minip ( pulak mehta & sankalp rajoria ).pdf
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MINI PROJECT REPORT (MED320)
SUPPLY CHAIN PERFORMANCE AND BRAND PERFORMANCE
Submitted by:-
2012ME20790 PULAK MEHTA
2012ME20799 SANKALP RAJORIA
Supervised by:-
PROF. SIDDHARTH MAHAJAN
Mechanical Engineering Department
Indian Institute of Technology Delhi
May 2015
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INTRODUCTION Supply chain management is becoming irreplaceable in today's
competitive business environment. Every company is trying to optimize
its supply chain performance to increase the value of its products. Value
can be provided in a product in various forms like price, utility, brand.
Compared to the first two parameters, brand can help increase the
profits of the company by the largest quantum.
Supply chain management are the functions within and outside a
company that enable the value chain to make products and provide
services to the customer (Cox et al., 1995). It consists of four basic
processes sourcing, operation, logistics, marketing which include
managing supply and demand, sourcing raw materials and parts,
manufacturing and assembly, warehousing and inventory tracking,
order entry and order management, distribution across all channels,
and delivery to the customer. Over the years supply chain management
has seen radical transformation in its objectives. Initially in 1950's, with
the experience from the world war, supply chain management mainly
included logistics : how to transport goods. Slowly by 1970's, due to
competition from local and international firms, it started to even
included warehousing along with logistics. These days it encompasses
many operations. Monczka and Morgan (1997) state that integrated
supply chain management is about going from the external customer
and then managing all the processes that are needed to provide the
customer with value in a horizontal way. It included planning, sourcing,
making and delivery
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But the biggest ideological change is that in today's competitive
business environment, companies don't compete with each other but
their supply chains compete with each other. Factors leading to change
is the competition from companies to supply chains of the companies
can be attributed to :
1) Vertical integration by companies to increase the bottom line. Eg )
TATA Nano was able to produce car at 1 lakh due to vertical integration
possible by various companies in the TATA group
2) Competition from local as well as global players in sourcing as well as
manufacturing. Eg ) Cost of electronics have reduced significantly due
to increase manufacturing at scale from China and south east Asia
3) Maximizing performance in a single area can have negative impact at
the overall product. Eg) When Apple would be choosing its supplier, it
would prefer higher quality standard over cost due to its luxurious
appeal.
4) Constantly changing consumer preferences. Eg) Initially consumers
preferred small screen smart phones but then it changed to larger
screen. Hence, Apple had to increase the screen size of its iPhone
Due to all the above mentioned factors, companies these days are
making a constant effort to innovate and refine their supply chain to
produce the right product, at the right price, at the right place and at
the right time to the customer.
A product or a company in known by its brand. The brand has many
intangible promises of satisfaction associated with it like utility, product
quality, availability and servicing it provides to its customer ( Healey,
2008 ). Brand can add value to the product as it helps in creating an
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emotional attachment to the product and give a sense of assurance to
the product. To help strengthen the brand and reach the customer at
an emotional level companies have gone far beyond the main stream
marketing communication about their product and services (Mitchell,
1999).
Companies make a serious efforts in creating a brand which includes
marketing about its products and services, making positive logo and tag
line and maximizing its P.R. reach to communicate its core values to all
its consumers. Following are examples of this branding effort :
1) Amazon.in is using "Aur Dekho" to emphasis on the largest product
variety available on its website.
2) Maruti tries to communicate itself as the leading manufacturer of
fuel efficient cars.
3) Louis Vuitton brands itself as an upscale luxurious fashion company.
All its efforts are made to emphasis on creating an luxurious, rich and
clothing line for the elite.
Creating a positive brand for a particular company can help in targeting
and servicing the needs of its customers more efficiently. This helps it in
commanding a better price than its competitor.
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PROJECT OBJECTIVE
The main objectives of the project are:
i. To study and quantify the supply chain performance of major Indian companies.
ii. To study and quantify the brand performance of the chosen companies.
iii. To try and find out any relation between supply chain performance and brand performance.
