Page 182 - DMGT525_MATERIALS_MANAGEMENT

Unit 13: Evaluation of Materials Management

Notes


Case Study Indiana Steels

/s Indiana Steels and Strips is a multi-location steel conglomerate with an
annual turnover exceeding ` 10,000 crore. Their equipments are state-of-the-
Mart highly sophisticated and computerised machinery and there are into
production of various sizes and grades of high carbon and medium carbon steels in coil as
well as bar forms.
M/s Indiana Steels has three steel plants – one built with German collaboration, one with
British collaboration and the third with Russian collaboration. Each of these plants has the
installed capacity to produce almost 1 million tones per annum. All the three plants were
commissioned within a span of 5 years.
At the time of installation of the plants, while buying the mother equipments, spares that
were recommended by the OEMs were also purchased. It was told to M/s Indiana Steels
that these spares are insurance in nature and would cover the requirement of the next 3 to
5 years. M/s Indiana Steels did not question the logic and they did not also have the
necessary expertise to do the same. Hence spares amounting to 5-10% of the equipment
cost were purchased in each of the steel plants.
Ten years passed by. Purchases acquired the necessary importance in the company and its
contribution to profits was recognised. It was decided to represent the function at the
Board level and a Director Purchases was appointed. His brief was to optimise procurement
and contribute to making Indiana Steels a world class company.
After settling down, Director, Purchases began a probe. Amongst his findings, the following
were significant:
 Spares account for 42% of the total inventory

 Emergency purchases accounted for 10% of the total purchases and half of it were
spares
 Capital and Insurance spares accounted for 9% of the total inventory. Most of them
were purchased at the time of purchase of the mother equipment. No drawings or
specifications were available for those spares
 Spares could not be interchanged amongst plants because no two spares matched
even within the same group of items.

 Many of the spares were imported and had a procurement lead time of 9 to 12 months
 Many of the spares were proprietary in nature
 The Maintenance Department was responsible for indenting of spares and they
would even suggest to whom the enquiries are to be sent. The Materials Management
Department never questioned anything – neither the quantities nor the list of
suppliers. After all, the loss of even one day’s production meant crores of rupees
lost!
Director, Purchase immediately realised that spares is one area he must attack immediately
to get results.
Question
Give your suggestions to Director, Purchase for him to implement.

Source: Narayan.P, Subramanian.Jaya (2008). “Inventory Management: Principles and Practices”.
Excel Books Pvt. Ltd.

LOVELY PROFESSIONAL UNIVERSITY 177