Merloni Elettrodomestici SpA is an Italian company based in Fabriano and is one of Europe ‘s biggest shapers of place contraptions. In February 2005, Merloni Elettrodomestici was renamed Indesit Company, Indesit being the best known of the Group ‘s trade names outside Italy. The Company was besides runing under its “ historic ” trade name, Ariston, and the regional trade names Hotpoint, Scholtes and Stinol.

During the perio from 1984 to 1986, Merloni undertook a figure of enterprises to better efficiency in stock list control and logistics. One such enterprise was the theodolite point experiment where in the Milano part, regional distribution Centre was eliminated in favor of tranit points which held zero stock list.

The followers is an analysis of the Transit Point Experiment conducted by Merloni:

Cost salvaging in footings of substructure cost of regional warehouses and their care.

The company would necessitate lesser sums of overall stock list to be maintained.

As regional warehouses would be closed there would be lesser labour demands.

Transit Point methodological analysis works similar to JIT where-in the needed sum of goods are shipped at the needed clip.

Since it works more on the Pull from the client and due to riddance of regional warehouses, the consequence of bullwhip should be lower.

Because the regional warehouses will be eliminated, the capacity storage of the cardinal warehouses should be expanded to run into the demands of the excess Cycle stock list. This would come as an extra cost to the company.

Intensive planning of day-to-day cargo should be done. It is non merely required to cipher the exact sum of goods to be shipped but besides the agreement of the goods ( to extinguish clip in loading/unloading activities ) .

Because of this intensive planning more skilled disposal staff would be required.

If the client does non order wihin 3pm, the bringing of the merchandise would go on merely after the 2nd twenty-four hours. This can take down client satisfaction.

Since no stock list is maintained in near-by locations ( as all goods come from cardinal warehouse ) if there is any extra demand or out of stock status ( for retail merchants ) , the goods will hold to be fetched from cardinal warehouse which would take a batch of clip. This can take to loss of good will with retail merchants particularly those functioning the rural markets.

Demand variableness is non easy supported by using Transit Point methodological analysis. If there is an pressing demand for goods in surplus of truckload capacity so it can take to immense extra cost.

Another of import point which is non mentioned in the instance is the importance of the transit medium. If any of the vehicles breaks-down it could take to immense holds and stack up of demand. Merloni needs to maintain some excess vehicle for a backup. It besides needs to keep the vehicles in good status. The cost of this has non been accounted for. Since the experiment was carried out merely in Milano a comparatively smaller Numberss of trucks ( 1 Trailer truck and 3 Small trucks ) were required.

If the Transit Point methodological analysis is applied through-out Italy, Merloni will necessitate to construct up substructure and squads to organize the the motion of trucks and their minutess.

In Merloni, it is the duty of the warehouse director to pull off and develop the client relationship. If the warehouses are eliminated Merloni would still necessitate extra office infinite for the warehouse directors who besides act as Customer Relationship Managers.

Another of import inquiry is where would Merloni maintain the trim parts required for its service forces. If these excessively are kept at the cardinal warehouse it could take to detain therefore have a negative impact on the quality of service.

The Merloni experiment was conducted when the conditions was good. If the conditions is bad near the cardinal warehouse but alright in other countries where there is demand, so it can take to holds. The cost of such holds would be big as Merloni would hold to utilize excess vehicles to guarantee the earliest bringing of all the goods one time the conditions becomes good.

Quantitative Analysis:

Now we shall look at a quantitative analysis of cost incurred by the company before and after utilizing Transit Point methodological analysis. The instance is for part of Roma ( information as per exhibit 10 ) . ( Ax ) would stand for cost incurred by utilizing Pre-Transit Point methodological analysis and ( Bx ) would denote cost incurred by utilizing Transit Point methodological analysis.

Calculate the Average Volume/Month at the Regional Distribution Centre ( RDC ) in Roma.

Assuming 20 on the job yearss in a month.