To obtain a diverse set of organization, we have chosen 11 major
companies listed in India across 4 major sectors analyze the different
performance co-relation. The companies chosen are:
a. FMCG : HUL, ITC, Nestle India, Britannia
b. Oil : Reliance Industry, ONGC
c. Pharma : Sun Pharma, Lupin
d. Automotive : M&M, Maruti, Tata Motors
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LITERATURE REVIEW Li, Raghunathan, Raghunathan, & Rao (2006) conceptualized and developed
five dimensions of SCM practice (strategic supplier partnership, customer
relationship, level of information sharing, quality of information sharing, and
postponement) and tested the relationships between SCM practices, competitive
advantage, and organizational performance. The results indicated that higher
levels of SCM practice can lead to enhanced and improved organizational
performance. Also, competitive advantage can have a direct, positive impact on
organizational performance. This study deeply analyzed the impact of SCM
practices on organizational performance. The results of the study indicated that
both inter firm system integration and supply chain responsiveness have a direct
positive effect on brand equity.
Gunasekaran, Patel, & McGaughey (2004) created a framework for supply
chain performance measurement around supply chain activities and processes
such as plan-source-make/assemble-deliver. They believed that unless supply
chain performance is measured, it cannot be improved. Further, all participants in
the supply chain should be involved and committed to common goals, such as
customer satisfaction and enhanced competitiveness.
Glaster (2008) studied the role of branding in the value chain attempting to
demonstrate that the brand is the one mechanism that unites both the supply
and demand sides of the value chain. The author critically evaluated
design/methodology/approach - Mission, vision and transaction models as
aligning mechanisms to the value chain. He found that the brand strategy
management should be both a demand and supply chain priority, in contrast to its
general demand chain focus. This study did not empirically demonstrate the role
that the brand plays in value chain dynamics, particularly the behavior of
participants in the supply chain.
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METHODOLOGY
Measuring and Ranking the Brand Performance
To measure the value of the brand we looked at the financial numbers.
The most valuable brands are ones that generate massive earnings in
industries where branding plays a major role. To determine the best
brands, we started with more than 10 national brands. Our first step in
valuing the brands was to determine earnings before interest and taxes
for each brand. We averaged those earnings over the past three years
and subtracted from earnings a charge of percentage growth rate of
the brands capital employed, figuring a generic brand should be able to
earn at least %age of growth rate on this capital. We applied the
maximum corporate tax rate in the parent companys home country to
that net earnings figure. Next, we allocated a percentage of those
earnings to the brand based on the role brands play in each industry.
(Brands are crucial when it comes to beverages and luxury goods, but
not so much, say, with airlines, when price and convenience are more
important.) To this net brand earnings number, we applied the average
price-to-earnings multiple over the past three years to arrive at the
final brand value. The ranking is done on the basis of their value.
Measuring and Ranking the Supply Chain Performance
The Financial Component consists of the 3 year Weighted Average
Return on Assets (ROA), 3 year Weighted Average Revenue Growth and
the Inventory turns.The ROA is supposed to represent overall
operational efficiency and productivity, Revenue growth gives an idea
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of the market and organizational factors and innovation. The inventory
turns does not particularly give a good idea of supply chain
performance, but is widely understood and hence is still included.
COMPONENT PARAMETER WEIGHT IN FINAL SCORE
HOW IS IT ARRIVED AT
Financial Inventory Turns 30% Cost of goods sold/Annual avg. inventory
3 yrs. weighted Revenue Growth
20% ((change in revenue 2014-2013)*50%) + ((change in revenue 2013-2012)*30%) + ((change in revenue 2012-2011)* 20%)
3 yrs. weighted ROA
50% ((2014 net income/2014 total assets)*50%) + ((2013 net income/2013 total assets)*30%) + ((2012 net income/2012 total assets)*20)
The ranking is done on the basis of supply chain performance.
