Logistics Management at VOLTAS

Refrigerator Business Group

A case on

• Valuable- worth great deal of money• Obtainable- available• Ladylike- polite and dignified • Thrifty- careful with money and resources• Amazing • Salutary - Useful

V aluable

O btainable

L adylike

T hrifty

A mazing

S alutary

INTRODUCTION

Public limited company in 1954 Joint venture between Volkart Brothers, and TATA Sons.

Marketing and Distribution companyTrading in imported goodsLarge inventoryCreate own production base In 1988- six manufacturing units located in Maharashtra & West Bengal

ORGANIZATION OF BUSINESS

Appliance Business Group (ABG)Agro-industrial products and pumps division (AIP)

Air-conditioning and Refrigeration business group

Chemical divisionElectrical business group (EBG)Machine tool division (MTD)Refrigerator business group (RBG)

MARKETING

National distribution networkMarkets product of small, medium & large producers

4 zonal offices, 9 branches and 16 offices

2000 plus stockists1,00,000 retail outletsBranch in New York and London

MANUFACTURING

Six manufacturing facilities :

1. Thane plant

2. Switch-gear plant

3. Hermetic motor plant

4. Refrigerator plant

5. Transformer plant

6. Mining equipment design and manufacturing plant

SERVICE DEPARTMENTS

Centralization

REFRIGERATOR BUSINESS

GROUP 2 models – 165 liters & 300 liters(double door), white, green blue & brown.

1984 - 85

oPlant setup at “Warora”.

oLaunched in east zone followed by extension to south & west.

oProduction of compressors in collaboration with Danfoss – leaders in this field.

1986 - 87

o Steps were taken to raise the annual production capacity to 1,00,000 units.

1987 – 88

o Increased output, sales & profit.

o Continued to enjoy customer preference & a premium price.

o Export order from Iraq, beginning to international business.

1988 – 89

oFire at company's plant.

oPlan to increase annual production capacity to 2,50,000 units by 1991.

REFRIGERATOR BUSINESS

GROUP

MARKET SHARE OF VOLTAS REFRIGERATORS

North Zone35%

West Zone35%

South Zone20%

East Zone10%

MARKET SHARE

Tropicana39%

Godrej35%

Voltas12%

Allwyn10%

Zenith4%

Market Share (%)

Trop-icana

Godrej

Voltas

Allwyn

Zenith

Total Logistic Cost

Inventory

Transportation

Packaging

Insurance Godown Operations

Losses

Road Transportation

• Annual freight rate contract

• Rs. 3850 per truckload

Packaging • Rs. 182 for a 300- litre• Rs. 126 for 165- litre

• 13• 301 dealersGodowns

• 18• 351 dealers

Stocking Centres

• 3000 defectives per lakh pieces• 400 units in stocks for repairs• Rs 10/ refrigerator for inspectionLosses

• Excise -> 15%• Octroi -> 5-10% (depending

on city)• Sales Tax -> No tax- 16.6 %

(depending on city)

Taxes

TOTAL COST AS A FUNCTION OF VALUE ADDED

= • Total

product cost

Rs 13535

• Cost of raw materialRs

5000

• Value added cost

Rs 8535

_

=

LOGISTICS RELATED DECISIONS

Strategic

Tactical/Planning

Operations

STRATEGIC

Warehousing How many? Where to place? Owned or rented Size

Storage – Material Handling Raw materials policy Finish Goods policy

Transportation Warehouse replenishment/ transportation Distribution to clients

TACTICAL/PLANNING

Warehousing Rent or buy? Location? Capacity? Equipment?

Storage – Material Handling Size of Pallets

Transportation Buy or rent vehicles Fleet, mix or size Delivery vehicles

OPERATIONS

Warehousing Personnel Working hours, shits, overtime

Storage – Material Handling Products for stock Desired amount of stock Which Supplier Order picking and control

Transportation What type of vehicle should be used Service region of each vehicle Routes of vehicle Maintenance of vehicles

EXPANSION AT WARORA-ADVANTAGES

Less capital cost (-10 crores)

Twin power connection

Proximity to NH-7 & NH-6

Economies of scale

Centrally located

Higher transit time for north & East India

Heavy losses due to transit & handling

4% central sales tax

EXPANSION AT WARORA- DISADVANTAGES

Proximity to potential market

Backward area benefits

Entry into competitor’s location

Tax subsidiaries

EXPANSION AT NEW LOCATION-ADVANTAGES

Higher capital cost (35 crores)

Clearance of governing bodies & local

authorities

Developing local suppliers for raw material

Economies of scale cannot be availed

Decentralized purchasing decisions

EXPANSION AT NEW LOCATION-DISADVANTAGES

LEARNING

Product movement

Product storage

Transportation cost elements

Location selection

Types of vehicle required