Average day-to-day demand served from regional warehouse = 154.8 pieces

Average Volume/Month = Average day-to-day demand x No of working yearss

= 154.8 tens 20

= 3096 pieces.

Operating Cost at RDC

From exhibit 10 of the instance it can be seen that the operating cost at Roma is 3605 Lire/Piece/Month

Average stock list degrees at RDC = 1200 pieces ( from Exhibit 8a )

Entire Operating Cost/Month at Roma RDC = Operating Cost/Piece/Month x Avg Inventory

= 3605 ten 1200

= 4326000 Liras

Therefore, Operating Cost per piece sold = Total runing cost / No of pieces sold

= 4326000 / 3096

= 1397.28 Lire – ( A1 )

As per the instance, by utilizing Transit Point methodology the Operating Cost has reduced to 20 % .

Therefore, New Operating Cost per piece sold = 20 % of original Total Operating Cost

= 0.20 tens 1397.28

= 279.45 Lire – ( B1 )

Inventory Cost at RDC

From exhibit 10 of the instance it can be seen that the stock list cost at Roma is 1035 Lire/Piece/Month.

Entire Inventory Cost / Month = Invetory Cost/Piece/Month x Avg Inventory

= 1035 ten 1200

= 1242000 Liras

Inventory cost per piece sold = Total stock list cost / No of pieces sold

= 1242000 / 3096

= 401.16 Lire. – ( A2 )

Using the Transit Point methodological analysis, zero stock list is maintained.

Therefore, Inventory cost per piece sold = 0 Lire – ( B2 )

Short Haul Transportation Cost

The short draw transit cost is the cost of transporting goods from regional warehouse or theodolite point to retail merchants. This cost would be common for both pre and during Transit Point methodoly usage period

Short Haul Transportation cost = 4300 Lire/Piece – ( A3 ) , ( B3 )

Long Haul Transportation Cost

is the cost of transporting goods from the cardinal warehouse to the regional warehouse or theodolite point.

During the pre Transit Point period goods were transported from the cardinal warehouse to the regional warehouses utilizing dawdler trucks.

Entire figure of pieces to be shipped per month = 3096 pieces

Capacity of one dawdler truck = 120 pieces

Therefore, Number of dawdler trucks required = Total measure / Capacity of dawdler truck

= 3096 / 120

= 25.8 trucks

Distance between Roma and Fabriano = 165 Km approx. ( beginning: hypertext transfer protocol: //www.distance-calculator.co.uk/distance-from-fabriano-to-rome.htm )

From Exhibit 11, Cost of utilizing a trailer truck for conveyance upto 165 Km = 0.36 Million Lire

Therefore, Entire transporation cost = Cost/Truck x No of dawdler trucks

= 360000 tens 25.8

= 9288000 Liras

Transportation system cost per piece sold = Total transit cost / No of pieces sold

= 9288000 / 3096

= 3000 Lire – ( A4 )

In Transit Point methodological analysis both trailer truck and smaller trucks can be used depending upon the batch size.

Since the mean day-to-day demand is 154.8 pieces, a lower limit of one dawdler truck will hold to be used every twenty-four hours.

i.e. Entire volume of goods carried by dawdler trucks/month = No of trailer truck in a month ten Volume carried by 1 dawdlers truck

= 20 tens 120

= 2400 pieces

The staying sum would be carried by smaller trucks.

Volume to be carried by smaller trucks = 3096 -2400

= 696 pieces.

Therefore, No of smaller trucks required per month = Volume carried by smaller trucks / Capacity of smaller truck

= 696 / 45

= 16 trucks

This means that in add-on to trailer truck a smaller truck besides needs to be done for 4 yearss in every hebdomad.

