented in a form that is meaningful to them. Reduce cycle
times, increase product quality, and better allocate resources ... it's all possible with SAS
Process Intelligence. Giving you the power to improve yield and cut costs – and build a
foundation for sustained market differentiation.

9
SCE systems focus on automating the processes and associated transactions within the
order fulfillment cycle. These processes include:

10
 • order/distribution management (OM/DM)
• warehouse management (WM)
• production execution (PE)
• transportation management (TM)

Standalone software applications have been used to automate these processes for several
years. SCE software provides the robust functionality of these best-of-breed, standalone
applications with the added benefit of seamless integration.

Warehouse management has long been a powerful execution application for both
manufacturers and distributors. Subsequently, several of the SCE system providers are
emerging from the ranks of the Warehouse Management System (WMS) industry. Many
of the WMS suppliers have taken the lead by positioning themselves to respond to SCM
needs upstream and downstream of their traditional warehouse management roles.

The SCE system marketplace is in the early stages of growth. The WMS vendors
targeting this opportunity are, in turn, in various stages of product development. Their
development is being completed through a combination of in-house software
development and software product acquisition.

The SCE system suppliers do not all share the same market strategy. Strategies generally
vary based on the supplier. s perception of what their target industries "want" and "need".
As a result, the suppliers. existing and planned SCE system offerings differ.

The suppliers are positioning their software applications to fill the needs of manufacturers
and/or distributors. Most manufacturing companies use ERP or supply chain planning
tools to run their business. These systems provide order management software that may
eliminate the need to look to a SCE system for this functionality. In such cases, a
manufacturer would benefit from the PE, WM, and TM applications. Conversely, a pure
distribution company has little need for manufacturing software and would be looking to
a SCE system for order management. In these cases, a distribution company would
benefit from the OM, WM, and TM applications.

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Distribution and third party logistics companies performing value added services could
benefit from the PE application as well.

Integrated systems simplify the timely sharing of information between applications. They
provide companies the luxury of phased and non-phased software implementation
without the burden of interface development, multiple hardware platforms, and multiple
software/database systems. The benefits and features of SCE systems that are least
understood yet most beneficial, are those associated with integrated WM and PE systems.

Traditional WM focuses on storage of finished goods and distribution of customer orders.

Some WMS. s can handle picking and staging of raw materials and work-in-process
(WIP) while others can be adapted to receive new inventory from production operations.
In both cases, the WMS is being extended beyond its intended design. Subsequently, gaps
in the order fulfillment process are exposed and inventory accuracy, customer service,
order cycle time, and labor benefits promised by WMS can only be partially realized.
SCE systems employing integrated WM and PE fill this gap, amplifying system benefits
exponentially.

Integrated WM/PE extends the benefits of traditional WM by tracking, managing and

automating the order fulfillment process for both customer orders and production orders.
As with traditional WM, these systems need to receive, produce, and ship orders
independent of host system availability. Integrated WM/PE systems accomplish this by
providing mission critical manufacturing-type functionality required to "keep the orders
moving". This functionality, in addition to the robust functionality of traditional WM,
includes:

1. Production order execution planning

2. Soft and hard allocate raw materials and WIP
3. Pick and stage materials for production processes
4. Activate and close production orders

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 5. Generate, assign, and track lot numbers
6. Complete production "issue" transaction for inventory against a production order.

7. Direct allocate inventory from active production order to active customer order
8. Complete production "receipt" transaction for inventory against a production
order
9. Cross dock new production to another production order or customer order
10. Theoretical consumption of ingredients and packaging materials
11. Theoretical production of empty containers
12. Paperless, real time operations enabled by bar coding and radio frequency (RF)
technology

Supply chain execution systems address the complex requirements of order fulfillment
execution by automating the processes and associated transactions within the order
fulfillment cycle. These processes include:

• order/distribution management (OM/DM)

• warehouse management (WM)
• production execution (PE)
• transportation management (TM)

SCE System Benefits by Industry

General Distribution Industry Benefits:

13
Each SCE component is considered a SCE system even as a standalone application. Most
businesses do not require all SCE components and can benefit from taking a best-of-
breed approach to selecting the software they need. For those businesses requiring two or
more SCE components, selecting a SCE vendor offering those components as integrated
applications can provide enormous benefit by eliminating the need to integrate the
systems. This, of course, assumes that each application meets the specified requirements
as a standalone application

E-Business:

Distribution companies engaged in e-business and e-

commerce have massive order fulfillment requirements. The
benefits of an integrated OMS and WMS can be very
appealing. Especially when both applications are up to best-
of-breed standards. Some leading SCE vendors have
integrated best-of-breed OMS and WMS applications. This
eliminates integration concerns as well as the compromise associated with purchasing a
strong WMS that is supported by a weak OMS or vise versa.

Third Party Logistics:

Fueled by e-commerce and outsourcing, there is a trend towards third party logistics
(3PL). The 3PL providers can benefit from new industry-specific functionality added by
many of the best-of-breed WMS vendors. Additionally, many of these vendors offer web-
based tools that allow inventory Owner's and their Customers customized visibility to
inventory and order status.

Manufacturing Companies:

Manufacturing companies that handle raw material, WIP, and

finished goods, can benefit from the PE, WM, and TM applications.
In particular, PE integrated with WM can automate most
manufacturing transactions as well as automate the
distribution/shipping transactions. The addition of PE to a WMS
installation can multiply system benefits with little additional cost.
(see article for more information on integrated PE and WM).

Supply Chain System Outline

• Supply Chain Vision
In recent years, supply-chain and business managers have spent a significant amount of
time and resources on gaining “visibility” into the supply chain. A strong case can be

14
 made that having this visibility translates into real value in terms of increasing supply-
chain efficiencies, on a day-to-day level. While this capability is valuable, there are
much larger issues that need to be addressed in order to achieve operational excellence.
What manufacturers really need is vision: an overall supply-chain strategy that ties
decisions to bottom-line earnings objectives.

Data-driven visibility delivers the ability to view events as they occur throughout the
supply chain, receive alerts and notifications when things go wrong and achieve real-
time order tracking capabilities, helping manufacturers fine-tune the details and fight
the inevitable fires that break out. Manufacturers need to clearly understand that
supply-chain visibility is only the first step in achieving competitive advantage through
high performance supply chains.

We can differentiate vision and visibility in terms of the human body: visibility comes
from the eyes, while vision relates to the functions of the brain. For manufacturers who
rely only on visibility, it is highly likely that there are parts of the supply chain where
optimization is confined by a narrow field of sight. By relying on vision--the ability to
see what is not immediately presented—manufacturers can save and win significant
dollars, by simply expanding the focus of optimization efforts.
By taking a more global view of the supply chain when tackling challenges and making
decisions, companies can leap to a much higher plateau of efficiency—one that delivers
results that are far better than if the current supply chain, within the current field of
vision, were operating at low cost goals. The first challenge lies in expanding the vision
across department boundaries, and beyond the four walls of the building or company at
each node in the chain.
Examples: Our entire supply chain vision is built on superior product and process
quality.

• Policies & Procedures

Ethics
We expect all suppliers and employees to conduct themselves in an ethical, professional
manner at all times. We believe in maintaining an environment free from harassment and
discrimination and in treating people with dignity and respect. We will act promptly on
any suspected violations of this policy. We will align ourselves only with those suppliers
who share and respect this policy in all facets of business.

Gifts and entertainment

Business lunches, dinners, and after-hours meetings may enhance our supplier
relationships, but a reciprocal policy is encouraged. Promotional advertising with
company logos (pens, calendars, etc.) is acceptable if the value of the item is nominal.
Suppliers are discouraged from offering any gift, gratuity, payment, etc., which may be
construed as an attempt to influence a business relationship. We prefer that you provide
incentives in the form of pricing, quality, and/or service in your quotations. Please assist
us with this policy.

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Substance Abuse

We provide a drug-free and hazard-free environment for all personnel and visitors. The
use, sale or possession of illegal drugs or alcohol is prohibited in all facilities. Schwarz
Pharma Mfg., Inc. participates in a smoke free environment throughout its facility.

Confidentiality
Suppliers may be asked to sign a confidentiality agreement. Just as we respect and protect
confidential information provided to us by suppliers, we expect this same documentation
regarding confidential information we may provide to you.

Safety
Supplier will abide by our facility’s safety regulations and will conform to all applicable
government safety standards. Because of the potential dangers involved, we do require
Material Safety Data Sheets for all chemicals, which are brought to any of our facilities.
NO FREE SAMPLES OF ANY CHEMICALS will be accepted in any facility at any
time.

Insurance
All suppliers must meet the following minimum requirements for insurance:

Comprehensive General Liability Insurance in an amount of $1,000,000. Where the

supplier is selling products to Schwarz, which Schwarz may resell, the supplier must
provide Broad Form Vendors coverage in favor of Schwarz Pharma Manufacturing, Inc.

In situations where the supplier may perform services for or on behalf of Schwarz,
evidence of worker’s compensation and auto liability insurance is also required. When
the supplier is installing or maintaining equipment or buildings on Schwarz’s premises,
$1,000,000 Owners, Contractors Protective Liability policy in the name of Schwarz
Pharma is required. Complete details are available on Schwarz under “Contractor
Requirements” in public documents.

The supplier is also required to hold Schwarz harmless for bodily injury or property
damage as noted in the terms and conditions typed on the back side of the Schwarz’s
purchase order.

Exceptions should be addressed with appropriate Purchasing Representatives.

In-House Activities

We encourage you to stay in touch with your in-plant customers to develop good business
relationships; however, we ask suppliers who visit any facility to abide by the general
policies set forth previously. In addition, we ask that you:

16
  do not interfere with any production operations,
 do not solicit information or services from shop floor personnel without prior
approval,
 do no remove any items from the operations area,
 do not take cameras or other such equipment on the shop floor without prior
consent from the plant management,
 STAY WITH YOUR ESCORT, if you have been provided one,
 wear the proper safety equipment (eye protection, etc.) at all times,
 wear proper GMP wardrobe prior to entering into any controlled areas.

Contacting Supply Chain Personnel

Your first step should be to make an appointment with the correct Supply Chain
Representative in advance of your visit. This will not only insure that he/she will be able
to see you at a convenient time, but it will also allow you to speak with the person
involved with your product/service. Each individual buyer/planner or manager within the
Department sets times for appointments.

Expectations of All Suppliers

 Act ethically and professionally at all times.

 Have a thorough, factual knowledge of the products/services which you
sell/represent. Know their limitations as well as their applications.
 Keep your appointments or contact Supply Chain Representative about delays.
 Work with the appropriate Supply Chain Representative.
 Maintain open, two-way communications to resolve problems. Keep us informed
of changes in materials, processes or methods used for any supplied
product/service prior to delivery.
 Report any damages or problems with delivery, invoicing, pricing, etc. to the
department(s), which they affect.
 Deliver only what is ordered, on time and to the right specifications.
 Accept purchasing commitments only from Supply Chain Representative and
honor your commitments.
 Identify strategic areas of cost enhancements.
• System Design
Provides an in-depth understanding of the contemporary concepts on reconfiguration of
logistics systems at different geographical scales. Risk management in logistics systems
is also covered.
• To understand the key issues those companies must address in designing a logistical
system
• To demonstrate a critical appreciation of the theories and principles underpinning
logistics systems design
• To be aware of critical issues in the management of freight transport and warehousing
operations
• To know where to obtain relevant information for logistics systems design

17
• To understand the dominant principles and trends in retail logistics
• To apply the concepts in practical logistical settings, using major logistics software
package
• To engage in critical discussion of logistics systems design issues through class
discussion and exercises
• To utilize and source relevant information from library, Internet and database sources
• To undertake a company case study involving the application of logistics design
principles
• To be able to research, collate, analyse, interpret and present material related to logistics
systems design

Computer-aided design, Flexible manufacturing systems, Supply and inventory

management, Production planning and scheduling, Facility location, transportation and
logistics, Optimization via simulation, and Optimization in product and process design.
Enterprise system sessions were: Enterprise management, extended enterprise, and
intelligent agent technologies.

