CASE 1

TKB Ltd. is a project-based manufacturing company with turnover of about 1,500 crore Rs. Per year. The
company’s sales have grown 4 times in last 3 years. The company has been recognized as a good project
company and is mainly engaged in engineering projects. The company has been doing well in this field and is
considered among top companies in their segment. TKB Ltd. has been losing goodwill recently. The company
has been completing most of the projects in time in past. Recently most of the projects are getting delayed.

The company has received enquiry from NTT Ltd. for supply, erection and commissioning of the machinery for
cement factory. The company has prepared an estimation of Rs. 200 crores and given time estimate of 12
months. For similar type of work, the company had earlier taken 14 months. The client for discussion has called
TKB. Since TKB is considered as technically good and TKB has got an indication that the cost estimate is also
in line with what client has received from others, TKB is quite confident of getting the contract.

During the meeting between Mr. Rao of NTT and Mr. Kumar who is the marketing head of TKB, the
discussions unexpectedly started with client’s questioning on time and cost estimation given by TKB.
Mr. Rao said that he would have liked to go with NTT Ltd. for the contract but is not able to accept their time
estimates at all and felt that even cost estimations are on higher side but his main objection was on time frame.
He wanted the project to be completed in 8 months. Mr. Kumar explained that this time frame of 8 months is
not possible as already 12 months time estimate is quite less compared to time taken for similar project last
time.

Mr. Rao, told Mr. Kumar to look at time estimate again and told him to confirm the time schedule of 9 months
and as regards, cost estimate, he expects 5 % reduction. Mr. Rao has given 3 days time to Mr. Kumar to
confirm.

Mr. Kumar has been thinking whole night about all the possibilities to reduce time for each activity but he felt
that best the company can do is try to complete the project in 11 months that is if no problems arise in the
project. Mr. Kumar is also worried about the heavy penalty clause of the contract for delay.

Mr. Kumar next day briefed the situation to the Mr. Kelkar who is the Managing Director of the company. The
managing director felt that considering the market situation they would not like to lose this contract but at the
same time is worried about the possibility of non-performing. Mr. Kelkar decided to review this situation with
all the concerned departments to find a solution to this situation.

During the meeting the team looked at time estimates as per following:

Activity Time in
Weeks
Designing 10
Engineering 6
Procurement 6
Manufacturing 10
Transportation 4
Erection 4
Commissioning 2

The team felt that this is the best that can be done. Based on this, the total number of weeks required is 10
months. Mr. Kelkar is not able to accept this and is looking for some better method for time management. He
has suggested to do time estimation on the basis of concurrent model where certain part of activities can be
done parallel instead of sequential model and is quite confident that if they go for this model, the project can be
completed in 9 months.
The team feels that the concurrent model doesn’t work as during the project lot of changes occur and due to
this, the entire work done becomes futile and they have to do total rework which results in more time and cost.

1. What should the company do? Accept the contract or regret?

Ans: The company should accept the offer due to following reasons:
 Looking at the market situation the company should not lose the project
 As per Mr. Kelkar’s analysis of the situation, with the help of concurrent model, the project
could be completed in 9 months, which goes with the client’s requirement.
2. What are the concurrent and sequential models? What would be the advantages and
disadvantages of each of them?
Ans:
Sr. Sequential Model Concurrent Model
No
Traditional sequential model is the term used to Concurrent engineering is an approach developed to
describe linear product development processes, eliminate some of the issues with the Sequential
where design and development steps are carried method. There are many advantages to concurrent
out one after another focusing on one field of engineering where different departments work on the
expertise at a time. different stages of engineering product development
simultaneously while designing and developing new
engineering products.
Advantages
1. Easy to track progress and understand the It gives immediate feedback from testing.
requirements of the project and processes
2. It is well defined for each team member or It provides an accurate picture of the current state of
department a project.
3. Simple to understand and avoids Takes less time to complete the project with this
misinterpretation methodology
4. It is an imposed discipline approach that takes Better accuracy and client satisfaction can be
away any misunderstanding achieved, which would be helpful in gaining
goodwill
Disadvantages
1. Increased product cycle time because of the It needs better communication between the team
rework during the latter stages members. This may not be achieved all the time
2. Change requests from others in the latter stages It requires to remember the status of the different
are often very expensive and difficult to manage activities
3. Client satisfaction cannot be achieved if any
changes in the project are asked to make by the
client
4. Less flexibility to make changes

3. How will this be done using MS project?

Ans:
 CASE STUDY - 2

ABC Ltd is located at Pune engaged in manufacture of heavy engineering machine for
domestic market as well as export market. They are well known for their quality and
competitiveness. They have recd. a huge order of Rs. 40 Crores from one of their
prestigious clients which requires 20 vessels. For the tubes of these vessels, they have a
regular supplier XYZ Ltd. who has been supplying for a long time. The supplier gives good
quality and competitive price. For these vessels also, Mr. Prakash, the purchase manager
of ABC Ltd. has placed order with XYZ Ltd. with staggered delivery dates ranging from 31
July 2007 to 28 March 2008. Each of these jobs requires Stainless Steel tubes as one of
the components in assembly. These deliveries were given based on ABC Ltd.’s production
programme to match contractual delivery dates committed to the customer.

Another reason for deliveries in stages was the high cost of tube which is about 13 crores.
ABC ltd. wanted to avoid high amounts of cash outflow in the initial stages as that would
increase the duration of our working capital requirement. Working capital requirement is
financed by borrowings from banks at 15 % p.a. interest.

To manufacture tubes, XYZ Ltd. supplier has to buy raw material in the form of Stainless-
Steel strips & round bars. In the last 3 years there has been significant volatility in the
prices of these raw materials. Generally, there has been an uptrend but the rises have
been in sudden steep climbs rather than a uniform increase. This makes it impossible to
predict the prices. Order from ABC Ltd. for tubes was placed with a fixed price without any
price variation clause. ABC Ltd. is forced to do this as their customers do not accept any
price variation clauses in orders placed on us.

In order to hedge himself from price rise, XYZ Ltd. procured strips & bars for complete
order at the same time. As he had invested in the raw material, he went ahead with
production. Since first week of April 07 he is requesting ABC Ltd. to take all deliveries
between end April to end July. That means he would deliver most of the tubes 1 to 4
months in advance. XYZ also wants to invoice against dispatches!

If ABC Ltd. accept his request, they will have to bear huge amount of additional interest
(more than what was planned for) on working capital. Moreover, it will require large amount
of space to store these tubes (about 60,000 tubes – 7 mts. long). There is also a risk of
damage to tubes while in storage.

XYZ Ltd. is the only approved vendor in the “Approved Vendor List” for tubes. ABC Ltd. is
dependent on him & have placed orders for other projects as well. XYZ is pleading with
ABC to accept deliveries & make payments as he does not have the financial strength to
keep so much money locked in WIP.

What should Mr. Prakash do?

1. How will it affect the project?

2. How will you incorporate in the project?
3. Suggest ideas to tide over the immediate problem & to avoid this situation in future.