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PERSONNAL MANAGEMENT

 

Page 1 Out of 1

 

Total Marks : 80

 

 

Instructions: Candidates should read carefully the instructions printed on the question paper and on

the cover of the answer book, which is provided for their use.

NB: Answer to each question must be started on a fresh page.

 

1. Psychological test as selection criteria can at best be a support to the interview process. Please

evaluate. (15 Marks)

2. Retention of employees in the organization starts with a structured and effective induction

program.Please comment. (15 Marks)

3. If you have to hire an HR Manager for your firm,what competencies would you look for?

Please answer in terms of your understanding of the HR function. (15 Marks)

4. Designing an attractive motivational strategy is the key to making of a high performance driven

organization. (15 Marks)

5. Briefly explain (Any two):

a) Different type of employee appraisals and rating

b) Validity / reliability

c) Job analysis

d) Stress interview (20 Marks)

 

 

 

 

 

 

OPERATIONS MANAGEMENT

 

COURSE : Total Marks : 80

 

NB.1) All questions carry equal marks.

2) All questions are compulsory.

3} read questions carefully.

4} Figures to the right indicate full marks.

Q1) Explain the concept Six Sigma. Bring out the significance of Six Sigma in Quality

Management? (10 Marks)

Q2) Define Project Management and explain its nature and features? (10 Marks)

 

Q3) What is Process Analysis? Explain the steps in Manufacturing Process Selection

and Design? (10Marks)

Q4) Enumerate and explain the Theory of Constraints? (10 Marks)

Q5) Write short notes (any two) (10 Marks)

 

a) Inventory Control

b) Operations Scheduling

c) Aggregate Sales and Operations Planning

Q6) Explain the following concept (any two) (10 Marks)

 

1) Product Design

2) Strategic Capacity Management

3) Lean Productions

Q7) Define Material Requirements Planning. Discuss its various components? (10 Marks)

Q8) What is Supply Chain Strategy? Discuss its characteristics? (10 Marks)

 

 

 

AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL

 

 Network Management
MARKS: 80
Section A
1. (i) List the five key differences between TCP reference model and OSI reference model. (2)
(ii) Write the similarities and differences between packet and cell switching. (2)
(iii) Why is the data link layer in a LAN subdivided into Logical Link Control (LLC) and Medium Access
Control (MAC) sub-layers ? (2)
(iv) List the characteristics of broadband coaxial cable. (2)
(v) Differentiate between virtual circuit and datagram’s. (2)
(vi) The maximum payload of TCP segment is 62 1/2,2 1/212 1/2 bytes. Why ? (3)
(vii) What are sliding window protocols ? Explain one-bit sliding window protocol with an appropriate
diagram. (2)
2. (i) Name all the basic network topologies and describe advantages of each. Draw proper diagram tor each
topology. (2)
(ii) Explain the following terms : (2)
(a) Bandwidth
(b) Channel capacity
(c) Multiplexing
(d) Quality of Service (QoS)
(e) Full-Duplex Transmission
(iii) What is the basic purpose of MAC layer protocol ? Explain the function of following MAC layer
protocols :
(a) Ethernet
(b) Token bus (2)
3. (i) Describe the characteristics and application or the following network devices : (6)
(a) Routers
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
(b) Bridges
(c) Switches
(iii) Answer the following : (4)
(a) Explain ISDN BRI Services.
(b) Differentiate between broadband and baseboard services.
(c) Describe the following three fields of TCP header :
(d) Sequence number
4. (i) What is congestion control ? How does it occur ? (2)
(ii) How does TCP handle connection establishment and crash recovery ? (2)
(iii) List and explain any five ISDN applications. (2)
5. (i) Describe and compare the following routing algorithms : (4)
(a) Shortest path routing
(b) Flooding
(ii) How does ATM differ from frame relay ? List and briefly define the ATM service classes. (6)
Section B
1. (a) Write any two differences between OSI and TCP/IP protocol suit. Also give reasons why OSI is not
popular. (3)
(b) Why is layering of the protocols done in TCP/IP stack ? (3)
(c) Explain any two functions of each layer of TCP/IP protocol stack. (2)
(d) How many address bits does the latest version of IP (IPv6) have ? What is the maximum number of IP
addresses possible with IPv6 ? (3)
(e) Identify the header of each flag and explain its meaning : (4)
(i) URG
(ii) ACK
(iii) FIN
(iv) RST
(f) How is flow control managed by Sliding Window protocol ? (3)
2. (a) What is Ethernet ? How does it work ? Also explain the fields of Ethernet Frame Format. (4)
(b) What is First-Octet Rule ? Give an example to explain it. (3)
3. (a) What is the significance of hierarchical naming scheme ? Differentiate among following addresses and
their meaning with reference of DNS : (5)
(i) www.isbm.edu
(ii) www.isbm.ac.in
(iii) www.Isbm.rnet.in
(iv) www.isbm.nic.in

 

 

 NETWORK MANAGEMENT
Marks : 80
CASE STUDY : 1
The Engineering Department of 12 persons in a small corporation in on a regular 10 Base T Ethernet
Lan Hub with 16 ports. The busy group started complaining because of the slow network
performance. The network was operating at 50% utilization, whereas 30% utilization is acceptable. If
you are the Information Technology Engineer of the corporation and have to resolve the problem
technically.
Question :
1) Describe four choices for resolving the problem maintaining the lan as Ethernet Lan.
2) State the advantages of each approach.
3) State the disadvantages of each approach.
4) Give reasoning about the choice you would prefer.
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
CASE STUDY : 2
Assume these are two management stations – one SNMP based and the other Corba based. The SNMP
based manager does poll based fault management of a device by sending SNMP requests every 2
minutes. The Corba based NMS fault management is fully push based and the NMS receives a
notification when there is a fault. The size of the SNMP request and response PDUS is 150 bytes and
the size of a CORBA notification is about 400 bytes. During 1 hour these are 20 alarms.
Question:
1) Calculate the bandwidth used in both cases.
2) How do you differentiate between both the cases?
CASE STUDY : 3
WLAN is created as an air interface 802.11 from 802.3 Ethernet interface. BSS comprises a set of
wireless stations controlled by a wireless termination point (WTP) you have set up your home network
using a wireless access point (WAP), which is connected to the Ethernet output of ADSL coming into
your house.
Question:
1) What are the two modes of MAC types that the WTP could be configured in?
2) Assume that you have a WIFI AP, how is it configured?
3) Write the SNMP query to use to validate your answer in (2)
4) What is your general understanding about the above.
CASE STUDY : 4
As a network engineer in a Network Operations Center, you are following up on two trouble tickets.
You do not have a network management system and you have to use the basic network tools to validate
the problem before you can resolve them (i) Please explain what tools you would use in each case and
how it would validate the consumer complaint?
Question:
1) Trouble Ticket 100: Customer says that when he receives messages, the message is periodically
missing some characters.
2) Trouble Ticket 101: Customer in Atlanta complaints that when she tried to lag into the system
server, headquarters.com in New York, she gets disconnected with a time out. However, her colleague
in her New York office reports that he is able to access the system.

 

 

CORPORATE LAW
N.B.: 1 Attempt any Twelve Questions
2) Last two Questions are compulsory
Q.1. In the following statements only one is correct statement. Explain Briefly?
(5 Marks)
i) An invitation to negotiate is a good offer.
ii) A quasi-contract is not a contract at all.
iii) An agreement to agree is a valid contract.
Q.2. A ship-owner agreed to carry to cargo of sugar belonging to A from Constanza to Busrah. He knew
that there was a sugar market in Busrah and that A was a sugar merchant, but did not know that he
intended to sell the cargo, immediately on its arrival. Owning to Shipment’s default, the voyage was
delayed and sugar fetched a lower price than it would have done had it arrived on time. A claimed
compensation for the full loss suffered by him because of the delay. Give your decision. Explain
Briefly? (5 Marks)
Q.3. The proprietors of a medical preparation called the “Carbolic Smoke Ball” published in several
newspapers the following advertisement:-
“£ 1000 reward will be paid by the Carbolic Smoke Ball Co. to any person who contracts the
increasing epidemic influenza after having used the Smoke Ball three times daily for two weeks
according to printed directions supplied with each ball. £ 1000 is deposited with the Alliance Bank
showing our sincerity in the matter.
On the faith in this advertisement, the plaintiff bought a Smoke Ball and used it as directed. She was
attacked by influenza. She sued the company for the reward. Will she succeed? Explain Briefly
(5 Marks)
Q.4. Fazal consigned four cases of Chinese crackers at Kanpur to be carried to Allahabad on the 30th May,
1987. He intended to sell them at the Shabarat festival of 5th June 1987. The railway discovered that
the consignment could not be sent by passenger train and asked Fazal either to remove them or
authorize their dispatch by goods train. He took no action and the goods arrived at Allahabad a
month after they were booked.
Fazal filed a suit against Railways for damages due to late delivery of the goods which deprived him
of the special profits at the festival sale. Decide & explain briefly ?
(5 Marks)
Q.5. ‘Lifeoy’ Soap company advertised that it would give a reward of Rs. 2000 who contracted skin
disease after using the ‘Lifeoy’ soap of the company for a certain period according to the printed
directions. Mrs. Jacob purchased the advertised ‘Lifeboy’ and contracted skin disease inspite of
using this soap according to the printed instructions. She claimed reward of Rs. 2000. The claim is
resisted by the company on the ground that offer was not made to her and that in any case she had
not communicated her acceptance of the offer. Decide whether Mrs. Jacob can claim the reward or
not. Give reasons. Explain briefly? (5 Marks)
Q.6. In each set of statements, only one is correct. State the correct statements & Explain briefly?
a) i) A bailee has a general lien on the goods bailed.
ii) The ownership of goods pawned passes to the pawnee.
iii) A gratuitous bailment can be terminated by the bailor even
before the stated time.
b) i) A substituted agent is as good an agent of the agent as a subagent.
ii) An ostensible agency is as effective as an express agency.
iii) A principal can always revoke an agent’s authority. (5 Marks)
Q.7. A, an unpaid seller, sends goods to B by railway. B becomes insolvent
And A sends a telegram to Railway authorities not to deliver the goods to B. B. goes to the Parcel
office of Railway Yard and by presenting R. R. (Railway Receipt) takes delivery of the goods and
starts putting them in the cart. Meanwhile the Station Master comes running with the telegram in
hand and takes possession of the goods from B. Discuss the rights of A and B to the goods in
possession of Railway authorities. (5 Marks)
Q.8. X needs Rs. 10,000 but cannot raise this amount because his credit is not good enough. Y whose
credit is good accommodates. X by giving him a pronote made out in favour of X, though Y owes
no money to X. X endorses the pronote to Z for value received. Z who is holder in due course the
pronote to Z for value received. Z who is holder in due course demands payment from Y. Can
refuse and plead the arrangement between him and X Explain briefly?
(5 Marks)
Q.9. Will C has the right of further negotiation in the following cases: (B signs the endorsements)
Explain briefly? (5 Marks)
i) ‘Pay C for my use’
ii) ‘Pay C’)
iv) ‘Pay C or order for the account of B’
Q.10. A promissory note was made without mentioning any time for payment. The holder added the
words’ on demand on the face of the instrument. State whether it amounted to material alteration
and explain the effect of such alteration. Explain briefly? (5
Marks)
Q.11. State whether the following instruments are valid promissory notes:
i) I promise to pay Rs. 5000 to B on the dearth of ‘B’s uncle provided that D in his will gives
me a legacy sufficient for the promise of payment of the said sum.
ii) I hereby acknowledge that I owe X Rs. 5,000 on account of rent due and I agree that the said
sum will be paid be me in regular installments.
iii) I acknowledge myself indebted to B in Rs. 5000 to be paid on demand for value received.
(5 Marks)
Q.12. A Payee holder of a bill of exchange. He endorses it in blank and delivers it to B. B endorses in full
to C or order. C without endorsement transfers the bill to D. State giving reasons whether D as
bearer of the bill of exchange is entitled to recover the payment from A or B or C. Explain briefly?
(5 Marks)
Q.13. Write a short note on the Doctrine of Indoor Management? Explain briefly?
(5 Marks)
Q.14. The shareholders at an annual general meeting passed a resolution for the payment of dividend at a
rate higher than that recommended by the Board of Directors. Examine the validity of the resolution.
Explain briefly? (5
Marks)
Q.15. In a prospectus issued by a company the Managing Director stated that the company had paid
dividend every year during 1921 – 27, which was a fact. However, the company had sustained losses
during the relevant period and had paid dividends out of secret reserves accumulated in the past.
Examine the consequences of the observation made by the Managing Director. Explain briefly?
(5 Marks)
Q.16. A buys from B 400 shares in a company on the faith of a share certificate issued by the company. A
tender to the company a transfer deed duly executed together with B’s share certificate. The
company discovers that the certificate in the name of B has been fraudulently obtained and refuses to
register the transfer. Advise A. Explain briefly? (5 Marks)
Q.17. A insured his house against fire. Later while insure, A killed his wife, severely injured his only son,
set fire to the house and died in the fire. The son survived and sued the insurer for the fire loss,
advice the insurer. Explain briefly? (5 Marks)
Q.18. a) Satrang Singh admitted his only infant son in a private nursing home. As a result of strong dose of
medicine administered by the nursing attendant, the child has become mentally retarded. Satrang
Singh wants to make a complaint to the District Forum under the Consumer Protection Act, 1986
seeking relief by way of compensation on the ground that there was deficiency in service by the
nursing home. Does his complaint give rise to a consumer dispute? Who is the consumer in the
instant case? Explain briefly?
b) Smart booked a motor vehicle through one of the dealers. He was informed subsequently that the
procedure for purchasing the motor vehicle had changed and was called upon to make further
payment to continue the booking before delivery. On being aggrieved, Smart filed a complaint with
the State Commission under the Consumer Protection Act, 1986. Will he succeed? Explain briefly?
c) Brittle and Company, a small-scale industry, sought nursing and financing facilities from its bankers
by means of grant of further advances and adequate margin money in anticipation of good demand
for its products. In failing to obtain this and having become sick, it proceeds against its bankers
under the Consumer Protection Act, 1986, Will it succeed? Explain briefly?
(5 Marks)
Q.20. X who was working as a truck driver had taken a general insurance policy to cover the risk of
injuries for a period from 1.11.1998 to 30.11.1999. He renewed the policy for a further period of one
year on 10.11.1999. On the same day, he met with an accident and suffered multiple injuries
including fractures. X submitted the claim along with documents to the insurance company. The
insurance company repudiated the claim on the ground that the premium for the renewed policy was
received in the office only at 2.30 p.m. on 10.11.1999, while the accident had taken place at 10.00
a.m. on that day and hence there was no policy at the time of accident. Will X succeed if he files a
complaint against the insurance company for this claim? Explain briefly?
(5 Marks)
Q.19 Avinash booked his goods with Superfast Freight Carriers at Delhi for being carried to Ferozabad.
The goods receipt note mentioned that all the disputes would be subject to jurisdiction of the
Mumbai Court. Avinash lodged a complaint for certain deficiency in service against the transporter
in the District Forum at Delhi. Superfast Carriers contested that District Forum at Delhi had no
jurisdiction to entertain the complaint as the head office of the transporter was at Mumbai and the
jurisdiction has been clearly stated in the goods receipt not. Is the contention of the transporter
tenable? Explain briefly? (5 Marks)
Q.20. With reference to the provisions of the Consumer Protection Act, 1986, decide the following giving
reasons in support of your answer.
i) Sukh Dukh Ltd. dispatched certain consignments of goods by road through Fastrack Roadways Ltd.
The goods were unloaded and stored in a godown enroute on the suggestion of consignee. A fire
broke out in the neighbouring godown spread to the godown and goods were destroyed. The
Fastrack Roadways Ltd. claimed that there was neither negligence nor deficiency in service on their
part and goods were being carried at “Owner risk” and since no special premium was paid, they were
not responsible for the loss caused by fire. Whether Fastrack Roadways Ltd. is liable to pay
damages to consignor?
ii) Life Insurance Corporation (LIC) formulated a scheme called ‘salary saving scheme’ under which
employees of an organisation could buy an insurance policy. Premium due on each policy was
collected by the employer from the salary of the employees nor did it issue any premium notice.
When the widow of the deceased employee made a claim to LIC on the death of her husband, the
LIC repudiated the claim on the ground that four installments of premium had not been paid. The
widow was approached the consumer forum for redressal. Is the LIC liable for deficiency in service?
Explain?
iii) Raman booked a ticket from Delhi to New York by Lufthansa Airlines. The airport authorities in
New Delhi did not find any fault in his visa and other documents. However, at Frankfurt airport
authorities instituted proceedings of verification because of which Raman missed his flight to New
York. After necessary verification, Raman was able to reach New York by the next flight. The
airline authorities’ tendered apology to Raman for the inconvenience caused to him and also paid as
goodwill gesture a sum of Rs. 5,000. Raman intends to institute proceedings under the Consumer
Protection Act, 1986 against Lufthansa Airlines for deficiency in service. Will he succeed?
(10 Marks )
Q.21. With reference to the provisions of the Consumer Protection Act, 1986, decide the following giving
reasons in support of your answer.
i) Sohn sent all relevant documents in an envelope regarding consignment of goods to a buyer in the
USA through Fast Service Couriers. The documents did not reach the buyer as a consequence of
which the buyer could not take delivery of the goods. By the time the duplicate copies of the
document had been received by the buyer, the season of the goods was over. He claimed that he had
suffered a loss of US $ 5,000 as a result of the negligence of the courier. The State Commission
ordered the payment to be made by the Fast Service Couriers, but the National Commission in appeal
reversed the order and ordered payment of US $ 100 only as per the receipt issued by the Fast
Service Courier to the consignor at the time of the dispatch of the latter. Advise Sohan.
ii) Mahesh purchased a machine from Astute Ltd. to operate it himself for earning his liverhood. He
took the assistance of a person to assist him in operating the machine. The machine developed fault
during the warranty period. He filed a claim in the consumer forum against the company for
deficiency in service. Astute Ltd. alleged that Mahesh did not operate the machine himself but had
appointed a person exclusively to operate the machine. Will Mahesh succeed?
iii) Pillai purchased a car by taking a loan from Kerala cooperative Bank Ltd. and gave post-dated
cheques to the bank not only in respect of repayment of loan instalments but also of premium of
insurance policy for two succeeding years. On the expiry of the policy. Pillai’s car met with an
accident. Will Pillai succeed in getting a claim against the
Bank ? (10 Marks)

 

 

CORPORATE I.T. MANAGEMENT

 

 

Total Marks : 80

Time : 3 Hours

 

Note: 1. ALL Questions are compulsory.