After tabulating the data between supply chain performance and brand
performance we find the correlation factor, gamma and z-score using
the following formulae
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Inte
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21
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Pro
po
rtion
of B
rand
Valu
e0
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0.1
60
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0.3
30
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0.0
30
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20
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0.9
40
.83
CALCULATION OF BRAND VALUE
-
Year Company ITC HUL BRITANNIA NESTLE RELIANCE ONGC TATA MOTOR MARUTI M&M SUN PHARMA LUPIN
2014 Cost of raw material 2014 13,522.04 14621.7 3835.34 4640.46 334283 667.26 26040.59 31495 4640.46 1264.59 3223.46
Annual avg. inventory 2014 7359.54 2747.53 366.86 844.1 42932 5882.54 3862.53 1705.9 2803.63 918.38 1372.24
Inventory turn around 1.83734853 5.321761728 10.45450581 5.49752399 7.786336532 0.113430593 6.74184796 18.46239522 1.655161344 1.376979028 2.349049729
2013 Cost of raw material 12531.44 13633.79 3539.83 4059.29 310428 612.89 33764.4 32721.8 4059.29 1077.87 2924.46
Annual avg. inventory 6600.2 2526.99 331.49 735.93 42729 5704.39 4455.03 1840.7 2419.77 868.76 1330.83
Inventory turn around 1.898645496 5.395268679 10.67854234 5.515864281 7.265042477 0.107441812 7.578938862 17.77682403 1.677551999 1.240699388 2.197470751
2012 Cost of raw material 9933.19 11701.45 3193.06 3909.06 279737 656.14 41081.79 28330.6 39029.06 1257.79 2377.44
Annual avg. inventory 5637.83 2516.65 382.28 745.58 35955 5165.44 4588.23 1796.5 2358.39 640.07 1123.56
Inventory turn around 1.761881788 4.649613574 8.352673433 5.242978621 7.780197469 0.127024997 8.953733793 15.76988589 16.54902709 1.965081944 2.115988465
CALCULATION OF INVENTORY
TURNAROUNDS
-
Company
ITCH
UL
BRITAN
NIA
NESTLE
RELIAN
CEO
NG
CTA
TA M
OTO
RM
ARU
TIM
&M
SUN
PHA
RMA
LUPIN
Revenue 201432238.6
28019.136307.39
9854.84390117
83890.2734319.28
43700.640508.5
2828.798939.38
Revenue 201329901.27
25810.215615.49
9101.05360297
83005.3344765.72
43587.940441.16
2432.147122.51
Revenue 201225173.82
22116.374974.19
8326.55329904
76515.0954306.56
35587.131853.52
4015.565384.83
Revenue 201121458.98
19735.514217.54
7490.82248170
68338.9247088.44
36618.423460.26
3107.574494.88
Revenue 201018567.45
17769.123404.7
6260.21192091.9
60251.7735373.29
29317.718516.33
1845.093690.09
Revenue 200914985.81
20
,50
4.2
83112.38
5566.85151662.8
64003.992
5,6
60
.67
20
,72
9.4
013081.08
2774.652954.7
7.8168258.558319
12.3212768.282451
8.2765051.066124308
-23.33580250.258558
0.16651416.30868289
25.50884
18.7792316.70184
12.8925519.301571
9.212688.482300681
-17.568485322.4823
26.95978-39.4321091
32.26991
17.3113512.06384
17.94055311.15672
32.9346811.96414869
15.32885778-2.81634
35.776529.21864994
19.79919
15.5731111.06633
23.87405619.65765
29.1933913.42226129
33.1186327324.90202
26.7003868.42376253
21.8095
23.90021-13.3395
9.392169312.45522
26.65721-5.862478261