• Organizational Design

A process for improving the probability that an organization will be successful.

More specifically, Organization Design is a formal, guided process for integrating the
people, information and technology of an organization. It is used to match the form of the
organization as closely as possible to the purpose(s) the organization seeks to achieve.
Through the design process, organizations act to improve the probability that the
collective efforts of members will be successful.

Typically, design is approached as an internal change under the guidance of an external

facilitator. Managers and members work together to define the needs of the organization
then create systems to meet those needs most effectively. The facilitator assures that a
systematic process is followed and encourages creative thinking.

Hierarchical Systems

Western organizations have been heavily influenced by the command and control
structure of ancient military organizations, and by the turn of the century introduction of
Scientific Management. Most organizations today are designed as a bureaucracy in which
authority and responsibility are arranged in a hierarchy. Within the hierarchy rules,
policies, and procedures are uniformly and impersonally applied to exert control over
member behaviors. Activity is organized within sub-units (bureaus, or departments) in
which people perform specialized functions such as manufacturing, sales, or accounting.
People who perform similar tasks are clustered together.

The same basic organizational form is assumed to be appropriate for any organization, be
it a government, school, business, church, or fraternity. It is familiar, predictable, and

18
rational. It is what comes immediately to mind when we discover that ...we really have to
get organized!

As familiar and rational as the functional hierarchy may be, there are distinct
disadvantages to blindly applying the same form of organization to all purposeful groups.
To understand the problem, begin by observing that different groups wish to achieve
different outcomes. Second, observe that different groups have different members, and
that each group possesses a different culture. These differences in desired outcomes, and
in people, should alert us to the danger of assuming there is any single best way of
organizing. To be complete, however, also observe that different groups will likely
choose different methods through which they will achieve their purpose. Service groups
will choose different methods than manufacturing groups, and both will choose different
methods than groups whose purpose is primarily social. One structure cannot possibly fit
all.

Organizing on Purpose

The purpose for which a group exists should be the foundation for everything its
members do — including the choice of an appropriate way to organize. The idea is to
create a way of organizing that best suits the purpose to be accomplished, regardless of
the way in which other, dissimilar groups are organized.

Only when there are close similarities in desired outcomes, culture, and methods should
the basic form of one organization be applied to another. And even then, only with
careful fine tuning. The danger is that the patterns of activity that help one group to be
successful may be dysfunctional for another group, and actually inhibit group
effectiveness. To optimize effectiveness, the form of organization must be matched to the
purpose it seeks to achieve.

The Design Process

Organization design begins with the creation of a strategy — a set of decision guidelines
by which members will choose appropriate actions. The strategy is derived from clear,
concise statements of purpose, and vision, and from the organization’s basic philosophy.
Strategy unifies the intent of the organization and focuses members toward actions
designed to accomplish desired outcomes. The strategy encourages actions that support
the purpose and discourages those that do not.

Creating a strategy is planning, not organizing. To organize we must connect people with
each other in meaningful and purposeful ways. Further, we must connect people with the
information and technology necessary for them to be successful. Organization structure
defines the formal relationships among people and specifies both their roles and their
responsibilities. Administrative systems govern the organization through guidelines,
procedures and policies. Information and technology define the process (es) through
which members achieve outcomes. Each element must support each of the others and
together they must support the organization’s purpose.

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Exercising Choice

Organizations are an invention of man. They are contrived social systems through which
groups seek to exert influence or achieve a stated purpose. People choose to organize
when they recognize that by acting alone they are limited in their ability to achieve. We
sense that by acting in concert we may overcome our individual limitations.

When we organize we seek to direct, or pattern, the activities of a group of people toward
a common outcome. How this pattern is designed and implemented greatly influences
effectiveness. Patterns of activity that are complementary and interdependent are more
likely to result in the achievement of intended outcomes. In contrast, activity patterns that
are unrelated and independent are more likely to produce unpredictable, and often
unintended results.

The process of organization design matches people, information, and technology to the
purpose, vision, and strategy of the organization. Structure is designed to enhance
communication and information flow among people. Systems are designed to encourage
individual responsibility and decision making. Technology is used to enhance human
capabilities to accomplish meaningful work. The end product is an integrated system of
people and resources, tailored to the specific direction of the organization.

Model of factors that impact upon Supply Chain Systems

20
Review of existing literature

21
In order to evaluate the state of play in supply chain systems a literature review was
undertaken. This review revealed a wide array of supply chain systems in practice and
academic research on alternative approaches. These different systems and approaches
varied in the degree of centralization. A spectrum showing the systems along the
paradigm of centralized and decentralized is shown below. The literature also sought to
find out what factors impact upon supply chain systems. There was less literature in this
field so the literature on the planning and control systems in a manufacturing operation
and on supply chain strategy was drawn upon. This led to the development of a model of
factors.

Most of the literature in supply chain operations originates from the traditional inventory
systems and control, warehousing, hierarchical production and logistics distribution for
single and multi-stage systems. In the past, researchers have developed optimum order nd
production quantity models for a two-stage production system many of which use either
centralized or decentralized operation policies The centralized system is clearly
applicable when the supply chain system is owned by a single entity, which allows global
optimization. On the other hand, a centralized strategy is not possible when different
facilities in a supply chain often have different owners and conflicting objectives
however, the decentralized strategy can have the benefit of a centralized system by means
of partnerships. A decentralized system with information exchange between stages of the
supply chain tends to reduce the total costs and gives more flexibility than the
decentralized system with a joint lot size. This research considers a decentralized
production supply system for a manufacturing system with multiple suppliers and
multiple buyers that implement just-in-time operations. The supply chain system adopts
the partnership mechanism that assumes information exchange about demand and
shipment mode between the supplier and the buyers. Several operations policies
concerning the control mechanisms of the multi-stage supply chain systems are reviewed
in the following sections.

PERIODIC REVIEW MODELS

In periodic review models, the status of the products’ stocks in a facility is reviewed at A
regular interval basis, which is also referred to as the fixed replenishment interval system.
The periodic review model allows a reasonable prediction of the level of the worker
involved. In contrast, a decision in the continuous review model can be made at any
moment of time, causing the workload to be less predictable. Additionally, the periodic
review policy is generally less expensive than the continuous review in terms of
reviewing costs and reviewing errors especially for items with many transactions per unit
time. Over the past thirty years, there has been great progress in developing multi-stage
supply chain theories with periodic review models. There are very effective procedures
for setting reorder intervals for a wide range of systems with deterministic demands. A
supply chain that consists of suppliers and retailers has been addressed in the literature as
a class of two-stage, warehouse-retailer distribution system with infinite replenishment
rate. Dealt with replenishment policies for the case of a one-warehouse, multi-retailer
system. The model determined a recursive solution procedure of the order-unto inventory
position at the warehouse and each retailer with stochastic demand to minimize the long-

22
un system cost. Examined the case of a one-warehouse and N-identical retailer system.
They examined a two-interval policy of withdrawals from the warehouse to retailers
where the first withdrawal occurs immediately after replenishment from outside suppliers
and the second withdrawal on the second interval ships the remaining stock at the
warehouse. aimed at maximizing the fill rate by determining the safety stocks at the
warehouse and retailers. The model studied combined pricing and replenishment
strategies to maximize profits by means of optimizing the prices given in each retailer.

Researchers that adopt the periodic review policy usually approximate the inventory costs
as proportional to the stock level at the end of a period. In many systems where the
inventory cost is a significant factor, a computational method that captures more precise
inventory cost is preferred.

JOINT REPLENISHMENT POLICY

The joint replenishment policy has been addressed by researchers to improve cost
reduction in two-stage supply-chain systems owned by two parties. Studied a joint
vendor-buyer replenishment policy (JRP) based on the EOQ model and the related
heuristics for deterministic and stochastic systems. While those models assumed only
Instantaneous replenishment modified the classical economic order quantity to determine
the average inventory with finite production rate. Suggested an increasing quantity of
shipments to buyers in the implementation of the joint replenishment to minimize the cost
of inventory. Unlike the classical EOQ joint replenishment model, these models assume a
more generalized system with finite production rate. Presented a model to minimize the
mean total cost per unit time of manufacturing setup, stock transfer and holding for a
system that manufacturer supplies a product to a buyer.

The vendor manufactures the products in batches at a finite rate and ships them to a
buyer. An algorithm for obtaining an optimal solution was developed. Recently, proposed
an optimal method for JRP when major setup costs are small while proposed an optimal
algorithm for cases with medium to large setup costs. the cost of a two-stage supply chain
system with the joint replenishment policy and the same system with information
exchange. They concluded that the joint replenishment policy for the two-stage system
owned by two parties isles flexible and tends to incur larger cost than the same system
implementing information exchange. Research in this line addressed only an
unconstrained planning horizon with market demand that is approximately level. When
the market demand significantly varies over time, usually over a finite planning period, a
more generalized model taking account the varying demand is more favorable.

JUST-IN-TIME MODELS

Many manufacturing facilities carry large inventories of finished goods at the supply
docks to meet the demands of multiple buyers (customers) at fixed-time intervals in a
just-in-time(JIT) delivery system documented that, to ensure timely delivery, many
suppliers to JIT buyers respond to this challenge by manufacturing goods in large lots,

23
carrying excess finished goods inventory at their docks, and delivering it in lots as
required. The JIT concept was first introduced and adopted in Toyota Motor Corporation
that led to a higher quality, lower cost and substantially less labor time than achieved by
Toyota’s competitors. JIT, lean production, and zero inventories are all names that refer
to a system of moving materials through a supply chain system that requires a minimum
of inventory.

The key success of the JIT approach lies on the application of the kanban mechanism,
which is a manual information system developed by Toyota Motor for implementing the
JIT. the JIT gives advantage when it is implemented on supply chain systems with (a)
small, frequent deliveries, (b) few suppliers, (c)long term agreement, and (d)
geographical proximity. With such characteristics, researchers have modified traditional
EOQ models to incorporate the implementation of JIT concepts. the use of quantity order
splitting in a single-stage supply chain system to achieve savings resulting from the
reduction in inventory carrying costs. the costs associated with small-lot shipment in the
EOQ model where the number of shipments in each contract horizon is included in the
decision. Both of these two researches considered only one stage of the supply chain,
either in the ordering stage or in the production stage.

