Agarwal Automobiles Case Analysis

GROUP- 2

Ankita Sinha
Sanjana
Monika Baheti
Shipra Singh
Priyasha Behra

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  The Agarwal Automobiles was an authorized fuel station for Bharat
Petroleum Corporation Limited (BPCL), a major oil and gas company
located in the Sagar district of Madhya Pradesh, India.
 BPCL, one of the market leader in the Indian petroleum sector , was an
Indian government-owned oil and gas company headquartered in Mumbai,
INTRODUCTION Maharashtra. The Agarwal Automobiles had its dealership contract with
BPCL since March 1981.
 BPCL’s Bina refinery, which was located about 110 kilometers away from
the fuel station.
 They did not use any formal analytical techniques to govern the ordering
and management inventory. The operating decisions involved in the
ordering and inventory management of the station were based on simple
operating principles combined with managerial intuitions.
 In India, the automobile fueling industry was witnessing a huge rise in fuel
consumer demand and various level of competition among oil companies at
the national level and different fuel stations at the local level of each state.
 The Agarwal Automobiles faces a constant threat from competing stations
local to the region and also the pressure from the parent company to
increase sales.
 So, to maintain a high customer service level, they should maintain high
inventory levels.

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 In fiscal year (FY) 2012–13, sales of the transport fuels accounted for an
estimated 54% of all petroleum products consumed by customers in India.

 Diesel accounted for about 44 per cent & Petrol accounted for 10 per cent
of total petroleum products sold. Distribution Channel - Company
owned and dealer managed.
 During FY 2015–16, overall consumption of petrol and diesel grew by
7.5 per cent and 14.5 per cent respectively.
 This result in the expansion of 2,500 fuel stations in FY 2015–16 to a Business Model &

total number of 56,190 fuel stations in March 2016, by oil companies in India.
Also this trend initiated the State- run oil companies like Indian Oil Corporation
Operations
Ltd., Hindustan Petroleum Corporation Limited, and BPCL to expand their
retail networks network to a combination of 52,604 fuel stations.
 The oil company took the responsibility for installation and maintenance of the
fuel-dispensing units and underground storage tanks at each retail outlet. Those
units and tanks remained the parent company’s property.
 Opening inventory – to be at least 40 per cent of the total tank capacity for diesel
and petrol, and 15 per cent for HSP.
 AUTOMATIC ORDER-RETRIEVAL SYSTEM, CASH-AND-CARRY BASIS
PLATFORM.
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 COMPANY ANALYSIS

Project analysis slide 3

MARKET TECHNICAL FINANCIAL ECONOMIC

ANALYSIS ANALYSIS ANALYSIS ANALYSIS

• Three products sold: • Cost of capital could be • Dealership contract with BPCL.
• Rising consumer demand estimated at 10 per cent per

K
Petrol, Diesel and HSP • Pricing fixed by the regulatory
• Intense competition
• Tanker capacity of 12000 year. authorities.
amongst oil companies.
liters • Profit per margin decided by BPCL.
• High inventory levels to
• Joint Ordering • BPCL responsible for installation
meet consumer demands
• Pre-planned delivery and maintenance of the fuel-
based system dispensing units and underground
storage tanks at each retail outlet.

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 PRESENT SCENARIO
 At the fuel station, Agarwal Automobiles sold three main products: diesel and gasoline; (HSP). 
 In March 2015, the gasoline plant was restored and converted in order to keep pace with technical advances into a new 
generation pumping station. 
 The upgrades improved the company's inventory capacity and physical space. 
 Machines have been modified to more effectively support customers. 
 This increased the number of customers served concurrently, as well as the volume of general business activities and th
e rise in revenue.
 The sales forecast for a coming month was assumed to be equivalent to the previous month’s sales, with some
expectation of increase in the average sales.
 The business operated completely on a cash-and- carry basis, which meant that no credit whatsoever was provided by
BPCL, the supplier of fuel to Agarwal Automobiles.
 BPCL introduced an online automatic ordering system for its fuel stations, which they used to place frequent orders.

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 EXISTING OPERATING POLICIES
PRE PLANNED DELIVERY
BASED SYSTEM: It implies that 1st - each day’s opening inventory
an order would be placed before a (i.e., the previous day’s closing
day to meet the next day’s Present combination of two stock plus the order received) was
requirements. In this case, an order operating policies. expected to be at least 40 per cent
is to be placed before 3:00 p.m. for of the total tank capacity for diesel
the next day’s requirements, and and petrol, and 15 per cent for
that the order must be for a total HSP.
quantity of 12,000 liters.