37.8502198141.43053
41.55047-33.50188312
24.88882
Weighted revenue grow
th 201413.00445
11.7024813.616514
9.16304113.48899
5.470582096-13.8726753
6.31070115.32649
2.16843870426.39524
Weighted revenue grow
th 201317.69764
14.1833416.603253
11.9293320.32542
10.51484722.438141241
15.3766529.55292
2.7342929426.43661
Weighted revenue grow
th 201218.10765
6.68392718.010927
13.966730.5568
8.83625707825.17006267
14.3485434.20846
28.436077121.42021
Change in
Revenue 2014
Change in
Revenue 2012
Change in
Revenue 2011
Change in
Revenue 2013
Change in
Revenue 2010
CALCULATION OF WEIGHTED REVENUE
GROWTH
-
YearCom
panyITC
HU
LBRITA
NN
IAN
ESTLERELIA
NCE
ON
GC
TATA
MO
TOR
MA
RUTI
M&
MSU
N PH
ARM
ALU
PIN
2014N
et income
34474.1529035.22
6334.7910008.08
39864190499.19
37209.5644505
41553.95127.1
9430.97
Total Asset
26260.753277.05
858.082856.78
282572136725
33669.3122663.1
20536.359816.89
7118.44
RoA/100
1.3127638.86017
7.38251683.503273
1.4107590.661906674
1.1051476851.963765
2.0234340.012947074
1.324865
2013N
et income
31775.827056.64
5681.129092.63
37161288465.09
46571.6544376.9
41168.262678.84
7328.26
Total Asset
22301.52674.02
833.173558.24
233488124453.22
33403.5319968.1
17885.997832.01
5402
RoA/100
1.42482810.11834
6.81868052.555373
1.5915680.710830061
1.3942134262.22239
2.3017040.342037357
1.356583
2012N
et income
26148.4622384.82
5037.518457.58
33696884199.96
54919.2436545.1
33024.914140.22
5388.32
Total Asset
18817.933512.93
548.192848.6
221596117456.75
30637.6416265.7
15345.317918.42
4727.06
RoA/100
1.389556.372122
9.18935042.96903
1.5206410.716859269
1.7925414622.246759
2.1521170.522859358
1.139888
2011N
et income
22385.2820505.75
4283.527560.1
25446571758.68
47718.5137183.2
24214.123,299.71
4511.46
Total Asset
15988.452659.52
882.762244.83
20951097504.43
34651.4914037.7
12634.496,731.06
4132.12
RoA/100
1.4000917.71032
4.85241743.367783
1.2145720.735953023
1.3770983592.64881
1.9165090.490221451
1.091803
2010N
et income
18664.9617988.32
3378.576371.13
19912763985.77
37200.7830180.6
18825.112641.98
3673.99
Total Asset
14117.72582.85
825.87855.41
190861103688.25
31405.0612656.5
10698.715747.47
3437.36
RoA/100
1.3220966.964524
4.09092237.448042
1.0433090.617097598
1.1845473312.384593
1.7595680.459677041
1.068841
2014W
eighted RoA136.174
874.0011757.47326
311.2054148.6978
68.75742093132.9346163
209.7951213.2652
21.36566157129.7385
2013W
eighted RoA140.9297
851.287713.66288
284.1952149.4891
71.76634161151.0288823
231.4984217.9789
42.59207762123.8618
2012W
eighted RoA137.9222
689.2062686.85849
398.4459133.3354
70.26350612154.6309705
239.4941200.2925
50.04315226111.1253
CALCULATION OF WEIGHTED RETURN
ON ASSETS
-
YEARITC
HULBRITANNIA
NESTLERELIANCE
ONGCTATA M
OTORM
ARUTIM
&M
SUN PHARMA
LUPIN
2014Current Assets
3,181.26-2,558.91
-157.79-1,376.46
45,388.00-2,099.60
-6,361.88-866.6
2,051.111,053.53
3,508.27
Current Liabilities6,921.52
6,925.65660.98
1,361.0080,844.00
36,062.3413,334.13
6,996.908,678.28
807.891,367.80
Working Capital
-3,740.26-9,484.56
-818.77-2,737.46
-35,456.00-38,161.94
-19,696.01-7,863.50
-6,627.17245.64
2,140.47
Annual Revenue32238.6