2. ALL Questions carry equal marks.

3. Use writing material blue /black pen

4. Draw the sketches and diagram wherever required.

 

Q1. a) Describe various information systems and their evolution, Explain briefly different types of

databases and DBMS Languages

b) What is computer hardware? Explain it and give the evolution of computer hierarchy.

c) What are the different types of information systems? Explain each briefly.

Q2) a) What are difference between system software and application software? Explain the

function

of operating system and give their different types

b) What do you understand by electronic commerce? Give its scope, benefits, and limitation

c)Describe various information systems and their evolution, and categorize specific systems

you observe.

Q3) a) Describe the World Wide Web and differentiate it from the Intranet. Describe the

capabilities that the internet offers to users.

b) How Information Technology can become the enabler tool in business? What are the

impact of IT on individual, society and organizations?

AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL

 

 

 

c) Discuss in details information infrastructure and architecture. Also describe how

information resources are managed and what are the roles of the ISD and end

users?

Q4) Write short notes on any three

a) Primary storage and secondary storage

b) M- commerce and C- commerce

c) Various number systems

d) Advantages and disadvantages of communication media

e) ER diagrams and normalizations in DBMS

 

Corporate Information Technology

N.B.: 1)Attempt any sixteen questions

2)All questions carries equal marks.

 

 

1. What are the characteristics of a technologically enabled

organization?

2. How does an Organization acquire & disseminal

knowledge?

3. Why do you suppose inquiry – only applications were

developed instead of fully on lines system?

4. What kind of technology is least flexible? Most flexible?

5. How does strategic planning differ between a firm that

offers services & one that manufacturers a product? Is

there a difference in the impact of technology on strategy

in any two types of firms?

6. What kind of business activities do you think are most

amenable to common systems in different countries?

7. What kind of programs do you think are likely to make the

most use of floating – point instructions?

 

AN ISO 9001 : 2000 CERTIFIED INTERNATIONAL B-SCHOOL

 

 

 

8. Distinguish between computer hardware & software which

most concerns a manager?

9. What kind of software does a server for a local area

network need to have?

10. What is OLAP? How does it contribute to the

organization?

11. Why are standards so important in communications?

12. What industries are most likely able to take advantage

EDI?

13. Are there applications where it does not matter if multiple

databases are simultaneously updated?

14. Most organizations today have computers and software, all

of which are supposed to work on a network, from different

Vendors? What are the potential problems with using

products from many different sources?

.. 2..

15. What are the differences in design for multi-user system

versus a personal system on a pc?

16. Does a system have to use the most modern technology to

be successful? Why or why not? Are there disadvantages

to utilizing the most up-to-date technology?

17. Why should one insist on a demonstration of a package?

18. What is a spaghetti organization?

19. How can you transform a huge firm like General Motors

with the help of information technology?

20. How more user development eventually eliminates the

need for professional systems analysis and programmers?

21. How can a company use multimedia today?

22. How does one go about identifying the expert to be used in

developing an expert system?

23. Describe how a virus actually works? What kind of files

does it want to infect?

24. What kind of changes does information technology either

create or facilitate within and between organizations?

What other changes are associate with IT?

25. What are the drawbacks of work place monitoring? Why

management might wants to monitor worker productivity?

 

