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Prepared by:
Pankaj Bhagwat-0715104
Vishal Alandkar-0715119
Yagnik Mehta-0715120
þ hhe case study being presented is of one the largest Oil
Refineries in India. Government approved on 11.4.1991
the setting up a 3.0 MMhPA Oil Refinery at Mangalore.
þ hhe project has been implemented by a Joint Venture
Company with Hindustan Petroleum Corporation Limited,
Mumbai and Indian Rayon and Industrial Limited, Gujarat
as Co-promoters.
þ hhe Refinery was commissioned in March, 1996. MRPL
which was a Joint Sector Company become a PSU
subsequent on acquisition of its majority shares by ONGC.
hhe capacity of the refinery was assessed at 3.69 MMhPA
and has been further expanded to 9.69 MMhPA in
September, 1999.
þ hhe organization had the history of carrying huge
inventories, right from project stage.
þ Over a period of time, due to wide variety of vendors, lack
of standardization & planning and non disposal of
unwanted stores, an inventory of Rs. 490 million ( US $
13.6 million ) was being " maintained / managed ".
þ Managing the stores had become a major issue. ho find
one item, one had to remove ten items.
þ Nobody was accountable for inventory build up.
þ Mismatch of computer stocks & physical stocks resulted in
increased downtime, thereby leading to loss of production.
Management wanted to radically reduce the inventory.
 Problems in the earlier pattern

ð hhe organization had the history of carrying huge inventories, right from project
stage
ð due to wide variety of vendors, lack of standardization & planning and non
disposal of unwanted stores, an inventory of Rs. 490 million ( US $ 13.6 million )
was be maintained / managed ".
ð Managing the stores had become a major issue. ho find one item, one had to
remove ten items.
ð Nobody was accountable for inventory buildup. Mismatch of computer stocks &
physical stocks resulted in increased downtime, thereby leading to loss of
production.
ð Management wanted to radically reduce the inventory.
 (A) PLANNING
(A.1) Selecting the Process

ð Inventory, per se cannot be reduced, since it is

a result (Effect) of various Cause factors. ho
reduce inventory, they looked at the processes
responsible for inventory buildup. Hence the
process selected for improvement was
Procurement.
 (A.2) Selecting the Improvement hechniques

ð Considering it was a chronic problem, minor improvements wouldn't have

delivered the results expected by the management. In order to achieve
breakthrough results technique selected was Process Reengineering. Methodology
applied was Westinghouse hechnology for Improvement of Processes (WeshIP). It
is a five day workshop, wherein participants :
ð ͻ Plan for the process to be reengineered
ð ͻ Analyze the current process
ð ͻ Reengineer (Redesign) the process
ð ͻ Develop implementation plans
(A.3) Scoping the process

In order to ensure that improvement effort remains focused, the procurement

process was scoped. While scoping care is taken that process is neither too " long "
nor too " short". If it is too long, then while mapping & analysis it remains shallow
& some critical issues may left unaddressed. On the other hand, if it is too short,
improvement attempted may not impact the business considerably. In the present
case scope of the procurement process was as under : Process begins with :)
requirement Process includes :
1. Prepare indent
2. Raise enquiry
3. Evaluate offers
4. Place orders
5. Receive material
6. Inspect material
7. Stock charge
 (A.4) heam Formation:

þ After scoping the process a cross functional team is formed ensuring

participants are knowledgeable about the current process.
þ Ensure ͞Supplier " as well as " Customer (internal) are part of the team.
Some of the members can be from totally different function to bring in
objectivity.
þ heam members should be creative, bold & willing to take risks & question
the fundamentals.
þ Usually team consists of 6-10 members from middle management &
heam Leader from senior management. hhere have been occasions,
wherein even workmen have also participated as team members.
þ It is the responsibility of heam Leader & team to design & implement
reengineered process & be accountable to " Sponsor " who authorizes the
study & commits resources. In the present case, team consisted of
representatives from :
þ Material Planning
þ Materials Management
þ Maintenance (Indenters)
þ Finance
þ Stores
þ Information Systems Executive Director was the
sponsor. A few other participants from above
departments as Experts were also invited, for short
duration to critique & validate the output.
 (A.5) Sponsor's Expectations

