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Supply Chain Management at Dalmia Cement


Ltd
Case analysis-04
Group 23

Section SCMT 02

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SCMT-2016

SUPPLY CHAIN MANAGEMENT AT DALMIA CEMENT


LTD.
1. What is the impact of railway gauge conversion (from meter gauge to broad
gauge) on Dalmia Cements distribution operations?
The impact of railway gauge conversion to broad gauge from meter gauge could
be evaluated from the two perspectives:
1. Short term impact:
As the railway gauge conversion was underway, the railway line from
Dalmiapuram was closed for the next six months from December 1997.
Hence the immediate concern was to build stock at their depots, so that
supply to the stockists was not affected.
2. Long Term Impact:
Presently Dalmia Cement Ltd. enjoyed a cordial relation with the Indian
Railways. Both used to help each other out at various instances.
Dalmia Cement Ltd. used to order 40 wagons from the railways. The
capacity of each wagon was 18.6 MT. Hence the total capacity which was
transported through railway line was
18.6 x 40 = 744 MT
Now that the railway gauge was being converted to broad gauge, the
capacity of each wagon increased from 18.6 MT to 40 MT. Hence the
total capacity which was transported through the railway line was
40 x 40 = 1600 MT
The company was not even sure about the lead time required for the
wagons. Hence they needed to come up with an optimum transport mode
mix.

2. What should be the optimal transport mode mix for Dalmia Cement?

Currently there are four modes of transportation at Dalmia Cements Disposal:


Option

Mode of Transport

1
2
3
4

Rail + Truck
Rail + Truck
Truck
Truck

Material routed through % of Material handled in


Depot
1996-97
Yes
45
No
5
Yes
30
No
20
Table 1 Modes of Transport

Apparently the first one is the most expensive option and the fourth one is the most preferred
option. But in order to evaluate the options we have to carry out the following exercise.
Total Costs = Transportation Costs + Handling Costs
Dalimapuram
to

Rail
Freight

Road
Freight

Sales Volume
(tons)

Ernakulam
Trichur
Kollam
Palghat
Madurai
Trichi
Coimbatore

393
335
401
266
181
107
249

385
350
395
320
156
70
235

61000
87000
14000
16000
19000
86000
14000

Railway
Transportation
Cost ()
23973000
29145000
5614000
4256000
3439000
9202000
3486000

Road
Transportation
Cost ()
23485000
30450000
5530000
5120000
2964000
6020000
3290000

Table 2 Calculation showing the cost comparison

On evaluating the options we see that Road transportation is cheaper in all situation
except when we are transporting via road to Trichur and Palghat. Hence road
transport should be used to transport cement to Ernakulam, Kollam, Madurai, Trichi
and Coimbatore whereas railways should be used to transport the cement to Trichur
and Palghat.
During Monsoon and Summer Season:

Dalimapuram
to

Rail
Freight

Road
Freight

Sales Volume
(tons)

Ernakulam
Trichur
Kollam
Palghat
Madurai
Trichi
Coimbatore

393
335
401
266
181
107
249

577.5
525
592.5
480
234
105
352.5

61000
87000
14000
16000
19000
86000
14000

Railway
Road
Transportatio Transportatio
n Cost ()
n Cost ()
23973000
35227500
29145000
45675000
5614000
8295000
4256000
7680000
3439000
4446000
9202000
9030000
3486000
4935000

Table 3 Cost Comparison During Monsoon and Summer

However during monsoon and summer season, prices of truck increases by 50%. So as per table
3 we see that, it is better to use railways as the mode of transport to all its depots except Trichi,
where still road transport is cheaper.
Railway Transport (in one
train)
1600
50
0.05
32000
20 bags of cement make 1 MT

Capacity Transported (MT)


Capacity of Bag (Kg)
Capacity of Bag (MT)
No. of Bags transported

Road Transport (in one


truck)
10
50
0.05
200

Table 4 Comparison of two transport

Now if we evaluate the material handling cost, we obtain following results.


Material Handling Cost
Options

Material Handling Cost (INR/MT)

Option 1 (Truck+Train)_Depot
Option 2 (Truck+Train)
Option 3 (Truck)_Depot
Option 4 (Truck)

80
80
40
40
20 bags of cement make 1 MT
Table 5 Material Handling Cost

If we use multiple mode of transport our material handling cost would double. Hence it is
advised to resort to either option 3 or option 4.
But if we are ship it through depot, additional charges would have to be incurred hence option 4
is preferred.

3. Suggest ways in which Dalmia can get assured supply of trucks throughout
the year.
In order to get assured supply of trucks Dalmia could adopt following approaches:
1. Hiring the truck
Hiring the truck is an option. Trucks could be hired on monthly basis. It would cost
25000 per month and an additional cost of 2 per kilometer as fuel along with other
variable expenses.
Pros: Since the trucks would be available throughout the year, the company could use
this cheapest way of transport and reap profits.

Cons: Since the pattern of demand is quite random, it is very difficult to estimate the
number of trucks. The risk of underutilization of truck is always associated with this
option.
2. Managing a fleet of their own trucks
Instead of relying on others buying their own fleet of trucks seems to be a lucrative
alternative.
Pros: They dont have to depend on others for their transportation needs. Problems
stemming due to non-availability of trucks during certain seasons could be eliminated
by using this option.
Cons: Managing own fleet of vehicles would add to the cost as it would require
additional workforce.
3. Balancing between the two alternatives
Rather than taking the decision in a hurry, they should study the trend and collect prior
data.
For the time being they could have a mix of two; i.e. a small fleet of vehicles of their
own along with few vehicles leased or hired.
Pros: This would ensure that none of their resources are underutilized while trucks are
available all through the year.
Cons: Still they would be relying on others for hiring the truck. The lease price of hire
price would be determined by the respective agencies.

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