SUPPLY CHAIN MANAGEMENT
Total marks 80
Group A
Case 1 (14 Marks )
Supply Chain Management at Bose Corporation
Bose Corporation manufactures audio premium speakers used in automobiles, high-fidelity systems and
consumer and commercial broad-casting systems. Head quartered in Framingham, Massachusetts, Bose
Corporation has plants in Massachusetts and Michigan as well as in Canada, Mexico and Ireland. Bose
speakers are the best sellers in Japan, the world leader in consumer electronics. Bose’s competence is in
its electronic engineering skills, ‘but the company attributes much of its business success to its tightly
controlled materials management and excellent Integrated supply chain management.
Bose purchases most of its electronic and other components from independent suppliers scattered around
North America, the Far East and Europe. About 50 percent of its purchases are from foreign suppliers,
the majority of them are from the Far East. Its purchasing organisation while decentralized has some
overlap that requires coordination between sides. Bose attempts to coordinate its globally dispersed
supply chain so that material holding and transportation costs are minimised. This requires component
parts to arrive at Bose’s Massachusetts assembly plant just in time to enter the production process. But
because Bose must remain responsive to its customers, it sometimes must respond quickly to increases in
customer demand for certain speakers so as to remain competitive. Since Bose does not want to hold
extensive inventories at its Massachusetts plant, this need for responsiveness requires Bose’s globally
dispersed supply chain o respond rapidly to increased demand for component parts.
Bose’s materials management function is responsible for coordinating the supply chain to meet both
objectives — minimising transportation and inventory holding costs and yet responding quickly to
customer demands. This function achieves coordination through a sophisticated logistics operation. Most
AN ISO 9001 : 2000 CERTIFIED INTERNATIONAL B-SCHOOL
2
of Bose’s imports from the Far East come via ships to the West coast and then across North America to
its Massachusetts plant via train. Most of the company’s export also move by ocean freight. Bose does
not hesitate to use airfreight when goods are needed urgently.
Bose has a long standing relationship with W.N. Procter. a Boston based freight forwarder and customs
broker. Procter handles customs clearance and shipping from suppliers to Bose. Procter provides Bose
with up-to-the minute electronic data interchange (EDI) capabilities which enable Bose to track parts as
they move through its global supply chain. Procter provides several other services to Bose such as
selecting overseas agents who can help move goods out of the Far East.
Procter’s well-established network of overseas contacts is especially useful when shipments must be
expedited through foreign customs. Procter also is electronically linked into the US customs system,
which allows it to clear freight electronically as much as five days before a ship arrives at a US port or
hours before an international airfreight shipment arrives - This helps to get goods to Bose’s
manufacturing plant several days sooner.
Bose has developed a detailed supplier performance system that measures on-time delivery, quality
performance, technical improvements and supplier suggestions. A report is generated twice a month from
this system to be sent to the suppliers providing feed-back about supplier performance.
Bose has written contracts with suppliers. After six months of delivery without rejects. Bose certifies the
suppliers as qualified suppliers.
Bose uses a sophisticated transportation system which is the best EDI system n the US. This j system
operates close to real time and allows two-way communication between every one of the freighthandlers’
230 terminals and Bose. Information is updated several times daily. This state-of- the art
system helps Bose’s managers to proactively manage logistics time elements in pursuit of better customer
service.
Perhaps one of the most unique features of Bose’s procurement and logistics system is the development
of JIT II. The basic premise of JIT H is: “the person who can do the best job of ordering and managing
inventory of a particular item is the supplier itself” Bose negotiated with each supplier to provide a full—
time employee at the Bose plant who was responsible for ordering. shipping and receiving materials from
that plant, as well as managing on-site inventories of the items. This was facilitated through an EDT
connection between Bose’s plant and the supplier’s facility.
Questions:-
1. Briefly present the salient features of the integrated supply chain management system at Bose?
2. Discuss how the strategy development process might work at a company like Bose?
3. What should be the relationship between Bose’s supply management strategy and the development of
its performance measurement system?
4. Discuss the importance of quality of purchased components to Bose?
3
Case 2 (14 Marks)
SKF Bearing’s Best Practices
“SKF’S outbound logistics outsourcing is characterised by strong control over quality norms and delivery
schedules by SKF personnel”
SKF Bearings is one of the world’s biggest ball bearing manufacturing units, and they have: a sizeable
presence i India. As part of its supply chain management practice. SKF Bearings handles the training,
implementation and quality control activities themselves, while outsourcing the actual
operations to logistic solution providers. Outbound warehousing and transportation practices outsourced
to logistic solution providers and national transporters.
(A) Inbound transportation and warehousing: Complete vendor outsourced, i.e. transportation and
warehousing managed and handled by vendors.
B) Outbound transportation : Handled predominantly by national fleet operators, with some
responsibilities of contingency transportaton outsourced to organised players.
(C) Outbound warehousing : Completely outsourced to organised players with five players handling
different warehouses of the company.
SKF’s outbound logistics outsourcing is characterized by strong control over quality norms and delivery
schedules by SKF personnel. Outbound warehousing which is a completely outsourced activity is
controlled by SKF personnel by integrating the warehouses through their in-house developed ERP
software platform.
Training of logistics company personnel to load/unload goods, assemble and disassemble and for
integrating scheduling and supply orders is imparted by SKF. Through this, they have managed to
achieve 100 percent order cycle fulfillment, bring down damaged/ short/over delivery instances to almost
0.25 percent of total annual order and train logistic personnel to meet all in-house developed quality
norms.
Even though majority of their logistics partners have IT capabilities of their own, SKF Bearings doesn’t
use them as they have integrated their own IT platform to schedule orders, keep track of consignments
and to manage both effective and efficient distribution. Their warehousing costs are higher than their
outbound transportation costs because of the extensive warehousing practices, but they have achieved
gains through the application of internal control over implementation of quality norms, strict adherence
to Standard Operating Procedures (SOPs) and a robust system of IT implementation throughout their
supply chain, Future Plans: Moving slowly towards Vendor Managed Inventory (VMI) for inbound
4
sourcing and also looking at outsourcing more warehouse management responsibilities. Looking to
implement more definitive 3PL solutions for outbound activities of the supply chain, but will still, keep
operational control in its own hands.
Questions
1. Discuss the activities involved in the supply chain of SKF Bearings?
2. Explain how .SKF establishes strong control over its outbound logistics?
3. What is meant by vendor managed inventory (VMI)?
4. What meant by third party (3PL) logistics solutions? Explain how SKF will be able to implement the
same?
Case 3 (14 Marks)
Chrysler Unseats its Competition with Supplier Partnerships
When Lee lococea gave the co ahead to Chrysler’s Neon Project in I NO, he \\ as taking a big risk. Until
that time; no American subcompact ear had been able to turn a profit for its manufacturer. l3ut Chrysler’s
Neon ultimately reversed this trend: mainly because of the unprecedented partnerships Chrysler entered
into with its suppliers in the earliest stages ot the Neon Project.
Robert Marcell. head of Chrysler’s small -car division, knew that such partnerships held the key to
Chrysler’s success. In order to make a profit, Marcell had to meet stringent production schedules for
which he had to bring suppliers on board early. This is crucial because outside companies would be
furnishing 70 percent of the value of the car in the form of tyres seats,suspension, and other components.
In an unprecedented move, Marcell allowed engineers from key potential suppliers to dose the first
Neon prototype during an October 1990 meeting. His team then issued a cost challenge. inviting
suppliers to make use of sensitive Chrysler financial data and ideas in a mutual effort to Cut costs.
Companies who entered into this unique partnership found that collaborating with Chrysler was a twoway
street. For exarple Johnson controls, Inc was initially to make the Neon’s seats within Chrysler’s
price targets, but Chrysler was unhappy with their safety. Weight and comfort. After the supplier
partnership agreement, ten Chrysler engineers moved into Johnson controls’ firm near Detroit to work
with the engineers of Johnson controls. After working together for five days together the partners agreed
on new weight, cost and performance standards that were so on target that they didn’t have to be changed
again.
As a result of this unique partnership, Chrysler was able to accept higher component Costs from Johnson
controls because of overall savings for Chrysler. At Chrysler’s request Johnson designed some rear seats
with the capability of folding down to expand trunk space. But Chrysler engineers insisted that Johnson
design the special seats so that they could be installed the same as other seats. This made each seat cost
5
more, but Chrysler ultimately could save about $ one million overall in final assembly costs. Thanks to
its successful partnership with Johnson controls and other major suppliers, Chrysler met its stringent cost
and time deadlines for the Neon- and came out with Detroit’s first profitable subcompact car in the
bargain.
Questions
1. Discuss the approach of Chrysler’s operations managers in developing arid building the Neon model?
2. Discuss the relevance of this case to the study of supply chain management?
3. What benefits a manufacturing firm can achieve from its suppliers, through outsourced manufacturing?
4. Discuss the differences between outsourcing and out-partnering?
Case 4 (14 Marks)
Delphi Automotive Setting New Norms
“Logistics service provider and transporter evaluation is done on the basis of requirement levels met,
which is 100 percent for any component before it goes on to the line”.
Delphi Automotive India Ltd. is the Indian arm of the global giant Delphi Automotive. The major
components that Delphi supplies in the country are steering columns, half shafts, AC Units, Engine
Management systems, Catalytic Converters and Wiring Harnesses. The Company also takes up sourcing
requirements of clients based out of India.
Suppliers are generally selected on the basis o their proximity to the company’s four manufacturing units
in India, which are located in Bangalore, Karnataka (two plants), one in Noida, Uttar Pradesh and one in
Gurgaon (Haryana). Delphi believes in efficient sourcing from its suppliers. Nearby suppliers are
required to supply the plant everyday while far flung suppliers are required to supply 2-3 times in a week.
Delphi has streamlined the inbound process by procuring high volume, low cost items from nearby
suppliers and high cost, low volume items from far flung suppliers.
Delphi Automotive India has outsourced the entire inbound sourcing part of the supply chain to its
suppliers, totaling about 150. They are responsible for the inbound transportation and warehousing of
components before the latter reaches any of Delphi’s manufacturing plants.
For outbound trá1sportation and warehousing. the company works with a mixture of national transporters
and organised logistics solution providers, Its outbound warehousing has been outsourced to a trading
company with capabilities in warehouse management.
To make sure that quality norms are adhered to and supply schedules are met, logistics service 1?rovider
and transporter evaluation is done on the basis of requirement levels met, which is 100 percent for any
component before it goes on to the line. This is a very Important service level definition on which logistic
solution providers and transporters are evaluated.
Since the stock and inventory checking aspects of the supply chain have been automated, details of stocks
and status of delivery can be tracked. Web enabled
6
consignment tracking facilities are provided by Delphi India to its foreign customers enabling the latter to
track the status and location of their’ consignments at any given point in time. Indian customers are
slowly being provided with this facility. Also, Indian customers can place orders from Delphi using the
company’s extranet system as and, when the requirement arises.
Future Plans: Will slowly move towards a more structured system of logistics outsourcing, which would
mean that it will increasingly start looking at more 3PL outsourcing arrangements.
Questions
1. Explain the supply chain of Delphi Automotive.
2. Explain how Delphi Automotive manages its inbound sourcing.
3. Explain how Delphi Automotive manages its outbound logistics.
4 Suggest a suitable strategy for Delphi Automotive to Improve its supply chain effectives.
Group B
Case 5 (24 Marks)
Karnataka Engineering Company Limited
By 1983 (the case time context), the two-wheeler market had been liberalised and companies had to deal
with the new realities. Logistics was one of the business activities which got a strong look. The case of
Karnataka Engineering Company Limited (KEC) provides the background for analysing a key set of
logistical concerns.
Strengthening the distribution network for finished products is one of the most direct ways of improving
service effectiveness and cost efficiency of a firm’s marketing related operations. The cost of selling up
and operating different facilities in the distribution network have to be viewed vis-à-vis the recurring
transportation and inventory costs in the distribution network and increasingly, service measures such as
response time to different sets of downstream customers.
In this case, the logistics manager s faced with the issue of designing a distribution network. ‘Twowheelers
have to be distributed from a single factory to several dealers. For illustrating the nature of the
decision, one state (Andhra Pradesh) is taken up for detailed analysis. Here, it is assumed that distribution
will be done state-wise, because of commercial (tax) considerations.
Five hierarchical decisions have to be made in this case; deciding on the number of warehouses, the
location of those warehouses, the allocation of demand points to a warehouse, the selection of a shipment
size, and an order processing and routing policy for the actual distribution from warehouse to demand
7
points. Here, shipments from depots to dealers are through trucks or LCVs. Depending on the order
processing discipline that is selected, one could have the possibility of meeting the demands of two or
more dealers with a single trip. This would need a routing procedure.
Questions
1. At what volumes is the opening of a warehouse in a state justified primarily on the grounds of the 4 per
cent central sales tax for transactions across states?
2. How many warehouses do you think are required for the distribution of KEC’s products in Andhra
Pradesh? What could the candidate locations of the warehouses be? What would be the criteria on which
to select the candidates?
3. Determine the optimal selection of warehouses and the best allocation of demand points to the selected
warehouses?
4. What are the best choices for shipment (truck) size from warehouses to demand points? Given the size,
what routing would you recommend for a typical dispatch run?
Approach for Analysis
The problem here is a relatively complex one, in theory, because of the number of different but
interrelated decisions that have to he made. Two options are suggested to approach this problem. One is
to decompose the decision areas (typically in the order of the hierarchy described above) and calculate
only the aggregate contributions from other decisions. For example, a shipment size can be assumed
while deciding the number and location of warehouses (and that would determine the relevant costs), and
this can be repeated for each significant option.
Another approach is to explicitly and simultaneously consider two or more interrelated decisions. This is
a very common practice in, for example, location allocation models. This makes decision-making more
accurate. But this is not always possible.
A combination of these two approaches may be helpful here. A reasonable set of scenarios for shipment
size for making the upper-level decisions, a combined model for location and allocation, and again an
aggregate consideration for deciding the number of warehouses (based on the fixed costs vis-à-vis the
maximum savings in transportation) can be prepared. The routing decision can be separately made after
the allocation decisions are made, for each shipment size possibility. For the location-allocation decision,
even the number of warehouses to be opened can be left open, and a model developed based on Mixed
Integer Linear Programming. The model size should be kept small enough that a simple solution should
be obtained by running the model on a PC. Extensions of such models in m1aitleve1 distribution, where
explicit consideration of warehouse location costs and transport link fixed costs have been combined with
allocation decisions, have been among the most successful applications of models to practical decisionmaking.
Karnataka Engineering Company Limited (KEC)*
8
Karnataka Engineering Company Limited, Raichur, entered the two-wheeler industry in 1981 with the
production of mopeds. In 1983, they set up a scooter production line in Raichur. The two-wheeler scene
in India was very much a seller’s market in the early years, with waiting times of several months for
potential customers.
In 1987, there was a slump in the Two-wheeler market which affected all manufacturers badly. The
market became extremely competitive. This forced KEC to look for ways to tackle the increased
competitiveness. It was felt by the Staff Vice-President (Corporate Planning) that the physical
distribution function was a source of competitive advantage which, if properly handled, could yield
substantial dividends that would be visible in the immediate future.
KEC had set up a team to aggressively lead their marketing efforts in the slumping markets, called ‘Go
For It’. At a meeting of ‘Go For It’, the Staff VP (Corp. Planning) put forth his ideas for rationalising the
management of the physical distribution function, which was accepted by everyone, including the
Managing Director. Prior to this meeting, he had circulated a letter to all concerned (Exhibit
1). The organisation structure of KEC is given in Exhibit 2. Value added by KEC based on 1986-1987
financial data is given in Exhibit 3
Present Distribution
From Raichur, the two-wheelers are transported by specially adapted trucks, which can carry either 80
mopeds or 50 scooters or a combination of both. This phase of the distribution, called primary
transportation, is organised at Raichur itself by the central marketing office.
KEC has 19 branches spread all over India. Exhibit 4 gives a list of the branches (along with the
states/Uts) and their rnonh1y offtakés with sales value. Every branch is manned by a branch manager,
who is the 501C KE.C employee there. He wage labour for the loading and unloading operations. The
econda1y tansport arrangements transport from the branch to the dealers arc made by KEC Marketing
offices located in most states. A list of the marketing offices is given in Exhibit 5.
The consultant, based on discussions with the Staff VP arid Chief Operating Officer, arrived at a
framework for analysis, quite similar to the one outlined in Exhibit 1.
Branch Operating Costs and Locations
The operating expenses of a branch were estimated to be Rs 17,000 per month. The break-up is given in
Exhibit 6. However, the actual average expenses were closer to Rs 21,000 per month. The inventory cost
for each branch has been determined by examining the average branch inventory as given in Exhibit 7. It
should be kept in mind that the period January-July 1988, on which the data is based, represents a slump
in the market resulting in higher than normal inventories.
Given the costs, it can be determined that at 4 per cent central sales tax, the minimum throughput that
would justify the setting up of a branch in a state would be Rs 4.25 lakh per month. This translates into
78 mopeds (at Rs 5,500 per moped) or 33 scooters (at Rs 13,000 per scooter) per month or any
combination thereof. From Exhibit 4 it can be seen that it would be advantageous to locate branch
warehouses in 18 states/UTs. New branches need to be set up in Goa, Orissa and Pondicherry.
9
The branch in Jammu and Kashmir can be discontinued. The north-eastern part of the country should be
examined in greater detail with a state with break up
For the states where a branch location is deemed Essential the next task was to determine how many
branches should be opened iii each state arid where exactly they should be located.
The principal factor to examine when considering whether more than one branch is justified would be to
see if the savings in total transportation costs (primary and secondary transportation costs) would be more
than the additional cost of a new branch.
Distribution in Andhra Pradesh
The logistics expert decided to examine the case of AP in detail for an interim presentation to KEC. The
existing position was that KEC had two branch warehouses at Adoni and Mahbubnagar,f serving roughly
the northern and southern halves of AP. Exhibit 8 shows the locations of the dealer points on a map.
Exhibit 9 gives the actual average monthly offtake to the dealer points in Al’ based on January-July 1988
data.
The marketing office at Hyderabad would collate the orders and issue instructions by telephone to the
branch manager at Adoni and Mahbubnagar regarding secondary despatches. Actual routing decisions
were the responsibility of the branch manager. Both the branch managers found it difficult to get through
to dealers by telephone. Further, the Mehboobnagar branch manager frequently complained about
difficulties in arranging secondary transport. It must be mentioned here that the principle that motivated
KEC to select Adoni and Mahbubnagar as branch locations is that they are the first major towns in AP
after crossing the border.
Transportation and Routing
To get a good handle on the nature of transportation cogs, the consultant defined a unit called the moped
unit km. where one moped unit km is performed by transporting one moped unit for a distance of one
kilometre. One scooter was taken as equivalent to 1.6 moped units as a full truckload carries 1.6 times
more mopeds than scooters. He further set out to determine an average1 figure of the transport cost per
moped unit km, both for primary and secondary transportation.
The truck rates for various truck sizes are given in Exhibit 10. An important decision here is the optimal
size of shipment (which size truck to use). Exhibit 11 gives the distance math between the dealer points
and potential branch locations. The potential locations were selected based on offtake levels, demand
spread, quality of life, etc.
For primary transportation, it was found that the trucks were generally run at full capacity The 80 moped
units capacity truck was normally used. To determine primary transport cost, the distance figures from
Raichur to the potential branch locations are given as Adoni (70 km) Cuddappah (270 km), Hyderabad
10
(190 km), Kurnool (100 km—not a good road, 170 km—by good road), Mehboobnagar (100 km) and
Vijayawada (480 km via Hyderabad). For secondary transportation. six sample routings as given in
Exhibit 12 were chosen to determine the transport cost per moped unit km.
The average pipeline inventory was also a cost consideration. At the national level, average pipeline
inventory for primary transportation can be calculated given the average lead for mopeds as 700 km and
for scooters as 900 km. A truck does average of 350 km per day. Secondary transport pipeline inventory
was negligible, accept in large states.
The consultant now felt that he was ready to analyse the alternatives for branch location shipment size,
etc.
EXHIBIT I
From Staff VP (Corporate Planning)
To COO (Chief Operating Officer)
All members of Go For It
The recent slump in the market for two-wheelers is hitting not only our bottomline but also the morale of
the staff. We have been caught almost unaware by this and our sales forecasts look ridiculous. We are
faced with the all too visible problem of a build-up in finished goods inventory at Raichur and the
branches on account of lower offtake. The problem is so severe that sometimes trucks have had to wait
for more than a week to unload at branch points.
An important, but unfortunately neglected area to which we must pay attention is our logistics function.
If the right decisions are taken here, the potential to save money and provide an optimum level of service
to the consumer exists. Studying our logistics requirements should lead to savings in transportation costs
and inventory costs. The other benefit would be that our response time to orders would be acceptable to
the customer without imposing unjustifiable additional costs. As a first step, it would be useful for us to
recognise the significance of logistics costsas a proportion of value added to products. As I see it, the
first-level decision should be to make up our minds as to which states we should have branches in. The
financial advantage of having a branch warehouse in a state is that we then don’t have to pay the 4 per
cent central sales tax which is based on interstate sales.
The second-level decision should be to determine where in a state the branch should he located and
whether more than one branch would be justified. Related decisions would be the size of shipment,
frequency of shipment. inventory positioning at branches and routing of primary and secondary transport.
As we do not have any suitable person in KEC who is qualified to examine the issues involved, I have
identified an external management logistics expert to conduct the study.
11
EXHIBIT 3
Value Added Statement for 1986-87
Mopeds Scooters Total
Sales 63.20 41.10 104.30
Raw Material and Component Cost (67%
for mopeds) (69% for Scooters)
42.34 28.36 70.70
Value Added 20.86 12.74 33.60
EXHIBIT 4
12
State/UT-wise Monthly Average Sales (January-July 1988)
S.No State/UT Branch Location Mopels Scooters Sales Value (Rs 000)
1 Andhra
Pradesh
Adoni/M nagar 465/1460 78/210 3571.5/10760
2 Bihar Ranchi 360 125 3605
3 Daman Daman 15 300 3982.5
4 Delhi Delhi 65 30 747.5
5 Goa - 55 50 952.5
6 Gujarat Vadodara 80 70 1350
7 Haryana Faridabad 60 20 590
8 Himachal
Pradesh
- 10 10 185
9 Jammu &
Kashmir
Ja 5 25 352.5
10 Karnataka R 2400 150 15150
11 Kerala Cochin 80 60 1220
12 Madhya
Pradesh
Bhopal/Raipur 290/300 80/60 2635/2430
13 Maharashtra Mumbai 180 360 5670
14 North-east - 30 35 620
15 Orissa - 60 20 590
16 Pondicherry - 65 25 682.5
17 Punjab &
Chandigarh
Chandigarh 300 180 3990
18 Rajasthan Jaipur 210 120 2715
19 Tamil Nadu Vellore 1100 120 7610
13
20 Uttar Pradesh Luknow/Varanasi 750/300 170/70 6335/2560
21 West Bengal Medinipur 100 40 1070
Total 8740 2408 79374
Exhibit 5
Marketing Officer
Tamil Nadu Chennai
Karanataka Bangalore/Raichur
Andhra Pradesh Hyderabad
Kerala Cochin
Maharashtra Mumbai
MP Bhopal
UP Lucknow
Bihar Ranchi
West Bengal Calcutta
Rajasthan Jaipur
Gujarat Ahmedabad
J & K Srinagar
Punjab & Haryana Chandigarh
Delhi Delhi
Exhibit 6
Branch Opening Cost
Item Rs/Month
14
Utility ect 2000
Rent 4000
Salary 4000
Inventory 11000
Total 21000
Exhibit 7
Average Inventory Position at Branches (January-July 1988)
1 Adoni 63 24
2 M’nagar 58 30
3 Ranchi 30 14
4 Daman 39 91
5 Delhi 20 32
6 Vadodara 96 112
7 Faridabad 0 0
8 Jammu 29 25
9 Cochin 0 0
10 Bhopal 143 132
11 Raipur 55 59
12 Mumbai 63 109
13 Chandigarh 75 119
14 Jaipur 115 53
15 Vellore 53 32
16 Lucknow 165 146
15
17 Varanasi 86 146
18 Medinipur 50 32
Average Inventory at Branches 63.33 64.22
19 Raichur (including finished goods inv.)1122 768
Exhibit 8
Andhra Pradesh-KEC Branches
16
17
EXHBIT 9
Average Monthly Offtake in Andhra Pradesh (January –July 1988)
Mopeds Scooters moped-units
From Adoni
1 Adoni 25 10 41
2 Chittoor 90 10 106
3 Nellore 20 15 44
4 Ongole 20 0 20
5 Chirala 50 3 54.8
6 Cuddappah 55 4 61.4
7 Hindupur 60 7 71.2
8 Anantapur 60 10 76
9 Kurnool 20 3 24.8
10 Tirupati 65 16 90.6
From M’nagar
11 Guntur 95 15 119
12 V’Wada 205 30 253
13 Khammam 80 15 104
14 Warangal 65 15 89
15 R’Mundry 80 0 80
16 Kakinada 70 4 76.4
17 Vizag 115 6 124.6
18 V’nagram 30 5 38
19 M’nagar 20 10 36
20 Hyderabad 600 80 728
18
21 Nizamabad 45 15 69
22 K’nagar 55 15 79
Total 1925 288 2385.8
EXHIBIT 10
Truck Rates (Rs per km)
Transporter 80 Mopeds or 50
Scooters(large truck)
56 Mopeds or 35
Scooters(medium
truck)
20 Mopeds or 12
Scooters (LCV)
PC Rao Brother 6.00 4.80 -
Raichur Roadways 6.00 4.80 -
Adoni Travels 6.50 5.00 4.00
Mehboobnagar
Trucking Society
6.90 5.50 4.60
EXHIBIT 11
AP Distance Matrix
S No. Adoni Cuddappah Hyderabad Kurnool M’nagar V’wada
1. Adoni 0 200 240 125 150 540
2.
Anantapur
110 120 340 130 240 400
3. Chirala 360 210 380 280 280 90
4. Chittoor 340 140 515 320 450 420
5. 200 0 365 180 280 310
19
Cuddappa
6. Guntur 390 270 320 250 410 30
7.
Hindupur
230 180 475 240 330 470
8.
Hyderabad
240 365 0 175 90 290
9.
Kakinada
740 520 500 390 590 210
10.
K’nagar
420 615 250 320 270 280
11.
Khammam
430 400 190 290 270 130
12.
Kurnool
120 180 175 0 125 290
13.
M’nagar
150 280 90 125 0 380
14. Nellore 280 130 470 260 360 240
15.
Nizamabad
435 515 150 330 285 360
16. Ongole 320 160 425 240 290 125
17.
R’mundry
680 460 440 370 530 150
18. Tirupati 330 130 485 310 440 390
19. V’wada 540 310 290 290 380 0
20. Vizag 900 680 660 590 750 370
21.
V’nagaram
950 730 710 640 800 420
22. 380 480 120 310 230 210
20
Warangal
EXHIBIT 12
Sample Routings for Dealer Point Delivery (Based on Invoice Statements)
Shipment
Number
Routing
From 1 To 2
Offtake at 2
Mopeds3 Scooters4
Offtake at
2
Sector
Distance
1 Adoni Anantpur 12 __ 12 110
Anantapur Hindupur 8 __ 8 120
2 Adoni Trupati 10 25 50 330
Triupati Nellore __ 15 24 120
3 Adoni Cuddappah 40 __ 40 200
Cuddappah Nellore 40 __ 40 130
4 M’ Nagar Hyderabad __ 30 48 90
Hyderabad Warangal __ 20 32 120
5 M’nagar Hyderabad 24 20 56 90
6 M’nagar Vijayawada 30 __ 30 380
Vijayawada R’mundry 30 __ 30 150
R’mundry Kakinada 20 __ 20 60
Analyze in minute details this Case with reference to the Principles of Logistics and supply chain
Management

 

