Hindustan

Chemicals Ltd.1

By S Ramnarayan, and V Nilakant

In October 1988, Prem Gupta, Director (Technology), Hindustan Chemicals Limited, was
appointed member of a task force formed to' improve the mutual functioning of the materials
and the operations departments. The specific directive given to the task force-was to suggest
what action should be taken on the report submitted by the consultants to the Chairman and
Managing Director for improving the functioning of the materials department.

On reading this report, two items attracted Mr Gupta's attention-the "hacksaw blade
syndrome”, and the perceptions of the procurement personnel.

The hacksaw blade syndrome was described by the consultants as follows:

While there was no doubt that the users experienced certain genuine problems in the
materials area, there was also the 'hacksaw blade syndrome', which seemed to
characterize the feelings among users.

A user pointed out that hacksaw blades, though common and frequently used, were not
available in the stores. The consultants followed up with stores immediately and found that
there was adequate stock of hacksaw blades. The user said, “The problem is that even if the
item is available, sometimes the user does not get it.” When asked whether the user had such
an experience recently, he said that he had requisitioned the material in the first week of July
1988 and it was not made available. The consultants checked with the stores and found that
the user had asked for the material in the first week of July1988 and the material had been
issued to him immediately. When this information was fed back to the user he said "You
know, sometimes the quality of these materials is poor." It was found that these blades were
of ISI quality; it was suggested that if the user required something better, he ought to have
specified it in his requirement. The user's response was, "See, the problem may not be with the
hacksaw blades. I was trying to point out to you that we have lots of difficulties with the materials
function."

The consultants also discovered that there had, in fact, been a stockout of hacksaw blades during
June-July, 1987. The stores had raised an indent in December, 1986, for 8,000 nos but got 4,450 nos
in August 1987 because the procurement section took about seven months to dispatch a purchase
order. When this case was narrated to another user he said that the materials were often issued at the
last minute. The hacksaw blade syndrome was really sparked off by the struggle that users have to
undergo to get materials. As much as 60 per cent of their time was devoted to attempts at resolving
materials problems.

The perceptions of the procurement personnel as recorded by the consultants are as follows: -

• 10 to 25 per .cent of the indents were incomplete; sometimes no drawings were enclosed.
• Users did not indicate the criticality of the materials. In response to the question about when
the material was required, a common response in the indent form was, "at the earliest".

1
Source: Vikalpa: The Journal of Decision Makers (Vol. 14, No. 2, 1989, pp 43-54), published by the Indian
Institute of Management, Ahmedabad.
1
 • The materials requirements were not planned in advance. Users did not consider normal lead
times for procurement when they raised an indent.
• Users were generally over-anxious. Once the indent had been raised, they started chasing the
materials department whether it was urgent or not.
• Users did not like any queries from the materials department personnel. They generally
perceived such questions as a challenge to their technical knowledge.

Having read this part of the report, Mr. Gupta was convinced that he faced an uphill task.

COMPANY HISTORY

Hindustan Chemicals Limited was a public sector organization whose plants were set up
between 1972 and 1977 with process know-how and basic engineering from foreign
collaborations. The nine plants of the Company were all located in a town situated 200 miles
from Delhi. The plants produced a variety of chemicals, several of its products being
produced for the first time in the country. The total investment in the plants was of the order
of Rs 4000 million. The sales turnover in the year 1987-88 was Rs 5700 million and the total
value of the materials consumed was approximately Rs.2710 million (See Exhibit 1 for the
income statement and balance sheet of the year 1987-88). The number of employees in the
corporation was 6,220.