þ ho set stretch targets, Sponsor's expectations

were defined & documented. hhese were:
þ Improve Working capital
þ Profitability & productivity
þ Space in stores
þ Material Planning
þ Simplify process
þ Reduce Inventory
þ Internal & external lead times
 B) ANALYSIS OF hHE CURRENh POCESS

ð hhe current process is analyzed with respect

to :
ð Process Cycle hime
ð Process Cost
ð Value delivered to customers
 (B.1) DAhA

ð Labour cost figures ( Employee cost ) - Rs. 60

per hour
ð hotal number of indents (requisitions) raised -
1800 per year
ð hotal number of Purchase Orders issued - 1800
per year
ð Stores (Other than spares) - 151
ð ë8 Cold Rolled Steel coils
 (B.2) PROCESS MAPPING

ð Purpose of mapping is to find out:

ð Why do we?
ð Why in the same way ?
ð Issues affecting tasks
 WHAh ARE hHE ISSUES?
ð Hands on hime (actual time taken to complete the task)
ð Elapsed time (hotal time elapsed including interruptions)
ð Costs (material, inspection, communication etc.)
ð Who performs the task ?
hhe current status of the process was :
ð No. of steps in the process 51
ð Elapse time 306 days
ð Employee Cost Rs. 13,121 (US $ 365)
ð No. of signatures for various 60 approvals
ð Value delivered to customer* 63 ( out of 100) (Customer
satisfaction index)
(B.3) KEY ISSUES

ð Excessive bureaucracy
ð No compliance to order terms by vendors
ð Discrepancy in physical & computer stocks
ð Limited computerization
ð Incomplete indents
ð Vendors offers received by fax not accepted
ð Incomplete & incorrect invoices
ð Poor storage facilities
ð Material indented & purchased but not used for years
 (B.4) PARADIGMS

ð Paradigms are the boundaries of beliefs of the team

members within which ,according to them, the
organization operates.
Some of the existing paradigms identified were :
ð hoo many signatures will ensure control
ð Be safe - involve all
ð Servants of system /rules (rules cannot be changed)
ð Lowest bid is the best & safest
ð Inventory management is Material Management
department's responsibility
(C) DESIGNING NEW PROCESS
(C.1) Stretch hargets

ð Reduce Elapse time from 306 days to 90

days

ð Reduce cost of indenting &procurement by

50 %

ð Variety reduction 10 % every year.

(C.2) Good Ideas

ð Procure only what is needed

ð Value engineering & standardization
ð Integrated computerization
ð Payment against document/ delivery of
material
ð System to write off obsolete & surplus items
ð Rationalize vendor base
(C.3) Reengineered Process

ð Computerization linking Indenters,

Purchase, Stores, Finance
ð On line vendor rating system
ð Evaluation selection & monitoring of
vendors
ð Enhanced authority for Management staff
to place purchase orders
ð Minimum signatures
(E) IMPLEMENhAhION

ð Develop vendor rating system & building

vendor database
ð Develop a system of indent planning
ð Design information technology solutions
ð Identification & disposal of surplus
materials
ð Increase number of annual rate contracts
ð Revision & delegation of authority of
management personnel
 (F) IMPLEMENhAhION BARRIERS

Increased accountability & responsibility ( lesser

signatures)

Strategy adopted to overcome the barriers were:

þ Massive communication across the organization
þ Identified who were supporting, opposing &
fence sitters in the change process.
þ Intervention by top management
þ Regular monitoring of progress of Quality
Improvement projects.
 (G) SOME BENEFIhS

þ Savings of approx. Rs. 11 million (US $ 0.3 million)

þ Reduced inventory with reduced inventory carrying
cost
þ Process automation , fewer process errors, ease of data
collection.
þ Better stores management, additional space
þ Lesser inter departmental conflict
þ No. of steps to complete the process down from 51 to
16
þ Elapse time down from 306 days to 123 days
þ Reliable vendors with minimum follow up
þ Smoother plant operation