Production & Operation Management
Total marks 80
CASE-1
CAD/CAM Application: Case Study of BMW AG
BMW AG had about 44,000 employees and a turnover of DM 11,480 million in 1983. CAD/CAM
are used in both the automobile and motorcycle businesses. The major objectives behind the initial
decision to invest in CAD/CAM were to reduce the overall design and development time cycle, to
increase productivity by integrating previously independent phases of this cycle, and to optimize
design. The first CAD/CAM system was in place in 1978, with 20 workstations, and by the end of
1985, about 200 CAD/CAM workstations had been installed.
The major phases in the design and development cycle of a car are pre-development, concept
development, detailed design, prototype manufacture and testing, design of tools and fixtures for
production, manufacture of these tools and fixtures, planning and quality control, production of the
preserves and finally, series production. Traditionally (i.e. before CAD/CAM was used), each phase
was carried out separately and in sequence, and little work could be carried out on a phase until the
previous phase had been terminated. With CAD/CAM it is possible to increase the overlap of the
design phase and, for example, to pass the data from the first phase to the second before the first
phase has been completed. Similarly, new opportunities arising from the use of 3-D representations
with CAD/CAM allow the designer to carry out stress-, kinematics-, collision- and assembly-analysis
before a prototype has been built. This not only saves time but leads to design optimization.
It is recognized that different application areas have different CAD/CAM requirements. At the time
at which CAD/CAM was introduced, no individual CAD/CAM system met all the requirements. The
solution of a single CAD/CAM system for all applications was rejected as being unproductive. Such
a system would, in general, only have been used in carrying out the most mundane parts of the
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
design. Had such a system been chosen at that time, it would have been of assistance only in drafting.
This solution would not have met the objectives mentioned above, nor contributed much to the
overall product requirements such as high-quality, high-precision and attractive design. It was
therefore decided that the best possible system for an application (i.e. the system meeting a particular
application’s requirements as closely as possible) would be applied to that application. This led to the
use of several CAD/CAM systems within the company. Each of these systems was required to meet
the specific requirements of the application for which it was used. The order in which systems have
been installed reflects the benefits expected to arise from their use in a particular application area.
CAD/CAM systems were first installed to support car-body applications as this was the area believed
to offer the highest potential productivity gains. Within this area, the individual activities include
styling, model manufacturing, digitization of models, production of computer-based model drawings,
smoothing of surfaces, model generation by NC milling, tool designing, tool manufacturing (copymilling)
and checking. With CAD/CAM it was found possible to create more body design
alternatives within a reduced time, and to increase the quality of the body.
The systems used for body applications are GILDAS, MEFISTO and STRIM. GILDAS is an inhouse
development for managing the multitude of digitized points produced from models. MEFISTO
is another in-house development. It is a surface-milling system with 5-axes capabilities. STRIM
(from Cisigraph), a surface modeller based on a multiparametric polynomial representation, is used
by the designer to ‘smooth’ the digitized points to form individual patches of surface. These patches
are then blended together, and modified if necessary, to from an aesthetically pleasing car body
surface. The entire outer body surface is designed using STRIM.
The same system handles many of the inner body parts. Although many of these are not made up of
such complex shapes as the external body, they are often designed using information available in the
external body description (e.g. offset surfaces). The system is also used to design interior fittings and
mountings for parts such as seats and sun visors. It is also used in windscreen design and
manufacture; for example to design a developable windscreen surface to fit the requested windscreen
outline, or to calculate the best shape of the flat glass that will be moulded to produce a nondevelopable
windscreen surface.
Once the use of CAD/CAM had been successfully demonstrated in car-body applications,
CAD/CAM systems were implemented for other applications. In 1979, CABLOS (from AGS) was
implemented for schematic diagrams and layouts. In 1980, CD- 2000 (from Control Data
Corporation) was implemented for the design and drafting of mechanical parts. CADAM (from
Lockheed/IBM) and CATIA were then installed for manufacturing engineering applications such as
design of press tools, casts, fixtures and production machine mechanisms, and for preparation of NC
machine-tool programs. Finally, 1983 saw the development of GRIVAD, a system for circuit design,
electrical wiring layout and electrical-parts-list generation.
BMW purchased CAD/CAM systems wherever possible (i.e. whenever there has been a system
available on the market to meet the requirements of a particular application). In-house developments
were made when a suitable system was not found on the market. Typical in-house developments
have been in linking systems together, and in special car-industry-related applications (e.g.
kinematics-analysis of wheel movements, calculations of visible areas and calculation of the wiped
area on the windscreen).
It was found that the initial acceptance of the CAD/CAM system is decisive for its long-term success.
Another requirement for success is a constructive dialogue between system managers and users, with
the user being able to influence the development of the system positively. Other important
requirements were found to be high stability and availability of the system, transparency to the user
EDP problems, and the possibility of adapting the system to specific requirements of the company
(particularly with respect to data inferences, data protection and special applications).
BMW found that the use of CAD/CAM led to saving in time, lower costs, higher flexibility, and
increased product quality. It also offered, in some cases, the possibility of carrying out tests that were
just not possible before the introduction of CAD/CAM. Reduction of time cycles is particularly
appreciated partly because it offers the possibility of creating alternative designs within a given time
period, and partly because it offers, for example, at an early stage of styling and design, the chance to
reduce the lead times. Quality improvement both produces a better product and results in a reduction
of harmonizing and modification work at later stages of the manufacturing process.
The period 1979 to 1984 is seen as a highly successful one in which productivity in several
application areas was increased by the introduction and use of specific CAD/CAM systems meeting
specific application requirements. Since 1983, BMW has been preparing for a new phase of
CAD/CAM development in which further productivity gains can be attained by increasing the
integration between systems. One major requirement is to improve the transfer of CAD/CAM data
both between applications and with sub-contractors. An in-house development, CADNET uses IGES
and VDA formats. BMW is also co-operating with other companies (e.g., on an Esprit project), to
attain a unique data interface between systems. Whereas the initial period of CAD/CAM use led to
success in specific application areas, productivity gains in the next phase will come both from full
integration of systems within the same development phase and from integrating different
development phases.
CAD/CAM at BMW is not seen as an isolated technique, but as a major component of CIM. It is
therefore developed in conjunction with production automation (NC machine tools, robots, etc.) and
communication techniques for improved technical administrative logistics (including process
planning and engineering data management).
Questions
1) Analyze the above case and give your comments?
Case 2
Order Promising with ATP
Mitel Corporation, headquartered in Kanata, Ontario, Canada, is an international supplier of
telecommunications equipment and services. Its product lines include business telephone systems,
semiconductors, public switching systems, network enhancement and gateway products, systems
development, and software products. Mitel is active in major growth markets such as computer
telephony integration and emerging technology systems. By combining its products, services, and
knowledge, the company provides solutions to a variety of telecommunication problems for
customers.
One of the company’s products is a telephone, the Superset 430. The dark gray version of the phone
is part number 9116-502-000-NA. The order promising record for this product is shown as Figure
6.11. At the top of the header information is the part number, and product description. Next, data on
stock status and availability are given. The “Whs” is the warehouse where the stock is located. The
“OH” is the on-hand balance, which might overstate availability because some product is already
allocated (“Ale”) for a customer, has been picked (“Opk”) and is ready to ship to a customer, or is
being inspected for damage (“Dmg”). The net result is the amount of product available (“Avl”) for
delivery to customers in the future. The record has a 13-month horizon, of which only 9 weeks are
shown on the screen. The starting availability refers to the beginning of the first week of the record.
The detailed record itself is used to develop the available-to-promise quantities that are used to make
order promises to customers. The record displays nine weeks of information
Figure 1 Order-Promising Record for Mitel
Product Description
9116-502-000-NA Superset 430 Dark Grey
Schedule/Stock-by-Week
---WHS---OH---ALC---OPK---DMG---AVL----BKO---ONO---COM---INTDIS
1039 1039
APT Horizon: 13 Starting Avl: 1039
Week
Ending
3/8 3/15 3/22 3/29 4/5 4/12 4/19 4/26 5/3
Unal Ship 2 8 3 188 93
Sch Rcpt 84 150
Mfg Rcpt
Prj OH 1037 1029 1026 838 745 745 829 829 979
Cum B’log
Atp
294
745
292
745
284
745
281
745
93
745
745 829 829 979
Figure 2 Update of ATP after Booking Order
-Product------------Description------------Extended Description-----------
9116-502-000-NA SUPERSET 430 DARK GREY
Schedule/Stock-by-Week
---Whs---OH---Alc---Opk---Dmg----Avl----Bko---Ono---Com----Int-
DIS 1039 1039
ATP Horizon: 13 Starting Avl: 1039
Week Ending 3/8 3/15 3/22 3/29 4/5 4/12 4/19 4/26 5/3
Unal Ship 2 8 3 188 93 100
SChRcpt
Mfg Rcpt
84 150
Prj OH
1037 1029 1026 838 745 645 729 729 879
Cum B’log
ATP
394
645
392
645
384
645
381
645
193
645
100
645
729
729
879
using the week ending date as the indicator of the week. The row labeled “Unal Ship” (unallocated
shipments) contains the booked customer orders that have not yet been allocated or picked. The
second line shows scheduled receipts (“Sch Rcpt”), for items for which purchasing is an alternative,
and manufacturing receipts (“Mfg Rcpt”), which come directly from the master production schedule
and are managed using a different record. The projected on-hand balance (“Prj OH”) is calculated
from the booked orders directly, since there is no forecast information included in the Mitel orderpromising
record. For instance, the starting availability of 1,039 is reduced by the demand of 2 in the
week of 3/8 to leave a balance of 1,037. Similarly, the demand of 8 in 3/15 further reduces the
balance to 1,029.
The final row on the record totals the cumulative backlog for each week in the future for all
subsequent weeks. For week 3/8 it is the sum of the booked orders for the first five weeks, 294. For
week.3/1 5 it is the sum of the first five weeks minus the first week. Since the last booked order
occurs in week 4/12, that is the last week for which there is a backlog. The ATP row shows that there
are 745 units available to promise up to week 4/19 where an MPS quantity increases the availability.
Another MPS quantity increases the ATP in week 5/3. The ATP amount (745) is just the difference
between the starting availability and the cumulative backlog for the first six weeks. The record says
that up to 745 units can be promised to customers anytime over the next six weeks and that another
84 will be available in seven weeks.
Figure 6.12 shows the results of booking an order for 100 telephones for the week of 4/12. The order
increases the cumulative backlog by 100 units to 394 and reduces the ATP to 645 in the first six
weeks. Salespeople use this record to inform customers when orders can be delivered. The actual
booking of the orders is done formally, however, so there can be no game playing with the quantities.
Once an order has been placed and is booked, the record is immediately updated for all subsequent
order promises. The record is also updated when there is a change in the master production schedule.
Questions
1) Analyze the above case and give your comments?
Case No. 3
AKRON ZOOLOGICAL PARK
During the late 1970s, the decline in Akron's tire industry, inflation, and changes in governmental
priorities almost resulted in the permanent closing of the Akron Children's Zoo. Lagging attendance
and a low level of memberships did not help matters. Faced with uncertain prospects of continuing,
the city of Akron opted out of the zoo business. In response, the Akron Zoological park was
organized as a corporation to contract with the city to operate the zoo. The Akron Zoological Park is
an independent organization that manages the Akron Children's Zoo for the city. To be successful,
the zoo must maintain its image as a high-quality place for its visitors to spend their time. Its animal
exhibits are clean and neat. The animals, birds, and reptiles look well cared for. As resources become
available for construction and continuing operations, the zoo keeps adding new exhibits and
activities. Efforts seem to be working, because attendance increased from 53,353 in 1986 to an alltime
record of 133,762 in 1991.
Due to its northern climate, the zoo conducts its open season from mid-April until mid-October. It
reopens for one week at Halloween and for the month of December. Zoo attendance depends largely
on the weather. For example, attendance was down during the month of December 1992, which
established many local records for the coldest temperature and the most snow. Variations in weather
also affect crop yields and prices of fresh animal foods, thereby influencing the costs of animal
maintenance.
In normal circumstances, the zoo may be able to achieve its target goal and attract an annual
attendance equal to 40% of its community. Akron has not grown appreciably during the past decade.
But the zoo became known as an innovative community resource, and as indicated in the table below,
annual paid attendance doubled. Approximately 35% of all visitors are adults. Children accounted for
one-half of the paid attendance. Group admissions remain a constant 15 percent of zoo attendance.
The zoo does not have an advertising budget. To gain exposure in its market, then, the zoo depends
on public service announcements, the zoo's public television series, and local press coverage of its
activities and social happenings. Many of these activities are but a few years old. They are a strong
reason that annual zoo attendance has increased.
Although the zoo is a nonprofit organization, it must ensure that its sources of income equal or
exceed operating and physical plant costs. Its continued existence remains totally dependent on its
ability to generate revenues and to reduce its expenses.
ADMISSION FEE ($)
YEAR ATTENDANCE ADULT CHILD GROUP
1995 117,874 4.00 2.50 1.50
1994 125,363 3.00 2.00 1.00
1993 126,853 3.00 2.00 1.50
1992 108,363 2.50 1.50 1.00
1991 133,762 2.50 1.50 1.00
1990 95,504 2.00 1.00 .50
1989 63,034 1.50 .75 .50
1988 63,853 1.50 .75 .50
1987 61,417 1.50 .75 .50
1986 53,353 1.50 .75 .50
DISCUSSION QUESTIONS
1.The President of the Akron Zoo asked you to calculate the expected gate admittance figures and
revenues for both 1996 and 1997. Would simple linear-regression analysis be the appropriate
forecasting technique?
2.Besides the admission price, what other factors that influence annual attendance should be
considered in the forecast?
Case No. 4
KWIK LUBE
Dick Johnson, a successful textbook author and English professor at the University of Washington,
retired from teaching in 1978 at age 40. His net worth was approximately a half-million dollars.
In 1985, during a trip to Los Angeles, he came across a very interesting type of new business. It was
a very small gas station that specialized only in oil changes and lubrication jobs. The old gas station
had been remodeled, the gas pumps had been removed, and the large sign above the small building
read "OIL AND LUBE-- $10 and 10 MINUTES." For two hours, Dick observed the converted gas
station from a restaurant across the street.
During the next month, Dick made three trips to Los Angeles to talk to the owner, George, about how
he got into the business and how the business worked. Dick paid George $1,000 for his advice and
information and promised never to compete directly with George or ever to open or operate a similar
type of business in the Los Angeles area. After talking to his lawyer and accountant, Dick started to
organize a new business--Kwik Lube. In March 1986, Dick had built his first Kwik Lube, and by the
end of 1986, he had completed two additional Kwik Lubes in the Seattle area. The total gross
revenues in 1986 from all three stations were $260,000.
Between 1986 and 1990, business picked up rapidly. Total gross sales in 1987 and 1988 were
$680,000 and $750,000, respectively. In 1989, total gross sales for the three Kwik Lube stations were
$750,000, and in 1990, total gross sales were $780,000. Dick was convinced that this sales increase
was due to his not significantly increasing the price of his basic service, which was to change the oil,
change the filter, and do a lube job. In 1986, the total price was $9.95. In 1989, the total price per job
was $10.95, and by 1990, the total price was only $12.95.
In addition to running his three Kwik Lube stations in Seattle, Dick desired to franchise his idea in
other cities in Washington and in other states such as Oregon, Idaho, and Montana. During the last
three years, Dick had acquired considerable knowledge about this type of business. He was able to
obtain the best possible prices for oil, lubricants, and filters. If he franchised Kwik Lube, he would
even be able to make a profit from selling oil, filters, and lubricants. Dick invested over $20,000 in
lawyers' fees and another $2,000 in talking to other companies in the franchise business. He decided
to set his franchise fee at $18,000, plus 6% of the gross sales of the stations. In addition, each new
Kwik Lube station had to conform to exacting standards for the building and all of the equipment.
Depending on the location, Dick could build and equip a Kwik Lube Station for under $200,000.
Like his own Kwik Lube stations, these new stations would have two car or vehicle bays. In 1991,
Dick sold his first franchise to T. A. Williams and another franchise to an investor in Eugene,
Oregon. By 1994, Dick had sold a total of eleven franchises in Spokane, Washington; Eugene,
Oregon; Portland, Oregon; Butte, Montana; and Boise, Idaho. In addition, Dick experienced a
substantial growth rate for total gross sales for his three Kwik Lube stations in Seattle. In 1991, total
gross sales were $990,000. In 1992, total gross sales were $1, 040,0000; in 1993, $1,200,000; and in
1994, $1,330,000.
Dick knew that it would only be a matter of time before someone else would start to compete directly
with his Kwik Lube stations, but he never believed that the first competition would be in Seattle.
Construction on the first two Speedy Lube Stations started in 1994, and both stations were in
operation in early 1995. The two stores were almost identical to the Kwik Lube stations, but Speedy
Lube was priced two dollars less than Kwik Lube's current price, which was now $19.95. Dick never
dreamed that this new competition would cut so deeply into his total gross sales. Total gross sales for
the three Kwik Lube stations in Seattle dropped to $1,110,000 for 1995, and the situation did not
look any better for 1996. Indeed, when 1996 figures became available, sales were again only
$1,110,000.
Soon after the total gross sales figures came in for 1995, Dick got some startling information from
one of his friends in Spokane. Over 50% of the stock in Speedy Lube, Inc., was owned by Richland,
Inc., a holding company owned by T.A. Williams. Dick was outraged that one of the people who
purchased a franchise from him was directly competing with his Kwik Lube stores and in direct
violation of the franchise contract, which contained a noncompetition clause.
Dick had only two goals for the coming year: (I) to shut down the two Speedy Lube stations, and (2)
to regain his lost sales for the two years from T. A. Williams. Both objectives were to be
accomplished with a lawsuit.
Dick Johnson's lawyer strongly suggested that Dick employ a witness to testify on his behalf against
Speedy Lube. While there seemed to be no question about who would win the case, Dick's lawyer
believed that an expert witness could more accurately determine the damage. In addition, most juries
place more importance on expert testimony. As a result, Dick decided to employ the services of Dr.
Warren Gunn.
Dr. Gunn was a professor of marketing at Eastern Washington University which was very close to
Spokane. He had more than ten years' experience as an expert witness, and his specialty was
determining damages for antitrust and franchise cases. His basic strategy was to find data about the
same industry or a similar one in a location resembling the area in which the original problem
occurred. In this case, Dr. Gunn needed data about the fast oil and lubrication business in a location
similar to Seattle. Because Dick originally obtained his idea from a small station in Los Angeles and
because Los Angeles had hundreds of these types of businesses by 1995, Dr. Gunn decided to collect
data in the Los Angeles area. This would require the development and pilot testing of a questionnaire
that could determine the total gross number of cars serviced for fast oil and lubrication businesses in
the Los Angeles area between 1986 and 1996. Although the questionnaire study would cost $20,000
to perform, Dr. Gunn and Dick both believed that it was the best approach. The data were collected
in two weeks, and are summarized in Table 1. Both Dr. Gunn and Dick knew that if the results of the
questionnaire were not favorable, they would not use it during the case.
TABLE 1
Analysis of Average Fast Oil and Lubrication
Total Gross Sales for Cars Serviced at Los Angeles Stations (Using Two Bays as a Basis for
Comparison)
YEAR AVERAGE TOTAL SALES
1986 $190,000
1987 220,000
1988 250,000
1989 240,000
1990 260,000
1991 330,000
1992 350,000
1993 390,000
1994 440,000
1995 470,000
1996 520,000
DISCUSSION QUESTIONS
1. Using the data in the table, compute the loss for Kwik Lube stations during the last two years
using regression.
2. Was it worth $20,000 to perform the marketing research?
3. Estimate the total loss in gross sales for Dick's Kwik Lube stations over the two-year period.
How accurate can the results claim to be?
4. What other factors might be introduced into the lawsuit?