In a typical manufacturing system, however, decisions on both ordering and production

stages become important for further reducing the total system cost. a fixed-quantity
supply mechanism to a buyer at a fixed-interval of time policy. In their model, the
manufacturer agrees to meet a constant demand from a single buyer by delivering to the
buyer with fixed quantity at fixed interval delivery time. It is found that the cost structure
has a nonlinear, piecewise, convex characteristic, by which an efficient procedure can be
determined. A more simplistic method for determining the cost was proposed utilizing
the geometric pattern of the inventory level. Taking advantage of reduced ordering cost
proposed a policy allowing multiple orders of raw material from a single supplier at every
production cycle. the ordering policy of the raw material by allowing a single order for
multiple production cycles when the inventory cost for the raw material is much lower as
compared to the ordering costs in each production cycle. a one-vendor, multi-buyers
operations policy where the buyers implement the JIT delivery shipments to an individual
buyer are scheduled independently of the others with fixed shipment size and fixed
intervals. A pragmatic approach was proposed to obtain a sub-optimal solution where the
cycle time is limited to be a multiple of the least common multiple of shipment time.

A potential shortfall of this approach would happen when the lowest common multiple of
the shipment time is remote from the actual optimal cycle time. the similar issues where
the vendor specifies common replenishment periods and requires all buyers to replenish
only at those periods, but this approach does not consider frequent deliveries from a
vendor to a buyer and assumes an infinite production rate.

FINITE-HORIZON PLANNING AND TIME VARYING DEMAND

24
The finite-horizon economic production-inventory model is more appropriate than the
infinite-horizon planning model, especially when dealing with items with short life cycles
or dealing with the planning under a short-term contract and an infinite horizon occurs
rarely because costs are likely to vary and product specifications and design are prone to
change, and substitution by another product occurs due to rapid technological
development. This phenomenon can be frequently observed in high-technology product
markets. Researchers have addressed finite-horizon models with time varying demand
inclusion. In many real life situations, however, demand varies Significantly over a short
time horizon of life cycles, especially of products such as Computers, software,
automobiles, fashions and other seasonal products. A more appropriate policy to respond
to such a market situation is generally more desired to operate a supply chain more
efficiently. There is extensive literature that addresses a single-stage inventory system
considering an infinite replenishment rate.

On the single stage model to determine the optimum replenishment time and quantities
over a finite planning horizon with trend demand. Equal ordering interval over the
horizon to minimize the total cost. However, suggested that equal replenishment intervals
lead to a higher cost. Shortage of inventory in the existing model. a hybrid heuristic to
solve the single-stage, infinite replenishment rate that leads to a better optimal solution.
policy that determines the production rate in each production cycle, but set the cycle time
uniform over the planning horizon. A major disadvantage of these models is that they
considered a single pattern of trend demand, which may not be appropriate for a system
with periodic demand. We use the term ‘single-phase demand’ to refer to a single pattern
of trend Demand. A multi-phase trend demand can be reasonably accurate to represent
periodic or life-cycle type demands. Heuristic replenishment policies for a single stage
supply chain with a two-phase demand pattern (increasing demand followed by level
demand).the same model and proposed an exact, optimal policy to determine the
sequence of batch Production time.

The results by incorporating a more general demand pattern and products with
deterioration. However, the model did not consider the interval and delivery quantity as
parameters. The drawbacks in the research of supply chain systems without-phase
demand are the assumption of a single-stage system and an infinite replenishment rate. A
two-stage production system model with linearly increasing demand was in their
research, a production system keeps raw material ordered from outside suppliers with
infinite replenishment, produces finished goods at a finite rate, and stores finished
product to be supplied to buyers. However, their approach simplifies the shipment to
buyers as continuous flow of products. Supply chain model where shipment quantities,
which are functions of single-phase trend demand, are considered and a heuristic was
developed to determine the sub-optimal policy. Dynamic programming algorithm to
solve a lot sizing problem with multiphase varying demand. However, the method to
calculate the cost of inventory is an approximation, and they did not incorporate the
ordering of raw material.

25
GAPS IN THE PAST RESEARCH

It is evident that supply chain design has received immense attention by researchers and
practitioners in many aspects. There are four aspects considered in this dissertation:
decentralized planning, just-in-time delivery system, finite planning horizon, and time
dependent demand. For an instance, in the decentralized supply chain developed models
for a two-stage production inventory that assumes only instantaneous replenishment, with
fixed delivery size for an infinite planning horizon. The shipment frequency is also
simplified into one shipment per cycle. This research, on the other hand, incorporates
frequent shipments and a finite planning horizon to make the model more realistic. For
the JIT production systemconsideredoptimization for multiple retailers for an
unconstrained planning horizon with stationary demand.

The models are limited to level demand and infinite planning horizon. Here, they only
consider one type of shipment mechanism, which is fixed-interval and fixed-shipment
size. Moreover, loss of sales is not considered. For the time-varying demand model only
approximated the cost of stocks and assumed only a single stage supply chain.
Approximated the shipment to buyers with the model of continuous flow of products and
the demand is considered as a single trend. Although assumed a general time varying
demand function, the planning horizon is assumed as a single cycle such that the solution
approach arrived at local optima. An exact solution procedure proposed considered only a
single-stage system and an unconstrained planning horizon. It also did not address the
decreasing demand situation. Most of past works in modeling and optimization of supply
chain systems have so far partially considered the aspects of JIT manufacturing
shipments, time varying demands, and finite planning horizon on a two-stage supply
chain system.

Combining these aspects to capture a more realistic situation to be considered in the

modeling has received little attention. This research attempts to bridge this gap. It
develops optimal and efficient rations methodology for two-stage supply chain systems
with JIT shipments that incorporates time varying demand for finite-horizon planning.
This research considers configurations of supply chain systems with single supplier and
single buyer, multiple suppliers and multiple buyers, and various phases of life-cycle
demand. This research presents robust analytical results to solve the operations problems
for such supply chain systems optimally.

26
Supply chain system in Chambal Fertilizers & Chemical Limited

Chambal Fertilizers and Chemicals Limited was promoted by Zuari Industries Ltd. in
1985. It is located at Gadepan, 35 Kms. from Kota, on the Kota - Baran National
Highway No.76. Kota is the hub of industrial activity in the state of Rajasthan. Chambal
operates two hi-tech nitrogenous fertilizer plants and is the largest fertilizer complex in
private sector in India. The two mega fertilizer plants having a total re-assessed capacity
of 1.7292 million tons of urea per annum. Both Gadepan-I & Gadepan-II phases
represent a total investment of over Rs. 2,500 Crores. Gadepan-I was commissioned in
December 1993 and its commercial production commenced in January 1994. It is
designed to produce 1,350 MT of Ammonia by Haldor Topsoe, Denmark technology and
2,348 MT per day urea based on Snamprogetti, Italy process. Commercial production at
Gadepan-II started in October 1999. Its Ammonia plant is based on Kellog (USA)
technology and the Urea Plant is based on ACES process of TEC, Japan. The Ammonia
Plant is a single stream, having a design capacity of 1,350 MT ammonia per day, like
Gadepan-I. The Urea Plant is designed to have twin streams, each with the design
capacity of 1,175 tons of urea per day. Gadepan-I is based on natural gas as the feed
stock while the fuel demand is met by naphtha. Gadepan-II is designed both for naphtha
and natural gas as feed stock. Toyo Engineering India Ltd. has designed the Off-sites of
both for Gadepan-I & Gadepan-II.

Chambal Fertilizers and Chemicals Limited. The Company's principal activities are
manufacturing and distribution of fertilizer, textiles, food processing and software. The
Company operates in three segments Own manufactured fertilizers, trading and other.
The Own manufactured fertilizer segment comprises of manufacturing and trading of
urea, pesticides, fertilizers, bio-fertilizers and seeds. The Trading segment includes the
purchase and sale of fertilizers and agri inputs. The Other segment includes the software,
yarn and food processing activities. The Company has urea manufacturing facilities with
a licensed capacity of 1.518 million tones. The Company markets imported DAP and
MOP under its brand name 'Uttam', through marketing network of 937 dealers and 14662
retail outlets. Its fertilizer plant is located in Rajasthan; textile mills in Himachal Pradesh
and its Software facilities in Chennai. Own manufactured fertilizers accounted for 85% of
fiscal 2002 revenues; Trading, 10% and others, 5%.
FERTILIZER DISTRIBUTION

The warehousing and distribution of fertilizer is a complex activity designed to enable

capital intensive fertilizer plants to continue production throughout the year in
preparation for the on-farm spreading season in spring. The spring season in European
farming is short and hectic, starting in late February in southern Europe and ending in
May in the North. March and April are months of intense activity, during which 80% of
the fertilizer consumed is applied.

27
Fertilizer is a bulky and relatively low-cost product, which nevertheless requires careful
physical handling throughout the distribution chain from factory to farm. Quality control
measures are designed to minimise the number of links in the handling chain and to
ensure that the quality of the product does not deteriorate during shipment or storage. The
fertilizer industry is constantly working on improvements to supply operations, but has to
bear in mind that material such as fertilizer does not lend itself to too much handling.
More than one storage point between factory and farmer should be avoided. The
development of watertight big bags may make it possible to deliver the fertilizer direct
from factory to the farm.

Mineral fertilizers are delivered in a variety of forms: in bulk, in 25, 40 or 50 kg bags

(loose or shrink-wrapped on pallets), in big bags (500 - 1000 kg "intermediate bulk
containers", known as IBCs) or in liquid form. Road, rail, river and sea transport systems
are used, depending on the local infrastructure. It has been estimated that logistical costs,
including handling, transport and storage, represent about 20% of the price paid for
fertilizer by the farmer.

Main Fertilizer Distribution Channels

Suppliers : MANUFACTURERS and IMPORTERS

Wholesalers : CO-OP PRIVATE WHOLESALERS

WHOLESALERS

Retailers : PRIVATE RETAILERS

CO-OP RETAILERS

Users : FARMERS

Distribution System

Fertilizers are essential inputs in agriculture and, in particular, production of food grains.
The marketing system has to carry out the functions of storage, transportation and selling
to the farmers spread throughout the country. It includes wholesalers, agents, and
retailers. Over time the marketing system for fertilizers has undergone rapid change both
in terms of its capacity and mode of operation. Its evolution has been mainly guided by
the public policy. Since fertilizer was a new input for the farmers, the spread of know-
how and incentives had to accompany the marketing of fertilizers. Initially the demand
for fertilizer had to be created. It was to increase agricultural production and not only to
sell more fertilizers. Up to the end of the First Five Year Plan (1951-56) the sale of
chemical fertilizers was the sole responsibility of co-operative societies and State

28
Agriculture Departments. Later, the Government allowed the fertilizer production units,
which had been licensed before December 31, 1967, to sell 70% of their produce through
their own agencies for a period of seven years from the date of commencement of
production. The remaining 30% of the production was required to be sold through public
or co-operative agencies. During the early seventies, the proportion of private sector sale
points increased at a faster rate but slowed down in the later half of seventies. However,
during the eighties, the private sector fertilizer outlets have expanded at a rate higher than
that of the co-operative or the public sector. At the end of March 1995, there were 2.59
lakh sale points of fertilizers in the country, out of which 69% were in the private sector
and remaining 31% were operated by either co-operative societies or other public sector
institutions like State Agro-Industries Corporations. In order to make available the
fertilizers to farmers, the temporary sale points are also provided in some areas.

