The Race of Car Manufacturets 135
Case 23
Purchase Cycle
37
The Race of Car Manufacturers
Verma Automobiles, Panjim were well-established car
manufacturers. The companycelebrated 25 years of usefirl service
to the nation on 23 Iuly 1997. A few months before the silver
jubilee functions ofVermaAutomobiles, Sonde Motors were set
up at Pune. This company began the manufacture of 'Chaloo'
cars after purchasing the technology from the USA. The team at
Sonde Motors was young and dynamic. It was led by a Chief
Executive, Mr S.R.Telele. Telelewas amature production engineer
and very open to new and innovative ideas. There was a clear
acceptance of the fact at Sonde Motors that merely giving an
Indian name, Chaloo, to anAmerican car did not make it suitable
for conditions encountered in India. The companyhad verywisely
invested in a good R&d department and an efficient purchase
cell for indigenizing the car. A drawing board model for an Indian
environment-friendly car, Chaloo II, had been prepared at Sonde
Motors. It was planned that by the time the 200th Chaloo I rolied
out of the factory Chaloo II would be ready to be taken up for
production.
Samir Verma, head of Verma Automobiles, was a lawyer by
education and an excellent manager by choice. Industrial
intelligence soon indicated the plans of the Sonde Motors for
developing Chaloo II. Samir Verma put his men to work on
developing a competitor to Chaloo II. The R&D boss, Arun Kumar
was given the mandate of ensuring that Verma Automobiles'
reply to Chaloo II should be in the market within three months
of the launch of Chaloo II. Arun Kumar decided to skip detailed
drawing board design and launched direct manufacture of two
prototypes. The company had learnt during many years of
marketing operations, what their cars lacked and had even
developed solutions to the problems of the customers. Amajority
of the remedial measures were kept pending due to the
management's policy of cost saving. Arun Kumar got a green
signal from Samirverma for the proposed expenditure, provided
the competition from Sonde Motors could be effectively
countered. Arun Kumar's plan was to try the proposed changes
through the prototype and simultaneously make production
drawings. He could follow this unconventional approach because
he had experience of designingVermaAutomobile cars for two
decades andbecause rich design datawas available in company
records/documents.
Soon, S.R. Telele of Sonde Motors got wind of what was
happening atVermaAutomobiles. The race startedfor expeditious
fabrication of the prototypes. Sonde Motors seemed not onlyto
be ahead but were also gaining further edge over their
competitors. This was because: l,rl
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1. They had a detailed design and knew what was required ; ,itl
to be done. ,!'i '
2. The Purchase Department consisted of young
professionals who were not inhibited by time-consuming
processes. They cut corners to get the right material at
the right price but as quickly as possible.
3. Sonde Motors could attract suppliers by tempting them
with the offer of making them regular vendors; whereas
Verma Automobile had vendors and new parties were not
sure of being able to replace the well-entrenched vendors.
4. Sonde Motors' staff had quick access to Mumbai and
foreign markets due to I00 km of the natibn's best super
highway.
Arun Kumar atVermaAutomobiles complained to SamirVerma
at the end of three months that he would never be able to catch
up with Sonde Motors unless something is done to cut short the
purchase cycle. Arun Kumar wrote a note to Samir Verma
explaining the steps he had to follow to get materials from the
market. He stated that:
 136 Case Study Solutions-Materiak Management
f. R&D department must initiate a Purchase Requisition,
gling detailed description of the item; code number of
the item or explain why a standard item would not do;
the number/quantity required presently and likely to be
required in future; the time period by which the items
were to be obtained and the reason why the demand could
not be foreseen earlier. The dernands had to be marked
Rush because of the urgency and that required Arun
Kumar's personal signatures. Demand raising took at least
two man-days.
2. The demands were submitted to the stores section. They
checked ifthe required itemwas available in storeswithin
the compiny. The stores in charge was required to check
the availability of 'RUSH' demand items with all the sub-
stores. This took two days. Stores staff quite often came
up with an item, which was quite similar but usually
unsuitable for the task in hand. This took another two
days. The R&D team would consider themselves lucky if
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the RUSH demand reached Purchase Department in less
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than ten days.
3. There were invariably protests from the Purchase
Department for such a high percentage of RUSH demands
ll ii from the R&D. Theyarguedthateventhe production staff
neverraised such ahighnumber of RUSH demands.They
emphasized that RUSH demands cost at least 25 per cent
more than the normal demands. At every purchase
coordination meeting, R&D representatives had been
harassed and ridiculed for the last two months for raising
onlyRUSH demands. The R&D staffwas unable to explain
the urgency because of the high secrecy involved with
the project.
4. Majority of the R&D demands are for small quantities.
The Purchase department has instructions to'hold'such
demands till an economically-viable quantity is required.
This could delay the purchases by 2-3 weeks.
5. R&D department purchase requisitions are required to
state the number of items required in future. The R&D
staff had assumed that a production run of 500 cars would
be launched as soon as the R&D work was over. Hence,
under the column of future requirements in the purchase
The Race of Car Manufacturers 137
requisition form, the quantity required for 500 cars was
indicated. Purchase department complained that the
quantity presently required is 8 pieces, but the future
requirement is for 4000 pieces. Theyurged, the R&D wing
to increase the present requirement to an economically-
viable figure, say200 items andkeepthe remainingitems
in the stores against future requirements. The R&D staff
cannot state that future requirements is subject to the
items beingfound suitable in trials due to the secretnature
of the project. Nor can the R&D team ignore the need for
developing suitable vendors for possibly required
components/items.
6. Purchase requisitions are scrutinized at the purchase
department before being turned over to the buyers. Steps
3 to 6 take at least 4 weeks and at least 50 reminder calls
at various levels.
7. The tendering and order placing takes another 5 weeks
and delivery period could be 2-4 weeks.
B. The 'inward actions' including inspection, bringing on }'ill
charge, etc., could.take another week. ,, ,ll
Arun Kumar stated that items ordered byhim when the work ';1i
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was started hadjust started arriving.This, Arun Kumar concluded,
i
would not do and wanted drastic changes to be made to the
purchase procedure for his project and extending the time limit
from 3 months to 15 months. Arun Kumar walked into Samir
Verma's room with this note. After Samir Verma had read this
report, Arun Kumar Kumar showed him a bunch of bills. fuun
Kumar complained that R&D boys were so much involved with
the challenge of development that they had been spending money
from their own pockets. SarnirVerma totalled and the bills added
up to Rs 4,860 for 6 weeks. Arun Kurnar burst out with anger, a
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trait not known to be associated with his personality. He
complained that last straw on the camels back was the incident
that occurred last night. A helical spring was required urgently.
A researcher, Sanjay, gave Rs 200 from his pocket to a laboratory
assistant, Shaikh to purchase it from the market when he came
for the afternoon shift. Shaikh was not clear of the requirements
and hence, brought two samples. There was an understanding
with the shopkeeperthatthe unsuitable springwould be returned
 138 Case Study Solutions-Materials Management

the following day. Shaikh was returning home at midnight with

the unsuitable spring and was caught by the security. He was
detained at the gate and abused for stealing. Shaikh gave Sanjay's
name to corroborate his story. Sanjay, who had just gone after
18 hours of work, was called from his home and declared as an
accompiice in the theft. All the R&D team was extremely upset
and wanted to be taken off from the project. Arun Kumar also
had his resignation in his pocket.

What should SamirVerma do? Splityour answer into two parts,

i.e. immediate actions and procedural changes required to be
introduced. Give justifications for your suggested solutions.

Maximum time to solue the case study: 35 minutes.

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