Exhibit 1

Income Statement and Balance Sheet for the Year 1987 -88

Income Statement for the Year Ended March, 31, 1988

(Rs. in crores)
(a) Income
Sales of Products (net) 570.2
Other Income 20.5
Total (a) 590.7
(b) Expenditure
Raw Material, Stores, and Spares 270.6
Salaries and Wages 31.2
Other Manufacturing and Selling Expenses 160.6
Interest 7.9
Depreciation 55.7
Total (b) 526.0
(c ) Profit for the Year (a – b) 55.3
(d) Prior Period Adjustments (4.3)
(e ) Net Profit (c + d) 61.0

Balance Sheet as on March, 31, 1988

I. Source of Funds
(1) Shareholder’s Funds
(a) Share Capital 186.0
(b) Reserves and Surplus 226.1
412.1
(2) Loan Funds
(a) Secured Loans Nil
(b) Unsecured Loans 38.8
450.9

2
II. Application of Funds
(1) Fixed Assets
(a) Gross Block 458.4
(b) Less: Depreciation 242.6
(c ) Capital Work- in- Progress 215.8
49.7
265.5
(2) Current Assets, Loans, and Advances
(a) Inventories 109.0
(b) Sundry Debtors 39.7
(c) Cash and Bank Balances 23.7
(d) Loans and Advances 79.2
251.6

Less: Current Liabilities and Provisions

(a) Liabilities 48.0
(b) Provisions 20.7
Net Current Assets 68.7
183.0
(3) Miscellaneous Expenditure 2.4
450.8

THE MATERIALS FUNCTION

The materials department of Hindustan Chemicals Limited was involved in procurement of
materials worth.Rs 2710 million during 1987-88. The materials were of two broad types as
follows.

• Chemicals, fuels, lubricants, and packaging items: The number of such items was low,
but their value was high. About ten items in this category were internationally traded
and experienced sharp price fluctuations. The rest of the items had stable prices. The
import component in this category was 17.3 per cent of the total purchase value of this
group of items.
• Engineering spares, consumables and pipe fittings: The number of these items was
very high, but the value was comparatively low. Most of these items had fairly stable
prices-about 90 per cent could be bought off-the-shelf, while 10 per cent had to be
tailor-made to the corporation's requirements. There was some difficulty obtaining
spare parts for technology obsolete equipment. Imported items constituted about 29.8
per cent of the total purchase value of this category. A majority of the total of 52,201
items handled by the materials department was made up of engineering spares (64.2
per cent) engineering consumables (21.4 per cent), and pipe fittings (12.9 per cent).
Bulk blockage of inventory was by engineering items (61 per cent).

Recoupable and Non- recoupable Items

Materials were classified as recoupable and non-recoupable items. Recoupable items were
standard items which were required by several plants and for which indents (requisitions)
were raised by the stores when the inventory level reached a certain pre-determined level. For
non- recoupable items, indents had to be raised by individual plants to meet their specific
requirements. The materials department was responsible for ensuring the availability of
recoupable items. In the case of non-recoupable items, the plants were responsible for
planning their requirements considering lead time. Recoupable items constituted 55 per cent
of the total number of he required items, and non-recoupable items, 45 per cent. The salient
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features of the items purchased, issued, and in stock are given in Table 1. For details see
Exhibit 2.

Table 1

Receipts, Issues and Stock for Important Groups of Materials for 1987 -88
(All values in Rs crore)

Cumulative Value Closing Stock

Issues Receipts March 88
(April 87 – March 88)
Group of Value Percentage Value Percentage Value Percentage Stock in
Items of Total of Total of Total Months
Consumption
Chemicals 195 72.1 196.1 72.4 15.8 33.3 0.8
Fuels and
Lubricants 60.4 22.3 59.7 22.1 2.6 5.5 0.4
(F & L)
Packaging 3.1 1.1 3.0 1.1 0.3 0.6 1.0
Engg. Spares 7.8 2.9 7.2 2.7 23.4 49.2 32.4
Engg.Consu- 3.0 1.1 3.2 1.2 2.9 6.1 9.2
mables
Pipe Fittings 1.3 0.5 1.5 0.5 2.5 5.3 16.5
Overall 270.6 100 270.7 100 47.5 100 1.7

Data pertaining to the number of purchase orders of different values released between April
and July 1988 are presented in Exhibit 3. Over a period of three years (1985-86, 1986-87, and
1987-88), the level of inventories in number of months of consumption had remained more or
less the same for chemicals, fuels and lubricants, and packing items, but had shown about six
to eight per cent increase in engineering items.