Constraints in Fertilizer Marketing

• The numbers of sale points are still inadequate farmers in hill and desert areas
have to travel long distance to buy the fertilizers.
• The supplies of the fertilizers at many sale points are not sufficient to meet the
demand for fertilizers in the area.
• At many sale points, the fertilizers are not stocked at a time when farmers want to
purchase. For e.g., if the supplies to the sale point do not reach before the sowing
of crops, the farmers are not able to buy the fertilizer, which they wish to use as
basal dose.
• Sometimes the makes and grades of the fertilizers, which the farmers wish to buy,
are not available at the nearest sale point.
• Fertilizers are prone to adulteration and several cases of adulteration have been
reported.
• Sometimes, the quantity of fertilizers in the bags is less than the specified one.
• When the supply is less than the demand for fertilizers in an area, during a
specified season, the dealers charge a price higher than the statutory or normal
price.
• Sometimes, the farmers are forced to buy another kind of fertilizer along with the
kind desired by them.
• Farmers in many areas do not have cash to pay for the fertilizers. Short term loan
or crop loan from the banks is meant to meet this requirement.
• In many areas, the salesmen do not possess the requisite know-how on the use of
fertilizer which farmers wish to seek from them.
During the last few years, there has been a considerable ad holism in fertilizer pricing
policy, which came in the way of adequate availability of fertilizers to the farmers in
time.

Improvement for Fertilizer Marketing

• There is a need to increase the number of sale points especially in hilly, tribal and
desert areas so that the farmers have not to travel much distance to buy the
fertilizer.

29
 • There is also a need to develop proper distribution arrangements involving a
combination of co-operatives, government and private agencies, depending on the
potential of the area.
• Sales points should be developed into good agro-service centers. Providing advice
to the farmers on different aspects of fertilizer application in addition to making
the fertilizer, other inputs and services available.
• Packing material and technology for fertilizers should be improved to minimize
the chances of loss during transit and storage as also of pilferage from the bags.
• The procedure of linking credit with fertilizer supply should be simplified.
• Fertilizer should also be made available in smaller packets of 5 to 10 kg.
• There is need to check adulteration and under weighment of bags.
• There is also a need to minimize the number of brand names to avoid confusion
among the farmers specially those who are illiterate or have poor educational
level.
The ratio of prices of three nutrients (NPK) should be maintained at levels consistent with
the normative use under different cropping patterns and soil conditions.

The Fertilizer Policy is based upon the following principles:

(a) Participation of the private sector is indispensable to improve the availability

of fertilizers and promote increased demand for of fertilizers amongst
farmers.

(b) All actors (public, cooperatives and the private sector) should have equal
opportunities in the fertilizer trade.

(c) In the context of the emerging trend of globalization, fast development and
dissemination of information technologies and market oriented economic
systems, government should reorient its role away from direct involvement in
the trade toward towards regulation and facilitation.

(d) Agricultural extension and agricultural research should take joint

responsibility and work with each other to promote appropriate fertilizer use .

(e) Integrated plant nutrients system should be adopted in order to prevent the
degradation of soil fertility and minimize the other likely negative impacts of
chemical fertilizers use on environment and to promote appropriate and
balanced use of fertilizers.

(f) Necessary infrastructure, management and favorable environment should be

created for the appropriate and balanced use of chemical fertilizer.

1. Definition

In this Policy, unless there is anything repugnant in the subject or context,

30
 (a)“Importer” means any individual or organization importing fertilizer into Nepal
from any foreign country.

(b) “Policy” means this National Fertilizer Policy 2002.

(c)“Private sector” means all those (sector who are) except the public sector involved
in the fertilizer trade including the cooperative sector.

(d) "Dealer" means any individual or organization registered at the District

Agriculture Development Office and sells fertilizers, either on a wholesale or
retail basis.

(e)"Fertilizer" means any organic, chemical and microbial (fertilizers) substances

applied to soils for supplying essential plant nutrients.

(f) "Chemical fertilizer" means any chemical substance, in liquid or solid form, used
to supply nutrients to plants, applied in the soils or plants.

(g) "Organic fertilizer" means any organic (carbonaceous) substances except

living organisms (made up of decomposed vegetable and /or animal origin)
added straight to the soil to supply nutrients to plants.

(h) "Microbial" fertilizer means any substance, in liquid or solid form, and
containing living or latent organisms (related to nitrogen, phosphorus or
carbon cycle) used to supply nutrients to plants.

2. Objectives

The principal aim of this policy is to enhance agricultural productivity through

improvements in soil fertility, and thereby contribute to the national goal of poverty
alleviation. Specifically, this policy has the following objectives:

(a) Provision of conditions (policy and infrastructure management) for enhancing

fertilizer consumption; and

(b) Promotion of integrated plant nutrients management system for the efficient and
balanced use of fertilizers.

31
3. Strategies

The following strategies shall be adopted to achieve above objectives.

5.1 Ensuring availability of fertilizers

5.1.1 Making fertilizer import reliable, competitive and transparent

Since Nepal does not produce any fertilizers at present and that all of its fertilizer
demands have to be met by imports, the following measures will be undertaken to make
the current fertilizer import system reliable, competitive and transparent:

(a) Fertilizer off-take level, demand and supply will be estimated and made
public 6 months ahead of the major crop growing season, to enable importers
to import fertilizers on time.

(b) Equal opportunity will be provided to all fertilizer importers (public,

cooperatives and private sector organizations involved in fertilizer
importation)

(c) Importers will be required to make wholesale prices of imported fertilizers

public.

(d) The system for monitoring the price, quality and availability of fertilizer will
be strengthened to make it regular and effective.

(e) World market prices of fertilizers will be monitored regularly and made
public.

(f) All importers importing fertilizers from international market will be

registered at the Ministry of Agriculture and Cooperatives.

5.1.2 Pricing policy and subsidy

(a) Market competition will set the sale prices of fertilizers.

(b) Government will not provide price subsidies on chemical fertilizers but it
may provide fertilizers on concessionary rates in targeted geographic areas,
such as remote and high hill districts lacking motorable transport services, or
to targeted groups such as small and marginal farmers lacking adequate
purchasing power through Special Agriculture Production Program.

5.1.3 Provision of buffer stocks

32
 (a) About 20 percent of the estimated annual fertilizer consumption will be held
as buffer stock

(b) Storage, management and distribution of buffer stock fertilizer will be made
transparent and competitive.

(c) Grant-aid fertilizer made available to His Majesty’s Government will be used
as buffer stock (managed in the form of buffer stock fertilizers) and
mobilized accordingly.

5.1.4 Domestic production

(a) Since it would not be appropriate to depend always on imports for the supply
of fertilizer, the establishment of a fertilizer plant will be encouraged in the
country.

(b) Importers importing fertilizers as raw material for the production of mixed or
blended fertilizers will be given equal facilities as available to other
importers of fertilizers.

5.1.5 Investment in other countries

(a) Cooperative and private sector will be encouraged to invest in the fertilizer
plants of neighboring countries.

(b) Cooperative and private sector will be encouraged to invest in fertilizer

plants outside the country and to obtain their share of the produce
proportionately.

5.2. Making the fertilizer distribution system transparent, competitive and

effective

5.2.1 Distribution system

(a) Statistics on fertilizer demand and supply by development regions will be

regularly updated and made public.

(b) A fertilizer use study will be carried out at regular intervals to facilitate and
make fertilizer distribution system efficient and to promote integrated plant
nutrients management system for the balanced use of chemical fertilizers.

(c) Fertilizer distributors and dealers will be encouraged to establish distribution

networks to the district levels.

(d) Retail sale prices of fertilizers will be monitored regularly.

33
 (e) Fertilizer dealers’ capacities for fertilizer storage, their knowledge on
fertilizer use and agricultural production, marketing system and fertilizer
quality management will be enhanced.

(f) Regular interaction programs will be organized (held) at different levels

among fertilizer importers, dealers and farmers.

5.2.2 Provision of fertilizer at concessionary rates for targeted areas and groups

(a) His Majesty’s Government may provide fertilizers at concessionary rates in

the districts of hills and mountain regions whose district headquarters are not
yet linked with a permanent motor able road. The concessionary rates will be
equivalent to the cost of transporting fertilizer to these districts.

(b) All types of solid fertilizers containing nitrogen, phosphorus and potassium
would be eligible for the fertilizer transport cost concessions.

(c) Opportunities will be provided for the cooperative and private sector to take
part in the distribution of fertilizers provided under concessionary rates.

(d) Concession on the local market prices of fertilizers may be provided to small
and marginal farmers by integrating such concessions in Special Agriculture
Production Programs.

5.3 Quality of fertilizer

(a) Dealers and consumers will be encouraged to procure fertilizers only from
authorized sources.

(b) The Fertilizer Act, and Regulations thereof, shall be formulated and enforced
for the effective implementation of the Policy.

(c) Laboratories shall be established and strengthened in order to improve

fertilizer analysis .

5.4 Management of Integrated Plant Nutrients System

The following activities would be carried out to prevent the degradation of soil fertility,
minimize any other likely negative impact of chemical fertilizers on the environment, and
to promote the appropriate and balanced use of fertilizers.

(a) Farmers shall be encouraged to use balanced chemical fertilizers on the basis
of required nutrients established by soil testing.

34
 (b) Organic fertilizers and microbial fertilizers shall be encouraged in the
Integrated Plant Nutrients System.

(c) Regular interactions among farmers, researchers, agricultural extension

workers, Non-government Organization, Cooperatives and Private Sector
shall be organized for the dissemination and evaluation of Integrated Plant
Nutrients Management System.

Analytical Model

The analytical model for this study is a capacitated discrete mixed

integer programming
(CDMIP) model. Conceptually, the model is classified as capacitated
because upper limits were imposed on warehouse storage and
machinery capacities. The model is discrete because demand locations
as well as flow of materials and equipment between origin-destination
pairs were specified. The model is structured in a mixed integer-
programming (MIP) framework because the structure accommodates
discrete and continuous variables to determine optimal location and
size of a facility (Tempo). Theme also uses fixed charges that are
amortized over the economic life of facilities and it allows planners to
assess opportunity costs for funds (Famine). In general, MIP has-been
extensively used to solve plant location and machinery selection
problems (e.g.Köksalan, Surely, and Kirca; Camarena, Gracia, and
Sixto; Ghassam et al.; and Saadoun).The CDMIP model selects the
warehouse configuration and application fleet that minimize
transportation, warehousing, machinery and application costs subject
to supply, demand, facility and equipment capacity constraints. This
cost minimization approach is adopted because in supply chains the
consolidation of materials in warehouses and coordinated use of
business assets has emerged as an effective cost-saving method due
to high percentage of total distribution or costs associated with
transportation and fixed asset charges (Chiang and Russell; Herer,
Tzur, and Yücesan; Mason et al.).In the fertilizer industry, the supply
chain entails transportation of fertilizers from manufacturers or
importers to storage facilities and finally to producers in known service
regions. In addition to fertilizer distribution, most of the retailers also
own fertilizer applicators that are rented to individual producers and
other firms. Thus, a significant cost reduction in the fertilizer supply
chain could be achieved through efficiency that might be apparent in
coordinated transportation, warehousing, and application. Therefore, a
cost minimization model was developed to represent a total
coordination of business activities because improving efficiency is a
goal that cannot be pursued in isolation. A conceptual model for the
cost minimization problem is discussed next.

