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VISTA 2018 – PRISM OF POSSIBILITIES

Explore the Unexplored


The International Business Summit of IIM, Bangalore

Milestone Problem Statement


We are living in the age of technology and automation. AI is getting better and better each

day and is automating pretty much everything that humans can do, be it repetitive tasks like

assembling of machine parts or complex tasks which can be defined by program or algorithm.

An e-commerce firm is developing a fulfillment center in Tech Park, Nagpur. Other existing

fulfillment centers of the firm are using manual labour to handle their operations. The e-

commerce industry is growing at a fast pace and players are competing on customer delight.

Factors in customer delight have shifted from on-time delivery to speedy delivery with zero

Defects Per Million Opportunities (DPMO). Looking at the future prospect of efficient

processing of orders, the company is considering automation as an option.

As COO of the company, evaluate automation as compared to conventional option, keeping

short & long-term strategy in mind. The decision should be taken considering the profitability

& scalability of the model.


Scaling up the right way

“The first rule of any technology used in a business is that automation applied to an efficient
operation will magnify the efficiency. The second is that automation applied to an inefficient
operation will magnify the inefficiency”

Kaizer is an E-Commerce company which started operating 3 years ago as a small-scale company,
catering for multiple districts in the state of Maharashtra. They eventually expanded into few other
neighboring states with Nagpur as the headquarters. Kaizer is ambitious about its future goals and
strives to become the best E-Commerce firm which promises not only timely delivery but delights
its customers with speedy delivery. This is their unique selling point.

The current market share of Kaizer is 4% but they have become very popular in the interior areas of
Maharashtra. This was a region untouched by the major E-Commerce giants. Marketing research
team of Kaizer forecasted that their customer base is expected to increase by 30% in the next 2
years. This meant, Kaizer needs to scale its supply chain and also improve its current efficiency.

Operating Model:

Shivam is the Chief Operations Manager for Kaizer, looking after the Supply Chain operations and
order fulfillment. His key deliverables are to ensure high responsiveness to customers and cost-
efficient operations. The current supply chain flow is as shown.

The Khuderi fulfillment center has 150 shop-floor employees working 24x7 in three shifts in rotation
across 360 days a year. This warehouse caters to majority of the Pirothi district roughly 12,000
orders a day. (This demand is expected to increase by 30% in gradually across 2 years). The

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workforce of 50 per shift is divided equally across the order processing cycle (shown below). Each
of the operations are sequential and depends on the previous activity.

Every employee handle 50 packages per hour on an average (8 hours=1 Shift). The employees are
paid Rs.50 per hour. And an additional payment of Rs.10 for every extra 10 packages that he
completes. For every employee, there is a specific skillset mapped against him/her. The supervisor
basically allots a set of people for every order.

The order flow is as follows:

The activities indicated in green are completely done manually, others are through manual
operation of material handling equipment. Kaizer follows the system of continuous improvement.
The warehouse in charge takes continuous feedback from the employees to improve the efficiency
and make their service defect free (current level of defects is 5%). But he has observed that in their
operations across years, there are always improvements which assist their employees to deliver
better.

The Scaling decision:

The CEO contacted Mr. Shivam in May 2018 for an important decision. The marketing head and the
sales head seemed to believe there was a steep increase in demand to be expected in the coming
months. The overall increase of 30% in 2 years will position the E-Commerce firm as a tough
competitor for some popular giants. The CEO insisted that the Operations team of Kaizer be future
ready for such scaling. He said “We are living in the age of technology and automation. AI is getting
better and better each day and almost anything can be automated. Let us automate our fulfillment
centers and make them autonomous. This way, we can even fulfill a 50% demand increase in next 2
years”

After the discussion with the CEO, Shivam is having dilemma on how to approach this scaling issue.
Can the efficiency be improved by just making conventional process improvements? He recalls, in
the past one employee stating, “Our variable pay is based on the additional deliveries we make per
hour, but the current layout prevents me from being completely efficient.”, another said, “Most of
our times are wasted in waiting for products from the previous process”. These statements make
him think, is process improvement the best way to get efficiency without heavy investments?

Or automation is the only solution? One challenge with automation was Kaizer had been employing
people from in and around rural Nagpur for their fulfillment center. They might need to layoff some
employees, if they choose to go forward with their plan of automating. Secondly, he is a risk averse
person by nature and feels predictions can always go wrong and investments based on speculations

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can really end bad for the firm. But, the CEO is fully optimistic about this situation. Shivam decided
to take a call based on some factual analysis instead of his gut feeling or Mr. CEO’s. He also collected
data on automation services available in the market now.

ConvX is an automation solution provider. ConvX has conveyor, pickers and autonomous factory
modules in their portfolio. Apart from these, they provide automated mechanisms to optimize
picker movement by designing best routes of operation & fool proof defect detection systems. Thus,
automation can be used for improving not only velocity, but also cost and quality (only 2% defects
in total orders processed). The details of the products and their benefits is given in the appendix.
ConvX provides options to integrate their multiple products to obtain superior performance
efficiency.

Abhijit is a supply chain planning analyst for Kaizer company. He reports to Shivam and he is known
for his analytical capabilities. Shivam wants to give this assignment to Abhijit to come up with a
strategy for scaling Kaizer’s operations. Shivam presented the data about ConvX to Abhijit and other
data on their expenses incurred on labour, warehouse, etc.

Abhijit has 3 deliverables:

1. Deliver a strategic action plan for scaling with Velocity, Cost and Quality improvements detailing
all the steps in chronology with a tentative timeline
2. Develop a cost benefit tool which gives a decision for automation vs conventional improvement
methods when different parameters vary. Eg: Labor cost, Electricity cost, Price of ConvX
products
3. For the proposed action plan, draw a contingency plan and indicate the level of risk

Get into the shoes of Abhijit and solve the dilemma for his company following an analytical and
strategic approach. Cost of automation and expected benefit should always be kept in mind. Mr.
CEO always welcomes out of box ideas, so be as creative as you can. A plan altogether different than
what has been already thought of is most welcome, keeping in mind the feasibility of the idea.

Appendix:

Product Utility Cost of Purchase Capacity


Conveyor Automatic material ₹ 33,60,000 (Depreciated Can move 700 packs an
mover across 4 years) + Electricity hour. Reduces man power
charges by 40%
Picker Automatic picker ₹ 38,40,000 Can pick 600 packs an hour.
(Depreciated across 4 years) Reduces man power by 20%
+ Electricity charges
Packer Automated ₹ 33,60,000 Can consolidate and
Consolidator and (Depreciated across 4 years) pack 500 packs an hour.
Packer + Electricity charges Reduces man power by 40%

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Current expenditures in warehouse apart from labour (details already given in the case)

Admin: 3Lakhs/Month
Accounting: 2Lakhs/Month
Utilities: 1Lakh/Month
Rent: 10Lakhs/Month
Maintenance: Forklifts (5000/Month),
Electricity: 6Rs/Unit, 50000units/Month

After upgrading automation, the electricity costs for each of the machinery is going to increase by
the below given numbers.
Equipment Electricity (Units/month)
Conveyor 25000
Picker 20000
Packer 45000

*Any assumption while solving the case must be mentioned explicitly in the presentation.

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