Exhibit 2

Number of Items, Purchases, and Stock of Important Groups of Materials for 1987 -88
(All values in Rs crore)

Number of Items Cumulative Value Closing Stock in

Group Recoupable Non- Total Issues Receipts Value Months
of Items Recou- March 88 Consumption
pable
(April 87- March 88)
Chemicals 262 260 522 195 196.1 15.8 0.8
Fuels and
Lubricants 80 36 123 60.4 59.7 2.6 0.4
Packaging 52 49 101 3.1 3.0 0.3 1.0
Engg.
Spares 19164 14365 33529 7.8 7.2 23.4 32.4
Engg.
Consumables 7021 4166 11187 3.0 3.2 2.9 9.2
Pipe fittings 2444 4295 6739 1.3 1.5 2.5 16.5
Overall 29023 23178 52201 270.6 270.7 47.5 1.7

4
 Exhibit 3

Number and Value of Purchase Orders Released Between April and July 1988

Number of Purchase Orders

Value of
Purchase Order April 88 May 88 June 88
Above Rs 50,000 Imported 33 15 12
Indigenous 106 63 52
Percentage of 31.8% 23.7% 22.5%
Total
(95.2% in value) (91.4% in value) (92.6% in value)
Rs 10,000 to Imported 15 9 13
Rs 50,000 Indigenous 106 72 64
Percentage of 27.7% 24.6% 22.5%
Total
(3.8% in value) (6.3% in value) (5.3% in value)
Rs 5,000 to Imported 5 6 5
Rs 10,000 Indigenous 58 53 45
Percentage of 14.4% 17.9% 17.6%
Total
(0.7% in value) (1.5% in value) (1.5% in value)
Less than Imported 3 5 2
Rs 5,000 Indigenous 111 106 91
Percentage of 26.0% 33.7% 32.7%
Total
(0.3% in value) (0.8% in value) (0.6% in value)
Grand Total 437 329 284

The Buying Process

The corporation had a manual containing detailed instructions on materials policies and
procedures. The important stages of the buying process outlined in the manual have been
presented in Table 2. The time taken to complete all the steps of the buying process varied
from 17 to 4l weeks. This is shown in Table 3. The buying process relied entirely on manual
methods. All the work pertaining to preparation of inquiries, Purchase orders and bank
documentation was handled manually by personnel at the level of assistants and steno-
typists.

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 Table 2
Important stages of the Buying Process
1. Indent 2. Costs given; verification 3. Back to indentor if
availability in stores item is available or for
technical clarification

Originates from plant

for non- recoupable
and stores for
recoupable
5. Inquiries (single, 6. Receipt of quotation/
4. Purchase case given limited or advertised). tenders from suppliers/
Application or licence agents
for restricted items

Copies to plant and

planning and
coordination

7. Opening of tenders 8. Preparation of 9. Application to DGTD

comparative statement. and Chief Controller of
Evaluation of bids. Imports and Exports for
Meeting of purchase import licence (if required
Committee (including
plant and Finance and
Accounts). Formal
Approval of
recommendations

10. Prepare and dispatch of 11. Order registered with 12. Pre- dispatch inspection
purchase order supplier; manufacture of
material; documents through
bank

Copies to plant, planning and

coordination, stores F& A,
inspection, receipt ward,
Delhi office vigilance

13. Receipt of material in 14. Inspection, OC tests, 15. Receipt of material in

receipt ward preparation of goods stores with GRV
receipt voucher (GRV),
Copies to suppliers, F& A,
Plant
16. Issue of material to plant

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 Table 3
Time Taken to Complete the Steps in the Buying Process

Stage (1)---------- (4)------------- (7)----------------------- (10)------------ (13) -------------(16)