 Materials Management
Total marks 80
Group A
Case 1 (10 Marks)
Renuka Machines Manufacturing Corporation
(A case on vender rating in material management)
Renuka Thomas, President of Renuka Machines Manufacturing Corporation (RMMC), is concerned about
company’s choice of suppliers for cleaning brushes, which are used in the company’s data processing equipment.
Renuka occasionally plays tennis with Sheela George, President of George Machine Company (GMC), one of the
company’s suppliers of cleaning brushes.
Recently, Sheela complained to Renuka that her company has been having difficulty in getting the traditional
share of Renuka’s business. On the last buy, Sheela’s company failed to get any business, even though Sheela
believed she was the lowest bidder. Renuka tells Sheela that normally she does not get into the details of
procurement, but she promises to ask her Purchasing Manager, Dannis Chako to investigate.
The next day morning, Renuka calls Dannis Chako and tells him of Sheela’s complaint. He said (says), that he
does not want to influence the company’s procurement policies, but he does not feel that Renuka should
investigate to make sure that Sheela’s firm was treated fairly.
Purchasing Manager, Dannis discovers that George Machine Company was indeed the lowest bidder on the last
buying. Quotations for an order of 20,000 units were as under:
George Machine Company Rs 2.22
Data Matics Electronics Company Rs 2.23
Royal Tools and Machine Company Rs 2.25
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
Royal and Data Matics each got order for 10,000 pieces. Royal has done considerable development work on
brushes, while George and Data Matics have done very little. The quality and delivery records of the three
suppliers on the last ten orders for the brushes are shown below. Renuka Machines Manufacturing Quality
Control Department has set an acceptable quality level of three per cent on the brush.
Supplier Quantity
Ordered
Quantity Defective Delivery
Royal 4,000 122 One week early
Dara Matics 4,000 92 One week late
Sheela 3,000 120 On time
Sheela 6,000 162 Two weeks late
Royal 4,000 38 On time
Data Matics 5,000 29 One Week Early
Sheela 2,000 88 1,000 pieces on time. 1,000 pieces 4
weeks late
Data Matics 6,000 98 Two Weeks Late
Royal 4,000 45 One Week Late
Sheela 5,000 162 One Week Late
Questions
1. Is Dannis Chako justified in eliminating George Machine Company as a supplier of brushes?
2. In what respect is the complaint from George Machine Company justified?
3. Prepare a report for Renuka Thomas explaining the decision to eliminate George Machine company as a
supplier. Use quantitative data as much as possible to support your answer?
Case -2 (10 Marks)
Cause of John Mathai s Sorrow
( A case of inventory car in m.m.)
John Mathai was a very sad man on Sunday, 12 April 1998. He was the Chief Executive of Telecom Installations
Ltd, TIL, a wholly owned subsidiary of the major producers of telecom equipment in the country: Telecom
Manufacturing Company (TMC). Around 88 per cent of the production of TMC was produced for the
Government of India under special terms and prices, but the balance 12 per cent was routed through TIL, who
were really the All India Sales, Serving and Installation network of TMC.
John’s wife Sheela, herself a commercial executive with a multinational, found John staring at some sheets of
papers after they returned from church. These papers had been delivered by John’s office while they were away.
Fearing bad news, Sheela gently took the papers from John. It was a brief performance report of TIL for the justended
financial year. The sales had grown at the rate of 32 per cent. Usually a poor performer, the Kolkata region,
had done extremely well. The company had performed the task of providing telecom facilities to villages very
well. This was a politically sensitive area. The number of villages provided telecom facilities during 1997-98 had
grown by 16 per cent over the figure for the previous year. TIL also took annual maintenance contracts, AMCs
for telecom systems sold by TIL/TMC and the income from the servicing contracts had also grown by a healthy
21 per cent. Sheela felt that TIL had done well and asked John to thank the lord for such good results. She
requested John not to be too ambitious and ask for more and more. John took the report from Sheela and showed
her the last page, which she had missed. It gave details of the inventory of TIL and Sheela realized that the
inventory too had grown and that too at a hefty 27 per cent during the year. The growth had been in all the
regions. The breakup of inventory under various heads followed. Sheela could not follow the technical details but
understood the cause for John’s despair!
John wondered, ‘How can the inventory grow when there has been such a steep increase in sales, servicing and
installation activities? This performance should have actually cleaned the stores and reduced the inventory.’
Sheela understood the problem and prompted John to have a detailed study conducted to analyse the situation and
determine the causes of inventory increase. She hoped that this decision would help John to have peaceful Sunday
at home and not run to the office!
All the field offices were hoping to get a congratulatory message from their Chief for the good performance
achieved by TIL in sales, servicing and installation fields. Instead, everybody was surprised to get a crisp FAX on
the black Monday morning on the unlucky 13 April 1998, announcing the setting up of an Inquiry Team
consisting of Mr. Sreedharan, an auditor from the Bangalore office and Girish Sehajwala, Technical Executive
from Mumbai office. The team was to analyze the reasons for the increase of inventory and submit its report by
30 April 1998. All the employees were directed to extend full cooperation to the team. The message, that the
inventory control was essential, was received loud and clear by all the field offices. There were reports of
demoralization and frustrations due to these events, but John Mathai chose to ignore these.
Sreedharan and Girish worked sincerely, as was expected from this handpicked team. They came out with
following startling causes for the increase of inventory:
1. The increase had been more in monetary terms due to an increase in prices by 11 per cent.
2. The field offices were immensely encouraged by the increase in sales and had augmented their orders on
the manufacturing units during August-September 1997. Deliveries were expected around December
1997. This was done because there were reports of a likely loss of production due to shortage of imported
components. Deliveries did not take place when expected. The production picked up much later and the
factories of TMC dumped the ordered equipment in March 1998. There were protests from the field
offices that there would be little time to sell these systems in the current year, but the factories insisted on
completing the deliveries since they had to show these sales during that year’s production. These items
had thus added to the inventories without much chance of sales before 31 March 1998. Had the factories
adhered to the delivery schedules, there would have been much less increase in the inventories.
3. The installation materials had shown a significant increase in all the field offices. This increase had been
due to the improper disposal of installation materials after every installation. For example, 60 to 70 per
cent of stocks of all types of cables consisted of small pieces left from the cable drums after an
installation. These pieces were too small to be used in subsequent work and, therefore, just added to the
inventory. The entire 4.2 kilometres of D-8 cable in the Delhi office stores consisted of two one-kilometre
drums and 2.2 kilometres of cable in the form of 503 pieces of lengths varying between half a metre to 3
metres. The field managers had not shown these amounts as consumed since an increase in consumed
materials reduced the profitability of the installation tasks. The managers had also been apprehensive of
scrapping the brand new cable. The small and unusable quantities of installation materials had been
accumulating over the years. This year the accumulation had been higher since the installation work had
been more.
4. Current generation of electronic/telecommunication equipment consist of a number of circuit boards held
together and interconnected. Fault detection system may be built in the equipment to indicate which
circuit board has developed a fault. This helps in urgent repairs, because even an operator can easily
replace the faulty circuit board. Each field office of TIL, therefore, stocked circuit boards to sell to
customers located at some distance from the field office. The objective has been that in the event of a
failure, the customer could restore the system by changing the defective circuit board with the spare good
circuit board held by him. Simultaneously, the customer was to send for a TIL technician. The service
engineer of TIL could repair the faulty circuit board and carry out a complete check up of the equipment.
The service engineers have also been keeping some circuit boards with them, so that they can put back a
system to work when visiting customers having problems and not having spare circuit boards. Badly
damaged, circuit boards beyond the repair capabilities of the field offices have to be sent to the factory for
repairs. Customers have to be given circuit boards for the duration of their circuit boards getting repaired
at the factory. The team sent by John Mathai found that there was gross misutilization of these circuit
boards. Service engineers ‘loaned’ some circuit boards to the customers, there was a lack of clarity about
the circuit boards sent to the factory, etc. There was, in brief, no clear policy about these costly circuit
boards and a large number continued to be on the inventory of the field offices.
John Mathai read the report twice and concluded that he must do something about the inventories. He
would have to make a large number of policy decisions and involve the manufacturing factories of TMC
who repaired the cards and sent the finished products for sale. What detailed actions would you
recommend, and why? Comment about the reactions of John Mathai when he saw the annual performance
report. Should he not have expected some of these results during his day-to-day working?
Question:-
Q.1) Summarize & Analyse the case with reference to the principles of materials management?
Q.2) How o reduce the inventory of TIL without affecting its operations?
Case 3 (10 Marks)
Pool Stores
(A case of stores management in material management)
The National Authority for Civil Aviation, NACA, is a public sector undertaking reporting to the Ministry of
Civil Aviation, Government of India. It is responsible for maintaining the facilities and services at all the civil
airfields in the country. It offers these facilities/services to aircrafts owned by various airlines, private aeroplane
owners, government aircrafts, etc., on payment basis. The facilities include runways, taxi tracks for the aircraft to
operate and aprons for these to be parked. NACA also provides lights for the aircraft to take off and land at night
and in bad weather. Air traffic control and communications for the same are needed for the safe operation of the
aircraft. Similarly, aids for aircrafts to operate and navigate to their destinations are installed and operated by
NACA. Majority of the important facilities are provided by modern electronic equipment. Terminal buildings,
cargo/baggage handling facilities, etc., are important requirements. NACA not only has to install these facilities,
but also maintain these. NACA is responsible for 72 airfields. An airfield is categorized as A, B or C, depending
on the facilities available there. An important consideration for awarding category to an airfield is the time
required for all the facilities to come on in an emergency such as power failure, breakdown/ failure of the
equipment, etc. Important facilities are, therefore, duplicated. One system is ON and working, while the second
system is on standby. The role of the two systems is changed at suitable intervals. The standby system has to
quickly come ON in the event of the failure of the system that is working. The same applies to the power supply.
This highlights the importance of keeping the facilities available at all times.
All the airfields in India are not under the charge of NACA. Some airfields are looked after by the Indian Air
Force, a few belong to private or public sector companies and many airfields, constructed during the Second
World War, are lying abandoned. Air Force officials must maintain their airfields in Al condition since the speeds
of present generation aircraft and the requirements of defence operations call for airfield facilities to be available
virtually without a break. This requires a high quantum of maintenance spares. The swift advances in technology,
‘especially in electronics, have reduced the chances of breakdown; at the same time, the cost of the spares has sky
rocketed.
Mr. S. Rao took over as joint Secretary Expenditure, Government of India, and was disturbed by NACA’s heavy
maintenance inventory. He suggested that non-moving stores be identified and was truly appalled to learn that 67
per cent of maintenance stores—totalling to 2012 type of items—had not been used during the previous 40
months. He approached Mr. U.N. Rao, Chairman, NACA, to review the situation since these stores had blocked
Rs 902 crore. Mr. U.N. Rao wrote back that he could not take chances with Rs 400 to 600 crore worth modern
airliners, which carried over 250 human lives. He clarified that these stores should be treated as Assurance
Spares.
Mr. S. Rao met Mrs. Shashi Jam, Joint Secretary in charge of Air Force Finance at a conference and persuaded
her to obtain the corresponding figures of non-moving stores for airfield maintenance for the air force. It
eventually emerged that the Air Force managed 54 airfields and had 2007 non-moving maintenance spares,
costing Rs 777 crore. The Air Force also suggested that these stores should be treated as Assurance Stores and not
as non-moving maintenance spares. These provide the much-needed protection against stock-out during an
emergency. This was extremely important since many of these spares were sourced from foreign suppliers and
hence had a long lead-time.
The two Joint Secretaries got the lists of 2012 and 2007 nonmoving airfield maintenance spares from NACA and
the Indian Air Force. They approached a mature, retired, senior Air Force engineer, Air Marshal Kuldip Singh, to
suggest ways and means of reducing these dead inventories. Air Marshal Kuldip Singh’s analysis revealed that:
1. 929 types of items were common in the two lists.
2. Greater commonality could be achieved if this aspect was given due weightage while purchasing the
capital systems.
3. Indigenous development and manufacture of these equipment would automatically achieve the aim of
commonality, since both NACA and Air Force will buy their requirements from Indian manufacturers.
This trend was increasing very fast.
4. Many NACA and Air Force airfields are located fairly close to each other.
5. Facilities for ‘airlifting the stores are easily available to NACA and Air Force at their airfields.
6. Each airfield had a main and a standby system. Maintenance spares would be required to repair the
standby system. The failure rate of the current generation systems has been coming down and the
philosophy of repair by replacement has minimized the repair time.
7. Many foreign suppliers of the capital equipment have set up spares holding depots, which are open all the
time in order to meet the urgent requirements of their customers.
The Air Marshal, therefore, suggested that the Air Force and NACA should set up ‘Pool Stores’. These
stores should store common items, especially the non-moving maintenance spares. These Pool Stores
should meet the demands of all the airfields within a radius of 150—200 km. This should result in
maintenance spares being available at the airfield that requires these spares within 1 to 1.5 hours. The Pool
Stores could be managed by NACA and the Air Force in the ratio of 4: 3 or by a newly-created
government agency.
Recommendations made by Air Marshal Kuldip Singh were turned down both by NACA and the Air
Force. It was pleaded that this concept would fail during emergencies, especially military operations,
when the bombs were falling on the airfield. You have been given the powers to decide. What will you
decide and why?
Question
Q.1) Study & Analyze the case with ref to the principles of materials management?
Case 4 (10 Marks)
The Charminar Club
(A case of scrap disposal in material management)
The Charminar Club, Hyderabad became 50 years old on 7 January 1963. The anniversary celebrations were held
on a lavish scale, though many in the staff were sorry, since? January 1963 was to be the last working day for
Captain Bob Doll (Retired), Royal Navy. Captain Doll had been the Secretary of The Charminar Club for over 15
years. The staff had always worshipped Doll Sahib as their King’. There was a general understanding that the
days of the old world charm must come to an end. The managing committee of the club had appointed Mr. N.G.
Kavi, a chartered accountant as the new secretary. The President of the club, Mr. Raja Reddy had briefed Kavi
about various things. He had stated, ‘The Charminar Club has been the prime club of the Hyderabad State and
was included among the prestigious institutions in south India, The Charminar Club had affiliations with the best
clubs in India, Europe and the USA. The active membership of the club was frozen at 7,400. Outstation members
totalled 2,500. The club had received generous donations from the administration during the British regime and
80 per cent of the members were Europeans. This continued till the merger of the State and the formation of
Andhra Pradesh. The environment of the club and the mindset of the staff were, therefore, oriented towards
lavishness.
Unfortunately, financial support to the club had stopped some years ago. The administration of the club managed
to survive and practice the old system for these past years due to accumulated assets of the previous years. We
have now scrapped the bottom of the barrel and reality must take over. The staff is very good. They were very
attached to the Captain, but are aware of our predicament. They are frightened about the unknown so must be
handled with tact. It is up to you to conserve the resources, restore the financial health of the club but maintain the
good name of The Charminar Club.’
Kavi was maintaining a low profile and generally walked around to get the feel of things. One night, at about 9
p.m., he was startled to see a horse-drawn cart parked in front of the back staff entrance of the library. Kavi knew
that the staff of the club did not like him, so he just watched from a distance. Shortly, the cart started being loaded
with old newspapers and magazines. It drove away when it was fully loaded. Security staff stopped it at the gate.
The coachman made appropriate entries in the security register and drove away. Kavi checked the security
register the next morning and learnt that the cart had made two trips. The entries showed that old magazines and
newspapers had been taken away in the cart. Security supervisor confirmed that this usually happened once a
month. Magazines older than 9 months and newspapers older than 3 months were taken out for sale. Kavi was
impressed with such a clean and transparent transaction. However, his sixth sense kept nagging him that all was
not well.
He waited for a month for the credit from the library for the sale of these newspapers and the magazines, but no
such voucher passed through his desk. He had instructed that all credit and debit vouchers should be shown to
him. The staff had ridiculed these instructions, ‘. . . after all, a Charted Accountant’. He discretely inquired and
learnt that no such credit ever came from the library. These inquiries were obviously communicated to old Mr
Richard, the librarian. Within 15 minutes, there was a knock on Kavi’s door. Mr Richard entered and with an
elaborate show of respect, placed a neat copy in front of Kavi. The copy contained the income from the sale of old
papers. It totalled to Rs 4707 for the current financial year. The sales were done by Mr. Richard and the club
‘purchaser’ (materials executive) had no involvement with these transactions. Kavi was informed that this amount
was used for one picnic of the entire library staff and one set of clothes to the families of the staff on Christmas!
Diwali. Mr. Richard bowed his head and almost whispered, ‘Captain Sahib knew about this.’
Kavi was stumped. The Chartered Accountant in him recalled “ the words of the President’. . . conserve the
resources, restore the financial health of the Club.’ But the manager in him warned, the staff is frightened, . . .
they were very attached to the Captain’. Kavi also realized that this story will be repeated in other departments
too. The funds from the disposal of the scrap will not be coming to the coffers of the club. The total could add up
to a substantial amount. Simultaneously, financial accountability for the sale of scrap would involve virtually the
entire staff. They will further cling to the memories of the Captain and Kavi will continue to be unaccepted as
their leader. What should Kavi do?
Questions
1. List the other items of club scrap (besides old newspapers and magazines) that can be sold. Estimate
approximate quantum of income from each head of scrap sale?
2. What should the new secretary do about the sale of scrap?
3. Draft a set of guidelines if Mr. Kavi chooses to regularize the sale of scrap material?
Group B
Case-5 (10 Marks)
Bharat Metal Works, Gwalior
(A case of mahe or buy devision in material management)
Gwalior, a town in Madhya Pradesh, India, is well connected by rail and road. Ms Shobha Talwar, a mechanical
engineer from Pune, operates a medium-sized industrial unit there, called Bharat Metal Works. This unit is
basically a workshop, fabricating items normally for exports against orders. The unit also has other sections such
as commercial, for purchases and handling export- related formalities, carpentry shop for packing, quality
assurance, stores, etc. The functioning of the industrial unit received a boost when Lalit, Shobha’s brother-in-law,
joined a firm in Germany. This firm imported ferrous castings from India. Lalit suggested to Shobha to handle
operations in India for this German firm. He explained that the importers often suffered heavily due to quality of
the products and excessive delays in delivery schedule. Lalit argued that Bharat Metal Works could at least
double its income if Shobha accepted to handle responsibilities for his firm in India. Shobha had three daughters;
Malti, Meera and Mitali aged 24, 22 and 19, respectively. Funds would be needed shortly to marry these girls.
This tempted Shobha to accept the proposal.
Shobha reinforced the commercial section by recruiting a senior manager, Inder Mohan, for handling additional
export related tasks but decided to handle the technical tasks herself. Lalit telephoned about an order for 500
castings for a gear box as soon as he got the green signal from Shobha about her readiness. Drawings and
specifications were received by FAX two days later. Shobha had 4 months to load the castings on a ship sailing
from Mumbai. She travelled extensively in the northern state of Punjab to identify a suitable and reliable supplier.
She was not satisfied with the results, because bigger foundries making ferrous castings were too occupied and
placing an order with a small foundry would require too many trips by Shobha to ensure the quality of products.
Ludhiana, where these foundries were located, was too far from Gwalior for Shobha to travel without effecting
her other tasks. Shobha was almost going to quit when she chanced to meet Col. Mahesh Kumar, who had set up
a foundry at Guna, a small town 30 kilometres from Gwalior. Col. Mahesh Kumar came out as a professionally
competent and reliable person during Shobha’s visits to his foundry. The colonel wanted a 5 per cent higher price
than that quoted at Ludhiana but agreed to deliver 500 gear box castings in 90 days. Shobha Taiwar was very