35
36
37
38
Estimation of Fertilizer Demand

Fertilizer demand was estimated based on the acreage applied by

case-study firm’s custom and company’s rigs in 2001/2002 wheat
production year. Fertilizer tonnage was calculated by multiplying the
nitrogen and phosphorous application rates for Oklahoma wheat, which
are 95 pounds of N and 25 pounds of O P 5 2 per acre by historical
acreage data (USDA, 2003). However, to meet the specified wheat
nutrients requirement, there are many fertilizer application options for
producers to choose from. Therefore, producers may demand unique
mixes of fertilizers based on personal preferences. However, such
unique demands can only be modeled if preferences are known with
certainty. Since preferences are not known it was necessary to choose
among choices a base line application system and supportive systems
that might replace it when it is shocked by demand or supply factors.
The base line application system is defined as an application system
that represents historical practice.

Estimation of Seasonal Material Capacities of Fertilizer

Applicators

The mathematical model was also structured to identify optimal

numbers of each type of fertilizer applicator. To facilitate this choice, it
was necessary to determine a maximum quantity of fertilizer each of
the applicators could apply per season. This variable was calculated
using material capacity and effective daily working hours. Material
capacity was computed following the ASAE formula presented in
Equation (15).

where Cm is material capacity (ton per acre), y is application rate (ton

per acre).Effective daily working hours of a machine is defined as
maximum number of hours machine can work in one day, and was
calculated by adjusting potential daily working hours ( ) Hd for
machinery round trip travel time to and from field ( ) Ht , as well as
potential time wastage due to machinery breakdown, also known as
machine failure or down time. Adjustment for breakdown probability
followed ASAE formula for accumulated down time and is a function of
accumulated hours of use ( ) u . The down time ( ) Dt for diesel-fueled
machines was calculated as:

39
The breakdown probability ( ) P b is formally defined as the probability
of any condition that prevents the operation of the machine or reduces
its performance below specified upper limit. Some of the obvious
causes of machine failures are wear, accidents, improper machine
operations, and improper scheduling of servicing and maintenance.
The down time probability was evaluated over m fields and was
calculated as:

Total seasonal material capacity of an applicator (TAMCAPa ) was

estimated using number of days available for field operations per
season ( NDa ), material capacity, and effective daily working hours for
the machines (shown in blanket).

Estimation of Fertilizer Transport Costs

The proposed programming model includes costs for shipping

fertilizers from manufactures or importers to specific warehouse
locations and finally to wheat growers. Shipment of fertilizers from
sources to warehouses was done using large commercial vehicles
whereas company-owned tender trucks were used to ship fertilizers
from warehouses to fields. Costs for shipping fertilizers from sources to
warehouses wereCalculated based on commercial freight rates and
actual shipment distance. Data on freight rate ($ per ton per mile)
were collected during the study. Trucking costs for shipping fertilizers
between warehouses and fields were calculated based on the
assumption that 20-ton tender trucks were used to ship the fertilizers.
The costs per ton per mile were calculated using standard values for a
20-tontender truck, which were 7.5 miles per gallon of fuel, $ 0.05 per
mile repair and maintenance cost, and $ 0.03 per mile tires cost (Dahl,
Cobia, and Dooley).1 Therefore, the tender truck cost per ton per mile
was $ 0.27.

Description of Application Equipment

Three different applicators, dry, liquid, and anhydrous were modeled in

this study. Dry applicators were used to apply DAP or a mix of DAP and
urea. The working width of dry applicators was 60 feet (Ft), and the
field speed was 16.5 miles per hour (mph).Liquid applicators were used
to apply UAN, working width and field speed for these applicators were
75 Ft and 19 mph, respectively. The dry and liquid applicators were
owned and operated by the case-study cooperatives. The working
widths and field speed specified above in conjunction with coefficients
for self-propelled combine were used to estimate costs for dry and

40
liquid applicators. With respect to anhydrous application, two types
(big and small) applicators we remodeled. The working widths were 20
Ft for small, and 30 Ft for big applicators. The field speed for both
applicators was 5 mph, and their efficiency factor (EF) was 80.These
equipment were owned by the cooperatives and rented to wheat
producers, therefore, it was difficult to estimate variable costs
associated with the use of farmer operated applicators because farmer
costs were not known. As a result, this study used $5.82 per-acre
anhydrous ammonia application cost suggested by Doye, Sahs, and
Kletke.Ownership costs for anhydrous applicators were estimated
using secondary data.
Depreciation cost used was $ 1.94 per acre (Razarus and Selley).
Insurance cost was estimated using purchase price suggested by
Langemier and Taylor and machinery hours suggested by Harryman,
Siemens, and Kirwan. Interest cost was approximated using purchase
price, machinery hours, and ASAE formula for computing remaining
values of field machine ( ) RV as percent of purchase price at the end
year n given in Equation below.

The model results provided interesting insights into costs of fertilizer

warehousing and application. The costs of transporting fertilizer from
source to warehouse and between the warehouse and fields accounted
for almost 22% of the total system costs. Warehouse ownership
accounted for 14% and variable application costs were approximately
10% of the total system costs. The largest cost components were the

41
fixed costs associated with applicator ownership, which were 54%.
Cooperatives and other agribusinesses recover fertilizer system costs
through product margins and application fees. Summaries of material
and application costs are provided in Table 2.

The model results indicated that a product margin of $24/ton combined

with a$3.60/acre application fee was required to cover costs for the
baseline-model. However, results show that the product margin and
application fees would need to increase to cover costs for other
models. The increases in product margins would be $ 5.86 for the
second model, $ 5.53 for the third model, and $ 8.40 for the fourth
model whereas increases in application fees would be $ 0.11 for the
second, $ 0.14 for the third model, and $ 0.55 forth forth model. In
summary model results presented in Tables 1 and 2 show that the
cooperative’s
total transportation, warehousing and application cost did not vary
substantially across
systems. While a shift away from anhydrous ammonia would obviously
evolve transitional costs, the major impact would be the increase in
material costs. However,
this impact need to be weighted against potential costs and
advantages associated with the timing of nitrogen application and
opportunity costs associated with fertilizer applied to crops that might
be damaged by pests or bad weather. The models were also structured
to assess the feasibility of centralized warehousing. Results indicated
partial but not complete centralization of warehouses. The feasibility of
the observed centralization was evaluated through comparing costs
under partially centralized system with costs that would be incurred
under no centralized storage and totally centralized storage. In
general, the models were constructed based on the assumption that
cooperatives would invest in new warehouse construction or
analogously expansion of storage capacities. However, the costs of
existing warehouses were fixed and irrelevant to the decision. Thus,
direct comparisons of costs under partial centralized and non-

42
centralized warehousing would be misleading. To make results
comparable only transportation, application and equipment ownership
costs were included in the comparisons. The identified cost difference
in transportation, application, and equipment ownership could be
considered by the agribusinesses and compared with the economies of
size in warehouse construction. Results for the comparisons are
provided in Table 3.

Results indicated that partial centralization would decrease combined costs of fertilizer
transportation and application, and equipment ownership. The decreases were 179,065.34
(0.85/acre) for the baseline-model, $ 336,744.22 (1.61/acre) for the second model, $
44,975.62 (1.17/acre) for the third model, and $ 382,396.14 (1.82/acre) for the fourth
model. The observed cost-savings were attributable to the benefits of economies of size
in warehousing and enhanced capacity utilization of the machines under partially
centralized arrangement. Sensitivity evaluations were used to assess
the feasibility of totally centralized storage of fertilizers. The evaluation
process was achieved through iterative reduction of annual
warehousing costs for the big facilities. These reductions reflected
increased economies of size for large warehouses. However, single
warehousing never came into the optimal solution. To illustrate the
cost differential of a single warehouse, the models were constrained to
single large-scale dry and liquid warehouses. The cost disadvantage a
central warehouse relative to the optimal solutions is provided in Table
4.

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Results presented in Table 4 show that the adoption of a single
coordinated warehousing for dry and liquid fertilizers would increase
operating costs and the number of applicators. The increases in costs
were $ 422,780.32 ($ 2.01/acre) for the second model, $ 394,552.00 ($
1.88/acre) for the third model, and $ 569,506.84 ($ 2.71/acre) forth
fourth model. These increases in costs offset the financial gains from
economies of size in warehousing, which are $ 239,760.00 ($1.14/acre)
for the second model, $113,400.00 ($ 0.54/acre) for the third model,
and $ 272,160.00 ($ 1.30/acre) for the fourth model. In summary, this
analysis indicates that in the supply and application of fertilizers,
fertilizer transportation and applicator ownership and fleet costs have
much impact than warehousing cost. These results suggest that
cooperatives should carefully evaluate warehouse-to-field
transportation costs before consolidating warehouse locations.
Warehouse cost efficiencies were offset when fertilizer transportation
cost increased and machinery transportation time differences
associated with centralization required the purchase of additional
applicators. The empirical model was also used to examine how the
optimal number of applicators under the base-line model relates to
current application equipment. This comparison provided a qualitative
assessment of efficiency of the case study cooperative’s current
compliment of application equipment. Results indicate that the
cooperatives would need seven dry applicators, ten liquid applicators,
and fifty-three anhydrous applicators. The current system has eight dry
applicators, eight liquid applicators and ninety anhydrous applicators.
The least cost compliment of application equipment was similar to the
structure of case-study cooperative’s equipment suggesting that the
cooperative was operating its equipment near its engineered capacity.
The exception was anhydrous ammonia trailers. The number of trailers
suggested by the model was fewer than the number in use by the
cooperative. This result validates common complaints from
cooperative managers on the inefficiencies in supplying farmer-
controlled equipment.

44
Results and Discussion

In this study four alternative fertilization systems with the nitrogen

component involving fall anhydrous combined with a spring application
of UAN, fall urea combined with spring UAN, fall urea only, and spring
UAN only were modeled. The first system more closely reflects actual
practices among Oklahoma’s wheat-growers. The second system was
adopted to assess the likely effects of eliminating anhydrous ammonia
in the supply chain following the overall decrease in domestic
production and an increased role of imported dry fertilizers. The third
and fourth systems are not very common mongOklahoma farmers and
were included to analyze the extent to which combined costs of
satisfying nutrients demands could vary across different combinations
of fertilizers. The variation was useful in identifying a least-cost way of
satisfying the demand. The incorporation of the DAP and UAN
combination in the analysis provided insights to the feasibility of
applying very little nitrogen in fall and supplementing the demand
through top dressed applications in spring which is advocated by
agronomists (Gribble). Costs for the modeled fertilization systems are
summarized in Table 1. The cost for the baseline-model excludes
farmers’ cost of applying anhydrous ammonia. The estimated costs are
used to assess extents to which operating costs change from the
baseline-case.

45
General Discussion about the supply Chain System
SCS Mission - provide guidance and assistance to process and repetitive manufacturing
companies to maximize their return on assets by integrating their supply chain decision
making processes with their information systems. We specialize in the effective
implementation of supply chain optimization technologies that automate planning and
finite capacity scheduling processes and integrate them with business systems (like SAP
R/3) and the business strategy.

SCS Vision - to be recognized as the leading, cutting edge provider of planning and
finite capacity scheduling technologies for supply chain optimization. Promote these
ideas:

1. The future of scheduling technology is complete and comprehensive schedule

automation, automating your business objectives.
2. Optimal asset planning and utilization is having crystal clear visibility of how
much/many resources you need and knowing how to best deploy them.
3. Profitability is accomplished by managing demand as much as supply.

SCS Strategy - Partner with the best available software vendors and employ the best
possible people that have the experience and the necessary skills in supply chain
concepts, operations research/math modeling, computers and materials management.
Foster a corporate culture and promote to our clients that they live by the principles of
Management by Planning (MBP).