2 weeks 6 weeks 3 weeks (Small value 4 to 25 weeks 2 weeks
(Single / items Rs 25,000) depending on
Limited delivery
tender) period
4 weeks (for cases
8 weeks requiring Purchase
(Advertised Committee
tenders) recommendations)

Total 17 to 41 weeks

ORGANIZATION OF THE MATERIALS FUNCTION

The relevant parts of the organization chart have been presented in Exhibit 4. In the
bargainable category, the materials department had 70 storekeepers, 46 assistants, .17 steno-
typists, 10 technicians, 12 drivers and 80 khalasis (a total of 235 employees).

Origin of the Materials Study

User departments had expressed dissatisfaction with the services of the materials department
in different forums. They complained that the materials department was not responsive to
their needs at all and this affected their performance adversely. The materials personnel
tended to highlight the inadequacies of the user departments. In one such meeting, the
Chairman and Managing Director suggested that a study be made of the materials function
and the Director (Operations) and General Manager (Materials) concurred with this proposa1.
A leading consulting organization was engaged to do the study. The methodology followed
by the consultants to diagnose the problem and the important elements of the diagnosis are
reproduced below.

Method of Data Collection

The consultants followed three methods of data collection: interviews, perusal of records and
documents, and observations of people at work sites.

• Interviews of managers in the materials department and in the various user

departments provided a rich source of data. These were mostly in the form of opinions
and feelings. Though the factual content of these interviews had to be validated
through other methods, the interviews gave valuable information about the intensity
of feelings and divergent perceptions about the basic problem among people in the
user and materials department.
• Secondary sources of data such as files, reports and analysis of indents provided
supplemental information about the nature of the problem. The people in the materials
and user departments were very open and frank in their discussions and provided the
consultants with free access to information that they sought.

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 Exhibit 4
Organization Chart

Chairman and Managing Director

Director Director Director Director Director

(Technology) (Personnel) (Operations) (Marketing) (Finance)

Plants

General Manager
( Materials )

Senior Manager Senior Manager

(Engineering Items) (Chemicals, F & L, and
Packaging

Asst. Manager
Material Manager Material Manager (Material Receipt)
(Engg Purchases) (Engg Stores)

1 Senior Materials
1 Asst. Manager
2 Senior Purchase Officers Officer (Receipts)
2 Senior Stores Officers
7 Purchase Officers 3 Stores Officers
2 Asst. Purchase Officers 5 Asst. Stores Officers

Materials Manager (Chemicals) Materials Manager

F& L and Packaging)

2 Asst. Managers
2 Senior Materials Officers 2 Asst. Managers
4 Materials Officers 1 Senior Materials Officer
4 Asst. Materials Officers 4 Materials Officers
3 Asst. Materials Officers

• Observations of people in the materials department at various work sites served to

check perceptions and hypotheses about the organization of work and its
consequences on the materials departments. Both the analysis of secondary sources
and the observations served to validate the perceptions, opinions and feelings of
managers in the user and materials departments.

8
NATURE OF THE PROBLEM

The consultants began by examining the problems in the materials function which were
manifest in two ways. First, the users complained about inordinate delays in procuring
materials, particularly engineering spares and consumables, and the inability of the stores to
provide recoupable items in desired quantities on schedule Second, the materials department
complained about the piling of inventories particularly of non-recoupable engineering spares
and consumables and the increasing indents for non-recoupable items in the recent months.

The core issue seemed to be the enormous load on the procurement of engineering spares and
consumables, and its inability to effectively cope with increasing demands. Hence, one
approach was to examine the ways in which the procurement section had defined and
organized its work and the constraints imposed by such an organization of work on
effectively coping with increased demands.

The second approach was to examine the nature of the indenting process itself and to see
whether the number of indents could be reduced even before they reached the procurement
section. Exhibit 5 shows the nature of the problem as perceived by the consultants based on
the data collected.

The various elements in Exhibit 5 are discussed in the following.