From Exhibit 11, Cost of utilizing a smaller truck for conveyance upto 165 Km = 0.2 Million Lire

Entire transit cost = ( Cost / Trailer truck x No of dawdler trucks ) + ( Cost / Small truck x No of smaller trucks )

= ( 360000 x 20 ) + ( 200000 x 16 )

= 10400000 Liras

Transportation system cost per piece sold = Total transit cost / No of pieces sold

= 10400000 / 3096

= 3359.17 Lire – ( B4 )

Inventory cost at cardinal warehouse

Because the regional warehouses are traveling to be removed, some sums of stock list will be moved to the cardinal warehouse.

Entire stock list degree at all 17 regional warehouses = 14330 pieces

Assuming 50 % of this is Cycle Stock and the staying Safety Stock, the Cycle Stock ( = 7165 ) will be moved to the cardinal warehouse.

Average Safety stock = 7165 / 17

= 421 pieces.

Safety stock required at cardinal warehouse as per Risk Pooling = 421 tens a?s17

= 1735 pieces.

Therefore, extra stock required at cardinal warehouse = Safety stock + Cycle stock

= 1735 + 7165

= 8900 pieces.

Assuming stock list cost as those predominating in Roma, the excess stock list cost at cardinal warehouse = 8900 ten 1035

= 9211500 Liras

Additional stock list cost/month/piece sold = 9211500/ ( 20*3096 )

= 148.76 Lire – ( B5 )

Therefore, Entire Cost incurred by the company before deploying Transit Point methodological analysis

= ( A1 ) + ( A2 ) + ( A3 ) + ( A4 )

= 1397.28 + 401.16 + 4300 + 3000

= 9098.44 Liras

Entire Cost incurred by the company by deploying Transit Point methodological analysis

= ( B1 ) + ( B2 ) + ( B3 ) + ( B4 ) + ( B5 )

= 279.45 + 0 + 4300 + 3359.17 + 148.76

= 8087.38 Liras

Therefore by utilizing Transit Point methodological analysis, Merloni has saved 1011.06 Lire.

Now taking this Transit point experiment to India, we can do the undermentioned observations

Geography – The geographics of India is different from Italy. India is every bit broad in North- South and East – West waies. The approximative breadth is ~3500Kms. This is really high compared to Italy. The towns and metropoliss are farther apart compared to Italy. For a merchandise like place contraptions ( icebox, rinsing machine, serve washer etc ) the market is still in towns and metropoliss in India. The route conditions are besides non that good. This means the transit clip between metropoliss will be more compared to Italy. Another point to see is the demand in a town ; this may non be plenty to run into a truck burden of merchandises. Company will hold to happen a manner to hive away the surplus merchandises which is non being supplied. See exhibit1 for inside informations.

Infrastructure – Another option we can see is to hold a theodolite point method for large metropoliss like Mumbai, New Delhi, and Bangalore etc. We can hold a theodolite point set up in outskirts of metropolis and we can hold little trucks to administer units to retail merchants. This will assist to liberate up or cut down the storage infinite in ware house in each metropolis. But this once more will depend on where you have the centre ware house located and will be applicable merely if ware house is in a twenty-four hours ‘s thrust from the metropolis. Besides we can seek this in provinces like Kerala where the towns are closer by. But even though this frees up inventory storage infinite, company may still hold to hold a little infinite to hive away points which do n’t acquire distributed or collected the same twenty-four hours. As given in Merloni instance we will non be able to go forth merchandises in back street or program to maintain in gross revenues office as infinite is a large restraint.

As in Merloni instance we may non be able to recycle the storage infinite for an exhibition house in the instance of India, as the storage location is located in outskirts of metropolis in most topographic points. The market section for place contraptions is the people who stay in the metropolis bounds and will be loath to go so much for purchasing a place contraption.

Transportation – The fuel monetary value costs and trim parts costs will lend to the transit cost and will drive it higher. This in bend will ensue in a higher transit cost per unit and will eat into the borders. This will be important in instance of a theodolite point experiment since the bringing is made per twenty-four hours. Another concern is the quality of service – timely bringing and province of goods delivered. The clip of bringing is really critical in the instance of a theodolite point program. The bringing to the hub should make on clip to guarantee the timely bringing of goods to retail merchants. With the hapless status of roads and deficiency of service/repair support along the manner, there is a important hazard associated with timely bringing. If a truck breaks down, it is decidedly traveling to add half a twenty-four hours hold to the bringing.

