Part A (Word limit-1500 words) assignment is case-based please provide:

Executive summary

Table of content

Introduction

Body of assignment (questions related to case need to be answered)

Conclusion / Recommendation if any

References (in-text + citation) to be used.

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Aabid, the Chief Procurement Officer (CPO) of NMD Limited, a leading Public Sector Undertaking (PSU), in Navi Mumbai, was confused. NMD Limited, which had recently received an order for Electro Static Precipitator, was in requirement of a transformer which formed the central component of the order. The Chief Executive Officer (CEO) had insisted that the transformer be procured. Aabid had earlier purchased the transformer from one of NMDs two vendors, Syskateck Industries and Tyco Technocorp, at a dream price. Aabid was unsure of being able to procure it again at the same price. He was expecting the price to have gone up by a minimum of 40 per cent. However, Aabid observed that the management at both Syskateck and Tyco had undergone changes in the recent past and therefore saw an opportunity to seal the procurement of the transformer at the lowest possible price. He invited suggestions from his team members to minimize the procurement price of the transformer. NMD had bagged an order for 250 electro static precipitators by quoting aggressively, as the engineering sector was down in the dumps. The transformer, being the heart of the recently obtained order, formed a good percentage of the total value. NMD had procured a similar component in the previous year from one of its two suppliers. NMD had an in-house manufacturing capability for the above discussed component. Information about its manufacturing option and procurement policy is shared below. Manufacturing Option In one of the divisions of NMD, spare capacity to manufacture the transformer was available. Sourcing the component from within would have led to capacity utilization at NMD. This was considered to be essential by the corporate management since the company was passing through a lean phase with a dearth of orders especially in the division where the transformer could be manufactured and assembled. Although the technology available within the company was slightly outdated, it could still manufacture marketable products. While the item was made up of two discrete components that were hard-wired externally, there were suppliers in the market who could supply an integrated version (with the two components merged into one product). The high internal cost of manufacture, combined with its old design, led to a towering price of 1.04 million per piece. Procurement Policy The procurement policies of NMD were limited as it happened to be a PSU. The company had a written document indicating unified purchasing policy which was followed across various divisions of the company. This procurement policy had its own advantages and disadvantages, both of which have been mentioned below. The major disadvantages were: 1. Procurement of materials could be through tender system only. 2. Orders could be placed only with the bidder who was ranked the lowest (L1) in the tender. 3. Negotiations, if any, could only be an exception. 4. Negotiations could be conducted only with the L1 supplier. The third and fourth limitations were as per the guidelines issued by the Central Vigilance Commission (CVC) of India to which all PSUs were subjected. The major advantages of this policy were: 1. Each division of the company had a well-organized database of suppliers (with records of the supplier performance measured and recorded for each order executed). 2. Purchase enquiries could be limited to the suppliers in the approved material directory of the division. 3. Provision was also available for the company to resort to buying through Reverse Auction (RA), which was considered to be a transparent mechanism for conducting negotiations (electronically), with all the participants in a tender enquiry. Supplier of Vendors One key and major ingredient of the equipment was a special type of oil, which was supplied by only one supplier in the world located in the USA. Therefore, the price element of the equipment with respect to this major item which they had to import was at par since the US based supplier had uniform worldwide pricing for all its customers. The other major raw materials that went into the equipment were copper windings and sheet metal steel. While the price of the copper fluctuated highly, the price of steel had been stable over the past one year. Thus, the overall price of the inputs remained constant for both firms (Syskatech and Tyco Technocorp). Past Procurement In the year 20132014, NMD resorted to buying about 392 million worth of transformers. The procurement was made through the RA process. There was stiff competition in the RA. The RA yielded NMD a saving of about 31.63 million. The average unit price obtained then was 400 thousand. This was what Aabid termed as the dream-price. The RA produced about 30 hits with both suppliers vying with each other for taking the order. The market condition was such that both contenders were starving for orders and an order of 392 million would form a major portion of their order book. Syskatech, one of the contending firms, had a turnover of 531 million in the last year, of which 392 million was from the single order that they had bagged from NMD. Although Aabid was very happy at the price he got during the previous year, he was apprehensive about the quoted price, feeling that Syskatech might end up making a loss in executing the order and therefore he personally and carefully monitored the progress of the supplies which stretched throughout the year. The supplies were slow, but nevertheless it did not affect the operations at NMD. To some extent, in the course of the year, Aabid found the supplies were received on a start-stop-start manner, as Syskatech made a lot of supply and waited for the release of payment by NMD before taking up the manufacture of the subsequent lot. Syskatech was unable to mobilize the necessary working capital for maintaining an uninterrupted flow of supply to NMD. At one point, Aabid had to intervene by talking to a funding agency to extend monetary support (credit) to Syskatech based on the strength of the order