Snow White Paper Company is located in an agricultural belt about 300 kilometres from a metro city. It makes writing and printing paper. Its primary raw material is wheat straw. Last year, the company had a turnover of INR 134 crore on a volume of 45,000 tonnes of paper. While preparing the business plan for the current year, the top management was concerned with the following logistics issue which they want "you" to help resolve:

Problem: Inbound Materials

SW buys about 68,000 tons of wheat straw in a year. Wheat straw is left over after the farmers harvest the wheat at the end of the season. Therefore, wheat straw is produced only for about 2 months in a year after the harvest.

However, the Snow White Paper plant needs this raw material all through the year to keep the production going. Some salient points on wheat straw procurement are mentioned below:

Total requirement of wheat straw of 68,000 tons for the year is in almost equal quantities every day.

Wheat straw is produced by hundreds of farmers and has to be procured from them. The company uses about 160 agents (of which about 70 are "active") to procure the WS and deliver it to the plant. All the agents are freelance operators who have direct contact with the farmers.

The company cannot store more than about 3 days INR requirement of WS at the plant (about 550 ton).

The average price paid for the WS is INR1200 per tonne. The price of WS paid by SW varies from INR 900 per ton at the start of the season (just at the end of the harvest) to INR 1600 per ton at the end of the season.

The production cost for the farmer for the WS is estimated at about INR 700 to INR 800 per ton. After the harvest, the farmer stores the WS on his farm.

The margins made by the farmer and the agent on the sale of WS are estimated at INR 100 to 150 per ton and INR 150 to INR 200 per ton respectively.

The primary use of the wheat straw by the farmer is for cattle fodder.

The farmer/agent can sell the WS to other paper plants within a radius of 35 kilometres of the plant or to the Mandi (agricultural wholesale market) located at about 80 kilometres from the SW plant.

It is also estimated that about 15 percent of the wheat straw is burnt as the farmer has no place to store it.

There is always an uncertainty and tension about the regular availability and a "fair" price for the wheat straw which Snow White buys.

Questions for 10 marks

1. If you are the purchase manager of SW, how will you ensure regular availability of WS at a fair price?

2. Do you agree with the system of using agents or is there any other method to ensure regular availability to wheat straw for SW?