happy with the arrangements and accepted the order from Lalit. A 101-paged formal order came by post from
Germany a few days later. Shobha had already formalized the order on Col. Mahesh Kumar based on the
telephonic talks with Lalit. Shobha was unable to read the mammoth order because she received a rather large
fabrication order from France, which was to be delivered 10 days after the dispatch of castings to Germany.
Shobha’s assessment was that she would earn a clear profit of Rs 1,58,000 after allowing for all the expenses
from the German order. Shobha directed Inder Mohan to go through the German order and that placed on Col.
Mahesh Kumar and initiate actions for exporting the consignment. She cautioned him against any delays because
she would lose 50 per cent of her earnings for every week of delay. They calculated that Bharat Metal Works will
have exactly 21 days after receiving the items from Col. Mahesh Kumar and placing these on board the ship at
Mumbai. Delay in deliveries from the suppliers would not hurt Shobha financially since penalties from the
German company would be passed on to the colonel. It was, however, essential that there was no slip up between
taking deliveries and loading on the ship.
Inder Mohan got busy with the paperwork for completing the export formalities. As soon as all the work was
over, Shobha sent Inder Mohan and the Quality Assurance Inspector to Guna to make arrangements for the
receipt and dispatch of the castings as only 23 days were left for deliveries. A very worried Inder Mohan reported
to Shobha the following morning. It appeared that her commercial manager had not slept the previous night. Inder
Mohan slowly revealed the problem. On reaching Guna, Inder Mohan had found no evidence of packing the
consignment. The German order had specified crating of the gear box castings, but the colonel stated that he was
only required to wrap/pack the castings in gunny bags. The foundary had placed an order for the packing material
accordingly, which was due any day. Inder Mohan went through both the orders on reaching Gwalior and his
fears were confirmed. There was a difference between the orders; while Col. Mahesh Kumar had been asked to
pack the castings in gunny bags, the Germans had wanted these to be crated. He estimated that this will involve
an expenditure of at least Rs 30,000 at the rate of Rs 60 per crate. Shobha accepted that the fault was hers and
agreed to bear the expenses. But the major cause of worry was that crating should not delay the consignment and
bring in penalty for delayed delivery. Shobha instructed Inder Mohan to investigate and suggest the best solution.
Inder Mohan reported two days later, the following facts:
1. Guna was too small a township and there was no possibility of the crating job being done by a local
vendors.
2. Col. Mahesh Kumar was willing to do the crating for subsequent orders after making necessary
arrangements. But he firmly declined to handle this task for the present order even if he was given
additional money. He, however, offered to make space and other facilities available to an outside party for
executing the task.
3. The carpentry shop of Bharat Metal Works may be able to do the job by stretching its resources. The
workers understood the difficulties being faced by the company and would rise to the occasion for their
Shobha didi. The workers will have to be based at Guna and paid substantial outstation and overtime
allowances. Materials will have to be purchased and taken to Guna. Lastly, the occupation of the carpentry
shop with German consignment will most likely effect the crating/delivery of the fabrication order from
France.
4. The packers in Gwalior were not very keen to do the job in Guna. They submitted that they would be
happy to work for Bharat Metal Works at Gwalior, but would need at least 50 per cent additional
payments for the rush job at Guna. Both the contractors approached by Inder Mohan had good reputation
and were confident of completing the job in time. They, however, declined to accept any penalty clause
for delay.
5. The expenses of doing the packing internally and through either of the contractor were comparable. The
contractors had wanted Rs 84.05 and Rs 82.95 per crate, while in- house cost was estimated to be Rs 84.0
per crate. The contractors would do the assignment only if the order for all the 500 crates was given to
them.
6. It would be necessary to take the decision as soon as possible since the time was at premium.
Shobha spoke to Lalit and explained the position. She pleaded that as an engineer, she had not considered
it necessary to crate the castings since these are made of hard material and would have to be finished in
Germany. Lalit explained that the castings are very brittle and, therefore, must be crated in order to avoid
damage during shipment. Shobha offered to bring down the price if the Germans would accept gunny bag
packing. Lalit promised to try to get her some additional incentives if the crated consignment was loaded
as per the promised delivery. ‘Delay in delivery would be viewed seriously by my management,’ Lalit had
concluded.
Shobha and Inder Mohan would really appreciate your guidance. They not only have to worry about the
crating of the castings for Germany but also the fabrication order from France.
Question
Q.1) Summarize & analyze the case with reference to the principles of material management?
Case-6 (10 Marks)
HAMCO
A case of Integrated Materials Management
Hindustan Aircraft Manufacturing Company (HAMCO) was an old multi-product multi-location company with
its headquarters in the south Indian city of Mangore. Golakh Nath Shetty, a young mechanical engineer,
graduated from Manchester in the UK. He had designed a simple aircraft as his summer vacation project. This
had fetched him an A plus grading and created a keen Interest in him in the aircraft design. Aircraft design and
manufacture was a new subject then and young Shetty studied a lot about aircraft during his spare time. He set up
a manufacturing unit in the garage of his father’s bungalow after returning to India. It was seen that this aircraft
had many buyers, young rich enthusiasts, flying clubs (which were just being set up in India), etc. The year was
1943. HAMCO was thus born. Some more aircraft were produced by HAMCO. All this did not fetch much
financial or commercial success for Golakh, but his reputation as an engineering genius spread far and wide. It
also earned him the title of Rai Bahadur from the government.
Rai Bahadur Shetty had to soon move to a bigger estate with a runway for testing his aircrafts. The financial
crunch caused due to these investments resulted in HAMCO taking up overhauling of big and expensive imported
cars. The company also purchased cheap war-used vehicles, overhauled and sold these at huge profits.
Rai Bahadur built the tools, jigs, fixtures measuring devices, etc., in house. These were based on his own design
and expertize. He would use items from his scrapyard for these requirements and the company learned the
philosophy of never throwing away anyscrap/unwanted material. The general thinking was, You never know
when this item may be needed: don’t scrap it.’ India’s independence, followed by the foreign exchange crunch
resulted in exponential growth of HAMCO. This also reinforced the popular belief of preserving all the materials
not presently needed. An item not needed today may prove to be a replacement for an imported item tomorrow;
thus saving foreign exchange.
HAMCO started the manufacture of more complex aircrafts under licence from foreign companies. Manufacture
of jet aircraft, helicopters, aero-engines, instruments fitted in the aircraft, electronic equipment needed in the
aircraft, etc., followed. Plants were set up at various locations for the manufacture of these products. Rat Bahadur
Shetty became an authority in aviation in India. He dropped the title of Rai Bahadur given by the British
Government and was soon awarded the Bharat Bhushan by the Government of India. Unfortunately, Golakh Nath
Shetty died early in 1963 and his only son Alok Shetty took over as the Chairman cum Managing Director (CMD)
of HAMCO. Young Alok was a Ph.D. in Commerce and MBA from the USA. Dr Shetty, as he preferred to be
addressed, soon realized that almost 40 per cent of premium space in all the company plants was taken up by
different types of stores. He ordered an evaluation and analysis of the inventory and was shocked to find that
imported raw materials purchased from the principals abroad had been lying in the stores for years after the
production of the main item/aircraft had been discontinued. Maintenance spares for plant and machinery alone
accounted for 40 per cent of the total working capital and a very high percentage of the total inventory. Within
seven months of his taking over, Dr Shetty ordered that all raw materials and components not used for over 18
months be sold. He ordered the maintenance inventory for the plant and machinery to be halved in one year and
so on. There were protests from various sections of the company and maintenance departments at many places
concealed the spares. This came to light and three maintenance chiefs were suspended from service. HAMCO
experienced its first strike. The Government of India was forced to nationalize the company since many of
HAMCO’S products were required for national defence, the public sector airlines, state governments, etc.
HAMCO was made into a Public Sector Undertaking (PSU) under the Ministry of Defence.
The PSU title helped HAMCO and it could dictate the prices to government departments and other PSUs. There
was no competitor to HAMCO within the country. Imports, even when cheaper than the prices of HAMCO, were
not allowed so as to conserve foreign exchange. The turnover and the profitability increased at a fast pace because
HAMCO started offering products on ‘Cost plus’ basis. Additional capital had to be injected by the government
almost every year to enable the required growth. Steep hike in the prices of the petroleum products, due to sudden
increase in the international prices of the crude oil, changed the scene substantially. Shortly, the government
started feeling the pinch. The funds were just not available. Questions began to be asked about the returns being
obtained from the PSUs where huge investments had been made by the national exchequer. 1-{AMCO became
very vulnerable, since the investments here were very heavy indeed. Finally, performance figures for the year
1986-87 shook the government. These were:
1. Turnover for the year Rs 634.1 crore
2. Profits for the year Rs 5.8 crore
3. Closing Inventory, i.e. at the
end of the year Rs 1346.8 crore
4. Inventory-carrying cost per year 20%
A consultant was engaged by the government to devise ways and means to bring down the inventory. His
important findings for this state of affairs were:
1. The culture of the company from the very beginning had been to keep the scarp and unnecessary items for
possible future use. This afforded some advantage when the company was small and Golakh Nath Shetty
was available, to use many items from the scrap innovatively.
2. The company has grown too fast and had not had time to adjust to the status of multi-product, multilocation
company; a premium institution of the country. The employees still thought like the workers of a
privately owned company.
3. HAMCO had six production divisions, which were responsible for all the manufacturing activity of the
company. Each division was headed by a General Manager or GM. Six Deputy General Managers or
DGMs (or equivalent level) were in charge of different functions of production, marketing, finance,
Administration and HRD, R&D, etc. They all reported to the GM. The divisions reported to the Corporate
Office at Mangalore.
4. There was no single person responsible for materials management function in the company. The con
sultants noted the organizational control of the following sections:
(a) Raw Materials and Scrap Stores, reported to Deputy General Manager Production, DGM-P.
(b) Materials Forecasting and Planning Depts reported to DGM-P
(c) Purchase (including vendor’s bill payment cell) reported to DGM-Finance.
(d) Inward goods inspection reported to Chief of Quality Assurance.
(e) Transportation reported to DGM-Administration and
HRD.
(f) Finished Goods Store reported to DGM-Marketing.
(g) Production Planning Group reported to DGM-P
(h) Import Substitution Cell reported to DGM-R&D.
(i) Contract Manager was based at the Corporate Office and reported to the Company Secretary.
The consultant recommended the creation of six posts of Deputy General Manager-Integrated Materials
Management, DGM-IMM; one in each production division. Another post of a General Manager 1MM was
suggested to be set up at the corporate office in India to provide functional guidance to the DGMs being
established in the productions divisions. At the first instant, DGM1MM should control the following
sections:
1. Materials Forecasting and Planning.
2. Purchase minus the vendor’s bills payment cell. The cell will continue to report to DGM-Finance.
3. Raw Materials Stores and Scrap Stores.
4.Finished Goods Stores.
5.Transportation.
Suitable chief managers from any of the depts, such as production, R&D, purchase and Stores, with a
minimum qualification of an engineering degree could apply to become a DGM-IMM. If selected, they
should undergo a four weeks’ training programme at the training college of the company before being
promoted and appointed as DGM-IMM at a production division. A GMIMM should be recruited from
outside to bring a fresh approach to the problem. A new stream of managers called materials managers
should be setup. Fresh engineering graduates be recruited and trained for nine months at the company’s
training college. They be thereafter posted to one of the five departments under the DGM-IMM’s at the
divisions. After three years of the fieldwork, these materials managers were to be brought back for four
weeks of training. At that stage, these materials managers be posted to production planning or import
substitution cells. These two departments should also be shifted so as to report to DGM-IMM. The
complete flow of materials from forecasting to planning stage onwards till the delivery of the finished
goods to the customers should be controlled by one manager, thereby creating the structure of Integrated
Materials Management. This would mean forecasting, planning, purchase, raw materials stores, flow of
materials through production facilities, finished goods and scrap stores and transportation would be part of
1MM. Vendor’s bills payment and inwards goods inspection should continue to be under finance and
quality assurance, respectively, so as to have some check on the purchases by independent agencies. A
contract manager should be available to all the production divisions from the corporate office. This was
due to the quantum of workload not justifying an independent manager at each division.
This proposal was presented by the consultant at a meeting of all the directors of the company, general
managers of the six production divisions and a representative of the ministry of defence. The discussions
lasted for eight hours and at times became acrimonious. The main objections to the proposals were:
1. Additional posts were being created, which would add to
overhead costs. Profits were already low, at about. 0.9 per cent and additional costs should be avoided.
2. Shifting of finished goods store away from the marketing department should be avoided. It could
hamper the efficient and quick supply of goods to the customers, especially those located abroad.
3. Transportation also looked after the conveyance for personnel including senior officers’ cars.
4. This was a theoretical concept and there was no guarantee that it would work in HAMCO and bring
down the inventory pf the company.
5. Shifting away the materials forecasting and planning, stores and production planning groups would
make DGM-P jobless.
The consultant responded by stating that even a 5 per cent reduction in inventory would save more than Rs
13 crore, which is more than double of the current level of profits. DGM-IMM would be head of a
function and a company employee. They can be given targets like all other managers and their
performance could be monitored. DGM-P would be responsible for production by maintaining and
operating all the production facilities at optimum efficiency. Finally, the proposal was accepted after some
arm twisting by the government representative. GM-IMM, 6 DGMs-IMM and 30 fresh engineering
graduates were recruited. Syllabi for the four weeks’ training programme and nine months’ course for the
freshers were formulated and training courses started. GM-IMM and DGMs-IMM became effective at
their posts in September 1987. The company set the target of bringing down the inventory by 7.5 per cent
by 31 March 1988.
Question
Q.1) Discuss the merits of the proposal of introducing the concept of IMM in HAMCO. Would you agree
that the apprehensions of the participants at the meeting were correct? Do you feel that the introduction of
IMM would achieve the target of 7.5 per cent of inventory reduction in six months? Give reasons to justify
your opinion.
Case 7 (10 Marks)
Decentralized Materials Department:
The Libra Corporation has four divisions at a location. Each division manufactures different product like washing
machines, refrigerators, TV sets and control panels.
There are different purchase departments and stores for each of the product line since these businesses have
grown sufficiently. However company has intentions to keep good homogeneity in the four divisions and
maintain a centralized materials department. Mr. Ranade heads this department. Mainly company expects him to
spearhead the activities, rules and regulations relating to the four materials departments. Mr. Ranade has common
activities under his command. These are planning/ budgeting, Standardization/codification, planning common
items like maintenance items and hardware items, etc. Mr. Ramanujam is looking after the planning of commonly
required items. This department is coordinating needs of the four divisions. Mr. Ramanujam got the requirement
of the hardware item a screw, M8 x 40 mm long, from the four divisions as follows:
Planner Product Quantity
1
2
3
4
Washing machine
TV sets
Refrigerator
Control Panels
25,000
53,000
2,50,000
40,000
Total 3,68,000
Mr. Ramanujam took action and planned for total quantity of 36800l numbers. This quantity has to be procured in
4 lots since the lead-timer for this screw is of the order of 4 wks. Each time he gets quantity of bout 90,000
numbers in the stocks and he rests happily in his chair.
The requirement of the washing machine by marketing department was doubled. One fine morning planner
Mr.Varma drew extra quantity of 5t000 numbers due to production change. There was no feeling of any error
from the side of Mr. Varma. He thought this I a hardware item and big stocks are in the stores.
This brought all the planners in trouble, when the stocks went down. Mr. Ramanujam came to know about the
shortage of the item when Mr.Ranade called him. They came to know the real problem. About the common
required items this was their experience. At times some one else draws the item for some need at their place,
which do not use the item regularly, thinking that it is hardware item there is no problem to draw it. In their dayto-
day business no one feels that they must draw any item only when they have planned for it.
Mr. Ranade and Mr. Ramanujam had been facing this type of problem in past. The reasons as are follows.
• The item users different than the planner. Their bosses are different, with different goals and commitments.
• The items, which are planned by Ramanujam are of common nature. Many people need them at some or other
purpose.
• When any one is drawing the item, it is difficult to keep control/ check whether it was planned in the beginning
of the year.
It was decided to find some relief for the problem by following methods.
• The respective planner should see and authorise the material request before it is released to stores. He will verify
the item is planned in the beginning.
Question
Q.1) Discuss with en or to reduce the lead-time to almost to zero level. This can avoid the situation of the stock
outs.
Case 8 (10 Marks)
Transport Corporation
CORPORATE SCENARIO Prof. Ganapathy Ram, the managing director of Ganapathy Ram Bus Transport
Corporation, has invited Prof. Gopalakrishnan to study the company’s operations and identify the problems faced
by the company with a view to suggesting suitable solutions, For this purpose, Gopalakrishnan interviewed the
officials and collected relevant information from files, manuals, records, and press briefings, a summary of which
is presented below.
The central government, realizing that the transport industry should help achieve the laudable national
objectives, enacted the Road Transport Corporation Act in 1950. By this act, each state has been asked to
establish its own road transport corporations as a state government undertaking. The present major objective is to
provide adequate, economic, efficient and well-coordinated transport services to the travelling public and at the
same time ensure that the operations are run on sound commercial lines. Till 1950, the passenger transport
industry was concentrated in the hands of a few private operators, whose only object was to make profit. But the
state transport undertakings have been set up to open up communications and thus contribute to the development
of backward/tribal/hilly regions of the state.
Ganapathy Ram Bus Transport Corporation has a fleet strength of 12,500 buses organized into 15 divisions.
This accounts for about one- tenth of the fleet strength in the entire country. The number of buses in this
corporation has been gradually increased due to availability of financial assistance from the government in the
past. One division caters to the needs of the state capital, with about 2000 buses and each of the remaining
divisions handles about 1000 buses. Over 2000 vehicles are more than eight years old and hence rickety,
dilapidated and scheduled for scrapping; buses have been purchased during the last three years and the remaining
buses have been working between there to eight years.
Half of the fleet consists of Tata diesel vehicles and the other half is from Ashok Leyland. To enable greater
control on operations and inventory, seven divisions operate exclusively with Tata vehicles, leaving remaining for
the other divisions. Each division has been organize into 7 to 10 depots and in all, the corporation has 125 depots
— spread throughout the state. The total route length is about six lakh kilometres and during the last year about
80 crore kilometres have been covered by the buses of the corporation. Complete nationalization of all the buses
in the state is yet to be achieved and this may involve an expenditure of Rs. 30 crores — half of which could be
borrowed from the central and state government organizations and financial institutions, while the balance is to be
found internally within the organization’s depreciation/reserves fund. The company employs nearly 60,000
persons, which includes 2,000 officers.
Even though the company has two models of vehicles, the manufacturers do not make any advance
commitment of change of models to the road transport corporations. According to the senior officials, the models
are changed by the manufacturers periodically, without caring for customer’s economies of continuing the
existing models and ensuring the supply of spares for old models. This results in difficulties in standardization
and cost reduction in the organization.
CORPORATE STRUCTURE
The company’s board of directors is headed by a part-time chairman. Professor Ganapathy Ram, the vicechairman
and the managing director — a senior Indian police service officer, is the chief executive of the
organization. The board also consists of three full-time directors in charge of operations, finance and personnel.
Besides, four senior officials of the state government and four politicians form the part- time members of the
board. The board gives broad policies in its quarterly meetings. The operations director, is in charge of routing,
traffic, cost control, performance of divisions, purchase, stores, maintenance workshop, safety, civil works,
mechanical engineering, industrial engineering and quality control. The finance director is in charge of money