placed. The contracted payment term between NMD and Syskatech was 45 days of credit from the date of receipt of the goods. Current Situation While preparing the quote for the new orders, the Chief Marketing Manager (CMM) of NMD, Mr. Chowdary, had a discussion with Aabid as to what price the marketing department should factor in for the transformer. It was Chowdary who shared the data of internal costs of in-house manufacture with Aabid. Chowdary also informed Aabid that, in consideration of the high cost of in-house manufacturing, he had taken a special dispensation from the Divisional CEO to outsource the manufacture of the transformer by buying the item through the purchasing department. As Aabid felt that the previous price was a one-time dream price, he informed Chowdary that the next price would be about +40.5 per cent on the previous price, which Aabid noted, would still have been about 50 per cent lower than the in-house manufacturing price. Chowdary did not agree with Aabid about the raise in the price and insisted that he could only take the current price in his estimates. Since Aabid and Chowdary were not in agreement, Aabid privately approached the CEO. To his dismay, the CEO also insisted that NMD had to acquire the orders somehow. The CEO took sides with Chowdary and overruled Aabids objections. However, the CEO conceded to the fact that Chowdary would not take into consideration the previous price in his estimates but would escalate it by 20 per cent. Aabid was unhappy, but he could not do anything in the face of the insistence of the CEO who went to the extent of saying that Chowdary should be a part of the team and that he was paid to contain the material costs which alone could increase the competitiveness of the company in the market and also led to the profitability of NMD. Knowing it to be a difficult task, as a matter of caution, Aabid had a separate discussion with the Engineering Manager to contain the cost. The Engineering Manager assured Aabid that he would concentrate on reducing the material content (steel) while making the detailed design, so that the anticipated price increase of the transformer could be off-set with lesser steel material input for the overall system. With this verbal assurance from the Engineering Manager, Aabid shared his thoughts with his team and instructed them to keep the price increase to a minimum. He also assured his team that he would be a part of every step of the purchasing process. In the team meeting Aabid recalled that the Chief Operating Officer (COO) of Syskatech had been replaced. The COO was eased out of the company on account of the loss-making order that he had booked with NMD during the previous year. At that point in time, the order book of Syskatech was very lean and the action was taken by the COO with the intention to augment the top-line. However, the management was not pleased with the loss booked by the COO of Syskatech and therefore had asked the COO to leave. Aabid had a gut-feeling that Syskatech would have booked a loss of around 15 per cent during the previous order and shared the same with his team. During discussions, Aabid had a hunch that the management at Tyco Technocorp would also have undergone changes, since both the suppliers were aggressively competing in the market. Supplier Current Status Aabid shared his hunch with Mr Roberto, the Senior Buyer at NMD. Roberto revealed that Tyco Technocorp did not only replace its COO but also the Regional Representative (RR) of its firm. Roberto informed that the replacement had been effected two years back at the top and six months back at the region level as a fall-out of a loss-making order booked by the COO in a government contract. With such management changes at Syskatech and Tyco, NMDs buying team felt that the current COOs would be cautious and circumspect in quoting their prices for the fresh requirement of the company. Options With CPO Aabid invited ideas from his team members for the best approach that should be adopted for the present purchase so that the company could get the material at the optimum price. He said that the options available were: 1. Insist with Syskatech to take a repeat order at the same rate, terms, and conditions. 2. Proceed with tendering and the adoption of the RA process. 3. Go ahead with tendering on paper-mode bidding with the first lowest price taking the order and follow it up with face-to-face negotiations, if required. 4. Place an order with Tyco Technocorp on nomination basis subject to their acceptance to supply the material at the current price levels. In this scenario, Aabid wanted the team to adopt the buying process which would allow NMD to get the best price.

Answer the questions:

1. Who are the stakeholders that may directly or indirectly affect the decision making of procurement?

2. What is the main problem/ challenge that NMD Limited was facing? What were the NMD Limiteds expectations about the price change from the suppliers?

3. What was the dispute between Aabid and Chowdary? What were the assumptions that governed their opposing interests or viewpoints? Was the dispute work-related or personal?

4. What are the interests for each of the two main suppliers? What evidence is there to advocate the existence of these interests?

5. While relying on your analysis of the CPOs embraced strategies regarding their procurement approach with suppliers, what type (s) of negotiations (interest based, finding who is right or exercising power and pressure) NMD is likely to focus on? Justify why each strategy would be undertaken?

6. Based on the case background, propose a price approach by each supplier during the tender process. While considering the financial issues it faced with NMD during the past procurement, what other offerings can Syskatech uniquely propose to ensure it would win the tender?

7. Based on the case background and particularly the manufacturing capability to manufacture in house the desired transformer and its potential to outsource its materials, what tactics can Aabid and his team play on the suppliers to ensure a reasonable price for the desired procured unit? Consider at least one strategy for each type of negotiations approach (Interest based, identifying who is righteous and seeking to exercise power).

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