Management Consulting/Material Management


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
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
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
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
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.
Q.1) Summarize & analyze the case with reference to the principles of material management?

Q.1) Summarize & analyze the case with reference to the principles of material management?

Objectives of procurement system
•   Acquire needed supplies as inexpensively as possible
•   Obtain high quality supplies
•   Assure prompt & dependable delivery
•   Distribute the procurement workload to avoid period of idleness & overwork
•   Optimize inventory management through scientific   procurement procedures
•    First technical bid is opened & short listed
•   Then financial bid of selected companies are opened & lowest is selected  
•   Delayed tenders & late tenders are not accepted. But if, in case of delayed tenders, if the rate quoted is very less, then it can be accepted.
•   Quotations are opened in presence of indenting department, accounts & authorized persons of party
•   Validity of tenders – generally 90 days
Negotiated procurement
Buyer approaches selected potential Suppliers & bargain directly
Used in long time supply contracts
Direct procurement
Purchased from single supplier, at his quoted price
Prices may be high
Reserved for proprietary materials, or low priced, small quantity & emergency purchases
Points to remember while purchasing
•   Proper specification
•   Invite quotations from reputed firms
•   Comparison of offers based on basic price, freight & insurance, taxes and levies
•   Quantity & payment discounts
•   Payment terms
•   Delivery period, guarantee
•   Vendor reputation
(reliability, technical capabilities, Convenience, Availability, after-sales service, sales assistance)
•   Short listing for better negotiation terms
•   Seek order acknowledgement
•   Store must be of adequate space
•   Materials must be stored in an appropriate place
•    in a correct way
•   Group wise & alphabetical arrangement helps in
•   identification & retrieval
•   First-in, first-out principle to be followed
•   Monitor expiry date
•   Follow two bin or double shelf system, to avoid
•   Stock outs
•   Reserve bin should contain stock that will cover
•   lead time and a small safety stock

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Leo Lingham


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