management, capital investment decisions, account. ing, electronic data processing, financial control, and
strategic planning, source and application of funds, costing and other conventional finance functions. The
personnel director is in charge of selection, recruitment, training, promotion, grievance handling, suggestion
schemes, canteen, administration, labour welfare, union matters, industrial relations, legal aspects, public
relations, etc. The company has a fourth generation computer which is used by all sections. Weekly coordination
meetings are held at different levels in the headquarters, divisions and depots to ensure a smooth working of all
departments.
Each division is headed by a general manager and each depot is looked after by a depot manager. All divisional
headquarters and all depots have a workshop and a store each. At the state headquarters, there is a well-equipped
central workshop under the control of a general manager. The general manager, purchase. and stores, in the
headquarters reports to the director operations. The main operations are carried out by divisional general
managers and depot managers and are supported by functional specialists at the headquarters.
CORPORATE STRATEGY
According to the managing director, the complexity of the road transport industry stems from the extremely
perishable nature of the final product, namely seat kilometre. It follows, therefore, that the supply and demand
should be perfectly matched, in order to reduce waste, which is to be the goal of the corporation. In order to
ensure that the demand does not go uncatered for, planning the route timings, an economic fleet-utilization and
upkeep of healthy fleet are the major prerequisites for the undertaking’s success, according to the managing
director. The fleet can be healthy if the materials that go into it are available when required, are of right quality
and at the same time reasonably priced.
The corporation has been making losses, while a few private operators still make substantial profits. The average
earning per kilometre is Rs.-5.80, whereas the expenditure per kilometre, including wages, fuel, tyres, spares,
maintenance, depreciation, interest, etc. is six rupees. The cost of operation has started going up in the recent past,
due to price increases in fuel. Added to the high oil prices, the cost of us bodies, chassis, tyres, and other spares
have registered steady creases, approximately by 100 per cent in the last three years. Trade union activities have
also intensified due to general inflationary conditions, in spite of declining profitability owing to political and
labour pressures, wages have been periodically enhanced and the statutory bonus is being paid. The present wage
of the lowest paid worker is about Rs. 1000 per month.
In order to eliminate the leakages in revenue collections, a five per cent incentive on daily ticket sales is paid to
the bus crew. The social responsibilities, without bothering about the financial viability, that have to be home by
Ganapathy Ram Bus Corporation include the following: (a) concessions to school children, journalists,
politicians, policemen, government employees, handicapped persons and other stipulated categories of persons;
(b) operating loss-making city services and providing connections to rural/tribal/hilly/backward areas; (c)
maintaining the services during monsoon, when volume of traffic is low; (d) purchasing material from small-scale
units located in the state, with high price and low quality.
Increases in the fares to compensate for the higher expenses, however, need the approval of the state government.
When some elections are always around the corner, for fear of political repercussions, the state government has
been reluctant to increase the fares. To make matters worse, the taxes to be paid to the state government have
doubled fi the last five years. During political agitations, particularly in sensitive areas, every year a few buses are
burnt by the infuriated mob. Occasional pilferage—in -diesel and ticket collections has also been report’d. The
pollution control board has also drawn the corporation’s attention to the noise and smoke in the buses.
Out of the 35,000 kilometres of the national highways, only 2000 ) kilometres pass through the state and are
maintained excellently by the centre. The state highways and urban roads, even though blacktopped, are full of
pot holes and uneven. Buses also have to pass through roads without black top, feeder roads, kutcha roads linking
villages, etc. which constitute more than 50 per cent, and it will be very difficult to negotiate these roads in the
monsoon season. The culverts on some of the canals are so weak that the buses have to crawl. Due to roadbuilding
repair activity, diversions, which are permanent in nature, are to be used.
The urban passenger pays subsidized fare in the city areas. Similarly, the rural agricultural labour always agitates
whenever slight increases are introduced in the subsidized fare. The urban commuter blames the organization for
not providing shelters, while he waits for the bus. Due to appalling road conditions, heavy overloadings, poor
driving habits, use of spurious spire parts and inadequate skills of maintenance, there are always problems of offroad
vehicles requiring spares for repairs. The depot managers are primarily responsible for meeting the
transportation demand in a geographical area and are usually preoccupied with social/political pressures to
increase the frequency of services, particularly in marriage seasons and summer holidays. Added to this, the
operating staff consists of barely literate workers of agricultural origin who are seldom amenable to proper work
discipline. The threat to industrial peace is never absent.
FINANCIAL STRATEGY
The finance director, while agreeing with the role played by transportation in the development strategy of the
state, however, has pointed out that the demand will be very low in hilly terrain, forest areas, backward regions
and monsoon seasons, necessitating the fares being heavily subsidized, for economic viability. The poor road
conditions adversely affect the fleet performance. He has also pointed that to build one kilometre of a new pucca
road, it costs the exchequer rupees one crore, and no department in the state is interested in improving the road
conditions.
The finance director has felt that the continuous loss in the corporation affects the morale of the employees of the
organization. The loss in the major city transport system of the corporation alone works out to about rupees three
lakh per day, whereas the fare revenue contributes only 50 per cent of the operating cost!
Suggestions for using aluminium body or long-lasting, light stainless steel body, realignment of some routes, use
of natural gas instead of fuel oil, etc. have been examined as possible strategies for better. viability, but these
could not be implemented on a commercial scale, The introduction of a split-shift system of working instead of a
continuous eight hour shift in urban areas, also has not brought the desired results and there has been resistance
among the crew, who have been pleading for a reduction in working hours and better standards of living. Further,
the politician members in the board of directors at times interfere with the recruitment o personnel, purchase of
materials, transfer and promotions.
While discussing the strategy, the managing director has often been wondering whether to regroup the activities,
as in TamilNadu, into small road transport corporations of a fleet of 1000 buses each. He has also been toying
with the idea of suggesting to the board to hand over the heavy, uneconomical feeder routes to private parties. He
is also thinking of diversifying to other areas, like freight traffic, manufacture of spares, etc. He is very keen to
develop operational indices for each depot, based on (a) market potential, (b) present market efforts, (c) economic
viability, (d) maintenance/safety, breakdowns, (e) morale of labour, (f) daily kilometre per bus, (g) earnings per
seat, (j) contribution by each bus/route, (i) fleet performance, profitability etc. in order to streamline the overall
effectiveness. The managing director has been thinking of buying some new buses, after scrapping 500 old buses,
which have put in ten years or more of service. He felt a new bus would cost less on maintenance, compared to a
ten year old bus. A new bus would have less frequent breakdowns and would consequently be on the road for a
much longer period than the old bus at a cheaper operational expense. It has also been pointed out that most
private operators find it cheaper and more economical to dispose of buses after six years and replace them with
new vehicles. This provides them with the maximum income, reduced operating costs, a good resale value, less
cost of service and a better public image.
From the economic investment point of view, it is obvious that the capital investment on an asset should, during
its lifetime, earn not only its running expenses, but also its maintenance, repairs, depreciation charges and interest
on the capital. The series of returns which the asset gets during its life must compensate for all those expenditures
and should earn higher than an investor could get at any place. Secondly, these economics have nothing to do
with the efficiency of an asset from the engineering point of view. The price of a new bus is around rupees five
lakh, which can be depreciated in three to four years period. In its effective life, the bus is engaged to earn a
constant net maximum return, after allowing for the relevant cost of operation. After the fifth year, the return
would show a downward trend, when the maintenance and repair cost would increase about two-fold. The bus is
likely to be overhauled after 30 months or after two lakh kilometres. The managing director is keen to raise the
capital needed for buying the buses through public bonds, bank loans, rural credit corporation loans, World Bank
loans, non-suppliers loans from private sector parties, etc.
The State chief minister, while inaugurating a new divisional headquarters of the corporation in the state, has
appealed to the corporation to extend its services to reach all corners of the state. About 70 per cent of the
population of the state lives in villages and about 30 per cent of villages is yet to be connected by bus routes,
according to him. He has further emphasized that the development of backward areas can be expedited only if
punctual, reliable, safe, regular and comfortable bus services could be provided to link all villages adequately., in
a time-bound fashion, particularly before the next elections. The chief minister has also exhorted the corporation
to complete the task of nationalization of buses in the next few years.
The state transport minister and some board members feel that the cause of inefficiency and accumulated losses of
the corporation is lack of commitment, discipline and delegation. He has suggested that the corporation be spilt
into ten independent self-sufficient profit making organizations, following the TamilNadu pattern. The managing
director is conscious of the need for some drastic changes, but feels that the time is not yet ripe for dividing the
corporation into separate entities. He is keen that ways must be found to avert the present crisis. But the minister
for transport wants to gain publicity by a dramatic announcement of splitting the corporation into ten cohesive
units in the last session of the legislature before the next elections.
MAINTENANCE POLICIES
Over 2000 buses of the corporation are more than eight years old and are scheduled to be scrapped. About 500
buses on the road are more than ten years old. In view of the stringent financial situation, the scrap kilometre limit
has been raised a year ago, from the desirable six lakhs kilomefres to eight lakh kilometres. The old buses
consume more spare parts and give inefficient service. Hence, the challenge to the maintenance staff has been
tremendously increasing, while the burden on maintenance ha doubled because of flogging the bus and no extra
staff has been provided to meet the challenges in main tenance systems. Even the existing staff norms in
maintenance are being scaled down to effect more economy on personnel! Inadequate maintenance has resulted in
cancellations, unpunctuality, and breakdowns in the middle of the road, thereby affecting the image of the
organization. Sometimes, the drivers exceed the prescribed speed limit, resulting in more wear and tear.
A general manager, maintenance, reporting to the operations director is in charge of the overall maintenance and
the central workshop in the headquarters. He is assisted by a group of five maintenance engineers on various
special activities such as mechanical, civil, electrical, etc. These maintenance engineers located at the divisions
periodically visit the depots. Ten mechanics are attached to each depot. All maintenance engineers have been
trained in various plant engineering concepts.
The preventive maintenance system expects the spares to be checked and replaced before they cause breakdown.
The day-to-day maintenance is carried out by fitters and mechanic’s attached to the depots/divisions. A set of
tools is carried in the bus for rectification of very minor defects. Minor repairs are attended to at the depot level;
for major repairs, the defective assembly/module is replaced by a fresh assembly from stores, or through the
cannibalization of standby buses in the depot/division. The defective assembly is then sent to the central
workshop for rectification. The central workshop has facilities for overhauling, heavy repairs, electrical repair,
heat treatment, tool repair, foundry forgings and reconditioning. After two lakh kilometres or 30 months’ running,
the engines are completely overhauled in the workshop. The overall maintenance expense works out to Rs. 1.50
per kilometre, half of which is accounted for by spare parts alone. Maintenance job history cards for each bus are
slowly being introduced and there are plans to computerize them in the future. The engineers also admit that the
maintenance function needs improvement, as there had been two major accidents in the recent year.
A few maintenance engineers have complained about the poor after- sales service and that during the guarantee
period by the vehicle manufacturers. The maintenance engineers claim that they spend a lot of time in identifying
the indent status, follow-up, etc. They also complain that due to faulty planning of central purchase, spares
intended for one depot are sent to another. Non-availability of correct quality spares is a common cause for delays
in repairs in depots. Another complaint is that some retired defence personnel and MBAs have joined the
organization. The political members of the board sometimes interfere with recruitment of personnel, transfers,
promotion and purchase of materials.
SPARES INVENTORY
It is generally said that an aircraft is a combination of spare parts flying in formation — a bus is no less, if
operating on the surface. Almost each part has a life of its own and is affected by the conditions of wear and tear,
unless the defective part is replaced by a new one, it may give way and result in a possible breakdown. The fixed
cost for holding a bus from plying the route, or the stock-out cost, has been estimated as Rs. 5000 per day. This is
the loss if a breakdown results in the non-operation of a bus for a single day. The stock-holding charges, including
storage charges and capital cost, is 30 per cent per annum. Major tyre companies have opened their depots near
the central stores. The ordering cost per order works out to Rs. 750 per order. The total inventory in the
organization, other than fuel is about Rs, 20 lakh, while the annual consumption is about Rs. 50 crore, comprising
25,000 items. Rupees ten crore worth of non-moving items and rejected items worth a similar sum are lying in all
stores.
A ten-digit codification has been introduced with the last digit serving as check digit. But according to
materials executives, the maintenance people indent only by part numbers, like V-belts manufactured by Fenner
India Ltd. According to the materials department, the company faces typical spare parts problems as faced in
other organizations. In some categories of spares like piston, thin wall bearing, etc., acute shortage is experienced
due to lack of good manufacturers. The materials officials are not sure as to how much of spares could be
centralized and how much decentralized in the organization. The traditional ABC categorization has been done; A
items with annual consumption of more than rupees one lakh, are kept in the central stores, B items with
consumption above Rs.10,000 in division stores, and C items below Rs. 10,000 in depots. One super A item,
accounts for 20 per cent consumption in the fuel oil, for which arrangements have been made with the Indian Oil
Corporation and one week’s stock is kept. The stock level of lubricants and tyres are maintained at about one
month’s level and monitored periodically. The buses also carry tool kit and emergency items on an imprest basis.
It is aimed to have a maximum stock level of three months for A items and six months for all other categories,
including critical items.
The spares which are generally required for the purpose of reconditioning of assemblies, building bus bodies,
etc. are stocked in the central stores, where such activities are carried out. All items pass through the central store
for accounting purposes. The surplus material held by the divisional stores is also sent to the central stores, which
is to be redistributed to the needy divisions in future. The type of maintenance carried out at the depot level is
only to the extent of daily and weekly maintenance, consisting of oiling and greasing, engine oil change, docking
of vehicles and day-to-day service repairs. The spares required for such purposes are kept at the depot level and
the vehicles are serviced after about 10,000 kilometres. At the divisions, replacement of major assemblies like
engine/starter/dynamo! fuel injection pump, 30,000 kilometre docking and reconditioning minor items are taken
up and all necessary spares for the same are maintained at the divisional level. The central workshop does major
repairs like body building/reconditioning, overhauling of vehicle bodies! assemblies/engines/fuel
injections/pumps/starters/dynamos, retreading tyres and adequate spares are maintained there.
In addition to the scheduled preventive maintenance inspection, top overhauling of engines is required to be done,
after 30,000 kilometres for new engines and after 60,000 kilometres for old engines. Vehicles are scrapped only
after 15 years presently, due to the financial constraints. It has not been possible to forecast the exact requirement
of spares in view of non-availability of data. In view of heavy expenses and lack of staff, records on the
consumption of spares vehicle- wise and assembly-wise are not available, and hence it is difficult to estimate the
future consumption of spares. As a result, when purchase is effected on the basis of previous year’s consumption,
sometimes there is an acute shortage if more spare parts become due for replacement in the following year, and
sometimes there is an excess if fewer parts become due for replacement. The consumption also fluctuates due to
varying quality of spares, as facilities for testing the metallurgical quality of spares is not available in the
company.
PROCUREMENT METHODOLOGY
Ganapathy Ram Bus Transport is a member of the association of the State Road Transport Undertakings in Delhi
and enters into rate contracts with spare parts manufacturers. The rate contracts are signed after the testing of
samples in the laboratories of the association, and the quality and price are negotiated. Deviations from the rate
are done, only in emergency and crisis situations. As far as possible, preference is given to buying the spares from
the original equipment manufacturers, while taking purchasing decisions. There have been several instances
where the original equipment manufacturer is unable to supply as he has stopped manufacturing the item.
In view of the large number of tyre manufacturers, the corporation has been expecting a good competition in the
tyre industry. But very recently, a cartel was formed, which denies the advantages of competition and has been
dictating terms to bulk buyers, like the Association of State Transport. Further, the local joint sector springs
manufacturing company has been turning out substandard material and is exercising powerful political influence
to palm off its substandard products on the Association of Transport Undertakings. The association, however, has
made representations to allow imports in these two categories of items. The government has constituted a
committee to go into the question of manufacturing, pricing and ready availability of auto spared.
The general manager, materials reporting to the director, operations, is the competent authority of the corporation
for all purchases. There are 10 officers and 20 other category staff in the central purchase. He is also in charge of
the central stores and the central workshop and controls the same with adequate staff. The general manager,
materials has powers of up to rupees one lakh per item, but his authority is subject to the approval of the finance
department. The purchases are mostly by limited tenders and finalized by a committee consisting of user, finance
and purchase. The director, operations has powers of up to rupees one million per order. All capital machinery is
purchased by the hoard. The board also purchases other items within a maximum of rupees one million.
Advertised tenders are resorted to only when necessary. Emergency powers have been given to the field staff in
exceptional cases. Indents are prepared by the stores, divisions, depots and sent to the materials department.
Procedures for indents, budgets, placing orders, lead-time budgets, follow-up, inspection, pre-qualification of
suppliers, etc. have been specified in the materials manual prepared about five years ago. The general manager,
materials constitutes a committee with the other general managers before placing an order. The lead-time of
placing an order is six months and the total lead-time goes up to one year. One month is required for the
preparation of indents and estimates by divisions, one month for consolidating the requirements, four months for
purchase departments’ activities for placing the order and follow- up and the remaining time for external leadtime.
The depot manager can ratify any expenditure incurred in the purchase of spares parts and their powers extend up
to Rs. 1000 per bus per year. For the divisional manager, this emergency power is Rs. 5000 per bus per year. This
implies that the division can incur an expense of only about rupees five million over and above supplies from the
central materials department, subject to the condition that there is a nil stock certificate from the central stores or
an emergency. However, the divisional managers feel that the materials department is insensitive to the operating
environment and play safe by hiding that local powers have been delegated, primarily to tide over unforeseen
gaps in supply and operational fluctuations. But the line managers feel that the job of the materials department is
to provide
the required quality materials at the right time to the operational units. Resorting to increased local purchase is a
direct reflection on the inefficiency of the materials department. Some of the line managers feel that complete
decentralized purchase will wind up the materials departments. It is the line managers, not the inefficient
materials department, who are questioned for the losses due to non-operation of the fleet. Further, the material
bought by line managers from the open market to meet the crises, is overpriced and of inferior quality. In their
anxiety to put the fleet on the road, they may overlook some procedural aspects, like getting three quotations for
the same item, perhaps from the same typewriter; but they complain that the audit does not take any such lapse
kindly.
Questions:-
Q.1) Summarize and analyze the above case with reference to the principles of material management?



