Integrated LOGISTICES AND SUPPLY CHAIN MANAGEMENT

Integrated LOGISTICES AND SUPPLY CHAIN MANAGEMENT

It is 9.30 a.m. The rays of the early sun are filtering in through the sheer glass that comprises the northeast wall of Akash Ispat Engineering Company Limited's boardroom. AIECL is a 10-year-old medium-sized company having a sales turnover of about Rs 700 crore. The presence of just 6 people has made the room seem larger than it is. Azim Ahmad, a man in his late 50s started his career as an technical trainee who joined the company since its incorporation. At present, he is the chief production manager who always loves his machines and never wants them to be idle. Harbhajan Singh, having a long experience of a public sector steel company is always afraid of sales loss due to stock-out situations. K. Mathur (ED), highly successful, dynamic and proactive, always looks like a dangerous man. Arun Lai, a traditional traffic manager, always offers his justification in quantitative and comparative terms. Kashi Nath, Purchasing Manager, quite a young man possesses a management background from top 5 institutes of India. He always keeps his hands in Mathur's glove and is extremely conscious about inventory cost. D. Sahu, head of finance, a CA, is dedicated to cost reduction.

Past performance of the company has been quite impressive but, since the last two quarters, problems are cropping. Customers are making complaints regarding failure to meet delivery commitments. Transportation costs are increasing. Competition is increasing and demand is decreasing due to an economic slump.

Hence, the meeting is called by the CEO to review the performance in general and inventory and transportation costs in particular along with customer complaints.

K. Mathur: Look at the transportation cost. It has increased by 25 per cent. If continued, it will eat us. We must realize that today, transportation has tremendous cost-cutting potential.

Arul Lal: I know that transportation cost has increased by 25 per cent in the last 6 months but it is mainly due to Mr Nath's policy of JIT inventory system. He never wants to keep inventory. That is why I am not in position to ensure a full-load to transporter at the same time. Quite frequently, I have to opt for more speedier modes of transportation, even air freight, to ensure timely delivery. I am helpless.

Kashi Nath: (Interrupts) Mr Lal, as we are saving a lot by means of this system. I prefer air freights to make sure of getting what I need on time. Azim Ahmad: (Supports Mr Lal and comments) And when I need something, I need it immediatE!l. This JIT is a risky and expensive proposition. We are very late in getting production materials. Unnecessarily, I have to opt for overtime and make use of air freight to meet delivery dates.

Harbhajan Singh: Whatever the problem, we must have an effective pipeline. When I am not getting things in time, how I can meet the sales target? We are losing our image and will soon lose sales. Competition is mounting. Our competitors are now offering ready delivery.

K. Mathur: (Interrupts and says) No more arguments and excuses. I want action towards cutting costs.

Kashi Nath: (Defending himself) The lead-time problem can be sorted-out by a trade-off between sales and production forecasts. I need information earlier. Harbhajan Singh: Customers insist on promised prompt delivery and I am helpless.

Azim Ahmad: Since a long time back, I have been insisting on the merger of purchasing and traffic in order to get closer to production.

K. Mathur: (Quite frustrated) If we want to survive, we have to cut transportation as well as inventory costs.

D. Sahu: I appreciate the great job of Kashi Nath because our inventory-carrying cost is down by about 45 per cent. But, I do agree that transportation cost has increased considerably.

K. Mathur: (Concludes the meeting with his remarks) I partly agree with Azim's idea. But in my opinion, we must have an integrated system for all types of inventory and traffic management.

Mathur further asked Kashi Nath to submit a blueprint within a fortnite to him along with a plan of action.

QUESTIONS FOR REVIEW

1.      Discuss the basic problem domain of the firm along with the situations responsible for the development of the problem.

2.      What should Kashi Nath do?

3.      Should Kashi Nath suggest a L&SC manager? If yes, how can an integrated system be developed to minimize total logistical costs