28019.136307.39
9854.84390117
83890.2734319.28
43700.640508.5
2828.798939.38
Days of working capital
-42.3466-123.554
-47.3811-101.389
-33.1732275-166.039615
-209.47536-65.6782
-59.713831.69504
87.39661
2013Current Assets
2,596.83-2,165.18
-26.55-956.86
53,170.0073,381.33
-6,739.401,148.40
231.192,030.64
2,460.19
Current Liabilities6,404.43
6,260.09576.9
1,348.7679,620.00
30,575.8116,580.47
5,845.807,662.13
674.841,332.67
Working Capital
-3,807.60-8,425.27
-603.45-2,305.62
-26,450.0042,805.52
-23,319.87-4,697.40
-7,430.941,355.80
1,127.52
Annual Revenue29901.27
25810.215615.49
9101.05360297
83005.3344765.72
43587.940441.16
2432.147122.51
Days of working capital
-46.4788-119.148
-39.2235-92.4675
-26.795255188.229055
-190.13997-39.3355
-67.0676203.4698
57.78087
2011Current Assets
1,178.45-1,288.20
-339.57-1,064.61
49,238.0017,304.25
-8,912.101,986.20
-45.92,254.47
1,974.96
Current Liabilities5,684.35
5,499.42882.53
1,259.5166,159.00
30,715.2220,280.82
5,338.006,721.40
598.671,193.81
Working Capital
-4,505.90-6,787.62
-1,222.10-2,324.12
-16,921.00-13,410.97
-29,192.92-3,351.80
-6,767.301,655.80
781.15
Annual Revenue25173.82
22116.374974.19
8326.55329904
76515.0954306.56
35587.131853.52
4015.565384.83
Days of working capital
-65.3319-112.02
-89.6762-101.879
-18.7210977-63.9743618
-196.20863-34.3778
-77.5445150.5063
52.9487
CALCULATION OF WORKING CAPITAL
-
YearCom
panyITC
HULBRITANNIA
NESTLERELIANCE
ONGCTATA M
OTORM
ARUTIM
&MSUN PHARM
ALUPIN
2014Inventory Turn Around
1.8373495.321762
10.454515.497524
7.7863370.113431
6.74184818.4624
1.6551611.376979
2.34905
Weighted Revenue Growth ( 3 year avg. )
13.0044511.70248
13.616519.163041
13.488995.470582
-13.87276.310701
15.326492.168439
26.39524
Weighted RoA ( 3 year avg. )
136.174874.0011
757.4733311.2054
148.697868.75742
132.9346209.7951
213.265221.36566
129.7385
Ranking Value71.2391
440.9376384.5963
159.084679.38261
35.5068665.71533
111.6984110.1944
11.5296170.853
2013Inventory Turn Around
1.8986455.395269
10.678545.515864
7.2650420.107442
7.57893917.77682
1.6775521.240699
2.197471
Weighted Revenue Growth ( 3 year avg. )
17.6976414.18334
16.6032511.92933
20.3254210.51485
2.43814115.37665
29.552922.734293
26.43661
Weighted RoA ( 3 year avg. )
140.9297851.287
713.6629284.1952
149.489171.76634
151.0289231.4984
217.978942.59208
123.8618
Ranking Value74.57398
430.0988363.3557
146.138280.98913
38.0183778.27575
124.1576115.4033
22.2151167.87748
2012Inventory Turn Around
1.7618824.649614
8.3526735.242979
7.7801970.127025
8.95373415.76989
16.549031.965082
2.115988
Weighted Revenue Growth ( 3 year avg. )
18.107656.683927
18.0109313.9667
30.55688.836257
25.1700614.34854
34.2084628.43608
21.42021
Weighted RoA ( 3 year avg. )
137.9222689.2062
686.8585398.4459
133.335470.26351
154.631239.4941
200.292550.04315
111.1253
Ranking Value73.11118
347.3348349.5372
203.589275.11312
36.9371185.03562
127.3477111.9527
31.2983260.48149
SC PERFORMANCE
-
RESULTS
RANKING FOR 2014
COMPANY
BRAND RANKING SUPPLY CHAIN RANKING
ITC
2
7 HUL
6
1
BRITANNIA
9
2 NESTLE
5
3
RELIANCE
3
6 ONGC
1
10
TATA MOTOR
10
9
MARUTI
4
4 M&M
7
5
