Scenario: An Aluminium manufacturing company in Sweden has two plants. The plant-1 received Bauxite (aluminium ore) as raw material and converts it to aluminium oxide. The plant-2 received aluminium oxide and produces aluminium ingots as output. Bauxite is transported by trucks to plant-1 and during the months around winter the transportation lead time triples due to icy road conditions. During the winter season due to adverse condition mining bauxite is almost not possible for 4 months. The end customers who buy the aluminium ingots from plant 2, buys the ingots in a steady manner to support their component production. Aluminium smelting which happens in plant-2 is highly power intensive and it is supported by one hydro-electric power plant and two thermal power plants. Two a great extent there is no power disruption. Both plant-1 and plant-2 are running at full capacities and plant-1 just meets the requirements of plant-2.
Factors:
P – Power Supply
Q – Customer Demand
R – Transport Lead Time
S – Mining Operations
Question: Carefully read the above scenario and factors. Which one of the following options represent the factors that will influence the raw material safety stock decision of plant-1 from highest to lowest degree for few months before the onset of winter season?
A) R, Q, P, S
B) S, R, Q, P
C) S, R, P, Q
D) R, Q, S, P
Explanation: There is a steady demand for aluminium ingots from the component manufacturers throughout the year and hence the plant-1 should supply alumina throughout the year to plant-2. This makes that the plant-1 should be functioning all throughout the year hence need a steady supply of bauxite.
The question is about the factors that will influence the raw material safety stock of plant-1 which is bauxite during the months before the start of the winter season. The mining operation is the most affected one during the winter season. Also, the transportation lead time is increasing during the months before winter that makes it the second factor. For plant-1 the customer is plant-2.
Since there is a steady demand from plant-2, plant-1 can never afford to stop the production. Power supply has not much relevance to plant-1 and moreover there is no issues at all in terms of power, so that is the least significant factor.
Answer: Mining Operation, Transport Lead Time, Customer Demand, Power Supply
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