Case 1: PURCHASE DECISION (Mr. J M Shah)
Prof. J.M. Shah was the Head of the Department of Mechanical Engineering, Birla Institute of Technology and Science, Pilani. He was a conscientious teacher, fully devoted to academics. He believed that students must work hard to become successful in their future life. But in spite of a tough exterior, Prof. Shah loved his students, since he himself had no children. The student community at Pilani, thus, had a very peculiar love-hate relationship with Prof. Shah. Suddenly, there were rumours of Prof. Shah being tipped to become the Vice-Principal. His training to handle the administrative work had begun. Much more paper work started coming to Prof. Shah, which he totally disliked. One day, Prof. Shah was summoned by the Principal and told that, ‘To become a Vice Principal, you must not only learn to handle paper work, but also financial and purchase tasks. It is, therefore, in your interest to also deal with the purchase of a new boiler for our laboratory;’ Prof. Shah would have liked to say that he had never bought even a pair of socks for himself, but only said, ‘It will be a bit difficult, but I will try; Sir.’ The Principal smiled and concluded that the task must be completed before the commencement of the next academic year.
Prof. Shah faced a number of aggressive salesmen during the next two months. He listened with rapt attention to every visitor without making any commitment. He took extensive notes and by the end, he had started asking searching questions. Keeping the deadline for the completion of the task in mind, Prof. Shah had decided that the decision must be made during the free time he would have during the Diwali mid-term break. Prof. Shah diligently read all the literature received from the companies as well as his notes made during these holidays and also consulted the maintenance staff. As a first step, Prof. Shah ruled out two companies which were just not in a position to complete the task before 1 July, the following year, the date of commencement of the next academic year. This left only three companies in the race. Finally, Prof. Shah prepared the following table of comparative merits of the three suppliers. He called these A, B and C so that the decision was not coloured by the names of the companies. He replaced financial data with hypothetical monetary units and also replaced the name of the item being purchased from ‘boiler’ to ‘the system’.
Prof. Shah felt very happy at being able to convert the problem into a numerical question. The quantitative analysis would be fully scientific and his purchase decision unquestionable. However, at this stage, he decided to call his favorite student Roy, who was then studying for his MBA. Prof. Shah handed him the above chart and directed him to prepare logical recommendations.
Question 1: Place yourself in the shoes of Roy and prepare a statement for the purchase of the boiler or submitting to the Principal.
Case 2: Purchase of Steam Generator
NileshWable was in-charge of buying capital equipment in Bharat Heavy Machinery Ltd, manufacturers of construction and mining equipment. Part of Nilesh Wable’s duty was the rental of shop equipment as well as the purchase of new machinery. He was surprised to receive a requisition from assembly shop foreman, for a Rs 90,000 steam generator.
Nilesh Wable knew that steam generator was only required for an occasional cleaning job. In the past it had been a practice to rent one from a local firm. When Nilesh Wable asked the foreman why it was necessary to buy the generator, he answered, ‘that is none of your business. The Works Manager has approved the requisitions.’ When Nilesh Wable asked the Works Manager for an explanation, he replied, ‘I do not care whether the equipment is bought or rented so long as my foreman is happy with the arrangement.’
On checking the records, Nilesh Wable found out that over past 4 years the local firm (R.R. Equipments) had always supplied a good quality generator on time, whenever requested. Current rental charges for the equipment were Rs 750 per day or Rs 3,000 per week. Delivered and picked up by the firm. Annual usage during the last 4 years had been as follows:
The purchase requisition asked for immediate delivery since a cleaning job was scheduled for the following week.
Question:-
Q.1) Analyze the case and give your comments.
Case 3: Unethical Practices in Purchase
Deckor India Limited
‘Here is a list of our suppliers Sir,’ said Marwha while pushing the source register in front of Mr. R.P Singh, the newly-joined purchase executive. Mr. Marwha, the Purchase Officer, had been looking after the purchase for quite some time as the post of Purchase Manager had not been filled. The reasons for this were not known in the department. Singh went through the names and instructed Marwha to call the suppliers one by one so that he could talk to them. He gave Marwha a week to arrange meetings 3 to 4 suppliers a day.
‘Some of these you can meet just now, Sir,’ said Marwha.
‘Just now?’
‘Yes, Sir! The owners! proprietors partners of many firms are also our own employees. I have only to run round the shops and offices and get them here.’
‘Are you serious?’
‘Very much, Sir. Here are a few examples: Our requirements of autoparts are being met by the supervisor working in our autoshop. A union leader owns a workshop and does the subcontract work for us. Stationery is being supplied by our head clerk. An accountant owns two- and four-wheelers, which are regularly retained by the company to collect and deliver material from/to suppliers, plants and transporters’ godowns. Gaskets and plastic caps are being supplied by an employee in the grinding section. A purchaser assistant has put up a plating shop in the name of his brother and invariably, jobs are routed to him for surface treatment. Same way, a number of other examples can be given. Should I call some of them now?’