• The inevitable ageing of plants leading to breakdown of old equipment, setting up of

new plants and lack of coordination among user department had contributed to an
increase in the number of indents sent to the materials department.
• At the time of the study, a total of 3,188 indents were pending with the materials
department. It was estimated by the Management Services Department that 52 per
cent of these indents might have a value of less than Rs 5,000.
• The procurement section, however, had not undergone any significant change in the
manner of its working, irrespective of the .fact that its operating environment had
changed rather significantly.
• In addition, there was inadequate manpower, particularly of typists, even to cope with
the existing workload.
• The overall distribution of work in the materials department also seemed to be
lopsided, specially because the stores personnel were relatively under loaded whereas
the procurement personnel were heavily overloaded with work.
• The inevitable result of these increasing pressures and an unchanged organization of
work was that there were huge delays between the time an indent was received and
the time when the materials were actually delivered to the user departments. There
had been occasional stock-outs in the stores with regard to some rather low-cost but
high-demand items.
• These factors manifested themselves in increasing dissatisfaction among user
departments, lower credibility of the materials department and a tendency of each
department to blame the other.
• Consequently, the user departments tended to play safe and indented for more
materials than they actually required. Mini-stores had been created in various plants.
Indents were also given much before the materials were actually required. Materials
which arrived after the period during which they were required were not drawn,
contributing to increase in inventories.
• Given the situation of reduced credibility and increased user dissatisfaction, the
materials department spent its scarce manpower and time· in defending its working,
with the result that these personnel were over-worked, became ineffective, and felt
demoralized.

9
 Exhibit 5
The Nature of the Problem

(1)

• Ageing of plant
• Setting up new plants
• Lack of coordination
among plants

(2)

Increasing number of indents

3(a) (3)

Lack of Unchanged role and working

adequate of the procurement section
manpower (Engineering items)

3(b)

Lopsided
distribution
of work (4)

• Increase in time lags

between in denting and
material supply
(7) • Stockouts in stores

Time spent by (6)

materials personnel
in defending Tendency to play safe by
themseves user departments
(5)

• Dissatisfaction among
users
• Lowered credibility of
department materials
• Lower priority to
stores function

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SOME ASPECTS OF THE PROBLEM

Some of the elements presented in Exhibit 5 have been analyzed greater detail in the
following section.

Divergent Perceptions of the Various Actors

While the users expressed largely negative opinions about the materials department,
interviews with the materials personnel tended to highlight the inadequacies of the user
departments. The styles of dealing with the differences· by personnel on either side appeared
to intensify the conflict.

Perceptions of Users

From the users' perspective, the following problems existed in the materials area:
• In the earlier days, the materials department sent the probable date of compliance of
their requirement to the users. Now, they received no feedback on their indents.
• In the monthly interaction meeting, only the urgent and super-critical items were
reviewed. The plants, therefore, moved from one crisis to another.
• There was 6-8 months backlog of indents. To counter the users' complaints, the
excuse of inadequate manpower was raised in all the forums.
• The users were compelled to make a number of sub-optimal stopgap arrangements
because of lack of materials. They maintained mini-stores without adequate space and
records- "otherwise there will be chaos".
• Because the plants were not sure if the materials department would supply on time,
they overstocked the materials and the inventory levels were pushed up. Sometimes,
the materials arrived after the alternative arrangements were made and so they
remained idle.
• There were too many crash purchases because routine systems did not function
effectively. The users raised indents for even recoupable items.
• As the materials department could not be relied upon to procure materials in time, the
normal tendency among users was to stipulate requirement as two or three months
whereas they required the materials only after 1.2-14 months
• One of the users mentioned that "everyone has his own way to survive in the system."
Managers who were interested in getting things done tended to use their interpersonal
relationships to procure materials in time. However, this tended to personalize a
system which essentially needed to operate on certain clearly laid-down, fixed
priorities and objectives.
• Most users attributed the long delays to the inability of the procurement section to
process an indent. Users believed that the delays were primarily because of large
time-gaps between the receipt of an indent and the despatch of an inquiry. In other
words, the procurement personnel were seen as lax and unwilling to follow-up on
their own. Users complained that in some cases five to six months had passed before
the materials department sent a tender inquiry. The users also complained about
inordinate delays in dispatching purchase orders.

