Management Consulting/Material Management

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Question
Case 4 (10 Marks)
The Charminar Club
(A case of scrap disposal in material management)
T
he 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?

Answer
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?
•   a short list can give you a good idea of what constitutes  scrap items: air conditioners, aluminum cans, metal boats, bikes, brass items, cars, car parts, batteries, copper, gym equipment, lawn mowers, radiators, stainless steel, bicycles, car jacks, basketball hoops, cast iron tubs, garage door openers, golf clubs, fans, metal file cabinets, mail boxes, gutters, washers, , range hoods, stoves, toaster ovens, theaters, freezers, hot water heaters, humidifiers, ladders, storm doors, lamps, tire rims, refrigerators, metal drums, mopeds, metal shelving shovels, pots and pans and ski racks.
tools, filing cabinets, signs, ladders, nails, staples, storage bins, metal chairs and desks, pipes, troughs, spigots, metal drums, buckets,  wagons, water tanks, like.

===================
2.What should the new secretary do about the sale of scrap?
THE SECRETARY  SHOULD  DEVELOP  
-POLICY/ PROCESS/PROCEDURE/GUIDELINES FOR  THE  SALE  OF  ALL  SCRAPS.
===============
1.   Draft a set of guidelines if Mr. Kavi chooses to regularize the sale of scrap material?
---------------------------------------

Disposal of Scrap, Salvage, and Excess Items
This policy is adopted in order to clarify the procedure for disposal of items no longer wanted or needed by the CLUB.
1. DIRECTOR's Authority.
A. The DIRECTOR  shall approve of and authorize the disposal or sale of all equipment, furnishings and non-consumable supplies.
B. The DIRECTOR  shall approve of and authorize the disposal or sale of  CLUB materials and consumable supplies if such have a market or salvageable value of RS 500 or more.
C. The DIRECTOR  Shall decide the most appropriate means by which to dispose of or sell items declared to be surplus or scrap subject to the methods below including public bid or auction, or by outright sale from an offer to buy.

2. Director's Authority.
A. The Director shall approve of and authorize the disposal or sale of all CLUB  materials and consumable supplies unless such have a market or salvageable value of RS 500 or more.
B. The Director may authorize other CLUB  employees to dispose of items specific to the employee's department; but, other CLUB  employees shall not be authorized to sell such items.
C. Items under the Director's authority shall be sold or disposed of subject to the methods listed below.

3. Methods of Sale or Disposal.
A. CLUB  materials ( consumable supplies)

1. Of salvageable or market value (certain ITEMS, etc.)
a. Donations not selected for addition to the collection will be given  for sale to the general public.
2. Of no value ( certain discards, etc).
a. Items still in good physical condition but not appropriate for inclusion under III.A. above will be offered  for sale to the general public.
b. Items in poor physical condition will be trashed except as permitted under the Charges for Damaging CLUB Materials Policy.
B. CLUB -specific non-consumable supplies, equipment and furnishings:
1. Items of salvageable or market value will be offered gratis or at a depreciated value to, the general public.
2. Items of no value will be offered to the general public or trashed.
C. Other non-consumable supplies, equipment, and furnishings:
1. Items of salvageable or market value will be sold at salvage or market price to any individual, organization, or company.
2. Items of no value will be offered to the general public or trashed.
D. Under no circumstance will real property be disposed of without public bid or auction.
4. The disposal or sale of items obtained through governmental grants shall be subject to the restrictions mandated for the acceptance by the CLUB of the grant
5. Definition of Terms.
A. “Market Value” is the current retail price of the item or of a similar item.
B. “Salvageable Value” is the cost of repairing an item needed to give it market value
C. “No Value” means an item with a repair cost greater than its market value; or, an item not usable by anyone except the  CLUB.
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