R.R Singh interrupted, ‘My God!’
‘Why, Sir! What happened?’
‘Things seem to be in more mess than I imagined. Don’t you know, Mr. Marwha, that buying from employees is against the basic principles of scientific purchasing?’
‘But this has been buying policy all along,’ argued Marwha. ‘Please give me the register here, Mr. Marwha’, said Singh ‘and I shall let you know what is to be done.’
Singh studied the register in detail and wrote a long confidential memo to the Managing Director.
Questions:-
Q.1) Do you, like the purchase executive, subscribe to the view that employees should not be the suppliers of the company?
Q.2) Draft a memo to the M.D. against the current policy.
Q.3) How can the existing policy be reversed without causing bitterness?
Case – 4
Dynamic Electrical Engineering Corporation
One evening, the following conversation crossed abruptly between a junior buyer and the managing director of the above company. ‘Good night, Mr. Modi!,’ called out the bright young man as Mr. Modi was slowly walking to his reserved parking space.
‘Good night . . . er,’ Mr. Modi sputtered, as he could not remember the name of these young fellows who changed so often in his company’s buying department. But Mr. Modi stared at the young man trying to squeeze a large ‘EXCEL TV’ package into the back of his car. Mr. Modi was not so much suspicious as he was curious. As a man of principle, Mr. Modi did not think badly of others. But the Excel Electronics and Components were one of their suppliers and Excel’s boxes were a familiar sight at their receiving bay.
Mr. Modi thought again about the incidence the next morning and walked straight into the Chief Buyer’s office and made discrete enquiries. Mr. Ajit Singh, who was the Chief Buyer of the company was, however, ready to discuss the matter quite openly.
‘A gift?’ retorted Mr. Modi.
‘Yes Sir, that’s right.’ Repeated Mr. Singh.
‘Excel has made this special offer to electrical goods buyers. If we doubled the order size last month and paid within ten to fifteen days, they offered the product buyer a choice of gifts. I got a stereo the same way from them last year. I have chosen a portable TV for you this year.’ Mr. Moth was stunned, ‘Does it happen quite often?’
‘Quite often’, replied Mr. Singh, ‘many companies are now making special offers to buyers. I encourage my buyers to take advantage of’ this special deal. Our stationery buyer last year got two weeks’ holiday at Darjeeling as a part of such a special offer.
‘You see here’, said Mr. Moth firmly, ‘I don’t like my company’s reputation should be jeopardized this way, by bribes.’
‘Not bribes Sir,’ retorted Singh angrily, they are legitimate gifts and part of Excel’s sales promotion efforts, made quite openly to every buyer.’ After a little pause, Singh started explaining, ‘Our company has saved a lot of money as a result of such deals since bulk orders usually command high discounts. And what is more, I do not buy anything beyond our requirement. The way prices are soaring, we can’t lose this amount’.
‘You obviously do not worry so much about the cost of stocking or cash flow problems, do you?’ countered Modi. ‘If Excel wants to increase their sale or get earlier payments, they should offer more liberal discounts.’
‘Our suppliers say that a lot of companies are approaching as a means of giving their employees a tax-free bonus,’ sighed Singh.
But Modi was firm, ‘Well, I won’t have it here. I don’t like buyers of my company to be influenced need by gifts he told Singh quite frankly. ‘I think you are not questioning my integrity,’ interrupted Singh, who was not convinced by Modi’s self- righteousness. ‘I am not at all influenced by these gifts. They are good incentives to my buyers. These have cut employees’ turnover in my department at no cost to this company. I think these perquisites are a buyer’s commission, a natural reward for buyers.’
‘Our sales people work on commission, not to mention all kind of free entertainment at company’s cost. Why buyers can’t profit from their efforts? I think we contribute as much to this company’s profitability and still my buyer’s pay is much lower than that of any salesman. And yet you are complaining about a buyer taking home a TV’.
Modi had to agree that Singh was an honest man and running his department efficiently. He had cut costs by 5 per cent last year; delivery time for critical items had been greatly reduced despite scarcity. Still, he felt that allowing employees to accept incentives from suppliers is il1advised. On the other hand, if he demanded to put a stop to it, he might well face a revolt within the buying department of his company.
Question:-
Q1: Do you think this practice of accepting gifts from suppliers is ethical or unethical? How can you classify some activities as distinctly ethical and some unethical? Define a policy/a procedure for accepting gifts by buyers from the suppliers.