MM Race of Car Manufacturers

Case 23

Purchase Cycle

37

The Race of Car Manufacturers

Verma Automobiles, Panjim were well-established carmanufacturers. The companycelebrated 25 years of usefirl serviceto the nation on 23 Iuly 1997. A few months before the silverjubilee functions ofVermaAutomobiles, Sonde Motors were setup at Pune. This company began the manufacture of 'Chaloo'cars after purchasing the technology from the USA. The team atSonde Motors was young and dynamic. It was led by a ChiefExecutive, Mr S.R.Telele. Telelewas amature production engineerand very open to new and innovative ideas. There was a clearacceptance of the fact at Sonde Motors that merely giving anIndian name, Chaloo, to anAmerican car did not make it suitablefor conditions encountered in India. The companyhad verywiselyinvested in a good R&d department and an efficient purchasecell for indigenizing the car. A drawing board model for an Indianenvironment-friendly car, Chaloo II, had been prepared at SondeMotors. It was planned that by the time the 200th Chaloo I roliedout of the factory Chaloo II would be ready to be taken up forproduction.

Samir Verma, head of Verma Automobiles, was a lawyer byeducation and an excellent manager by choice. Industrialintelligence soon indicated the plans of the Sonde Motors fordeveloping Chaloo II. Samir Verma put his men to work ondeveloping a competitor to Chaloo II. The R&D boss, Arun Kumarwas given the mandate of ensuring that Verma Automobiles'reply to Chaloo II should be in the market within three monthsof the launch of Chaloo II. Arun Kumar decided to skip detailed

The Race of Car Manufacturets 135

drawing board design and launched direct manufacture of twoprototypes. The company had learnt during many years ofmarketing operations, what their cars lacked and had evendeveloped solutions to the problems of the customers. Amajorityof the remedial measures were kept pending due to themanagement's policy of cost saving. Arun Kumar got a greensignal from Samirverma for the proposed expenditure, providedthe competition from Sonde Motors could be effectivelycountered. Arun Kumar's plan was to try the proposed changesthrough the prototype and simultaneously make productiondrawings. He could follow this unconventional approach becausehe had experience of designingVermaAutomobile cars for twodecades andbecause rich design datawas available in companyrecords/documents.

Soon, S.R. Telele of Sonde Motors got wind of what washappening atVermaAutomobiles. The race startedfor expeditiousfabrication of the prototypes. Sonde Motors seemed not onlytobe ahead but were also gaining further edge over theircompetitors. This was because:

1. They had a detailed design and knew what was requiredto be done.

2. The Purchase Department consisted of youngprofessionals who were not inhibited by time-consumingprocesses. They cut corners to get the right material atthe right price but as quickly as possible.

3. Sonde Motors could attract suppliers by tempting themwith the offer of making them regular vendors; whereasVerma Automobile had vendors and new parties were notsure of being able to replace the well-entrenched vendors.

4. Sonde Motors' staff had quick access to Mumbai andforeign markets due to I00 km of the natibn's best superhighway.

Arun Kumar atVermaAutomobiles complained to SamirVermaat the end of three months that he would never be able to catchup with Sonde Motors unless something is done to cut short thepurchase cycle. Arun Kumar wrote a note to Samir Vermaexplaining the steps he had to follow to get materials from themarket. He stated that:

l,rl

i'Iil; ,itl

,!'i '

Irit I

fili ii

ll ii

136 Case Study Solutions-Materiak Management

f. R&D department must initiate a Purchase Requisition,gling detailed description of the item; code number ofthe item or explain why a standard item would not do;the number/quantity required presently and likely to berequired in future; the time period by which the itemswere to be obtained and the reason why the demand couldnot be foreseen earlier. The dernands had to be markedRush because of the urgency and that required ArunKumar's personal signatures. Demand raising took at leasttwo man-days.