We have implemented many computer aided supply chain decision making technologies
over the past seven years and have been very successful at it. However, it has only been
recently that the technology has caught up to the complexity of the supply chains,
business strategies and the markets. This experience gives me the confidence to tell you
that we have found some very exciting technologies in the demand management and
planning/scheduling areas that are clearly the next generation. Let us tell help you be an
informed customer before - you risk your business on inadequate technologies or
implement advanced technologies before your business is ready for them
The partnership between APC, Futurion, RAS Associates and Supply Chain Systems
offers you the best capability in this area, world-wide! We will work with you through

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the entire process and "guarantee" extraordinary results. Give us a call to benchmark
"Best of Class" for your company. Seeing is believing.

Technology is not the full answer. The issue includes defining how to operate the
business in terms of a disciplined process. Positioning the technologies properly within
the organization’s decision making process is essential for maximizing the value returned
from this technology. This goes hand-in-hand with defining and being willing to follow
supply chain policies. This is the strength of the experienced Supply Chain Systems
personnel. We help you define the best policies, process and technologies to fit your
capability, market and competition.

Many companies are trying to understand why their supply chain project results do not
meet expectations, or even what results can be expected from their investment. Most will
cite problems with IT application(s), people unwilling to change their established
practices, unforeseen business/market changes, or a lack of resources as the culprits.
Worse yet, some convince themselves that their organization is “unique” and therefore
unable to reap the benefits of advanced supply chain management processes and tools.

Given the enormous expectations usually associated with supply chain systems projects,
the greatest single opportunity for many companies is simply finding a way to realize the
benefits that were initially promised.

Under-performing supply chain programs can be avoided entirely or turned around in

virtually every case. PRTM has developed Critical Project Recovery (CPR), a
methodology to address these situations. Based on a detailed analysis of project
underperformance, CPR enables companies to craft and implement the necessary
corrective actions to get their supply chain projects back on the path to success or ensure
their success from inception.

Scope
five major causes behind disappointing results from supply chain projects.

1. Program management deficiencies

Best practices in program management are necessary for successful supply chain projects
and serve as a prerequisite for achieving maximum value. Such practices include
proficient executive ownership of the project, effective communication to—and
education of—stakeholders, properly staffed project work streams, and clearly defined
project team and governance roles and responsibilities.

2. Insufficient or inadequate technology

IT solutions frequently do not support the necessary workflows, volumes, or integration

requirements in a given business environment. Too frequently, though, supply chain
project leaders do not recognize when the selected technology is either “vaporware” or
insufficiently scalable or robust to help manage a critical capability.

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3. Wrong implementation pace and phasing

Supply chain projects commonly suffer from improvement overload: too much
optimization is attempted too quickly, leading to overwhelming complexity and paralysis.
Companies that successfully transformed their supply chains have been disciplined about
avoiding too many simultaneous projects, and have taken steps to tightly integrate those
projects according to a well-defined roadmap.

4. False project endings

The most common root cause of underperforming projects—false project endings—is

more complex and intrinsically more challenging to manage. A supply chain project
reaches a false ending when new processes have been designed, stakeholders have been
trained, and system configurations have been finalized; yet, there is no clear path
showing how the originally targeted business benefits will be realized. Excessive IT
focus leads to poor completion or postponement of other critical activities such as
process, metrics, and organization redesign.

5. Lack of a Benefits Realization Control Plan

Most supply chain projects suffer from the lack of a benefits realization control plan. To
properly monitor project performance and benefits realization, the control plan must
specifically answer key questions about the metrics impacted by the project, the value of
impacting those metrics, and the activities that will impact the metrics and create value.
To ensure realization of the benefits, the project team must clarify within the control plan
the specific actions that will generate value to the company. In addition, the control plan
must outline the logistics for these actions.

Provides an understanding of supply chain dynamics and analytical methods used to

analyze, plan, and manage supply chain operations. Topics include: e-commerce, supply
chain problems and issues, analytic techniques and applications used to address supply
chain planning and management, and a comparative foundation of current industry
applications, their benefits, and limitations.

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Value Questions

1. Do you know how much money your company is wasting by inefficient planning and
scheduling?
2. Do you know how fast you could respond to changing customer demand?
3. Are you going to get your investment back from implementing an expensive ERP
system like SAP, Baan or Oracle?

Method:

Our solution for adding discipline to decision making is a four step program:

 Define how you want to run your business through policy development

 Define business specific tactical and operational planning processes.

 Identify mission critical initiatives to make your planning process operate at peak
efficiency.

 Map out detailed work process flow maps to describe how the planning process
should operate.

Planning Time Dimension

49
Strategic Planning

Introduction

• Strategy is the action that allows realization of long-term vision and goals
• Planning is a process that attempts to coordinate the deployment of resources over
time
• Planning horizon is a key differentiation between strategic, tactical, and
operational planning

Role of Network Services in Strategic Planning

• For some organizations, network technology will be central to the core mission
o Network equipment or services company
o Common carrier or ISP
o Organization focusing on network-based deliver of products and services
• For some organizations, network technology will be a utility service
• The number of organizations for which networking is strategic is increasing

Corporate strategic planning was popularized in the 1960s

• Outgrowth of Frederick Taylor's Scientific Management

• The goal is to find the one best strategy

50
 • Profession of strategic planner assumes that planning can be coordinated
independent of content
• Assumes that the thorough analysis of hard data leads to insights
• The planning process is highly structured

Classical strategic planning has not been as successful as originally envisioned

• It ignores the central role of vision

• It is too analytical and formalized
• The structured process often results in the exclusion of important players
• It is based on principles of statistical forecasting that are often unreliable
• It is based on "hard" data and ignores "soft" data that is difficult to quantify
• strategic planning, strategic thinking, and strategy making are not synonymous

Information Technology Planning: Is it strategic?

• IT is increasingly a key competitive differentiator

• IT touches everyone within an organization in some fashion (i.e., everyone is a
stake holder)
• IT projects are often extremely complex
• IT projects require dedication of immense resources

Perspective A: Strategic IT Planning is Essential

• Need to link IT strategy to organizational strategy

o Corporate goals are increasingly tied to IT
o Inadequate consideration of IT can doom projects
• Need to make rational resource allocation decisions
• Lack of skilled staff requires establishment of planning priorities
• Rapid technology change requires inclusive approach to planning
• Need to integrate systems requires planning and coordination

Perspective B: Strategic IT Planning is largely a Waste of Time

• Strategic IT planning is a resource drain and takes too much time

• Strategic IT planning leads to lowest-common denominator solutions resulting
from political compromise
• Strategic IT planning often leads to increased centralization because efficiency is
often valued highly
• Strategic planning processes make it difficult to adapt to new technologies
• It is impossible to involve the most important people because they are too busy
doing "essential" work

Tactical Planning

51
Introduction

• Tactical planning deals primarily with the implementation phase of the planning
process
• Tactical planning turns strategy into reality
• Tactical planning usually has a 1-2 year time horizon
• Tactical planning is usually tightly integrated with the annual budget process

Elements of tactical planning

• Project plans and RFCs

• Project budgets
• Project reviews
• Monthly reports
• Annual reports

Project plans

• Project planning requires consideration of many issues

o Existing environment
o User needs
o Available expertise
o Alternative solutions
o Budget and time constraints
o Support issues
• Project teams are generally assembled to address these issues

Project teams and RFC's

52
 • RFC: Request for Comments
• The RFC serves two primary functions

o It provides a framework to direct activities of the project team

o It acts as a vehicle for gathering input and providing information to
stakeholders outside the project team
• Development of an RFC will likely require research and consultation with
vendors (including possibly a formal request for information)

• The RFC may result in consensus decisions but it does not guarantee that outcome
if the alternative implementation options are many and the preferable solution not
so obvious
• Serves as a resource for an RFP

Structure of an RFC

• Executive summary
• Statement of overall goal
• Summary of existing environment
• Outline of technical issues, possibly including a technology primer
• Evaluation of tactical alternatives
• Evaluation of existing vendor offerings
• If possible (i.e., a reasonable consensus exists within the project team) a proposed
course of action, including timeframe and budget

Implementation Plan

• The RFC may serve as a framework for an implementation plan

• More detailed implementation planning is often required
• Use of project management software is desireable
• Use of regularized reporting via electronic and face-to-face meetings is usually
required
• For information updates, electronic updates are most efficient; when issues need
to be resolved, a meeting is usually more effective

Annual Reports

• An annual report plays an important role in tactical planning

• Provides a summary of the mission and goals of the organization
• Reviews accomplishments based on project goals outlined in previous year's
report
• Proposes changes in project direction or organization
• Outlines project goals for the coming year
• Should be keyed into the annual capital and operating budget plans

Monthly reports

53
 • Help project managers to organize tasks and monitor progress
• Should be part of the normal work process and not busy work
• Each project should be given a project number
• Monthly summary should include overview of work accomplished in previous
month
• Monthly summary should note any slippage in implementation target date
• Monthly summary should note any outstanding issues that require management
attention

Operational Planning

Introduction

• Deals with the day-to-day and week-to-week work routine

• Focus is on routine operational tasks and long-term projects
• Primary goal is to communicate
• In many organizations, people are asked to do both
• Weekly meetings are often used to coordinate efforts and review progress
• Weekly or monthly summaries are often used to inform others

Structure

• The structure of operational planning is closely related to organizational structure

• In a traditional hierarchical organization (i.e., UNIX team, network engineering
team), team leaders usually assemble with a senior manager on a regular basis to
share information
• Additional periodic meetings are often required to coordinate efforts with other
units (i.e., the systems group should meet with the user services group on a
regular basis)
• In a process-oriented organization, teams are more ad-hoc in nature, so a
mechanism must be put in place to insure communication

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Electronic versus face-to-face "meetings"

• Both means of communication should be used

• Sometimes, there is no substitute for face-to-face interaction
• The worst face-to-face meetings are those where everyone simply makes
announcements and disseminates information (that can be accomplished more
effectively electronically)
• Periodic summaries should be distributed outside the team

Planning Design

Planning Implementation

The corporation has to want to bring discipline to how they conduct business before they
implement an ERP system. The best way to do that is by defining how decisions are
made in terms of planning and scheduling. Planning and scheduling requires - definition
of their respective policies and processes; analyses of supply chain parameters; and
sometimes, advanced technologies to handle a complex supply chain and/or product mix.

55
Supply Chain Systems, Inc. has the understanding, experience and technologies to handle
your unique situation.

56
The SCS Methodology:

1. Ensure that top management actively participates in the project from start
to finish. Determine the scope of the project to fit within the resources available
(including budget) and the time required. Make functional leaders responsible for
their respective parts of the project.
2. Work with senior management to define supply chain policies that
articulate how the business should operate. The policies describe how to set up the
parameters in the ERP system and are necessary for consistent long-term
performance. They clearly describe how to service customer requirements.