2nd - the opening inventory for a

fuel type was expected to be at
This prediction causes the increase They found that ,it was difficult to
least 1.5 times (for petrol and
of 10 per cent, in addition to the implement these policies every
diesel) and 3 times (for HSP) the
previous month’s data. time.
predicted average daily demand
for that fuel in the month.

Operational constraints such as

joint ordering, transportation
capacity, system failures, and other
issues made it difficult to plan
accurately.

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 CURRENT INVENTORY MANAGEMENT
The supplier would refuse to
Agarwal Automobiles had
deliver fuel unless the order It took approximately one day
three separate storage tanks,
amounted to exactly 12,000 from the time the order was
each with a different capacity,
liters, either for an individual placed until the inventory was
for each of the three fuel
fuel or a combined order of replenished.
types.
the three different fuel types.

The tanker had four

Their was a loss of four liters
compartments, each with the
To unload the fuel, there must per thousand due to leakage
capacity to store 3,000 liters
be a delay of approximately or evaporation of that
to satisfy the required order
10 minutes. particular fuel, either in
amount, at exactly 12,000
transit or while unloading.
liters.

The fuel station followed a

daily review purchase policy,
which required an estimate of
the next day’s demand and a
calculation of the available
inventory before placing an
order.
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Challenges To reduce the inventory levels to firm’s requirement to meet consumer’s
demand.

Joint Ordering

Transportation tankers capacity to be exactly 12,000 litres

System failures/mechanical glitches

Pre-planned Deliver System-procedure required that an order be placed

before 3:00 p.m. for the next day’s requirements.

Loss of 10 minutes to unload the fuel.

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 OBJECTIVE OF THE CASE
Build an effective & Minimize the chance of
advanced inventory running out of stock for
management practice for the the three products, while
fuel station to replace the fulfilling its cost
current inventory planning. minimization objective.

What should be the

inventory level required
to meet customer
demands ?

How many orders they

Which product should
are going to get ? – No
be to order ? – Petrol or 9
COST PARAMETERS

 BPCL compensated the fuel station for transportation or other incurred

charges related to a failed order.
 The tanker driver was employed by the fuel station on a fixed monthly
salary.
 Due to 4 minutes delay in unloading , its estimated that the ordering
cost at ₹150, based on the approximate loss of potential sales during
this time.
 Current pricing for each type of fuel was fixed by the regulatory
authorities, and the profit margin per unit was decided by BPCL.
 Inventory carrying costs were not directly accounted but the company
confirmed that the cost of capital could be estimated at 10 per cent per
year.

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FORECASTING - TWO OPERATING
POLICIES
 At least 40 per cent of the total tank capacity for diesel and
petrol and 15 per cent for HSP was to be expected in
eachday' s opening inventory (i.e. last day's closing stock
plus the order received).
 At least 1.5-time (petrol and diesel) and three-fold (HSP)
opening inventory of fuel types was projected to meet the
average daily demand for that fuel in the month. The forecast
was calculated as 10% higher than last month's results.
 This forecast rises by 10 percent compared to data from the
previous month.
 They noticed that the execution of these policies was often
very difficult.
 An expected loss of four ltr per 1000 ltr was caused by the
fuel leakage or evaporation.

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 ANALYSIS
 Moving Average and Exponential smoothing is used for forecasting.

 Exponential moving average is used to give higher weightage to recent data over previous data. While doing Expo moving
average we found the value of alpha=0.204 and minimized error=25127273.4 for Petrol, alpha=0.119 and minimized
error=112049491 for Diesel and alpha=0.259 and minimized error=5603141.03 for HSP. With this we can get a clearer values of
the orders to be placed.

 In moving average method we have calculated the predicted value using 3 month moving average and we get SSE for petrol =
39088299, SSE for Diesel =, 159486503 and SSE for HSP = 6152848.

Microsoft Office
Excel Worksheet

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Recommendations  We did forecasting using1 Moving Average2 Exponential Smoothing.
Using both these methods we found the error to be less in case of
Exponential Smoothing. Thus we recommend Agarwal Auto to use Expo
for forecasting

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