2. The demands were submitted to the stores section. Theychecked ifthe required itemwas available in storeswithinthe compiny. The stores in charge was required to checkthe availability of 'RUSH' demand items with all the sub-stores. This took two days. Stores staff quite often cameup with an item, which was quite similar but usuallyunsuitable for the task in hand. This took another twodays. The R&D team would consider themselves lucky ifthe RUSH demand reached Purchase Department in lessthan ten days.

3. There were invariably protests from the PurchaseDepartment for such a high percentage of RUSH demandsfrom the R&D. Theyarguedthateventhe production staffneverraised such ahighnumber of RUSH demands.Theyemphasized that RUSH demands cost at least 25 per centmore than the normal demands. At every purchasecoordination meeting, R&D representatives had beenharassed and ridiculed for the last two months for raisingonlyRUSH demands. The R&D staffwas unable to explainthe urgency because of the high secrecy involved withthe project.

4. Majority of the R&D demands are for small quantities.The Purchase department has instructions to'hold'suchdemands till an economically-viable quantity is required.This could delay the purchases by 2-3 weeks.

5. R&D department purchase requisitions are required tostate the number of items required in future. The R&Dstaff had assumed that a production run of 500 cars wouldbe launched as soon as the R&D work was over. Hence,under the column of future requirements in the purchase

The Race of Car Manufacturers 137

requisition form, the quantity required for 500 cars wasindicated. Purchase department complained that thequantity presently required is 8 pieces, but the futurerequirement is for 4000 pieces. Theyurged, the R&D wingto increase the present requirement to an economically-viable figure, say200 items andkeepthe remainingitemsin the stores against future requirements. The R&D staffcannot state that future requirements is subject to theitems beingfound suitable in trials due to the secretnatureof the project. Nor can the R&D team ignore the need fordeveloping suitable vendors for possibly requiredcomponents/items.

6. Purchase requisitions are scrutinized at the purchasedepartment before being turned over to the buyers. Steps3 to 6 take at least 4 weeks and at least 50 reminder callsat various levels.

7. The tendering and order placing takes another 5 weeksand delivery period could be 2-4 weeks.

B. The 'inward actions' including inspection, bringing oncharge, etc., could.take another week.

Arun Kumar stated that items ordered byhim when the workwas started hadjust started arriving.This, Arun Kumar concluded,would not do and wanted drastic changes to be made to thepurchase procedure for his project and extending the time limitfrom 3 months to 15 months. Arun Kumar walked into SamirVerma's room with this note. After Samir Verma had read thisreport, Arun Kumar Kumar showed him a bunch of bills. fuunKumar complained that R&D boys were so much involved withthe challenge of development that they had been spending moneyfrom their own pockets. SarnirVerma totalled and the bills addedup to Rs 4,860 for 6 weeks. Arun Kurnar burst out with anger, atrait not known to be associated with his personality. Hecomplained that last straw on the camels back was the incidentthat occurred last night. A helical spring was required urgently.A researcher, Sanjay, gave Rs 200 from his pocket to a laboratoryassistant, Shaikh to purchase it from the market when he camefor the afternoon shift. Shaikh was not clear of the requirementsand hence, brought two samples. There was an understandingwith the shopkeeperthatthe unsuitable springwould be returned

}', ill, ,ll

';1i:t;l / i

I

ll

138 Case Study Solutions-Materials Management

the following day. Shaikh was returning home at midnight withthe unsuitable spring and was caught by the security. He wasdetained at the gate and abused for stealing. Shaikh gave Sanjay'sname to corroborate his story. Sanjay, who had just gone after18 hours of work, was called from his home and declared as anaccompiice in the theft. All the R&D team was extremely upsetand wanted to be taken off from the project. Arun Kumar alsohad his resignation in his pocket.

What should SamirVerma do? Splityour answer into two parts,i.e. immediate actions and procedural changes required to beintroduced. Give justifications for your suggested solutions.

Maximum time to solue the case study: 35 minutes.

t,ll,llt:l

lri