The document summarizes a case study about procurement issues facing ABC Motors Ltd. It finds that 62% of bottlenecks occur during procurement and materials spend 75% of time in non-value adding activities. The main problems include long lead times to raise purchase orders, varying specifications from production that cause delays, and a lack of communication between procurement and production about schedules. Recommendations include implementing an MRP system, standardizing order quantities and intervals, adding penalties to vendor contracts, and exploring alternative vendors to improve the supply chain.

1. STEEL CITY MAFIA
MIHIR SANGODKAR
AISHWARY KUMAR GUPTA
NISHA JAIN
XLRI
Jamshedpur
IIMB
RAN-NEETI
2016

2. 2
22 days
Number 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
75
650% 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

3. 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 activities
01
Vendor unaware of order quantity leading to inflated
lead times
02
Varying specifications leads to delay from vendor
03
Production schedule not made available to vendor
04
Production schedule to be decided on fortnightly basis by a cross-functional
team of production and procurement team & shared with vendor
01
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 schedule
02
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

4. 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. 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

6. 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

7. THANK YOU