Norms not available for certain SKUs, for which norms are required =

Norms not required for SKUs, for which norms available =

1) Background & Project Objective:

Background: CEAT ltd is one of the largest manufacturers and distributor of tyres across various
categories such as truck tyres, light commercial vehicles, car tyres, motorcycle and scooter tyres
and speciality tyres, which includes farm tyres both front and rear tyres. Each category has many
SKUs to serve the changing demand of the current market. The distribution chain of CEAT ltd
looks after establishing DCs along with CFAs to reach to final customers through deals, although it
has its own established OEM market separated from the after sales market. The after sales
demand varies based on many variables that include macroeconomic as well as microeconomic
factors. The problem in hand is about the after sales market where CEAT ltd is not able to fulfil its
final customers’ demand through its CFA. The problem is not restricted to any one CFA, yet to
make the solution simpler, we have decided to restrict our studies to Nagpur CFA, where
representative from CEAT ltd is finding an issue with the CFA space. There are many vehicle
manufacturing companies and each company uses different tyre specifications for their
vehicle. CEAT ltd needs to cope up with this uncertainty and has to produce those many
number of SKUs to win the customers and be competitive amongst the competitors.
Space and demand unfulfillment problem at a particular CFA is happening due to two
major aspects. First, demand for more than 200 SKUs is uncertain and forecasting
demand for particular SKU becomes difficult. Due to large variation in forecasted demand
and actual sales, certain SKUs remain in the CFA for more than the predicted period and
that leads to inappropriate space management. If demand for SKU A, for example,
increases over SKU B, then norms cannot be changed for SKU A as the space is already
occupied by SKU B until sales happen for SKU B. Second, farm tyres are not considered
while forecasting demand for categories. Farm tyres are placed in the CFA based on
intuition, which leads to high degree of uncertainty in sales of these tyre, which further
enhances the space issue in CFA. Farm rear tyres are four-five times bigger than the
regular car tyres and if sales do not happen as per the intuition, these tyres take a lot of
space in the CFA.
Project Objective: CFA Stock Norm Analysis: Study of current norms at category level and
identifying possibility of improvement. Project needs us to find the existing inventory
norms are sufficient from space point of view. The existing norms are defined based on
demand forecast by CEAT ltd. As the demand fluctuation is high in after sales market, the
 demand forecast changes every month, which in turn changes the inventory norms.
Work on Nagpur CFA can be replicated to check the need of space enhancement in the
respective CFA.

2) Conceptual Framework:

CFA visit for in- Model building

Problem Defining Problem
Data collection depth problem and
understading scope
analysis Recommedations

3) Methodology
Problem statement was divided into two parts. Part one, checking whether the existing stock norms
are adequate for the CFA or not. Part two, Defining norms for farm tyres.
Part one involved visit to Nagpur CFA to cross verify the inventory norms and the actual stock. Based
on the norms vs actual stock details, space requirements were calculated for the CFA. It was equally
important to check whether the given norms are matching with my own calculations. For this purpose,
ABC-FSN analysis of the inventory was carried out which allowed me to select A-F SKU in two
different categories. SKU 100014 and 100226 were selected for norm calculations. SKU sales vs
customer analysis for these fast-moving SKUs was done to find out the final customer demand, which
led to important recommendation to reduce inventory.
Part two

4) Results & Recommendations

I. Results
a. From the calculated sheet, following results can be summarized
Space Calculations (in Square feet)
Norm Sales Difference
wise Data
wise
Tyre space 1644.90 1842.21 -197.31
Tube Space 450 500 -50.00
Office Space 1647 1647 0.00
Aisle Space 1500 1500 0.00
Claim area Space 600 600 0
Open Space area 1500 1500 0
Loading Unloading area 176 176 0
GANGWAY'S AREA 1540 1540 0
Summation 9057.90 9305.21 -247.31
Where, negative difference shows that SKU stock is taking more space than the set norms. Stocked
SKUs are taking 2.7% more space than recommended which is within the limits. Out of the 209 SKUs
studied, 108 SKUs were beyond the defined norms, which needs to tackled as soon as possible to
avoid excess inventory.
b. The calculation sheet can be used across CFAs as it is taking care of almost all the
SKUs and further be used for space enhancement. Also, the calculation sheet can be
used for sensitivity analysis, by which we can predict space reduction by increasing
stacking norms (in consultation with quality assurance department)
c. Total area available is 12000 sq feet which large enough to accommodate more tyre,
which can include farm tyres. The remaining area of 2442 sq ft (after excluding aisle
space) can be divided among the farm tyre SKUs to cater the highly uncertain
demand. Farm rear tyres, which are the largest, take 20 sq ft of space to
accommodate 29 tyres (per stack, there will be 4 tyres). As CEAT is not concerned
about working capital blockage and only focusing on the market share, they do not
want to lose customers just because they could not serve their customers.
d. Nagpur CFA is adequately following 5S tool.
II. Recommendations
a. As per the calculations, Nagpur CFA inventory norms are sufficient, and space should
not be increased vehemently.
b. As per the CFA manual of CEAT ltd, claim area must not be greater than 150 sq ft.
However, in case of Nagpur CFA, the claim area is 600 sq ft. This can be reduced by
reducing claims by following FIFO 100% of the time.
c. Sheet can find SKUs for which sales are happening, yet norms are not defined for
them.
d. 1500 square feet of aisle space can be utilized by redesigning total CFA space. Also,
office space, 1650 square feet, is not utilized fully, which can be utilized by releasing
space in the future whenever demand surges.
e. CFA should have incentives as well as remunerations based on fulfilment or
nonfulfillment of KPIs. Certain KPIs must be designed based on order fulfilment,
proper communication, customer satisfaction or on time delivery.
f. FIFO is not followed 100% of the time due to which claim material is increasing and
hence more claim area is used. This can be minimized by properly following FIFO for
all the SKUs.
g. Order cancellation dilemma- Orders are taken by RO(regional office) without a
consent from CFA head and orders are cancelled via CFA ( as customer is given
priority). The
h. Only possible in long term: Inventory can be captured at customer end (in this case
dealer end), as there are repeat customers for each SKU. In case of SKU 100004,
there are 2 major customers which are contributing for more than 50% of this SKU’s
sales for three consecutive months. Similar trend is observed for SKU 100226. This
way CEAT ltd can reduce at least half the inventory per SKU at CFA.
 50004424
JUNE CUSTOMERS 50004374
1% 50005381
4% 14%
50005434
1%

53002991 50005930
35% 5%
51000260
3%
50005933
51000058 2%
1%

50019919
10% 50008722
20%
50017513 50016408
3% 1%

50004374 50004424
May Customers 4% 1%
50004360
3%
50005381
14%

53002991
37%
50005434
1%

51000260 50005930
5% 15%

50019919 50005933
6% 2%
50016408 50017513 50008722
1% 2% 9%

50004374
April Customers 2%
50004360
8% 50004424
53002991 2%
31% 50005381
7%
50005434
51000260 2%
1%
51000058
1% 50005930
21%
50019919
2%
50019380 50008722
50016408
9% 12%
2%

5) References
 a. Operations and Supply chain management by Richard chase, Ravi Shankar and F.
Robert Jacobs.
6) Declaration
I hereby declare that the data presented above is solely my own work and does not involve any
plagiarism.