The users seemed to believe that unless they maintained continuous pressure, the materials
department would not deliver. In their view, the materials department had the following
beliefs:

• Unless the user follows up, the indents are not genuine
• If the user has done without the materials for the last two years, he can do without it
in the future.

11
 • If the materials are not issued for some time, the requirements will die down.

Alienation of the Stores Personnel

It was found that there was a great deal of imbalance in the work loads of procurement and
stores personnel. By and large, people in the procurement function appeared to be
overworked and under great stress, whereas the stores personnel were definitely
underutilized.

The stores people also felt alienated from the mainstream of the materials department. They
pointed out that the senior executives of the materials function did not visit the stores. In the
earlier days there were periodic visits by the senior people, random checking of the Kardex
system and weekly meetings with the stores personnel to discuss pending indents. Now, there
was only written communication between the two groups.

Interviews with the stores personnel indicated that there were mutual hostilities and lack of
trust between the two groups. In short, not only were the stores and purchase functions not
working together as a team, they appeared to be working quite at cross-purposes. The
alienation of the stores personnel and function from the mainstream of the materials
department was reflected in the priorities given to indents received from the stores. There
were a number of items which were shown as 'nil stock' in the stores despite the fact that
indents for these had been raised well in time.

The alienation of the stores from the materials department had also, on occasion, led to
communication gaps, as the following case illustrates:

An indent was received in the materials department on 4.2.88 and the inquiry was sent on
1.3.88; the purchase order was mailed on 31.3.88 and the delivery date was specified as
'27.4.88 or earlier'. The vendor dispatched the material on 5.6.88. It was inspected and
received by the stores on 20.6.88. However, the purchase section sent another telex to the
vendor for non-receipt of material on 16.8.88. Clearly, the purchase section was unaware of
the receipt of this material in the stores.

Procurement Problems

It was found that at the time of the study, each purchase officer had about six months' backlog
of indents. The backlog had remained at this high level for some months. The purchase
officers were coping with this problem by resorting 1.0 day-to-day prioritization. The files,
therefore, moved only when followed up by the plants.

The vendor follow-up was particularly affected by the backlog and day-to-day pressures. A
fairly typical case is described below:

An indent was raised on 18.2.87 for a short delivery item valued at Rs 4,000. The material
was required by 15.3.87. The indent was received in the materials department on 13.3.87, the
inquiry was sent on 3.4.87, tender opened on 16.4.87.and order placed on 1.5.87. The Delhi-
based supplier indicated that the material would be sent by 10.5.87. But the supplier wrote a
letter on 14.5.87 stating that he was unable to dispatch the material because of a transport
strike. On 20.6.87, the plant sent a memo stating that the stock position was bad. Promptly,
the materials department sent a telegram to the supplier. On 14.9.87, another oral reminder
was received from the plant and the materials department sent another telegram. On 18.12.87,
a materials officer visited Delhi to review pending purchase orders. He followed up with the
concerned supplier. The supplier promised delivery of the material on 10.1.88. In the

12
meanwhile, there was an angry note from the plant on 27.12.87, stating that the "plant
production will stop unless the material is received."

The above example illustrates that the routine system had no intrinsic momentum. With the
backlog remaining at a high level, procurement personnel had assumed an activity
orientation. With a manual system, the follow-up work suffered and overall effectiveness was
lost.

In the existing system, there was also substantial dependence on the personnel at the level of
typists and assistants. The purchase procedure started at this level and any shortage of
personnel or incompetence at this point adversely affected overall efficiency.

Though a senior executive of the company said that "there is a crying need for
computerization in the materials department," the materials personnel themselves were
slightly reluctant to computerize their operations. In their view, substantial improvements
could be made if a few additional typists and assistants could be recruited.

