CASE 1

TKB Ltd. is a project based manufacturing company with turnover of about 1,500 crore Rs. Per year. The
companys sales have grown 4 times in last 3 years. The company has been recognized as a good project
company and is mainly engaged in engineering projects. The company has been doing well in this field and is
considered among top companies in their segment. TKB Ltd. has been losing goodwill recently. The company
has been completing most of the projects in time in past. Recently most of the projects are getting delayed.
The company has received enquiry from NTT Ltd. for supply, erection and commissioning of the machinery for
sugar mill. The company has prepared an estimation of Rs. 200 crores and given time estimate of 12 months.
For similar type of work, the company had earlier taken 14 months. The client for discussion has called TKB.
Since TKB is considered as technically good and TKB has got an indication that the cost estimate is also in line
with what client has received from others, TKB is quite confident of getting the contract.
During the meeting between Mr. Rao of NTT and Mr. Kumar who is the marketing head of TKB, the
discussions unexpectedly started with clients questioning on time and cost estimation given by TKB.
Mr. Rao said that he would have liked to go with NTT Ltd. for the contract but is not able to accept their time
estimates at all and felt that even cost estimations -are on higher side but his main objection was on time frame.
He wanted the project to be completed in 8 months. Mr. Kumar explained that this time frame of 8 months is
not possible as already 12 months time estimate is quite less compared to time taken for similar project last
time.
Mr. Rao, told Mr. Kumar to look at time estimate again and told him to confirm the time schedule of 9 months
and as regards, cost estimate, he expects 5 % reduction. Mr. Rao has given 3 days time to Mr. Kumar to
confirm.
Mr. Kumar has been thinking whole night about all the possibilities to reduce time for each activities but he felt
that best the company can do is try to complete the project in 11 months that is if no problems arise in the
project. Mr. Kumar is also worried about the heavy penalty clause of the contract for delay.
Mr. Kumar next day briefed the situation to the Mr. Kelkar who is the Managing Director of the company. The
managing director felt that considering the market situation they would not like to lose this contract but at the
same time is worried about the possibility of non-performing. Mr. Kelkar decided to review this situation with
all the concerned departments to find a solution to this situation.
During the meeting the team looked at time estimates as per following:
Activity
Designing
Engineering
Procurement
Manufacturing
Transportation
Erection
Commissioning

Time
Weeks
10
6
6
10
4
4
2

in

The team felt that this is the best that can be done. Based on this, the total number of weeks required is 10
months. Mr. Kelkar is not able to accept this and is looking for some better method for time management. He
has suggested to do time estimation on the basis of concurrent model where certain part of activities can be
done parallel instead of sequential model and is quite confident that if they go for this model, the project can be
completed in 9 months.

The team feels that the concurrent model doesnt work as during the project lot of changes occur and due to this,
the entire work done becomes futile and they have to do total rework which results in more time and cost.
1. What should the company do? Accept the contract or regret?
2. What are the concurrent and sequential models? What would be the advantages and disadvantages of each
of them?

CASE STUDY - 2
ABC Ltd is located at Pune engaged in manufacture of heavy engineering machine for domestic market as well
as export market. They are well known for their quality and competitiveness. They have recd. a huge order of
Rs. 40 Crores from one of their prestigious client which requires 20 vessels. For the tubes of these vessels,
they have a regular supplier XYZ Ltd. who has been supplying for a long time. The supplier gives good quality
and competitive price. For these vessels also, Mr. Prakash, the purchase manager of ABC Ltd. has placed order
with XYZ Ltd. with staggered delivery dates ranging from 31 July 2007 to 28 March 2008. Each of these jobs
requires Stainless Steel tubes as one of the components in assembly. These deliveries were given based on
ABC Ltd.s production programme to match contractual delivery dates committed to the customer.
Another reason for deliveries in stages was the high cost of tube which is about 13 crores. ABC ltd. wanted to
avoid high amounts of cash outflow in the initial stages as that would increase the duration of our working
capital requirement. Working capital requirement is financed by borrowings from banks at 15 % p.a. interest.
To manufacture tubes, XYZ Ltd. supplier has to buy raw material in the form of Stainless Steel strips & round
bars. In the last 3 years there has been significant volatility in the prices of these raw materials. Generally there
has been an uptrend but the rises have been in sudden steep climbs rather than a uniform increase. This
makes it impossible to predict the prices. Order from ABC Ltd. for tubes was placed with a fixed price without
any price variation clause. ABC Ltd. is forced to do this as their customers do not accept any price variation
clauses in orders placed on us.
In order to hedge himself from price rise, XYZ Ltd. procured strips & bars for complete order at the same time.
As he had invested in the raw material, he went ahead with production. Since first week of April 07 he is
requesting ABC Ltd. to take all deliveries between end April to end July. That means he would deliver most of
the tubes 1 to 4 months in advance. XYZ also wants to invoice against dispatches!
If ABC Ltd. accept his request, they will have to bear huge amount of additional interest (more than what was
planned for) on working capital. Moreover it will require large amount of space to store these tubes (about
60,000 tubes 7 mts. long). There is also a risk of damage to tubes while in storage.
XYZ Ltd. is the only approve vendor in the Approved Vendor List for tubes. ABC Ltd. is dependent on him &
have placed orders for other projects as well. XYZ is pleading with ABC to accept deliveries & make payments
as he does not have the financial strength to keep so much money locked in WIP.
What should Mr. Prakash do?
Suggest ideas to tide over the immediate problem & to avoid this situation in future.