SUN PHARMA
11
11
LUPIN
8
8
RANKING FOR 2013 COMPANY BRAND RANKING
SUPPLY CHAIN RANKING
ITC
2
7 HUL
6
1
BRITANNIA 9
2 NESTLE
5
3
RELIANCE
3
6 ONGC
1
10
TATA MOTOR 10
9 MARUTI
4
4
M&M
7
5 SUN PHARMA 11
11
LUPIN
8
8
-
RANKING FOR 2012 COMPANY BRAND RANKING SUPPLY CHAIN RANKING
ITC 2 7
HUL 6 1
BRITANNIA 9 2
NESTLE 5 3
RELIANCE 3 6
ONGC 1 10
TATA MOTOR 10 9
MARUTI 4 4
M&M 7 5
SUN PHARMA 11 11
LUPIN 8 8
CORELATION FACTOR
SC RANKING(X) BRAND RANKING(Y) DIFFERENCE BETWEEN RANKING SQUARE OF RANKING
7 2 -5 25
1 6 5 25
2 9 7 49
3 5 2 4
6 3 -3 9
10 1 -9 81
9 10 1 1
4 4 0 0
5 7 2 4
11 11 0 0
8 8 0 0
7 2 -5 25
1 6 5 25
2 9 7 49
-
3 5 2 4
6 3 -3 9
10 1 -9 81
9 10 1 1
4 4 0 0
5 7 2 4
11 11 0 0
8 8 0 0
7 2 -5 25
1 6 5 25
2 9 7 49
3 5 2 4
6 3 -3 9
10 1 -9 81
9 10 1 1
4 4 0 0
5 7 2 4
11 11 0 0
8 8 0 0
SUM:
594
CORRELATION COEFFICIENT(X,Y) = 0.900735294 = 0.9
-
GAMMA & Z-SCORE
G=(sum(Na)-sum(Ni)/(sum(Na)+sum(Ni))
Z=G*sqrt(sum(Na)+sum(Ni))/33(1-G^2)
COMPANY Na (AGREEMENT)
Ni(INVERSTION)
ITC 0 3
HUL 2 1
BRITANNIA 1 2
NESTLE 3 0
RELIANCE 2 1
ONGC 2 1
TATA MOTOR 2 0
MARUTI 3 0
M&M 1 2
SUN PHARMA 3 0
LUPIN 1 2
SUM 20 12
G 0.25
Z 1.98
-
OBSERVATION
1) There was a positive correlation between supply chain performance and brand performance.
As the supply chain performance increases, the brand generally sees a positive movement in
the brand performance.
2) The correlation factor (row) comes out to be 0.9. Note : +1 implies complete linearity
3)The gamma value comes out to be 0.25.
4) Since the z-score is +1.98. The critical value for z-score for 0.05 is +-1.96, hence null
hypothesis is rejected and the given set can be accepted
5) Supply chain performance does not show lot of variation when compared from an year to
year value as but the brand performance can show a lot of variation from year to year
-
REFERENCES Research Paper:
Cox, J.F., Blackstone, J.H. and Spencer, M.S. (Eds) (1995), APICS Dictionary (8th ed.), American
Production and Inventory Control Society, Falls Church, VA.
Monczka, R.M. and Morgan, J. (1997), Whats wrong with supply chain management?, Purchasing, Vol.
122 No. 1, pp. 69-73
Healy, M. (2008). What is branding: essential design handbook. Switzerland: Rotovision SA.
Mitchell, A. (1999). Out of the shadows, Journal of Marketing Management, 15(1-3), 25-42.
Li, S., Raghunathan, B., Raghunathan, T., & Subba Rao, S. (2006, April). The impact of Supply Chain
Management practices on competitive advantage and organizational performance. Omega, 34(2), 107-
124.
Gunasekaran, A., Patel, C., & McGaughey, R. (2004). A framework for supply chain performance
measurement [Electronic version]. International Journal of Production Economics, 87(2004), 333-347.
Glaster, S. (2008). The role of branding in the value chain. International Journal of Physical distribution
and logistics management, 38(9), 726-736.
Books :
William et al. Statistics for Business and Economics
Alan Agresti, Analysis of Ordinal Categorical Data ( Wiley Series in Probability and Statistics )
Website:
All financial data taken from moneycontrol.com
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