The procurement personnel also made the following points:

• The department had made a modest beginning with the system of rate contracting
(simplification of the buying process by fixing rates with approved suppliers for a
certain time period). It had covered a few items such as electrical bulbs and fixtures
under rate contracts.
• They were handicapped due to inadequate infrastructural fs.ci1ities such as
telephones. There were also not enough vehicles for materials movement.

• They required greater help from the Engineering Services Department in coordinating
the inflow of indents, reducing variety, standardizing frequently used items and
monitoring the inflow of indents so that the materials department could streamline its
procurement activities and avoid duplication of efforts.

The plants had an imprest account of Rs 3,000 for cash purchases with authority to purchase
individual items up to Rs 500. Some users pointed out that they already used the imprest
account quite often to buy recoupable items and did not want to get into more purchasing.
Some others felt that enhancement of imprest limits could make emergency purchasing
easier.

DECISION-MAKING

Some aspects related to decision-making can be explored in this case:

An indent was raised for cutter blades (weighing 350 g) and the delivery was required by
31.12.87. The indent was received in the materials department on 22.7.87. The purchase
committee met on 15.10.87; the material was to be imported from the United States. At this
stage, the estimated freight charge was indicated as $900 for ocean freight and $1070 for air
freight. Eight officers were required to sign the purchase committee recommendations. The
Director (Operations), who had the authority for approving air freight, received the file on
6.11.87 and suggested that 50 per cent of the material be airfreighted (to meet the urgent
requirements of the plant) and 5(1 per cent be ocean freighted (for ensuring some economy).
In the meanwhile, the purchase department received the actual freight charges: for 175 kg
each of material, ocean freight was, in fact, more expensive. The procurement officer also felt
that ocean freight was problematic for other reasons:

13
 • greater documentation was involved and greater problems of collecting the material;
and
• greater risk of a small package being lost.

But the procurement officer decided to implement the Director's decision. He felt that the
material was required urgently and an additional three weeks would be lost in file movement
if he brought up the fresh developments. According to him, he could not raise the issue
directly with the Director. Perhaps, more important than the poor decision was the fact that
the story had become the grist for the mill. The story was narrated to the consultants by three
executives and negative characteristics were attributed to the organization and the
management.

When the consultants presented this case to one of the Senior Materials Managers, he gave
the following analysis:

• The basic norm of decision making was one of taking the path of least resistance. The
play-safe attitude was also reinforced by the existing pattern of centralization of
authority. Of course, it was also true that the higher management aid not expect blind
conformity to its directives. Initiative was encouraged in the organization, but several
employees preferred to be strictly rule-bound, given the sensitive nature of their jobs.

• Decision-making processes relied heavily on paper exchanges and judgments were

based on fragmented bits of information. When there is greater preference for written
forms of communication over verbal ones (such as face-to-face interaction},'real-time'
exchange of information does not take place. This results in the loss of ‘soft'
information such as feelings. 'There is loss of creativity when it is mainly linear
processes such as paper exchanges that guide decision making, and decisions often
fail to satisfy people because they do not 'feel' right.

• In the existing system, several individuals were required to sign the file without
making any contribution to the decision. For example, the purchase committee
recommendations had to be signed by four committee members. Senior Materials
Manager, General Manager (Materials), Director (Finance) and Director (Operations).
The file movement took three or four weeks for one round. Of course, the file moved
faster in urgent cases; but it was the inefficiency of the routine procedures which
created emergencies/crises.

FUTURE ACTION

The consultants presented their findings to the Chairman and Managing Director in the form
of a report. The Chairman appointed a task force consisting of Director (Operations), Director
(Finance) and Director (Technology) to examine the report and formulate specific, short and
long-term measures for upgrading the functioning of the materials department. He suggested
that the task force should evolve viable alternatives, examine the likely consequences and
propose concrete steps on what should be done, how, and by whom.

14