Inventory – As explained in Infrastructure subdivision, the theodolite point program will assist to cut down stock list held in large metropoliss and travel the same to cardinal ware house location. This once more may assist company to shut down its ain Storage location in metropoliss and utilize private/public warehouse option for the storage of minimum stock list in metropoliss.

Customer Service – With the theodolite point program, the timely bringing of goods in large metropoliss will better. This will do the retail merchants in this country happy. But if we try to implement this pan India, it will ensue in hapless bringing times and dissatisfaction. The grounds for this are given above.

Labor & A ; Cost – There may non be any important decrease in labour disbursals, as company may hold to acquire new systems in topographic point to back up the theodolite point program for large metropoliss. This will sort of compensate for the decrease in storage infinite cost we are acquiring in metropoliss. Again we will besides necessitate people to take attention of the theodolite point program executing in large metropoliss.

Recommendation

Based on the above analysis, below given are the recommendations to implement a theodolite point program in India.

Implement this program merely in large metropoliss like Bangalore, New Delhi, Mumbai, Chennai, Kolkata, Kerala etc. We can seek out this experiment foremost in a large metropolis like Mumbai and acquire larning ‘s from at that place to better the system and so fan it out to other metropoliss.

Another option to do this work is to hold multiple big ware houses spread across the state so that every major metropolis is located at a distance of 300-400Kms from the ware house. From this point we can seek to run trucks to metropoliss and make a bringing of merchandises to retail merchants in the metropolis and nearby countries in a 12Hr clip frame.

For e.g. We can roll up distribution informations from Tier II large metropoliss like Ahmadabad, Bhopal, Allahabad, etc. over a period of clip and see if it any of the metropoliss have adequate demand to run into a truck burden. We can besides include the close by towns for this computation. Based on this we can run a theodolite point distribution around those metropoliss. See exhibit 2.

The theodolite point program will work good for a fabrication line where the demand is more fixed than a place contraption shop. This will work good as the mill have a well defined agenda on what merchandises will be running in which Assy lines and for how long. In the instance of a place contraption store the demand is driven high by a figure of local factors like local vacations, local festivals, fillips pay out etc. For a diverse state like India these factors vary widely. A local festival is more limited to a local metropolis or a town and may non be even applicable for the full province. This makes it more hard to calculate and program.

On a large image the theodolite point program in this format can non be implemented pan India as it will ensue in delayed bringings and low satisfaction degrees. The hapless substructure, widely dispersed metropoliss, diverse civilization and quality of transit service – all act as variables and makes prognosis hard and can do a failure in the program.

Exhibit 1

Let us see a instance where the cardinal ware house is located in Bhopal. The approximative distance to shut by metropoliss like is as given below.

1. Bhopal – Ahmadabad – 500Kms

2. Bhopal – Allehabad – 500kms

3. Bhopal – New Delhi – 700kms

4. Bhopal – Patna – 700kms

In Indian route conditions we can non anticipate a truck to cover more than 400Kms during dark and to add to it there will be holds in cheque stations, for holding dinner, traffic blocks etc. More issues will be at that place in rainy season & A ; winter. Hence it is clear that with a cardinal ware house in Bhopal we will non be able to do a bringing to these metropoliss on clip.

Exhibit 2

We can hold ware house in Ahmadabad and utilize it to run into the demands of close by metropoliss like Vadodara, Surat, and Gandhi Nagar etc.

1. Ahmadabad to Vadodara – 100Kms

2. Ahmadabad to Surat – 300kms

3. Ahmadabad to Gandhi Nagar – 70kms

4. Ahmadabad to Udaipur – 250kms.

But before implementing this we need to make an ROI computation to see whether this is feasible or non.