STEEL CITY MAFIAMIHIR SANGODKAR

AISHWARY KUMAR GUPTA

NISHA JAIN

XLRI

Jamshedpur

IIMB

RAN-NEETI

2016

2

22 daysNumber of days to

raise PO and take

delivery of raw

material62%

Percentage of

bottlenecks occurring

during Procurement

75%Time spent in non

value adding process

Year 2014 -15

75650% increase

Line stoppages per

year

Production

Capacity of ABC

Motors Ltd

2 Million

CASE FACTS

8.7% Growth rate of Indian auto industry

23.4 Million Production of vehicles in 2014 -15

13% Passenger vehicles as % of automobiles

81% Market share of 2 wheelers in auto industry

7.1% auto industry as percentage of GDP

15% Increase in auto exports

INDUSTRY ANALYSIS

SOP currently followed by Procurement Team

PO raised by Line

Manager

Approval of PO from

Production Head

Approval of PO from

Procurement

Department

Approval from Finance

Dept. & Procurement Head

and PO is issued to Vendor

Vendor commences

production as per order

Vendor starts production for the

order. Quality Department

checks quality of material.

Daily raw material

consumption to be

punched in MRP system

Once the quantity reaches

the reorder point, a

Purchase order is

generated automatically up

to the extent of maximum

inventory

PO issued to Vendor &

production commences

Order received from

vendor is checked by the

Quality Department &

supplied to Production

Department

Mean time of 11 Days for PO to reach vendor out of

which ~8 days wasted in Non-Value Added activities01

Vendor unaware of order quantity leading to inflated

lead times02

Varying specifications leads to delay from vendor03

Production schedule not made available to vendor04

Production schedule to be decided on fortnightly basis by a cross-functional

team of production and procurement team & shared with vendor01

Material Resource Planning Module should be implemented. Automatic

requisition will be raised for consumables based on reorder quantity and

daily consumption quantities based on production schedule02

Modified SOP for Procurement of raw materials

This will reduce approvals required for each and every PO and blanket

approval can be given by Production & Finance Team for a period of time.03

STANDARD OPERATING PROCEDURE

THE PRODUCTION TEAM

PRODUCTION

TEAM

Production department wants the

Production team wants Procurement

team to respond to clarifications faster

The demand from production team is not

well defined.

The demand order by production does not

have a fixed schedule and is described as

“erratic”

Lack of Clarifications in the PRs by the

production team

Lack of luxury vendor options cause an

amplification of these ambiguities

Non Standard Order Techniques

Non Standard Order Quantitates

These cause the Vendors to not match the

order quantities having not synced with

the new installation capacity

Case Analysis

Date

Safety Stock

Required

31st Jan 3280

10th Feb 6560

1st May 8200

31st Jun 820

Safety Stock Calculations

5

VENDORS : DETAILED ANALYSIS

Cannot blame vendors as there is lack of

standardisation in quality requirements by the

production department

Lack of a penalty clause in Vendor Contract, in case

of delay in supply or quality issues, thus cannot

enforce deadlines

Dynamic production schedules and irregularity in

order time and quantity, thus cannot blame vendor

Lack of the option to switch to other vendor

Varying quality specifications and inability to forecast

demand due to unpredictable order quantities leading to

changes in vendor production levels

Irregularity and disparity in the demand cannot be a

reason to justify quality failures by the vendors.

Inability of the vendor to keep inventory, due to high

costs of holding inventory

Increased return of the inventory, without proper

mention of the policy requirements and changes.

ORGANIZATION STRUCTURE

PRODUCTION

DEPARTMENT

PROCUREMENT

DEPARTMENT

VENDOR

Production Planning to be done fortnightly,

to be shared with vendor

The Standard Operating Procedure

to be revised

Implement Purchase Order

Management Module

Implementation of Material Resource

Planning Module

Ensure order is of standard quantities at

periodic intervals

Vendor to be incentivized for on-

time full deliveries

Alternate vendors to be explored to

reduce the current bargaining

power of vendors

Contractual obligation for the

vendors to maintain specified levels

of safety stock

Strict quality control at vendor end

to ensure full deliveries

Penalty clause to be included in the

modified contract with vendors

RECOMMENDATIONS

THANK YOU