57
 3. Define a discipline process for planning resources. Map the tactical
planning process the business will use; develop tactical planning models that monitor
and plan critical resources; and implement Sales & Operational Planning teams that
will manage the process.
4. Implement a rigorous process for generating feasible production
schedules. Map the operational planning process and develop finite capacity
scheduling models that schedule production and plan inventories.
5. Use the policies and process maps to identify the management reports that
will be used for monitoring and improving critical parts of the business.
6. Determine the data elements and data sources that will provide planning
models, scheduling models and management reports with the information they
require. Develop plan for building a data warehouse and interfaces (as needed) to
legacy systems and the new ERP system throughout the phased start-up.
7. Delineate the parts of the ERP system and determine the order that these
parts can be implemented. Form implementation teams consisting of business
representatives, functional representatives, IT personnel and system knowledgeable
people. Assign business representative to be the team leader.
8. Develop implementation schedule and rigorously raise critical success
factor problems to appropriate senior management so they get resolved quickly.
9. Conduct Gap Analysis between functionality that will be implemented and
system capability. Be willing to modify implementation plan as specific functionality
appears more critical.

Management Decisions

• Global Sourcing
• Contact Manufacturing
• Multisided Planning
• Capital Expansion
• Transportation Modes
• Tactical Inventory
• Integrated site capacity
• Plan asset utilization
• Finite capacity scheduling
• Optimization

58
Supply-Chain Characteristics

Primarily, cost and quality drive supply-chain design for functional products. The entire
supply chain’s focus is toward reducing costs and getting the right product to the right
place, at the right time. Inventory buildups at any point in the supply are not supposed to
occur. Innovative-product supply chains are geared toward supplying products with
minimal lead times. This focus on lead times lets retailers respond better to spikes in
demand, minimize forced markdowns, and avoid obsolete inventory costs.

The characteristics of the two types of supply chains are important, as they lead to
different types of relationships with supply-chain partners. For functional products, an
arms-length transaction relationship among the supply-chain partners prevails. Innovative
product supply chains require a close, trusting relationship among the supply-chain
partners to work and often involve partners in product development activities.

As you can see, achieving a fit between the type of the relationship and the type of
product is important. Implementing a functional product supply-chain relationship for an
innovative product will lead to frequent stock-out or excess inventory build-up situations.

Objectives for Demand Management and Forecasting

1. Forecasts can be used for a number of different things. The forecasting horizon
and the discreteness of the data should be lined up with these objectives. Many
forecasting systems are implemented without giving enough thought to this issue. The
participants will be led through an analysis of how to determine the appropriate
objectives for their company.
2. Independent demand is only part of the total demand placed on manufacturing
facilities. Further, the different types of demand need to be blended together for it to
effectively drive production scheduling. Installation of ERP and MRP II systems
require this data be blended automatically. This and other implications of automating
business information are discussed.
3. Like the old adage. "Timing is everything." The name of the game to improve
forecasts is to get the timing right. Various methods of forecasting can be employed
to make the forecasting process work better under various market environments. The
techniques on how to combine the best forecasting method and apply the best timing
to yield the most accurate forecasts will be described.

Forecasting Independent Demand

A good part of the course is devoted to forecasting. The challenge of forecasting is that
unless it is accurate enough, the information is useless. One technique for improving
accuracy is to forecast at a higher level. The trade-offs of forecasting more or less detail
is discussed in light of the objectives..

59
Many techniques are used to get better projections on what product is needed when and
where. Vendor Managed Inventory, EDI, Point of Sale information are just a few. The
various sources of information are additional pieces of information that are variations on
market intelligence. The various options with their pros and cons are discussed to help
you decide how much market intelligence you need and can afford..

Customer Orders

There is no better picture of independent demand than real customer orders. The problem
is, customers do not generally give you sufficient lead time to respond to their orders. We
solve that problem by carrying inventory. Building inventory ahead of orders requires
forecasts. The details of when customer orders should be used and when they should not
be used are discussed so that you can maximize the effectiveness of this situation.

Customer Service Strategies: Make-to-stock; Make-to-Assemble; and Make-to-Order

help you manage customer expectations. Find out how customer orders are used
differently for each strategy. When to pick which strategy and how to systematically
apply them with the systems will be illustrated.

Internal Dependent Demand

Internal demand can make up anywhere from a small part to a major part of the total
demand. Regardless, it is usually the last demand element considered. Should this
information be derived from the schedule of the upstream business or be forecasted?

Dependent demand can be local or international. Replenishment lot quantities can be

large and have considerable lead-times. The special considerations of this type of demand
are explored.

Information Flow Processes

Demand Management is a process. This process will be clearly laid out so that it can be
automated. All aspects of demand must be considered as part of the process. The key
question of how to view the disjointed pieces of data as an organized flow of information
will be described.

Forecasting Methologies - Intrinsic

The methology of using historical data to project the future is described. Key to this
discussion is picking from the different methods available and the relationship between
the complexity of the method to the accuracy of the results. The results are only as good
as the data that are used. Cleaning up the data anomalies is a critical step to insuring the
quality of the process. The techniques for identifying and cleaning up these anomalies
will be described.

Forecasting Mythologies - Extrinsic Methods

60
History can not always predict the future. Other factors besides history could be used that
are only indirectly related to product sales. Factors could be weather, economic
conditions, industry related information, etc. The conditions for using extrinsic factors
and which ones should be used will be described.

Demand Prioritization

There is not always enough capacity for all demand within an given period. If the
imbalance can be reliably predicted then inventory can be built ahead. Otherwise, choices
have to be made. Demand can be prioritized by customer, product or demand type. This
discussion will understand the trade-off that need to be made to make the choice of who
gets what when.

Blending Demand - Process Review

The original process will be built on to complete it. The process will now to described in
detail, laying out all the information flow components and connections. It will be further
described in terms of Strategic, Tactical and Operational Planning.

Seasonality and Promotions

Demand gets compressed into shorter periods of time. These are distortions of time and
space. Learn how to deal with these distortions so they don't create havoc to your supply
situation.

Special Considerations - Exports, Exchanges, Swaps and Tolls

Exports, Exchanges, Swaps and Tolls present special problems because of greater risk
and larger quantities of product required in a shorter period of time. This section is
particularly useful for companies that already operate on a global basis or plan to expand
their market.

Planning policies

Business Definition

• Customer service level objectives

• To show how different types of demand are combined to create a complete demand
pattern for driving production scheduling.
• To describe how to automate servicing order fulfillment for greatest customer service.
• Understand how to setup and implement the forecasting, order entry, demand
management, allocation check and order processing modules of ERP (Enterprise
Resource Planning) systems and Demand Management systems
• Describe how to automate and integrate independent forecasts and internal demand
with ERP, Material Requirements Planning and Distribution Resource Planning
systems.

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 • Product mix/customer stratification
• Variety of product
• Right time delivery
• Right quality
• Meet specifications
• Pricing

Purchasing involves much more than negotiating the lowest price. Partners who provide
higher quality, shorter cycle times, and access to new technology deliver greater value
and a lower total cost.

• Make to order

• Make to stock
Inventory management is a key business function for companies making to stock. Control
over material availability and stock levels is very important. The MPS module considers
current demand including planned orders, actual orders, forecasts and schedules. It uses
rough-cut capacity planning to group families of products, and to ensure your company
has production capacity to achieve the medium term plan.

• Customer pickup

The Customer Pickup Control allows you to add customer pickup shipping options. Each
pickup option can have a unique name, address and optional fixed shipping cost. This
add-on works with product-based and value-based shipping in Store.

For a more shipping solution that allows customers to calculate shipping costs while they
shop, see the Shipping Cost Estimator.

Features

• Adds multiple Customer Pickup shipping options...and calculates the correct

tax and shipping costs.
• Assign a fixed shipping cost...or use standard shipping rates.
• Works with all shipping methods...carrier based, product based, and value based
shipping are all supported.
• Supports single and multiple shipping destinations...each pickup address is
treated independently.
• Customizable...choose the name, address and cost of each customer pickup
option.

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 • Easy installation...import one file and add one tag to the Shipping.aspx and
ShipSummary.aspx pages...no ASP.NET programming or compiling required!
Multiple shipping address support requires a minor code change and recompile.
• Compatible with the Select Carrier Patch...requires Select Carrier Patch
version 1.3 or higher

Demand source Information

• Customer order

There is no better picture of independent demand than real customer orders. The problem
is, customers do not generally give you sufficient lead time to respond to their orders. We
solve that problem by carrying inventory. Building inventory ahead of orders requires
forecasts. The details of when customer orders should be used and when they should not
be used are discussed so that you can maximize the effectiveness of this situation.

Customer Service Strategies: Make-to-stock; Make-to-Assemble; and Make-to-Order

help you manage customer expectations. Find out how customer orders are used
differently for each strategy. When to pick which strategy and how to systematically
apply them with the systems will be illustrated.

• Forecast

Demand Forecasting is designed to enable organizations to get an accurate view of

demand for their products and services. It provides sophisticated analytical techniques
that interpret historical demand to generate a picture of future demand. It enables the
organization to collaborate on forecasts generated across the organization to arrive at a
single plan that represents the consensus of the organization. Incorporating the latest
advances in forecasting, the solution enables you to create accurate forecasts at the most
granular level with minimal effort.
Forecasts can be used for a number of different things. The forecasting horizon and the
discreteness of the data should be lined up with these objectives. Many forecasting
systems are implemented without giving enough thought to this issue. The participants
will be led through an analysis of how to determine the appropriate objectives for their
company.
• Forecast accuracy
The most comprehensive methodology for comparing forecast data and demand data is to
graph the cumulative results for a given period which include upper and lower control
limits (calculated from historic demand based on a normal distribution curve). The
following example shows how easy it is to quickly identify when the demand is in control
and when the demand is out of control.

1. Project what sales will be for a designated planning horizon.

2. Record actual sales based on either ship dates or invoice dates.
3. Determine the lag time for freezing the forecast.
4. Determine the number of periods to average the forecasts over.

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 5. Calculate the forecast error.
6. Plot the inventory cost vs. customer service levels for the given error.
7. Pick the customer service level objective for the business.
8. Plot the forecast error against inventory cost.
9. Determine the value of improving the forecast and what it
would cost up-front and as on-going costs.

Demand reconciliation

The needs of decision-makers and the supply of information from scientists and agencies,
and then evaluate how well supply and demand is matched or unmatched (a “missed
opportunity”). Finally we feed back to decision-makers both inside and outside the
scientific and science agency communities in order to develop a process of “reconciling
supply and demand”. The goal is to contribute to the effectiveness of both research and
decision making related to the product cycle.

• Order control/Allocation
• Can allocate all inventory items
• Allocations occur at the location or item / lot level
• Can allocate to either manufacturing or customer orders
• Allows for use of pick complete transaction
• Allocation may occur:- Order by order / item by item or by specific batch / lot!
• Allocations may be changed up until the time pick list is printed
• Shell life is taken into account during both allocation and transaction processing

Define Planning scope

• Supply chain bottlenecks

Some traffic patterns are subject to wide variations that create temporary bottlenecks
because the demand for service exceeds supply. With field crops, the seasonal
bottlenecks can be exaggerated by weather conditions that lead to an above average crop,
or a more concentrated harvest period. Fluctuations in demand place economic stress on
the system because equipment may not be fully utilized after the peak season. The
availability of railcars to move grain is an example of a seasonal bottleneck that was
mitigated by the public provision of equipment. This policy is now subject to change, and
a farm group has stepped forward with a proposal to manage this publicly owned fleet.

Product classification

• Quality
1. Product Quality
2. Delivery quality
3. Delivery channels
4. Delivery time

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• Aggregate planning

Attempts to match the supply of and demand for a product or service by

determining the appropriate quantities and timing of inputs,
transformation, and outputs. Decisions made on production, staffing,
inventory and backorder levels.