 Logistics Management
Total marks 80
Case 1 (10 Marks)
M/s Britecolor Paints Ltd. (BPL) is a manufacturer of decorative paints for households commercial
premises and industrial application.
(a) M/s. BPL had embarked on a policy of satisfying every possible customer in respect of shades,
delivery and durability. Thus it went ahead and created twenty-five depots, one almost in every major
city. The manufacturing base however, was maintained at Pune. The factory received information in
connection with stocks from depots J once in a week and there was no inter-communication between
depots. Since they were in a competitive market, price was predetermined, i.e. the manufacturer had no
liberty to price the product as per one’s own choice.
(b) In their effort to satisfy the customer, M/s BPL manufactured every possible shade by combining
various primary shades and would await the prospective customer to carry out the purchase. It ensured
that these shades were available at
each and every depot even at the cost of transportation incurred in sending goods in less than full
truckload lots. This certainly provided a very high service level and customers who could get the shade as
per their desire, were fully satisfied.
(c) While on one hand M/s BPL had a population of very satisfied customers, they had almost 50% of
their total domestic sales lying as finish Goods inventory at various depots, on the other hand.
AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
(d) Industrial paints, though not very customised, the respective industrial customer was quite satisfied.
Consequently, the inventory of finished goods was very low in this segment. But at the same time,
realisation was also lower due to stiff competition from other industrial paint manufacturers than the
domestic segment.
(e) Nevertheless, the economic runs of industrial paints were always assured due to high off-take by the
industrial customers.
(f) The objective of the manufacturer was to increase the realization taking into account, economic runs,
inventory, seasonality and individual choices of domestic / industrial customer.
Qeustions
If you are appointed as the logistics consultant, then advise M/s BPL in respect of ‘
(a) How to achieve economy in transportation, by maintaining almost same service level?
(b) Demand Forecasting technique to take care of seasonality, reduction in inventory.
(c) Information technology to substitute maintenance of high inventory without affecting customer
service level.
(d) Connectivity between factory and depots (networking Diagram)
Case 2 (10 Marks)
ABCL Ltd. is leading/ Fast Food Processing Company operating from Thane. It is involved in the fast
food business
since last 10 years and has tie up with a foreign firm operating in the same field. It handles both
Vegetable as well Non—Vegetable products for which it arranges the vegetables and chickens from the
local vegetable vendors and poultry farms as well as from far off places like Nasik, Pune and
Aurangabad. It has very good market in Mumbai, Pune and surrounding cities. The products are sold in
the brand name of ‘Nasta’ which is very popular brand amongst the young collegians and office goers. it
has its ‘7,- most modern kitchen at New •Mumbai to cater the needs for fresh Nasta. Vegetables and
chicken items are transported from the procurement centres of Nasik, Pune, Aurangabad using hired
Trucks. While transporting vegetables and chickens there were shortages,.. damages and decomposition
problems which varies from 1Y’lo 15% and there is inconsistency in the transit time the reliability of the
raw material transporters is very low. Packaging of the Nasta is very good and attractive but it is not long
lasting tyje. Hoever, the quality and taste are the reasons for its popularity. Nasta is sold in three different
packs — party, family and individual. The Nasta looses the taste and flavour after 8 hours, if not
preserved in refrigeration. The Nasta is distributed through 25 distribution centers including three at its
main procurement centers of Nasik Pune, and Aurangabad.. Logistics information network is not up to
the mark. ‘The procurement centers directly communicate to the operating center at Thane. Due to lack of
proper co-ordination at different distribution centers it has started creating the problems of stocks,
spoilage, pilferage and wastage of raw material as well as finished goods at certain distribution and
procurement centers. Transportation and storage problems are identified as main culprits for the heavy
losses being incurred at some centers. Holidays, festivities and college seasonably puts a lot of pressure
on the existing demand and supply situation of the Nasta resulting in losses and mismanagement. Entry
of multinationals has increased the competition and put a let of pressure on the Nasta. Managing Director
has formed a team of Senior Executive to suggest a concrete plan to fight the competition and overcome
the transport, storage and other related problems so as to increase the market share and margin.
Questions
In case you are appointed as logistic consultant to solve the problems, you are required to put forward
your suggestions for:
(a) Proper transportation policy to ensure minimum transportation loss of vegetables and poultry products
and reduction in the packaging costs.
(b) Demand Forecasting techniques to take care of the seasonality, reduction in inventory and shortage
and other related problems.
(c) Suggestion for improved Purchase and Distribution policy.
(d) Is it advisable to have company owned dedicated transport fleet?
Case 3 (10 Marks)
Mumbai four mills, provide high-quality bakery flours to commercial bakers as well as to the consumer
market. The commercial buyers have consistent demand and brand-loyalty, whereas consumers have
minimal brand-loyalty but also generally prefer known names over store brands. Demand is seasonal for
the flours with the annual break occurring just before Diwali and slacking off dramatically during
January and February. To offset these both, Mumbai Flour Mills and its major supermarket chainaccounts
carry out special deals and sales promotions.
The Production planning Dept. of the company located at Akola, Maharashtra, has the responsibility for
controlling the inventory levels at the plant warehouse at Nagpur as well as three distribution centres
located at Nasik in Maharashtra, Bhopal in Madhya Pradesh and 1-lyderabad in Andhra Pradesh.
Planning has been routinely based on past experience and history. No formal forecasting is performed.
Distribution centres get their requirements by rail from Nagpur. The lead time of replenishment from
Nagpur to distribution centres is 7 days. The replenishment rate is 48 to 54 pallets per wagon depending
upon the type of wagon used. In case of any emergency demand, eighteen pallets can be made available
by truck with a 3 days transit time.
Recently the company has experienced two major stock out for its consumer-size 5 Kg. sacks of refined
quality white flour. One of these was due to problems in milling operations, the other occurred when
marketing initiated a “buy one, get one free” coupon promotion. Since these events, the planning has
become overly cautious and errs on the side having excess inventories at the distribution centres.
Additional, two other events have affected Distribution Centre’ throughput:
(1) implementation of direct factory supply for replenishing the five largest super market chains, and (2)
a price increase making Mumbai Flour more expensivethan its national brand competitors such a
Pillsbury or ATA Maida.
Of 1500 pallets in the Hyderabad Distribution Centre the Mumbai Flour Mills shows only 396 pallets for
open orders. This has led the company to use outside overflow storage, where there are another 480
pallets. Flour is easily damaged, hence, Mumhai Flour Mills prefers to minimise handling. Over stocking
at Distribution centres alone cost Rs. 1.85/- per pallet for outside storage to which must be added Rs. 4.25
per pallet extra handling and Rs. 225 per truckload for transportation.
Similar scenarios are being played out at the other DCs as well. Mr. Mohan, the distribution manager is
contemplating various approaches to solving the inventory problem. It is clear that the product must be in
place at the time a consumer is making a decision to buy the product, but the company cannot
tolerate the overstocking situation and the stress that it is putting on facilities and cash flow. Mr. Mohan’s
first thought is “a better information system” which will provide timely and accurate information
throughout the organisation.
On the basis of above case answer the following:
Questions:-
(1) Evaluate the alternative solution that could be considered by Mr. Mohan.
(2) What additional solution do you propose?
(3) Examine the transportation system and its drawbacks?
Case 4 (10 Marks)
M/s Modern Garments is the manufacturers of Ladies and Gents garments like shirts, tops and
undergarments etc. The technology is advanced and there are several players with access to such latest
technologies. The supply chains for M/s Modern Garments includes significant purchases of raw
material, stitching, packaging and supply to customers. The logistics functions are the key competitive
elements in the market, M/s Modern Garments is considering to take over the control of its inbound and
out bound logistics function which affect the inventories, reduce the losses due to transit delays and
improve the response timeand service reliability. However the cost implications of such changes have to
be looked into.
The M/s Modem Garments has been a leader in the readymade shirts market in India for a number of
years. After liberalization they entered into a joint venture with a French Company to expand their
business in the field of Trousers and T-shirts. However new joint venture company M/s Modern
Garments still continues to manufacture its shirts at Thane near Mumbai and has started a new state-ofart
garment manufacturing plant at Pune in Maharashtra to compete with other market players. The
company has planned to undertake the distribution of garments made and packed in its plants at New-
Mumbai and Kalyan so as to retain the control over design, quality and service channel of the products.
After liberalization, the market has grown more matured and expectations of the customers towards the
features of the product have increased and also the technology and design has improved considerably.
Now in the market only garments with good delivery quality are acceptable. All the competitors have
equally good quality product in the market. Presently the area of logistics distribution, customer service
and satisfaction are the area of prime concern in order to have extra value addition to the product. The
product defects due to stitching, cutting and transportation are now under increasing scrutiny.
From the cost control point of view, the amount of money held up in distribution pipeline is significant.
The large variety of garments now means more raw materials to be held in stocks. Presently the incoming
supplies are arranged by the vendor firms, they may be persuaded to opt for jointly approved transporters.
Due to product variations, the order fulfillment and its processing is of considerable importance. The
traditional information system has become inadequate. There are over 500 retail outlets through which
the finished products are distributed with the help of more than 50 transporters. Lead- time variability is
creating problem of buffer stocks• with distributors. The transit time fluctuations are due to the
breakdown of trucks, improper documentation and unfair practice of over charging of the vehicles etc.
Such variability has to be reduced. Major portion of logistics cost was allocated in fleet management;
where as warehousing, raw material management and information networking have insignificant costs.
Questions
(i) Examine the possibility of alternatives in transportation of the inbound and outbound materials?
(ii) How to reduce the cost of inbound and outbound logistics functions?
(iii) What could be the major problem in exploiting the inbound and outbound logistic functions?
(iv) Is it advisable to have dedicated transport system to operate packaged materials mainly for the
company?
(v) What arrangements have to be made to ensure the service quality for customers?
Case 5 (10 Marks)
M/s Ador Electrodes Limited (AEL) was incorporated in the year 1981 and is the second largest player in
the welding industry in India & has the widest product range amongst all its competitors. As it has
happened to a the industries, the heat of the competition coming from the International Companies,
mainly from China, started affecting to this industry too.
‘The company has four state-of-an-art manufacturing plants accredited with ISO certification & backed
by strong technical support from their foreign collaborators. The company is also having a well
established all India distribution network consisting of numbers of dealers. The products flow from the
manufacturing plants to the warehouses, managed & maintained by the company, located at different
places across the country. The dealers draw their requirements from these warehouses for onward
delivery to their customers, The inventory of the products is under the ownership of the company and is
maintained as per the anticipated demand in the region. Primary transportation from the plant to the
warehouses is the responsibility of the company, whereas the transportation from the warehouse to the
customer is the dealer’s responsibility.
The biggest drawback in the present system is that the inventory at all warehouses is carried by the
company, blocking the huge amount of company’s working capital. The level of average inventory they
maintain is equal to their 6 months sales requirements. Over & above, in many places where the sales are
low, the stocks remain unsold for longer periods. Moreover, because of improper maintenance of these
warehouses the stocks also get damaged I spoiled or stolen. The warehouses are managed by the
employees of the company having no ‘basic qualifications & experience in inventory and warehouse
management.
The management of the company took a serious note of the situation and now wishes to take immediate
steps to overcome the current logistical problems to face the competitive scenario.
Questions:
1. What are the company’s present logistical problems?
2. Give your recommendations for improving the company’s logistical performance?
Case 6 (10 Marks)
1967 M/s. Vijay Enterprise ventured into trading of electronic consumer durable targeting the large
potential market in the year 1970, the company managed to get the exclusive dealership of a leading
electronic manufacturing company in India to market their products in the Western Indiá. Later on, the
company with a view to create their own brand in the market established a plant in Maharashtra & started
their own manufacturing activities. With a manufacturing capacity under their belt, the company
increased their turnover tremendously in the next 20 years with the help of all India distribution network
consisted of 4 regional offices, 4 mother warehouses, 12 C & F agents & 75 stockists & 5000 odd retail
outlets.
After the liberalisation of the Indian economy in 1991, the entire business scenario- particularly in
consumer durable industry - has undergone a drastic change. The company started experiencing the
pressure of competition from local as well as international players. It was observed that during the last 5
years sales growth has come down and the company is losing its market share slowly& steadily.
The external agency that conducted a study for the Company came out with their following observations.
1. At all levels in the company employee orientation is towards production rather than marketing
2 The cost of product distribution is the highest compared to the Industry standards
3. The warehouse space was urderutilized — the utilization factor varies between 95 % during the peak
season and drop to 40% during the slack season.
4. There is duplication of many logistics operations. Every department has their own policies I practices
and objectives.
5. In more than 20 per cent of the trips made to mother warehouses / C& F agents, the products are
despatched in less than full truckloads, resulting in high transportation costs.
6. Only 65 % of shipments were delivered on time, as a result of slow information flow and inadequate
connectivity across the system causing longer order processing time.
7. Transit damages were ranging between 2 to 5 % due to improper logistical packaging and inadequate
material handling equipment.
6. The finished goods inventory is above the best managed company in the industry
Questions:
1. Identify the main logistical problems of the Company
2. To offer better customer service level and reduce the operating cost, how will you go about
redesigning the distribution network?
Case 7 (10 Marks)
M/s. Decorative Laminates Corporation (DLC) is a supplier of decorative sheets for wooden furniture
makers in domestic as well as commercial markets. In spite of competition n this field their sales volumes
shown growth during last 2 to 3 years. The last year was recorded 15% more sales compared to previous
year. Even though the sales volume are increasing• the profit margin is getting reduced day by day due to
future competition.
In one of the monthly management review meetings it was observed that the main cause for depleting
profitability is the increasing procurement costs. . The report presented by the new Purchase Manger
revealed that in order to obtain quantity discounts from the suppliers the company was purchasing inputs
& other maintenance items much more than their actual requirements. This has not only created a
problem of holding huge inventories but necessitated hiring of additional warehouse space to
accommodate these high inventories. It has also been observed that most of the purchasing tasks like
inventory control are still performed manually. The computers are used only for maintaining purchasing
records and printing purchase orders.
Questions
1. What is the main problem in this case? What are your suggestions to the company on inventory
management?
2. What type of logistical cost approach you would suggest to the company?
Case 8 (10 Marks)
M/s. Compu-Tech is on the reputed Indian companies producing various types of computer printers.
Their production plant is situated at Noida in northern India and the products are distributed through
distribution centers located in every region.
The company introduced LS popular line of Desk Jet printers first time in India in 2005. Immediately on
the launch of this products
The solo more than one lacs units during that year. But the problems came with the boom in sales.
Already, the company was running into serious inventory snags, particularly with service to its customers
situated In southern region. The printers were generally shipped to all the distribution centers & onward
to the customers by road only. Unfortunately, that resulted in long lead times, making It tough to meet the
shorter delivery time offered by the local sellers mainly from Southern India.
The Company also found itself running short of production capacity to meet the quantity requirements
of certain large institutional & industrial customers. To add to it, quite often the company was running
out of stock for certain fast moving models and at the same time facing problems of excess inventory of
other models. Working out product wise demand from each market was also proving difficult for their
manufacturing plant.
Questions’
1. What are the main problems in the logistical network of M/s. Compu-Tech?
2. What solutions would you propose o overcome these problems?

 
Hospitality management

SUBJECT:

Note: Each question carries 10 marks


1. Describe the stages of growth of hospitality industry.

2. Discuss the importance of training in hospitality sector.

3. Elaborate the concept of domestic and international tourism.

4. How do socio-cultural and economic scenarios get affected by tourism?

5. Describe the various departments of a hotel and their important functions.

6. Describe briefly the laws and guidelines, related to recognition of travel agency.

7. How will you successfully grow in the most competitive hospitality industry?

8. Suggest the long term plans and actions.