This case illustrates in a comprehensive manner the various logistics decision areas beginning at the interface between production and distribution, and working forwards and backwards into these two areas. The product under consideration is thread which is being manufactured at one location by the Lotus Thread Company Limited (LTCL) and distributed all over India, through 12 regional offices.
The company is facing the problem if increasing inventory costs (and the consequent strain on working capital management) accompanying a very positive growth in sales. The problem is severe because of the spatial spread of its markets and the product variety. The two factors together have resulted in what is a commonly seen problem, that of high inventory levels and simultaneously, poor service levels. This is because of large stocks at various locations, but not the ones that are required at the appropriate location. This is a serious marketing concern.
The manufacturing concerns are that accurate demand forecasts (both location wise and product variety wise) are not available, and with the already tight capacity constraints, there is lot of 'wasted' capacity because of the planning process.
As far as transportation of finished products goes, to begin with, there are truckload constraints. The batching constraints are a significant consideration from a variety of standpoints, both economic and organizational. The batching philosophy may reduce transportation costs in general, but the company is now not sure whether the increased inventory consequences are worth it.
A secondary decision with regard to the batching policy concerns shortfall in truckloads. Although despatches are made according to specific projections or requirements for various regions, the company has to decide whether a small shortfall in the truckload should be made up by a despatch of some known fast moving commodities that will soon be consumed.
At this point, the company is open to a revamp of the entire despatch and distribution strategy, and related production planning and structuring issues. They are willing to consider any reasonable proposal which may help them address their problems.
Questions
1. What are the inventory costs of LTCL vis - a - vis the transportation costs that they are increasing?
2. What are the major logistical decisions that LTCL has to make?
3. On what criteria should the logistical decisions that LTCL is considering be made?