Characteristics of aggregate planning:

• Considers a "planning horizon" from about 3 to 18 months, with periodic

updating
• Looks at aggregate product demand, stated in common terms
• Looks at aggregate resource quantities, stated in common terms
• Possible to influence both supply and demand by adjusting production rates,
workforce levels, inventory levels, etc., but facilities cannot be expanded.

Production Plan (manufacturing aggregate plan):

A managerial statement of the period-by-period (time-phased) production

rates, work-force levels, and inventory investment, given customer
requirements and capacity limitations.

Staffing Plan (service aggregate plan):

A managerial statement of the period-by-period staff sizes and labour-

related capacities, given customer requirements and capacity limitations.

Objectives of Aggregate Planning

Objective of aggregate planning frequently is to minimize total cost over

the planning horizon.

Other objectives should be considered:

• maximize customer service

• minimize inventory investment
• minimize changes in workforce levels
• minimize changes in production rates
• maximize utilization of plant and equipment

Aggregate Planning Strategies

Active strategy:

• Attempts to handle fluctuations in demand by focusing on demand management

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 • Use pricing strategies and/or advertising and promotion
• Develop counter-cyclical products
• Request customers to backorder or advance-order
• Do not meet demand

Passive strategy (reactive strategy):

• Attempts to handle fluctuations in demand by focusing on supply and capacity

management
• Vary size work force size by hiring or layoffs
• Vary utilization of labour and equipment through overtime or idle time
• Build or draw from inventory
• Subcontract production
• Negotiate cooperative arrangements with other firms
• Allow backlogs, back orders, and/or stockouts

Mixed strategy:

• Combines elements of both an active strategy and a passive (reactive) strategy

• Firms will usually use some combination of the two

Passive (reactive) Strategies in Aggregate Planning: Basic Approaches

Chase approach

capacities (workforce levels, production schedules, output rates, etc.) are

adjusted to match demand requirements over the planning horizon.

Advantages:

• anticipation inventory is not required, and investment in inventory is low

• labour utilization is kept high

Disadvantages:

• expense of adjusting output rates and/or workforce levels

• alienation of workforce

Level Approach

Capacities (workforce levels, production schedules, output rates, etc.) are

kept constant over the planning horizon.

Advantages:

• stable output rates and workforce levels

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Disadvantages:

• greater inventory investment is required

• increased overtime and idle time
• resource utilizations vary over time

Aggregate Planning Methods: Intuitive Methods

Intuitive methods use management intuition, experience, and rules-of-

thumb, frequently accompanied by graphical and/or spreadsheet analysis.

Advantage:

• easy to use and explain

Disadvantage:

• many solutions are possible, most of which are not optimal

Aggregate Planning Example:

Suppose you have the following forecasts for demand to meet:

Month 1 2 3 4 5 6
Demand 1000 1200 1500 1900 1800 1600

Relevant Costs:

Regular production cost $35/unit

Lost sales $100/unit
Inventory carrying costs $10/unit/month
Subcontracting costs $60/unit
Hiring costs $1500/worker
Firing costs $3000/worker
Beginning workforce level 20 workers
Capacity per worker 50 units/month
Initial inventory level 700 units
Closing inventory level 100 units

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 LEVEL PRODUCTION STRATEGY

Find the requirements for the period of the plan and produce the average
amount needed per month to meet the plan.

First determine the average requirements per month:

Avg. requirements = total requirements - opening inv. + closing inv.

number of periods

Avg. requirements = (9000 - 700 + 100)/6 = 1400 units/period

Steps:

1. Enter the production data

2. Determine hire/fire to get to production level desired
3. Update inventory levels
4. Does the inventory run out - If it does recalculate average production needed and
go to step 1
5. Calculate totals for each category
6. Calculate costs

LEVEL STRATEGY

Period 1 2 3 4 5 6 Total
Req. 1000 1200 1500 1900 1800 1600 9000
Prod.
Inv.(700)
Hire
Fire
Sub.

Costs:

1. Regular production costs:

2. Inventory carrying costs:
3. Hiring Costs:

TOTAL COSTS: _________

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CHASE STRATEGY

• Produce exactly what is required every period.

• Hire and fire to adjust monthly production to monthly requirements.
• The first and last period production levels are adjusted to account for opening
inventory and closing inventory requirements.

Period 1 2 3 4 5 6 Total
Req. 1000 1200 1500 1900 1800 1600 9000
Prod.
Inv.(700)
Hire
Fire
Sub.

Costs:

1. Regular production costs:

2. Inventory carrying costs:
3. Hiring Costs:
4. Firing Costs:

TOTAL COSTS : _____________

Intuitive (Mixed) Strategy

- Trial and Error to find a good solution

- Use Excel to model the problem and test the impact of different solutions

- Build the model using proper structure with key variables at the top and a summary of
key results immediately below.

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Finding Optimal Solutions Using Linear Programming

- Aggregate planning problems can be solved optimally using linear programming (LP).

- Given the constraints on requirements, production capabilities, allowed workforce

changes, overtime and subcontracting limits plus all relevant costs LP will find an
optimal solution to the problem which minimizes total costs.

Merging operations of the project tree into larger activities decreases the computational
complexity of the planning problem. On contrary, too large activities can hardly be
unfolded into feasible short-term schedules. Therefore, its reasonable to set a limit to the
weight of the activities. It can be proven that the best compromise of these conflicting
criteria is setting the activity weight limit to the length of the aggregate time unit. If an
operation with longer processing time hurts this condition, then this operation constitutes
a single activity. Though the planning problem is usually considered as relaxation of the
job-shop level problem, some extra constraints may be introduced or strengthened due to
the aggregation step.

• Inventory

Effective Inventory Management enables an organization to meet or exceed customers'

expectations of product availability while maximizing net profits or minimizing costs.
We are constantly developing new tools and techniques to guide you to success.

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The Inventory Management Cycle demonstrates the flow and relationship between the
various retail system modules and applications that affect Inventory Management.
Types of Inventory

Raw materials

Purchased parts and supplies

Labor

In-process (partially completed) products

Component parts

Working capital

Tools, machinery, and equipment

Finished goods

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Optimize Costs / Profitability

The scheduling job could stop after satisfying demand and feasibilizing the schedule,
against the constraints, and often does. Just doing these two steps does as much to
improve customer service as carrying more inventory. But neither insures profitability.
Scheduling has a direct affect on costs.

Setup costs

Block operating equipment means changing it over when switching from one product to
another. Lost capacity is a hidden cost especially if more is needed and it is contracted or
additional capital is spent to achieve it. Besides loosing capacity, every setup
incrementally adds costs. Clean-out and scrap are two big contributors plus retooling (or
repiping). The fastest growing cost area is the disposal cost of the solvents used for
cleaning the equipment.

These are significant factors to the process industry. Since the process industry is very
capital intensive, there is a strong desire to fully utilize available capacity. This means
block operating several products on the same equipment. The point is, it does not come
free. The "extra" cost is the setup costs. The combination of lost capacity and setup costs
is a real motivation to minimize the number of campaigns. The results are high
inventories.

Inventory Carrying Cost

The value of inventory can be argued but I will assume it to be the investment value plus
the costs to maintain that investment. Thought of that way, the value is 25 to 35% of
manufactured costs per year. The cash flow implications of this magnitude dramatically
affects profitability. The trade off between set up costs (including lost capacity) and
inventory carrying costs is determined by the timing of manufacturing relative to demand
and the number of campaigns. Finding the best cost position between these two is the
optimizing process. That's a homer. Many things can be optimized in the scheduling
exercise - capacity, customer service, costs and profitability. These optimization
objectives are often in conflict with each other. I would preferentially pick either costs or
profits to optimize.

Capacity only needs to be optimized when there is not enough. Even then improving
capacity should only be done relative to profitability. In other words, the extra inventory
carrying costs could override the savings from setup costs and extra generated revenues
from more product.

Customer service insures the long term. The net demand on manufacturing combines the
sales forecast with the change in inventory caused by a stocking strategy, which should
have been done with a fixed customer service level objective in mind. Therefore,
customer service was already taken into account in the "Satisfying Demand" step.

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Transportation in Supply chain system

There are five factors which should be considered in the choice of transportation:

• Company characteristics and philosophy

• Market structure
• Product characteristics (Current and future)
• Customer characteristics
• Environmental issues

Alternative transport modes:

• Horizontal tradeoff
• Vertical tradeoff
• Lateral tradeoff
Ranking of various modes of Transportation:

Characteristics Rail Air Road Water

Cost 2 4 3 1
Speed 2 1 2 4
Dependability
3 2 1 4
Capability 2 4 1 3
Fuel efficiency
2 4 3 1
Loss or damage 4 2 3 1
1. Most Desirable
4. Least desirable

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 Advantages & Disadvantages of transport modes
Mode Advantages Disadvantages
Rail High Capacity Loss & damage in transit
Air Speed High cost
Road Speed& low cost Low capacity
Water Low cost Poor dependability

Characteristics of infrastructure in India

Railways

• About 62000 kms. Of network

• 7000 station
• 3 gauge: 65% of route length(broad gauge) contributing to 90% of freight volumes
• 12 millions passengers and 1 millions tones of freight everyday
Road
• Primary (national Highway); about 34,000 kms
• State highways: about 1, 28,000kms.
• Others highways: about 27, 00,000 kms.
• Motor vehicle population: about 30 millions
Water
• 11 major ports and 139 minor ports
• Cargo handled about 230 millions tones per day
• Coastline of about 6,000 kms.
Air
• 6 major international airports
• 86 domestics airport

Learning, Recommendation & conclusion

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This experience gives us the confidence to tell you that we have found some very
exciting technologies in the demand management and planning/scheduling areas that are
clearly the next generation. Let us tell help you be an informed customer before - you risk
your business on inadequate technologies or implement advanced technologies before
your business is ready for them.
There are some keen learning for me:

• Supply Chain Strategy

• Operation in supply chain system
• IT use in Supply chain
• ERP Implementation in the supply system
• Demand Forecasting Analysis
• Distribution Channel
• Transportation in supply chain system

As I study the supply chain in depth of chambal fertilizers and chemical limited there are
following recommendation should be use to work in effectively manner:

• Global Sourcing
• Contact Manufacturing
• Multisided Planning
• Capital Expansion
• Transportation Modes
• Tactical Inventory
• Integrated site capacity
• Plan asset utilization
• Finite capacity scheduling
• Optimization

References

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Handbooks

Supply Chain Redesign, Robert B Handfield,Pg 107-109

Supply Chain, David a Taylor,Pg 23,24
Supply Chain strategic and tactical perspective, Manish Govil,Pg 11-12
Supply Chain Management, Sunil Chopra,Pg no78
Logistics Mnagement, Subhash C Kundh,Pg 27,29,38
Cost Management in Supply Chain, Stefan Seuring,Pg 117,119,145
Modeling the supply Chain, Teremy F Shaprine, Pg56

Internet References

www.scs-mag.com
www.rfidjournal.com/article/articleview/594/1/1/ - 60k
www.scs-mag.com/index.php?option=com_ content&task=view&id=87&Itemid=88 -
46k
Supply-chain-systems.com/ - 2k
www.e-isn.com
www.finditonline.ws
www.softwaresolution.org
www.KeepMedia.com
www.chozam.com
www.jrosspub.com
www.ManagementGuides.Com
www.TechListings.net
www.eWEEK.com

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